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| "Being creative is being able to do new things with old stuff" |
American sociologist Richard Florida coined the terms Creative Class and Creative Economy as a way to refer to those industries where creativity and innovation are central to their performance. It may be the case that, in general terms, we can extend the argument saying that creativity is central to any business, however, Florida’s notion is not intended to blanket all businesses, but is rather much more concrete: creativity is not about individuals, but about organisations that structure their business around autonomy, tolerance, talent and technology, because in doing so they are able, to develop better products, while having positive effects on their environment (spillovers of their activity that, for instance, enables others to increase their own productivity (think of search engines like Google) or by promoting cultural products (like Wikipedia or Open Data Portals).
From this perspective, the creative economy appears as bearing important differences that distinguish them from established organizational structures (e.g. Taylorism, Fordism, and businesses that practice with military rigor the mantra of minimum cost equals maximum profit). Instead the creative economy is all about rewarding collaboration rather than individual performance, innovators rather than technocrats, autonomy over discipline, etc. We may not be able to draw a line on the sand that divides the creative industries from more traditional ones, yet it is still possible to trace general boundaries:
- ‘I define the core of the Creative Class to include people in science and engineering, architecture and design, education, arts, music and entertainment, whose economic function is to create new ideas, new technology and/or new creative content. […]
- All members of the Creative Class—whether they are artists or engineers, musicians or computer scientists, writers or entrepreneurs—share a common creative ethos that values creativity, individuality, difference and merit’ (Florida, 2004, p. 8).
In short, if innovation, creativity and collaboration are core values to your business and your consumers, then your business is part of the creative economy.
Florida's The Rise of the Creative Class 2004
How
does income inequality affect the creative economy?
Thomas
Piketty’s work on income inequality trends in developed economies tells us that
there are forces of convergence and forces of divergence that characterise
capitalist growth in the past two hundred years or so: forces that make lower
and higher incomes converge—reducing inequality—and forces that make low and
higher incomes diverge, resulting in higher inequality.
The forces
of divergence that directly affect the creative economy, says Piketty, are two:
financial instability and lower investments in cultural capital.
I will
now go over each so as to clarify his point.
Financial instability means, on the one hand, that
economies are in constant risk of building economic bubbles, that is, in
funneling investment flows: putting too much money too quickly into particular
markets, leading to situations of overinvestment. The tech bubble of the late 90s
is a prime example, although an even better one is of course the 2007 sub-prime
crisis that ended in a global financial crisis.
But, why does income inequality produce financial
instability?
Financial instability means, on the one hand, that
economies are in constant risk of building economic bubbles, that is, in
funneling investment flows: putting too much money too quickly into particular
markets, leading to situations of overinvestment. The tech bubble of the late 90s
is a prime example, although an even better one is of course the 2007 sub-prime
crisis that ended in a global financial crisis.
But, why does income inequality produce financial
instability?
The reason is that higher income inequality means that
a small number of investors are able to influence the direction of a market.
This means that they are able to drive people’s future expectations about the
type of returns a market can accrue, bringing, in turn, larger investment flows
into that market. However, they can also affect the negative expectations of a
market, taking investment away from that market.
The second force of divergence mention by Piketty is
the general tendency of public capital to decrease. Public capital referring to
all those investments (private or public, although mainly public in nature)
whose benefits are equally public, at least in the sense of what economists
call public goods: we can talk here about schools, public libraries, roads and
bridges as well as about the particle accelerator in Switzerland, the Norwegian
public fund that manages the country’s oil wealth, the public funding destined
to R&D—although the latter is surely the smallest in comparison.
The problem, as you may have already sensed, is that ‘we currently spend far more in
interest on the [public] debt than we invest in higher education. [AND] This
has been true for a very long time (Piketty, 2013, p. 567).
The reason public capital plays a central role for the
Creative Economy is explained by relation that exists, between high cultural
capital (e.g. libraries, parks, museums, etc.) and, on the one hand, the
entrepreneurial spirit that drives innovation, and on the other, the social
atmosphere that rewards autonomy, creativity, collaboration, and so on.
I said, however, that Piketty identifies too, forces
of convergence—forces that bring high and lower incomes closer to each other.
This forces not only decrease the levels of inequality, but also result in a
number of what economists call positive externalities, that is, public capital
can increase the number of well-paid jobs, can allow the middle class to
increase their disposable income, can decrease the rates of violent crime and
in general have positive economic and social spillovers.
Public capital allows for the three T’s (talent,
tolerance and technology) to flourish within social groups, which increase
entrepreneurial innovation, at every level of the business. There are a number
of ways in which companies can use these three factors as the underpinning of
their business model. The next post of the Thomas Piketty series will describe
how the three T’s can increase productivity, job satisfaction and general firm
performance.
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