Alan Peacock and Cultural Economics
Author(s): Ruth Towse
Source: The Economic Journal, Vol. 115, No. 504, Features (Jun., 2005), pp. F262-F276
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TheEconomicJournal, 115 (June), F262-F276. ? Royal Economic Society 2005. Published by Blackwell
Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Maiden, MA02148, USA.
ALAN PEACOCK AND CULTURAL ECONOMICS*
Ruth Towse
Professor Sir Alan Peacock has worked in cultural economics for over 35 years and he pioneered
much of what is now the core subject matter of the field. This paper traces the development
of his theoretical work on the economics of the arts, heritage and broadcasting, and
shows how it interacted with his role as adviser to and chairman of several prestigious committees
in the cultural sector.
'Subsidising the Arts involves the same kind of issues as subsidising particular
industries or services in the economy, however distasteful this may seem to
those who are conditioned to think in terms of a moral ordering of consumption
expenditure ... Apart from any predisposition of the author to
oppose paternalism, the assertion of any imposed valuejudgements is too easy
a way of deriving support for public intervention designed to give the public
not what it wants but what it ought to have!' (Peacock, 1969, p. 323).
For a minor field of economics, cultural economics - the economics of the arts,
heritage and cultural industries - has been blest with the attention of some major
players: besides Keynes, Robbins and Baumol, whose contributions are sketched
below, Ashenfelter, Boulding, Caves, Feldstein, Galbraith, Rosen, Scherer, Scitovsky
and Shubik have all actively engaged in it, and Coase may also be included on
account of his work on broadcasting. Some topics in cultural economics, such as
museum entry charges, the finance of public service broadcasting and the size of
the subsidy to opera, seem to be perennially controversial and the growing interest
in cultural industries and the role of copyright look set to experience a similar
future. As with other areas of applied economics, such as the economics of education,
of the environment and of health, the analyticalbasis of cultural economics
is welfare economics. It is no surprise, therefore, to find Peacock with his combined
interest in welfare economics and cultural policy in this august company.
Indeed, he may rightly be called primusinterpares,for he has arguablycontributed
to more areas of cultural economics than any of the others.
Alan Peacock has had a long career as an economist, university teacher, university
administrator, government adviser and arts administrator. He also has
been an active composer and musician. He has continuously worked in cultural
economics since the mid-1960s, having a seminal influence on its development,
particularly, but by no means only, in the UK; he was in at the start of the subject
and is still contributing to it. He has written his autobiography as a cultural
economist, Paying the Piper (Peacock, 1993), in which he lays out his lifelong
commitment to applying economics to understanding the arts, drawing on his
* This paper was originally written for the Luce conference on 'Economists' case for government
support of the Arts'organised in 2002 by Neil De Marchi and Crauford Goodwin of Duke University. I
am grateful to Alan Peacock for his factual corrections to this article; also to William Baumol, Mark
Blaug and Muriel Nissel for their helpful comments on an earlier draft and to three referees for theirs.
[ F262 ]
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[JUNE 2005]ALAN PEACOCK AND CULTURAL ECONOMICS
experience of over 20 years as expert adviser, committee chairman and arts
administrator.
Given his considerable output of academic work and practical participation in
cultural economics, it is amazing to realise that it was essentially a sideline to a long
and distinguished career as Professor of Economics in four UK universities, specialising
in public finance, welfare economics and public choice theory. He was
Chief Economic Adviser to the UK Department of Trade and Industry (1973-6),
member of a number of UK government committees, and the firstVice Chancellor
of the University of Buckingham (1980-4). He was appointed Chairman of the
Committee on Financing the British Broadcasting Corporation (BBC), for which
he wasknighted in 1987, and was Chairman of the Scottish Arts Council from 1986
to 1992 (and therefore ex officioa member of the Arts Council of Great Britain).
These high profile public positions would attract criticism to even the most bland
incumbents. Peacock, however, has never shunned controversy - indeed he revels
in it - and sails into choppy waters with guns blazing. As a Scot, he certainly does
not mind criticising the English Arts Establishment (whom he has called the
'greatish and goodish'!). He lives and works in Edinburgh where he is Honorary
Professor of Public Finance at Heriot-Watt University and continues his connection
with the David Hume Institute, of which he was Executive Director until 1991.
In PayingthePiper,Peacock concentrates on his involvement with music and says
little about his work on heritage and broadcasting, which have been perhaps even
more important in shaping cultural economics. In this article, I show how these
ideas evolved and trace the development of the field from the 1960s. Peacock's
expertise in public finance and the economics of government - to him part and
parcel of the liberal tradition in political economy originating with Smith and
Hume - underlies his theoretical work in cultural economics and has guided his
practical work in administering the arts, heritage and broadcasting. In 1996,
Peacock was made the first Distinguished Fellow of the Association for Cultural
Economics International (ACEI) in acknowledgement of his contribution to the
subject.
