Chapter 5

Economics of Creativity
Ake E. Andersson

5.1

Division of Labor by Comparative Advantage or Creativity

Most of us have got an education adapted to the demands for specialized labor emanating in industry or public administration. Most of the jobs have been decided according to the basic principle of division of labour, generating productivity of the work. According to this principle the worker should be specialized to perform certain highly specialized tasks without any greater space for improvisation or change of work routines. Adam Smith (1776, 1904) argued strongly in favour of a far-going division of labor (or specialization of the workforce) as a way of achieving growth of productivity. However, Adam Smith clearly saw the potential conict between creativity and productivity by division of labor and specialization of the work force:
In the progress of the division of labor, the employment of the far greater part of those who live by labor, that is, of the great body of the people, comes to be conned to a few very simple operations; frequently to one or two. But the understandings of the greater part of man are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects to are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in nding out expedience for removing difculties which never occur. He naturally loses, therefore, the habit of such exertion and generally becomes as stupid and ignorant as it is possible for a human creature to become. (Wealth of Nations, II)

The industrial society became based on a far-going division of labor and a hierarchical organization of the rms. Research and development became a sort of tinkering, oriented to improvement of the techniques for producing a given set of goods. Creativity was looked upon as a social side-activity for artists, scientists and inventors. The rst stage of an upgrading of creativity was to occur during the Second World War, when decision-makers realized that at least chemists and physicists
A.E. Andersson Jonkoping International Business School, Jonkoping University e-mail: Ake.Andersson@ihh.hj.se

C. Karlsson et al. (eds.), New Directions in Regional Economic Development, Advances in Spatial Science, DOI: 10.1007/978-3-642-01017-0_5, # Springer Verlag Berlin Heidelberg 2009

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were of value in military projects. The largest example was the Manhattan project, within which scientists were organized into secret research groups with a mission to transform the knowledge of theoretical physics into an atom bomb (Fermi 1954/1994). On the basis of this experiment in organized creativity American think tanks became a way of improving the cooperation between creative scientic research and the development and innovation of new products in the post-war American industry. A real integration of creative research and technological development was, however, not realized before the end of industrialism in USA and Western Europe. In the early 1970s Daniel Bell (1973) formulated a scenario describing a new postindustrial society. It was based on the observation that manufacturing industry in USA and Western Europe had already seen its employment stagnating and even declining. It became obvious that the highly industrialized societies could no longer expect an increasing employment in the production of material goods. Many of the analysts of the 1970s expected service industries to become the new guarantee of full employment. Few analysts expected creativity in science, technological research and development, design, entertainment and arts to become an important factor explaining growth of real income, employment and general welfare in the postindustrial society. Real developments in the structures of some regions, e.g. San Francisco Bay with Silicon Valley, Route 128 around Boston, Massachusetts and Cambridge, UK, saw a new type of interaction between creative scientists and industry, indicating a new role for creativity in the economic system. In recent decades the role of creativity as a factor of economic development has been realized in somewhat surprising directions. First, there has been a rapid increase in resources allocated to scientic research. The number of science articles published has been increasing at approximately 7% annually since 1975 (Andersson and Persson 1993). Second, industrial research and development (R&D) has become a strategic factor of growth policies among rms and governments of OECD-countries since the 1960s. This development has triggered numerous scientic papers on the interdependencies between R&D and economic growth (see, e.g. Uzawa 1965; Shell 1966; Romer 1986). Third, there has been a remarkable growth of the entertainment and arts activities, called Creative Industries by Richard Caves (2000). According to recent statistics consumption of such goods and services has risen to more than 15% of total household consumption in Sweden.

5.2

Mechanisms of Creativity

Creativity is a process based on a capacity. As a process it is dynamic, because creativity always means the emergence of something genuinely new. Discoveries and inventions are outcomes of a creative process. Discovery is based on a capacity to nd patterns in a seemingly chaotic world. The real creative capacity lies in the

