Contemporary industry policy could help the contemporary art world

For decades, Australia’s arts and culture sector has been struggling for influence and relevance. And it’s chronically short of money, with paying jobs hard to find and precariously insecure. There’s no political will to hand out more grant funding; art-supporting technocrats like Nugget Coombs are long gone; and the Australian market is too small for philanthropy or subscriptions to make up the shortfall.

I have no idea how to make Australians care about the arts, but the money problem is fixable. 

‘We had quite a few industry policies,’ political advisor Don Watson wrote, ‘but we didn’t like to say so and we tried to call them by other names; except the cultural policy, which we preferred to call industry policy so people didn’t get the idea that it was a hand-out to the arts.’ He was talking about the Prime Minister’s office in the early 1990s, when the ‘pointy-heads’ among Paul Keating’s economic advisors looked on industry policy with scorn and were determined to get rid of it, over the objections of the ‘bleeding hearts’.

Economics has trends and fads, like any social science, and industry policy is now quite fashionable again. But few people have realised that it’s returned in a form which could be very helpful for the arts.

Why everyone got sick of industry policy

Industry policy is when the government directly intervenes in the free market. It includes R&D tax breaks and training incentives—every government does this—but the classic type of industry policy is when the Minister shows up on the factory floor holding a giant novelty cheque. Direct subsidies, import barriers, export assistance, that sort of thing.

It’s appealing to the politicians who get to hand over the giant cheques, because it feels great to be personally responsible for creating new jobs, and voters like it because it’s rational, dignified, and goal-directed. The free market alternative can be messy and gross, and it doesn’t come with a neat ‘national story’ about what all our jobs are for.

Despite that goodwill, traditional industry policy has a poor track record. It constantly faces a dilemma: if a given project would have survived on its own, then the subsidies weren’t needed; but if the project would have failed in the free market, then we’re spending good money on things that people don’t want.

On top of that, it’s hard to decide which projects are worthwhile—known in the trade as ‘picking winners’. Direct subsidies usually have to be large to have an impact, so if you fail to pick a winner, the outcome can be anywhere from embarrassing (Solyndra) to legendary (Proton). The Proton was a pet project of Mahatir, who decided in 1979 that it was important for Malaysia to have a car industry, and ordered the Sovereign Wealth Fund to make it happen. After a decade of work, with the equivalent of billions of dollars poured into subsidies, the outcome was a rebadged Mitsubishi Lancer, selling for 50% more than the original due to tariff protections. The National Car Project has recently been revived again, a move that one local commentator described (not unfairly) as ‘insane’.

Get outta my dreams, get into my ’85 Proton Saga. Photo by davocano, via Wikipedia.

Industry policy: so hot right now

That was how I learned to think of industry policy when I first studied economics, 15 years ago. I didn’t notice that there was already a growing excitement about redoing it, from researchers like Dani Rodrik. By 2019, it was in the news because there was even an endorsement from within the IMF.

Three big changes have made industrial policy interesting:

  • The goal of industrial policy is now information. We’re not directly trying to support an industry or subsidise jobs, we’re trying to discover whether a cluster of interrelated firms could survive on its own.
  • Instead of ‘strategic planning’ or the ‘national interest’, the focus is now on generating exports. A new industry has to show that its outputs are valuable in the most coldly objective way possible: having overseas markets pay for them.
  • It’s hard to pick winners, so we shouldn’t try. The trick is to identify losers instead. With a large portfolio of projects, some will fail to reach a large enough export market, in which case the funding should be quickly reallocated to something else.

This type of thinking is, I think, underpinning the ALP’s manufacturing policy for the 2022 election. It’s camouflaged with old-fashioned rubbish about ‘Buy Australian’ campaigns, but the core of it is about exploring new ways to solve coordination problems and open up manufacturing exports.

For an idea of what this would look like in practice, policy experts no longer point to the Japanese car industry, since that style of dirigiste corporatism turned out to be difficult to pull off elsewhere. Instead, a good example might be Taiwan’s fresh flower export industry. At the turn of the century, they didn’t have one. The government built large-scale facilities for warehousing, cold storage, and logistics, and let local producers try renting them while they figured out how to make it work. After a few years, exports were booming and public support wasn’t needed any more.

Is there a similarly clear example of an investment being shut down, after it failed? I’m not sure. We’ll come back to this point.