1. The Development of Cultural Economics in the 1960s
Although many economists in the eighteenth and nineteenth centuries gave
examples from the artsand cultural sector in theirwritings- Adam Smith (famously)
on opera singers and dancers,Jevons on public libraries, Marshallon music - it was
not until the 1960s that economics wassystematicallyapplied to the arts.During the
1960s, the subject wasknown as 'economics of the arts'and concentrated mainly on
the 'high'arts,which in most countries were being subsidised bythe statebythe latter
half of the century;in the 1970s, the field of enquirybroadened to include heritage
and the cultural industries (in no small part due to Peacock's work) and the title
'cultural economics' came into use to accommodate these areas.1
1 The JournalofCulturalEconomicswas firstpublished in 1977. The JournalofEconomicLiteraturebegan
listing 'CulturalEconomics' in 1991 under Z1;in 2001, it introduced sub categories with 'economics of
the arts' as Zll. This unfortunately is now a source of confusion.
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THE ECONOMIC JOURNAL
Two major economists preceded Peacock in his work in the arts in the UK:
Keynes, who had been the founding Chairman of the Arts Council (the body that
dispenses state subsidies for the arts), and before that had had a long connection
with the arts (Moggridge, 2002) and Robbins, who held a number of important
honorary positions in the arts world (among them, Chairman of the Board of
Directors of the Royal Opera Covent Garden and Chairman the Trustees of the
National Gallery). Keynes had published nothing applying economics to the arts,
and Robbins, who began to investigate the political economy of the arts in 1958
(Howson, 2002), published 'Art and the State' in 1963, following it up with
'Unsettled Questions in the Political Economy of the Arts'in 1971 (Robbins, 1963;
1971).
However, it was Baumol and Bowen's (1966) book PerformingArts:TheEconomic
Dilemmathat proved to be seminal to the field of cultural economics, becoming the
focus for subsequent work both on theoretical justifications for state subsidy to the
arts and for empirical work on data collection in the cultural sector. Their central
argument was that the live arts, where the performers' labour is the main output,
experience little if any productivity growth in contrast to the rest of the economy,
in which increased productivity from technological progress and capital investment
fuels wage rises;even though performing artistsearn less than other workers,
their incomes must eventually rise alongside other wages, causing prices for arts
performances to rise in excess of inflation (Baumol and Bowen, 1965). This has
subsequently come to be called 'Baumol's Cost Disease'. The 'classic' example is
that of the Haydn string quartet, which requires the same input of labour, musical
instruments and time as it did when written, while other goods and services have
become vastly cheaper to produce. Baumol and Bowen concluded that everincreasing
costs (and prices) would eventually exceed the limits of private finance
of the arts and therefore 'increased support from other sources' - the prime
candidate being the public sector - would have to be found to maintain the
existing quality and quantity of the arts.
Peacock's reaction to Baumol and Bowen's thesis took two forms: his immediate
response was a theoretical article considering the case for state subsidy to the arts
and the second, which inevitably took longer to produce, was a stringent empirical
study of the 'Cost Disease' in the arts in the UK. They are discussed in turn below.
2. Peacock's Case for Public Subsidies to the Arts
The first article by Peacock on cultural economics, 'WelfareEconomics and Public
Subsidies to the Arts'was published in the ManchesterSchool(Peacock, 1969). The
quotation at the beginning of this paper is taken from the first paragraph of that
article and it sets out the credothat has guided all his subsequent work. In it he
criticised Baumol and Bowen on two counts: first, he questioned whether the
prognosis of the Cost Disease was as 'pernicious' as they claimed and secondly, he
thought that the welfare case for public support was weaker than they implied.
One might say that these differences were about magnitudes - the extent of the
'damage' of the Cost Disease, the size of the externalities and the extent to which
the arts may be said to have 'public goods' properties. However, the chief differ?
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ALAN PEACOCK AND CULTURAL ECONOMICS
ence between them was essentially the willingness to accept a role for government
in the arts:Baumol, tending more to viewssomewhat left of centre, wasmore ready
to embrace state involvement than Peacock, the classical liberal. This quasi-political
difference between the two men, who in many wayshad much in common, was
to dominate their intellectual interaction over the 1970s and 1980s. As they have
both had a leading role in cultural economics, their interaction may well be said to
have been a significant factor in the subject's development. It also should be said,
however, that both share a concern over equity issues and advocated policies for
income redistribution; they differed in how that may be achieved, particularly in
the arts.
