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The Political Economy of Communication Revisited
It is now 40 years since I started work in the broad field of research and policy debate and advocacy to which the name “political economy of communication” or “of the media” has been applied. I personally am unhappy with this title because it indicates a narrowing of the field’s focus upon either channels and processes of communication modeled on those of interpersonal communication, or upon the mass media, especially the press and broadcasting, in ways which block understanding of many of the crucial relationships and dynamics involved. I prefer to think of this research tradition as a historical materialist analysis of the cultural sphere – the production, circulation, and consumption of symbolic forms in all their variety – of which the study of communication channels and processes and of the mass media are subfields. This research tradition I will call “the political economy of culture” (PEC).
However, for reasons I hope the following analysis will make clear, this title is also now misleading. It has tended to focus analysis only on culture as goods and services consumed by people in their leisure time and paid for out of disposable household income. There is still a lingering tendency to see culture in this sense as separate from the rest of the economy rather than as a special case within a wider set of developments and problems. This has led to a disabling neglect of the dynamic effects of the immaterial producer goods and services market and of the wider analysis of immaterial labor and the immaterial commodity which are better captured by the terms information, information economy, and information society. In short, I am arguing here that, despite all the problems with the term “information,” we now need to think of the field as the “political economy of information.” As I hope to demonstrate in what follows, one of the major problems with work in the field of the political economy of communication is that it has remained stuck with a set of problems and terms of analysis that history has simply passed by.
My motivation for revisiting the PEC tradition at this moment is a strong sense that the field has become associated, by both its practitioners and defenders and by its critics, with a tired and narrow orthodoxy. The term “political economy” (PE) has become a euphemism for a vague, crude, and unself-questioning form of Marxism, linked to a gestural and self-satisfied, if often paranoid, radicalism. The story it tells has become drearily familiar. The capitalist mass media are increasingly concentrated on a global scale under the control of corporations and media moguls leading to a decline in cultural diversity, the suppression of progressive political views, and the destruction of local cultures. The proposed cure for this situation is some form of regulation and/or state-supported public service media and cultural production sometimes linked to appeals to grass roots activism and “democratization.” In my judgment, this general position is both empirically questionable and theoretically and politically dubious. It will be my purpose in the remainder of this chapter to explain why I think this is the case and why I think it does a disservice to the tradition it claims to represent.
In so doing, I will briefly outline the history of the development of the PEC. What research and policy questions did it pose? What problems were revealed in the attempts to answer those questions? And importantly, therefore, what did it learn? The major problem with much current work in PEC is that, like the Bourbons, it has forgotten nothing and learnt nothing. It is important in my view to stress that PE is an open field of inquiry. Its theoretical presuppositions must be open to change in the face of empirical evidence – its assessment of research and policy priorities and its explanations changing as the world around it changes. Much current work in PEC is locked in the position with which the tradition started in the late 1960s, as though since then neither the material and social world nor the analytical tools of PE had changed. In particular, much current PE is underpinned by a crude and unexamined romantic Marxist rejection of the market per se, which has blocked analysis of how actual markets work and with what effects. This has meant that, like its supposed opponents in cultural studies, it has not taken the economics in PE with the seriousness it deserves and requires.
The tradition of PE derived from the work of Adam Smith was what we would now think of as a historical sociology, an attempt to understand the structure and dynamics of a new social form – what has come to be known more generally as modernity. Central to that form was the development of greater scale and internal specialization of function requiring ever more complex and mediated networks of social co-ordination and control linking anonymous others. Chief among these networks were expanded monetary-based markets within the sphere of material production, what became known as the capitalist mode of production. Within this general development, the very concepts of art and culture in their modern senses came into existence. It is important to stress that for Smith and other political economists, including Marx, the capitalist form of modernity was an open-ended historical process. Its success was by no means guaranteed. In particular, political struggles between major interest groups or classes over the distribution of the surplus were endemic. The capitalist mode of production was thus not seen as automatically equilibrating. Thus the great split between even liberal political economists and the neoclassicists was not over the market per se, but between a static equilibrium account and a dynamic disequilibrating account of how markets worked. It was in this important sense that political economics was political. For Smith markets were specific social institutions that required a supporting framework of laws, institutions, and cultural practices that were always objects of political struggle, not just between capital and labor, but between capitals, in Smith’s time in particular between the owners of land and of industrial and mercantile capitalists.
Thus from its origins PE has been closely related to policy debate. This close relationship has two results. First, PE tends to shift both its focus of concern and its theoretical approach in response to general shifts within economy and society and the problems for all participants that these shifts highlight. Second, it is influenced by the specific policy problems exercising governing institutions and by the strategic problems facing corporate management at different times. But this does not, as some would claim, make these responses mere ideology. Of course, different PE analyses will be taken up and propagated by interested parties, usually in highly simplified versions, within public debate and political negotiation in an effort to advocate and propagate their position in what they see as their own interest. But to see this as mere ideology is to assume that the various interest groups either know what is happening or have a very clear idea as to what their interest might be. As the current conjunctural crisis eloquently demonstrates, this is clearly in most cases far from the truth.