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Fig. 5.1 This implies that the brain has the tendency to be anchored in the original perception and needs a certain excess supply of information before it can give up the initial interpretation in favor of a new. There is certain stabilization in the already known. Expressed differently, creativity requires a certain degree of instability of the brain. Such instability is evidently there in all of us

ability to comprehend and explain the mechanisms generating such patterns. The detection of a hidden pattern and its transformation into something meaningful is often something suddenly occurring in the brain. The mathematician I. N. Stewart and the psychologist P.L. Peregoy (1983) have, shown by a series of experiments, how the brain can discover a hidden structure. With this experiment they can support the claim that the brain ought to be represented as a non-linear dynamical system. Using Fig. 5.1 they were able to show that the perception of a man is suddenly changed into a clear perception of a woman after three to six steps from left to right and the perception of a woman is suddenly transformed into a perceived man, when starting from the right and moving three to ve steps to the left. Inventions and discoveries are different names of the created ideas. An invention mostly starts by perceiving a structure and later suddenly realizing that below this

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surface structure there is a more important deep structure that can be used in the formation of a new principle of composition to be used as an instrument of generating inventions. Margaret Boden (1990) has proposed a subdivision of creativity into different classes. The rst class of creativity implies the invention of a completely new principle of construction, composition or set of concepts, providing a new structuring of some problem area. This type of creativity is fundamental or infrastructural. The other type of creativity is built on variations of themes given by a given creative infrastructure. A few examples sufce to clarify the differences. Schoenberg was the creator of the most important principles of composition of 12-tone music and would consequently be seen as the creator of the infrastructure of modernist music. In contrast Anton Webern and Alban Berg would give examples of variational creativity in their application and further development of the original new principles of composition as created by Schoenberg. When applied to painting, the same principle would imply that Cezanne is the infrastructurally creative artist within modernist painting, while Braque and Picasso would be the most important painters in terms of variational creativity on this basis. In science an example is Inequalities by Hardy et al. (1934). Reformulating many mathematical equations as inequations they formed a basis for much of the developments in mathematical programming developed and innovated in the 1940s. In this context George Dantzig and Harold Kuhn with their formulations of linear and non-linear programming would be examples of variational creators. It ought to be stressed that there is no obvious qualitative distinction between infrastructural and variational creators, except in terms of the potential of further developments on the basis of the infrastructural creators.

5.2.1

Creative Capacity: Acquired or Inherited?

Are all people born creative? There are certain indicators that creativity is not a genetic deviation from the normal but rather a general human capacity. One indicator is the development of the capacity to speak. Already in small children completely new spoken sentences are created. Even the smallest child can create completely new linguistic constructions in their communication with other children and adults. Sometimes they even seem surprised at their own linguistic discoveries and inventions. The capacity of linguistic creation seems to develop by social interaction throughout the life span. The concentration of musical and pictorial creativity onto a minority of the population might just be a consequence of too little of daily training during the early years of childhood. Most of the creative musicians and other artists have had the benet of an education in the arts from their earliest years. Surprisingly many artists have grown up in an environment rich in artistic activities. Simonton (1984) has used extensive empirical material to show that the early exposure to scientically or artistically creative personalities is of importance for creativity of young people.

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The formal schooling of children does not generally compensate for the lack of artistic and other creative inspiration in the homes of children. In contrast most educational systems in the old and new industrialized countries have been oriented on diffusion of already well established knowledge later to become useful in manufacturing rms or bureaucracies. This implies that schools have primarily been oriented to the development of discipline and adaptation and to the need for cooperation in groups with specied problems to be solved as rapidly as possible. The education before the university level is rarely oriented to formulation of problems independently and to the generation of different ways of solving such problems. Rather, most education is oriented to learning techniques of how to solve already formulated problems in a way, pleasing to the teacher. The learning of already developed techniques has been favored at the expense of a loss of creativity already during the elementary school years. Gudmund Smith (1990) has in his studies of the psychology of creativity found that the development of creativity during the years of childhood and adolescence follows a typically cyclical pattern. During some of these cyclical periods learning is favored and absorption of education is easy, while in other periods creativity develops rapidly. The ages of development of creativity seem to be between 5 and 7 years, 1012 years and 1719 years of age. In most industrial countries the latter two creativity peaks seem to be used by the schools for intensive teaching and examinations, curbing the development of creativity. Smith has even claimed that a school where development of creativity has a priority might need to be free of xed curricula.

