Anderson (2009) Economics of Creativity
Transcript of Anderson (2009) Economics of Creativity
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Chapter 5
Economics of Creativity
Ake E. Andersson
5.1 Division of Labor by Comparative Advantage or Creativity
Most of us have got an education adapted to the demands for specialized laboremanating in industry or public administration. Most of the jobs have been decided
according to the basic principle of division of labour, generating productivity of
the work. According to this principle the worker should be specialized to perform
certain highly specialized tasks without any greater space for improvisation or
change of work routines. Adam Smith (1776, 1904) argued strongly in favour
of a far-going division of labor (or specialization of the workforce) as a way of
achieving growth of productivity. However, Adam Smith clearly saw the potentialconflict between creativity and productivity by division of labor and specialization
of the work force:
In the progress of the division of labor, the employment of the far greater part of those wholive by labor, that is, of the great body of the people, comes to be confined to a few very
simple operations; frequently to one or two. But the understandings of the greater part ofman are necessarily formed by their ordinary employments. The man whose whole life isspent in performing a few simple operations, of which the effects to are, perhaps, always thesame, or very nearly the same, has no occasion to exert his understanding, or to exercise hisinvention in finding out expedience for removing difficulties which never occur. Henaturally loses, therefore, the habit of such exertion and generally becomes as stupid andignorant as it is possible for a human creature to become. (Wealth of Nations, II)
The industrial society became based on a far-going division of labor and a hierar-
chical organization of the firms. Research and developmentbecame a sort of tinkering,oriented to improvement of the techniques for producing a given set of goods.
Creativity was looked upon as a social side-activity for artists, scientists and inventors.
The first stage of an upgrading of creativity was to occur during the Second
World War, when decision-makers realized that at least chemists and physicists
A.E. AnderssonJonkoping International Business School, Jonkoping Universitye-mail: [email protected]
C. Karlsson et al. (eds.), New Directions in Regional Economic Development,Advances in Spatial Science, DOI: 10.1007/978-3-642-01017-0_5,# SpringerVerlag Berlin Heidelberg 2009
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were of value in military projects. The largest example was the Manhattan
project, within which scientists were organized into secret research groups with a
mission to transform the knowledge of theoretical physics into an atom bomb
(Fermi 1954/1994). On the basis of this experiment in organized creativity Ameri-can think tanks became a way of improving the cooperation between creative
scientific research and the development and innovation of new products in the
post-war American industry.
A real integration of creative research and technological development was,
however, not realized before the end of industrialism in USA and Western Europe.
In the early 1970s Daniel Bell (1973) formulated a scenario describing a new
postindustrial society. It was based on the observation that manufacturing industry
in USA and Western Europe had already seen its employment stagnating and even
declining. It became obvious that the highly industrialized societies could no longer
expect an increasing employment in the production of material goods.
Many of the analysts of the 1970s expected service industries to become the new
guarantee of full employment. Few analysts expected creativity in science, techno-
logical research and development, design, entertainment and arts to become animportant factor explaining growth of real income, employment and general wel-
fare in the postindustrial society. Real developments in the structures of some
regions, e.g. San Francisco Bay with Silicon Valley, Route 128 around Boston,
Massachusetts and Cambridge, UK, saw a new type of interaction between creative
scientists and industry, indicating a new role for creativity in the economic system.
In recent decades the role of creativity as a factor of economic development has
been realized in somewhat surprising directions.
First, there has been a rapid increase in resources allocated to scientific research.
The number of science articles published has been increasing at approximately 7%
annually since 1975 (Andersson and Persson 1993).
Second, industrial research and development (R&D) has become a strategic
factor of growth policies among firms and governments of OECD-countries since
the 1960s. This development has triggered numerous scientific papers on theinterdependencies between R&D and economic growth (see, e.g. Uzawa 1965;
Shell 1966; Romer1986).
