Public and private spending on culture

Juan Luis Martínez and Víctor Torre. Professors. IE Business School

1 February 2007

Because cultural activities are such an important part of European lives today, the private sector should play a larger role in providing them.

The economic importance of leisure

As citizens improve their standard of living, they spend less money on satisfying basic needs, such as food and shelter, and spend more to satisfy other kinds of needs. These include what the Spanish National Institute of Statistics refers to as “leisure, shows and culture”, which together account for 8.23% of average household spending. When citizens buy a book, go to the cinema, enjoy a musical or see an exhibit, each person is making a decision, with a direct impact on something known as cultural spending. The same occurs when they buy art products such as a print or a small picture for their home, regardless of the fact that it is then included in another statistical category.

In its last meeting, the Council of the European Union for Education, Youth and Culture examined a report commissioned by the European Commission on the Culture Economy in Europe. This report concludes that the cultural and creative sector accounts for a total of 2.6% of the European Union’s GDP (Gross Domestic Product). This figure exceeds the contributions made by the chemical and plastic industry (2.3%), as well as the agro-alimentary and tobacco industry (1.9%). These percentages beg the question of whether or not the role many public administrations play in the area of culture is really reasonable.

The state’s role in providing culture

The paternalistic view of the State relegates the individual to a secondary role. From this perspective, it is logical to assume that the State is the main protagonist in cultural affairs and is responsible for supplying public goods. When the goods it supplies are insufficient in either quantity or quality, the citizen (in this case, private enterprise) is responsible for assuming the role. From this view--inherited from the French and Jacobin politics--it is very difficult to strengthen civil society, which always takes a secondary role in the supply of goods and services. In many cases, this paternalistic focus can be justified as part of an attempt to eliminate, or at least minimise, the existence of the opportunist behaviour typical of the ‘free rider’. It’s important to remember that culture is considered a public good when it cannot be consumed completely and exclusively by a single person, because its distribution is based on principles of non-exclusion—it is available to everyone—and non-rivalry.

Tax deductions for culture

This autumn the Prado Museum inaugurated an exhibit of Spanish still-lifes. The BBVA (Banco Bilbao Vizcaya Argentaria) had supported this exhibit through the purchase of certain works for the State in lieu of payment of certain taxes. This leads to the question of up to what point is it feasible for our fiscal system to allow tax deductions for cultural expenditures. Regulation may make sense because it helps guarantee a minimum commitment for providing a reasonable number of social projects. However, this theory seems to imply that the government is inept at managing money in benefit of society. According to one school of thought, public goods have to be supplied primarily by the State. When the State is not capable of supplying them in the quantity or quality demanded by citizens (what economic literature calls state failures), private enterprise or civil society must step in to satisfy demand.

Allowing the private sector to take over

But perhaps the approach should be the other way around. The decisions on culture must emanate from the market. Citizens, foundations and corporations are much more plural in nature than public administrations. Together, they hold more information about the various facets of culture and are able to optimise the funds they dedicate to it. In addition, the ever-present risk of political clientelism is avoided when the private sector takes the initiative.

Unfortunately, there are unscrupulous politicians who manipulate the suppliers of culture for electoral reasons. Discouragingly, this occurs often, even though these same politicians are furnished with substantial budgets. A greater trust in society would lead public administrations to conclude that their culture activities shouldn’t stress public spending but rather reduction of public income. This could be done by agreeing on simple yet non-discriminatory formulas for tax deductions. This would, without a doubt, revitalize that 2.6% of the European economy that is represented by cultural activities. And the best of our culture would be grateful.

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