Michael Rushton is associate professor in the School of Public and Environmental Affairs at Indiana University, where he directs the master’s programs in public affairs and arts administration. From 2006 to 2012, he coedited the Journal of Cultural Economics. Rocco Landesman served as the tenth chairman of the National Endowment for the Arts from 2009 to 2012. Before joining the NEA, he was a Tony Award-winning Broadway producer of, among other hits, Angels in America.

Creative Communities

Art Works in Economic Development

By Michael Rushton

BROOKINGS INSTITUTION PRESS

Copyright © 2013 THE BROOKINGS INSTITUTION
All rights reserved.
ISBN: 978-0-8157-2473-5

Contents

Foreword Rocco Landesman…………………………………………..viiAcknowledgments……………………………………………………xi1 Introduction Michael Rushton……………………………………..12 Causal Agents or Canaries in the Coal Mine? Art Galleries and
Neighborhood Change Jenny Schuetz…………………………………..123 The Arts, Consumption, and Innovation in Regional Development Ann
Markusen, Anne Gadwa Nicodemus, and Elisa Barbour……………………..364 A Case Study in Cultural Economic Development: The Adams Arts Program in
Massachusetts Richard G. Maloney and Gregory H. Wassall……………….605 Do Cultural Tax Districts Buttress Revenue Growth for Arts
Organizations? Lauren Schmitz………………………………………806 Arts, Crafts, and STEM Innovation: A Network Approach to Understanding
the Creative Knowledge Economy Robert Root-Bernstein, Rex LaMore, James
Lawton, John Schweitzer, Michele Root-Bernstein, Eileen Roraback, Amber
Peruski, and Megan VanDyke………………………………………….977 Arts Districts, Universities, and the Rise of Media Arts Douglas S.
Noonan and Shiri M. Breznitz………………………………………..1188 Cultural Enterprise Formation and Cultural Participation in America’s
Counties Roland J. Kushner…………………………………………1449 The Economic Consequences of Cultural Spending Peter Pedroni and
Stephen Sheppard…………………………………………………..16610 Capital of Culture? An Econometric Analysis of the Relationship between
Arts and Cultural Clusters, Wages, and the Creative Economy in English
Cities Hasan Bakhshi, Neil Lee, and Juan Mateos-Garcia………………..190Contributors………………………………………………………217Index…………………………………………………………….219

Excerpt

CHAPTER 1

Introduction

This volume presents original research findings on the impacts of culturalconsumption and production on local economies. The chapters arebased on papers presented at “The Arts, New Growth Theory, and EconomicDevelopment,” a May 2012 Brookings Institution symposium sponsored bythe National Endowment for the Arts. The central theme of the symposiumwas that the arts are not an amenity or a sector that exists in isolation but thatthey are wholly integrated into local economies. Indeed, the complex role ofart in local growth is what has made empirical research in the field so challengingand the new research in this volume so welcome to scholars and policymakerswho seek to advance public knowledge about the dynamicrelationship between art and economic growth.

The following chapters investigate the arts in local economies from a rangeof viewpoints, presenting original data derived from quantitative and qualitativemethods. Topics investigated include location choices by arts entrepreneurs;links between the arts and non-arts sectors; public policies to fosterlocal arts organizations; and the arts’ effects on incomes in cities across theUnited States and the United Kingdom. There is no single method of parsingthe complex factors at work, and these chapters should inspire furtherresearch along various lines to advance knowledge about the place of the artsin economic development. A brief review of the evolution of arts policy andof thinking about economic growth is presented below, followed by a surveyof the contributions of these chapters and suggestions for future research.

Public Policy and the Arts

Until around the turn of the twenty-first century, public arts policy in theUnited States received relatively little attention. There was enough of a committedinterest group to keep public funding of the arts alive at the federal,state, and local levels, although budgets were generally small; however, thegreatest public support of the arts came from income tax–deductible charitabledonations to nonprofit arts organizations, not from public funding.Typically, the only time that arts policy was newsworthy was when publiccontroversy arose over specific works of art that had received, usually indirectly,some form of government support.

In the 1960s, the rationales for direct public funding of the arts tended tocenter on the benefits to the public of being able to enjoy fine arts: classicalmusic, opera, ballet and modern dance, some theater, and the visual arts.First, there was the case for equity: the fine arts are part of a fulfilling life thatought to be made available to all, including those who have low incomes orwho live far from major art centers. Public funding of nonprofit arts organizationscould enable those organizations to undertake outreach activities tounderserved populations and to keep ticket prices in check. Second, there wasa rationale based on the potential for market failures in the arts: public subsidiesare a means of encouraging the production and consumption of formsof art that provide public benefits, especially art forms that would be unlikelyto flourish in a purely market-oriented environment. Because the fine artsprovide public as well as private benefits, they do not represent purely privateconsumption. For example, people may benefit from my attending the operaeven if they themselves never attend. They might be pleased that the traditionsof operatic performance are being preserved so that they have the option ofattending one day in the future (or that their children and grandchildren havethat option), they might take special pride in knowing that their communityis considered a center of culture, or they may simply feel good because othersin the community are enjoying art of high quality.