In this article, Peacock provides an elegant mathematical formulation of the
Baumol and Bowen model. He perceived that they not only assumed fixed factors
in production, but also that they had a concept of a fixed output in terms of both
quality and quantity of 'a performance'. Baumol and Bowen implicitly assumed
that maintaining these supply side features of the arts was the objective of government
policy. By contrast, Peacock emphasised the consumer sovereignty aspect,
arguing that people's preferences about how they consume the arts, say by listening
to music on record or on the radio instead of attending live concerts,
should be given priority over some expert, elitist view of the form that enjoyment
of the arts should take.
Peacock's analysis of the case for state subsidy rested on his understanding of
public finance but it was influenced in addition by his classical liberal aversion to
'state monopoly'. He questioned the nature of spillover effects that had been
claimed as production externalities of the arts, arguing that if they were pecuniary
not technical, as he believed them to be, they did not support the 'case for national
public action' (though he believed there could be a weak case for subsidy from
local taxation). As to consumption externalities, he found it hard to 'trace the way
in which spillovers from the culture vultures' attending live performances is supposed
to take place' (Peacock, 1969, p. 330). He pointed out that the economist
making the case for public support to the arts based on production and consumption
externalities must rest the argument on the assumption that the arts
provide greater marginal benefits per unit of expenditure than would other
activities, such as sports or education. And if such were the case, then public
finance for the arts should take the form of vouchers so as to maximise consumer
sovereignty and reduce government monopoly, a policy Peacock strongly advocated
in other areas of public policy (and one that Baumol and Bowen had also
proposed).
A further argument for subsidy that had been put forward by Baumol and
Bowen was concern for future generations - that we should preserve the arts for
our successors so that they can make effective choices; if, say, theatre were to die
out for want of support by the present generation, our grandchildren would not be
able to experience it. Peacock questioned their view that 'a program to preserve
the artsfor the nation's posterity is a case of indiscriminate benefit par excellence'
(Baumol and Bowen, 1966, p. 385). He asked the classic public finance question
'who is to benefit and who, in consequence, will make the sacrifices?' (Peacock,
1969, p. 331) and adapted Tullock's point that redistribution of income to future
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THE ECONOMIC JOURNAL
generations from the present one was a 'negative' subsidy since future generations
are likely to be wealthier. He pursued this argument further with respect to the
economics of heritage (see Section 4). He did, however, believe in subsidies to the
arts in schools to form the tastes of the 'next' generation, thus overcoming the Cost
Disease income gap by shifting demand in the long run.
By 1969, therefore, Peacock had a well-developed analysis of public support for
the arts that was to serve him in subsequent practical involvement with public
policy in the arts in the UK as adviser and administrator.
3. The Real World of the Arts
Shortly after writing the 1969 article, Peacock was appointed as Chairman of the
Arts Council of Great Britain's National Enquiry into Orchestral Resources (called
ORE hereafter) that reported in 1970. Here was an opportunity to marrytheory
with practice and it meant dealing with people who were not only unfamiliar with
the economist's way of thinking but often positively hostile to it. The prevailing
arguments for subsidy to music by the profession and by the Arts Council (King
and Blaug, 1976) were that musicians were the best judge of orchestral provision
and that funding should follow their decisions.2 Peacock, however, was not willing
to be 'captured' - his head alwaysruled his heart in such matters, however close
they were to his heart - and set about providing the ORE Committee with an
economic analysis of the arguments typically used in arts circles to elicit subsidy.
The opening proclamation was this: 'The existence of a subsidy to orchestras
implies that money is diverted from private pockets to public use and this money
would be spent in an entirely different way than would be the case if subsidy did
not exist'. (Quoted from Peacock, 1993, p. 60). This obvious economic truth can
be read in different ways;though it signals to an economist that the case has to be
made, many in the arts world respond 'yes, quite right - that is the point!'
He also warned: 'those who organise concerts should not be surprised if
authorities disbursing the funds insist on some clear statement of the concert
budget and some form of accountability, if only as a protection to the taxpayerwho
is footing the bill' (Peacock, 1993, p. 29). Such thinking in arts circles was
anathema until Mrs Thatcher's reign, and it was then regarded as Philistinism. At
the time, incidentally, UK orchestras received about half their income from subsidy
(by 2000 that had reduced to 15%).
Uncomfortable with his dual role as hard-headed economist and music-lover,
Peacock made the case for orchestral subsidy in these words:
'Weshould recognise that we (the ORE Committee) are a pressure group
who share the 'valuejudgement' that orchestral music confers important
benefits on the community as part of the complex pattern of culture,
although we probably differ among ourselves as to the extent to which
these benefits accrue to the community at large other than concert-goers'
(reported in Peacock, 1993, p. 63).
