Organization of american states

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Section II: Policy issues

The dilemma of development translates into practice. Going beyond an analysis of the cultural sector as a bloc generating growth and employment, we find that not all cultural activities contribute equally thereto. Effectively, cultural markets are far from perfect and cultural policy must address and correct the imperfections of these markets while nonetheless seeking to ensure minimal impact on sector productivity, consumer sovereignty, and international free trade negotiations, and at the same time include market players in the formulation of this policy. Therefore, it is not easy to determine what action should be taken by the state.

The more traditional cultural production hardly subsists due to the fact that there is little investment in creating mechanism that would bring it closer to the dynamics of the market. Paradoxically, perhaps this is the reason why the more traditional cultural production has not disappeared or has not been transformed into merely museum objects. At the margins of the commercialized tradition (vallenato, reggae, hamacas y sombreros) there is always a fertile land for the inquiry and the evolution of what is our identity, which would be difficult to have outside the boundaries of the economy. To underestimate the capacity of these cultural manifestations to recreate themselves in the eyes of modernity is the most effective way to archive them in the past. However, there still is the need to create better mechanism to integrate them, in a harmonious way, into the economic sphere.
As regards production in sectors such as publishing, phonography and, above all, audiovisuals, in the Hemisphere, we find that globalization of trade and investment has generated a process of concentration of that activity in large transnational conglomerates. In fact, cultural industry production processes may be characterized as generating economies of scale in large domestic markets protected by cultural barriers. This means that, although the initial investment made to produce a cultural good may be very large, no additional costs are incurred in enabling ever increasing numbers of people to enjoy that good (a film, music CD, a book). This means that countries with large domestic markets will develop unique competitive advantages with which small countries, with less purchasing power, cannot compete. This imperfection of international markets generates high concentration of production in large companies which, in merging, increase their market power. Another major problem for development and growth of the cultural sector is the high levels of piracy in sectors such as publishing, phonography, cable television, etc.
Furthermore, distribution of culture is also a space where the market is imperfect. It has been shown that distribution of cultural goods and services, likewise concentrated in the hands of a small number of players with large amounts of capital and large market shares (chains of bookstores and large retailers of cultural products, movie distributors linked to large producers, etc.) is an area which in a majority of countries has been shown to be key to the development of a pluralistic and diverse supply of industrialized culture. This is a pertinent problem, especially for independent production, which is rapidly reaching a limit in the small scale of national markets. Feeble efforts have thus far been made to develop more aggressive sales and marketing strategies and to search for external markets.
Lastly, the poor coverage and quality of education, especially in most Latin American countries, has limited the volume of cultural demand. This is particularly relevant for sectors such as publishing and the new technologies, which are, nevertheless, key in the dynamics of development. In fact, flows of high quality cultural supply and demand are closely correlated with the educational levels of the public. Accordingly, education must be a policy priority.
International aspects of hemispheric integration and liberalization of trade and capital flows pose a challenge not always addressed by the cultural sector. In the integration and negotiation forums (MERCOSUR, Andean Group, FTAA, and NAFTA, among others), the cultural industry sector is usually sidelined or made subject to exceptions. These forums are not yet, in any case, discussion frameworks appropriate for the defense of sectoral strategies utilized in addressing liberalization of trade and capital flows. International cooperation entities, on the other hand, have made slightly more progress. International cooperation in the form of co-production and co-distribution of cultural products and services, and of recognition and exchange of knowledge and market strategies, have proven to be essential elements of the development of diverse cultural production and in expanding domestic markets.
Based on these general findings, we may propose some cultural policy themes. These result from analyses of studies that view the cultural sector both from the perspective of its specific characteristics and as a productive bloc.

  • Policy formulation

Many of the analyses consulted insist that cultural policy must update its role, in two senses: first, it must broaden its vision of culture so that policy covers and fully acknowledges the forms of cultural expression channeled through cultural industries. The above taking into account, nevertheless, a special care for the activities that are still away from the margins of commercial culture, or better still, to incline towards their successful integration in the economic sphere without erasing their identity aspects (intangible heritage and art crafts, among others).

