You’ve got $7 billion – so how will you fund the arts?

The Conversation
4 November 2013
Jason Potts 

Last year the Australian Bureau of Statistics did the maths – government spends aboutA$7 billion annually in Australia on arts and culture. The exact dollar figure varies depending on what we count, but it includes heritage, broadcasting and botanical gardens, along with all the usual suspects: performing arts, literature, film, visual arts, and so on.

For the sake of argument, let’s assume A$7 billion is exactly the right amount of public funding for the arts.

To make this exercise fun, let’s suppose that no political horse-trading was involved in reaching this figure. Let’s assume this figure is the result of disinterested economic calculation of the size of the positive externality in the production of a public good, all wrapped in willingness-to-pay studies, and tied with a big bright cost-benefit ribbon.

So what’s next?

Do we put away our box of shiny economic tools and turn to grubby political compromise to allocate the exact market-failure correcting amount of public funding?

In Australia, as in Europe, this is more or less what we do. Economics to justify an economically efficient level of spending – and politics to implement it. 

Estimate market failure, then politically intervene in direct proportion. This is the standard 20th-century model of applied public goods.

Observe this in action in science (CSIRO), academic research (Australian Research Council), and sports (Australian Institute of Sport), among others.

Yet modern economics suggests that it would be better if we turned the process upside down. Let politicians determine the level of funding in a given area – and let economists determine the allocation.

Why? The political model of funding allocation is very bad at creating – or even recognising – new knowledge. In fact, political allocation mechanisms cause incentives that reward lobbying and punish experimental or innovative thinking.

Only by weakening those incentives can arts and cultural funding seek to be more than a rearguard preservation exercise or sinecure for vested interests.

There are four principles we should consider.

Read the full article at The Conversation