2 It should be noted that several of the main London orchestras are self-managing co-operatives.
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ALAN PEACOCK AND CULTURAL ECONOMICS
In the short run, at least, he felt able to rest on the argument of taste formation.
He noted later that he 'received some good-natured ribbing from my fellow liberal
economists'.3 He proposed tax concessions for privatesponsorship of the arts,then
common in the US but unheard of in the UK (no such tax provisions were made in
the UK until the late 1990s). These, he argued, were a way of avoiding cultural
monopolies especially that of 'one patron - the state'. He evidently succeeded in
persuading the Committee of some of his economic arguments because their
recommendations included devolving a greater proportion of public funding and
tax relief for donors as well as proposing to raise the earnings of regional
orchestras to equal those of the London orchestras.
The Arts Council was outraged by the Committee's recommendations and told
Peacock and the Committee to revise them or face public rejection. The Arts
Council objected to the very idea of using the price system - the 'cash nexus' - to
enhance the position of the regional orchestras and to using public subsidy as a
lever to achieve policy objectives. This was the reception of what Peacock calls 'a
landmark in the discussions of public policy towardsmusic' (Peacock, 1993, p. 71).
As he noted, the 'great and the good' in England, even if not drawnfrom patrician
stock, aspire to it and discussions of money are not 'good form'.
Despite this cold-shouldered reaction to this foray into the real world of the
subsidised arts, Peacock had now got the bit between his teeth. He set about
tackling what has become a recognised aspect of the principal-agent problem, the
appropriate performance indicators for assessing the effect of subsidy, in this case
measuring the output of orchestras. He used existing measures of output - the
number of orchestral performances and number of seats sold - to develop a
methodology of measuring 'performed output' rather than 'marketed output' in
order to provide a basis for comparing costs of production and for drawing up
productivity indices. That required assigning weights to compare an orchestra's
different activities, such as performance of new works or 'out of town' concerts,
that reflect the choices orchestras make about how to deploy their resources. He
made it clear that the weights should be chosen by the orchestras themselves
(though they could also be chosen by a funding body intent on eliciting particular
outcomes for their grants). The resulting productivity indices would allow comparisons
to be made between different orchestras. He thus developed a set of
measures that he was later to apply to the whole arts sector in testing for Baumol's
Cost Disease.
This work formed part of a wider inquiry that he pioneered with others into
what was at the time called 'cultural accounting', the quest to provide systematic
data on the finance of the arts, which in the late 1970s and the 1980s was being
sponsored by the Council of Europe, a task now carried on (though far from
being completed) by Eurostat. It is only in this century that we now have reasonable
cultural data in the UK provided by the Department of Culture, Media
and Sport.
3
Scitovsky,well-known for his arguments for subsidy as a means of taste-formation (Scitovsky,1976)
claimed Peacock was a 'striking illustration of 'the conflict between the music lover and the good
economist' (Peacock, 1993, p. 65).
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THE ECONOMIC JOURNAL
By the 1980s, the Thatcher governments' stance on subsidy was tightening funds
to the Arts Council and was also making more public accountability necessary. The
ArtsCouncil therefore decided to bring Peacock back into the fold as a 'hired gun',
in his own language, a supposedly biddable economist who would produce the
results they needed to convince the Treasury of their case for more subsidy. Peacock
had spent three years as Chief Economic Adviser at the Board of Industryand
Trade and had therefore learned the waysof government and, more relevantly, of
the Treasury. It should be said that the Arts Council at the time did not have a
research team (unlike many European ministries of culture and the National
Endowment for the Arts); its research staff consisted of one Research Officer. Thus
any research had to be commissioned from the outside, though it rarelywas. Even
basic information on its spending patterns, for example, per capita expenditure by
region, was undertaken without its support and it strongly resented any 'interference'
from the outside (King and Blaug, 1976). By now Baumol's Cost Disease was
well known. It was perceived as a strong argument in favour of subsidy for the arts.
So, the Arts Council commissioned Peacock to produce evidence of the Cost
Disease in the UK.
In order to do the analysis, data had to be collected from a selection of
(subsidised) arts organisations; opera, ballet, orchestras and theatre companies
were included, as well as one art gallery. A team of researchers gathered data
from their accounts and applied a system of weighted index numbers to measuring
cost inflation of the inputs used in the various productions. It was thought,
following Baumol and Bowen, that a large proportion of the costs of running
performing arts organisations were those of artistic personnel. As it turned out,
that was really only true of the orchestras; theatrical performances required
considerable inputs of 'ordinary' materials and the costs of wood and paint were
rising at well above the rate of increase of consumer prices. What soon became
obvious was that the earnings of artistic personnel not only did not rise at the
same rate as the Average Earning Index (AEI) but they had actually fallen in real
terms. The only labour costs that were rising at the AEI rate were those of
carpenters, secretaries and arts managers! Artists were 'trapped' in the arts but
the others were not and this dragged down the measured inflation in the performed
arts (these findings had in fact been anticipated by Baumol and Bowen's
1966 research).