Secondly, the state must take account of all players in the cultural industry value chain in the process of designing and formulating sector policies, as it is such players who may generate assessments of the major problems they face. This is a complex task due to the fact that these actors are heterogeneous. The specialists of the different cultural manifestations fields should make sure that investment in content innovation is not absent of any governmental programs. Although necessary to the development of a dynamic and original culture from a creative standpoint, innovation can be of an exclusive character (e.g. experimental theater or music, reinterpretations of art or traditional heritage, etc). That is why it is necessary that other agents insert the democratic value of state investments. We are referring to the creators, the PYMES, the media industries, the agents of cultural diffusion, and specially the average cultural consumers. We are also referring to the creators whose expressions do not fit necessarily inside the industrial dynamics or in the innovation criteria that is characterized by an “elitist” tone. This group, for example, includes the artisans, the creators of minority ethnic groups, and the popular public at carnivals and festivities.

Finally, one problem generally identified by specialists is the great lack of pertinent information for use in policy formulation for cultural industries. States must provide support for the compilation and analysis of such information in at least two ways: first, compilation of annualized statistics on the industries’ basic economic indicators (contribution to GDP, employment, production, sales, copyright payments, exports, imports, and piracy); and secondly, analyses and recommendations based on such information (market structures, legal framework, sectoral strategies, but also social impact, forms of consumption, etc.). The last aspect is central, since the study and assessment of the social impact of the policies and activities of the cultural sector provides the economic aspect of culture with a more comprehensive scope. If we see culture as an engine for the creation of employment opportunities, seeing culture through solely an economic standpoint would just explain partially what way and how much does culture is changing society. The state’s support to the analyusis of the social impact of the cultural manifestation is a fundamental element on the definition of the criterions of a cultural politic that tends toward development.

  • State funding

Subsidies to the publishing industry as a means of indirect finance are in many countries sheltered under a book law, which recognizes the function of subsidies as essential to development. Such legislation, broadly speaking and with exceptions, makes it possible to: (a) exempt from any type of customs tariff the importation of fixed and variable capital for the publishing production industry; (b) import and export the end product (books) also entirely duty-free; (c) exempt from income tax publishing companies for a determined period; (d) exempt from income and other taxes income received as copyright payments; (e) exempt books from sales tax. The authors assert that it is important to preserve such legislation, where it exists, as its benefits have been demonstrated, and to evaluate the benefits of implementation of such legislation where such evaluation has not been made.

Subsidies are particularly justified in the filmmaking sector, as production and distribution involve substantial costs that cannot be recovered by countries with a limited domestic market. Subsidies are usually allocated by means of a sector fund, whose funds come from different sources depending on the country: direct public funds; a tax imposed unevenly on producers, distributors, exhibitors, and the public; a tax on national exploitation of foreign audiovisual products, etc. Although the reason for the existence of such funds and their modes of operation appear clear, consideration must be given to what financing structure is most viable in the context of inter-American and world trade liberalization, market efficiency, and budgetary cutbacks at the state level.
In the cultural industries as a whole it is crucial to make possible the financial viability of small and medium-sized industries (SMEs) (producers, distributors, partnerships, etc.) as sources of diversity and innovation. To that end, some texts make two, possibly complementary, proposals: (a) subsidization or co-financing of infant industries in direct proportion to the content produced by the self-employed creators they handle; (b) taking advantage of flexible lending channels (moderate interest rates and longer terms) for SMEs, where they exist, or to create them where they do not. The government may also serve as a guarantor of loans to players who assume greater risk, that have been made by regular financial institutions.
One of the problems identified in several sectors is a lack of infrastructure (inter alia, movie theatres in remote locations, computerized public libraries, telecommunications, and the Internet) and its scant democratization in relation to cultural industries. It is the function of the state to finance or co-finance the construction and expansion of such infrastructure based on criteria of quality and equity.
Lastly, efficient administration of subsidies must be a condition that applies to all proposals made. The state must establish clear priorities if cultural policy is to generate both growth and development of cultural industries, as was suggested at the beginning of this paper. For their part, decisions made regarding the allocation of public funds must reflect such priorities precisely, but must be made independently, as has been noted, taking account of the views of cultural experts and of all agents in the industry’s value chain. We set out two views: first, allocation of subsidies must achieve balance between criteria of equity (expansion of cultural infrastructure, projects whose design and results bring together the general public, education and training, etc.) and innovation (support for self-employed creators, risk initiatives, etc.). Secondly, balance must be established between public and private funding, depending on the specific characteristics of each cultural industry sector, criteria of independence, etc.

