By Javier Hernández-Acosta
Marketing faculty at the University of the Sacred Heart in Puerto Rico and lecturer in the Master Program in Cultural Agency and Management at University of Puerto Rico
Understanding “Cultural Ecosystems” in Creative Industries Policies.
Creative economy has become a concept adopted around the world. Countries have developed research, policies, and strategies to promote cultural and creative industries as a viable alternative for economic development. In Latin America, countries are at different stages of implementation, trying to contextualize the discourse to their cultural, political, economic, and social conditions. In the midst of this discussion, it is important to develop frameworks to promote this sector’s economic potential based on the production dynamics and value-creation differences. This paper discusses the concept of cultural ecosystems as a broader approach to understand diversity, interdependence, and collaboration in the cultural and creative industries.
Keywords: cultural ecosystems, cultural entrepreneurship, creative industries policies, cultural entrepreneurship
Although the concept of creative economy was developed at the beginning of the 2000’s (Howkins, 2001, DCMS, 2001), some Latin American countries are starting to adopt the discourse as a viable alternative for economic development. Based on the experience of some European countries, the government is allocating resources, creating public institutions, and developing programs to support the creative industries, some through cultural ministries and others through economic development departments. Various international organizations, probably led by UNCTAD (United Nations Conference on Trade and Development), have established the direct economic impact of the creative economy, while others as UNESCO (United Nations Educational, Scientific and Cultural Organization) have focused on the role of this developing sector in a broader approach (UNCTAD, 2010, UNESCO, 2013). Although great advances have been made, definitions vary between countries, sometimes creating confusion regarding the role of sectors such as heritage, the arts, new media, and technology.
The creative economy discourse has also caused tensions with arts and heritage policies, mostly through the arguments of the risk of an absolute market orientation toward cultural production. Sometimes, public policies developed separately for different sectors to avoid this debate. Interestingly, this separation could result in a limitation of the economic opportunities of the cultural sectors by marginalizing their impact and development strategies. To address this conflict, the experience of Puerto Rico will be analyzed as a recent case in which a national cultural policy was developed. The main objective of this paper is to present a “cultural ecosystem approach” to the cultural and creative industries. Analyzing the creative sector as an ecosystem, beyond individual businesses could promote better results for incentives and development strategies for the cultural industries.
Creative Economy: Beyond the sectors
The concept of creative economy has been adopted to describe a group of industries whose main input is creativity (Howkins, 2001). Its main definitions are still based on industries, not considering traditional business practices and its effects on sustainability. Some examples include sectors such as the music and publishing industry. In both cases, although the final product is always a creative good or service, some business models, especially in large conglomerates, have developed unproductive, unethical, and insensible business practices. They are industries with an excess of intermediaries, high fixed costs, and high entry barriers (Smiers, 2013, Caves, 2000). None of these characteristics benefit cultural production; therefore, transforming these practices should be under the scope to create/encourage a new creative economy.
A new definition of creative economy would then have to be guided by a combination of creative production and creative business practices. These practices should be framed in a culture of innovation, solidarity, sustainability, diversity, and entrepreneurship. An example on how to develop a creative economy is the concept of value. Traditionally, we have reduced the concept of value to the monetary view. However, the dynamics of value in the cultural sector operate more broadly and are balanced between economic and cultural value (Throsby, 2001). Still, the economic value could be seen as monetary (GDP, employment, trade balance, etc.) and non-monetary, such as its contribution through creativity, education, and innovation. This also leads to the debate on entrepreneurial orientation between product vs. market. A market orientation does not necessarily lead to a greater economic success in the cultural and creative industries. In fact, on many occasions, achieving a creative economy requires managing opportunities for creative work generated outside the market economy, ensuring artistic innovation and diversity. Those inputs are the determinants of success in sectors such as tourism and lead to innovation in traditional sectors.
In terms of cultural value, we must think about multiple dimensions such as aesthetic, historic, and the non-use value. This means that cultural activity creates value for some people even if they have not attended. In the case of museums, people give value to their existence through variables such as prestige and the option to attend even though they have not (Frey, 2000). Also, it is important to weigh the balance between intrinsic and instrumental value. While this intrinsic value is more the focus of aesthetics, instrumental value could include the social or educational value, besides the economic value; something well developed by George Yádice through the concept of the “expediency of culture”.
