Harry Hillman Chartrand ©
in The Public Life of the Arts in America
Joni Cherbo and M. Wyszomirski (eds),
Rutgers University Press, April 2000


a) Industrial Organization Model
b) Elemental Economic Terms
c) The Arts Industry
d) Caveat Emptor


a) Supply:
b) Co-Demand for the Arts
   i - Amateur Art 
   ii - Applied & Decorative Art
   iii - Entertainment Art
   iv - Fine Art
   v - Heritage Art


a) The Art Product Cycle
   i - Creation
   ii - Production
   iii - Distribution
   iv - Consumption
   v - Conservation
b) Size
   i - Arts Factor
   ii - SIC
   iii - Input/Output Matrix


a) Copyright
   i - Concept & Origins
   ii - International Differences
   iii - Outside Rights
b) Research & Development


a) Cost Disease
b) Cultural Tectonics
   i - Ideology
   ii - Legal
   iii - Geography
c) Human Ecology
   i - Physical Environment
   ii - Psychic Environment




In this article I summarize twenty years of cultural economic research conducted by myself and other researchers directed towards a clearer definition of the American arts industry.  To do so, I will map findings into a mainstream economic framework - the Industrial Organization Model or 'IO'.  As will be evident, more primary and secondary research is required to complete the framework.  I call upon my colleagues in the arts and economics to aid in realizing this ambitious and important undertaking.

a) The Industrial Organization Model  

IO is the brain-child of the late Joe Bain. His seminal work - Industrial Organization - was published in 1959 (Bain 1968).  Using IO, Bain began what has become an ongoing process within the economics profession of linking macroeconomics (the study of the economy as a whole) to microeconomics (consumer, producer and market theory) to better understand the way the 'real' world works.

The IO schema (Exhibit 1) consists of four parts.  First, basic conditions face an industry on the supply- (production) and demand-side (consumption) of the economic equation.  Second, an industry has a structure or organizational character.  Third, enterprise in an industry tend to follow typical patterns of conduct or behavior in adapting and adjusting to a specific but ever changing and evolving marketplace.  Fourth, an industry achieves varying levels of performance with respect to contemporary socio-economic-political goals.

b) Elemental Economic Terms  

Four elemental economic terms will be used.  First, buyers and sellers exchange of goods and services in markets - geographic and/or commodity-based.  Second, an enterprise is any entity engaging in productive activity - with or without the hope of making a profit.  This thus includes profit, nonprofit and public enterprise as well as self-employed individuals.  All enterprises have scarce resources and are accountable to shareholders and/or the public and the courts.  An enterprise is defined in terms of total assets and operations controlled by a single management empowered by a common ownership.  Third, an industry is a group of sellers of close-substitutes to a common group of buyers, e.g. the automobile industry.  Fourth, a sector is a group of related industries, e.g. the automobile, airline and railway industries form part of the transportation sector.  Often, as herein, 'sector' and 'industry' are used interchangeably, for example - the transportation industry or sector.

c) The Arts Industry  

For purposes of this demonstration, the arts industry (Exhibit 2), or more properly, 'the arts sector', includes all profit, nonprofit and public enterprises including incorporated and unincorporated businesses that, and self-employed individuals who:

i - use one or more of the arts including the heritage, literary, media, performing or visual arts - live or recorded - as a primary factor of production, e.g. in advertising, fashion, industrial & product design as well as Internet, magazine and newspaper publishing;

ii - rely on one or more of the arts as a 'tied-good' in consumption, e.g. home entertainment hardware and software; or,

iii - produce one or more of the arts as their final output, i.e. they create, produce, distribute and/or conserve artistic goods and services.

Using this definition the Arts Industry can be seen as the center of a circle of circles made up of the so-called 'cultural industries' or the widely defined Arts & Cultural Industry (Exhibit 2.  The economic term 'tied-good' requires explanation. An example is the old 'punch card' computer.  The computer could not operate without such cards which, technically, were an output of the pulp, paper and publishing industries, sequentially.  The computer and cards were tied-goods in production of computational results.  Similarly, there can only be a market for audio-visual software, e.g. records and tapes if there is a market for home entertainment hardware, e.g. cameras, record players, TV sets, etc.  They are tied-goods in consumption fitting hand in glove.  In this regard, it is likely, but not proved, that the home entertainment center (HEC) is the third most expensive consumer durable purchased by the average consumer after house and car.  Similarly, private collections of audio-visual software including phonographs, photographs and video tapes constitute an enormous stock of American cultural wealth.

d) Caveat Emptor  

There are four biases inherent in this demonstration.  First, it is based on a compilation of findings stretching over decades.  Accordingly much of the evidence needs to be updated.  Second, the demonstration is incomplete.  The full IO framework cannot be completed at this time.  In some cases, evidence required may be available but I am unaware of its existence.  In other cases, no primary research has been conducted.  Third, the demonstration assumes a 'wide definition' of art including 'utilitarian' art, entertainment art as well as 'art-for-art's-sake'.  Finally, this demonstration is by one economist.  There is no consensus within the profession as a whole about the appropriate definition of economics and the arts.



The IO model requires information about basic conditions facing an industry on the supply- (production) and demand-side (consumption) of the economic equation (Exhibit 1).  Only two facets are examined.  On the supply-side, the economic meaning of knowledge, specifically Art as a knowledge-based technology, is defined.  On the demand-side, 'co-demand' for the Arts is considered.

a) Supply  

Economics recognizes three primary factors of production - capital, labor and technology.  Through time understanding of these factors has changed and expanded (Exhibit 3).  Today it is generally accepted that improvements and changes in capital and labor including education have accounted for between 25 and 33% of growth in National Income over the last century [Shapiro 1970].  The vast majority of growth is thus attributable to technological change.