So PE is not a functionalism. From the start, this raised the problem of legitimation – the response to the Hobbesian political challenge of modernity. It should be remembered that for Smith, markets were institutions which disciplined socially destructive, private, and predatory acquisitive instincts for the general public good by making the interactions public and transparent. Thus for Smith, markets were not an example of the private winning out over the public, but on the contrary of the public and the public interest winning out over all forms of private, secretive, and therefore inherently corrupt forms of power, including economic power. It was here that the development of a diverse and specialized cultural sphere became a problem. The rise of a critical intelligentsia, the spread of secularism, the growth of literacy and a reading public, and the associated circulation of printed material represented, in the eyes of the established ruling elite, subversion and potential anarchy. Important for my subsequent argument is the fact that this produced a reaction, on what became known as both the right and left of the political and intellectual spectrum, that shared a remarkably similar romantic rejection of modernity, of the market and of the products of an increasingly commercialized cultural sphere in the name of a supposedly “purer” ideal of community and human essence.
The Development of the Political Economy of Culture
The research school that I am calling the political economy of culture initially developed as a return to this old set of questions and problems. But it did so in a specific context that marks it to this day. In the 1960s in the developed capitalist democracies, the long postwar economic boom came to an end. As rates of productivity growth and market expansion slowed, the compact between organized labor and capital that had produced in the US and Western Europe the broad political consensus dubbed “the end of ideology,” came under increasing strain. Labor militancy rose, and within Europe, within the context of the social democratic welfare state, there were growing tensions between the aspirations fueled by the long boom and tightening public budgets. These broad social struggles were then further fueled by the rise, in the context of a more heated Cold War, of the antinuclear and anti-imperialist movements. Indeed, it is no accident that early US work in PEC by Herbert Schiller, Dallas Smythe, and Thomas Guback focused on US imperialism and the broad struggle over the free flow of information in and around UNESCO, echoes of which now reverberate within the debates and struggles around globalization.
In Europe, against the background of a general revival of western Marxism, scholars studying the media and culture returned to the central questions of political economy. In particular, this was a reaction against (1) a sociology of communication focused on “effects,” (2) a liberal/pluralist political science based upon the interplay of political positions within a free press model, and (3) a mass culture tradition within which the industrialization and mass circulation of cultural products was seen by conservatives as a destructive process of vulgarization and by supposed progressives as an ideological process of circuses and opiates.
Ownership, control, regulation, and ideology in the mass media
Early work in PEC developed as a critique of the liberal free press position and against a background of dominant ideology theory. It focused on the press and broadcasting and analyzed the vertical and horizontal processes of integration and the resulting concentrations of corporate ownership, both within the media sector, between media and other industrial and commercial sectors, and both nationally and transnationally. It analyzed the competition and shifting boundaries between the commercial and public sectors – particularly in broadcasting – and the role of regulation in this process. The underlying assumption was that capitalist corporate control contributed to a dominant ideology. It led, in particular via advertising, to the production of broadly capitalist-friendly content and to a more general reduction in cultural and informational diversity, which broadly underpinned the political status quo.
The problems with this general analysis were various. First, it soon became apparent that the relatively stable reproduction of capitalism did not require a dominant ideology; that while life within a capitalist society, as with modernity more generally, might favor certain common patterns of social behavior and related structures of feeling and thought, the capitalist economic system was compatible with a wide range of political and social systems. Second, there was little evidence that the controllers of the capitalist economy and their supposed political representatives themselves shared a common ideological position. Third, even in noncultural sectors the notion of control in the sense of being able to produce planned outcomes through the employment of subordinate economic agents was very tenuous. Fourth, in the cultural sector itself, while one could turn up occasional cases where advertisers censored copy or where proprietors placed stories in their own economic or political interest, there was no evidence that this was systemic. Rather to the contrary, the problem seemed to be the exact inverse. In fact, increasingly the owners of cultural enterprises would produce anything that could be sold at a profit – the problem was to find out what those were. It became increasingly clear that a more likely thesis was that the industrialization of cultural production and circulation had produced just that breakdown of ideological control that the original feudal and religious opponents of modernity and capitalism feared. The concentration/loss of diversity thesis also in my judgment failed to recognize one of the defining features of modern mass media and a central feature of Marx’s mature analysis of capitalism. The development of modern mass media, their wide distribution and the resulting relative democratization of cultural consumption, linked as they were to the spread of literacy and schooling, were the result of the exploitation of economies of scale and associated low prices, which were themselves inevitably linked to market concentration. However, as capitalist economies have grown, the associated lowering of the costs of material goods linked to the release of higher proportions of household expenditure for the satisfaction of immaterial wants, including cultural products and services, and the expansion of the commercial cultural sector to meet the resulting demand, has clearly widened cultural diversity on both a national and international scale, even if it continues to be unevenly spread.