5.3

Creative Personalities

The transformation from an industrial society towards a society based on the exploitation of knowledge, creativity in the arts, design, and entertainment and with an increasing complexity of products will need a better development of as well as use of human creativity. Finding and supporting people, suitable for creative work has become much more important than during the industrial era. Gudmund Smith (1990, 1995) has oriented some of the research of his team towards investigations of creative personality traits. Some of the results can be summarized. First, a typical characteristic of a creative personality is a capacity to formulate and energetically work on the solution to the formulated problem. Sometimes the problem is not conceived as especially interesting by anyone else and is often looked upon as somewhat strange or even bizarre by others. Second, a part of a creative personality is a subjective and quite an emotional relation to the problem which is developed during the period of problem solving. The solution to such an independently formulated problem is often not obviously protable for anyone. Third, another personality trait is an orientation towards aesthetic solutions to the generated problem.

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Fourth, a general characteristic of creative personalities, according to Smith, is the oceanic capacity. This is a capacity to get a feeling of almost innite possibilities, when a new creative solution turns out to be correct. This implies an instant and yet sustainable reward of greater importance than external rewards in the form of money or fame. Fifth, creative persons tend to be victims of angst, which according to Smith is the natural companion of creative activities. Sixth, creative persons tend to have in comparison with the non-creative a strong interest of their childhood. They often think about it and it is prevalent in their dreams which are more frequent than among non-creative persons. One of the surprising properties of these dreams is that they are described in the interviews of creative persons as dreams in intensive colors. For these and possibly other reasons there is a tendency among creative persons to combine childish behavioral traits with a capacity to concentrate and be quite serious in the process of formulating and solving problems. It does not seem to be the case that very goal-oriented, wealthy homes are the best breeding grounds for the development of creativity among children. Remarkably often creative persons seem to have come from disadvantaged homes.

5.4

Different Capacities of the Creative Mind

In his book How to Solve It, the mathematician George Polya (1945) claims that the most important approach to creative problem formulation and solving is by heuristics or the use of proper analogies: Analogy pervades all our thinking, our everyday speech and our trivial conclusions as well as our ways of expression and the highest scientic achievements (Polya 1945, p.37). This is obvious in mathematics but seems to be of relevance also in creative writing and composing. Belonging to some style or genre of literature essentially means that a certain degree of similarity of composition exists. Such formulations are often analogous at least in terms of deep structure. Production requires predictability and structural stability of the process in order to be efcient. Creation is an almost contrary process. The creator has to accept fundamental uncertainty and its companion, structural instability. This implies that creativity can only be achieved by individuals, who have accepted a career with an embedded uncertainty of production and the corresponding uncertainties of income and wealth.

5.5

The Pecuniary Rewards of Creativity

In the scientic world, income is normally secured for the creators by a combination of subsidies and payment for other work than creation of scientic research. In universities much of the salaried time is used for elementary teaching, administration

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and other non-creative activities. The nancial rewards for creativity are primarily determined by decisions in public or private funds based on earlier research records and an estimate of the likelihood of success as evaluated by some more or less credible peer group. In the R&D world the nancial rewards are calculated with methods similar to the ones used in the evaluation of the returns to material investments, i.e. an estimate is made of the expected net present value and risk. Because of the public nature of knowledge the risk is very large and different procedures to protect the inventions are necessary. The common procedure of protecting a new material product is patenting that exists in all countries prone to imitate new knowledge. Patent rights are regulated by international treaties and give the property right to the proceeds from the new product for a time period of 20 years. However, in reality the rights can normally be executed for approximately 15 years. Because of the delays in production, rights are executed after the patenting has been granted. In the arts world there is a situation somewhat similar to the scientic world. Composers and other creative musicians are often hired to do non-creative work such as teachers, administrators or regular employees of subsidized orchestras. Painters and authors can rarely live from their creative work and have to live from incomes as teachers, postmen and other non-creative jobs. Economies of scale are of great importance in the entertainment world. Making a lm normally requires 200400 man-years and large amounts of studio equipment and other material capital with large xed costs as a consequence. This has led to a number of organizational responses, such as conicts about quality and economic rewards among composers and script writers, reliance on performance stars, spatial concentration of production and syndication of the outputs.

