Mourning the Bard.

Photographer: PIOTR WITTMAN/AFP/Getty Images

Shakespeares Need Free Markets, Too

Victoria Bateman is a fellow and lecturer in economics at Gonville and Caius College, Cambridge University.
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With celebrations underway across the globe to mark the 400th anniversary of William Shakespeare’s death, the arts are as popular as ever. And yet, in an age of government cutbacks, the inevitable grubby question arises: Do the arts provide taxpayers with value for money?

Last week, the U.K.’s Arts and Humanities Research Council published the results of a three-year attempt to answer that question. They tried to measure the benefits of public spending on the arts, from the impact of prison theatrical groups on reoffending rates, to that of school-based arts activities on student exam performance. Not to put it too unkindly, they came up empty.

But perhaps the council’s report was trying to answer the wrong question. The better one is whether there may be more effective -- and cheaper -- ways for governments to support the arts than through public subsidies.

There is no doubt that the arts are worth supporting, especially in the Bard’s home country. Artistic endeavors, including in fashion, music, broadcasting and video games, are the big earners of the future. The creative industries account for about 5 percent of the U.K.’s gross domestic product, ahead of Europe’s 3 percent, and they are expanding fast. According to the British Department for Culture, Media and Sports, the gross value added by creative industries grew by 6 percent a year from 1997-2014, compared with 4.3 per cent for the wider U.K. economy. Job creation in these industries grew at two and a half times that of the rest of the economy. 

Not only would such an outpouring of creativity be difficult to imagine without numerous public museums, galleries and theaters, but a thriving arts sector may also be a requirement for urban economies to thrive more generally.

In a recent paper, Olivier Gergaud, Morgane Laouenan and Etienne Wasmer studied more than 2,000 cities in 30 countries over eight centuries, in an attempt to uncover the drivers of successful city-level expansion. The authors used online biographies to compile a database of 1.2 million notable individuals, from Shakespeare to Karl Marx and Michael Jackson. Linking these figures to the urban locations in which they lived and worked, the researchers found a positive correlation between the number of entrepreneurs and artists who lived in a town, and its economic growth in the decades that followed. By contrast, they found a zero or negative correlation between growth and the number of prominent military, political and religious figures present.

As I argued in a speech last month, post-industrial cities have used art and sport to regenerate, channeling social discontent and economic decline into more productive directions. In the case of Manchester, England, this gave rise to world-leading rock bands, new fashion labels and a vibrant creative scene. The city’s return from the long decline of its cotton industry began in the 1980s, producing bands such as The Smiths and later Oasis, as well as the huge sporting success of Manchester United and regeneration around rival Manchester City’s new soccer stadium. Meanwhile, the gritty “Kitchen Sink School” films and drama that Manchester produced in the 1950s and ’60s have given way to the 200-acre Media City development, tempting the British Broadcasting Corporation and private TV studios to relocate thousands of jobs there since construction began in 2007.

If it makes good economic sense to encourage the arts, how to do it when they are losing the competition for government budgets against priorities such as health and education? The Confederation of British Industry has set out other kinds of practical help that states can provide to support the creative industries, including stronger property rights, lower taxes and better digital infrastructure.

Property rights stimulate creation by allowing inventors to capture at least some of the rewards of their endeavors. Governments can go a long way to help the arts by acting to minimize the online infringement of intellectual property rights, such as pirated content.

When it comes to tax, the Laffer Curve appears to be at work, with a lower tax rate generating higher revenues for the government. According to the British Film Institute and the advisory firm Oxford Economics, movie production in the U.K. would be 71 percent smaller were it not for the tax relief available for filmmakers. Crunching the numbers for this particular case suggests that each pound spent on lowering the tax bill has rewarded the exchequer at least four times over, through the greater growth in the film industry that it has generated. 

In addition to property rights and low taxes, the CBI said the creative industries need continued improvements in digital infrastructure in order to progress. True, the U.K. ranks seventh out of 28 European Union countries, according to an EU index that measures indicators such as broadband connectivity, Internet use and digital skills. But it also risks falling behind; its infrastructure is developing at below the average speed for the index. Natural monopolies, such as British Telecom, whose Open Reach unit owns the nation’s phone cable network, can present hurdles to digital development. Government regulators can help by preventing any abuse.

It shouldn’t come as a shock that market based solutions can play an important role in stimulating the arts, even if subsidies do still matter. What entrepreneurs and artists have in common is that they need the freedom to break down existing barriers, so they can walk on new ground. Shakespeare certainly benefited from patronage, but his theater troupe was a business, and he gained from living in a country that was opening its eyes to the benefits of market exchange and individual freedoms. That’s worth remembering today.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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