However, even those who enjoy the arts a great deal might find those rationalesfor public funding somewhat weak. If the real concern is about inequalityin the United States, are health, education, and housing not more pressingconcerns than art museums and classical music performances? Are theclaimed external benefits of private arts consumption of any significant magnitude,or do they simply represent wishful thinking by those who themselveshappen to value the arts and their associated public subsidies?

More recently, however, two new kinds of economics-based cases havebeen made for active public support of the arts. One is the so-called “economicimpact” of the arts. In many studies commissioned by arts advocates,impact is calculated by measuring direct consumer spending on the arts (usuallyrestricted to the nonprofit sector), then inflated by a Keynesian-style”multiplier” that generates an estimate of the complete impact on aggregateincome resulting from arts expenditures. Although some arts advocates,impact studies in hand, proclaim that the arts warrant public subsidy becauseof the great amount of total income generated by arts expenditures, the problemswith the analysis are clear: the estimated benefits from increased expenditureson the arts do not account for the concomitant reduction in non-artsexpenditures in the public sector (if the increase in arts spending was theresult of a shift in budgetary allocations) or in the private sector (if theincrease in arts spending was financed through a tax increase). The analysisworks on the naïve assumption that an increase in aggregate demand (ifindeed there is one) generates an equal increase in aggregate income, and itfails to acknowledge that all sectors of the economy, from plumbing and autorepair businesses to coffee shops, also have an economic impact, yet they donot obviously warrant public funding as a result.

But a second class of economic argument deserves to be taken more seriously.Suppose that increased levels of arts activity serve to increase productivityand wages. If such effects could be demonstrated, then indeed publicinvestments in the arts would have, at least in theory, a solid economic rationalebesides any aesthetic case for public support. But by what mechanismsmight the arts in fact increase wages? What evidence is there of such an effect?The new research studies presented in the chapters in this volume providesome valuable insights into these questions.

That is not to say that this volume covers the whole of arts policy. Questionssurrounding the role of the arts in local economic development areimportant, but they must be considered alongside the “old school” arts policyissues that have always been present: what is the appropriate response tothe widely differential access to the arts that arises from individuals’ geographiclocation or socioeconomic circumstances? What is an appropriatebalance between investing resources in arts education for the young and supportingcurrent artists and organizations? What is the importance of preservinggenres of art that could not survive unaided in the marketplace?These are important questions that go beyond considerations of the arts andproductivity or of attracting the creative class. While the importance of theindividual issues covered in this volume must be recognized, it is importantnot to lose sight of the fact that they are parts of a larger whole.

The Arts and New Growth Theory

“New growth theory” (NGT) arises from theoretical and empirical findingsthat first gained traction in the 1980s. The key aspects could be listed as follows.First, NGT treats advances in growth-enhancing technology as a resultof the conscious, strategic decisions of individuals, firms, and governments toinvest in the acquisition of skills and knowledge and in potential innovation.It has long been known that in advanced economies, technological change—notthe accumulation of current-technology physical capital—is responsiblefor most of the long-run growth in income per person. NGT models technologicalchange (a reason why NGT is often also referred to as “endogenousgrowth theory”) rather than treating it as something that simply “happens” tofirms and workers.

Second, NGT recognizes that new technologies are not perfectly guardedby the firms that develop them. There are “knowledge spillovers”: firms andindividuals in close proximity to others that are developing new ideas get thechance to benefit from those ideas. That is one reason why firms and individualsin the knowledge-based sector gain such benefits from locating nearother firms in the sector, thereby forming “clusters.” Visual artists value beingin New York City and songwriters value being in Nashville not only becausethere is a thick market of buyers for their products but also because they benefitfrom being around other painters and songwriters, among whom theyfind inspiration and develop their ideas. Furthermore, there can be importantknowledge spillovers between sectors. An implication is that “technology” isnot something that a firm anywhere in the world can simply buy and applylocally. What workers and machines are capable of producing (and it is productivitythat determines income) depends on location, which is one reasonwhy producers in knowledge-based industries are willing to pay such a highpremium to be able to locate in densely packed cities and why skilled knowledgeworkers find their productivity and pay highest not where their sort oftalent is scarce, but where it is plentiful.

Third, unlike the inputs of physical capital and labor, knowledge andinnovation are not subject to decreasing returns. New ideas are non-rivalpublic goods, and once generated they can be used in a countless numberof firms and applications. That fact helps explain the observation that overthe long term, industrialized countries have seen (the recent recessionnotwithstanding) growth rates in per capita income rise rather than fallsince the Industrial Revolution.

What then is the place of the arts in contemporary thinking about economicgrowth? When economists talk about “the arts” in a local economy,they are talking about a tradable good, one with local production and consumption,imports and exports. Some works of art might be producedlocally—a painting, a music recording—and sold elsewhere. Live performancesmight attract visitors. There also is local consumption of locally producedart—a painting purchased in a local gallery—as well as imports ofrecordings, books, and films. The effects of the arts on productivity in the localeconomy could come through consumption or production of the arts or both.