The case of the music industry could be discussed also to understand how these value dimensions must redefine the way in which culture is managed. In the music industry, it is normal and reasonable for the record label to have an almost absolute share of the profits. After all, if they assume most of the investment and risk, a big share of the profits in reasonable. But this is true under the assumption that investment, risk, and ROI (Return on Investment) are only monetary. In real terms, the artists also make a cultural investment and assume a cultural risk; therefore, if this production factor is recognized, the return on investment should be much more balanced than in traditional practices. If cultural and creative entrepreneurship does not change these practices, a creative economy discourse will not be sustainable.
The pyramid of the cultural ecosystem
In the process of developing new frameworks to promote sustainability in the creative sector, we propose understanding the cultural ecosystem as a priority of creative industries policies. The ecosystem concept is very relevant to the cultural sector. It could be described a set of interdependent organisms that share a habitat, which is precisely the way in which cultural activity works. Unlike other industries, it is necessary to establish that the economic activity is not generated in isolation. It is an environment in which each agent has its role and altering that system has negative results.
On many occasions there have been discussions about cultural industries as a sub-segment of the cultural work, focusing on organizations and ventures that have a market orientation. Under this premise, there are the Wones” and the “others”, those who believe in the market economy and those of “art for art’s sake”. However, this idea does not support the ecosystem approach. In the latter, all cultural agents have a role in the creative economy, and the responsibility of public policy is to recognize that role and enhance their development. Indeed, the main benefit is that some ventures nurture others with talent, by providing research and development (R&D) of artistic and creative practices, promoting education that translates into audience development, promoting diversity, and covering certain gaps in their value chain, among other activities. Therefore, it is important to establish that cultural organizations and businesses also have a responsibility to understand their role in the ecosystem and incorporate strategic actions to strengthen it.
A strategy for the development of cultural and creative industries should be designed primarily to strengthen the ecosystem and not only incentivize individual companies and start-ups. The first approach ensures the latter, but not the opposite way. Sometimes, the development of high-impact ventures require supporting and subsidizing projects and organizations whose main contribution is not a direct economic impact, but through the audience and talent development and innovation. The concept of value chains is of great importance to understand these dynamics. The industries are composed of value chains that include stages such as training, creation, production, distribution, consumption, and conservation. Therefore, an ecosystem requires a proper balance between all components. Otherwise, the imbalance will affect the sustainability of the sector. Another key aspect is to understand that a cultural ecosystem is not only composed of cultural enterprises, as there are businesses in other industries that provide key inputs for its development.
A pyramid schematic with three levels is proposed as a framework to understand a cultural ecosystem. In the pyramid, the highest levels will produce a higher direct economic impact. However, as expected in a pyramid structure, their presence depends on a broad and solid base. In between, there are a segment of market-oriented businesses and organizations with a better balance between economic and cultural value. This section will discuss the main characteristics of the three levels in the framework.
“Input Firms” This level is composed mainly of individual artists and organizations in the segments of training, creation, and conservation in the value chain of the cultural sector. Usually, their main focus is to produce or preserve artistic and cultural goods and expressions. In many cases, their activities are based on traditional or highly innovative and experimental cultural expressions, so their scope is mainly outside the market economy. These sectors often work on a project-based basis, dependent on incentives, grants, or subsidies. In many cases, financial sustainability is their main challenge because of the lack of formal structures and continuity. Yet, this also could represent their greatest contribution. Operating outside the market (supply and demand logic) ensures both ends of the value chain: ensuring the preservation of traditional cultural expressions, or serving as innovation agents that alter the established order in artistic and cultural production.
“Competitive Firms” This level is composed of organizations or companies operating in a market-oriented dynamic. In many cases, companies operate under a sector, such as traditional arts, media, entertainment, and other creative industries. In many cases, these organizations compete in a free market economy and receive their main income streams from services to private companies or through the sale of goods and services to final consumers. Sometimes, they access government funds to develop specific projects, although it is not usual to sustain their operations through subsidies.
“High-Impact Firms” This level is composed of ventures that have a direct economic impact through the sale of cultural goods and services for local and international markets. These cultural and creative projects sometimes have a direct impact through revenues and employment, and promoting local and international recognition. Some of them are sometimes supported by multinational companies and benefit from digital business models.
There are several key assumptions of this model. The nature of the pyramid suggests that if the base is weak, the emergence of high-impact projects will be more difficult. Similarly, the pyramid does not mean that companies will level up. Although some companies may show a sustained growth, the logic of the ecosystem recognizes the role of each component in the macro analysis of the ecosystem. Therefore, it is a mistake to think that it is necessary to focus on the higher levels and avoid those companies that require subsidies to survive.
