Creativity as a Shortcut to Economic Prosperity

Table of contents

Abstract

Acknowledgements

List of figures

List of tables

Abbreviations

Definitions

Introduction
The shifts in value creation
From the new sources of value creation to competitiveness
Research question

Bibliographical research
Economic development in theory
Economic development and urbanization
Stages of economic development: the historical perspective
Creative economy
Creativity
The concept of creative economy
Creative economy mapping
Measurements of creative economy

Methodology
Research design
Quantitative research
Data description and choice of variables
Econometric model
Qualitative research
Bibliographical research
Expert interviews
Case studies

Review of empirical findings
Quantitative research
Adjustments for econometric model
Choice between fixed or random effects
Panel regression procedure
Panel regression results
Qualitative Analysis
Creative economies by cluster
General understanding of creative economy
Creative industries
Players in creative economy
Measurements
Driving and limiting factors
Case studies

Concluding remarks
Suggestions for further research

Works cited 66

Appendices
Appendix 1: Creative economy mapping
Appendix 2: List of countries in scope, their diplomatic statuses and use in this study
Appendix 3: List of NACE Rev. 2 subcategories for creative employment estimation
Appendix 5: Definitions of variables used in regression analyses
Appendix 6: Expert Interviewees
Appendix 7: Interview guide – Creative economy
Question 1: General concept of creative economy/industries (CIs)
Question 2: Major players of the CIs
Question 3: Key drivers and measurements
Appendix 8: Kwiatkowski-Phillips-Schmidt-Shin (KPSS) test for stationarity
Appendix 9: Panel data regression analysis of economic welfare I, by countries and time
Appendix 10: Panel data regression analysis of economic welfare II, by countries and time
Appendix 11: Panel data regression analysis of economic welfare III
Appendix 12: Panel-data regression analysis of economic welfare IV, division by cluster groups

Abstract

The major query addressed in this study is whether emerging economies can find shortcuts in their economic development through applying their creative potential. Therefore, this research aims at thorough investigation of creative economy as the next step in economic development following the agrarian, industrial, service or knowledge economy, and experience economy. A bibliographical research of the available literature on creative economy is followed by an empirical research of five creative clusters derived from 33 European nations: a panel regression analysis of creative economy from 2008 to 2010 and qualitative research based on 55 expert interviews. The results obtained suggest that creative economy differs in each of the European countries depending on the creative cluster they belong to and its level of sophistication diminishes, the lower the level of development of a country, but one cluster. Namely, creative economy in the virtuous emerging economies is comparable to that of the knowledge economies. This implies that there are possible shortcuts in economic development that emerging countries can take, in order to achieve the level of economic wellbeing similar to that of the developed countries faster. Finally, a term of “neat” creativity as a constant driver of economic development, be it creativity of slack or creativity of deficit, has been discussed, which raises numerous questions for further research.

Key words: creativity, creative economy, creative industries, economic development, creative country clusters in Europe

Acknowledgements

Herewith we would like to express our sincerest gratitude to those who contributed to this research.

First and foremost, we feel indebted to the Stockholm School of Economics (SSE) faculty members, especially, to Emma Stenström, Associate Professor of Department of Management and Organization (DMO) and an Associate Dean at SSE, for the initial inspiration and encouragement for the topic of our thesis, Lars Strannegård, Professor of DMO, Vice President at SSE, for his valuable and constructive feedback, as well as the supervisor Karl Wennberg, Associate Professor of DMO at SSE, for his guidance, particularly, in the numerical part of this thesis.

Additionally, we would like to express our appreciation to all the fifty-five respondents, who have agreed to participate in our expert interviewing process and add their valuable input to this study. A special thanks is extended to Kjell A. Nordström, Associate Professor at the Institute of International Business and IFL Executive Education at SSE, for sharing his cutting-edge expertise in the modern business. Gratitude is also extended to Victor Ginsburgh, Honorary Professor at L'Université libre de Bruxelles, for challenging the concept of creative economy, Ragnar Siil, Head of Development at the Ministry of Culture of the Republic of Estonia, for uncovering the possible shortcut to creative economy, as well as to Rafael Boix, Associate Professor of Applied Economics at the University of Valencia, for imparting his extensive scientific expertise.

Finally, special recognition goes to our beloved ones, families and friends. Thank you for the support and patience throughout the entire thesis writing process.

To the extent that there are any errors remaining in the thesis, they are our responsibility alone.

