Update Note 17.4.15

This article from 2007 represents the first attempt to tackle this issue. The scenario project for the Australian music sector was launched on 25 March 2014, and it is appropriate to leave the 2007 article unchanged as background (apart from minor amendments) because it forms an important basis for what we embarked on and the contents remain largely valid. The same applies to the February 2007 lecture Four kinds of economic capital, which has been retained in the original form as it was typed at the University of Trinidad and Tobago.

The difficulty of quantifying cultural and ecological capital, coupled with the need to retain GDP in the analytic framework, is discussed in the first article in the scenario project, Putting Numbers on Our Cultural Assets: Not Yet Possible (dated March 2014). Between then and today, the series of papers in the project has increased to 10, listed at the end of each paper in the series. The final paper presents four music sector scenarios (2015-2035).

What is Cultural Capital?

What economists call cultural capital has an independent impact on future economic growth which can be either nurtured through appropriate policies or allowed to decline because of neglect or through loss of cultural richness and diversity in the many and varied communities making up a nation. Cultural capital is an economic force in its own right that adds to future economic growth, and it should be recognised as such by policy-makers in international negotiations as well as domestically.1

The concept is based on economic theory as this has developed over more than two centuries. Other social sciences have different concepts which are relevant in other contexts such as Pierre Bourdieu’s sociological definition of cultural capital.Cultural capital has a different meaning in sociology. Pierre Bourdieu developed it to refer to individual competences, skills and qualifications — any advantages that give a person a higher status in society.

The concept of cultural capital, especially the intangible aspects, is also obviously related to what public policy experts and others call ’social capital’ – described by Harvard professor Robert Putnam as ‘the glue that holds society together’, and ‘deteriorating fast’. Thanks to John Wardle for this reference.

There are four recognised kinds of what economists call economic capital: physical, human, natural, and cultural. A brief exposition on the four kinds of economic capital may be found in a lecture I gave to a postgraduate group at the University of Trinidad and Tobago (UTT) in February 2007, Four kinds of economic capital. It emphasises the possible substitution between physical and human capital (dramatically developed in the book discussed in the next footnote), important for a country relying increasingly on education and technology to become less dependent on fossil fuel resources.2

Some kinds of capital can be replaced by other kinds in the generation of economic growth. Perhaps most importantly in this context, human skills and ingenuity have to an increasing extent replaced manufactured or physical capital in the generation of an economy’s capacity for growth.3 The first central concept to bear in mind is therefore substitution: the extent to which one type of economic capital can be replaced by another.

Importantly, however, some types of economic capital have few or no substitutes in the sense that they can be replaced by other types of economic capital without causing loss in the quality or quantity of this capital. This leads to the second central concept: sustainability. Most dramatically, degradation of natural capital – the air, water and land resources of the planet – has been allowed to occur in the belief that these basic resources can be used up legitimately in the process of creating physical capital and using it to produce goods and services.

So, this paper is about substitution and sustainable development. Some economic capital can be replaced by other kinds, some can’t without endangering the well-being of future generations.

Some possible combinations illustrating substitution and sustainability are:

  • unsustainable substitution: physical economic capital (and products of physical capital manufacturing plants) created through the depletion of natural capital — by far the most prevalent phenomenon in a world of ecological degradation.
  • sustainable substitution: human capital reducing the need to use physical capital, as in today’s knowledge economy, or, to take another crucial example, renewable energy taking over from climate-changing use of what are also exhaustible fossil resources.
  • joint creation of physical and cultural capital: cultural heritage buildings that take on additional value in their capacity as iconic cultural structures.
  • joint creation of human and cultural capital: creation of cultural ambience as a by-product of better education.4
  • cultural heritage developed through a society’s history and traditions leading to richness and diversity of culture: sustainable if nurtured and protected, unsustainable if not.

Of course, the world is more complex than these few examples suggest. The point, however, is that substitution between different kinds of economic capital developed through technology and human ingenuity, and sustainability through nurturing what has been given us by nature or through our cultural traditions to pass on to our descendants, govern whether long-term economic growth occurs as a result, or is retarded.

Using natural capital, ultimately the atmosphere, to boost the growth in physical capital will ultimately lead to depletion and economic stagnation or worse in the absence of some currently unpredictable technological fix. Similarly, as this paper argues, depleting or failing to nurture our cultural heritage will ultimately result in reduced economic growth. All four types of economic capital are instrumental in furthering economic growth, and neglect leading to a diminution of any economic capital in a particular community will lead to reduced future economic growth in that community.

