1. The Heritage Game: the economics of cultural assets Ilde RIZZO Professor of Public finance University of Catania rizzor@unict.it Valuing Cultural Diversity in Cities:Challenges to Cultural Economics, Procida, 7 September 2009

2. Issues and research question Almost everywhere public sector plays an important role in promoting Cultural Heritage (CH) activities. The features of CH policies differ across countries. The paper will address questions such as: –what are the effects of the institutional features of the CH decision- making process on the scope of benefits stemming out of Government action? –how the institutional setting affects the design and the implementation of CH policies to meet the challenges of multicultural societies? –Are these problems and their effects different according to the level of government?

3. CH activities are carried out mainly through non- market systems: – consumers do not express their preferences through their willingness-to-pay; –producers do not work under competitive incentives The conditions ensuring the efficient resource allocation in the competitive market are missing. CH activities are in most cases the outcome of a public decision-making process. The CH decision-making process

4. ….. from theory …… In theory, there are several reasons why Government intervention is called for (Van der Ploeg, 2006): the economic rationale for public intervention lies in the improvement of societys well being, both in terms of a more efficient and equitable use of the limited resources the positive role of CH activities to promote social inclusion is increasingly stressed in most countries. The extent of the rationale for government intervention in heritage is controversial There is an increasing awareness that CH policies need to combine the principles of equality and diversity.

5. ….. to practice In practice, the institutional features of the CH public decision-making process affect the scope of benefits stemming out of Government action as well as the combination of public/private action Who does what, and how? Positive analysis can be helpful to the understanding of CH provision by the study of the motivation of providers and how it affects their decisions about the allocation of the resources and the range of activities they offer.

6. The CH public decision-making process Citizens delegate choices to politicians and they delegate public officials the implementation of their choices –In theory, such a process should allow the implementation of the same choices citizens would have made (demand-oriented) –In practice, the decision making process is affected by the preferences of self-utility maximizer agents (supply oriented)

7. The CH public decision-making process CH policies are a matter of negotiation among several actors: –policymakers, –public officials, –providers of cultural services –general public (who finance and use CH activities) CH providers conduct their negotiations with government within a principal-agent framework giving rise to problems of asymmetric information. Asymmetric information tends to bias the decision- making process

8. What is the scope of CH decision-making? The boundaries of CH are: –blurred: there is not a precise specification of how restricted or extensive this concept should be; –unstable: there is progressive enlargement of the concept of heritage Possible conflicts –Past vs/ present –High culture vs/ low culture –Uniformity vs/ diversity Heritage is a social and cultural construction, created and monitored by experts (art historians, archaeologists and museum directors). This construction changes over time and with societys perceptions of what is culturally interesting and valuable.

9. The role of CH experts Cultural heritage become identified as heritage goods usually by archaeologists and historians who have obtained some form of official recognition or public acceptance of their status as experts in determining their artistic or historical significance. (Peacock,1994). Experts enjoy asymmetrical information Experts training and professional background crucially affect the identification process - need for inter-disciplinarity Experts value judgements go beyond artistic and historical implications: –effects on property rights and on private/collective uses of CH; –benefits for some groups and costs for others –tendency toward increasing unsustainable conservation?

10. Public tools Government action in the CH field can follow different patterns involving direct or indirect intervention and using instruments with monetary or non-monetary content. public expenditure –public production vs/ public provision tax-expenditure regulation Other wider instruments such as education, are used to spread information and improve citizens awareness Relevant differences in the size and characteristics of the Government action across countries

11. Public production vs/ public provision CH public activities can be implemented in different ways: –Public production Public sector (at various layers of government) produces CH activities, employs the personnel and organizes the inputs –Public provision Public sector contracts out/delegates CH activities to a private/ no profit organization and sets objectives and rules. There not exists the unique, best solution The different alternatives have to be evaluated according with their capability of: –reducing asymmetrical information, –creating incentives for providers, –making the decision-making process demand-oriented –creating public value –overcoming vertical and horizontal fragmentation