List of figures

Figure 1 Economic development model: from agrarian to creative economy

Figure 2 The concentric circles of the cultural industries

Figure 3 UNCTAD classification of creative industries

Figure 4 Research design

Figure 5 Identified stakeholders of creative economy

Figure 6 Trade statistics of related to creative industries goods in European countries in scope (2008-2010)

List of tables

Table 1 Cluster groups, specifications and characteristics

Table 2 Creative economy mapping

Table 3 List of countries in scope

Table 4 List of NACE Rev. 2 subcategories for creative employment estimation

Table 5 Definitions of variables used in regression analyses

Table 6 Expert inerviewees

Table 7 KPSS test for stationatiry

Table 8 Panel data regression analysis I

Table 9 Panel data regression analysis II

Table 10 Panel data regression analysis III

Table 11 Panel data regression analysis IV

Abbreviations

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Definitions

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Introduction

The shifts in value creation

The recent economic crisis has challenged well-known concepts of economic development in Europe and worldwide in general, both regarding the current stage of economic development of a given country as well as the main constituents of it. Creating growth and boosting competitiveness keep being highly important for business activity as the major driving force for economic development; yet, instant consciousness has shifted towards job creation, salary increase, inequality matters, and fostering lasting, sustainable prosperity (Martin Prosperity Institute, 2011).

Whereas a few decades ago the major source of success of every business was productivity (Taylor, 1911), today productivity cannot serve as a differentiating factor from competition. Instead, it is the ability to produce ideas that are authentic and new that gives the competitive edge, (e.g., Nordström & Ridderstråle, 2000).

The abovementioned shift entails a transition to a completely new level of economic development – transformation or creative economy (Mermiri, 2009). Gilmore and Pine describe this economy as the next one following agrarian economy, industrial economy, service economy, and the most recent experience economy, previously presented by them in 1999 (Gilmore & Pine, 1999).

As claimed by the authors, transformations, being the latest economic contribution following experiences in the sequence of economic value, occur when businesses use experiences to direct customers to change, i.e. life-transforming experiences. Here, creativity based on culture and art is a key element for businesses to be innovative and successful (Mosquera, 2010). As for the demand side, the customer sensitivity factors for the previous economic development levels are the following: agrarian economy – availability, industrial/goods economy – cost, service economy – quality, experience economy – authenticity (Gilmore & Pine, 2009).

In this context, there are two ways in which modern economy can be considered. Firstly, looking at the demand side, the new economy is something that transforms the way consumers satisfy their needs, changing the patterns of consumption. Secondly, looking at the supply side, businesses in the new economy do not create mere products but add many attributes to their value proposition, which requires a different set of input parameters.

This shift prompted the authors to the thought that both the way the consumption patterns are changing, and the way businesses operate, entails one new common feature, which is creativity. Therefore, the economy we live in could also be called the creative economy.

From the new sources of value creation to competitiveness

The aforementioned line of thought regarding the stages of economic development suggests that there are certain stages every country has to pass through on its way to achieving economic welfare. Firstly, agrarian economies turn into industrial economies, then to the post-industrial (or service) economies, and, further, to the experience economies (Gilmore & Pine, 1999).

Therefore, taking into consideration how the modern developed economies in Europe, such as Finland, the UK or Sweden, have reached their current level of development, it may be assumed that every emerging country in this region should follow the same path. Still, industrialization of the currently developed European nations took centuries. Therefore the question is, whether the emerging countries in Europe can reach the same or similar level of economic welfare and not undergo the long process that the developed countries went through. In other words, can the emerging European countries take shortcuts in their development process and directly build an economy that is driven by the modern factors of competitiveness, such as creativity?

Research question

In order to address the query mentioned above, it is important to, firstly, understand the way creative economy actually impacts economic development, i.e., whether its influence on a certain level of economic welfare is significant. Secondly, it is important to understand what triggers a country to be creative, i.e., what drives creative economy. These two matters combined will help answer whether emerging economies should use their creative potential, as well as whether they have a creative potential that they can use.

As there is not much empirical evidence available on the role of creativity in economic welfare, an analysis of the current status of creative economy among the European countries should be performed that will answer the following research question: ‘How does creative economy impact the national economic welfare of the European states based on their economic prosperity and other specific country characteristics^[1] (1), and what are the key driving forces of creative economy in the researched countries (2)?’

Based on the previous studies, the following hypotheses related to both parts of the research question were put forward by the authors:

Hypothesis 1a: Creative economy has a positive impact on the national welfare of a country.

Hypothesis 1b: Creative industries have a greater impact on economic growth in more developed economies.^[2]

Hypothesis 2: The key driving forces of creative economy differ from one group of countries to another, based on their economic prosperity and other specific country characteristics.

In order to start addressing the outlined research question, the following bibliographical research elaborates on the concept of creative economy and creativity as the driver of modern economy. It also establishes the standpoint the authors took as regards to understanding the concept of creative economy and the way it relates to the concept of economic development. Additionally, the bibliographical research elaborates on the major drivers of creative economy highlighted in the literature.

Bibliographical research

The literature review conducted for this paper started with, firstly, addressing the coverage of the concept of creative economy in the literature, secondly, placing this concept into a macroeconomic context and, thirdly, understanding creative economy in more detail, including the industries that constitute creative economy, the major factors that drive these industries, the possible ways to measure creative economy, and studying the concepts related to creative economy. In this bibliographical research, the topic of creative economy is presented in a different way, starting with the stages of economic development and placing creative economy in this context, and, further, proceeding with the coverage of the topic of creative economy in the literature.