Thus the theses of Schiller and Guback, focused on the free flow of information, and on the film and advertising industries in particular, as the tools of a “soft” US imperialism, have turned out to be largely unfounded and based too narrowly on a temporary historical moment within a longer development. So far as film is concerned, while it is true, to take the case of Europe, that in spite of EU and especially French state intervention, US films retain a dominant share of European box office, this has been accompanied by the development of TV with a reduced share of US-originated programming and by the development of a global film market in which the US industry is increasingly dependent on non-US sales. Thus the thesis central to the original argument against free flow and US cultural imperialism, that it can dominate those markets on the basis of a dumping strategy founded upon control of its large domestic market, no longer holds. At the same time, indigenous centers of competitive media production have arisen. The evidence is that as countries get richer they want and can afford to support more indigenous national or regional production and that while global diversity overall may decline, at the same time, owing to the operations of economies of scale and scope, national diversity may rise. I should make it clear that at one time, I too supported and propagated this thesis of general ownership concentration, control, suppression of diversity, and dominant ideology. But as Keynes responded to a critic “If the facts change I change my mind. What do you do?” Thus in my view the evidence supports not a dominant ideology/US cultural imperialism thesis, but rather Marx’s thesis as to the dialectical nature of capitalist development – it produces the very culturally enriched and educated workers and citizens necessary for its own supersession.
The political economy of culture and regulation
The second major weakness of the thesis was its treatment of regulation and the relation of the public and private sectors. Within the dominant ideology thesis, there was a general assumption that the public sector represented a barrier or bulwark – depending on your point of view – against the spread of profit-based competition and so-called commercialization. It was argued that capitalist societies produced, and could only tolerate, regulation that furthered and supported corporate interests. Thus the political economists drew up their battle lines to defend the public sector, especially public service broadcasting, against the assaults of the new barbarians represented by the so-called “neoliberal” deregulators. This resulted in an extreme simplification of the debate, the neglect of a proper analysis of both the operation of the public sector and of regulatory regimes. This involved in its turn a neglect of the diverse and conflicting interests of different corporate actors and sectors vis-à-vis regulation, and to the rich analytical tradition on the political economy of regulation from a variety of perspectives and thus to a neglect of the specific and different regulatory problems of different market sectors. All these lacunae effectively disarmed many of the defenders of public interest regulation and public service, as it now does many antiglobalization activists, reducing them to a mere knee-jerk opposition that is both theoretically and politically weak.
The Culture Industries, Cultural Labor, and the Cultural Commodity
The inadequacies of the simple ownership and control thesis were made more apparent by the PE analysis of cultural production in general. This development in PEC was part of the wider cultural turn in sociology and a response to what was seen as the idealist elitism of the mass culture critics. The culturalists quite rightly argued that the focus on the press and broadcasting and on more overt forms of political information, debate, and ideology neglected the greater portion of people’s cultural consumption – music, films, and entertainment generally in print, audio, and audiovisual forms – and thus the role those cultural forms might play within hegemony. Those within PE who turned to the analysis of the industrialization of culture in this sense in general took as their starting point a return to the Frankfurt School thesis of the “Culture Industry.” The broad Culture Industry thesis will be familiar. The potentially oppositional and utopian function of art was being destroyed by an industrialization of culture that involved, on the side of production, the destruction of artistic autonomy as artists became industrialized cultural wage labor, and on the side of consumption, the narrowing of interpretative possibilities, whereby as a result of planned marketing, cultural products became advertisements for themselves. This led, it was argued, despite apparent cultural diversity and freedom of choice, to a homogenization of cultural products. The Culture Industry was likened to the US motor car industry where repeat consumption of an essentially unchanging basic product was assured by the built-in obsolescence of ever-changing superficial features. The problem with this thesis rapidly became apparent.
Cultural labor
First, as the pioneering work of Miège and Flichy showed (Flichy 1978, Miège 1989), culture industries demonstrated very different levels of industrialization and wage labor. Essentially it was confined to what they called flow industries – the press and broadcasting – which required constant, rapidly repeated, and thus carefully planned and co-ordinated cycles of production. The majority of cultural workers, even in the flow industries, certainly the key producers of cultural content, operated in a craft, contractual mode. Importantly, unlike the wage labor in material production, their remuneration could not be tied to a relationship between measurable labor input and output. Thus the related concepts of productivity and efficiency, so central to the political economy of capitalism, could not be applied. Given the inherently uncertain relationship between labor inputs and outputs, there was what economists have variously called a principal/agent or labor discipline problem. While capitalist owners and managers might want to control production, they had few tools for so doing. In particular, this has meant that one of the major means of increasing labor productivity and disciplining labor, a process central to industrial capitalism, the substitution of capital for labor through mechanization (a process captured in the classic debate over deskilling that deeply influenced radical political economy in the 1970s) was unavailable. The unveiling of these problems within cultural labor led in two directions which have taken on ever greater salience as PEC has turned to the analysis of the wider so-called information economy/information society. First, it led to the discovery of Baumol’s Disease (Baumol and Bowen 1976). Baumol argued that the impossibility of labor productivity growth in cultural production meant the inevitable increase in the relative costs of cultural production and thus a rise in the relative price of cultural products and service. This, through a relative price effect, would produce either a rise in the proportion of consumer expenditure on cultural consumption or a decline in cultural consumption. Importantly, this led Baumol himself to defend an increase in public subsidies to cultural production. Second, it led to a stress on the use of technology in distribution to obtain, through market expansion, the economies of scale and scope unattainable in production per se. This then led into the political economic debate over the impact of technological change, first on the cultural sector and then, as the wider information sector expanded, on the economy as a whole. These insights gained from the analysis of cultural labor were then reinforced by insights gained from an analysis of the cultural commodity and cultural demand.