Third, there has been a remarkable growth of the entertainment and arts acti-
vities, called Creative Industries by Richard Caves (2000). According to recent
statistics consumption of such goods and services has risen to more than 15% of
total household consumption in Sweden.
5.2 Mechanisms of Creativity
Creativity is a process based on a capacity. As a process it is dynamic, because
creativity always means the emergence of something genuinely new. Discoveries
and inventions are outcomes of a creative process. Discovery is based on a capacity
to find patterns in a seemingly chaotic world. The real creative capacity lies in the
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ability to comprehend and explain the mechanisms generating such patterns.
The detection of a hidden pattern and its transformation into something meaningful
is often something suddenly occurring in the brain. The mathematician I. N. Stewart
and the psychologist P.L. Peregoy (1983) have, shown by a series of experiments,how the brain can discover a hidden structure. With this experiment they can support
the claim that the brain ought to be represented as a non-linear dynamical system.
Using Fig. 5.1 they were able to show that the perception of a man is suddenly
changed into a clear perception of a woman after three to six steps from left to right
and the perception of a woman is suddenly transformed into a perceived man, when
starting from the right and moving three to five steps to the left.
Inventions and discoveries are different names of the created ideas. An invention
mostly starts by perceiving a structure and later suddenly realizing that below this
Fig. 5.1 This implies that the brain has the tendency to be anchored in the original perception andneeds a certain excess supply of information before it can give up the initial interpretation in favorof a new. There is certain stabilization in the already known. Expressed differently, creativityrequires a certain degree of instability of the brain. Such instability is evidently there in all of us
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surface structure there is a more important deep structure that can be used in the
formation of a new principle of composition to be used as an instrument of
generating inventions.
Margaret Boden (1990) has proposed a subdivision of creativity into differentclasses. The first class of creativity implies the invention of a completely new
principle of construction, composition or set of concepts, providing a new structur-
ing of some problem area. This type of creativity is fundamental or infrastructural.
The other type of creativity is built on variations of themes given by a given creative
infrastructure. A few examples suffice to clarify the differences. Schoenberg was
the creator of the most important principles of composition of 12-tone music and
would consequently be seen as the creator of the infrastructure of modernist music.
In contrast Anton Webern and Alban Berg would give examples of variational
creativity in their application and further development of the original new princi-
ples of composition as created by Schoenberg.
When applied to painting, the same principle would imply that Cezanne is the
infrastructurally creative artist within modernist painting, while Braque and Picasso
would be the most important painters in terms of variational creativity on this basis.In science an example is Inequalities by Hardy et al. ( 1934). Reformulating
many mathematical equations as inequations they formed a basis for much of the
developments in mathematical programming developed and innovated in the 1940s.
In this context George Dantzig and Harold Kuhn with their formulations of linear
and non-linear programming would be examples of variational creators. It ought to
be stressed that there is no obvious qualitative distinction between infrastructural
and variational creators, except in terms of the potential of further developments on
the basis of the infrastructural creators.
5.2.1 Creative Capacity: Acquired or Inherited?
Are all people born creative? There are certain indicators that creativity is not a
genetic deviation from the normal but rather a general human capacity. One
indicator is the development of the capacity to speak. Already in small children
completely new spoken sentences are created. Even the smallest child can create
completely new linguistic constructions in their communication with other children
and adults. Sometimes they even seem surprised at their own linguistic discoveries
and inventions. The capacity of linguistic creation seems to develop by social
interaction throughout the life span.
The concentration of musical and pictorial creativity onto a minority of the
population might just be a consequence of too little of daily training during the early
years of childhood. Most of the creative musicians and other artists have had the
benefit of an education in the arts from their earliest years. Surprisingly many artists
have grown up in an environment rich in artistic activities. Simonton ( 1984) hasused extensive empirical material to show that the early exposure to scientifically or
artistically creative personalities is of importance for creativity of young people.