Initially, the idea of the paper was to understand whether creativity could help developing countries find shortcuts in their economic development path and achieve economic welfare faster than they would have through industrialization and then post-industrialization. In order to understand this, the authors took the long journey focused on reviewing the major factors that were driving economic development of the world since the agrarian age. In the course of this journey, the main stages of economic development and the factors that were the most influential for the growth of economic welfare of a nation on each of the stages were identified. The result of the study of the available literature on the stages of economic development was the model created by the authors to structure the stages of economic development and show, where creative economy is in this scheme.

The structure of the Bibliographical Research is the following: firstly, the authors define economic development and identify the indicators used in order to measure it. Secondly, the stages of economic development are defined, along with the main drivers that were key in each of these stages. Thirdly, the bibliographical research continues with introducing the concept of creative economy as defined by the major thought leaders in this field, along with the related concepts and the mapping systems proposed by the researchers to define and measure creative economy and its input into economic development of a nation.

Economic development in theory

In the book called ‘Theory of Economic Development’, Joseph Schumpeter introduced the earliest definition of economic development (1934), where he referred to economic development as a separate area of economic analysis. Schumpeter’s work drew a distinction between economic growth and economic development. In the Schumpeterian sense, economic growth is purely a quantitative notion, referring to the dynamics of population and wealth, usually coming down to such indicators as GNP, or GNP per capita. Economic development, at the same time, incorporates qualitative measures, such as human capital, economic sustainability, social and political well-being. Moreover, Schumpeter refers to economic development per se as stationary, i.e., it is static in a given economy, unless qualitative changes, such as innovation and innovative activity occur. These changes are brought in by an entrepreneur, who serves as the external force in disturbing the equilibrium, the force that triggers economic development. Indeed, Schumpeter referred to development as ‘carrying out new combinations’ (1934).

Later, four approaches towards theorizing economic development evolved that can be classified as: the linear-stages-of-growth model, theories and patterns of structural change, the international dependence revolution and the neo-classical, free market counterrevolution (Todaro & Smith, 2009).

The linear-stages-of-growth model implies seeing economic development as the linear stages that every country is to follow, in order to achieve economic welfare. One of the major scientists to promote this doctrine was W. Rostow, who argued that every underdeveloped country is to pass certain stages, in order to be called developed. One of the major steps in this process was mobilization of domestic and foreign savings in order to achieve sufficient level of investments and accelerate economic growth (Rostow, 1960). The economic mechanism for this was also described in the Harrod-Domar growth model (Harrod, 1939; Domar, 1946).

The structural change theory focuses on the transition of the underdeveloped economies from an agrarian-based production towards a more modern and urbanized system with diverse industrial production and service economy (Todaro & Smith, 2009). The two popular models representing this approach are ‘the two-sector surplus labor’ model (Lewis, 1954) and the ‘patterns of development’ (Chenery, 1979). The ‘two-sector surplus labor’ model is based on the transition of the surplus agricultural labor to the urban industrial centers, thus increasing productivity of the urban areas without diminishing that of the rural areas (Todaro & Smith, 2009). The ‘patterns of development’ analysis of structural change focuses on the sequential process, through which an underdeveloped economy is transformed overtime to incorporate new industries, and replace the traditional agriculture as the main driver of economic growth. Such structural changes are to take place in all economic functions, including the transformation of production, the changes of consumer demand, resource use, as well as socioeconomic factors, such as urbanization and distribution of population (Todaro & Smith, 2009).

The international-dependence revolution theories are mainly based on the idea that underdeveloped countries are influenced by the developed ones in a way that may hinder or enhance their development. I.e., the false-paradigm model attributed the underdevelopment to faulty advices that the developed countries give to the underdeveloped ones, following the development path that had previously worked for them. Additionally, the neocolonial dependence model views underdeveloped economies as the new colonies that suffer due to the ‘first world – third world’ economic relationships (see, e.g., Anderson, Cavanagh, & Lee, 2000; Broad, 2002; Gray, 2000).

The neoclassical growth theories are based on liberalization of national markets that draws additional domestic and foreign investment and thus increases the rate of capital accumulation. The most well known is the Solow neoclassical growth model (Solow, 1956) that added labor as a factor of economic growth and introduced the third independent variable, technology. According to the traditional neoclassical theory, the growth of economic output is subject to one or more of the three mentioned factors. In this situation, open economies grow faster, due to a higher conversion of income into savings and investments because of international trade, foreign investment, etc. (Todaro & Smith, 2009).

Together, the four approaches form a comprehensive view on the notion of economic development. In its essence, economic development is a phenomenon that is caused by various sets of factors, such as capital and labor, or savings and investments, interconnectedness between the different economies, or openness or closeness of the economy. From the historical point of view, at the various stages of economic development of a country, a different set of industries was crucial. Further in this paper, the stages of economic development from the historical perspective are described, based on the economic sectors that were playing the most important role at each of those stages.

Economic development and urbanization

Prior to proceeding with the description of the stages of economic development, it is important to underline the role of urbanization in this process. Understanding the role of urbanization is crucial to understanding the mechanics of the process of economic development from the perspective of how the main factors of production were changing over time.