Culture and commoditization
The second major problem with the Culture Industry thesis was an assumption concerning a general process of commodification. For the Marxist tradition, an alternative to the dominant ideology thesis had long been commodity fetishism. The argument was that central to capitalist development and domination was a process of ever-widening commodity exchange, whereby human social relations were increasingly mediated by the exchange of commodities on monetized markets, and that this disguised from the participants the power relationships involved. In particular, commodities were fetishes because, although created by humans for their own use, they came to rule over them as an apparently autonomous force – a process also referred to as alienation. Now I would want to reject on sociological and philosophical grounds this whole theory of alienation that has been so influential upon Marxist and other “radical” traditions of opposition to capitalism and modernity. Any historical materialism worthy of the name has to accept, it seems to me, the mediated and therefore alienated nature of all human relations both with their material environment and with other human beings. This alienation long predates capitalism and modernity. Indeed it is, I would argue, an aspect of our species-being. We are all now, and must be in effect, symbolic interactionists. There is no “true” humanity or human essence to which we can return if only the system can be removed. The question, therefore, is to study as clear-sightedly as possible the actual structures and practices of mediated social interaction and their dynamics of development. But for the purpose of my argument here, I will now focus solely on the economic process of commodification.
The Cultural Commodity and Cultural Demand
It was soon found in studying the culture industries that far from the process of commodification remorselessly expanding in the cultural sector, it was highly problematic. Capital in the culture industries faced real and fundamental problems of realization and reproduction. The history of the culture industries’ development, up to and including the present, can in large part be read in terms of the varying strategies adopted by corporate managers and investors to deal with this problem. In analyzing culture industry development from this perspective, political economy has needed to draw on industrial and business economics. Rather than attempting to deploy a very generalized theory of industrialization and commodification, it has needed to look at both specific markets and specific industry structures and dynamics as highly differentiated.
Reproduction and distribution
Study of the culture industries soon showed that not only did cultural labor not follow the classic capitalist development path to wage labor under a regime of machinofacture, but the cultural products and services could not be either easily or fully commoditized. Indeed, broadly liberal political economic concepts of public goods and market failure provided a better understanding of the economics of cultural production and consumption, and of the resulting and unavoidable need for forms of regulation, than Marxist commodification theory. The analysis of this problem is by now well known. Because the value of cultural products and services is largely immaterial, they are not worn out by use. There is thus no scarcity and no inherent incentive to repeat purchase; in information and culture, economic reproduction and growth depends on the constant production of novelty. Thus what in a normal industry is referred to as production is, in the cultural sector, closer to R and D. It is therefore better understood from the perspective of the political economy of innovation than from a classic industrial development model. This means that culture industries are systems not of production but of reproduction. Once the prototype has been produced, the marginal cost of extra copies is close to zero. When allied to the nature of cultural labor, this means that productivity gains found in economies of scale can only be found in distribution. Hence, the centrality of distribution networks, and of the technologies upon which they are based, to the political economy of culture.
Cultural demand
Linked to the above characteristics of cultural goods and services are problems on the demand side. Because there is no inherent scarcity, and because faced with new products consumers cannot judge in advance the value of what they will receive, there is a great resistance to paying for cultural commodities. This is reinforced by their public good characteristics – the marginal cost of serving extra consumers is zero, one person’s consumption does not detract from anyone else’s consumption, and in some cases the costs of preventing freeloading are high compared with the potential returns from any single user. While highlighted by the development of the web, this problem of freeloading has always been endemic to cultural and information markets. Thus there is a constant problem of realization, partially solved historically by various forms of indirect payment – advertising, subscription, and public subsidy. At the same time, contrary to the Frankfurt School assumption of the planned control and manipulation of consumer taste, the nature of demand is very uncertain. There is a famous maxim in the industry about market demand: “Nobody knows.” Thus there is no alternative to a scattergun approach and survival depends upon economies of scope, the spreading of risk across a range of products, to ensure the 10 percent or so chance of the hit that will provide a viable average return. Sustainably viable industries are impossible without the level of concentration that enables these economies of scope. At the same time, this economic model positively requires diversity. Indeed, for this reason there is a constant tendency to overproduction. See, for example, the ever-increasing number of book titles published every year. Indeed, the capitalist cultural sector is characterized by overproduction and underconsumption – not a good basis for either stability or growth.
The problem for the political economy of culture was that any public sector – for instance, public sector broadcasting – is faced by the same problem. The uncertainty and unknowability of demand leads too easily either to producer capture and justifiable charges of elitism, inefficiency, and featherbedding, or to charges of “dumbing down” and doing what the commercial sector can and does do perfectly well. While it may in certain contexts be the case that a secure stream of public subsidy enables a higher degree of inherently risky creative innovation, it is by no means, as history shows, necessarily the case. It is also the case that the instability of culture industry business models has meant and continues to mean that there is no simple dichotomy between regulated public interest cultural institutions, on the one hand, and an unregulated private commercial sector, on the other. Corporate interests in the cultural sector have long sought various forms of regulatory support, the most obvious at the present moment being in the field of intellectual property.