5.6

Variable Probabilities and the Importance of Stars

In industrial R&D the probability of success of a particular project has been estimated to be in the range of 712%. This means that the majority of projects will be nancial ascoes. To compensate for the losses, most of the industrial research and development costs are borne by large rms in a limited number of manufacturing sectors. These rms are large enough to run a substantial number of parallel R&D projects to compensate for the low success probabilities of most of these projects. The substantial returns of a few of these projects must then compensate for the losses of most of the projects. This is partially true for entertainment rms, such as Disney, Sony or MTG. While most painters and authors are struggling in the rst hand market to achieve a reputation a few, often dead colleagues, have become important suppliers in the second hand market of originals and reproductions. Many art and entertainment goods books, magazines, movies or amusement games are only sold to nal users as copies and the markets for these reproductions are quite different from the markets for originals. Most reproduction

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processes apart from forgery and other hand-copying are multi-stage processes with complicated rules of interaction between stages. One example is the music industry (see Table 5.1). There are distinct probabilities of success in the interaction between agents within and between the different stages of such a production and reproduction process and associated problems of negotiating the reward structure. Assuming the probability of success to be the same everywhere and equal to 50%, the probability of success for the whole 4 by 2 process is (1/2)8, which is approximately equal to 0.4%. In this case, the popular music publisher would accordingly need to judge thousands of music proposals from unknown creative music composers to be reasonably sure of a success in the market. Raising the probability of success within and between stages to 90% would lead to a probability of success of the whole fourstage process to 43%. There have consequently been efforts to design individual and institutionalized procedures to increase these probabilities within and between all stages. It is for example often the case that artists compose music and write lyrics themselves. Publishing and recording can be vertically integrated and the owners of record companies can also own television stations, and so on. In lm production, these problems are further reinforced by the complexity of production of lm negatives (Vogel 1998). Composers and directors often have their contract income based on revenues and therefore they tend to be oriented to the maximization of quality and quantity with potentially detrimental consequences for the protability of the whole process. Economic efciency in music and lm making would gain from contracts based on prot-sharing for the creators. However, there are several problems associated with prot-sharing that are especially relevant in the complex structures of modern music and lm-making. Substantial parts of the xed costs are unknown to the creators and can easily be redistributed between different products (and their creators). The heterogeneity of arts and entertainment products associated with the dependency of consumer taste on the individual characteristics of a few star performers is especially important in this context. Certain consumers may have a strong preference for individual performers, such as the pianist Glenn Gould, the singer Ella Fitzgerald or the actor Julia Roberts. Such stars do in fact have an almost monopolistic negotiating position at each rst recording of a piece of music or a lm
Table 5.1 The music industry as a multi-stage production process Stage 1 Composition of music Artists rst performance: innovation (including lyrics): creation Stage 2 Music publisher: production Diffusion to reproducers Stage 3 Recording on CDs and Diffusion to radio and TV stations, DVDs: production and record distributors Stage 4 Purchases by consumers: Collection of royalty incomes by ASCAP, BMI, diffusion SESAC, etc., for distribution between upstream agents

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manuscript. In a way the appearance of such an artist increases all the probabilities of success discussed above and all of the agents have to yield to this fact. The complex production technology of most reproductive art and entertainment goods leads to high xed costs of production and globally concentrated industries. The lm industry is one such globally concentrated industry. Most countries rely on imports of lms from the global centers of production and especially from Hollywood. This is a consequence of the complexity of production, which causes high xed and irreversible costs for each lm. These scale economies are further reinforced by the low probability of success of each individual lm. The organizational result has been an increase in the size of rms, which makes it possible to diversify production in order to reduce the risk of bankruptcy. Table 5.2 gives the size of lm production in a number of countries, measured as the number of lm negatives produced from 1991 to 1995. The rank size distribution of lm production in different nations is as follow Film production e7:22 Rank1:3 ; R2 0:95:

An alternative approximation form of the distribution is Film production e5:90:12Rank ; R2 0:95:

These equations imply that the distribution is highly skewed, which is also indicated by the fact that the mean of the number of lms produced is more than twice as large as the median production. Vogel (1998) collected nancial data for the production of lms in the United States from 1976 to 1996. While some of these lms were protable, others suffered disastrous losses. The mean cost of production was US $34 million with a standard deviation of US $23 million, while the mean revenue was US $91 million with very large standard deviation of US $81 million. There was no correlation between revenues and costs.
Table 5.2 Production of lm negatives in the top ten countries in the period 19911995 Rank Country Number of lm negatives 1 India 838 2 United States 420 3 Hong Kong 315 4 Japan 251 5 Thailand 194 6 China 154 7 France 141 8 Italy 96 9 Brazil 86 10 United Kingdom 78 Source: UNESCO (1998), World Culture Report