12. ….. Other solutions? Public intervention is not the only solution: –the recognition of market failure may encourage private action through the establishment of clubs with members who join together to support a common interest in supplying CH services –These clubs range from quite specialised entities to those with more general aims making themselves responsible for major segments of heritage provision –The extent of such a phenomenon varies across countries, in connection with the prevailing social aptitudes and shared social norms as well as the institutional and fiscal arrangements adopted in each country

13. Different models of CH policy in Europe The capability of CH policies to meet citizens demand and to score the expected results in terms of public interest depends on the features of the collective decision-making process underlying CH choices Relevant differences in the size and features of the public intervention in different countries According to Rick Van der Ploeg, the systems of cultural policy in Europe can be defined as: »state-driven, bureaucratic systems (Italy) »arms-length approach ( UK) »decentralized system (Germany)

14. Differences are endogenous The differences existing across countries appear to be the endogenous outcome of the different institutional systems, as a result of the different incentives provided to the various actors. Relevant factors: –Role of information –Public participation –Devolution

15. The role of information The production and distribution of information plays a strategic role to improve the functioning of the process data are needed to analyse the relations among the various actors and to generate information for devising demand-oriented government policies and producing CH activities in line with the societys preferences –information about needs and preferences –information about costs –information about choices and their implementation

16. Participation and devolution Better representation of preferences can be achieved: presence of non-experts in the decision making bodies, whose assignment and the related criteria are transparent; devolution of competences as the closeness between voters and citizens increases the relation between the contributors preferences and the characteristics of the CH activities –devolution as such is not enough to provide a framework of rules enhancing the accountability and responsiveness of CH decision- making process to public opinion if no adequate incentive system is introduced (Rizzo-Towse, 2002).

17. An exercise: the Transaction Matrix of CH funding and services

18. Transaction matrix The Transaction matrix (Peacock, 1994; Peacock- Rizzo, 2008) offers an useful point of departure to understand: –where the money comes from and where it goes, i.e. a measurement of the relative importance of different (public/private) sectors in financing CH and of the relative importance, in financial terms, of each CH sector: –who is doing what, i.e. an assessment of the output of different providers as well as of the outcome of the decision-making process. The costs of regulation are not expressed in this flow of funds system

19. providers are classified with regard to their ownership and their welfare function (i. e their objectives and their relative importance). This separation is somewhat artificial: – a service provided by public authorities is likely to be assigned a particular welfare function, which precludes giving primacy to provision of income to shareholders; –private ownership does not necessarily takes a form where the prime motive is to maximize profits (e.g. the National Trust in the UK)

20. The Transaction Matrix provides a flexible scheme The Matrix mainly describes the arms length institutional systems (such as UK) but can be adapted to bureaucratic systems (such as Italy) which does not need all these typologies of actors (Allocators, Spenders and Users tend to coincide, apart from some notably exceptions such as Pompei).

21. Financial and real flows: Suppliers of funding– the taxpayers (firms and households) are also the users of CH services; Allocators – the central and local governments responsible for arts policies; Spenders – the agencies of government responsible for the distribution of grants to suppliers; Users of financial resources are the CH service providers. What is the correspondence between financial and real flows?

22. The Transaction Matrix is only a first step toward a better understanding of the heritage game It does offer only a static picture of the CH relationships Limitations in describing the behaviour of the various actors. Some relevant features are left out of the picture: –The Matrix is concentrated on financing more than on the wider concept of support (such as the voluntary support by the private sector or the public contribution in kind); –The public sector is described only as sponsor and not as a facilitator in the production of CH services. –Providers are assumed to act in isolation while there might be connections among them –CH field is considered in isolation while there are interactions with other fields, such as education.

23. A dynamic approach A dynamic approach is needed to investigate what happens through time for –any change in the public sector behaviour, e.g. how will private sector react to an increase/decrease in public spending? –any change in the demand, e.g. how providers react to changes in the composition of the demand, e.g. the increasing heterogeneity of preferences of multicultural societies

24. Toward multicultural societies Societies tend to become multicultural because of international migration: –What are the effects? –What role CH policies can play in addressing this latter phenomenon and how their responsiveness to societys preferences can be challenged by the heterogeneity of preferences related to multiculturalism?