Cultural consumption time
Finally, it was realized that the differential distribution of cultural consumption was determined both by available disposable income and by available consumption time. This very importantly leads to an analysis of the link between the size and growth of the cultural sector and the ways in which socioeconomic changes differentially effect the availability of consumption time. The growth of the cultural sector has been associated historically with a long-term decline in working hours. For reasons that are not entirely clear, this process appears recently to have gone into reverse, a reverse associated both with the absorption of women into the paid labor force and by the decline in productivity growth linked to the expansion of information labor.
From the Political Economy of Culture to the Political Economy of Information
The political economy of culture now reached a crucial turning point. Up to this point, PEC had focused on the effects of the capitalist mode of production of culture on patterns of cultural consumption, on the nature and quality of the cultural goods and services produced, and on their possible ideological effect. The focus now shifted to the relationship between the cultural sector, thus narrowly defined, and the wider economy. The cultural industries supplying final cultural demand were now seen as a subsector of a much larger information sector supplying a range of informational goods and services, a sector whose structure and dynamics was largely shaped and driven from within production in general. The problem of immaterial labor and the immaterial commodity were seen as increasingly central across the capitalist mode of production in general.
This shift in focus also involved a crucial shift in perspective. A major weakness of PEC had been, drawing on a partial reading of its Marxist heritage, a one-sided focus on the distributional conflict between labor and capital as mediated through consumer markets and the state. This neglected competitive conflicts between capitals, which in its turn led to a tendency to regard the system of production as a black box, the only barrier to the relatively smooth reproduction and expansion of which was labor and state intervention on its behalf. This had important analytical consequences. First, by focusing on the distributional effects of capitalism it neglected its productivity/efficiency-enhancing effects. This is important for any PEC because it remains the case that it is the huge, and to date self-sustaining, process of material productivity growth that has produced the time and resources necessary for the vastly expanded production and consumption of culture we associate historically with capitalist modernity. Second, by working within a simple market–nonmarket dichotomy it was ill-equipped to analyze the complex ways in which different market structures, systems of regulation, and institutional structures worked together in responding to the unavoidable problems posed by co-ordination.
With this general shift in focus and perspective, PEC merged with other streams of political economy studying capitalist development and policy debates within what has become known as the information economy/information society perspective. The terms information, information economy, and information society are certainly as unsatisfactory as the terms culture, communication, or media. I use them here as a convenient shorthand description of this important and, in my judgment, necessary shift in perspective. Recognizing the need for and importance of this shift does not, however, involve accepting any of the specific analyses that have come under the heading of the political economy of the information society (PEIS), far less the correctness of any policies based upon them.
This shift involved three major changes in focus. First, the increasing recognition of the modern mode of cultural production as a technology-based system of reproduction and distribution based on specific economies of scale and scope led to a focus on technological development and, in particular, on the economics and regulation of networks. Second, the recognition of the specificities of immaterial, cultural labor led to the wider study of what became known as information or knowledge workers and the more general problem of productivity within the growing service sector. Third, the recognition of the specificities and instabilities in the markets for symbolic goods and services led into the wider political economy of information. The effect of all three developments was to decisively shift the focus from the study of culture as final demand toward the study of information goods, services, and communication networks as primarily producer goods and services, the development of which was driven not by the cultural demands of households, but by dynamics within production in general.
The Political Economy of the Information Society (PEIS)
The PEIS is a complex field which I have analyzed elsewhere in greater depth than I have space for here (Garnham 2005b). But I think one can identify two major axes around which PEC merged with PEIS. The first concerned technology – an analysis of the development of information and communication technologies (ICTs) and their impact. The second concerned information – an analysis of the general growth of information production and distribution in its various forms across the economy as a whole, and its implications.
ICTs
It is clear that the major meeting point between PEC and PEIS was around ICTs and their regulation. As a result of the analysis outlined above, PEC had been forced to recognize that the culture industries were the way they were because they had developed historically as different ways of harnessing technologies of reproduction, and above all, distribution. The central debate over private commercial versus public service broadcasting was in essence a debate over regulation and the public powers derived from the control and allocation of the radio spectrum. The main drive behind the growth of and economic interest in ICTs stemmed from the needs of production in general. The cultural industries became involved via the development and regulation of telecommunication networks in the 1980s.
