• Hasan Bakhshi

Image: eSeL.at / flickr

17 March 2011It is common to see public investment in infrastructure, such as next generation broadband. But should policy go beyond this? asks Hasan Bakhshi.

How should policy support the creative industries? Few question the importance of traditional supply-side measures: low corporate tax rates, an intellectual property regime that strikes a balance between competition and innovation, and an education system that produces talent with the right mix of technical, cognitive and soft skills. It is common to see public investment in infrastructure, such as next generation broadband. But should policy go beyond this? Can the state play an active role in supporting the creative industries? This is a subject I am tackling in a new paper I am writing with my fellow ARC Centre of Excellence for Creative Industries and Innovation (CCi) economists Alan Freeman and Jason Potts.

I’ll start with three observations about what we know of as the creative industries.

First, and for well-known reasons, most creative businesses – even at the best of times – operate in an environment of extreme uncertainty. A small number of creative projects turn out to be hugely successful while the vast majority fail. As a consequence there is a massive skew in the distribution of performance across creative businesses: it is estimated that just 7.5% of high-growth creative businesses accounted for all of the rise in creative industry employment in the UK in the three years to 2008.

Second, the creative industries face additional uncertainties created by disruptive digital technological progress and structural shifts in how consumers spend their leisure time. (More is spent online and more on interactive products.)

Third, the UK’s creative industries are characterised by large numbers of SMEs and in particular micro-businesses. The UK Innovation Survey confirms that even more so than SMEs in other sectors, creative businesses operate in an array of collaborative relationships, drawing on ideas and knowledge from different sources. In many industries, teams are assembled for specific projects and then dissolved, raising questions about the very notion of a creative ‘business’.

These characteristics mean that the traditional top-down approach to industrial policy, where policy-makers are assumed to have the information to identify market failures and design targeted interventions, is not relevant for today’s creative industries. Recognising this has far greater implications for policy than simply dismissing attempts to ‘pick winners’. It suggests an entirely different approach – one in which, in a Harvard economist’s words:

“Industrial policy is a state of mind rather than a list of specific policies. Its successful practitioners understand that it is more important to create a climate of collaboration between government and the private sector than to provide financial incentives. Through deliberation councils, supplier development forums, investment advisory councils, sectoral roundtables, or private-public venture funds, collaboration aims to elicit information about investment opportunities and bottlenecks. This requires a government that is ‘embedded’ in the private sector, but not in bed with it”.

Rodrik, D. (2004). ’Industrial Policy for the Twenty-First Century’. CEPR Discussion Paper 4767. London: Centre for Economic Policy Research. (This version is restricted access) Another version is available here

In short, the UK’s industrial policy needs to be as innovative as the creative industries it is trying to serve.

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Hasan Bakhshi is a Research Fellow at the ARC Centre of Excellence for Creative Industries and Innovation at Queensland University of Technology, and Director of Creative Industries at the NESTA Policy & Research Unit

http://creativeindustriesi.net/blog/2011/02/23/a-new-approach-to-support...

Image: eSeL.at / flickr