Urbanization was one of the prerequisites of the industrial revolution. Starting from the agrarian era, cities were the centers of cultural and economic activity, playing the function of connectors between different people to facilitate trade, administration and social interaction (Friedmann, 1961). Whereas urban areas have always had these three functions in society, the relationship between cities and rural areas has not always been the same.

In the agrarian era, the emergence of cities was a result of the need for places to facilitate trade. In the industrial age, it was not only the exchange of goods produced by the country that was the main function of a city. The industry itself became a function of cities (Smith, 1976). Adam Smith’s view is in line with the de Vries’ work on urbanization (1982). In his analysis of the European urbanization 1500-1800, de Vries describes how, first, cities appeared as centers of trade, with the rural areas dependent on the urban areas that were closest to them. Further, when trade became an activity performed by professional merchants, the dependence of rural areas on the nearby cities decreased, due to the development of international trade that enabled exchange between producers from different geographical areas of the world. The bonds between the city and areas surrounding it weakened, and urbanization changed from local into regional, with the emergence of regional centers of trade.

According to de Vries (1984), the urban system that evolved by the mid-seventeenth’s century, was the foundation for the early industrialization of Europe. An analysis of the migration patterns between the sixteenth and the nineteenth century revealed that, whereas migration rates from rural areas to the cities were high until the middle of the seventeenth century, migration to the rural areas that took place afterwards was caused by the aforementioned decline in the importance of cities as trade centers. As the role of cities, which were not only centers of trade, but also of manufacturing, declined, rural areas started to gain importance as the centers of production. This restructuring process was, according to de Vries, the foundation of the industrial revolution, as it led to growth of new cities, which became the industrial centers of Europe at the further stage.

In the post-industrial economy, the role of cities changed, as the service sector grew in importance. The industrial areas in the internal parts of urban areas were gradually relocated to the rural areas, in part, due to companies owning those industrial facilities requiring more space that a city area would allow, as well as due to social tensions connected with pollution, and the development of transport and infrastructure that would allow plants to operate properly in the country. This process has led to a reallocation of space in the cities, and they now started again to transform into centers for exchange of culture, knowledge and information (Kaczmarek, 2003). In creative economy, cities also play an important role, which will be touched upon further in this chapter.

Stages of economic development: the historical perspective

Taken into account the aforementioned theories of economic development and the role of urbanization, from the historical point of view economic development can be viewed as a transition from agrarian to industrial and, later, to the post-industrial economy (see, e.g., Bell, 1973). Each stage in this transition can be characterized by different key drivers and different industries, which were adding the most value to the economy.

When it comes to the agrarian society, this period in the world economy can be related to the period from the feudal society to the early ‘proto-industrial stage’, which took place until the early eighteenth century (Hohenberg & Lees, 1995). It may be argued, that, despite of the continuous changes in the world economy, before the industrial revolution the major driving factors were agricultural efficiency and development of trade. At the same time, the transition process from the agrarian to the industrial economy was, again, to a significant extent connected with the process of urbanization, which has played a twofold role in creating the prerequisites for the industrial revolution (Braudel, 1981). On the one hand, as the rural population moved to the cities to form nonagricultural populations, cities were prompted to secure food supply from other nations (i.e., import grains from the Baltic region to Northern Europe and the Mediterranean region). This development of international trade decreased the dependence of cities on the rural areas and triggered a more regionalized system to emerge. On the other hand, regional industrialization took place, with growth of rural production for exports that proliferated due to a number of urban crises. In this process, cities were becoming centers for trade of luxury goods, with the urban manufacturing mainly active in handcrafts and other direct production, whereas the rural areas were turning into manufacturing hubs specialized in ordinary, every day goods (Hohenberg & Lees, 1995). This led to a regionalization of the trade structure within the European region and shaped the basis for a regionalized industrialization of Europe (de Vries, 1984).

The industrial society that evolved from the late agrarian era was a result of the technological revolution of the eighteenth century. Its main driving forces were technological progress and strive for efficiency, and a transition of jobs from the agrarian to the industrial sector. This new development was also characterized by a number of social transformations. In the pre-industrial era, the social life was primarily governed by social relationships and agricultural land-holding, whereas with the growth of industry, social interactions shifted to capital-based, i.e., the relationships between capital owners and those who worked for them (Fridenson, 2001). This shift made capital replace land as the major factor of production.

In the middle of the twentieth century, a new change took place that firstly concerned the areas that had been the first ones to industrialize a century beforehand. This change was evident in the shift of jobs from production of goods to production of services (Fridenson, 2001). This shift, also called the transition to the ‘post-industrial’ society, is twofold. On the one hand, the emergence of the role of the service sector means a change in the structure of production, i.e., a more significant share of knowledge work devoted to manufacturing of an end product. On the other hand, the emerging role of services as end products implies a higher degree of customization and therefore a higher consumer involvement in the value chain (Cohen, 2009).

