What is problematical for industries in general is especially so in the cultural sphere because of problems in the definition of cultural goods and services. Cultural goods and services involve creativity in their production, embody some degree of intellectual property and convey symbolic meaning. Alternatively, the generation of intellectual property might be seen as a sufficient criterion.

Thus at the core of this industry model lie the creative arts as traditionally defined: music, dance, theatre, literature, the visual arts, and including newer forms of practice such as video art, performance art, computer and multimedia art and so on. Each of these artforms on its own can be regarded as an industry, and is frequently referred to as such, although such a usage generally embraces more than just the original producers. So, for example, the 'music industry' includes an enormous range of participants, meaning composers, performers, publishers, record companies, distributors, promoters, retailers, collecting societies and so on. In some interpretations the boundaries of the cultural industries are extended further to the industries, which operate essentially outside the cultural sphere but some of whose product could be argued to have some degree of cultural content. These industries include advertising; tourism, where some market segments are built on a cultural base; and architectural services.

Let us now look at the core components of the cultural industries as defined above and consider the way in which the creative arts may be seen as an industry, or as a series of industries organized around the separate artforms. We consider in turn the characteristics of demand and supply, technology and the nature of factor and product markets.

Economists, studying differences between consumers' preference accept that tastes do indeed differ between individuals and that changes in tastes do shift demand functions. They agree that questions as to how those tastes are formed are not a matter for economists but are better left to sociologists, psychologists and other behavioral scientists to explain.

It is apparent that a person's enjoyment of music, literature, drama, the visual arts and so on, and hence her willingness to spend money on consuming them, are importantly related to her knowledge and understanding of these artforms. Furthermore, consumption of the live arts is highly time-intensive, indicating that the price of leisure time is likely to be more influential in determining demand than the ticket price itself.

A distinction can be made in analyzing the arts between the profit-making and the non-profit sectors of the industry. Profit-oriented supply in the arts includes popular entertainment and cultural forms where demand is strong and widespread and where financial motives dominate over artistic values in the organization of production. Supply characteristics in this sector of the arts industry can be analyzed in terms similar to those applicable to any commercially-based industry in the economy, with the difference only that there may occasionally be grounds for asserting the public interest in some way or another. The non-profit sector, on the other hand, embraces the more exotic art forms such as classical music, jazz, 'serious' drama, poetry, opera, classical and modern dance, the fine arts, contemporary visual art and so on. Production activities within these product groupings tend to be more concerned with artistic values than with financial gain.

Most of the explanations for the existence of voluntary not-for-profit firms in a market economy can be applied to the arts. As would be expected, this model would predict that such an enterprise would tend to produce more output and devote more resources to quality than a corresponding profit-maximizing firm.

Technological change has profound effects on both production and consumption patterns within the arts industry. On the production side, the effect of computer technology and advances in video and sound reproduction on the process of artistic creation and on the nature of products produced.

Nevertheless, one of the most acute debates in the economics of the arts is the role of technology in the live performing arts. In a pure sense productivity improvements in the live arts, and to a lesser extent in some other areas of artistic production, are not possible in the same way as they are in, say, manufacturing.

Technological change also affects the demand side of the arts industry. Scale economies in consumption in some artforms make available a range of consumption experiences to individual consumers in the market. One outcome of these trends has been the creation of super-stars whose rise to may not be entirely explained in terms of their talent. The advent of the Internet is likely also to have significant effects on many aspects of structure, conduct and performance in the arts industry in the future.

To begin with, there are problems of definition - is there a distinction between cultural and non-cultural workers in the arts industry, and if we confine attention to creative artists can we regard them as a homogeneous group for purposes of analysis?

First, the industry contains a predominance of part-time workers, the majority of whom hold other jobs either elsewhere in the arts industry or in some other industry altogether.

The second feature of arts labor markets to be noted is the extreme displacement in earnings distributions, with the great majority of practitioners earning very low rewards, but with a handful of stars attracting very large rents.

Thirdly, formal training is not as significant a determinant of eventual financial success in the arts as it is in other occupations.

Finally, risk is acknowledged to be a factor in influencing career choice and subsequent earnings levels among artists, but its impacts are debatable.

Artworks can be copied but not reproduced, in the sense that ultimately there is only one unique original of every work of art. At the same time, artworks form part of the cultural capital of a nation or of the world (some more so than others), and thus have, to a greater or lesser degree, public-good characteristics, especially when they are acquired by galleries or collections for public showing. Because artworks can be resold, and their prices may rise over time, they have the characteristics of financial assets, and as such may be sought as a hedge against inflation, as a store of wealth, or as a source of speculative capital gain.

Culture is importantly implicated in the process of urban development. At least four non-mutually-exclusive roles for culture in the life of cities can be observed.

First, a specific cultural facility may comprise on its own a significant cultural symbol: the Leaning Tower of Pisa, for example.

Second, and more often, a 'cultural district' may act as a problem for development in the local area, such as occurs in Pittsburgh or Dublin.