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The formal schooling of children does not generally compensate for the lack of
artistic and other creative inspiration in the homes of children. In contrast most
educational systems in the old and new industrialized countries have been oriented
on diffusion of already well established knowledge later to become useful inmanufacturing firms or bureaucracies. This implies that schools have primarily
been oriented to the development of discipline and adaptation and to the need for
cooperation in groups with specified problems to be solved as rapidly as possible.
The education before the university level is rarely oriented to formulation of
problems independently and to the generation of different ways of solving such
problems. Rather, most education is oriented to learning techniques of how to
solve already formulated problems in a way, pleasing to the teacher. The learning
of already developed techniques has been favored at the expense of a loss of
creativity already during the elementary school years.
Gudmund Smith (1990) has in his studies of the psychology of creativity found
that the development of creativity during the years of childhood and adolescence
follows a typically cyclical pattern. During some of these cyclical periods learning
is favored and absorption of education is easy, while in other periods creativitydevelops rapidly. The ages of development of creativity seem to be between 5 and
7 years, 1012 years and 1719 years of age. In most industrial countries the latter
two creativity peaks seem to be used by the schools for intensive teaching and
examinations, curbing the development of creativity. Smith has even claimed that a
school where development of creativity has a priority might need to be free of fixed
curricula.
5.3 Creative Personalities
The transformation from an industrial society towards a society based on the
exploitation of knowledge, creativity in the arts, design, and entertainment andwith an increasing complexity of products will need a better development of as well
as use of human creativity.
Finding and supporting people, suitable for creative work has become much
more important than during the industrial era. Gudmund Smith (1990, 1995) has
oriented some of the research of his team towards investigations of creative
personality traits. Some of the results can be summarized.
First, a typical characteristic of a creative personality is a capacity to formulate
and energetically work on the solution to the formulated problem. Sometimes the
problem is not conceived as especially interesting by anyone else and is oftenlooked upon as somewhat strange or even bizarre by others.
Second, a part of a creative personality is a subjective and quite an emotional
relation to the problem which is developed during the period of problem solving.
The solution to such an independently formulated problem is often not obviouslyprofitable for anyone.
Third, another personality trait is an orientation towards aesthetic solutions to
the generated problem.
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Fourth, a general characteristic of creative personalities, according to Smith, is
the oceanic capacity. This is a capacity to get a feeling of almost infinite possibi-
lities, when a new creative solution turns out to be correct. This implies an instant
and yet sustainable reward of greater importance than external rewards in the formof money or fame.
Fifth, creative persons tend to be victims of angst, which according to Smith
is the natural companion of creative activities.
Sixth, creative persons tend to have in comparison with the non-creative
a strong interest of their childhood. They often think about it and it is prevalent in
their dreams which are more frequent than among non-creative persons. One of the
surprising properties of these dreams is that they are described in the interviews of
creative persons as dreams in intensive colors.
For these and possibly other reasons there is a tendency among creative persons
to combine childish behavioral traits with a capacity to concentrate and be quite
serious in the process of formulating and solving problems.
It does not seem to be the case that very goal-oriented, wealthy homes are the
best breeding grounds for the development of creativity among children. Remark-ably often creative persons seem to have come from disadvantaged homes.
5.4 Different Capacities of the Creative Mind
In his book How to Solve It, the mathematician George Polya (1945) claims that the
most important approach to creative problem formulation and solving is by heur-
istics or the use of proper analogies: Analogy pervades all our thinking, our
everyday speech and our trivial conclusions as well as our ways of expression
and the highest scientific achievements (Polya 1945, p.37). This is obvious in
mathematics but seems to be of relevance also in creative writing and composing.
Belonging to some style or genre of literature essentially means that a certaindegree of similarity of composition exists. Such formulations are often analogousat least in terms of deep structure.
Production requires predictability and structural stability of the process in order to
be efficient. Creation is an almost contrary process. The creator has to accept funda-
mental uncertainty and its companion, structural instability. This implies that creativi-
ty can only be achieved by individuals, who have accepted a career with an embedded
uncertainty of production and the corresponding uncertainties of income and wealth.