Physical capital (the ‘classical’ kind to which all other kinds were subservient in past economic models) can to a considerable extent be replaced as technology advances. The current transition into the information age of what Tom Friedman calls a ‘flattened world’ is a prime example. The move towards new technologies to save on energy usage is another, which aims at mitigating or reversing the degradation of natural capital.5

Human capital (based on education and technological development) is a prime mover in reducing the rate of degradation of natural capital, hopefully in time! This is a brief statement of a very big subject, but if need be, see once again Four kinds of economic capital and other notes.

Natural capital has been exploited in the past, and still is. Little further exploitation is possible if we are to hand our planet over to coming generations intact – especially as far as our non-renewable atmospheric, oceanic and terrestrial resources are concerned. 6 Relying on spectacular new technological developments such as underground sequestration of carbon dioxide to combat global warming may catch us short, given the time and cost involved. So would failure to promote new renewable energy technologies to replace fossil fuels and promote and demonstrate energy-saving measures we can realise over a few years.

Cultural capital, finally, is akin to natural capital in the sense that its degradation will reduce our communities’ capacity to develop economically, whereas its enhancement will assist economic growth.7. It overlaps with physical capital in the sense that structures such as museum buildings and concert halls can be replaced by other venues for cultural experience, but the original buildings may still retain economic value above their strictly commercial real estate price as depositories of artefacts or because of the detailed arrangements of seating and stages. That additional economic value would not occur for ordinary buildings but represents a genuine addition that can only be defined as cultural economic capital — just think Sydney Opera House or other major cultural venues.

With human capital it overlaps to the extent that better education may lead to higher cultural sensitivity, and we cannot underestimate the importance of education. But by how far does this go? Even the best-educated scientist may not be particularly culturally sensitive in an education system that is biased against the humanities and arts. It all comes back to the qualities of the education system, how our society and political systems function and respond, and especially the way in which human and cultural economic development interacts.

Both natural capital (in the modern sense of concentrating on ecosystems, air, water and land resources) and cultural capital emerged as independent economic concepts less than two decades ago. They both play a crucial role in our understanding of where our economy and society are likely to head over coming decades.

This paper sets out to reinforce what other economists have tried to demonstrate: that cultural ambience and other intangible cultural capital has an independent influence on future economic sustainability and growth which cannot be explained by technological and educational advances. Replacing the Sydney Opera House or the Los Angeles Getty Center (which both quickly achieved iconic cultural value beyond what real estate statistics could possibly explain) with even more shining edifices wouldn’t obliterate the independent cultural economic value that these buildings have added in quite a short number of years.

In summary, the paper reviews four recognised kinds of economic capital: physical, human, natural, and cultural. It goes on to demonstrate the similarity between the last two of these, as argued by leading Australian cultural economist David Throsby and reinforced by my own comparative analysis of the Stern Review of the economics of climate change, which Sir Nicholas Stern completed for the British government in October 2006. It concludes that as independent contributors to economic growth (as well as helping to sustain cultural infrastructure and ambience), a nation’s cultural assets and cultural diversity do need continuing protection from internal and external threats.

These threats are vividly demonstrated in the address Dick Letts gave to the IAML conference in Sydney in July 2007, reproduced under International Free Trade and the Issues for Music and Music Copyright in this knowledge base.

Four Kinds of Economic Capital

The Classical View: Physical Capital

‘Capital’ in economic theory is not a monetary concept, but refers to long-lasting assets which produce goods and services. Up to the second half of the 20th century these were all perceived to be physical capital resulting from investment in plant and equipment, buildings and other productive facilities including new technology. To produce goods and services required inputs of other factors of production:

  • Labour, provided by the employed workforce in return for wages and salaries
  • Land, which would necessarily become increasingly scarce and expensive as total demand for goods and services grew over time, and
  • Enterpreneurship supplied by those organising the labour, land and physical capital into business ventures in return for profits.

The development of physical capital was seen as the driving force for economic growth in the mid-20th century.

A persistent aspect of the theory is that for reasons of economic efficiency – in the sense of producing at the lowest possible cost – the movement of capital and other resources should be as unrestricted as possible, as should exchange rates and international trade in goods and services. This is a purely economic view which pays little attention to other types of economic capital and how these can be fostered in individual nations. Of course, in practice there are restrictions on movements of capital resources and labour, including immigration laws; nevertheless, the current globalisation trend remains dominant.