Telecommunications, networks, and their regulation
Within the broad privatization and deregulatory current that characterized the 1980s, the center of focus was telecommunications, their ownership and regulation. It is in my view too simple to characterize this as a general neoliberal, market fundamentalist thrust. Opposing it in the name of an antimarket fundamentalism was and is disabling, because it involved a lack of serious attention to the relevant political economy. Political economy, even in its liberal guises, has recognized since Adam Smith, the special case of communication networks. As public goods with natural monopoly characteristics, they require, and have always required, either direct state provision or close state regulation. It is important to stress here that the primary regulatory argument is not about ordinary consumer access, but about ways in which controllers of such networks can extract rents from their monopoly control from other sectors of production and distribution. This is why the debate about universal service and its successor debate about the so-called digital divide are largely beside the point. Telecommunication networks and services were developed for and largely funded by business use, itself the result of the spatial expansion of markets and the increased scale and complexity of industrial production and supply chains, and the problems of co-ordination that resulted. Domestic use expanded because economies of scale in switched network provision meant that it could be cross-subsidized from business use. Until the 1970s, it was in the mutual interest of all parties – network owners, business and household consumers – to keep this system in place. But, as Eli Noam has argued (Noam 1994), this coalition broke down under two pressures. On the one hand, as productivity growth faltered and the information overhead rose as a proportion of corporate costs, the corporate sector sought cost reductions. On the other hand, in response, the major ICT firms, such as IBM, had both the technical capability and the incentive to serve this market by providing their own information and value-added services over telecommunication networks. The resulting economic and regulatory playing field became ever more complex. The interplay between technological development, intercorporate and intersectoral competition, and different public interests is one of a constantly shifting dynamic within which there can never be, in my judgment, more than a temporarily sustainable compromise. There is certainly not a simple dichotomy between corporate interest and public interest. There may at any one time be a range of possible cost–benefit trade-offs and politically defensible regulatory compromises.
Telecommunications and the Culture Industries
From this perspective, I would like to illustrate how development dynamics originating in production in general were mediated, via telecommunication network developments, into the cultural sector and how this in turn reflects upon earlier debates within the political economy of culture and current debates over the information society and the so-called creative industries. I would stress that I propose this as only one possible, partial, and historically conjunctural explanation.
The dynamics leading to the growth of the information and communication overhead in production in general and the productivity/efficiency problems it raised for corporate management produced ever greater switched network capacity, ever more competition between providers of such capacity, and ever more sophisticated and low-cost peripherals with which to use that capacity. This growth was primarily directed at business users. This had two consequences.
Driven by regulatory induced competition and technological uncertainty, network operators, both incumbents and new entrants, overbuilt networks and so went in search of the increased traffic necessary to cover their high and growing fixed investment costs. At the same time, as pure carriage became commoditized and its price driven down by both competition and tariff regulation, the operators of networks wished to move up the value chain and capture a proportion of enhanced revenues accruing to value-added services – thus, for instance, the continual search for a viable video-on-demand service (video is a great consumer of bandwidth). On the other side, the media industry bought into the convergence argument, that digitalization enabled the exploitation of a range of content across competing delivery platforms and that to ensure economies of scale and scope, it was necessary to be present on all platforms. The death of Vivendi/Universal and the decay of AOL/Time Warner serve as only the most obvious signs of the fallacies of this strategy. It is this double dynamic that explains the continuous and tense regulatory battle over the price and conditions for network access and the relationship between network control and ownership, on the one hand, and the market for information services, on the other.
This general development made large extra distribution capacity available to existing cultural industry firms as well as providing space for new entrants. It did not, however, provide significant new revenue to fund content, and so the increased competition has not been for an expanded market. At the same time, the inherent leakiness of this new capacity, especially the Internet, has undermined the business models of existing firms and sectors, both by making copyright avoidance easy and by shifting the advertising revenue base from established media, especially newspapers, to the Internet and especially Google. Thus this whole process does indeed have cultural effects, but they are not in any sense planned or controlled and they cannot be understood from within an analysis confined to the cultural industry sector in a narrow sense. In addition, it does not show the evidence of dynamic market growth in the cultural sector that lies behind the claims now made for the creative industries as the new focus of economic development policies.
Information Economics
I have argued that the dynamics of network growth were driven by the expansion of information production and use within business in general. Thus the primary political economic question was what was the reason for this growth and what were its economic implications.
A major strand of information society (IS) thinking about this problem has been information economics and the analysis of the firm that has stemmed from it. Starting with the work of Arrow (1979) and Machlup (1980–4), this school began by arguing against the neoclassical market model, which assumed market actors were rational and that the knowledge upon which such rationality was necessarily based, was costless. Arrow argued on the contrary that market interactions were characterized by information asymmetry because information was not a free good, but, quite the reverse: information searching cost both time and money. This had two important consequences. First, that markets were games in which the cost of investment in information search had to be taken into account, and second, that market actors could skew the market in their favor through higher investments in, or more efficient searching for, information and its transformation into useful knowledge. It is, of course, also the case that such competitive information management may involve the withholding of information. A competitive process then led to both higher investments in information-related activities, including marketing and advertising, and thus to a rise in those employed in these activities, now called information labor or knowledge workers. But note that these are essentially overhead costs.
When applied to dynamic as opposed to static market interactions, this analysis also linked up with a more general analysis of uncertainty in economic decision making. Because economic decisions under dynamic conditions are necessarily time-dependent, it had long been argued by political economists, including importantly Keynes, that economic actions must necessarily be irrational in the sense that the outcomes could never be fully known and all economic decisions involved risk based upon calculations of probability of outcomes in interactions best understood as a game. It also, and this is important for the regulatory theory that has accompanied IS thinking, undercuts all theories of efficient markets and rational choice, as well as the basic premise of most policy that we can match planned interventions to future outcomes.