5.5 The Pecuniary Rewards of Creativity
In the scientific world, income is normally secured for the creators by a combination
of subsidies and payment for other work than creation of scientific research. In
universities much of the salaried time is used for elementary teaching, administration
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and other non-creative activities. The financial rewards for creativity are primarily
determined by decisions in public or private funds based on earlier research records
and an estimate of the likelihood of success as evaluated by some more or less
credible peer group.In the R&D world the financial rewards are calculated with methods similar to
the ones used in the evaluation of the returns to material investments, i.e. an
estimate is made of the expected net present value and risk. Because of the public
nature of knowledge the risk is very large and different procedures to protect the
inventions are necessary. The common procedure of protecting a new material
product is patenting that exists in all countries prone to imitate new knowledge.
Patent rights are regulated by international treaties and give the property right to the
proceeds from the new product for a time period of 20 years. However, in reality the
rights can normally be executed for approximately 15 years. Because of the delays
in production, rights are executed after the patenting has been granted.
In the arts world there is a situation somewhat similar to the scientific world.
Composers and other creative musicians are often hired to do non-creative work
such as teachers, administrators or regular employees of subsidized orchestras.Painters and authors can rarely live from their creative work and have to live
from incomes as teachers, postmen and other non-creative jobs.
Economies of scale are of great importance in the entertainment world. Making a
film normally requires 200400 man-years and large amounts of studio equipment
and other material capital with large fixed costs as a consequence. This has led to a
number of organizational responses, such as conflicts about quality and economic
rewards among composers and script writers, reliance on performance stars, spatial
concentration of production and syndication of the outputs.
5.6 Variable Probabilities and the Importance of Stars
In industrial R&D the probability of success of a particular project has beenestimated to be in the range of 712%. This means that the majority of projects
will be financial fiascoes. To compensate for the losses, most of the industrial
research and development costs are borne by large firms in a limited number
of manufacturing sectors. These firms are large enough to run a substantial number
of parallel R&D projects to compensate for the low success probabilities of most of
these projects. The substantial returns of a few of these projects must then compen-
sate for the losses of most of the projects. This is partially true for entertainment
firms, such as Disney, Sony or MTG.
While most painters and authors are struggling in the first hand market to achieve
a reputation a few, often dead colleagues, have become important suppliers in the
second hand market of originals and reproductions.
Many art and entertainment goods books, magazines, movies or amusement
games are only sold to final users as copies and the markets for these repro-
ductions are quite different from the markets for originals. Most reproduction
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processes apart from forgery and other hand-copying are multi-stage processes
with complicated rules of interaction between stages. One example is the music
industry (see Table 5.1).
There are distinct probabilities of success in the interaction between agentswithin and between the different stages of such a production and reproduction
process and associated problems of negotiating the reward structure. Assuming the
probability of success to be the same everywhere and equal to 50%, the probability
of success for the whole 4 by 2 process is (1/2)8, which is approximately equal to
0.4%. In this case, the popular music publisher would accordingly need to judge
thousands of music proposals from unknown creative music composers to be
reasonably sure of a success in the market.
Raising the probability of success within and between stages to 90% would lead
to a probability of success of the whole fourstage process to 43%. There have
consequently been efforts to design individual and institutionalized procedures to
increase these probabilities within and between all stages. It is for example often the
case that artists compose music and write lyrics themselves. Publishing and record-
ing can be vertically integrated and the owners of record companies can also owntelevision stations, and so on.
In film production, these problems are further reinforced by the complexity of
production of film negatives (Vogel 1998).
Composers and directors often have their contract income based on revenues and
therefore they tend to be oriented to the maximization of quality and quantity with
potentially detrimental consequences for the profitability of the whole process.