In the Neoclassical Period of economic thought (roughly the 1870s to the 1930s), economist first identified 'disembodied' technological change reflected in general improvements communications (e.g. telegraph and telephone) and transportation (e.g. steam, electric and gas powered engines).  During the Keynsian period (roughly the 1930s to the late 1980s) the contribution of physical science research to the war effort - first the Allies and Axis Powers (radar to ballistic missiles and jet aircraft to the A-bomb) and then the Cold War warriors - expanded economists' vision to see 'embodied' technological change reflecting specific bits of new knowledge embodied in specific products such as the transistor in the transistor radio.  Up to the present (1998), however, there has been one constant: we really do not know why somethings are invented, and others are not; and why somethings that are invented are brought to market (i.e. innovated), and others are not.  This has been called "the measure of our economic ignorance" (Lithwick 1968).

I have argued elsewhere that our economic ignorance (66-75%) is attributable, in part, to a narrow definition of technology (Chartrand 1989, 1990; 1992b).  The word derives from the classical Greek techne meaning 'art' and logos meaning 'reason', that is, reasoned art.  In turn, the English word art means 'skill' or 'craft', forms of 'experiential' knowledge gained by doing or applying as opposed to systematizing knowledge by which the ancient Greeks meant 'science'.  Feedback between application and systematization of knowledge results in 'learning' or education in the sense of educe - to bring out from someone an understanding of something outside of oneself. In this sense, technological change in a knowledge-based economy results from application of new knowledge.  This constitutes 'epistemologic' or knowledge-based technological change.

Today's economic landscape is dominated by three primary yet interactive domains of human knowledge: the Natural Sciences & Engineering (NSE), the Social Sciences & Humanities (SSH), and the Arts (Chartrand 1992). Knowledge-based technological change results from increases in these domains when applied in the real world.

Each domain rises up like a mountain above the lowlands and valleys of the traditional industrial economy.  Each has its own historical and institutional foundation; each reaches up to its own lofty, specialized glacial summit of excellence - individual and institutional.  For the NSE and SSH, the traditional institutional peak has been the university.  For the Arts, it has been the arts academy, production company, conservatory or school.  Accretions to a domain takes place through 'research', the results of which, when applied, causes feedback resulting in learning how to do something better next time.

Institutionalization of knowledge domains varies between countries. In the English-speaking world, for example Canada has a Canada Council for the Arts, a Social Sciences & Humanities Research Council and a Natural Sciences & Engineering Research Council.  In the United Kingdom, there are separate councils for each of the Arts, Engineering, Humanities, Natural Sciences and Social Sciences.  In the United States, there is a national endowment for the Arts, another for the Humanities and a National Science Foundation that subsumes the Social Sciences.

In summary, knowledge-based technological change involves one or more of the following:

- new goods, services and improved production processes primarily emerging from NSE;
- more effective, efficient and humane ways of combining financial, human, information and physical resources emerging primarily from SSH embodied in improved management methods and practices; and,
- new aesthetics primarily emerging from the Arts and embodied in better designed, more attractive, creatively advertised and intelligently marketed goods and services.

These are the primary sources of 'value-added' in a knowledge-based economy (Chartrand 1989).

b) Co-Demand for the Arts  

Much research has been conducted about the socio-economic characteristics of consumers of specific artistic goods and services, e.g. modern dance, museums, and TV.  Little, however, has been conducted about generic consumer demand for the Arts as a knowledge domain.

Over the years I have evolved a five-fold framework to classify market demand for the Arts (Exhibit 4).  In this framework, there are five motivations for consuming the Arts.  Each generates its own distinct industry with its own plant and equipment, talent pool, specialized repertoire of works and its own market made up of individual as well as public, private and nonprofit consumers (as investor, patron or donor).  All five are interrelated through cross-overs between audiences (demand-side, hence 'co-demand') and capital, labor and technology (supply-side).

Three terms require definition.  First, 'recreation' refers to the 19th century British concept of time free to re-create a worker's ability to work.  This contrasts with the aristocratic concept of 'leisure' as time free to develop consumption skills especially appreciation (Chartrand 1987).  Finally, philanthropic refers to the altruistic giving of wealth, wisdom or work to a nonprofit or public cause (Boulding 1973).

i - Amateur Art  

Amateur art is motivated by self-actualization, -education and -realization including of one's own cultural heritage.   It is less concerned about pleasing an audience and more about developing self-expression and -understanding.  Amateur art is practiced during and after primary, secondary and tertiary school.  It is in the amateur arts that talent is first disciplined in an artistic craft and an informed and appreciative audience is initially cultivated.

Amateur art is part of the public sector in the schools; part of the nonprofit sector in amateur or community institutions such as amateur theater and orchestras; and, part of the profit sector through private teachers and instructors.  It provides four kinds of experiences:

  • arts education, i.e. education in how to create art;

  • education through art, i.e. art as a distinct way of understanding the world and of problem-solving;

  • education of citizen consumers with respect to recognizing quality in advertising - commercial and political - and industrial and product design; and,

  • therapy - physical and psychological.

ii - Applied & Decorative Art  

Applied and decorative art includes advertising, architecture and urban design, the crafts, jewelry and fashion as well as industrial, product and interior design.  To a degree, it involves the use of style for enjoyment and persuasion.  Production is motivated by the challenge of marrying aesthetic to utilitarian value.  At its best it contributes 'elegance' to the human environment defined as simple but effective, or 'the best looking thing that works'.  From buildings to urban planning; from product design to effective advertising; from corporate 'imaging' to designer fashion: applied and decorative art probably, but not proven, has the most pervasive and significant economic impact of any segment of the arts industry accounting for 45% of the total arts labor force (Chartrand 1996).

iii - Entertainment Art  

Entertainment art generates enjoyment, amusement and recreation. In the entertainment arts, America currently leads the world.  Thus entertainment programming (film, recordings and TV) is reported to be the second largest net export of the United States after defense products (The Economist March 11, 1989: 65-66).

Entertainment art is dominated by for-profit global media conglomerates with linked interests in television, film, music, video and print media.  The five largest firms in the world had combined revenues of $45 billion in 1988 and accounted for 18% of a $250 billion world-wide entertainment market (National Telecommunications and Information Administration 1990).  Only one of the five, however, was American-owned - Time/Warner.  There has been significant merger and acquisition activity in the ten years since 1988.  Concentration and foreign-ownership have probably increased.  There is, however, to my knowledge, no more recent comprehensive study of global integration and convergence of the broadcast, cable, motion picture, publishing and recording industries.

iv - Fine Art

Fine art is motivated by 'art-for-art's-sake'.  It is the primary research and development segment of the arts industry.  It generates 'enlightenment', i.e. it sheds light on the nature of the human condition - on the individual and society.