Human Capital

The human capital idea was refined in the 1960s by Gary Becker, who received the Nobel Prize in Economics in 1992 for it. The keys to human capital are, one, education and two, technology and innovation. Or we may say that human capital is to a large extent the result of education which fosters the ability to (a) innovate and develop and (b) use technology. The challenge to any society is how to achieve the most efficient mix in the interest of competitiveness and human welfare.

Of course, human capital also includes the classical ‘worker’ who economists previously saw as the factor of production called labour without specifying his or her education and training, whether on the job or elsewhere. But while the old factor of production was really just an input into the productive process, human capital in all its diversity is recognised as a living and vibrant resource that can be nurtured and can help protect a country’s economic growth and independence.

As a result, human capital adds to the stock of capital in its own right rather than being subsumed into a production function entirely in aid of physical economic capital. Human capital is to an increasing extent a substitute for the physical capital stock as we move more deeply into the knowledge and information age where much productive capacity has become less tangible, less dependent on physical capacity and infrastructure. The entrepreneur also fits the human capital category, with his or her special managerial and risk-taking functions.

Developing the quality and quantity of human capital, which inevitably involves education, naturally includes developing what will add to the future cultural worth of a society. However, development of human economic capital through education is not the only influence on a society as should be abundantly clear from even a cursory glance of so-called developing nations. There is in any country an innate culture to be nurtured which is likely to have independent economic value.

As we shall see below, the modern concepts of natural and cultural capital also changes the total amount of capital which is the justification for treating them as separate entities. The change, however, is not necessarily in a positive direction, as is fairly evident for ecosystems and non-renewable resources. But cultural resources can also deteriorate, if not properly nurtured and maintained.

Natural Capital

Like labour has morphed into human capital, so the other factor of production, land, has developed into the vastly more inclusive concept of natural capital. It encompasses all non-renewable and renewable resources on, below and above the surfaces of land and sea, and what David Throsby has called ‘the vast genetic library referred to as biodiversity.’8 The assessment of natural capital is increasingly dominated by our need to protect the environment as we depend crucially on preserving the ecosystem services that support the quality of our global terrestrial, oceanic and atmospheric resources.

The kind of natural capital that has assumed primary importance (because it also has a primary influence on the quality of our water and land resources) is the atmosphere, and the main threat to it is emission of greenhouse gases. This is in addition to general degradation of natural resources through pollution, desertification, overpopulation, urban development and host of other influences which have been evident for decades if not centuries. It is now generally agreed that if we are going to hand the world over to the next generation in a reasonably intact condition, urgent action is needed. The term, natural capital, was first coined in 1973 by E. F. Schumacher in his classical book, Small Is Beautiful: Economics as if people mattered. The terms sustainable resources and sustainability came from the 1987 Brundtland report,Our Common Future, for the United Nations World Commission on Environment and Development. It defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Climate change became a key issue at the United Nations “Earth Summit” in Rio de Janeiro in 1992, following discussion in the Brundtland report and other sources.9

Sustainable development is under increasing threat because our natural capital is so diverse and biodiversity is vital, and because its various parts interact with one another. A famous British scientist, James Lovelock, has even suggested in his “Gaia theory” that the earth is one vast interdependent ecosystem and we are too late to save it, though other climate change scientists allow the world ten years to make a concerted effort — not a long period by any means (this paper was written in 2007 and this bracket added in 2015 — when two years remained according to the 2007 assessment). Sustaining our natural resources ranges from preserving the world’s forests, coral reefs, oceans generally, and other ecosystems, to what small local communities can do about spreading consciousness about the risks and doing something to reduce the menace to all our ecosystems from human exploitation and greenhouse gases leading to possible destruction.

At the time of the Brundtland report, much of the emphasis was on factors such as deforestation, chemical pollution, and pressures caused by the rapid urbanisation of the world. One of the atmospheric issues given prominence was the ozone hole in the stratosphere, which was discovered in 1984 (the stratospheric ozone layer protects against ultraviolet radiation from space). The report, however, did treat climate change caused by emissions of carbon dioxide, methane and other greenhouse gases into the atmosphere as needing urgent attention, which was one of the factors leading to the Rio Earth Summit in 1992.

Already at this relatively early stage (writing in 2007) some nature is changing dramatically – the Greenland ice cap is melting faster than expected which could have dramatic impact on ocean currents and sea levels; coral reefs are becoming severely threatened with bleaching and widespread destruction as a result of rising sea temperatures; the oceans are becoming more acid due to increased intake of CO2 threatening the many and diverse calcifying organisms in the sea; and there are signs of increased hurricane and tornado activity.

