Economist Brian Easton says we have it around the wrong way. The issue is not what the arts contribute to market output. It is what market output contributes to the arts – and a lot more besides

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

According to its Minister, Carmel Sepuloni, the arts, culture and heritage sector ‘contributed $12.9 billion to our economy’s GDP’ in the year to March 2022. I await a similar release from the Minister for Corrections. A calculation for the justice sector using the same method would find that crime made a similar contribution. (Nobody seems to have done the calculation.) Is that something to celebrate?

The paradox arises because the ‘contribution’ of a sector to GDP tells us little about its value to society. Strictly the ‘contribution’ is the cost of the sector – apparently $12.9b in the case of the cultural sector (although we might want to query the exact description of what it encompasses). We may – and in my view should – celebrate this as the economy’s contribution to arts, culture and heritage.

On the other hand, the ‘contribution’ of crime to GDP is also its cost to GDP but it is to be regretted. Life would be better if there was less crime – arts is the opposite.

So the ‘contribution’ of a sector to GDP tells us very little about the sector’s value to society. Nor does it tell us much about the effective size of the activity. Consider doubling the number of bureaucrats in the Ministry of Culture and Heritage. That would increase the ‘contribution’ but I doubt it would make much difference to the actual quantity and quality of arts, cultural and heritage activities.

GDP also omits all the voluntary (non-market) activity in the arts. I had not realised, until Concert RNZ alerted me, the amount of amateur (i.e. unpaid) choral activity there was; it underpins just how well our singing does internationally. The omission of non-market activity does not matter when we use GDP for the purposes for which it was designed – such as monitoring market activity and market employment – but it does, if we confuse GDP with wellbeing, say.

Sober economics is clear that a sector’s ‘contribution to the economy’ is about the cost – use of resources – of the sector, not about the sector’s value to society. But in our inebriation we misinterpret the calculation and GDP has become a fetish.

Curiously, the cultural community has bought into the fetish, as the minister’s statement illustrates. The minister talks about the government ‘investing’ in the arts. The term ‘spending’ would be more precise, but it does not reinforce the GDP fetish. (‘Spend’ is Anglo-Saxon rather than Latin but does not carry the same mana.)

There is an economic analysis which shows that under certain – not always implausible – assumptions if we want to maximise market output/GDP, then economic activities should maximise their profits like businesses are supposed to. We should not disregard this theory, especially if we want to divert some of that output to progress the arts or whatever. But, to my mind anyway, we should not be pursuing GDP as the ultimate goal.

The cultural community is not alone with the GDP fetish. The education and science sectors seem to be comfortable with it too. So does the media – I don’t mean their journalists; I mean the way it organises itself.

That is the point, we may have a fetish for fairies or whatever, but we do not organise our institutions around fairies. Yet we organise so many institutions around commerce. Have you noticed the websites of RNZ (https://www.rnz.co.nz) or the NZSO (https://www.nzso.co.nz), the  choice of web-address suggestings they are commercial entities? (We should make a list of non-commercial organisations which use a web address with a ‘co.nz’.) They will deny they are commercial. But the business model is pervasive and riddles their thinking.

Universities are ac.nz, but I am struck how often their thinking is framed by the business model. Many of our universities are currently going through crises. Whether the crisis is a temporary fluctuation or it reflects fundamental changes is too soon to tell. Their standard response has been to blame it on reductions in public funding. But there has been surprising little discussion on the purpose of a university.

Ever since Rogernomics, their focus has been on their contribution to the economy. I am old-fashioned enough to think that there are other roles for universities, which means that the government should be supporting the arts, humanities and pure sciences more than the vocational courses which aim to contribute to GDP and which should rely more on market funding. Unlike the Hawke report, I take it that education is not just vocational training.

Additionally, in my view education is a life-long activity and an integral part of a liberal democracy and an individual’s wellbeing; universities have a vital role in promoting such education. (I also think that universities have a vital role in a liberal democracy as forward-looking homes of the critics and consciences of society and not just purveyors of the conventional wisdom. I am not sure our universities take that role seriously enough; their inability to analyse their own plight is an example of this failure.) All of these add to the cost of the economy – make a ‘contribution’. None really increases output although they increase wellbeing.

The challenge the universities faces here applies to many other parts of cultural activity. We will not resolve them as long as we fetishise GDP as the purpose of public policy rather than an important means by which we pursue our real goals.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.