This double-sided nature of the post-industrial economy allows making a conceptual distinction between the two other types of economy that it is based on. It may be argued, that the post-industrial economy is built on the knowledge economy and the service economy, where the knowledge economy corresponds to the side of manufacturers, i.e., suppliers of products, and the service economy corresponds to the demand side, i.e., consumers of products.

One of the first authors to introduce the concept of the knowledge economy was Peter Drucker, who’s major contribution was in defining the ‘knowledge worker’ as the new type of worker who uses information and knowledge as primary inputs of his/her activities. Peter Drucker first described the concept of a knowledge worker in his book ‘The Landmarks of Tomorrow’ (1957). Having noticed that the productivity of manual labor has come to a point where it is either staying on the same level or decreasing, Drucker asserts that competition has shifted towards the productivity of workers, who generate and use knowledge to deliver goods and services in a more efficient way. The main knowledge-based occupations, such as software engineers, scientists, architects and doctors are those that ‘think for a living’ (Davenport, 2005). Hence, whereas the main input factor of the industrial economy was capital, the knowledge economy is mainly driven by knowledge.

As for service economy, this has evolved from the changing role of consumer, who has become a more active member in the value chain. On the one hand, technology has started to allow producers to manufacture ‘mass customized’ goods, i.e., goods that can be mass produced, but consumed in both, a customized and standardized manner, such as, e.g., online encyclopedia, online newspapers, etc. (OECD, 2000). This change also implies that products are consumed involving more cooperation on the consumer part, i.e., whether the service provider is a hairdresser or a doctor, he/she connects directly with the consumer of the service (Cohen, 2009). Again, referring to the aforementioned phenomenon of the stagnating productivity of manual labor, the value of material objects is shrinking as a proportional share of value in the end products (Cohen, 2009), which means that the intangible, or the ‘service’ element is starting to play a more crucial role.

Taking a step further, it may be argued that there are new developments in both, the knowledge and the service economy. The ability to innovate has become the main source of competitive advantage for businesses, (e.g., Davila, Epstein & Shelton, 2007; Nordström & Ridderstråle, 2000), whereas the role of consumers has gone far beyond the consumption of services (e.g., Gilmore & Pine, 1999). The necessity to generate and use knowledge to maintain competitiveness has transformed into the necessity to innovate, where innovation is referred to as ‘the new combinations of new and existing knowledge, resources and equipment with a commercial purpose’ (Schumpeter, 1934). Therefore, we can now speak of the innovation economy (e.g., Davenport, Leibold & Voelpel, 2006), and the experience economy (e.g. Gilmore & Pine, 1999). Further, as the innovation economy refers to the ability of businesses to innovate, experience economy describes the new model of consumption that meets it. The subject of consumption in the agrarian and the industrial economy was a good that meant to satisfy a need. In the post-industrial economy, consumption of goods was extended to consumption of services (not necessarily excluding the good from consumption at the same time). In the experience economy, it is not merely a good or service that are in the center of consumption, but the experience around them. The ability of businesses to constantly innovate allows for a higher degree of customization for every product, which leads to the era where consumer has a deeper relationship with the product, in a way creating it together with the manufacturer (Mermiri, 2009).

The terms innovation economy and experience economy are often used interchangeably with the term creative economy. Both concepts, though one referring to the economic demand, and the other one to the economic supply, imply that development is based on producing new products by using new combinations of knowledge, information and ideas. In its essence, the term ‘creative economy’ characterizes the modern economy by the main input factor (creativity) that drives its development.

This view on creative economy as the next step in economic development has been reflected in the model of economic development created by the authors (See Figure 1).

Source: Created by the authors

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Creative economy

Even though research on creative economy has started in the 1980s, this topic has been significantly underinvestigated, mainly due to the difficulty of defining the concept of creative economy per se, as well as due to the difficulties related to measuring the impact of creativity on business and the economy.

Nevertheless, a number of attempts were made to map creative economy and industries that belong to it, as well as to build a measurement system that would not only reflect the contribution of those industries to the overall economic development, but also indentify the impact of creativity on the related industries and areas.

As mentioned before, in this paper, creative economy is referred to as the next step in the economic development, following, in broad terms, the agrarian economy, the industrial economy and the post-industrial economy. In the second part of this chapter, the concept of creative economy is defined in more detail. In order to give creative economy an elaborate definition based on the available literature, the authors define the related concepts, such as creativity, creative class, creative cities, creative goods and services, etc. Further, the mapping systems that indicate the different approaches towards measuring creative economy and its contribution to the economic development of a given country are introduced and the measurements of creative economy are listed.

Creativity

In order to define creative economy and understand, in what way it impacts the overall level of economic development of a nation, it is necessary to, firstly, describe the concept of creativity as it is referred to in this paper.

The notion of creativity can be viewed in two conditions: static and dynamic. Defining creativity as static means referring to it as an attribute of people that can be applied to certain actions, whereas in its dynamic way creativity is referred to as a process of generating new ideas, connecting them and transforming them into something that is valued (UNCTAD & UNDP, 2010). In one way or the other, creativity has its major function in creation of genuine content that reaches beyond being intuitive.