This is the case in a situation where the world’s average temperature has risen by less than one degree Celsius, a fraction of what may be expected over the next fifty to a hundred years. Two major reports have been published recently, the Stern Review of the Economics of Climate Change in October 2006, and the reports of the fourth assessment of the Intergovernmental Panel for Climate Change (IPCC) since January 2007.10 Both sources are adamant, one from an economic and the other from a scientific viewpoint, that the world will be facing a difficult and dangerous stage, unless we act now. We will return to the Stern Review in the next main section to explore the parallels between the issues of climate change and cultural capital.

Cultural Capital

Like natural capital in its modern form, the idea of cultural economic capital is less than twenty years old. Early in its development, however, parallels were drawn with the need for sustainable development, so central to natural capital.

Throsby notes in a 2005 paper called On the Sustainability of Cultural Capital that the first attempt to extend the idea of sustainability to culture was in the World Commission for Culture and Development (WCCD) report, Our Creative Diversity, under the chairmanship of former UN secretary-general Javier Pérez de Cuéllar (1995).

Passages in Chapters 7, 8 and 10 of the WCCD report deal specifically with aspects of sustainability, including the need to include intangible heritage sustained in traditions, myths and rituals, and given expression in languages which are at risk of becoming extinct. Sustainable development is “an integral part of an ongoing process of culture where the needs of the present generation can be met without compromising the ability of future generations to meet their needs. Seen in this light, sustainable development is a multi-faceted concept.”

The report concludes: “The future calls for a radical reappraisal of urban consumer-oriented lifestyles and a shift away from passive acceptance of mass culture towards genuine cultural creativity. Sustainable development also includes responsible behaviour towards future generations. Strong support should be offered to the young generation’s initiatives to conserve the environment.”

Throsby goes way beyond the WCCD report in demonstrating the parallel between natural and cultural capital in economic theory terms. He defines an item of cultural capital as an asset that embodies or gives rise to cultural value in addition to whatever economic value it may have – that is, a heritage building has value as an item of real estate but aesthetic, spiritual, symbolic and other elements are likely to transcend the economic value to individuals or the community. The same applies – even more strongly one might think – to the intangible cultural capital associated with the extensive cultural networks through our communities, and with the preservation of cultural customs and traditions in our diverse multicultural society.

The parallel between natural and cultural capital is striking in Throsby’s rendition:

  • Both are inherited from the past: nature as a gift and culture from human creativity.
  • Both impose, or should impose, a duty of care on the present generation vis-à-vis our descendants.
  • Natural ecosystems provide essential support for the economy; similarly, cultural “ecosystems” such as the networks of cultural relationships and institutions that permeate society, are essential to sustain economic activity. So when cultural “ecosystems” function well, arguably human productivity and economic growth benefit.
  • There is general agreement that biodiversity in the natural world, and cultural diversity, are essential for the preservation of the economic capital stock; on the latter, “it is clear that cultural diversity makes an important contribution to artistic and cultural dynamism, which, in turn, has flow-on effects in the economy, for example via its contribution to the so-called creative industries.” (p 4)
  • As far as substitution by other forms of capital is concerned, there is little opportunity for replicating natural capital such as the life-supporting properties of our global resources of water, air and land, no matter how spectacular future technological advance may be. Furthermore, it is virtually impossible to restore complex ecosystems that have been destroyed. The situation is similar in the cultural sphere to the extent that cultural values that have been obliterated are hard to revive.
  • There is a technical or definitional difference from natural capital, because cultural activity results in the production of both economic and cultural capital, with only the latter being defined as being capable of providing cultural value. So by definition substitution of cultural capital is impossible: a building is built for a museum or concert hall, it has a certain physical real estate value but anything above that is cultural capital.

David Throsby ends his paper observing that cultural value to date has been difficult to measure, and one might add especially for intangibles such as the vigour of cultural communities and the interplay between them. So while he finds it “intuitively plausible” to extend the idea of sustainability from the natural to the cultural world (as the 1995 WCCD report also did), the concept “remains operationally constrained until robust value-assessment methods can be devised.” (p 13) This doesn’t invalidate the theory any more than other economic theories over the past two centuries could have been invalidated for lack of data. Still, it would be advantageous to be able to test the theoretical construct in a numerically plausible way.