The Arts Council's reception of this bad news and the cost of the research
included a remark by the then Chairman that Peacock loves to quote to this day:
'the survey would have been cheap at the price if it had come to the right conclusion'
(Peacock, 1993, p. 93). The resulting report Inflationand thePerformedArts
by Peacock, Shoesmith and Milner (1982) barely saw the light of day. It was
deliberately published in a manner designed to attract as little notice as possible,
being merely a photocopy of the original manuscript stuck in a plain red cover, not
at all like the Arts Council's usual glossy publications.4 Needless to say, this was the
punishment for failing to produce what Peacock calls 'bespoke analysis', that is,
delivering the hoped-for goods.
4Excerpts are reproduced in Towse (1997) and the quality of presentation may be seen there.
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ALAN PEACOCK AND CULTURAL ECONOMICS
These studies show that in addition to theoretical arguments for public subsidy
to the arts, Peacock was also analysing the type of information necessary for the
implementation of cultural policy. It is not just a question of whether subsidy is
merited but how the government can deliver it so as to achieve policy objectives
and, more importantly, reveal to taxpayerswhat the economic choices are. But the
taxpayers' right to know requires explicit policies, open administration and the
information from which tojudge, all of which were missing in the arts. Peacock has
alwaysfavoured policies that move decision making awayfrom the national government,
influenced as it is by arts lobbies and establishment preferences, towards
local administration, local groups of consumers and, preferably, to individual
consumers rather than arts organisations. That is why he pressed the Arts Council
for a survey of public participation in the arts (the first survey of participation in
the arts in the UK was only carried out in 1990 after over 40 years of the Arts
Council) and persistently advocated subsidy to the arts by means of vouchers in
order to maximise consumer choice.
As early as 1969, Peacock had argued for the use of vouchers in the arts as a way
of overcoming equity problems of access for 'poorer' consumers.5 The well-known
economic rationale for vouchers is that they achieve equity objectives - redistribution
of spending power - without distorting allocative efficiency objectives as is
the case with subsidies to producers. Vouchers as a way of delivering arts subsidy
have several advantages for the classical liberal: they put the power of deciding
what is art in the hands of consumers rather than in those of a paternalistic
cultural monopoly (such as the Arts Council), partly overcoming a persistent
problem with subsidy to the arts, which is that the 'high culture' arts appeal to
better-off consumers who therefore benefit more from tax transfers than do
poorer taxpayers. In addition, arts organisations are freed from having to please
the funding body in order to qualify for a grant because vouchers enable them to
charge consumers a commercial price; the organisation at which the voucher is
spent 'cashes in' the value of the voucher from the issuing agency and thus obtains
its subsidy. As a result, arts organisations become viable only if their product is
appealing to the consumer. The voucher scheme can be restricted to a list of
'certified' arts organisations, the certification being a mark of recognition that aids
the consumer. The issue of vouchers can be restricted to a target group, for
example, young people, and senior citizens; however, it is difficult to target 'the
poor' without means testing. Waysround that problem have been suggested, such
as issuing them via trade unions.
Peacock has come to accept that there are serious problems with the administration
of vouchers for the arts, in particular with transferability;if consumers do
not want to go to arts events 'atany price' (even for nothing), they could 'sell' their
vouchers, contravening the purpose of the voucher. By contrast, vouchers for
education, from which the idea of arts vouchers is derived, do not present problems
in this respect as schooling is compulsory, so failure to use the voucher would
mean parents paying the full price. However, Peacock also came to realise from his
5 The first Institute of Economic Affairs pamphlet on vouchers for education waswritten by Peacock
and Wiseman (1964). Alan Peacock reminded me of this.
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THE ECONOMIC JOURNAL
contact with Arts Councils and the like that their main objection to vouchers
essentially arises from their loss of power to dispense patronage to arts organisations
directly (Peacock, 1993, pp. 128-30), an observation entirely consistent with
public choice theory.
4. Political Economy of Heritage
Besides his work on the performing arts,Peacock also did important earlywork on
museums and built heritage, publishing his first articles respectively in 1974 and
1978 (Peacock and Godfrey, 1974; Peacock, 1978). Peacock's contribution to the
discussion on museums (initiated by Robbins, 1971) was, quite simply, that he
applied the welfare economic reasoning he had developed earlier and he adopted
an empirical approach to the public finance of museums, treating them as 'firms'
at the microeconomic level. This was a marked contrast to Robbins' patrician
rhetoric proclaiming museums to be public goods. In the case of built heritage,
Peacock appears to have been the first economist to write on the subject and his
continued contributions have been definitive in what has become a thriving area of
cultural economics. He perceived that on the supply side, no heritage item is
produced as such but instead what counts as heritage is determined by expert
designation, a particular type of regulation; though the stock of potential heritage
items is fixed and their costs historic, heritage authorities have the power to
administer the 'supply' of heritage, for example, by listing. The role of experts
gives rise to the exercise of bureaucratic power and thus lends itself to the application
of public choice theory to heritage administration.