There are three main constituents that shape the modern concept of creativity related to its economic value (O'Connor, 2006). Firstly, creativity draws on innovation by accounting for the new thinking and the new visions, from which innovation can originate. Secondly, it draws upon the modernist approach of the shock of new, which is disruptive to old. Thirdly, creativity has been playing a role in construction of social values since the 1960s (Beck, 1992), i.e., a shift from a person finding his/her place in the society to shaping and expressing themselves. These three dimensions of creativity have been recently widely appreciated by businesses, which have started to treat creativity as a resource for building competitiveness (Howkins, 2002; Rifkin, 2000; Leadbeater, 1999; Tepper, 2002).

The definition of creativity made by Richard Florida summarizes this discussion by stating: ‘Creativity is not intelligence. Creativity involves the ability to synthesize. It is a matter of sifting through data, perceptions and materials to come up with something new and useful’ (2002). In other words, following this definition, in this paper creativity is defined as a talent-based resource to add value to business.

The concept of creative economy

As mentioned before, there are two paths that lead to the emerging concept of the creative economy. On the one hand, looking at the demand side, creative economy is the next step in economic development, following the agrarian, the industrial, the post-industrial and the service economy and can also be defined as transformational or experience economy (see e.g. Gilmore & Pine, 2009; Mermiri, 2009). In their work called ‘Using art to render authenticity in business’, Gilmore and Pine argue that the next step in the economic development after the service economy is the experience economy, where the main factor driving purchasing decisions of consumers is authenticity of experiences (Gilmore & Pine, 2009). Adding to that, Mermiri (2009) talks about transformation economy, i.e., products that transform and shape consumers’ lifestyles, identity and way of thinking. This process of consumer centric co-creation is based on cooperation between the consumer, arts and business, where the creative content of a product is used in order to render authenticity.

On the other hand, the concept of creative economy can be looked upon from the supply side. Whereas during the past centuries we were following the transition from the agrarian economy to industrial and, further, to the post-industrial economy, it was further replaced by the so-called information and knowledge economy (see e.g. Drucker, 1979; Nussbaum, 2005). The next step in this transformation is the transition to innovation economy that has innovativeness and adaptiveness to change as the major success factors of a business (see e.g. Nussbaum, 2005).

Therefore, in order to combine the two views in one, we in this paper refer to the new economy as creative economy. One of the first to establish the term creative economy was John Howkins in his book ‘Creative Economy: How People Make Money From Ideas’ (2002), where he defines creative economy though mapping fifteen creative industries ranging from arts to related fields of science and technology. Generally speaking, most attempts to find a definition of creative economy aim at mapping a distinctive set of industries that shape it. This cluster of industries is often referred to as the Cultural and Creative Industries. Each of the mapping systems for creative economy available in the literature suggests a slightly different approach towards viewing each specific industry as creative due to the differences in the initial standpoints from which creativity and culture are looked upon. E.g., the creative industries may be viewed as those delivering products with cultural and creative content, or, alternatively, copyrighted materials, or those that create employment that requires application of creative skills at the work place. Subsequently, each framework aims at measuring the share of those industries in the overall economy, as well as judging about the contribution of creative economy to the overall economic development of a given nation. As each of the definitions of creative economy represents a mapping system of the creative industries, in this paper the terms (cultural and) creative industries and creative economy will be used as synonyms.

Richard Florida’s creative class

A valuable work in defining creativity and creative economy has been done by Richard Florida (2002). In his research, Florida introduces the notion of ‘creative class’, i.e., the part of population involved in the artistic and other related creative activities, who’s economic function is to promote innovation and establish the creative and cultural content generated in a given area. The creative class is people who add economic value through creativity (Florida, 2002).

According to Florida, the creative class consists of two components: the super creative core and the creative professionals. The super creative core includes scientists and engineers (including information technology engineers), artists, entertainers, filmmakers, university professors, writers, actors, designers and architects, editors, cultural figures, think-tank researchers, analysts and other opinion makers. I.e., in accordance with Richard Florida’s definition of creativity, the creative class is not limited by the people representing the super creative core, but also includes people from knowledge intensive industries, i.e., people who apply complex bodies of knowledge in their work, such as physicians, lawyers, managers, technicians, etc. The creative professionals therefore are those employed in the knowledge intensive industries, such as high-tech, financial services, legal, healthcare and business management (Florida, 2002).

Creative cities

As urbanization has played an important role at all stages of economic development, the same can be stated about creative economy.

The workers that belong to Florida’s creative class are usually concentrated in urban areas, where networking and knowledge sharing contribute to the environment that nurtures creativity. The new concept of creative cities that has evolved herewith looks at urban areas as ecosystems, where cultural, symbolic values act as catalysts in fostering general development (Landry, 2000).

Evolving from the post-industrial centers for exchange of information and knowledge, creative cities are centers where networking and diversity lead to generation of creative ideas. According to Landry (2000), to be creative, a city has to have the appropriate infrastructure to nurture networking among the creative individuals, as well as offer them the tools to implement creative ideas. Creative individuals here are not necessarily the artistic class, but also the part of knowledge workers that use creativity and intellectual capacity in their work.