It is primarily in the fine arts that new talent and technique are developed; new scripts and scores created; and, new images and styles set.  Results of fine art 'R&D', like the results of scientific research, are sometimes adopted by for-profit enterprises in and out of the arts industry.  And, as in pure science, fine art is not financially self-supporting.  It operates, primarily, in the nonprofit sector relying on public and private patronage.  As in the Natural Sciences, a thousand new plays (experiments) must be tried if one is to become a box office smash.  The right to fail is an essential artistic and scientific freedom - a freedom that requires patience and risk-taking on the part of patrons, investors and audiences.

v - Heritage Art  

Heritage art subsumes the amateur, applied and decorative, entertainment and fine arts as residuals of contemporary and past creation preserved for and/or by subsequent generations.  It feeds back on contemporary art setting standards and inspiring creators. It generates 'enrichment' through the marriage of scarcity and aesthetic value including a sense of social cohesion and continuity.  Heritage art thus links us back to our past reminding us of who we are and from where and when we come.  It can also, however, impose the deadening hand of the past on contemporary creators who must compete not just with domestic and foreign peers, but also with works tried and tested through time.

Between 1969 and 1989, heritage art yielded the highest return of all financial investment opportunities (The Economist July 1, 1989).  Furthermore, theft of antiquities is the most lucrative international crime.  Ounce for ounce, an antiquity can be more valuable than drugs.  It can yield a higher return, at lower risk of being caught, and generally produces less jail time if one is convicted (Chartrand 1992a).



The second facet of the IO model is structure or organizational character of an industry.  Only two facets are examined.  First, the five stage product cycle of the Arts are outlined.  Second, the statistical size of the arts industry is estimated.

a) The Art Product Cycle  

The Natural Sciences are made up of three elementary disciplines - biology, chemistry and physics.  The Arts are made up of four - literary, media, performing and visual art.  Each uses a distinct medium of expression:

  • the written word;

  • the recorded sound and/or image;

  • the live stage; and,

  • the visual image.

Each discipline is composed of distinct sub-disciplines and schools. Each has a five stage production cycle: creation, production, distribution, consumption and conservation (Exhibit 5).  There are many special studies of the individual stages for each artistic discipline.  Only a general overview is provided herein.

i - Creation

In all four disciplines, artists tend to be independent and emotive.  They do not fit well into the 'technostructure' (Galbraith, 1968) except where the organization itself is artistic such as a symphony, dance or theater company or architectural firm (Galbraith, 1973).  In advertising, broadcasting, motion pictures and sound recording where enterprise is large and complex, dissonance between artists and management is usually solved by employing actors, composers, copyrighters, dancers, directors, producers and scriptwriters through smaller subsidiary firms.  The parent company then confines itself to providing advertising, broadcasting, marketing, exhibition and/or production facilities. 

In literary and visual art, the creative process tends to be solitary.  The image of the solo writer painter is an approximate truth.  When completed, a hand written manuscript or a painting is a finished work standing on its own.  It can be immediately consumed, i.e. read or viewed.  The process of creation and production of an artwork are one and the same.

The media and performing arts are interpretative and the creative process is collective and linked to production.  A play, film script or musical score is usually created first but it comes to life only through the efforts of interpretative artists like actors, dancers or musicians and teams of artisans and technicians as well as directors, conductors and producers.  This differentiates 'creative' from 'interpretative' art.

In all disciplines, some artists work as one-person-firms or in small partnerships engaging larger firms to market their product.  There is a specialized sub-industry artists' management made up of dealers and agents who negotiate rates, terms, conditions and scheduling for self-employed artists.

ii - Production  

Production in the solitary arts is similar.  In literary art, a creator (an author) writes a work then a publisher 'mass' produces it.  Essentially, however, the manuscript is a completed work ready for reading. In this regard, the printing press was the first engine of mass production and 'His Majesty's Stationary' was the first proprietor of copyright in a work of literary art (Chartrand 199?).  Like a gatekeeper, publishers screen for 'marketability' then invest in editing, printing, manufacture, publicity and/or distribution.

In visual art, creation tends to take place in an artist's studio.  Exceptions include 'performance' and 'environmental' art which may be created on site.  Creation also results in production of a finished work (except framing) ready for distribution or rather 'exhibition'.  Unlike literary art where an editor often 'polishes' a work, a visual art work is seldom touched up by others.

Production in the interpretative arts is also similar.  In media art, production requires a script and/or score then a studio to produce an animation, broadcast, film or recording.  Studios are generally owned by corporate producers who may rent out to independent producers.  The producer acts as gatekeeper screening for marketability then investing in editing, production, publicity and/or distribution.  Unlike in the other disciplines, however, in media art copyright initially vests with the producer or corporation who makes the complex arrangements to produce a media artwork

Interpretative artists bring a work of media art to life.  Such artists may be part of existing companies of players like bands, orchestras or theatrical troupes, or hired individually on a one-time basis like 'studio musicians'.  Sophisticated technical staff are required to operate equipment as well create and maintain costumes, sets and props.  It is they who contribute 'production standards' to a media art work.

Performing art also requires a script and/or score but then a venue to present a live play, dance or musical work.  Venues are owned by profit or nonprofit producers or impresarios who may rent facilities out to independent companies or present their own in-house performing company.  The impresario also acts as gatekeeper screening for marketability then invests in editing, managing the production, publicity and/or distribution.  As in media art, sophisticated technical staff are needed to operate equipment, create and maintain costumes, sets and props contributing 'production standards' to a performing art work.

It is important to note that media art now provides interpretative artists with something that only literary and visual artists enjoyed in the past - performance after death.  There may never again be a Richard Burton, but his image, his voice, and his performances will now endure like the plays of Shakespeare in which he performed.  Nonetheless, a traditional suspicion of 'recorded' by 'live' art exists.  It was at the birth of the "Arts for Art's Sake Movement", during the last quarter of the 19th century, that new recording media emerged including the steel engraving plate, the photograph, sound recording and motion picture.  These created many new revenue streams (Hughes 1984).  In the 20th century these new mass media were followed by radio, television and video recording.