Heritage necessarily entails transfers between generations; the present generation's
decisions about conserving artefacts and buildings determine future heritage
because, if they are neglected or destroyed, there is nothing to hand on;
though it may be possible to revive defunct performance traditions, restoration of
objects presents a different challenge; recreating or rebuilding them cannot
meaningfully replace the original.
Peacock and Godfrey (1974) was published four years after the introduction of
entry fees to public museums and art galleries in the UK so the (now perennial)
question of the merits of charging entrance fees was being hotly debated. Robbins,
then Chairman of the Board of the National Gallery, had opposed charges. The
analysis by Peacock and Godfrey characteristically began with tabulations of the
public finance of UK museums, which provided hard data on the income and
expenditures of the national museums - another difficult exercise in cultural
accounting, and it still is (Peacock, 2000; Peacock, 2001) - to inform the debate.
Unlike performing arts organisations, which in the UK normally are private nonprofit
institutions constituted as charities, museums and art galleries were at the
time publicly owned and managed either by central government or local
authorities. And, unlike performing arts organisations, most did not charge entry
fees until this change of policy in 1970. At the time, the national institutions
received grant-in-aid from the Arts Council, while the buildings and running expenses,
including the salary bill, were maintained by the Department of the
Environment.
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ALAN PEACOCK AND CULTURAL ECONOMICS
The second innovation of Peacock and Godfrey's analysis was to apply microeconomics
to the question of museum 'output' which, they pointed out, consisted
not only of exhibition to the public, which could be measured by the number of
attendances6 but also of restoration, cataloguing and research services, which may
be offered to other museums as well as 'in house'. Devoting more resources to one
function alters the input mix but inputs are not homogeneous; more visitors require
more attendants and possibly more exhibition space but more research requires
more arthistorians. What 'weight'should be given in the museum's objective
function and to its multiple outputs and who should decide upon the output mix
were questions Peacock addressed in line with his analysisof orchestras. He seems
to have accepted the now contested case that museums could not finance new
acquisitions from the sale of their existing collections (of which a great deal is
normally held out of public view in the vaults7). He did not agree with Robbins
about the public good nature of museums and argued that prices could be charged
to raise some part of revenue with exemptions for the young and others who might
not be able to afford them. Subsidy should be used to cover prices below average
fixed costs. Peacock believed that charging for entry would allow consumers to
signal their preferences so that museums would then have the incentive to respond
by offering better visitor services. The question of charging for national museum
collections (as opposed to charging for special exhibitions, which has become the
norm) has become an unresolved issue in the UK, despite considerable changes in
the governance and subsidy of museums. Current government policy (in 2004) is
that entry to subsidised national museums' collections should be free.
Built heritage has some of the same features as museums. However, the case for
regarding built heritage as a public good is much stronger because entry to heritage
cities or viewing beautiful old buildings from the outside is non-excludable
and (with the exception of congested sites such as Stonehenge and Venice) nonrival
and Peacock recognised, therefore, that the associated free-rider problem
provides grounds for public intervention. Nevertheless, as entry charges may be
made to the insides of buildings, access to all built heritage is not non-excludable,
as with museums.
Peacock accepted that in the pure public goods case 'it would be difficult not to
support both public financing by taxation and public responsibility for provision of
the service, it being an open question whether that provision means public
operation of the service or some form of franchising or executive agency
arrangement' (Peacock, 1994, p. 203). How much public finance there should be
depends on the demand for the public good, which is difficult to define,8 and on
6
Attendances not attendees - the Arts Council has a long-term tendency to equate the two, as if each
recorded visit were by a different individual! All surveys of arts participation reveal that people make
multiple visits (and, moreover, the same people visit museums, theatre and opera). The counting of
attendances is not very systematic, however, when entrance is free.
7 Grampp (1989) and Montias (1973/1997) have strongly criticised this policy - the 'magpie' attitudes
of museum curators. This is sometimes called the 'Prado Disease' since the Prado (the Spanish
national art museum) is reputed to have less than 10% of its collection on permanent display.8
Nowadays, these are increasingly being measured by contingent valuation methods (see, for
example, articles by Cuccia and Signorello, chapters 9 and 10 in Rizzoand Towse, 2002). Freyhas always
advocated the use of referenda as a means of eliciting voters' support for heritage expenditure decisions,
a practice adopted in Switzerland (Frey,2002).
