This paper offers a policy-oriented perspective on contemporary academic discussions of the rise of the “creative industries”. This is a topical issue in Australia because the recently commenced
The paper seeks to illuminate the ways in which economists who started by seeking to understand science, technology
To this end, I use this paper to frame and promote the following three propositions. These are derived (loosely) from experience in applying “neo-Austrian” economic theory in real public policy settings:
This paper is exploratory and is written from a policy analyst’s rather than an academic perspective. This concern with policy explains why I have focussed on trying to understand the nexus linking the creative industries with science and innovation policy through the “lenses” of
The essence of what I have to say is that we should all, in both the creative industries and the science and the innovation policy communities, be paying more attention to how creativity translates ignorance into uncertainty and risk – whether this be in literature, art and the new digital media or science, technology and business innovation. This perspective places culture centrally in both the creative industries and science and innovation policy. In so doing, such a focus places us at the very edge of what economics conventionally deals with, but far more centrally with what cultural studies and the creative industries deal with (identifying patterns and telling stories amidst great complexity and using choices that are inter-dependent in a social context).
The paper avoids rehearsing definitions of the nature and scope of the creative industries – taking that as a given. It also assumes general familiarity with relevant aspects of contemporary economics as picked up in the literature on the creative industries, together with broad familiarity with contemporary public policy concerns – particularly with regard to knowledge-based economic development. In the spirit of seeking additionality the paper also takes it as given that the rise of the creative industries has important lessons for science and innovation policy with respect to open source intellectual property, user-led innovation and inter-disciplinarity.
A potentially interesting “co-evolution” dynamic that appears to be emerging. This links economic theorising about innovation and scientific and technological advance with a forensic examination of the causes and consequences of the rise of the creative industries. This link is exemplified in the use of the Schumpetarian phrase “creative destruction” in relation to the creative industries. I refer to a co-evolution dynamic because the economic theorising being drawn upon by those studying the creative industries was itself stimulated by the perceived inability of neo-classical economics to handle scientific and technological advance as processes that are endogenous to economic growth and development. Characteristically, the neo-classical perspective involved scientific and technological advance being treated as exogenous “shocks” to established equilibrium conditions. For several decades economists, and scholars commenting upon economics from related disciplines, have sought to define approaches in which scientific and technological advance are treated as
One aspect of this ‘endogenisation” project has been a trend toward merging the fairly technocratic concepts of scientific and technological advance with the far more general and business practice-oriented concept of “innovation”. This has resulted in a situation in which we no longer talk of “technological innovation” and “business innovation” as distinct processes (distinct in the sense that business innovation can be driven my marketing and strategy and need not entail any scientific and technological advance to be successful). Rather, we now use a portmanteau term that seeks to collapse the variety involved in innovation – a fashionable stance that, arguably, generates entropy in debate by encouraging arguments over causality that would not occur if the “old school” terminology had been maintained.
Another factor has been the inputs into the creative industries from “complexity science” – mathematical work on complexity in which feedback, self-organisation and other properties generate features that are “emergent” from the system due to the types of complexity involved. In the early 1990s this author published some work (based upon research funded by the European Commission) that sought to open up an analytical window for understanding how culture influences the evolution of science and technology. This was in order to try to counter-balance what, at the time, seemed to be a rather technocratic orientation to “heterodox” economics linked to the rise of advanced non-linear mathematic methods (see Farmer and Matthews, 1991 and Matthews and McGowan, 1992). At that time there seemed to be insufficient attention paid to the social construction of technology in the heterodox economic literature – a shortcoming that, arguably, risked missing the whole point of
Then, as now, the literature examining the social construction of technology provides a useful interface between the creative industries and science and innovation policy precisely because it can illuminate how national cultures and socio-political structures and norms influence the directions taken in technological advance:
The paper has a particular focus on the potential importance of subjectivist “Austrian” economic perspectives precisely because these may these offer insights into how social organization around creativity actually works in practice. These perspectives are characterised by radically different assumptions about knowledge, information and the existence of sheer
Firstly, with regard to uncertainty, rather than a world of quantitative “parametric uncertainty” the more radical Austrian perspectives describe a human condition in which creativity is a necessary response to qualitative uncertainty (effectively ignorance) over what the future has in store – both good and bad. In some circumstances there are no probabilities to assign to future states of the world, but rather the necessity to act
Indeed, this is also a domain that more conventional economists, and those who study business innovation, have also stressed the importance of. The movement from invention to innovation, that is to say the
From this perspective, the creative industries advocates may have the most to offer general science and innovation policy if they balance understanding of the social domain, Social Network Markets for example, with the need to tolerate the “outlier” personality types that can sometimes be critical agents of creativity. Being too “politically correct” on the individualism front may potentially limit the relevance of what the new economics of creativity has to say.