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Using regression analysis, we estimated the effect of top-ranking directors or actors on assessed revenue. The result is as follows: ln Revenue 2:88 1:41T; n 23;

in which T=1 if a top-ranked director or actor is involved in the making of the lm (otherwise T=0). The t-value of the slope parameter estimate is 2.3, indicating that the estimated value is signicantly different from zero at the 5% signicance level. The regression equation implies that a Hollywood-produced lm without a topranking director or actor can be expected to generate US $18 million in revenue, while the revenue gure for a lm with a top-ranking director or actor is US $73 million. For production costs, there is no corresponding statistically signicant celebrity impact. This impact gives these artists a strong bargaining position, which should enable them to obtain substantial shares of revenues or prots. The contract variations are almost endless, but it is not unusual that the leading actor, actress, and the director together obtain more than 10% of the total revenue when the total exceeds US $150 million.

5.6.1

Lining up Behind Giants

Most labor markets are similar to markets for standardized goods. The price of the good itself and the prices of substitutes and complements determine the supply. Similarly, different prices determine the demand and the supply and demand simultaneously determine the equilibrium price and quantity. In the labor markets there are deviations from this simple competitive principle. Some occupations require many years of education and training and the movement toward equilibrium is consequently slow. Institutional safety constraints regulate other types of labor, as for instance airline pilots or medical doctors, which therefore constrain the supply. For some occupations, unionization works as a barrier to entry, which prevents the attainment of a competitive equilibrium. These factors to some extent are also relevant for artists. However, more important are the combined effects of the number of gatekeepers that block entry and advancement and the uncertain success of the nal, creative product. Market success depends on the impact of the most visible artist who is involved in production. Because of the intangibility of created ideas, when innovated as a piece of music or a new lm, expectations are of great importance for the demand on the day of the premiere. Expectations of a rewarding experience derive from the probabilities of success, as the potential audience perceives them. These perceptions in turn depend on the rank of the artist among the group of comparable artists. There is in most artistic and entertainment occupations a continuous inow of new entrants, owing to the attractiveness of many artistic careers to young people. Most of these new entrants fail when attempting to get on

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the rst rung of the career ladder (i.e. through the rst gate), and the probability of failure becomes greater at each further step on the career ladder to stardom. Let us assume that the probability of advancing from one rung of the ladder to the next is 5%. The probability of succeeding to the nth level is then 0.05n. If there are ve rungs, the probability of reaching the fth level is 3 in 10 million. If we instead assume that a person has talent enough to have a probability of 20% to climb each rung of the ladder, the probability will equal 0.32 in 1,000 attempts to reach the top. If we assume that there are one million aspiring young entertainers and there is a probability of 10% (i.e. probability is 0.1) to reach local recognition, there will be 100,000 local successes. If there is an additional 10% probability to reach regional recognition, it means that 10,000 will continue to that level in their career. Let us assume that the probability is 20% that they will reach national recognition, given that they are already regionally recognized, then that would imply that 2,000 will reach that stage of their career. To reach recognition on a continental scale might have a very low probability of, say, 1%, so that only 20 will reach that level of recognition and nally maybe only ve will have a substantial global impact. There are many ways to measure the impact of an artist. In science, it is common to use global citations in scientic journals to measure the impact of a scientist on the public (in this case, other scientists). To an artist, recognition by other artists is often pleasing, but of little importance in the markets for artistic products. We therefore need some other, a more general measure of impact. We have chosen to use the number of Google (an internet search engine) hits as such a general measure of the impact of various kinds of artists. Tables 5.3, 5.4 and 5.5 reveal the impact of different creative artists, as measured by Google hits in early 2005. The average year of birth of the top ten composers is 1789. This implies that the average age of the top ten compositions is almost two centuries. This is also reected in the current programming strategies among concert houses and symphony orchestras. The importance of the English language for global success is clear from these rankings. Six out of the top ten Nobel laureates have English as their mother tongue. No such language effect is discernible for the other art forms (except for lms).
Table 5.3 Top ten composers of classical music Rank Composer Year of birth 1 J.S. Bach 1685 2 L. van Beethoven 1770 3 W.A. Mozart 1756 4 G. Verdi 1813 5 F. Schubert 1797 6 P. Tchaikovsky 1840 7 J. Brahms 1833 8 D. Shostakovich 1906 9 F. Chopin 1810 10 A. Vivaldi 1678 Sources: Larousse Encyclopedia of Music and Google, January 2005