On the arts-consumption side, a vibrant cultural scene, whether based onlocal or touring artists, may attract to the city mobile, highly skilled individualswho serve to raise average productivity levels in the immediate termbecause of the knowledge and talents that they bring to the local economy andwho in the long run serve to increase the productivity of the broader workforcethrough interaction and knowledge transfer. That is the essence of somany cities’ efforts to brand themselves as “cool” and thereby attract thoseworkers known (not without some controversy over definition and measurement)as the “creative class.” The positive effects may accumulate: skilledworkers who could benefit from being around other skilled workers mightmigrate to a city that has built up a strong presence of such workers, even ifthe new migrants themselves have no interest in the “coolness” of the city—theysimply find benefits in being in proximity to other workers, some ofwhom may have been attracted by the city’s cultural life. All of this is not tosuggest that a lively arts scene is the only way for a community to gain appealas a residential choice for skilled professionals; good public schools, safestreets, and outdoor recreation also are important, and for some professionalsthey will be the primary amenities. But culture certainly matters to a segmentof the “creative class,” and therefore it becomes an importantconsideration in local economic development policy. Furthermore, the scaleof the cultural sector matters in that a larger cultural scene and potentialaudience results in increased possibilities for cultural diversity and specialization.As the cultural sector and its audiences grow, the potential for sustainingmore esoteric arts appealing to a smaller part of the local populationis enhanced.

On the arts-production side, consider the effects of local arts production(even if not for local consumption) on the productivity of the workforce.First, the arts themselves are an income-generating sector of the economy. Asa creative industry, the arts benefit from the knowledge spillovers that canoccur when increased numbers of creators work in close proximity. Clustersin visual art, music recording, publishing, theater, and film production generatejobs and incomes themselves, apart from any effects that they may haveon other sectors of the economy, and the scale and importance of the arts-productionsector in this respect is unfortunately often overlooked. Second,there are cross-sectoral effects, which may occur through direct links—forexample, media and advertising firms draw benefits from locating in citieswith a vibrant artistic production scene. But there also are intangible effectsarising from a more broadly defined “culture of innovation,” whereby a city,through its working artists, develops an ambience that serves to foster creativethinking among the greater variety of knowledge workers who reside there.

The possibilities above represent a selection of those regarding the artsand economic development, but much research remains to be done. The evidenceon correlations between clusters of “Bohemian” artists and high-techentrepreneurship is just that: evidence on correlations, without much indicationof whether new investments in artistic clusters help create new growth inother knowledge industries. The rationale for the symposium that resultedin the chapters in this book, then, was to get beneath the surface to investigaterelationships between the arts and economic growth, generate new results, andinspire further research.

New Findings

In chapter 2, Jenny Schuetz brings her analysis down to the level of the cityblock, examining new art galleries and their locational choices and effects onneighborhoods. She looks at galleries in Manhattan, finding that new gallerieshave a strong preference for locating in what are known to be “gallerydistricts” and especially for being close to “star” galleries. She also notes thatthey prefer using old building stock or being close to historical districts (lendingsupport to Jane Jacobs’s famous dictum that “old ideas can sometimes usenew buildings … new ideas must use old buildings”) and that they preferlocations where there is high population density and high household income.She finds that “far from seeking out blighted neighborhoods in need of gentrification,galleries prefer to locate in high-amenity neighborhoods that arelikely to attract residential and commercial investment.” She finds the evidencethat galleries spur renewal of neighborhoods rather weak; instead, galleriesseem to anticipate neighborhood renewal rather than create it.

In chapter 3, Ann Markusen, Anne Gadwa Nicodemus, and Elisa Bradbury,analyzing evidence from California, find that the strength of local artscommunities is difficult to predict from socioeconomic data. Instead, individualsseem to respond to the availability of the arts, lending credibility to theclaim that arts entrepreneurs and local policymakers willing to invest in capacitybuilding are capable of influencing the spending patterns of locals. Thisfinding underscores that the economic value of arts production does not liesolely in its ability to generate a product for export (the so-called “export basetheory”); it can also generate local economic growth and net new jobs withinthe region. A local market for the arts can, of course, lead to an export market,but it need not start that way. Investments in the arts generate increasedlocal incomes by further increasing demand for local goods and services andby attracting human capital and entrepreneurship to the region.

What might states do to enhance capacity building in the arts at the locallevel? In chapter 4, Richard Maloney and Gregory Wassall consider in depththree Massachusetts communities that have benefited from the state’s Johnand Abigail Adams Arts Program for the Creative Economy (Adams Arts).While it is too soon to be able to say much about the long-term outcomes ofthe program, the authors were able to go into those communities and, ininterviews with a variety of local stakeholders, learn about the program’simplementation. They find that a culture-based local economic developmentstrategy is not something that can be successfully implemented simply byhaving a funded program on offer by the state. To develop a coherent plan thatresults in an actual economic strategy requires skilled practitioners who havethe time and energy to devote to the project, in partnership with local organizationsand local government.
(Continues…)Excerpted from Creative Communities by Michael Rushton. Copyright © 2013 by THE BROOKINGS INSTITUTION. Excerpted by permission of BROOKINGS INSTITUTION PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.