Theories of the firm
This school of information economics was then linked to theories of the firm. This is important because much of IS thinking focuses on changes in corporate structure and performance and is propagated by management consultants and gurus. We see this both in Castells’ (1996) stress on the network firm and on a more general management discourse of corporate re-engineering, knowledge management, and so forth. Coase (1952) famously argued that the reason the firm existed was as a haven from market forces. It was because there were always costs (what became known as transaction costs – e.g., the cost of lawyers to draw up contracts) and risks involved in market transactions, that it was more efficient for firms to be set up as a series of bureaucratic relations between the necessary inputs to a production process. This was particularly true when the exchange involved factors the quality of which it was inherently difficult to assess and to price, for instance, white-collar labor time. Thus for Coase, the firm in general, and the large modern industrial corporation in particular, was explained not primarily, as by Chandler (1977), in terms of efficiencies in the search for economies of scale, but in terms of savings in transaction costs. The result for Coase was that the firm as an economic institution was not explained by the superior efficiency of market outcomes but precisely its opposite. While investment in directly productive labor and plant, because there was a relationship between directly measurable inputs and outputs, was subject to the least cost disciplines of the market, the transaction costs school argued that not only the absolute proportion but also the relative cost of the corporate bureaucracy – broadly, white-collar employment – rose, and that this overhead cost was increasing the inefficiency of large corporations. This was a version of the general low service productivity problem which we have already seen in the cultural sector as Baumol’s Disease and a response, within the then contemporary environment of new managerialist thinking, to the crisis of profitability in the US economy. This then led in its turn to a detailed analysis of these growing corporate bureaucracies – now retitled information workers – with a view to seeing which information labor could be made subject to market disciplines by “outsourcing,” or replaced by ICTs. The classic marker of this moment in PEIS is Porat’s (1977) The Information Economy.
Digitalization and the “frictionless” economy
It is here we find the roots of that version of IS thinking that went by the name of the “New Economy” and that focused on information and information work within the corporate sector and on the possible efficiency benefits to be gained from investment in ICTs. In particular, the vision that placed the Internet and e-business at its center argued that the main impact of what was referred to as digitalization came from what they called disintermediation and thus the stripping out of transactions and transaction costs both in the supply chain through e-business and in distribution through e-commerce. Here the empirical test of the IS vision is the extent to which disintermediation has in fact taken place: the returns both financial and in terms of enhanced productivity from ICT investment, corporate re-engineering, knowledge management, and all the other fads associated with this approach. I think it fair to say that current research would confirm that, in spite of huge investments in ICTs, the information overhead cost in both the private corporate and public sectors has continued its remorseless rise. So far as the cultural sector is concerned, the issue is whether web-based distribution and transaction systems have or have not radically shifted the relationship between symbol production and consumption and thus the basic economics of the industry. In particular, has it broken the power of the distribution-based conglomerates? The music industry is clearly at present the focus of this debate, but it is rapidly spreading across the traditional media. I think at present we must be honest and say that, while it is clear that the old structure is undergoing dynamic restructuring, we do not know what the outcome of this process will be.
Technologies of Freedom and the “Third Wave”
A central component of the information society vision is that the economic, social, and cultural developments that go to make up the transition to an information society are technologically determined by the rapid development and widespread adoption of ICTs. Within the Schumpeterian long wave school, the developments described as the information society are seen as the next long wave of capitalist growth based on a new technosocial paradigm founded on ICTs. Within this general argument, ICT developments have little if anything to do with the cultural sector. They are rather the deployment of microprocessors and digital networks to produce a new generation of products and services and a new generation of process innovations in the production and delivery of other goods and services. The main beneficiaries of this new wave of growth have in fact been the ICT-producing sector itself, the financial service sector, and the telecommunications industry. There is, however, a version of this technologically determinist argument that places the media and communication sector center stage.
This school argued that the mass culture that accompanied Fordism, and the rising relative real prices of cultural goods and services identified by Baumol, were due to the high costs of both production and distribution, both of which the ICT revolution would radically reduce. According to this argument, the domination of cultural sectors by large oligopolistic organizations, whether in the private or public sector, was due to the high, capital-intensive costs of production and the scarcity, and therefore high cost, of distribution channels. It was then argued that new cheap recording and editing technologies in print, audio, and audiovisual media, and cheap and abundant multifunctional digital network capacity via cables, satellites, and later fiber optics and wireless, was radically altering what economists call the production function in the cultural sector, undermining the oligopolies and their high cost structures, and thus at the same time the arguments for regulating them. ICTs were ushering in, it was argued, an era of cultural abundance and choice in which the original creator rather than the mediating middle men would be king. It is this version of postindustrialism, dubbed the Third Wave by Alvin Toffler (1981), that underpins the revolutionary hopes still held out for the Internet and the incantatory reference to the digital in much cultural discourse.