Economic efficiency in music and film making would gain from contracts based
on profit-sharing for the creators. However, there are several problems associated
with profit-sharing that are especially relevant in the complex structures of modern
music and film-making. Substantial parts of the fixed costs are unknown to the
creators and can easily be redistributed between different products (and their
creators).
The heterogeneity of arts and entertainment products associated with the depen-dency of consumer taste on the individual characteristics of a few star performers
is especially important in this context. Certain consumers may have a strong
preference for individual performers, such as the pianist Glenn Gould, the singer
Ella Fitzgerald or the actor Julia Roberts. Such stars do in fact have an almost
monopolistic negotiating position at each first recording of a piece of music or a film
Table 5.1 The music industry as a multi-stage production process
Stage 1 Composition of music(including lyrics):creation
Artists first performance: innovation
Stage 2 Music publisher: production Diffusion to reproducersStage 3 Recording on CDs and
DVDs: production
Diffusion to radio and TV stations,
and record distributorsStage 4 Purchases by consumers:diffusion
Collection of royalty incomes by ASCAP, BMI,SESAC, etc., for distribution betweenupstream agents
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manuscript. In a way the appearance of such an artist increases all the probabilities of
success discussed above and all of the agents have to yield to this fact.
The complex production technology of most reproductive art and entertainment
goods leads to high fixed costs of production and globally concentrated industries.The film industry is one such globally concentrated industry. Most countries rely on
imports of films from the global centers of production and especially from Holly-
wood. This is a consequence of the complexity of production, which causes high
fixed and irreversible costs for each film. These scale economies are further
reinforced by the low probability of success of each individual film. The organiza-
tional result has been an increase in the size of firms, which makes it possible to
diversify production in order to reduce the risk of bankruptcy. Table 5.2 gives the
size of film production in a number of countries, measured as the number of film
negatives produced from 1991 to 1995.
The rank size distribution of film production in different nations is as follow
Film production e7:22Rank1:3; R2 0:95:
An alternative approximation form of the distribution is
Film production e5:90:12Rank; R2 0:95:
These equations imply that the distribution is highly skewed, which is also
indicated by the fact that the mean of the number of films produced is more than
twice as large as the median production.
Vogel (1998) collected financial data for the production of films in the United
States from 1976 to 1996. While some of these films were profitable, others suffered
disastrous losses. The mean cost of production was US $34 million with a standard
deviation of US $23 million, while the mean revenue was US $91 million with very
large standard deviation of US $81 million. There was no correlation betweenrevenues and costs.
Table 5.2 Production of film negatives in the top ten countries in the period19911995
Rank Country Number of film negatives
1 India 8382 United States 4203 Hong Kong 3154 Japan 2515 Thailand 1946 China 1547 France 141
8 Italy 969 Brazil 8610 United Kingdom 78
Source: UNESCO (1998), World Culture Report
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Using regression analysis, we estimated the effect of top-ranking directors or
actors on assessed revenue. The result is as follows:
ln Revenue 2:
88 1:
41T; n 23;
in which T=1 if a top-ranked director or actor is involved in the making of the film
(otherwise T=0). The t-value of the slope parameter estimate is 2.3, indicating that
the estimated value is significantly different from zero at the 5% significance level.
The regression equation implies that a Hollywood-produced film without a top-
ranking director or actor can be expected to generate US $18 million in revenue,
while the revenue figure for a film with a top-ranking director or actor is US $73
million. For production costs, there is no corresponding statistically significant
celebrity impact. This impact gives these artists a strong bargaining position,
which should enable them to obtain substantial shares of revenues or profits. The
contract variations are almost endless, but it is not unusual that the leading actor,
actress, and the director together obtain more than 10% of the total revenue when
the total exceeds US $150 million.
5.6.1 Lining up Behind Giants
Most labor markets are similar to markets for standardized goods. The price of the
good itself and the prices of substitutes and complements determine the supply.