25. A political economy perspective Central and local governments, because of the new social context need to develop policies to manage the diversity: –political franchise –which effects on local spending? The relevance of characteristics other than the level of income (language, religion, nationality) weakens the capacity of prediction of traditional models based on the median voter (Meltzer and Richard, 1981) More recent political-economic models consider the impact of immigration on the composition of the social groups participating to the political decision-making (Mazza and van Winden, 1996).

26. New challenges for CH policies New challenges derive for CH policies and management by the fact that modern societies are becoming increasingly multicultural Open debate on the definition of culture: –It is difficult to establish the boundaries of individual cultures and of the various subgroups making up each culture. –The content of a groups culture is not static and evolves. Cultural diversity entails costs and benefits: its economic effects are still somewhat controversial How is it possible to satisfy the heterogeneity of the preferences of these multi-ethnic societies? Who does what and how?

27. Who? Decisions cannot rely only on the traditional expertise: new professional training for CH experts is needed and the need for inter-disciplinarity is enhanced The heterogeneity of preferences is likely to enhance the role of private/no profit sector –the need to involve communities - considered as networks of people- is enhanced Central vs/ local: the arguments in favour of devolution need further qualification –the need to reduce the distance between government and citizens through multi-level governance systems is strenghten; –the role of centrally oriented local policies seems worth investigating

28. What? CH as input to generate culture: the trade-off past vs/ present is enhanced –Direct involvement of migrants to represent their culture and identity from their own perspective –Development of talent in the communities CH policies should promote cultural activities with an intercultural approach (InterArt, 2007): – the convergence between diverse forms and new forms rather than concentrating resources on the expression of differences –CH activities should be two-ways : resident should show their interest CH policies requires new aesthetic canons

29. How? A transversal approach to policymaking is needed (InterArt, 2007): – CH policies should be placed within the set of programmes which deal with immigration and link them to goals such as equality of access and social cohesion – strong connection with school programs, media and communication to develop interest, understanding and participation in the CH activities Need for information to construct adequate outcome indicators Public CH action can take various forms : financial as well as in-kind support (incubators, uses of public spaces, measures to facilitate voluntary action, associations, etc.)

30. Governance and cultural diversity In multicultural contexts the institutional features of the decision-making become even more crucial in affecting the outcome of CH policies. –the need for transparent and open rules and procedures – the need to take into account multiple points of view. Participation in decision-making (e.g. presence in the governing bodies, in the production of cultural events, centres, etc.) has to be enlarged as much as possible to people from diverse cultural backgrounds –effective consultative techniques

31. Concluding remarks The positive analysis of CH has stressed that, far from being technical and neutral decisions, CH choices are mainly affected by the institutional features of the decision- making process and by the experts identity. –Information, devolution, participation and education are crucial features to improve the functioning of such a process, to make it more demand oriented New challenges arise in multicultural societies

32. Concluding remarks CH action cannot answer all the needs generated by the process of integration. CH activities can provide specific contributions such as those which are related to creativity, the positive recognition of diversity, promotion of dialogue and the development of a collective sense of belonging CH policies should coordinate with other policies: Efforts in the cultural field should be coordinated with social, educational, and economic activities. Development of local partnerships in which members of different fields collaborate. Activities designed and managed by private/no profit sector need to be enhanced

33. References Inglis, C. Multiculturalism: New Policy Responses to Diversity, Unesco MOST Policy paper n.4 InterArts (2007) Cultural Policies and Immigration: Experiences and reflections. Peacock, A. (1994), A Future for the Past: The Political Economy of Heritage, The British Academy Keynes Lecture, Proceedings of the British Academy, 87. Peacock, A.- Rizzo, I. (2008), The Heritage Game. Economics, Policy and Practice, Oxford University Press. Ploeg, F. van der (2006), The Making of Cultural Policy: a European Perspective, V. Ginsburgh – D. Throsby (eds.), Handbook of the Economics of Arts and Culture, 1183-1221. Mazza I. – van Winden F. (1996), A Political Economic Analysis of Labor Migration and Income Redistribution, Public Choice, 88, 333- 363. Meltzer A. - Richard S. (1981), A rational theory of the size of government, Journal of Political Economy, 89, 314-327. Rizzo, I. and R. Towse (2002), The Economics of the Heritage: A Study in the Political Economy of Culture in Sicily, Cheltenham: Elgar.