This suspicion is reflected in debate over the 'substitutability' of recorded and live art.  Specifically, does the audience play a role in creating artistic excellence?  Baumol argues that a gestalt exists between performer and audience feeding back and creating an aesthetic experience fundamentally different from a recording (Baumol & Oates 1972, 1974 & 1976).  Tullock, on the other hand, argues that 'canned' product may not be as aesthetically pleasing but it does permit mass distribution beyond a small arts-going elite raising the general level of artistic appreciation in society (Tullock 1974 & 1976).

The insecure nature of employment in the interpretative arts together with a hierarchy of talent has resulted in a distinctive pattern of industrial labor relations.  Thus unlike other industries, arts unions and professional associations tend to set minimum rather than maximum rates for members.

iii - Distribution  

Traditionally, literary art is distributed by publishers who wholesale and/or retail through chains, franchises as well as independent book and stationary stores.  In the last century, mail-order became another means to distribute directly to the 'reading' public.  Today, the world-wide web has become yet another means to distribute literary art directly to readers by publishers and/or authors.

In media art, producers distribute wholesale and/or retail through chains, franchises and/or independent audio-video stores (sales and rentals) and movie houses.  They also distribute retail through broadcast, cable and satellite, and the world-wide web.

Media arts distribution requires a set of consumer capital goods collectively called the 'home entertainment center' or 'HEC'.  The HEC including the home 'PC' is probably, but not proven, the third most expensive consumer durable purchased by the average American - after house and car.  The capital intensity of media art consumption has fueled vertical integration between 'hardware' manufacturers and media art 'software' firms.  Acquisition of Hollywood and recording studios by Japanese consumer electronics giants like Sony reflects the legacy of Betamax's defeat by VHS.  To ensure expensive long term investment in production of consumer hardware, such firms believe they must control the format of consumer media software products.

In performing art, distribution requires a stage.  This may be as simple as a small riser in a club or bar or a soap box in a park.  It may, however, be an enormously complex performing arts facility with computer lighting, extensive stage and special effects machinery, sound systems and backstage facilities for costumes, sets, props and dressing rooms for performers.  Performing arts facilities are linked together in 'touring circuits'.  Such circuits of performing venues permit distribution of works across states, countries and around the world.

In visual art, distribution is accomplished through exhibition by dealers, galleries and museums.  In many cases a group or 'stable' of artists are managed by a single dealer.  Such dealers identify and occupy specific market niches for specific forms and schools of visual expression.

iv - Consumption  

Consumption of Art is different from consumption of other goods and services.  An artwork does not normally depreciate or become reduced in quantity by consumption.  Essentially, consumption is psychic rather than physical in nature.  This is reflected in differing types of consumers.  In literary art, the consumer is a 'reader'; in media art, a 'listener' and/or 'viewer'; in performing art, an 'audience'; in visual art, a 'collector', 'viewer' or 'visitor'.

The psychic nature of arts consumption has lead some researchers to question dominance of the traditional information processing model of consumer behavior which views consumption as a consumer with a problem seeking information about the best solution.  This neglects 'hedonic' phenomena including play, leisure, sensory pleasure, day dreaming, fantasy, aesthetic enjoyment and emotional response (Holbrook, Hirschman 1982; Holbrook 1987).  The richest source of fantasy and contemporary psychic need is the Arts.  Many advertising copywriters and executives have found commercial success based on an arts experience.  Is it coincidence New York City is both the theatrical and advertising capital of the world?

v - Conservation

Art is different from science.  In art, the new does not necessarily displace the old.  Conservation and preservation of past works is of greater importance in the arts industry than in any other.  Specialized skills, expertise, plant and equipment are required to conserve and maintain past works and constitute a distinct heritage arts industry including archives, libraries and museums.

In literary art, conservation is achieved through archives and libraries; in media art through specialized audio-visual and broadcast archives and museums; in performing art by maintaining works in repertoire, e.g. Hamlet, and specialized archives and museums for sets, props, costumes, plays and playbills; and, in visual art through conservation institutes such as galleries and museums.

A key aspect of art conservation is the personal art collection including audio-video recordings, books, fine furniture and fixtures, paintings, photographs (for example those produced in the most popular and wide spread of amateur art - home photography) and statuary.  Such private collections of artistic and cultural goods constitute a significant stock of American cultural wealth that becomes apparent when the role of auction houses and 'flea markets' is taken into account.

b) Size  

To measure the size of the arts industry two data sets are used: the Baseline Input/Output Matrix for the 1982 U.S. economy and the 1989 Standard Industrial Classification (SIC), both published by the Department of Commerce in Washington, D.C.  Both were presented in my 1992 study - The American Art Industry - for the Research Division of the NEA (Chartrand, 1992b).

This was the first time the Input/Output Matrix was used to describe the arts industry.  The 1982 matrix was published in 1991 (Bureau of Economic Analysis 1991).  It is the best measure of the relationship between Art and the American economy. A baseline 1992 matrix will not be available until the year 2000.

SIC data were derived from a special study - Copyright Industries in the U.S. Economy - commissioned by the International Intellectual Property Alliance (Siwek, Furchtgoff-Roth, 1990).  Rather than re-inventing the wheel, I accepted the data presented in this study, with minor modifications, as the best available estimate of the SIC size of the American arts industry.

i - Arts Factor  

One problem in estimating the size of the American arts industry is that art is used throughout the economy.  How do we separate arts-based economic activity from the rest. One way is to apply an 'arts factor'.  For their part, Siwek and Furchtgoff-Roth used the copyright component of each industry's economic activity as estimated by the US Copyright Office (Siwek, Furchtgoff-Roth, 1990).