Creative cities are nothing else but the model of urbanization in new economy. Some of these cities are also the industrial and the service economy centers, such as New York, London or Berlin, but there are a number of new ones that are becoming the centers of modern economic development, such as San Francisco, Tel Aviv, Wroclaw, and others. Consequently, urbanization is linked to the emergence of creative economy, as it was during the transition from the agrarian to industrial and to the post-industrial era (e.g., Boix, Capone, & Lazzeretti, 2009).

Creative economy vs. cultural economy

A lot of talk has been done about the importance of the phenomenon called cultural economy for the modern economic development. The terms cultural economy and creative economy are often used interchangeably. According to the mapping systems of creative economy mentioned further in this paper, creative economy consists of a number of industries, usually centered around the creative core (or the traditional cultural industries) and the peripheral industries that feature creative content to a lower extent (e.g., Hesmondhalgh, 2002; Throsby, 2001). Some or most of the mapping systems also include industries such as software, publishing and some of the knowledge-based services into the classification (see e.g. UNCTAD & UNDP, 2010; DCMS, 2001; CCI, 2007). Cultural economy, though it is a part of creative economy, is narrower, as it only encompasses some of the industries that feature artistic content. In fact, these industries add significantly lower value to many of the most developed economies than the creative industries taken all together (UNCTAD & UNDP, 2010). For this reason, for the purpose if this paper the term creative economy is being used, and the term cultural economy that only defines a part of creative economy is not studied in this paper.

Creative goods and services

Consequently, creative industries produce creative goods and services. Creative goods and services are those that require certain amount of creativity in order to produce them (UNCTAD & UNDP, 2010). The amount of creative content in each creative good and service differs depending on the industry, as well as on the product/service itself. E.g., fashion or software products can still be considered as creative goods, even though the level of creativity required to produce them may be lower than that for goods or services that are produced by the purely cultural industries, such as literature, theatre or music.

Creative economy mapping

Many attempts have been made in order to establish a comprehensive framework, on which a rigid measurement system for creative economy could be built. Such attempts include the World Intellectual Property Organization (WIPO) model (2003), the UK Department of Culture, Media and Sport (DCMS) model (1998), the concentric circles model (Throsby, 2008), the Symbolic Texts model (Hesmondhalgh, 2002), the creative trident methodology initially developed by ARC Centre of Excellence for Creative Industries and Innovation (Cunningham & Higgs, 2007), the creative economy model by the UNCTAD and UNDP (UNCTAD & UNDP, 2010), and others. The aforementioned models suggest each a mapping for creative industries, as well as a method of measuring the contribution of creative economy to the overall economic welfare. These creative economy frameworks are described in more detail below.

The WIPO copyright model

The WIPO model is based on the set of industries that produce and support the copyrighted products, such as advertisement, literature, music, etc. Three types of industries are identified, which are: core copyright industries, interdependent copyright industries and partial copyright industries.

As copyright is about defining and protecting the intellectual property rights, it is the basis for identifying those industries where the respective activities take place. While copyright is one of the main branches within the set of the intellectual property rights, it applies to ‘every production within literary, scientific and artistic domain, whatever may be the mode or form of its expression’ (WIPO, 1886). For the purpose of copyright protection, the notion ‘literary and artistic work’ can be referred to any kind of original work of authorship, irrespective of its artistic merit (WIPO, 2003). As such, copyright law does not protect creative ideas, but the forms of their expression, such as paintings, sculpture, literature, etc.

As not only the production of artistic content but also its distribution and consumption represent an added value to the economy, not only the copyright industries themselves, but also those whose primary function is to ‘facilitate creation, production or use of works and other protected subject matter’ are considered to be part of creative economy (WIPO, 2003). Therefore, the partial copyright industries are those that partially deal with activities related to works and other protected subject matter, such as fashion, furniture, design, etc. Another cluster is the non-dedicated support industries, where part of the activities is related to facilitating broadcast, communication, distribution or sales of copyrighted works. These industries are general wholesale and retailing, general transportation and telephony and the Internet (see Appendix 1).

The DCMS model

In the DCMS model, the creative industries are identified as those that require creativity, skill and talent, with potential for wealth and job creation through exploitation of intellectual property (DCMS, 2001).

The UK Department of Culture, Media and Sports has introduced a major innovation in defining creative economy as an object of policy. Having renamed the cultural industries into creative industries, DCMS has also changed the whole perspective of how the cultural industries are viewed in the overall economic context, underlining their importance. The DCMS model suggested a new approach to macroeconomics, from competition based innovation into an open economy of collaboration, open innovation and networks. The DCMS creative industries incorporated a linkage between the knowledge economy and the cultural industries, which was a very new approach that also encountered a lot of criticism on the part of, e.g., Pratt (2008) and Garnham (2005).