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consumers' perception of consumption externalities, part of which may be expressed
through voluntary donations of money or labour. Whatever the desirable
amount of subsidy, Peacock advocates, as ever, devolution of decision making from
the central government to bodies that are more susceptible to taxpayers' preferences,
that is local authorities or, preferably consumer membership organisations,
such as the National Trust. State support for such organisations can come from
indirect subsidy in the form of tax waiversrather than direct provision or finance.
The National Trust (NT) is a favourite model for Peacock. It is a private nonprofit
club with a broad membership that owns and operates a very large number
of properties in the UK, ranging from great 'stately homes' to coastal paths and it
receives no direct government funding but benefits from tax concessions: membership
fees are tax deductible and the NT acquires many of its properties
'acceptance in lieu of taxation', that is, death duties and inheritance taxes are
waived if the property is donated. One can see immediately the appeal of this
model for Peacock. Organisations like the National Trust, English Heritage and
Historic Scotland provide competition for state owned and managed heritage,
achieving what he calls freedom of entry into 'the heritage business'.
Peacock's work on heritage has had a major influence on cultural economics,
not only because he introduced it as an economic problem, but also because he
emphasises the public choice aspects of heritage regulation (designation by experts
who are both judge and jury of their own decisions), asking what fiscal and
institutional arrangements can assist voters/taxpayers in asserting influence over
these experts. In his 1994 Keynes Lecture (Peacock, 1994), he briefly discussed the
relevance to the economics of heritage of different schools of thought in public
choice theory, Chicago versus Virginia, with his sympathies being towards the
latter. Chicago economists argue that public expenditure reflects voter preferences
because politicians have the incentive to reflect them so as to be re-elected;
the Virginia School (Buchanan, Tullock) emphasises the opportunities bureaucrats
have for discretionary behaviour without reference to voter preferences;
asymmetric information about art history, unclear concepts of the output of heritage
and the costs of preservation and, perhaps even more importantly, concern
over thejudgement of peer groups, such as fellow museum directors or artexperts,
all offer bureaucrats considerable opportunity for such behaviour. This approach
has proved to be veryfruitful and has set in motion what might be called somewhat
of a 'paradigm shift' in the waycultural economists think about cultural policy (see,
for example, chapters by Rizzo and Mazza in Towse, 2003).
The cosy relationship (otherwise known as 'regulatory capture') between client
cultural organisation and the funding bureaucracy that creates immunity from
market forces is a theme to which Peacock has returned time and again in Payingthe
Piper,in which he has a detailed discussion of these problems in artsadministration
drawn from his experience as Chairman of the Scottish Arts Council.
5. Economics of Broadcasting
Peacock's major contribution to the economics of broadcasting began when he
was appointed Chairman of the Committee on Financing the British Broadcasting
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ALAN PEACOCK AND CULTURAL ECONOMICS
Corporation (BBC), which reported to Parliament in 1986; here he again consistently
applied his understanding of welfare economics and public finance to a
topic on which verylittle had been written by the mid-1980s, the notable exception
being two pioneering papers by Coase (1948, 1966).9
The BBC was then (and still is) financed by a compulsory licence fee, payable
by all households and other institutions owning a TV set, with the licence fee set
by Parliament. By the 1980s, advances in broadcasting technology (cable and
satellite transmission) had provided alternatives to wireless broadcasting and
commercial broadcasting financed by advertising had been introduced but did
not receive revenue from the licence fee. A competitive market therefore became
feasible but not on a 'level playing field' as long as the BBC was financed by the
licence fee.
Peacock's first analytical objective was to establish the aims of broadcasting
policy, which he pointed out: '.... just as waris too important a matter to be left to
the generals and economic policy too important to be left to economists, broadcasting
aims are too important to be left to those who do the broadcasting'
(Peacock, 1986, p. 3). He therefore asserted the explicit valuejudgement that the
aim of a broadcasting system is to maximise the satisfaction of those who listen or
watch; that, however, necessitates a mechanism whereby consumer preferences for
programmes can be transmitted to the broadcaster.10 A competitive market,
offering a large number of channels and a direct payment mechanism, would seem
to be the obvious low-cost method of communicating consumer preferences to the
supplier. However, Peacock considered the case for public service broadcasting
(psb) on the equity grounds that it should be universally available in remote parts
of the country and also offer good quality information and entertainment to the
less well off, and on the efficiency grounds that private finance alone would give
rise to free-riding. That would lead to under-provision of educational and cultural
programmes with external benefits. Even so, Peacock concluded that meeting
these objectives did not require that they be supplied by a public corporation with
a monopoly.