Similarly, different prices determine the demand and the supply and demand
simultaneously determine the equilibrium price and quantity. In the labor markets
there are deviations from this simple competitive principle. Some occupations
require many years of education and training and the movement toward equilibrium
is consequently slow. Institutional safety constraints regulate other types of labor,as for instance airline pilots or medical doctors, which therefore constrain the
supply. For some occupations, unionization works as a barrier to entry, which
prevents the attainment of a competitive equilibrium. These factors to some extent
are also relevant for artists.
However, more important are the combined effects of the number of gate-
keepers that block entry and advancement and the uncertain success of the final,
creative product. Market success depends on the impact of the most visible artist
who is involved in production. Because of the intangibility of created ideas, when
innovated as a piece of music or a new film, expectations are of great importance for
the demand on the day of the premiere. Expectations of a rewarding experience
derive from the probabilities of success, as the potential audience perceives them.
These perceptions in turn depend on the rank of the artist among the group of
comparable artists. There is in most artistic and entertainment occupations acontinuous inflow of new entrants, owing to the attractiveness of many artistic
careers to young people. Most of these new entrants fail when attempting to get on
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the first rung of the career ladder (i.e. through the first gate), and the probability
of failure becomes greater at each further step on the career ladder to stardom.
Let us assume that the probability of advancing from one rung of the ladder to
the next is 5%. The probability of succeeding to the nth
level is then 0.05n
. If thereare five rungs, the probability of reaching the fifth level is 3 in 10 million. If we
instead assume that a person has talent enough to have a probability of 20% to climb
each rung of the ladder, the probability will equal 0.32 in 1,000 attempts to reach
the top.
If we assume that there are one million aspiring young entertainers and there is a
probability of 10% (i.e. probability is 0.1) to reach local recognition, there will be
100,000 local successes. If there is an additional 10% probability to reach regional
recognition, it means that 10,000 will continue to that level in their career. Let us
assume that the probability is 20% that they will reach national recognition, given
that they are already regionally recognized, then that would imply that 2,000 will
reach that stage of their career. To reach recognition on a continental scale might
have a very low probability of, say, 1%, so that only 20 will reach that level of
recognition and finally maybe only five will have a substantial global impact.There are many ways to measure the impact of an artist. In science, it is common
to use global citations in scientific journals to measure the impact of a scientist on
the public (in this case, other scientists). To an artist, recognition by other artists is
often pleasing, but of little importance in the markets for artistic products. We
therefore need some other, a more general measure of impact. We have chosen to
use the number of Google (an internet search engine) hits as such a general measure
of the impact of various kinds of artists. Tables 5.3, 5.4 and 5.5 reveal the impact of
different creative artists, as measured by Google hits in early 2005.
The average year of birth of the top ten composers is 1789. This implies that the
average age of the top ten compositions is almost two centuries. This is also
reflected in the current programming strategies among concert houses and symphony
orchestras.
The importance of the English language for global success is clear from theserankings. Six out of the top ten Nobel laureates have English as their mother tongue.
No such language effect is discernible for the other art forms (except for films).
Table 5.3 Top ten composers of classical music
Rank Composer Year of birth
1 J.S. Bach 16852 L. van Beethoven 17703 W.A. Mozart 17564 G. Verdi 18135 F. Schubert 17976 P. Tchaikovsky 18407 J. Brahms 1833
8 D. Shostakovich 19069 F. Chopin 1810
10 A. Vivaldi 1678
Sources: Larousse Encyclopedia of Music and Google, January 2005
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The average year of birth of the top ten jazz musicians is 1910. All except one
have passed away and can only be heard on recordings.
One way of analyzing the citation rates of the ranking lists of artists is by using
the following equation:
Citations eabRank:
We have used least-squares regression analysis to estimate the parameters a and b.
