The Creative Economy

Doug Henton and Kim Walesh

"A creative economy is the fuel of magnificence."
— Ralph Waldo Emerson (1802-1882)

We just returned from yet another community gathering where arts leaders sought the support of their business and civic counterparts by documenting the "economic impact" of arts spending and employment in their region.

As patrons of the arts, we find the need for these tactics disappointing; the arts have obvious value as vehicles for human expression and connection, and shouldn't have to be justified for the economy's sake. As economists, however, we know that these well-intentioned arts advocates are missing a more powerful point: We have entered an economic era where it's time to stop talking about the impact of the arts on the economy, and to start talking about how integral the arts and creativity increasingly are to where our economy is headed.

The growing economic power of ideas...

The companies and communities that will thrive in the coming years are those that can generate and apply new ideas. Ideas will drive economic growth, in marked contrast to the "raw material" of our previous industrial economy: natural resources, low-cost labor, mass production abilities.

Prize-winning Stanford economist Paul Romer makes the case that, in advanced economies, ideas are the primary catalyst for economic growth. New ideas generate growth by reorganizing physical resources (natural, human, capital) in more efficient and productive ways. Think about it: what's valuable in a floppy disk or a grande latte is not merely the ingredients (iron oxide, coffee beans), which have been around forever, but the ways the ingredients are combined and presented to the customer.

We see evidence of the growing economic power of ideas. The U.S. Patent & Trademark Office hands out 70 percent more patents than it did ten years ago. Fewer and fewer of us earn our living producing food and physical goods. Most of us provide services or produce abstract goods, such as data, analysis, software, and entertainment. McKinsey and Company cites the growing marketplace for intellectual property: the total estimated royalty revenue among all companies is $100 billion and growing rapidly.

...means that creativity matters more.

In an economy based on ideas, creativity — the generation of something new or original — is the ultimate competitive advantage. As researcher Shira White notes, “Creativity and innovation have always been important, but because of technological advances, speed of communications, growth of information, and the rapid changes of the last decades, the need for creativity has never been greater.” Today, creativity is fundamental to devising new products, services, technologies, business models, and ways of earning a living.

Arts education and participation develop the very skills and qualities that will be required of the twentieth century work force as a whole — analysis, synthesis, imagination, teamwork, appreciation for diversity.

Even as the importance of creativity has expanded beyond the realm of the artist, artistic creativity is becoming more important in technology industries generally. The first wave of technology featured large companies producing computers, semiconductors, and communications equipment (“hard” technology). The emerging second wave (“soft” technology) emphasizes smaller-scale activities that incorporate artistic and creative skills such as media, design, animation, advertising, and software.1

In this new economic era, leaders in the arts should be thinking about the strategic role they can play with business and civic leaders to help their region

  • develop, attract, and retain creative people;
  • nurture creative industries; and
  • foster creative centers.

Creative People

At a basic level, the increased importance of creativity to the economy is an argument for increased emphasis on arts education and participation. Arts education and participation develop the very skills and qualities that will be required of the twentieth century work force as a whole — analysis, synthesis, imagination, teamwork, appreciation for diversity.2 C .J. Van Pelt, executive director of the Cisco Systems Foundation, explained why her company gave $1.2 million to arts and cultural groups in 2000: “We hire very creative people, and the arts encourage that creativity.”

From a community perspective, economic development today is about competing for talent. A region's economic success depends on attracting and retaining entrepreneurial, technical, and creative people. These people are mobile, have many choices, and have become sophisticated consumers of place. This means that quality of life has become a key competitive asset.

In his new book, The Rise of the Creative Class, Professor Richard Florida of Carnegie-Mellon University describes the increasing share of workers whose livelihood depends on regularly engaging in the creative process — some 30 percent of the U.S. work force. He shows that the higher a worker's education level, the more he or she values cultural offerings and the diversity of a community. And once workers have made a decision about where to locate, arts and cultural participation can help bind them to each other and to the place.

Much has been written about Bilbao, Spain's success in developing its Guggenheim Modern Art Museum. There, government leaders in a city known previously for dying industries and inner-city blight joined with corporate leaders to fund and build a world-class museum, designed by architect Frank Gehry and opened in 1997. But there is an untold and more important story. The Guggenheim project was part of a much broader economic strategy: transform the city into a showcase of modern design to make it attractive to technical, business, and creative-services professionals from all over Europe. In Bilbao, cultural offerings and exceptional design are playing a critical role in attracting the creative people that are remaking Bilbao's economy.

Creative Industries

In many regions with promising vitality, an awareness is growing of the important role played by the commercial creative sector, that is, by companies and free agents who produce and distribute products and services rooted in art and culture. Leaders in these regions are broadening their definition of the “creative sector” beyond nonprofit arts and cultural organizations to include professions and industries such as design, digital arts, advertising, interactive media, film/video, and online publishing. Two trends are driving this shift.

First, the creative services industries are growing rapidly. The core “copyright industries” alone (film, music, media, advertising) are already 6-7 percent of the global economy, generate $2 trillion in revenue, and are growing faster than the world economy. This is impressive enough, but it excludes the creative element in other industries, including technology.