  • Private funding

As a complement to effective administration of public subsidies and the condition of independence of creation vis-à-vis culture centered entirely on state criteria, incentives may be offered to private investment in all cultural industry subsectors. The means most utilized is to design tax deduction schemes for private agents in the economy who invest independently in cultural production and distribution (as investments are made in some countries to support the arts, heritage, and the movie industry). This is usually done either by means of a tax deduction for the investing company, equivalent to the investment made, or by means of an income tax deduction itself, not to exceed a certain amount. The private co-financing system for independently produced culture acquires particular value in the context of international economic liberalization and, specifically, of conclusion of free trade agreements.

  • Distribution

In all cultural industries, distribution appears to be the most sensitive topic. Distribution creates the possibility of financial viability for independent and diverse production and enables it to reach the public effectively. Together with independent companies taking advantage of the above-mentioned lines of finance available for them, policy emphasizing distribution must focus on the following aspects:

Generation of spaces for gaining understanding and providing advice for industry experts, representatives of companies with best market performance (including majors and conglomerates), and media mediators, on the one hand; and, on the other, the indies [independent filmmakers], industry SMEs, local communities, radio, television, and all community expertise, cultural NGOs, and public representatives. This would make it possible for at least three key things to occur: (a) an exchange of value added in awareness of distribution and market strategies in general. To that end, it is sought for recognition of these different players to generate joint strategies with small players in order to identify new market niches and to ensure the sustainability of such players; (b) creation of productive ties among players in the same link of the chain. Specifically, this means forming alliances for productive projects or joint ventures among independent companies, which would lead to cost reduction (in production or distribution) and an increase in their market power. This may be particularly important in projects that require large investment. The state may also participate in such alliances via the mechanisms and conditions mentioned in the above paragraph on financing; (c) identification of the needs of the large media windows, as they represent distribution and dissemination alternatives for independent supply, thus far little favored by producers. It should be noted that the state must not necessarily be the party centralizing such activities; it is rather a question of establishing such spaces, for subsequent appropriation by the players involved.

In addition, as mentioned above, there is a very strong correlation between greater distribution of cultural industry content and international cooperation. Specifically, international co-financing may nearly always be translated into co-distribution on external markets. Accordingly, policy must support the organization of such systems, which have been shown to be particularly important as state subsidies are limited in terms of budget and scope, a situation aggravated by international trade liberalization and structural reforms.

Lastly, an effective and clear information system must be created to which all players in the value chain may have recourse. Often, cultural SMEs have large transaction costs, as they lack a basic business organizational structure. An office or, still less costly, a Web site containing legal information, information on public and private financial resources and on other companies involved in its sector’s chain, etc., would vastly reduce transaction costs and would constitute invaluable support for the economic performance of cultural industries.

  • Training and new technologies

Support for training and education that must be provided by the state in connection with cultural industries has two principal themes: first, it must generate and support a system for training and providing advice for entrepreneurs and cultural agents. Training of entrepreneurs must cover topics of production, management, new technologies, marketing, and administration, among other, readily identifiable needs. Agents, for their part, must have the capability to address traditional channels of distribution and promotion – domestic and foreign – and identify other new channels, such as independent or community radio stations, the Internet, alternative festivals, etc., which have already been used as pilot cases throughout the region.

A second theme is primary, secondary, and tertiary education. This has positive impact in at least two senses involving culture: first, it has been shown that demand for a higher level of cultural goods and services is positively correlated with education and the income it generates. Secondly, and perhaps more determinant, education generates capabilities not only for critical appropriation of cultural content but also for creative use of the content production media.
Lastly, a lead part is played by support for the appropriation of new technologies. Here the future of the industry is at stake. First, they are exceptional elements for use in independent production, as they drastically reduce costs and increase innovative capacity. Secondly, the long-term sustainability of the industry depends on the capability of agents and entrepreneurs to take optimal advantage of such technologies (cost reduction, new channels for trade and dissemination, distribution and sales, etc.). For that reason, training (creators, entrepreneurs, agents) must emphasize this topic. Lastly, technology must be readily available to any child in the educational system, as it is now a commonplace that it is in that system that productive capabilities are determined in an economy that is transitioning increasingly to the knowledge sector, and knowledge, in turn, increasingly travels over technological networks.