Insights from the Stern Review on Climate Change

Throsby’s paper (and his other works) has several other aspects including a important discussion of inter- and intra-generational fairness which underlies our discussion of equity below. We have chosen to use the comprehensive analytical framework in the Stern Review of the Economics of Climate Change as the general basis for comparison but will refer to Throsby’s concepts in the subsection on equity.

Each subsection following is introduced by a quotation from the Stern Review, with selected other quotes from the Review in subsequent paragraphs.

Market Failure

Climate change presents a unique challenge for economics: it is the greatest example of market failure we have ever seen. The economic analysis must be global, deal with long time horizons, have the economics of risk and uncertainty at its core, and examine the possibility of major, non-marginal change.11

A market failure occurs when the price of goods and services does not reflect the full cost to society, defined as conventional financial costs plus environmental externalities. Externalities usually result from market activity defined as costs or benefits from an economic transaction borne by parties external to the transaction, whereas basic neoclassical economic theory assumes that market activity only affects the parties directly involved in transactions.

Climate change is a result of the externality associated with greenhouse-gas emissions – it entails costs that are not paid for by those who create the emissions.12

The climate is also a public good: it is non-exclusive and non-rival in the sense that

Those who fail to pay for it cannot be excluded from enjoying its benefits and one person’s enjoyment of the climate does not diminish the capacity of others to enjoy it too. Markets do not automatically provide the right type and quantity of public goods, because in the absence of public policy there are limited or no returns to private investors for doing so: in this case, markets for relevant goods and services (energy, land use, innovation, etc) do not reflect the consequences of different consumption and investment choices for the climate. Thus, climate change is an example of market failure involving externalities and public goods.13

Applied to cultural economics, we offer the following observations:

Market failure: There is an obvious difference in scale between the consequences of climate change and withholding cultural support. But this does not prevent the cultural and ecological economics from having important features in common, as David Throsby argues. In a world of unfettered economic rationalism, survival of the fittest and strongest might be viewed as efficient, and no market failure perceived. Such a world, however, takes a short-term view based largely on economic rationalism. It ignores the potential economic benefits of a richer and more diverse future cultural sector – of the ability of cultural capital to add to the total economic capital stock.

Is it global in nature?: Chances are that as the supply of cultural goods and services is globalised, many cultural expressions are marginalised, or disappear entirely. The cultural capital in many countries will diminish as homogenised global products crowd it out. Moreover, cultural diversity may also be endangered within nations, regionally, across genres and ethnic groups.

The impact is potentially serious in several respects:

  • It limits the range of choices for minorities in societies that value cultural diversity, and even for those in popular art forms who see their local product crowded out by imports
  • It erodes the cultural ambience of societies and communities, thus reducing the range of cultural inspirations available for the young in particular
  • It aggravates the social injustice against professional artists and other cultural workers, who are already supplying cultural product for love rather than fair return
  • It erodes what would otherwise be regarded as fair infrastructure support generally
  • Specifically, it reduces the actual or potential demand for better cultural education, which puts the future supply of cultural education facilities at risk
  • Reduced cultural diversity has a negative potential impact on the quantity and range of public cultural funding.

Export opportunities will remain due to outstanding talent, remaining art forms finding a niche where global interests have not intruded so much (yet), etc. But this would also be the case where cultural capital infrastructure (including education and training) received better support, with further benefits for exports.

Time horizons: The above discussion implies that there are serious long-term implications. If the infrastructure is eroded because of diminished demand for cultural goods and services, rather than remaining in a position to expand the scope for artistic and cultural expression, the ability to compete internationally and operate the domestic market will also diminish. These effects will interact further with those identified in the previous item.

Risk and uncertainty:

Applied to climate change, uncertainty is an argument for a more, not less, demanding goal, because of the size of the adverse climate-change impacts in the worst-case scenarios. (Stern, p xvii) The uncertainties are large because of the potential size, type and timing of impacts and because of the high potential cost of combating climate change.14

The parallel in cultural policy is that the uncertainty of any impact happening, and the cost of repairing any damage, increases the further we go into the future. Like climate, cultural capital is a long-term asset, albeit not at the same scale. Hence, risk and uncertainty are important factors to consider in the analysis of whether and how we want to protect and promote our cultural capital. The item below provides further backing for this statement.