90 Table 5.4 Top ten laureates in literature Rank Nobel laureate 1 J.P. Sartre 2 T.S. Eliot 3 B. Russell 4 W.B. Yeats 5 G.B. Shaw 6 T. Mann 7 S. Beckett 8 A. Camus 9 W. Faulkner 10 A. Gide Source: Google, January, 2005

A.E. Andersson

Table 5.5 Top ten jazz musicians Rank Musician Year of birth 1 M. Davis 1926 2 C. Parker 1920 3 L. Armstrong 1900 4 B.B. King 1925 5 B. Webster 1909 6 L. Young 1909 7 King Oliver 1885 8 E. Fitzgerald 1919 9 D. Ellington 1899 10 B. Holiday 1915 Source: Larousse Encyclopedia of Music and Google, January 2005

The average year of birth of the top ten jazz musicians is 1910. All except one have passed away and can only be heard on recordings. One way of analyzing the citation rates of the ranking lists of artists is by using the following equation: Citations eabRank : We have used least-squares regression analysis to estimate the parameters a and b. The parameter estimate b refers to the percentage decline in the number of citations of the artists when their ranking is increased by one unit. The estimated equation for the 40 highest-ranked composers is Citations (composers e7:50:07Rank ; R2 0:98:

Increasing the number of observations does not inuence the equation to any considerable degree. The estimated equations for the other groups of artists are as follows: Citations Nobel laureates e5:570:10Rank ; R2 0:98;

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Citations Jazz musicians e8:040:10Rank ;

R2 0:96:

These equations indicate exponential decline of rank-ordered citation rates and are remarkably good at accounting for the variability in the number of citations. A conversion of these citation rates into probabilities of recognition gives a similar rapid decline of recognition as we move down the rankings of the artists. The estimates also show that jazz musicians and Nobel laureates have greater estimated b coefcients in absolute values, which possibly reect the lower age of their works. The average birth year of the top ten creative artists varies considerably among the different categories, as shown in the above tables. In literature and music there are incredible numbers of giants who implicitly compete with new entrants aspiring for positions of global fame. A young painter, poet or composer therefore has to compete for recognition with artists who died a long time ago. This competition with the dead generates incentives for creative artists to develop new styles, niches or even completely new rules of composition. The extreme durability of great art is an advantage to the general public but an obstacle to recognition among all aspiring artists. The skewed distribution of recognition among creative artists leads to a correspondingly skewed distribution of revenues, which inevitably leads to a skewed distribution of artists material assets and incomes. By way of example, assume that the price of a painting by the highest-ranked artist is $100 million. If the price distribution corresponds to an estimated citation function, this would imply that an artist at global rank 100 would receive $33,000 per painting, while the painter who is ranked as number 150 in our global ranking would receive only $614 for a painting. The top ten would generate most of the total wealth derived from the sale of paintings in these circumstances, as long as the supplied quantities do not increase dramatically with increasing rank number (i.e. decreasing number of citations). Our example conforms in its general pattern to the markets for paintings and compositions in classical music, but it does not conform to the markets for lms and popular music, where the rankings change rapidly. However, even in these more changeable markets a similar pattern persists at each short period of time. During their much shorter stable ranking periods, the rent and income distribution should be expected to be extremely skewed in favour of only the top-ranking segment or sometimes even just one giant.

5.7

Syndication

A special form of vertical and horizontal integration syndication is typical of arts and entertainment industries (Werbach 2000). The basic preconditions for economic advantage of syndication are the following: 1. The product must have the property of a public good, i.e. it should be possible to be used by many at the same time or consecutively, i.e. the same unit of

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2. 3. 4.

5.

