CREDIT: Jacqueline Morris (<a href="" target=_blank>CC</a>).
CREDIT: Jacqueline Morris (CC).

Policy Innovations Digital Magazine (2006-2016): Innovations: Creative Industries as Growth Engine

Feb 12, 2007

The cultural and creative industries are areas in which many developing countries enjoy some comparative advantage. The rise of the digital economy and the increasing commercialization of the arts create a window of opportunity for these countries.

These industries also offer more sustainable development options than traditional exports because the sector draws on the creativity of local artists and entrepreneurs, generating higher levels of local value-added. Moreover, the sector has strong growth potential and plays a key role in the arena of identity formation.

Cultural or creative industries are the economic activities of artists, arts enterprises, and cultural entrepreneurs, for-profit as well as not-for-profit, in the production, distribution and consumption of film, literature, music, theatre, dance, visual arts, broadcasting, and fashion.

Techno-Economic Change

New digital and information and communication technologies have revolutionized the industry's production processes, distribution channels, and consumption modes. Low-cost digital recording technologies have facilitated the diffusion of sound, text, and image production to small entrepreneurs without any appreciable compromise in quality. Feature films can be shot digitally at a fraction of the cost of older analog technologies.

Mass production technologies have been replaced by niche production and mass customization of ringtones, print-on-demand services, movies-on-demand, interactive media, and social networking sites like MySpace and YouTube. The diffusion of production makes the production stage of the value chain the most competitive, and margins have fallen as a result.

The convergence of the telecoms, telephony, the Internet, and cultural content has revolutionized product sales and marketing, and changed the nature of piracy and royalties collections. It has also upset the balance between independent companies and the major content distribution and marketing companies, thus giving the consumer greater choice. But these gains depend on wider access to Internet services and the expansion of interoperability between content providers, digital distribution channels, and consumption devices such as phones and iPods.

The whole system would be impossible without digital rights management, which facilitates consumer usage rights while protecting the works of creators from unauthorized distribution and unfair use.

The Global Cultural Economy

In economic terms, the cultural and creative sector is globally one of the fastest growing. From 1994 to 2002, exports in this sector grew from $39 billion to $59 billion. Estimates value the sector at seven percent of the world’s gross domestic product and forecast ten percent growth per year.

In most developed market economies, the cultural and copyright industries account for two to five percent of GDP and have generated consistent and stable growth above world average in the last decade, as exemplified in a rising share of employment and exports. Creative industries are also a key driver of the digital economy. Consumer demand for creative content is driving new sales in computers, broadband, cell phones, and e-commerce.

Similar trends are observed in large developing countries where there are strong capabilities in the audio-visual sector and large domestic and diasporic markets, such as Brazil, India, and Mexico.

The creative sector also has strong linkages with tourism. In some major cities and tourist destinations, cultural tourism is estimated to be as high as 40 percent of annual visitor arrivals. In addition, cultural tourists tend to spend more on local goods and services than the average visitor.

Challenges and Recommendations

The challenges that developing countries face in the creative industries differ from those they face in traditional export sectors. First, intellectual property protection and commercialization are top priorities. The creative industries cannot survive in the marketplace without adequate protection from copyright infringement. Without such protection, cultural entrepreneurs would be at the mercy of piracy, bootlegging, counterfeiting, and other forms of infringement such as unlicensed broadcasting.

Music is one of the easiest art forms to pirate as a result of the wide diffusion of reproduction technologies, such as recordable compact discs and Internet-based file-sharing and peer-to-peer formats like Gnutella, Napster, and Grokster. The latter technologies have helped to expand the demand for music but have also had a negative impact on the music industry. Sales have fallen to the tune of five percent per year since the late 1990s.

Second, research and development (R&D) must be placed higher on the agenda. In the cultural industries, R&D means investment in human and creative capital. The cultural industries start with creativity and account for a large share of investment in the sector. For example, the Recording Industry Association of America estimates that the U.S. music industry spends at least 15 percent of its turnover on research and development, which is higher than in the computing, chemicals, and aerospace industries. Investing in creative capabilities calls for the establishment of professional training institutions, as well as business support mechanisms for young artists and cultural entrepreneurs.

Last, marketing and branding are crucial because audience loyalty is difficult to build and to predict. With the rise of the digital and Internet economy there is a tendency to underestimate how challenging it is to introduce new genres into the world market for creative goods and services. Ultimately, the issue for developing regions like the Caribbean is whether they will be able to develop the expertise, distribution infrastructure, and marketing savvy to tap into the growth potential of the rising creative sector.

Governments and corporations in most developing countries have not fully appreciated the ways in which their economies can diversify and take advantage of emerging opportunities. Often the cultural industries are not seriously regarded as an economic sector, the key stakeholders are poorly organized, and its economic value remains largely undocumented. In this context, policy measures have typically been absent. Changing this mindset is the first step forward.

Other recommendations for fostering environments conducive to the development of cultural and creative industries include the following:

  • Improve government-industry relations through the harmonization of government policy on trade, industrial, and intellectual property policies.

  • Document the economic impact of the cultural industries and establish benchmarks to promote jobs, business development, and export expansion.

  • Increase local and regional content on the airwaves (radio and TV) through local content legislation or regulation where needed.

  • Develop cultural industry associations to represent the interest of the sector and also to develop a code of ethics and standards for remuneration rates and work practice.

  • Improve access to finance, credit, and business support services for emerging and export-ready firms and artists.

  • Enforce anti-piracy laws, protect copyrights, and establish public awareness campaigns.

  • Expand the linkages between the cultural industries, the tourism sector, and the wider economy.

  • Develop Internet-readiness for alternative broadcasting, marketing and distribution of cultural goods, services, and events.

  • Upgrade the human resource capabilities of the cultural sector through training in the arts, as well as training in arts administration, management, and cultural entrepreneurship.

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