The result of this vision was to turn cultural policy into industrial policy, based on the renaming of culture industries as creative industries (Howkins 2001; Garnham 2005a; Department for Media, Culture and Sport 2008, 2009). The culture and communications sector was now seen as the new leading growth sector of the economy, driven – as historically such growth sectors have been – by radical improvements in function and reductions in costs. The problem, however, was that while distribution costs had in fact been radically reduced, the costs of producing the cultural goods and services carried over these new high capacity networks had not. This then led to the argument, which is a central component of creative industry thinking in the UK and other EU countries, that “Content is King,” that the economic growth problem was not technological innovation, but shortage of product to fill the networks and meet what was assumed to be an unsatisfied demand. In this vision, it is cultural innovation that is the key, and “creative” workers narrowly defined (those in the arts and media) who are the key information workers. While it was network operators and equipment manufacturers who had made money in the first stage of this new growth wave, it would increasingly be content producers, it was now argued, who would reap the rewards. In terms of competition between national economies on a global market, it would be those who fostered their content-producing industries rather than those who controlled the technology who would capture market share and the resulting export earnings.
The Information/Copyright/Creative Industries as the New Growth Sector
This version of information society theory has been particularly attractive, both to those who study the culture industries and to those who work in them, for obvious reasons. In my view, this approach has tended to take the propaganda (or wish fulfillment) of the cultural sector itself at face value, and also failed to distinguish the economics of content production from the economics of distribution. There has been a seamless move from the general, postindustrial, Third Wave argument to seeing the cultural sector as the major economic beneficiary of this development. The policy imperative is well captured in the title of an OECD report, Content as a New Growth Industry (OECD 1998). In examining the reality of this argument, we need first to be extremely wary of the slippery term “creative” and thus the slide in the policy discourse from media or information industries to creative industries. No one, of course, can be against creativity. Its recent high valuation within information society discourse stems from (1) the high value placed upon innovation, (2) the stress in developed economies on the returns to human capital and its relation to a high skill/high value-added strategy in the face of competition from cheap labor economies, and (3) the centrality in service-dominated economies of human-to-human relations rather than human-to-machine. It has little to do with creativity in the artistic or cultural sense, although the cultural industries and some sectors of education have adopted the creative industries nomenclature in an attempt to capture the concept of creativity exclusively for themselves.
So what has been the impact of these developments on the cultural sector? In order to understand the structure and dynamics of the cultural sector in relation to the larger economic context, whether of an information economy or not, we need to make a crucial distinction that is too often ignored. The culture industries serve two distinct markets, that for intermediate goods and services, as well as that for final consumer demand or, as Marxists used to say, Dept. 1 and Dept. 2. This is important because central to classic political economy has always been the problem, in relation to the analysis of reproduction, the business cycle, and crisis, of the co-ordination between Dept. 1 and Dept. 2. It is also important because information industry growth in recent years has been largely in business services, not in final consumer demand. But it is the culture industries as suppliers of goods and services to consumers in their leisure time that has dominated attention and analysis. The problem is further complicated in the media sector by advertising. Advertising is a business service. Its cyclical growth dynamic is determined by corporate profitability and the intensity of competition between firms. But it is an essential ingredient in the financing of consumer media. Thus the cultural sector marches to two tunes which are often out of sync. The growing crisis in the traditional press and broadcasting sectors caused by the shift of advertising to the web, and in particular to Google, are just the latest manifestation of a deep-seated problem.
So far as final demand is concerned, we can observe for the US, supposedly the most advanced information society, over the last two decades, a modest growth above the growth rate of GDP. A large component of this growth has been a cyclical boom in advertising (now followed by an equally severe slump), a large fraction of which was internal to the information sector itself (financial service advertising, etc). But this growth has been largely a relative price effect since consumption itself has not risen proportionally. Indeed, it is better to understand recent developments in the culture industries as intensified competition for stagnant demand than as driven by explosive demand growth. The result of this has been the rise in the price to consumers of each unit of media consumption time, in economic theory not a good recipe for dynamic sectoral growth. Of course, the information society theorists were arguing that prices would fall because the cost of distribution was falling. This was central to the whole Third Wave deregulation argument that saw the Internet as the provider of nil cost information abundance. Unfortunately, they overlooked both the rising relative costs of production (including importantly rising marketing costs) and the demand side. In fact, rising disposable income has not been mainly channeled toward cultural demand growth. Rather it has gone to higher cost, but now affordable, ways of enhancing leisure, such as tourism, restaurants, interior decoration, fitness, and health and beauty. The big cultural sector story of the last decades has not been growth in demand, but a struggle for market share, which has taken the form of a struggle over distribution. If we look at US figures, we see that the result has been declining margins, declining rates of return on capital, and declining rates of profit, especially in the high growth sectors of cable and satellite. Beneath the froth, we see a classic overinvestment boom driven by a search for market share during a period of technological uncertainty in distribution.
Conclusion
I have tried to argue that we can only understand the main drivers of cultural industry development if we look at the system of production in general against the background of the problems raised for capitalist reproduction and growth by the rise of immaterial labor and products and services. This requires us to take the problems of productivity and efficiency seriously. I have argued that concepts of ownership, control, and ideological domination are not useful in understanding the processes and stakes involved, and nor is a simple market–antimarket dichotomy. We have to accept, I think, that the processes of development of capitalist modernity are complex and their outcomes always uncertain. As the current conjuncture shows, no one is in control. It therefore befits political economists to be equally open and to accept that there is no totalizing explanation of where we have come from or where we are going. All approaches may have something to offer and all must be subject to the tests of evidence and history. Neither the questions nor the answers are eternal, but are those thrown up by an always temporary conjuncture.
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