Size isn't everything: The creative sector needs to get creative with its economic impact studies

With the creative sector being named as one of the new UK government’s eight target areas to drive growth, plenty of big numbers are being banded around- a £125 billion GVA sector, accounting for 1 in 14 of people in work, recently growing 1.5 times faster than the sluggish UK economy as a whole.

But large numbers are only the beginning of the story for the creative sector which will lose out more than other sectors if it only focuses on its current size or even recent relative growth. A broader approach is much needed.

The recent size war

Every sector worth its salt has one – an economic impact assessment – and generally the view is the bigger the number the better – in terms of the number of jobs supported and the spread of activity across the UK. But in terms of setting the future policy and investment priorities of a nation focused on growth and quality of life - as the current government’s industrial strategy sets out to be - they can often only be the start of any assessment of sector priorities.

It’s time for a more grown-up assessment of any sector’s likely future contribution to national prosperity and wellbeing. Both British Leyland (the lacklustre car conglomerate) and British Coal scored highly on GVA contribution and jobs created in the 70s and 80s – it’s one of the reasons we took so long to reform them. And judging a sector’s contribution by the number of people they employ can take you down the path of low value-added jobs and low productivity growth.

The creative industries can be as guilty of the large numbers game as any other sector when trying to get the government’s attention – but in their case, they may be losing out more than most sectors by not embracing a different approach.  

In recent years, we have had a rash of studies with large numbers attached, from film, to the press, the arts, and top flight football.

And for those who conduct these studies that carefully add up direct, indirect and induced GVA numbers and jobs there is a tidy business filling our world with impressively large but ultimately less than useful numbers if taken in isolation.

On their own, such numbers cannot capture the whole of the potential contribution to future growth and productivity, nor reveal the knock-on impact on the workings of the broader economy that the creative industries almost uniquely offer; nor do they show the general welfare, cultural and well-being effects. In short, they can miss many of the important points about the sector.

The wrong kind of economic impact

Even when it comes to the fairly narrow assessment of economic impact, the figures are often wrongly promoted and interpreted. Most of the studies imply that without the sector in question, the UK economy would be far smaller and unemployment far higher – that’s often wrong. At an aggregated level, if people, capital, physical assets and raw materials weren’t used by the sector in question they would be re-used by others. At the extreme, with a British Leyland or British Coal the opposite can be true, the UK economy might have been bigger without them. So, the true value of its contribution is whether a sector creates more wealth from any given level of employment and capital than another – i.e. is it more productive? And for the economy as a whole, are we big in sectors that are more productive today and able to remain so in the future, or ones that are less productive and destined to decline?

And while no economy can only comprise of sectors that provide very high value-added – people working in high value added per person sectors still want the streets cleaned and to buy takeaways - all developed nations need to drive up their productivity if the population is to become better off. They can do this both by moving more into high value added sectors and improving the productivity of low value added ones.

A better approach to using GVA numbers might come from looking at both recent growth compared with other sectors and/or the relative contribution of the sector when compared to other OECD nations.

But in a world of innovation and creative destruction, a sector’s importance can often change quite quickly, so past performance can be little guide to future performance. The more useful analysis comes from understanding what has driven a relatively high growth rate and if it can be sustained. In terms of comparative size and growth of the sector to others, is this driven by long run sustainable competitive advantage or does it reflect past protectionism or isolation from the full force of world trade?

A more nuanced view of productivity contribution, sustainable economic advantages and higher future GVA growth rates might help establish the specific importance of activities such as visual effects, AI software development and targeted advertising activities across the creative sectors.  However, it won’t necessarily help areas such as the performing arts. In strict economic terms, the arts generate a lot of low value added jobs and haven’t enjoyed high growth rates in recent years – partly due to declining public funding, and inherent difficulties in improving productivity. The leading economist William Baumol highlighted that a live performance of a Mahler Symphony will always take 100 musicians with zero scope for productivity gains. For these activities one needs to look beyond even productivity and growth-based sector GVA assessments.

The broader impact on the working of the economy

Over and above the economic impact of a sector - even if broadly defined - a well-functioning economic system needs good information and a system for developing consumer tastes and preferences, which drives demand for more value-added products and services across the whole economy. News outlets, magazines and TV programmes provide information and drive aspiration. Advertising allows consumers to know about products and understand their features, which news outlets and magazines then test against experience. Advertisers and sponsors use arts and sports to drive consumer affinity. While some of this is captured in the GVA of the sectors themselves, the contribution of the creative sectors in driving a market-based wealth generating system as a whole may not be.

The creative industries also play a vital role in the image of a country and its values across the globe, that can help a large number of consumer products and services as well as attracting overseas tourism. Look what Bridgerton has done for Bath, or Paddington for Primrose Hill. And before that Notting Hill for W11 or even longer ago what Brideshead Revisited did for Oxford.

But more importantly, such attention also helps persuade the globally mobile high value-added knowledge sector workforces of tech and finance to settle in the UK. Look at what Emily did for Paris and might also do for Rome! Lastly, a thriving creative sector helps drive demand for creativity-led disciplines in education – and involvement in music, creative writing, drama and the visual arts can bring innovation benefits across the whole economy.

Consumer surplus, well-being and cultural impacts

Many of the creative industries have also been found to generate large levels of consumer surplus (the value consumers get from a product or service beyond the price they pay). Advertising funded media is by definition all about consumer surplus, as its offered free. Certainly, there is the measurable cost of advertising to advertisers, potentially passed on to consumers, and there is the negative effect of the advertising interruptions themselves, but commercial radio and TV, and latterly YouTube, TikTok etc, all generate value to consumers not paid for by them and therefore not measured in the GDP/GVA figures. Commercially funded public service broadcasting goes a step further by encouraging public and cultural benefits beyond consumer surplus.

Furthermore, no one can deny that a sense of identity, democracy and citizen engagement are important parts of a developed society with large levels of public value generated across all three dimensions developed through the creative sectors. Much of this would not be captured by GVA measures at all under any measurement system but is an important part of our quality of life.

And the difficulty of capturing such public value of the creative sectors is not the same as GVA’s inability to measure happiness (a criticism often aimed at GVA figures and which David Cameron’s government tried to finesse with a happiness index). The public value provided by  art is often its ability to help us question things and make us feel deeply uncomfortable with the status quo – that’s not happiness but it is a public benefit.

Creative sectors have the most to gain from a more comprehensive and rigorous assessment of likely future contribution

The new UK government has targeted the creative industries as an area to drive future growth and productivity. However, it needs to take a multifaceted approach both to which part of the creative sectors might contribute to that the most – not necessarily the largest or the biggest employers today - and take into account their benefit to the UK brand for consumers and international investment. In addition, it must not leave out the non GVA benefits these sectors offer UK citizens if they are to live fulfilled lives.

So, let’s move on quickly from headline GVA size claims or even recent comparative GVA growth trends to a more broadly based and future looking assessment, and show some of the imagination the creative sector is supposed to provide when it’s arguing its own case – that might mean looking beyond those who specialise in providing “cookie cutter” GVA impact assessments.

O&O has taken the lead in providing a more multifaceted approach to assessing the importance of the creative sectors since it was established in 1995. If you lead a creative sector and want a more creative and impactful approach to making your case for more support and more helpful regulation do get in touch.