There is of course the well-understood Bergsonian “short-cut” feature of creativity – the creative insight that may emerge unexpectedly but that can later be reconstructed logically, as Gerald O’Driscoll and Mario Rizzo comment:
After this undivided insight is gained, an analyst may
Looking backwards in time, the creative insight or act can appear to be at risk of not occurring because the logical steps can be followed
It appears to be the case, therefore, that this (old) Australian perspective aligns with key aspects of the new economics of creativity. By implication, we should be seeking to capture as many insights as we can from Austrian approaches, not least in order to avoid the re-invention of concepts. This is the window that neo-Austrian perspectives are able to open on how culture impacts on creativity.
Given the interest in the rise of China amongst students of culture and the creative industries it is worth drawing some links between Chinese culture and attitudes toward uncertainty and risk. The following points are derived from examining cultural aspects of investment risk in China. They are presented here in order to illustrate the strength of cultural factors relevant to uncertainty and risk – business behaviour as a reflection of wider cultural norms.
Whilst China developed advanced mathematics it never developed probability theory – even though gambling has been popular for a considerable amount of time. Arguably, this mathematical lacuna is logical given the importance placed on fate. A belief in fate, in this gambling sense, can encourage risk-taking. Indeed, it is plausible that loss of face is less of an issue in those business situations in which a deal goes sour due to unanticipated external developments rather than incompetence.
The stereotypic view is reported to be that Chinese business people are more risk averse than their Western business counterparts. However, the Chinese business community (whether mainland based or elsewhere) has access to extended informal networks able to supply low cost finance at short notice. This can mean that the ‘downside’ impact of things going wrong is less severe. This, in turn, can lead to a greater preference to take certain kinds of investment risk (see for example Hsee and Weber, 1999, and Lau and Ranyard, 2005).
History has some lessons in this respect. In the early years of the twentieth century China was major host for foreign investment. Bonds were issued in order to pay for defence spending and infrastructure modernisation (railway building etc). Domestic Chinese investment tended to focus on the higher risk, higher reward areas associated with the investment opportunities associated with a “gold rush” economy, this left a gap that foreign investors filled.
European investors, in particular, were well positioned to finance such investments because they had been pursuing portfolio diversification and were therefore able to handle the associated risks and longer time horizons. This inflow of foreign capital caused major political tensions within China associated with a view that legal protections for foreign investors represented an infringement of Chinese sovereignty. Rising debt levels associated with these large-scale infrastructure investments were subsequently used by the Great Powers (Britain, France, Germany, Russia and Japan) as a basis for political influence driven by expansionist territorial aims. The political backlash associated with clashes between domestic and international investors and international political tensions contributed to the 1911 revolution in China (Goetzmann and Ukhov, 2001).
Recent econometric work has confirmed that Chinese investors in equities continue to avoid portfolio diversification in order to offset risks. Chinese stocks and shares tend to be priced on the basis of levels of total risk prevailing in the market rather than company-specific risks: unsystematic risk is priced but systematic risk is not. There is also a strong preference for liquidity in investments. The finding on risk pricing is at odds with established portfolio theory and robust quantitative analyses of how stocks and shares are priced in Western financial markets. Combined with the preference for liquidity, this re-enforces the view that there is a culturally-based pre-disposition for speculative investments over short term time horizons within China (Eun and Huang, 2002).
Findings of this type indicate that the sheer size of the Chinese economy, combined with some particular approaches towards the risk-reward relationship, lead to a historical tendency to generate a “gold rush” economy. Gold rush economies are associated with high levels of speculative short-term investment that exploit the large scale of economic opportunities, and which open up substantial niches for foreign investment in infrastructure related investments with longer-term, lower rates of return. The existence of these culturally driven “risk profile niches” in turn leads to political tensions relating to foreign inward investment. It is significant that this pattern may be persisting.