Another important aspect of the ecosystem approach is that the model should be viewed beyond sectors. For example, although there is an ecosystem of theater, this core is part of the broader performing arts sector, and often has great linkages with other sectors such as television, cinema, and advertising. Therefore, it is important to analyze the value chains from a broader perspective because probably the development of a sector depends on strengthening activities outside the artistic discipline. Also, in some cases, promoting the development of a creative ecosystem will require analyzing and promoting the development of industrial activities outside the creative sector, but represents providers of key inputs for creative activities such as crafts, industrial design, cultural tourism, or fashion.
Spillover Management in the Creative Sector
The “cultural ecosystem” approach requires understanding the role and importance of cultural and creative enterprises in the ecosystem. Normally, spillovers are described as positive or negative impacts over other agents without assuming its cost or benefits. For this reason, public policies are sometimes responsible for these market inefficiencies. In this case, it is important for both organizations and governments to understand these spillovers and support those that strengthen the cultural sector.
Hernández (2014) proposes the concept of “cultural return” as a complementary analysis to establish and understand the impact of cultural and creative organizations over the ecosystem. The model includes seven effects that affect the cultural ecosystem, some of them in the supply side and others on the demand side. Effects on the supply side consider the contribution of an organization in developing human capital, linkages (intra or inter-industry), diffusion of innovation, and clustering. On the demand side, effects are related to audience development, mainly through education, participation, and audience diversity.
This model presents the challenge of identifying indicators and methodologies, both for the government and organizations. It is important to understand that these effects should be considered as a key factor in promoting the sustainability of the cultural and creative sector, which requires an analysis beyond the direct economic impact.
The Experience of Puerto Rico. This approach suggests that creative economy policies should also be under the scope of cultural policies. Revenues, value-added, employment, and trade balance present a limited impact of cultural businesses and organizations. Governments that are developing policies to stimulate the impact of the cultural and creative sector should focus on building and sustaining cultural ecosystems in the different sub-sectors. To do this, a value-chain analysis is a key activity that must be used to diagnose its condition. The analysis of each stage should include identifying the agents, their role in the ecosystem, and the interaction between the stages. This analysis will allow establishing which stages have the main gaps and which projects could promote overcoming those challenges.
Puerto Rico is a scenario where this approach is being discussed. In 2015, the Cultural Development Commission (2015) presented a strategy for the cultural and creative industries based on an ecosystem approach and the multiple dimensions of value generated by this sector. The analysis made by the Commission establishes that most of the economic impact of the creative sector was generated in the production and distribution stages in the value chain. But most of the contents are either imported or generated by small cultural and creative organizations. For this reason, the proposed approach includes promoting sustainability in those small organizations with less economic impact, but with a greater contribution to the cultural ecosystem.
The effects of this approach in public policies include diversifying financing alternatives based on their role in the ecosystem, size and growth potential, such as grants, subsidies, seed money, loans, guarantees, and management support, among others. In general, each level will require different incentives and support. Finally, the recommendations put emphasis on using the cultural information system to analyze the value chains and develop initiatives to support and ensure its development.
Questions for further discussion
The aim of this paper has been to present a “cultural ecosystem approach” to creative industries policies. The pyramid model could contribute to the understanding of the ecosystem dynamics in cultural production. At the same time, this could result in more effective policies and performance indicators. Further research is necessary to understand its applicability and the effectiveness of programs promoting the cultural and creative sector with this approach.
The following questions are presented to encourage you to deepen the subject and stimulate debates regarding the development of cultural and creative industries.
1. What should be definition for a sustainable creative economy? Should it be limited to sectors or should it include sustainable business practices?
2. What are the major challenges of each level in the cultural ecosystem pyramid and what incentives could contribute to their development?
3. What are the dynamics and interaction between organizations and business in each level and how should we promote a greater fit between cultural agents in the value chain?
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Author: Javier J. Hernández-Acosta is a marketing faculty at the University of the Sacred Heart in Puerto Rico and lecturer in the Master Program in Cultural Agency and Management of the University of Puerto Rico. He is a musician and founder of Inversión Cultural, a cultural incubator that supports creative entrepreneurs in Puerto Rico. He has been a government advisor and has published in books and journals on cultural policy, cultural entrepreneurship and creative economy.
Header image: Anton Novoselov. Industrial tetris – Anton Novoselov on Flickr