Copyright, however, provides only a partial measure of the size of the arts industry.  A more complete factor would account for artistic activity embodied in registered industrial designs and trademarks.  Assets reported in the balance sheet, for example of Coca Cola, includes the company's 'good will' part of which relates to the distinctive shape of the bottle (industrial design) and the corporate logo (trademark).  Both are intellectual property like copyright and like copyright are rooted in artistic not in scientific knowledge as is patents.  Unfortunately no estimate of the contribution of industrial designs or trademarks is available.  Accordingly, the arts factor used in this demonstration is based only on the copyright component of arts economic activity.  Two estimates are presented - gross and net.  Gross reports total economic activity while net reports only arts-related activity estimated using the copyright factor.

To some, the resulting 'net' estimates will be high because not all copyright economic activity is necessarily arts-related, e.g. copyright in computer programs.  To others, the estimate will appear low because it does not include the contribution of registered industrial designs and trademarks.

An additional caveat is in order.  Inclusion of 'utilitarian' industries like fabrics, textiles, clothing, furniture and leather goods, along with more obvious arts industries like publishing and motion pictures, is supported by Alfred Lord Marshall's observation that:

... development of the artistic faculties of the people is in itself an aim of the very highest importance, and is becoming a chief factor of industrial efficiency.... Increasingly wealth is enabling people to buy things of all kinds to suit the fancy, with but a secondary regard to their powers of wearing; so that in all kinds of clothing and furniture it is every day more true that it is the pattern which sells the things (Marshall 1920; 177-8).

ii - Standard Industrial Classification  

Using the Standard Industrial Classification (SIC), the American arts industry accounted for at least 6% and at most 8.5% of Gross National Product in 1989, i.e. the sum of all goods and services consumed in the United States but not necessarily produced there.  It ranked at most 6th and at least 7th among the ten primary sectors of the American economy recognized by the Department of Commerce including, in descending order of income size: (1) manufacturing; (2) services; (3) finance; (4) government; (5) transportation and utilities; (6) retail trade; (7) wholesale trade; (8) construction; (9) agriculture, forestry and fishing; and, (10) mining.

iii - Input/Output  

The input/output matrix reports the use (inputs) and production (outputs) of goods and services by and between each industry in the economy.  In 1982, the arts industry generated nearly $304 billion in gross production or 9.6% of GNP. Net arts production was $162 billion, or 5.1% of GNP.

Arts industry production ranked at most 5th after the medical, educational and service industries, and at least 10th after petroleum products among the 77 private sector industries identified in the Input/Output Matrix.  By the same measuring rod, the arts industry contributed at least 13% and at most 45% to the American trade deficit with the rest of the world.  This last fact may seem strange given the popular belief that entertainment programming including motion pictures, sound recordings and TV programs are the second largest export of the U.S. after defense products.  The cause lays in the import of "designer goods" like Armani suits which come mainly from Europe (Scitovsky 1976) and 'tied-goods' like home entertainment equipment including TV sets, audio and video tape recorders, amplifiers, etc., which are imported mainly from Japan and other Asian countries.  The result is that the export of entertainment programming is more than offset by the import of these arts-related goods.



The third facet of the IO model is conduct or the pattern of behavior followed by enterprises in adapting and adjusting to an ever-changing and evolving market.  Only two issues are explored.  First, copyright which provides the legal foundation for industrial organization of the arts is examined.  Second, the unconventional nature of research and development or 'R&D' in the arts industry is reviewed.

a) Copyright  

Many types of law - statutory, regulatory and criminal - affect the conduct of arts enterprises including broadcasting and cable licensing, censorship and copyright.  Law can be used to prohibit certain types of economic activity, e.g. anti-trust statutes, resale price maintenance, predatory pricing, insider-dealing, etc.  On the other hand, law can create markets where none existed before, e.g. copyright. In fact, the evolution of market capitalism is characterized by changing legal definition of property and of what can be legally bought and sold.  In summary, over the last two and a half centuries legal definition of property has matured from physical things towards 'intangibles' and 'rights' (Commons 1924).

i - Concept & Origins

Copyright and other forms of intellectual property rights - registered industrial designs, patents and trademarks - are justified as a protection of, and an incentive to human creativity which otherwise could be used freely by others. In return, creators are expected to make their works available in a market so that their works can be bought and sold.  But while the State wishes to encourage creativity, it does not want to foster harmful market power.  Accordingly, limitations are imposed, limitations embracing both time and space.  Rights are granted for a fixed period of time, and protect only fixation of creativity in material form, i.e. ideas are not protected but rather their fixation in material form.  There are therefore inherent tensions in copyright.  For example,

intellectual property is, after all, the only absolute possession in the world... The man who brings out of nothingness some child of his thought has rights therein which cannot belong to any other sort of property... [but] We should start by reminding ourselves that copyright is a monopoly.  Like other monopolies, it is open to many objections; it burdens both competitors and the public. Unlike most other monopolies, the law permits and even encourages it because of its peculiar great advantages.  Still, remembering that it is a monopoly, we must be sure that the burdens do not outweigh the benefits.  So it becomes desirable for us to examine who is benefited and how much and at whose expense ... (Chafee 1945)

This tension reflects the origins of copyright in the Tudor and Stuart period of English history in the midst of the Protestant Reformation and the Catholic Counter-Reformation.  To keep heretical works from being reproduced, the Crown granted to selected printers the right to copy approved works, i.e. 'copyright'.  It should be kept in mind that the printing press, as the first engine of mass production, generated more anxiety at the time of its innovation than radio, TV, satellite communication and the World-Wide Web (WWW) in our time.

Copyright thus began as a Crown grant of industrial privilege to printers and a means of censorship.  Only with the Statute of Queen Anne in 1710 did authors gain any rights and even these were explicitly balanced by rights granted to 'proprietors' (MacDonald 1971).  To this day, all rights of the creator can be extinguished by contract with a copyright proprietor.  The legal instrument used to extinguish creator's rights, after a one-time payment, is the 'blanket licence'. which strips away all an artist's rights to subsequent exploitation of a work.

In most cases creators therefore do not sell work directly to the public.  Rather, they sell or license its copyright to corporate market intermediaries known as dealers, employers, publishers or producers.  These intermediaries act as gatekeepers screening new works for marketability and then investing in production, advertising, sale, and/or distribution.  A corporate copyright proprietor having purchased all or part of a creator's rights then exploits the many revenue streams flowing from such copyrights.