  • Demand incentives

The impetus behind the dynamics of the publishing sector is, for the most part, support policies based on producer exemptions. Although exemptions for consumption may play a large part, as income is an important factor determining demand for books, most analysts agree that the support policy for the sector should be centered on the promotion of reading. Accordingly, it is recommended that public funds be invested in books, principally by creating a large public library infrastructure with national coverage, and by supplying books to such libraries.

However, support for the appropriation of skills in receiving cultural content cannot be limited to books. The cultural industry has increased many times over the amount of valuable content capable of being stored for future generations. It is increasingly necessary to include in libraries the new formats on which the assets of cultural industries are stored (CDs and MP3, videos, television, the Internet, etc.). This, along with teams of individuals available to train the public in the use and consultation of these media must promote the crucial mass receipt of what is available in parallel on the market.

  • Piracy and copyright

Copyright protection may be justified from two perspectives: first, copyright does not benefit any cultural industry agent (neither the major or the independent), but rather enhances the scope of mass produced culture; secondly, it is an indispensable requirement of free trade negotiations in the Hemisphere. Copyright defense policy must be cross-cutting, in two senses: first, education and awareness campaigns must be conducted regarding the importance of copyright and the harm caused by piracy (financial loss for the creator and distributor, loss of lawful employment, etc.). Secondly, national police bodies must be trained to identify violations of this right. In addition, legislation must be developed and/or strengthened that effectively sanctions this crime at the national level. This must lead to operations to discourage the production and distribution of pirated materials.

  • Free trade negotiations

Generally speaking, cultural industries do not enjoy their own discussion framework in most of the free trade negotiation processes consulted. For the time being, the topic of culture is addressed principally from the perspective of defense of identities and heritage. This has two main consequences: first, that negotiations with regard to topics outside the scope of the arts and filmmaking remain solely in the hands of the private sector, which accords priority to the issues of respect for copyright and combating piracy (video, cable television, music, etc). Secondly, there is no sectoral strategy to be defended. In that context, a strategy is proposed for joint negotiations between the government and the private sector, one taking account of the particular characteristics of the cultural industry sector in the following ways:

First, cultural cooperation alliances must continue to be fed (studies, co-financing, and co-distribution, etc.), an area where MERCOSUR, for example, has made significant progress. Secondly, national legislation must be harmonized in order to facilitate the circulation of cultural industry goods and services, copyright protection strategies, and the fight against piracy, among others. Thirdly, consideration must be given to the advisability of exceptions for vulnerable sectors under the Most Favored Nation and National Treatment principles, such as the audiovisual case. Specifically, the pertinence must be examined of screen quotas, import tariffs on foreign cultural industry products, and ownership restrictions for national telecommunication companies, in any event, with specific objectives and predetermined deadlines.

  • International cooperation

The topic of international cooperation acquires particular importance in the context of free trade negotiations among the area’s countries. The following recommendations are made: first, the scope of cooperation must be enlarged to include, in addition to other issues of respect for national identity and heritage, culture industry-related areas. Secondly, the approach to cooperation must be shifted a governmental slant (which has yielded little result) to one that includes civil society players (cultural entrepreneurs, associations, NGOs, etc.), which has yielded positive results. This approach includes international co-financing and co-distribution agreements in cultural industries. In the audiovisual case, the importance of such agreements has already been demonstrated in organizing sectoral strategies, sharing costs and risks of investment in production, and broadening international markets, thereby facilitating distribution. Lastly, advantage must be taken of the many spaces for cooperation provided by organizations such as the Andrés Bello Convention or the Global Alliance for Cultural Diversity, among many others, with the aim of rectifying the lack of studies and analyses of the cultural industry sector, providing advice for the formulation of sectoral strategies for the sustainability of independent production that may be replicated in other countries, etc.

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