6.

a product can generate utility to many users. This is typical of information and knowledge. A concert by the Vienna Philharmonics on n radio and television stations does not decrease the quantity or quality to the listeners of the concert, even if n goes towards innity. However, aggregate utility and thus aggregate willingness to pay increases with an increasing n and thus the potential revenue is an increasing function of the number of radio and TV stations allowed to relay the concert. The product must be based on information only so that Internet can be used for transmission of the product. The product must be modular, i.e. capable of being cut into pieces modules and reassembled together with other modules. The product must be easily adaptable to different consumer groups. For example, the puns and jokes of an entertainment program should be capable of translation. Language free jokes as in the old Chaplin or Mr Bean movies are ideal from this point of view. Transaction costs (other than transport costs) should be limited to allow for syndication. A radio or TV program that only contains music could easily be syndicated, even globally, as there are small language and culture barriers to be overcome in the transfer of the program from country of origin to a country of destination. Syndicating a movie is more costly. It might require dubbing and cutting to suit a specic public. Sometimes a syndicated TV program needs to become a part of some coherent programming strategy, which gives rise to to adaptation costs. Distributors must be independent of each other. If distributors can organize themselves in some cartel or resale network, advantages of syndication would drop. Either the number of paying distributors would drop or the revenue from each distributor would be constrained to be below the resale price within the cartel or resale network. With Internet distribution these resale prices could approach zero if there are inefcient copyright rules and regulations. Essentially syndication contains the following agents:
Agents Creator Producer Syndicator Distributors Consumers Author Scriptwriter and innovation team TV program syndicator TV stations TV audiences Example

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5.7.1

Integration by Syndication

Examples of syndicated entertainment products are Robinson, Jeopardy, the Oprah Winfrey and Jerry Springer shows, sports arrangements like Olympic Games and other global championships. Examples of syndicated arts products are lms by independent lmmakers (e.g. Wim Wenders or Ingmar Bergman), classical music programs on radio and TV, novels suitable for conversion into lm and photographic art. With the development of the size and quality of internet, syndication advantages will determine productiondistribution system for entertainment and arts.

5.7.2

Global Creative Networks or Big Is Interactive

With the growing efciency of communication of new ideas, there is an obvious increase in the economic advantages of interaction among creators of arts, entertainment and science. Assuming the value of a creation to a creator living in region, i.e. to be dependent on the interact ion with other creators, living in regions j (=1,. . .,n), we have the following optimal interaction problem: max vi SpIi; jQi Scdi; jIi; j; where v(i) is the prots (or recognition) accruing to the creator of region i, p(I(i, j) is price (unit value) of interaction with creators of region j, Q(i) is the predetermined level of creative activity in region i, and c(d(i, j) is unit cost of interacting from region i with region j. The p-functions are assumed to be concave and differentiable everywhere (at least twice), while the unit cost of interaction is a given to be constant for any pair of regions. The conditions of optimal interactions are thus: dp/dI(i, j) c(d(i, j)/Q(i); for all interacting pairs of regions. The implications are the following:
l l

Interactions would increase with increasing impact of synergies upon creativity. Interactions would increase with decreases in the transactions, transport and communication costs. Interactions would be larger for creative activities operating at a large scale.

In an earlier paper by Andersson and Persson (1993) it was shown that under an assumption of a CobbDouglas production function, the interactions would follow a gravity equation.

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5.8

Conclusions

There has been a slow and steady transformation of the advanced market economies from a focus on productivity towards a focus on creativity and innovation. This refocusing means a greater importance of economic organization based on synergy and interactions than on division of labor and occupational specialization. A creative focus implies a change in the working of the labor market. Because of the great uncertainties in creative multi-stage production systems, there are great advantages of employing internationally renowned creators. These can often demand substantial celebrity rents leading to highly skewed income and wealth distributions. , The large uncertainties also cause an increase in the optimal scale of production. This is further reinforced by the increasing possibilities of syndication of the created products. Syndication essentially means that the same idea can be sold to many users in separated markets after adaptation to the specic user preferences. This has been used since long in the news media and among consultants, who have developed production processes, repackaging and users adapting the creative ideas of scientists. Syndication advantages have increased by orders of magnitude with the increasing efciency of Internet. The advantages of creative synergy will increase the tendency to interact globally among scientists and artists. Optimal global interaction conditions are deduced. They indicate that interactions should be driven to the point where the unit cost of interaction divided by the scale of operations equals the marginal increase in the value of the created idea (eventually innovated as a product).

References
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