Xu Dalun, detail from Orchid (1809), AGNSW EP16.1962

The most rewarding part was when he gave me the money

We could apply the new industrial policy thinking to the cultural sector. The government would set up a portfolio of investments in the arts, using public money to get them started, with the goal of seeing which might become self-sustaining. Could Australian animators find a way to crack the huge North Asian market? What would need to be in place for dancers and musicians to overcome the distance barrier to overseas audiences? Given the support to take a real swing at it, could local designers and sculptors come to dominate direct-to-consumer platforms like Etsy? What would it take for an Australian literary mag to be read around the world?

Seen in this light, the decision to turn the old Sydney Powerhouse site into a fashion and design hub looks smart. Conversely, the Federal Arts Department’s recent strategy of focusing grants into large established companies, at the expense of smaller groups, took it in exactly the wrong direction. We already know that audiences and sponsors enjoy pop classics and Hamilton, so we don’t learn anything by giving those projects more money.

To be clear, this isn’t an argument that we should remove the existing funding from large arts companies and existing galleries. Similar to basic scientific research, there’s already a strong case for public money going to a core of the arts and culture. The industrial policy framework would complement that, not replace it. We shouldn’t have to choose between Blue Poles and Bluey.

Andy Warhol, One Dollar Bill (Silver Certificate) (1962)

Why should artists care?

Many people think that creative workers should stop trying to justify themselves in economic terms. Recent calls for the arts sector to simply ask for more money by ‘advocating for itself more effectively’ have been met with frustration, given that decades of constant effort haven’t turned the tide. Why bother?

In counterpoint, Julian Meyrick asks: what is the artistic value of economics? Why aren’t they trying to justify themselves to us? And Lauren Carroll Harris is tired of trying to fit in with the ‘sensibility of financial extraction’, since she has no confidence ‘that the policymakers and lobbyists of this colony have the infrastructural imagination to vitalise the arts market’. Instead, creative workers could aim for a utopia in which everyone receives a stable income, rather than having to scratch together meagre grants and prizes.

Those arguments aren’t wrong. And I doubt that cultural commentators would be easily sold on a modest and left-neoliberal reform proposal like using industry policy in the arts. They wouldn’t be doing their jobs properly if they didn’t demand the impossible.

Nevertheless, I hope the arts sector considers this idea. It may not transform all social power relations, but it could be a step in a good direction. More concretely, it would mean that artists get more money. Almost all creative workers have to cross-subsidise their main career with something more lucrative. If they were able to work in newly created industry clusters, then there’s a better chance of a close overlap between their day job and their creative interests. That would help them to build their skills and personal networks, instead of having to waste their mental energy.

Why should economists care?

The greatest economist of all time was a keen art collector, loved ballet, and managed a theatre company. Most economists, though, are philistines. They should pay more attention to the technical aspects of cultural policy all the same. People have connected cultural funding with industry policy for a long time, but as far as I’m aware, no policymakers or economists have explored using the modern form of industry policy in this way. They should.

For one thing, the arts sector itself is reasonably big in its own right—think of the dollar value of movies, fashion, and music—and is therefore entitled to be treated as a peer of manufacturing. More importantly, this type of intervention is essential for sustained productivity growth. It’s true that some key sectors, such as finance, can thrive in a cultural desert, but the most innovative ones can’t. Anyone who has worked with industrial designers, say, or advertising creatives, will understand that they can’t do their jobs effectively without being surrounded by new ideas and sources of inspiration. If we help creative clusters to emerge around our major cities, then innovation and productivity will pick up. It’s a difficult effect to measure, but it’s real.

But the most compelling reason is this: it will give policymakers a chance to experiment. There’s so much that’s not clear about how industry and innovation policy should work. Where should projects be located? How best to decide the investment amounts? Can the public maintain an equity stake in successful projects without slowing them down? And—most crucially—what’s the most effective way to identify and stop the projects which aren’t working?

You could try figuring out these questions with manufacturing, but it’s too politically important to risk making a mistake. By contrast, nobody cares about the arts sector in Australia (no offence) so policymakers have the scope to be bold and try new things. The sector’s lack of influence would actually become an advantage. Artists and creative workers would get a pipeline of new money, and in return we’d all learn how to do innovation policy in ways that are genuinely innovative.

Still from Bill Drummond and Jimi Cauty, The K Foundation Burn A Million Quid (1994)