Consider a book written in India which, through sale or licence of its copyright, becomes a play in London's West End theater district.  The play becomes a movie in Hollywood from which posters, a sound track, T-shirts and toys are spun-off and manufactured in Taiwan.  The movie is then broadcast on Italian television and the sound track on rock radio in Ghana.  The styles and fashions of the film inspire a Munich designer who previews a fashion collection in Paris. Furniture makers in Ohio licence the design and manufacture 'look-alike' furniture.  A book is then written in New York City about the making of the movie and a film sequel is shot in Saskatoon.  All associated income streams have their source in the copyright vested in the initial work - in this case, a book.  The bargaining power of the average creator to set prices or retain residual rights to such a work is limited.

ii - International Differences

There are five distinct legal traditions of creator's rights illustrating the fact that copyright is as much a 'cultural artifact' as a law (Chartrand 1996).  First, there is the British tradition in which copyright is subject to a restrictive concept of 'fair dealing' which exempts only a very small number of very specific uses from infringement.  'Crown copyright' also exists in all documents published by the government.

Second, there is the American tradition with two strands.  First, copyright is subject to a liberal concept of 'fair use' which exempts most not-for-profit uses from infringement, including private copying.  Unlike the British tradition, there is no 'Crown copyright', i.e. works of the Government and its agencies are in the public domain.  The second strand is a tradition of granting preference to domestic manufacturers. Thus prior to 1909, no English language work could be sold in the U.S. unless printed there (Hanson, 1973).  From 1909 until the mid-1980's the Manufacturers' Clause of the U.S. Copyright Act specified that any book written by an American could only be sold in the U.S. if it was printed in the U.S.  This effectively stopped Henry Miller's works, published in Paris, from being sold in America.  This tradition continues with certain rights being granted outside of the U.S. Copyright Act and applicable only to Americans.

Third, there is the Civil Code tradition in Europe and Japan. Under this tradition, a creator's rights are inherent in and inalienable from the individual creator.  Some rights can never be transferred by contract.  The Code does not accept that a corporation has the same rights as an individual.  The ability of copyright proprietors to exploit copyright is limited relative to both the British or American traditions (Vaver, 1987).

Fourth, there is a distinct Islamic copyright tradition based on Islamic law - the Shar'ia.  The following summary is based on private correspondence between the author and Mustafa Salman Habib, Ph.D, Barrister at Law (Lincoln's Inn) in London England (Habib 1998).  The roots of Islamic copyright lay in the Koran and the traditional portion of Islamic law based on the Prophet Mohammed's words or acts but not written by him and known as the "Sunna".  This traditional portion of Islamic law is accepted as authoritative by the Sunni branch of Islam but rejected by the Shi'ite branch. One relevant saying in the Sunna is: "the works of a person do not cease even after his death are three: a continuing charity, a beneficial know-how or a worthwhile son".  Such 'know-how' is recognized as generating a continuous benefit that outlives the author.  Sunni jurists are also unanimous in their high regard for the author, researcher and scientist who are collectively called "A'Lem" to whom several references are made in the Koran and the Sunna.

Early Islamic jurists recognized copyright and offered protection from pirates.  Unlike written legal codes of today, traditional Islamic copyright treated copyright infringement as a breach of ethics, i.e. a moral rather than a criminal act.  Punishment took the form of defamation of the infringer and casting shame on his tribe. An exception was blasphemy or incitement against Islam.  The infamous case of Salman Rushdi is an example of what an author can expect if convicted of writing such a work.  Only in recent years have formal copyright statutes been drafted, e.g. in Saudi Arabia eight years ago.

Fifth, there are Aboriginal Heritage Rights (AHR).  These are based on a collectivist or communal concept of creation.  To tribal peoples, a song, story or icon does not belong to an individual but to the collective.  Rights are often exercised by only one individual in each generation often by matrilineal descent.

iii - Outside Rights  

There are creator's rights that exist 'outside' of the Copyright Act.  Generally they derive from the Civil Code tradition and can not be transferred by contract from a creator to a proprietor.  Furthermore, national treatment often need not be extended to non-residents allowing a nation, state or province to target and reward the creativity of its own citizens.  Some American examples demonstrate.

First, the Chip Protection Act provides copyright-like protection for the design of integrated circuit chips, but only for U.S. manufacturers.  Similarly a proposed new Industrial Design Act recommended rights only for U.S. residents (Andrews 1990).

Second, Aboriginal Heritage Rights (AHRs) are outside rights.  For example, Public Law 101-601: The Native American Graves Protection and Repatriation Act of 1990 converts native art and artifacts into 'inalienable communal property'.  This right may eventually be extended to include stories and sacred tales (Farrer 1994).

Third, the Visual Artists Right Act of 1990 provides special rights to creators of "recognized stature" including the right to prevent destruction of their work (Sullivan 1996: 43).  This right is similar to 'moral rights' granted to creators under the Civil Code and by the Canadian Copyright Act.

Fourth, at the state level, the right of following sales or droit de suivre has been granted to visual artists resident in California.  A young artist sells low but as his or her career matures earlier works increase in value.  While collectors benefit from the re-sale of early works, the artist gets nothing.  The right of following sale insures a percentage of all subsequent sales go back to the artist.

Two foreign examples demonstrate that outside rights are available not only in the U.S.  First, Canadian public lending rights (PLRs) are granted for books written by Canadian authors and held in Canadian libraries. PLRs assume the public benefits from libraries but authors suffer lost sales.  Therefore, market failure exists justifying a public policy response. PLRs compensate authors from a special federal fund.  Payment is capped so no one author receives too much. Payment is restricted to Canadians and goes directly to the creator.