The parameter estimate b refers to the percentage decline in the number of citations of
the artists when their ranking is increased by one unit. The estimated equation for the
40 highest-ranked composers is
Citations (composers e7:50:07Rank; R2 0:98:
Increasing the number of observations does not influence the equation to any
considerable degree. The estimated equations for the other groups of artists are as
follows:
Citations Nobel laureates e5:570:10Rank; R2 0:98;
Table 5.4 Top ten laureates in literature
Rank Nobel laureate
1 J.P. Sartre
2 T.S. Eliot3 B. Russell4 W.B. Yeats5 G.B. Shaw6 T. Mann7 S. Beckett8 A. Camus9 W. Faulkner
10 A. Gide
Source: Google, January, 2005
Table 5.5 Top ten jazz musicians
Rank Musician Year of birth
1 M. Davis 19262 C. Parker 1920
3 L. Armstrong 19004 B.B. King 19255 B. Webster 19096 L. Young 19097 King Oliver 18858 E. Fitzgerald 19199 D. Ellington 1899
10 B. Holiday 1915
Source: Larousse Encyclopedia of Music and Google, January 2005
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Citations Jazz musicians e8:040:10Rank; R2 0:96:
These equations indicate exponential decline of rank-ordered citation rates and
are remarkably good at accounting for the variability in the number of citations.
A conversion of these citation rates into probabilities of recognition gives a similar
rapid decline of recognition as we move down the rankings of the artists. The
estimates also show that jazz musicians and Nobel laureates have greater estimated
b coefficients in absolute values, which possibly reflect the lower age of their works.
The average birth year of the top ten creative artists varies considerably among the
different categories, as shown in the above tables.
In literature and music there are incredible numbers of giants who implicitly
compete with new entrants aspiring for positions of global fame. A young painter,
poet or composer therefore has to compete for recognition with artists who died a
long time ago. This competition with the dead generates incentives for creative
artists to develop new styles, niches or even completely new rules of composition.
The extreme durability of great art is an advantage to the general public but anobstacle to recognition among all aspiring artists.
The skewed distribution of recognition among creative artists leads to a corre-
spondingly skewed distribution of revenues, which inevitably leads to a skewed
distribution of artists material assets and incomes. By way of example, assume
that the price of a painting by the highest-ranked artist is $100 million. If the price
distribution corresponds to an estimated citation function, this would imply that an
artist at global rank 100 would receive $33,000 per painting, while the painter who is
ranked as number 150 in our global ranking would receive only $614 for a painting.
The top ten would generate most of the total wealth derived from the sale of paintings
in these circumstances, as long as the supplied quantities do not increase dramatically
with increasing rank number (i.e. decreasing number of citations).
Our example conforms in its general pattern to the markets for paintings and
compositions in classical music, but it does not conform to the markets for films andpopular music, where the rankings change rapidly. However, even in these more
changeable markets a similar pattern persists at each short period of time. During
their much shorter stable ranking periods, the rent and income distribution should
be expected to be extremely skewed in favour of only the top-ranking segment or
sometimes even just one giant.
5.7 Syndication
A special form of vertical and horizontal integration syndication is typical of
arts and entertainment industries (Werbach 2000). The basic preconditions for
economic advantage of syndication are the following:
1. The product must have the property of a public good, i.e. it should be possible to
be used by many at the same time or consecutively, i.e. the same unit of
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a product can generate utility to many users. This is typical of information and
knowledge. A concert by the Vienna Philharmonics on n radio and television
stations does not decrease the quantity or quality to the listeners of the concert,
even if n goes towards infinity. However, aggregate utility and thus aggregatewillingness to pay increases with an increasing n and thus the potential revenue
is an increasing function of the number of radio and TV stations allowed to relay
the concert.
2. The product must be based on information only so that Internet can be used for
transmission of the product.
3. The product must be modular, i.e. capable of being cut into pieces modules
and reassembled together with other modules.
4. The product must be easily adaptable to different consumer groups. For exam-
ple, the puns and jokes of an entertainment program should be capable of
translation. Language free jokes as in the old Chaplin or Mr Bean movies are
ideal from this point of view.