Non-marginal change: Major non-marginal change is a serious risk if no action is taken to moderate climate change, because its impacts will be large relative to the global economy,

Much more so than for most other environmental problems.15

Non-action to protect and develop our cultural capital carries a lesser risk to the extent it is not our very existence on the planet that is under threat, but the risk remains that non-marginal change may threaten our cultures and lifestyles. It may be possible to demonstrate through correlations between countries that such threats exist. The two-volume study of musical diversity by Richard Letts and his international correspondents for the International Music Council (2006) may provide a starting point. One can imagine situations where lack of preservation and development of different resources – cultural, social infrastructure, political institutions, education – could lead to societal instability through feedback effects among the resource policies mentioned. This is potential non-marginal change.

Equity and Sustainability

Questions of intra- and inter-generational equity are central. … The effects of climate change are global, intertemporal and highly inequitable. Generally, poor countries, and poor people in any given country, suffer the most, notwithstanding that the rich countries are responsible for the bulk of past emissions. These features of climate change, together with the fact that they have an impact on many dimensions of human well-being, force us to look carefully at the underlying ethical judgements and presumptions which underpin, often implicitly, the standard framework of policy analysis.16

Throsby writes in the paper already quoted:

When applied to cultural sustainability, this concept can be considered as relating principally to the management of cultural capital, because the stock of cultural capital, both tangible and intangible, embodies the culture we have inherited from our forebears and which we hand on to future generations.17

He elaborates the last point in an formal model which includes a ‘cultural appreciation parameter’, alpha, a function of the level of ‘cultural income’ forthcoming in any period. The greater the cultural benefits of a given stock of cultural capital, the faster will the community’s cultural appreciation grow, and vice versa.

In fact it is quite possible for alpha to be negative, that is, for cultural appreciation to decay if cultural participation falls below a given level.

To achieve a sustainable cultural value, the rate of change of alpha must be kept sufficiently high to ensure that the cultural value of these assets does not decline through falling into disrepair or other neglect. New investment in cultural capital would include efforts to develop the diversity and quality of our intangible cultural assets.

Throsby notes that the principle also applies to intra-generational equity, meaning fairness in access to cultural participation across social classes, income groups, locations, and minorities and disadvantaged groups.18 This is important, especially given that the main economic criticism of the Stern review, by William Nordhaus and Sir Partha Dasgupta, has focused on the treatment of discount rates and social welfare functions crucial to the assessment of how to balance inter- and intra-generational equity.

In conclusion, cultural equity and sustainability go hand in hand. How to achieve equity between generations (heritage) and within the present generation is crucial. Beyond our responsibility to rectify current national and international inequities, this generation has an ethical responsibility to sustain and develop its cultural capital, intangible as well as tangible. It’s a formidable task but it is up to us to ensure that externalities do not emerge which will compromise the free development of future preference patterns. We face an ethical imperative to act on behalf of our descendants to ensure that they face as free and unfettered a choice as possible within the cultural heritage we pass on.

Ethics and Economics

Ethical issues have already been raised, but Stern’s emphasis is central and warrants a separate subheading, especially if it can be extended to culture.

The breadth, magnitude and nature of impacts imply that several ethical perspectives, such as those focusing on welfare, equity and justice, freedoms and rights, are relevant. Most of these perspectives imply that the outcomes of climate-change policy are to be understood in terms of impacts on consumption, health, education and the environment over time but different ethical perspectives may point to different policy recommendations.19

So a legitimate question to ask is whether ethical issues are irrelevant in the economic analysis of cultural policy, as applied to perspectives on welfare, equity and justice, freedom and rights? If so, where does this leave statements like the United Nations Declaration of Human Rights, general national welfare policies – or arts funding policies? What about UNESCO’s Convention on the Protection and Promotion on the Diversity of Cultural Expressions which entered into force in March 2007 and is introduced as Cultural diversity: a new universal ethic? Aren’t the impacts on consumption, health, education and the (socio-cultural) environment also the governing criteria for assessment of cultural matters?

The answer to these questions would seem to be yes, ethics are important. They permeate the international conventions; the ethics of our own public cultural funding policies should be as transparent as possible. The final analysis of cultural policy should embrace the impacts on consumption, health and education, at least, exploring the different ethical perspectives that are implied in alternative policies.

The Nature of the Evidence

Understanding the scientific evidence for the human influence on climate is an essential starting point for the economics, both for establishing that there is indeed a problem to be tackled and for comprehending its risk and scale. It is the science that dictates the type of economics and where the analyses should focus, for example, on the economics of risk, the nature of public goods or how to deal with externalities, growth and development and intra- and inter-generational equity.20

Is there a parallel named ‘understanding the cultural evidence’, and does ‘culture’ determine the type of economics and where the analysis should focus?