Second, the Republic of Ireland (Eire) exempts copyright income earned by resident creators from income tax.  The exemption applies only to individuals, not to corporations.  The result has been an influx of creative talent who pay sales and other taxes offsetting the tax expenditure to the public treasury.  In addition, such talent enriches the cultural as well as economic life of the country.

b) Research & Development  

Research & Development (R&D) in art is different.  First, Natural Sciences & Engineering and Social Sciences & Humanities research is centered in the university; arts research is not.  This is reflected in federal subsidies to universities.  Roald Hoffmann, professor of chemistry at Cornell University, asked the university what was the ratio of federal funding to science and art. It was 'about 500:1' in 1992 (Hoffman 1997).  Arts research also does not benefit from: contracts between industry and universities; targeted research by private foundations; or, industry research institutes inside universities.

Art R&D primarily takes place in the nonprofit 'fine' arts. It is here most new talent and technique are developed, new scripts and scores created, and new images and styles set.  Results of Arts R&D, like the results of pure scientific research, are sometimes adopted by for-profit enterprises - in and out of the arts industry.  Results can inspire society-wide changes in design, fashion and style, e.g. art nouveau and art deco in the early part of the century.

With respect to private support of Art R&D, there is anecdotal evidence of increasing business support of 'arts' high schools in California and planned animation training institutes in Canada.  Unfortunately, the only comparative industrial evidence is quite outdated.  In 1984 Business Week published a comparative analysis of 16 major American industries.  Of the 16, only the entertainment industry spent nothing on R&D (Business Week 1984: 236). An update of this comparative analysis is long overdue.

The university also plays a lesser role in professional development (Busch 1985; Robinson 1982) and there is a well documented gap between graduation from university in the Arts and attainment of professional status.  Art is learned by doing; it is experiential.  Old craft methods, apprenticeship and master classes survived the Industrial Revolution and remain the most effective methods of professional training in the Arts.

Second, artistic knowledge is unlike scientific knowledge.  Scientific knowledge tends to depreciate through time, e.g. Greek deductive science was displaced by modern experimental science.  In Art, however, knowledge can appreciate through time.  King Tut, Shakespeare and Bach still speak, still sell. In media art, Hollywood film libraries have become multi-million dollar assets.  Maintaining classical repertoire in the performing arts provides continuing inspiration to contemporary creators and establishes standards of excellence against which new work is judged.  This 'religio' or linking back is embodied in heritage art which conserves and preserves past and present creation for subsequent generations.



The final facet of the IO model is performance or the socio-economic results achieved by an industry.  Three are examined.  They are:

  • the cost disease;

  • cultural tectonics; and,

  • the contribution of the Arts to human ecology - physical and psychic.

(a) The Cost Disease  

Confirmed in studies conducted around the world, the Arts (both live and recorded) suffer an inherent cost disease.  First, in the live arts it takes the same time to rehearse and perform a Mozart concerto today as in his own time.  In other industries, new NSE or SSH technology can substitute, complement or better motivate workers increasing the productivity of labor and allowing wages (per remaining worker) to rise without increasing the price of other goods and services (Baumol, Bowen 1966).

In the live arts, substitution of NSE or SSHs technology for artistic labor is usually not possible and often not desirable.  Consider an example from music. In the case of NSE technology, a 17th century Stradivarius out performs any contemporary violin; Carnegie Hall is a better venue for Mozart - with respect to sight line and sound - than the Kennedy Center.  In the case of SSH, conservatory training takes the same time today as during Mozart's life allowing for the randomness of genius.

In effect, the live arts are a 'non-productive' industry in which an income gap opens up between what can be reasonably charged at the box office and the rising costs of production.  One factor filling this gap has been artistic labor which traditionally has worked for less than other professions requiring similar years of 'tertiary' education and training.  Low wages have been offset, somewhat, by what economists call 'psychic income', i.e. love of the job.

Non-artistic personnel, however, such as administrators, backstage artisans, office workers, technicians and other support personnel must be paid relatively competitive wages. Eventually, no matter how much love of the job, ticket prices inevitably increase unless the gap can be filled.  In the past, princes and popes filled the gap, so-called 'patrons of the arts'; today, they have become government and the philanthropic sector.

From an economic perspective, patrons 'patronize' for self-serving purposes (Boulding 1973).  They have two primary motives: preservation of a particular vision of our collective cultural past or of themselves and/or selective promotion of contemporary creativity.  Only limited consideration is paid, to live arts R&D. A recent exception is the Disney Corporation that has reversed the traditional pattern of stage-to-screen with Beauty and the Beast.  The live arts community has responded positively (Chartrand 1998)

Second, studies of media art including broadcasting, motion pictures and sound recording reveal the same cost disease (Baumol, Baumol 1984).  In television, for example, about 10 per cent of the budget is for transmission which benefits most from NSE technological change.  However, more than 60 per cent is for programs which, like the live arts, benefits least from this type of technological change.  While new NSE technology may enormously increase productivity at the outset, i.e. decreasing cost per audience members, once these productivity gains are made, media art suffers the same cost disease.  A similar situation exists in the computer industry where rapidly falling hardware costs are accompanied by more slowly decreasing costs of programming.  Inevitably, labor intensive programming becomes the dominant cost factor.  The media arts and computers are thus 'initially productive' industries.

A corollary to the cost disease is "techno-aesthetic progress".  During downturns and depressions, the scale of art production grows due to the decline of real wages.  In upturns and boom times, rising real wages result in smaller scale productions, e.g. "one-person shows".  Thus there is an inverse relation between economic prosperity and scale, if not quality, of arts production (Leroy 1980).

b) Cultural Tectonics  

Using the geologic analogy of tectonic plates, it has been argued the Cold War between Marx and markets has been replaced by a clash of cultures based on language and religion (Huntington 1993: 22-49).  One example is the Balkans where Catholic Croat, Orthodox Serb and Moslem are at each others' throats yet are of the same race, speak the same language and have only different faiths.  With respect to the arts, language and religion are ongoing fault lines within and between the Arts and society, e.g. clashes between freedom of expression and religion, between multiculturalism and mainstream culture.  Three such tectonic plates involve: ideology, law and geography.