In fact, even though the DCMS definition of creative economy is similar to that provided by Howkins (2002), the list of industries mapped as creative by DCMS is different and less extensive. The creative industries according to DCMS include arts themselves, as well as the classic cultural industries sector, adding design, fashion and software.

Despite the critiques, the DCMS model was an important breakthrough in research on creative economy, as it provided a new vision on creative economy as something more than culture and arts, and, namely, the new economic order, or, possibly, the new step in the economic development after the knowledge economy.

The concentric circles model

Throsby (1998) has mapped the creative industries through allocating them around the cultural value of cultural goods that distinguishes them. The creative ideas that originate in the form of sound, text and image, further diffuse through a series of layers called ‘concentric circles’. The further each of the circles is from the core, the higher the commercial content of a cultural product produced by an industry. I.e., the creative arts as defined traditionally, such as music, theatre, dance, visual arts, etc., are at the core of the circle, along with the newer forms of art, such as video art, computer and multimedia art, etc. Further, they are followed by those industries, where both, cultural and non-cultural goods and services are produced, such as publishing, film, television, etc. Further on, on an even wider level of the concentric circles, are the industries that are essentially not producing any cultural content, but some of their outputs can still be classified as cultural. Such industries include advertising, tourism, architectural services, etc. (Throsby, 2001). The initial model of concentric circles for the cultural industries proposed by Throsby is presented in Figure below.

illustration not visible in this excerpt

Source: Throsby, 2001

The statistical data for the analysis originates from, e.g., general statistical collections, such as censuses, where artists are identified as an occupational category, or, alternatively, from more specific statistical studies aiming at specific cultural sectors. In this case, information about artists is gathered through surveys, where it is possible to gain insights about their level of involvement in the cultural sphere in terms of their working hours and level of professionalism (i.e., amateur or professional). In both cases, there are certain limitations to the data available for analysis, though there are still a number of successful examples, where a valid estimation based on such data could be made.

The symbolic texts model

The symbolic texts model (Hesmondhalgh, 2002) maps creative industries into three clusters: the core cultural industries, the peripheral cultural industries and the borderline cultural industries. This classification aims at broadening the set of creative industries from those producing the core cultural component to including the popular culture. In this model, cultural industries are those that produce products that transmit symbolic texts or messages through various media, i.e., film, publications, etc.

Hesmondhalgh’s discussion has its main point in the popularization of culture against arts on the higher level. In his view, creative industries (that also include, e.g., software development, media, etc.) are not part of cultural industries and cannot be considered the same, as a creative industry does not necessarily produce or circulate symbolic texts that involve production of social meaning.

Hesmondhalgh (2002) chooses to separate cultural industries and arts, focusing on the ‘classic cultural industries’. According to him, arts represent the ‘peripheral cultural industries’, because they do not engage industrial methods.

A third set of culture-related industries is the ‘borderline cultural industries’, such as consumer electronics, fashion, software and sport that do contain a cultural dimension, even though most of their content is utilitarian. Including the industries that serve the utilitarian function, along with the non-utilitarian, broadens the number of cultural industries.

Hesmondhalgh’s major input is that he has emphasized the significance of the popular culture and its value and place in creation of the social context and meaning.

The creative trident methodology

The creative trident methodology developed by the Australian Research Council of Excellence for Creative Industries and Innovation (CCI) (Cunningham & Higgs, 2007) is based on mapping creative economy around creative employment, i.e., by identifying the creative specialist occupations within the creative industries, as well as in ‘non-creative’ firms and organizations. The Trident consists of three employment clusters, i.e., people in creative occupations employed within the creative industries (specialists), people employed within the creative industries but not in the creative occupations (the supporting jobs), and people employed within creative occupations outside the creative industries (embedded creative employment).

As it utilizes combined occupation and industry matrices, the strength of the creative trident methodology is that it allows including in the classification a broader range of creative occupations than, e.g., the DCMS model that should allow for a more precise estimation of creative employment (Higgs & Cunningham, 2007). At the same time, even though the creative trident allows measuring the creative occupations in the non-creative industries, the extent of creativity of these occupations is not measured. This can only be compensated through additional surveying in order to understand the nature of the employment (Higgs & Cunningham, 2007).

The UNCTAD model

The UNCTAD classification of creative industries is based on more than 20 years of research (dos Santos Duisenberg, 2012). According to the UNCTAD definition, the creative industries can be defined in the following way:

- Creative industries are the cycle of creation, production and distribution of goods and services that use creativity and intellectual capital as primary inputs;
- Creative industries constitute a set of knowledge-based activities, focused on but not limited to arts, potentially generating revenue from trade and intellectual property rights;
- Creative industries comprise tangible products and intangible intellectual or artistic services with creative content, economic value and market objectives;
- Creative industries constitute a new dynamic sector in world trade (UNCTAD & UNDP, 2010).

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^[1] For the purpose of analysis, European countries are divided into the cluster groups; see Cluster groups and specifications part in Methodology.

^[2] Based on the cluster groups in the Methodology part, knowledge and traditional structurally strong economies are considered as more developed ones.