Cultural economics has not taken the quantum leap that the Stern review did with climate change. The cultural evidence is well researched by cultural economists, who understand the threats to the cultural integrity of nations and regions and provide valuable advocacy. The special issues associated with culture should be allowed to influence the economics, since the hurdle seems to have been cleared that cultural capital isn’t a legitimate concept. However, the statistical evidence to support the theory is insufficient at the time of writing, a problem that should be urgently explored, including the use of possible alternative methodologies such as scenario planning.Scenario planning is no longer seen as a real alternative as it remains unrealistic to translate it into acceptable GDP-compatible terms. But the technique is legitimate in the assessment of long-term impacts, as demonstrated in the assessment of climate change. When the original paper was written in 2007, I was at the early stages of my third climate-change-related project involving scenario planning, this time in the Florida Keys on behalf of the US National Oceanic and Atmospheric Administration (NOAA). It involved preparing special scenario-planning workshops in the Florida Keys, as part of the project to identify future prospects for the Florida reefs based on a range of possible climate change scenarios and exploring people’s willingness to pay to mitigate these effects through improved national park management and other means (the problem was not the park management which was excellent, but the political unwillingness to accept climate change as an urgent problem). The Florida Keys study was published in 2010.

Scenario planning is also an important part of the current project, as part of The Music Trust, to pinpoint the Australian music sector as far as possible in both short-term economic values (“GDP”) and long-term cultural and economic impacts.

The previous projects covered the Pacific and the Great Barrier Reef. The scenario planning technique was particularly successful in the latter project, and was further developed in the Florida Keys study which made even more use of scenario-planning in its workshops with local communities, conducted in 2008. The workshops were actually recorded verbatim by a professional court reporter — an expensive but necessary procedure in a foreign local environment. HHG 27.4.14.

The scenario planning technique explicitly does not produce predictions but instead provides a range of equally plausible and equally possible alternative futures. It can be applied readily to the cultural field as well to explore alternative medium- to long-term future outcomes to guide strategic policy responses to support ‘best-case’ and counteract future ‘worst-case’ scenarios.

Is the Problem Worsening?

Results from new risk-based assessments suggest there is a significant chance that the climate system is more sensitive than was originally thought. … In the future, climate change itself could trigger additional increases in greenhouse gases in the atmosphere, further amplifying warming. These potentially powerful feedbacks are less well understood and only beginning to be quantified.21

Is there a parallel in cultural economics? While there is an order of magnitude of difference between the impact of climate change and the impact of cultural change, the problem could be worsening also in the cultural area due to such factors as the homogenising impact of overseas competition, or other negative influences on cultural diversity. If we have identified particular threats to cultural diversity in a country, we should at least develop an analytic framework to determine whether the threat is intensifying or abating, and devise appropriate policy guidelines.

Concluding Observations

The Stern Review concludes (in part):

Much of the economics we have begun to describe here and that is put to use in the subsequent parts of this Review is not simple. But the structure of this economics is essentially dictated by the structure of the science. And we have seen that it is not possible to provide a coherent and serious account of the economics of climate change without close attention to the ethics underlying economic policy raised by the challenges of climate change. … The urgency of the problems established by the science points to the urgency of translating what we can already show with the economic analysis into concrete policy actions. In doing so, the international dimension must be at centre stage.22

The response, in cultural terms, relates primarily to policy:

  • There are strong arguments that the ethics involved in such matters as intra- and inter-generational equity are important to cultural policy.
  • The economics of cultural policy has taken some considerable steps forward, not least in establishing the theory that cultural capital provides an added dimension of medium- to long-term economic significance. This has been implicit in policies of public funding for several decades, but has not yet been capable of successfully tackling some important issues in international trade, to take but one example.
  • One important way of providing convincing evidence for policy-makers is to provide convincing empirical data. Better statistical backup is needed.
  • There is probably no centre stage. The battleground is international, as far as what might be termed cultural imperialism is concerned, but it is also national, as far as the whole gamut of policies are concerned, starting from the basic need to preserve cultural diversity.


Hans Hoegh-Guldberg, 2007. Notes added 23.11.11, 2.3.13, and 27.4.14 but original text left alone with some comments.