i - Ideology  

Ideology is the basis of political economic systems.  It continues to be a disruptive force as in the clash between those who believe in public funding of the Arts and those who place their faith in the free market and philanthropy.  At the international level, there is a related clash between the United States and countries that protect their arts industry.  Many nations argue artistic and cultural goods and services are carriers of 'values' not just utilitarian functions like a coffee pot, an automobile or a bank account.  Accordingly, they encourage production of art work consistent with their national values and beliefs.  This argument fuels ongoing international debate about 'cultural sovereignty' and the 'morals clause' of the GATT agreement.  In international trade, all countries reserve the right to prohibit import of goods and services that threaten public morals, e.g. Islamic countries prohibiting images of the naked human body or the United States prohibiting import of 'kiddy porn'.

ii - Legal  

Beyond ideology there are legal tectonics. The Civil Code concept of creator's rights differs from Common Law copyright.  The battle between the French and Americans at the World Trade Organization reflects not just nationalist animus but a clash of legal philosophies.  The U.S. wants Europe to extend moral rights of individuals to corporations; Europe resists.  There is also controversy between developed and industrializing countries over who is a creator.  In the preamble to the treaty concerning trade-related intellectual property (TRIPS), community intellectual property rights are excluded. TRIPS only includes individual or corporate intellectual property and only if capable of industrial application.  By definition, this excludes all kinds of knowledge, ideas and innovations produced in the intellectual commons, e.g. in villages among farmers, in forests among tribal peoples, and in universities (Shiva 1993).

Another legal tectonic concerns Aboriginal Heritage Rights.  The question of 'appropriation' has become a painful problem in the artistic community.  Some in the community accept ownership by aboriginal peoples of their own cultural heritage; others believe if artists restrict themselves to their own culture, humanity will be deprived of a significant cultural enrichment (Chartrand 1996b).

iii - Geography

The final cultural tectonic involves geography, specifically, geographic mobility of people, e.g. by immigration and mass movement of populations from one continent or country to another.  Peoples from different continents, races, languages and religions are coming into closer and closer daily contact both inside multicultural societies like Australia, Canada and the United States, with those remaining in the mother country and with tourists.  The result is a cross-pollination of art and art forms and a growth of multicultural expression in the literary, media, performing and visual arts.

(c) Human Ecology  

As a species humanity occupies, shapes and is shaped by its physical and psychic environments.  The arts industry contributes to both.

i - Physical  

The physical human environment is molded by architects, designers, and urban planners.  They are the visual ecologists of society.  If architects and designers are concerned about the present, preservationists are concerned about the past and planners are concerned about the future.  It is architects and designers who apply art to the skylines of our cities, the clothes we wear, the malls at which we shop, the picture on the cereal box in the morning, our homes and furnishings, the cars we drive, the places at which we work and the churches and temples in which we pray.  From Frank Lloyd Wright through the German Expressionists and the Bauhaus Movement to the International Style, architects and designers believed good design could change the world.  They wanted to contribute to the kosmos or our sense of the right ordering of the multiple parts of the world (Hillman 1981).  Together, architects and designers make up more than 45% of the total arts labor force (Chartrand 1996b).

ii - Psychic

Beyond the physical environment there is the psychic commons filled with the values, images and attitudes that shape how we treat one another and our own self-image.  Ongoing controversy about sex and violence in the media is an example of art shaping the psychic environment.  On the one hand, there are those who argue sex and violence in the media is a catharsis allowing psychic release and reducing antisocial behavior.  On the other, there are those who argue the media fosters and encourages anti-social behavior creating a 'psychic epidemic'.

From a welfare economist's perspective, there are two types of social behavior.  The first are onerous activities not performed for inherent satisfaction but for what they yield, i.e. work.  Thus the disutility of work is theoretically to be compensated by a pay check.  Second, there are activities that are the opposite of work.  They give satisfaction to those performing them.  In turn there are two types of such activities.  The first are antisocial activities that give pleasure by inflicting pain or suffering on others.  Social costs usually outweigh benefits because benefits are transitory while suffering is often long lasting or permanent.  Third, there are 'social' activities that impose no physical burden or harm on anyone yet can give satisfaction or pleasure to all.  They include the most benign and valuable of human activities such as love, learning and the Arts (Scitovsky 1989).



My intention, as an economist, was to demonstrate the concept of an American arts industry.  This was done by applying a textbook 'industrial organization' framework drawn from mainstream economics and partially filling it with evidence collected over more than two decades of cultural economics research conducted by myself and others.  My intention, as a citizen, is broader.

If the concept of an American arts industry has been demonstrated then it has significant implications.  First, it could help cool traditional tensions between professional and amateur art, contemporary and heritage art, high and pop art, and profit and nonprofit art - what I call 'artistic apartheid'.  It shows each to be part of a larger, greater and potentially integrated whole.

Second, it could be the first step towards a unified public, private and philanthropic arts strategy like those of more politically coherent sectors such as business, environment, government, health care, science and technology.  It should enhance public discourse by permitting the Arts to communicate with these sectors using the common language of contemporary society - economics.

Third, it could help explain transformation from an industrial to a knowledge-based economy meaning national wealth will come increasingly out of heads, not out of the ground or from the strength of our arms.  A knowledge-based economy does not, however, mean the end of farming, fishing, mining or manufacturing.  Like Maslov's 'need hierarchy', economic development is a process of adding to, not subtracting from, the means available to satisfy human wants.  In economics, it means national income 'at the margin' will increase fastest in knowledge industries.  'At the margin', in economics, means a unit increase in resources to the knowledge industries will generate the greatest increase in National Income relative to other industries.

The two-chambers at the heart of this new economy are the Arts and Natural Sciences & Engineering.  The Natural Sciences & Engineering provide the medium, the Arts provide the message, and the Social Sciences & Humanities provide the social context.  Computers, fiber optics and satellites require actors, dancers, directors, impresarios, musicians, painters, playwrights, producers, sculptors and teams of highly skilled artisans and technicians to fulfill their destiny like any empty theater stage in ancient Greece.  The difference today, is that we have more stages than plays, more medium than message.

Finally, in this century the Natural Sciences & Engineering have given us a futuristic vision of the Earth from space - one world, one biosphere and one human race.  In the next, the Arts must mold and sculpt a humanistic mask for this new vision - a mask to transform a world of warriors into a celestial sphere filled with artists and creators in all domains of human knowledge.



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