Third, the cultural industries, especially the performing arts, may constitute a vital component of a city's economy, not just in major centers like London or New York but also in smaller regional towns and cities as well. Fourth, culture may have a more pervasive role in urban development through the fostering of community identity, creativity, cohesion and vitality, via the cultural characteristics and practices, which define the city and its inhabitants.

Within this context the concept of cultural capital is a useful way of description the place of culture in the urban setting. Heritage buildings, cultural institutions, facilities such as theatres, concert halls, and so on can all be seen as capital assets, and the people who produce cultural goods and services in these facilities - actors, musicians, writers, technicians, designers, administrators and many others - all contribute to the generation of economic and cultural value over time. These phenomena are examples of intangible cultural capital - the stock of practices, customs, traditions, etc.

In the Third World, the concept of culture as industry has some particular connotations. In primitive societies, culture and economy are to a considerable degree one and the same thing. As development proceeds and the economy becomes more differentiated, cultural factors may continue to exert a significant influence on the methods of production and the types of products produced. In this process, some specific cultural industries will emerge. To throw some light on this issue, we take the particular case of the music industry.

The importance of music as a corner-stone of cultural life in developing countries is well understood.²⁶ The production of local popular music has grown from its roots in long-established local culture, and has emerged in many countries in the developing world to become a significant economic. Typically individuals or groups begin with live performance for payment and, if they are successful and motivated, they may move into broadcasting or recording for the local market. Some local music genres have grown over time to dominate the international scene, beginning with jazz and moving on to rock'n'roll, rap, hiphop, reggae and other musical forms. In most cases, music from the Third World has been brought to wider attention through the activities of independent record producers, standing somewhat apart from the major transnational companies. It is apparent, then, that while music can be a significant contributor to economic life in developing countries as an important industry in the domestic economy. The globalization of music has seen a dominating role played by the publishing and sound recording industries centered in the United States, Europe and Japan.

In a more specific sense, however, tourism can be seen not so much as a cultural industry in its own right but rather as a user of the products of other industries within the cultural sector - the performing arts, museums and galleries, heritage sites and so on. At a local or regional level these cultural industries may be strongly tied to tourism, supplying the tourist industry with a range of products and in turn depending to a greater or lesser degree on tourists for their economic livelihood. In a still more specific sense, tourism and culture come together in the market that has come to be known as 'cultural tourism'. Typical cultural tourism experiences include purposive visits to cultural festivals or specific cultural sites, or longer tours constructed around a cultural theme - opera, places with literary associations, indigenous communities, archeological sites, art galleries, etc. The economic benefits and costs of tourism, both large- and small-scale, are well documented. While it is true that tourism provides an economic stimulus and financial support for much cultural activity, it may also have adverse cultural impacts.

4. Trade policy and the cultural exception

During the 1990s the word 'culture' began to crop up more and more frequently in the context of international trade. There has been a degree of intervention in trade in cultural goods, particularly in order to prevent national heritage items such as artworks (so-called 'national treasures') from leaving the country in which they are located. But the revolution in communications technologies and the apparently relentless forces of economic globalization which have appeared over the last decade or so have cast cultural considerations in international trade into an entirely new context.

The economic imperative driving the world trading system towards a reduction in protectionism is based, of course, on the simple proposition that free trade maximizes world welfare. The appearance of cultural commodities such as films and television programs in international trade exemplifies the two different aspects of culture. One aspect relates to the production of such goods and the other is concerned with the cultural impacts in consumption. On the production side, it is culture in the functional sense, which is involved; many countries earn valuable foreign exchange from the export of such cultural goods and services, most notably the United States, which is overwhelmingly the largest exporter of cultural goods in the world. On the receiving end, on the other hand, it is the notion of culture as ways of life and as an expression of group identity that is implicated.

The argument in trade circles has centered on the question as to whether or not cultural goods are different from other goods. If they are, then cultural exceptions may be included in trade agreements, allowing some form of protection of domestic cultural industry. Thus, for example, both France and Canada have argued strongly for a cultural exception in trade agreements affecting them, because of fears of cultural dominance from the United States.

This paper has ranged widely over the ways in which culture is implicated in the industrial structure of the economy, including its contribution to urban revitalization, tourism and trade. In all of these various manifestations, culture emerges as a potential source of economic dynamism in a local, national or international setting. These industries are placed in many respects at the leading edge of development into the twenty-first century. Such a statement can be rationalized on several grounds, including the following:

• changing patterns of consumption and rising real incomes are leading to the increases in the demand for cultural goods and services

• the cultural industries are important content-providers in the development of new information and communications technologies

• the cultural industries foster creative thought and expression, which are important to processes of innovation and technological change, and

• the cultural industries can have a strong impact on employment levels, and as they grow they can contribute to absorbing labor released from declining sectors of the economy.

Processes of production and consumption in the arts and culture, and the broader role of culture in articulating essential values by which human beings express their identity and work out ways of living together, have a crucial content of cultural value.