  1. Thanks first to David Throsby for encouragement through the development of this paper, and for his positive assessment of the published version (as at 14.8.07 but not substantially altered in later revisions). I also acknowledge David Stout’s comments on the January 2007 prototype version of the paper from an economic theory view, and Dick Letts who caused me to write the introductory section to stress that the paper is based on economics. All errors remain mine.↩︎
  2. Cultural capital is not the main topic in the UTT paper because of the nature of the group. It is, however, taken up in the concluding section because of its obvious importance to Trinidadians with their national instrument, the steel pan, becoming marginalised, to mention but one important example. This is discussed in Vanus James (ed), The Caribbean Music Industry Database (CMID), 2000, for the United Nations Conference on Trade and Development (UNCTAD) and the World Intellectual Property Organization (WIPO). The steelpan (or ‘pan’) is the national musical instrument in Trinidad and Tobago, and generated exports of $505,000 in 1997 (p 28). But: ‘Performers with pan, the national instrument, have only a small part of the total market whether at home or abroad. As was indicated by respondents in the Tobago survey, the majority of the steel orchestras still operate as community institutions dedicated to broad social purposes rather than to commercial objectives. Most of the orchestra members are driven by the need for artistic self-expression.’ (p 36).↩︎
  3. A recent dramatic demonstration of this is Thomas L Friedman’s book, The World is Flat: A Brief History of the Twenty-First Century, release 3.0, Picador, New York 2007. It outlines the way in which developments over the past twenty years or so have ‘flattened the playing field’ between advantaged and hitherto disadvantaged nations such as India (and within domestic corporate hierarchies and in numerous other ways) as a result of the boundary-crossing nature of digital technology helping people to exploit forces such as software uploading, outsourcing and offshoring to share the advantages between developed and developing countries, and within domestic communities. The world may remain round, but the competitive playing field is becoming flatter in an incredible number of respects, with profound impact. The effects are complex, to say the least, and the book is thoroughly recommended reading – for better or worse.↩︎
  4. Since writing the article in 2007, we have become increasingly convinced of the role of education, including music and other arts, in facilitating this link. It is a main tenet of the current Full Deal Campaign by the Music Trust. The original article, in fact, has more to say on the subject later in this section. HHG 27.4.14.↩︎
  5. Of course, we still have a huge need for physical capital for infrastructure and production and distribution of final goods and services through all the intermediate stages from raw materials, but even this can be made less threatening to future generations’ well-being, through new technology and public education.↩︎
  6. Fossil fuels are another story, in so far as we should aim at maximum substitution by other natural resources to produce renewable energy.↩︎
  7. One of the dilemmas we are tackling in our 2014 project is that comprehensive GDP-related figures are lacking to demonstrate this. In the absence of hard annual data we have to rely on other approaches such as scenario planning. HHG 27.4.14.↩︎
  8. David Throsby, Economics and Culture. Cambridge University Press 2001, p 51.↩︎
  9. The issue of climate change was taken up in 1979 as outlined in Music Sector Structure for Scenarios.↩︎
  10. The IPCC website now brings out the Fifth Assessment Reports. The IPCC warning remains as urgent as it ever was. HHG 25.3.14.↩︎
  11. Stern, p 1↩︎
  12. Stern, p 23↩︎
  13. Stern, p 25↩︎
  14. Stern, p 25↩︎
  15. Stern, p 34↩︎
  16. Stern, pp 23 and 28↩︎
  17. Throsby, p 4↩︎
  18. Throsby, p 5↩︎
  19. Stern, p 23↩︎
  20. Stern, p 3↩︎
  21. Stern, pp 8 & 10↩︎
  22. Stern, p 38↩︎

Hans founded his own consulting firm, Economic Strategies Pty Ltd, in 1984, following 25 years with larger organisations. He specialised from the outset in applied cultural economics — one of his first major projects was The Australian Music Industry for the Music Board of the Australia Council (published in 1987), which also marks his first connection with Richard Letts who was the Director of the Music Board in the mid-1980s. Hans first assisted the Music Council of Australia in 2000 and between 2006 and 2008 proposed and developed the Knowledge Base, returning in an active capacity as its editor in 2011. In November 2013 the Knowledge Base was transferred to The Music Trust, with MCA's full cooperation.

Between 2000 and 2010 Hans also authored or co-authored several major domestic and international climate change projects, using scenario planning techniques to develop alternative long-term futures. He has for several years been exploring the similarities between the economics of cultural and ecological change, and their continued lack of political clout which is to a large extent due to conventional GDP data being unable to measure the true value of our cultural and environmental capital. This was announced as a major scenario-planning project for The Music Trust in March 2014 (articles of particular relevance to the project are marked *, below).

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