The second trend, then, is that, increasingly, the development, production, marketing, and sales of technology products involve people trained in artistic skills. As companies race to make their products engaging, exciting, and pleasing, business leaders in some regions are starting to see graphic designers, creative writers, animators, photographers, and music producers taking their place in the “technology” work force. Over time, as technology becomes more prevalent, the creative element in products or services may be one of the few ways of sustaining a competitive advantage.

The Creative Services Alliance has been launched in Portland, Oregon, to nurture the growth of companies and freelancers in the creative services. With initial support from the city, entrepreneurs and artists involved in software, graphic design, interactive media, film/video, and advertising are working together to build effective networks and to create an infrastructure of support. For example, company leaders are working with educators to prepare local people for jobs that integrate technical savvy and creative talent. They are branding and marketing the region's capabilities, and developing a Creative Services Center with facilities for meetings, offices, and product demonstration. The Alliance estimates that the Portland region's cluster of commercial creative activity includes 800 small firms, 15,000 employees and freelancers, and an annual payroll of $600 million.

In the New England states, a “Creative Economy Initiative” is pioneering new thinking about the importance of private-sector creative enterprises and individual artist-entrepreneurs to the regional economy.

Creative Centers

Downtowns of all types are emerging as important physical centers of the creative economy and community. Collaboration, it turns out, is a driving force behind creativity. This puts a premium on places where diverse ideas and people can circulate and interact with great velocity.

In several key regions, business and civic leaders are intentionally trying to transform their downtowns into creative hotbeds of the next, new thing — adding a twist to the traditional role of downtowns as retail and entertainment centers. They are thinking strategically about their downtown as a creative nexus where arts, technology, and entrepreneurship come together. They are building bridges, soft and hard, between districts emphasizing arts/culture, business, and education.

In Austin in the 1990s, Mayor Kirk Watson realized that for the city to be successful, it had to promote convergence between technology, Austin's music scene, and its unique, laid-back lifestyle. Business, civic, and cultural leaders are focused on developing a “livable, digital downtown” as a distinctive centerpiece of their region.

Paul Schell, the outgoing mayor of Seattle, aimed to turn the city center into a “platform for the creative experience.” He believes, “You have telecommunications, biotech, software, and the Web all coming together with great music, architecture, and art. It's at the intersections of disciplines where sparks fly. That's where the ideas come from.” A number of projects collectively embody this vision, including the Experience Music Project by Microsoft co-founder Paul Allen and a new Seattle Public Library designed by Rem Koolhaas.

In Columbus, Ohio, a partnership among the Chamber of Commerce, Ohio State University, and the Mayor's office is developing a strategy to nurture and concentrate the “creative community” — commercial creative services, creative professionals, and arts/cultural organizations — in the downtown. They have identified and engaged more than thirty leaders of creative companies and cultural organizations to champion this strategy.

New Strategies for Success

It is time for leaders from the arts, business, government, and civic communities to recognize their vested stake in working together to sustain a creative economy and community. With this article we offer a framework for thinking about potential leverage points and some examples of how to recognize, cultivate, and capitalize on a region's creative assets.

If you want to start down this path, start by recognizing and understanding the economic and demographic changes underway in your community. Identify individuals who are passionate about how integral creativity is to the direction the economy is going. Explore the special cultural and creative assets that can be connected and channeled in new ways. Most importantly, start building a team of boundary-crossing leaders from the arts, business, and community who are committed to learning and acting together over the long term. Today, few communities succeed through destiny, most succeed through vision and determination.

Doug Henton and Kim Walesh are co-founders of Collaborative Economics, based in Mountain View, California. They help business and civic leaders strengthen regional economies and communities.
The ideas and examples in this article are based on their experience as strategic advisors to regional leaders, and on research they direct for the Alliance for Regional Stewardship.

For Further Reading
  • “The Creative Community: Leveraging Creativity and Cultural Participation for Silicon Valley's Economic and Civic Future,” by Doug Henton and Kim Walesh for Cultural Initiatives Silicon Valley, 2000.
  • Designing Portland's Future: The Role of the Creative Services Industry,” by Patricia C. Scruggs, Joseph Cortright, and Marcia Douglas, 1999.
  • “Downtowns of the Future: Opportunities for Regional Stewards,” by Mary Jo Waits and Doug Henton for Alliance for Regional Stewardship, 2001.
  • “Economic Growth,” by Paul Romer, Fortune Encyclopedia of Economics, David R. Henderson (ed.), New York: Time Warner Books, 1993.
  • The Rise of the Creative Class, by Richard Florida, Basic Books, 2002.
  • “The Creative Economy Initiative: The Role of Arts and Culture in New England's Economic Competitiveness,” by Mt. Auburn Associates for The New England Council, 2000, New England Foundation for the Arts.
  • “Knowledge-Value Cities in the Digital Age,” by R.C. De Vol and J. Kotkin, Miklken Institute, 2001.
  • “The Creative Economy,” by Peter Coy, Business Week, August 28, 2000.