5. Transaction costs (other than transport costs) should be limited to allow for
syndication. A radio or TV program that only contains music could easily besyndicated, even globally, as there are small language and culture barriers to be
overcome in the transfer of the program from country of origin to a country of
destination. Syndicating a movie is more costly. It might require dubbing and
cutting to suit a specific public. Sometimes a syndicated TV program needs to
become a part of some coherent programming strategy, which gives rise to to
adaptation costs.
6. Distributors must be independent of each other. If distributors can organize
themselves in some cartel or resale network, advantages of syndication would
drop. Either the number of paying distributors would drop or the revenue from
each distributor would be constrained to be below the resale price within the
cartel or resale network. With Internet distribution these resale prices could
approach zero if there are inefficient copyright rules and regulations.
Essentially syndication contains the following agents:
ExampleAgents
Creator Author
Producer Scriptwriter and innovation team
Syndicator TV program syndicator
Distributors TV stations
Consumers TV audiences
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5.7.1 Integration by Syndication
Examples of syndicated entertainment products are Robinson, Jeopardy, the Oprah
Winfrey and Jerry Springer shows, sports arrangements like Olympic Games andother global championships. Examples of syndicated arts products are films by
independent filmmakers (e.g. Wim Wenders or Ingmar Bergman), classical music
programs on radio and TV, novels suitable for conversion into film and photographic
art. With the development of the size and quality of internet, syndication advantages
will determine productiondistribution system for entertainment and arts.
5.7.2 Global Creative Networks or Big Is Interactive
With the growing efficiency of communication of new ideas, there is an obvious
increase in the economic advantages of interaction among creators of arts, enter-tainment and science.
Assuming the value of a creation to a creator living in region, i.e. to be dependent
on the interact ion with other creators, living in regions j (=1,. . .,n), we have the
following optimal interaction problem:
max vi SpIi;jQi Scdi;jIi;j;
where v(i) is the profits (or recognition) accruing to the creator of region i, p(I(i, j) is
price (unit value) of interaction with creators of region j, Q(i) is the predetermined
level of creative activity in region i, and c(d(i, j) is unit cost of interacting from
region i with region j.
The p-functions are assumed to be concave and differentiable everywhere (at
least twice), while the unit cost of interaction is a given to be constant for any pair ofregions.
The conditions of optimal interactions are thus:
dp/dI(i, j) c(d(i, j)/Q(i); for all interacting pairs of regions.The implications are the following:
l Interactions would increase with increasing impact of synergies upon creativity.l Interactions would increase with decreases in the transactions, transport and
communication costs.l Interactions would be larger for creative activities operating at a large scale.
In an earlier paper by Andersson and Persson (1993) it was shown that under an
assumption of a CobbDouglas production function, the interactions would follow
a gravity equation.
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5.8 Conclusions
There has been a slow and steady transformation of the advanced market economies
from a focus on productivity towards a focus on creativity and innovation. Thisrefocusing means a greater importance of economic organization based on synergy
and interactions than on division of labor and occupational specialization.
A creative focus implies a change in the working of the labor market. Because of
the great uncertainties in creative multi-stage production systems, there are great
advantages of employing internationally renowned creators. These can often demand
substantial celebrity rents, leading to highly skewed income and wealth distributions.
The large uncertainties also cause an increase in the optimal scale of production.
This is further reinforced by the increasing possibilities of syndication of the
created products.
Syndication essentially means that the same idea can be sold to many users in
separated markets after adaptation to the specific user preferences. This has been
used since long in the news media and among consultants, who have developed
production processes, repackaging and users adapting the creative ideas of scien-
tists. Syndication advantages have increased by orders of magnitude with theincreasing efficiency of Internet.
The advantages of creative synergy will increase the tendency to interact
globally among scientists and artists. Optimal global interaction conditions are
deduced. They indicate that interactions should be driven to the point where the
unit cost of interaction divided by the scale of operations equals the marginal
increase in the value of the created idea (eventually innovated as a product).
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