Unlike in China, the main thrust in the development of probabilistic Western thought in economics and finance is to use the statistical properties of large numbers to manage risk. This is exemplified in how banks and other financial institutions handle portfolio and lending risks. The broad aim in the West is to make sure that there is a fall back position in the “safe” statistically likely region whilst still endeavouring to generate a more favourable position in the risk-reward relationship.
This strategy is re-enforced by Western norms of corporate governance and financial accountability and transparency (e.g. “Prudent Man” legislation). Broadly, this requires that risks are only to be taken with other investor’s money if the risks can be quantified in a transparent and auditable manner.
The Western approach to the risk-reward relationship can be contrasted with the Chinese (and more generally, Asian) approach. From the latter perspective the prudent statistically likely region of the risk-reward relationship is of lesser interest. The starting point is to search for a far more privileged position in the risk-reward relationship than can be found in the statistically likely region.
To give a practical example of this approach, there is currently a tremendous emphasis on reforming the performance of banks in China. Improved governance (transparency and accountability) is seen as central to this. The high incidence on non-performing loans (a problem not just restricted to China in Asian terms) has been attributed in part to a failure of bankers to understand and apply the statistical norms reflected in the risk-reward relationship. This lacuna becomes a particular problem when economic downturns impact on collateral values, default rates etc (see Hamid 2005).
From the perspective advocated in this paper, the basis of dominant Chinese business strategies is to exploit the existence of risk-reward clusters associated with cultural factors and extended networks as a basis of comparative advantage. This hypothesis is supported by the emphasis placed on trust in a fairly ‘binary’ manner within the Chinese business community. There is a tendency to seek to choose between potential business partners via trust-building activities with the aim of determining who is and who is not trusted. Once that decision has been made (and it may take a considerable amount of time and effort to arrive at a decision) then things can happen quickly – and profitably. A preference to exploit outlier clusters in the risk-reward relationship places great emphasis on excluding partners who may increase the risks faced – and in so doing undermine the value of that outlier cluster (for all those involved).
The Chinese tend to approach control processes in business in terms of individual people, mind-sets and relationships rather than as formal processes. This is understandable given these attitudes towards risk – strict adherence simply to formal processes tends to be associated with statistically likely outcomes rather than the outlier regions of the risk-reward relationship associated with individuals and associated inter-personal relationships. This is also a perspective that helps to illuminate attitudes towards corruption.
This digression into Chinese cultural issues impacting upon investment risk illustrates how central culture is to the politico-economic process. In turn, this lends some support to the central tenet in this paper – the evolution of cultural attitudes to uncertainty and risk provide a strong link between cultural studies and the creative industries and science and innovation policy. Above all, looking at culture and creativity through an uncertainty and risk lens appears to generate analytically tractable and compelling insights.
My main argument is that advocates of the creative industries perspective may be best positioned to contribute to science and innovation policy if they were to place a particular emphasis on understanding the cultural dynamics of creative processes – framed as
There is still an important role for entrepreneurs in an “Austrian” sense: the individual people who take “outlier” risks in order to be creative and exploit this creativity. We must balance individualism with collective action in order to grasp how creativity works, in so doing rectifying shortcomings in both the Austrian and contemporary new economics of creativity. These creative entrepreneurs and creative “collectives” share a distinctively Austrian project in the sense that, as rational agents, they are
This “mutation mechanism for probabilities” is only part of the story, but it may help us to understand what the new (and old) economics of creativity can do to inform science and innovation policy:
It is not hard to show that this is also a feature of many technological inventions and that (subsequent) innovations are driven by the fundamental human desire to transform ignorance into uncertainty and risk. There are whole rafts of imaging technologies (X-ray methods, microscopes, telescopes etc) that provide us with data that we would not otherwise have access to (i.e. that translate ignorance into indications). Much scientific theory is concerned with translating ignorance into uncertainty and risk (i.e. the analysis of complex data sets in order to generate patterns of risk – such as crop planting strategies in the face of unpredictable weather patterns). The list is almost endless. Indeed, I have argued elsewhere (and with some success in influencing policy thinking in Australia) that we should pay far more attention to the ways in which public science provides us with “prescience and preparedness”. This outcome class works by alerting us to uncertainties and risks that we may face in the future, in so doing allowing us to change our behaviour
Hayek’s interesting perspective is that:
The implication is that scholars concerned with culture and the creative industries might be well advised to join with the science and innovation policy community in exploring the extent to which culture and creativity can usefully be approached as an effort to translate
“Many of the patterns of nature we can discover only