The question of broadcasting as a public good, which would justify centralised
organisation of payment, naturally had to be considered; terrestrialbroadcasting is
often regarded as a public good because transmission is non-rivaland for technical
reasons non-excludable. Moreover, as it is a natural monopoly, marginal cost
pricing would not be feasible. (The electro-magnetic spectrum is rivalbut, as Coase
had pointed out 20 yearsbefore, governments had not only 'seized' ownership of it
but refused to use pricing methods to allocate it.) Cable and satellite delivery,
however, avoid both the technological and economic problems and make pay-perview
possible, and to Peacock, desirable.
9
Broadcasting was the topic of Coase's earlywork under the direction of Arnold Plant at LSEin the
1930s and it wasthrough thinking about the BBCmonopoly that he developed his understanding of the
'problem of social cost'.
10 Peacock responded to the first draft of this paper by adding this note: 'Perhaps it is worth noting
that the Report emphasized that we were talking about consumer sovereignty and not just about
consumer interest. We thought the only reasonable definition of psb required recognition by the public
that its wishes could only be carried out by non-commercial means'. See also Peacock (2004a).
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THE ECONOMIC JOURNAL
Why, then would psb be retained? His reply in the Robbins Lecture (Peacock,
1986, p. 13) is the cynical public choice response: the BBC is so close to government,
its Governors are part of the establishment and bureaucratic inertia makes
change difficult. Even so, the BBC could continue as a psb provider in a more
competitive market. Although it waswidely anticipated that the Committee would
recommend advertising as a means of financing the BBC, it did not do so, despite
MrsThatcher's known preference for it, and the licence fee therefore (so far) has
remained the source of finance. The Committee instead recommended that
the licence fee be linked to the Retail Price Index and that was accepted by the
government. Was Peacock captured? The reported anger of Mrs Thatcher at the
Reportsaid it all.
Peacock later revisited the 'scene of the crime' (Peacock, 1997; chapters 20 and
21, the first written in 1987 and the second in 1995). The first is interesting for its
account of the process and procedures of a government-commissioned investigation
and how the recommendations were made. In the later essay, 'The Political
Economy of Broadcasting' Peacock states that he 'toyed with the idea of trying to
subsidise the viewers and listeners directly, possibly by the issue of vouchers in the
form of a card for insertion in a receiver which reduces the price for viewing psb
programmes' (Peacock, 1997, p. 306), realising that new technologies might permit
such a system. He restated his view that public finance of psb should continue,
though all programming, scheduling and transmission of psb content did not have
to be done by the BBC. He was also concerned about the 'cosy duopoly' between
the ITC (Independent Television Commission), which licenses commercial TV
and the BBC,which militates against 'free entry'into the broadcasting business and
reduces competition that would increase diversity of choice and reduce costs.
Finally, it is worth noting in the light of the earlier discussion of Peacock's viewson
heritage that he returned to the theme of a governance system for a privatised
BBC,considering something akin to the National Trust, that is, a privatenon-profit
organisation controlled by members.
As with the arts and heritage, Peacock again accepts the case for public support
but not for public provision and states his usual concern about how to induce the
agent (the Arts Council, the BBC) to take more account of the demands of the
consumer, the principal. Broadcasting is another case where he believed the free
market does not yield the best result for the consumer or, therefore, for the state.
6. Conclusion
This paper does not do full justice to Alan Peacock's contribution to cultural
economics to cultural policy in the UK. His work on copyright, for example, which
was 20 years in advance of its time, is not discussed (Peacock and Weir, 1975). All
that has been done here is to present his views on public expenditure on the arts,
heritage and broadcasting as part and parcel of his role as a professional economist
and public figure. It shows that early on Peacock had understood that different
branches of the cultural sector share common economic problems, even through
they are superficially different: in other words, he perceived that cultural economics
is a distinct area of applied economics.
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2005] ALAN PEACOCK AND CULTURAL ECONOMICS F275
His work has influenced cultural economics not only through his writings over a
period of 35 years but also through his continuing active participation in the
Association for Cultural Economics International (ACEI) and other meetings of
researchers in cultural economics. It is appropriate, therefore, to leave the last
word to the man himself quoting from a paper he presented at the 2002 ACEI
conference on the subject of 'The Credibility of Cultural Economists' Advice to
Governments':
As Milton Friedman used to say, being a government economic adviser
entails teaching Economics 1 to intelligent people. One can add in the
case of culture it is a matter of trying to convince intelligent and sceptical
colleagues, reluctant to accept though well aware it is true, that government
support for cultural activities involves an opportunity cost (Peacock,
2004b, p. 177).
ErasmusUniversityRotterdam
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