This chapter lies the microeconomic foundation to understand consumer demand in the cultural sector. We start out by outlining the assumptions that underlie the economic analysis of consumer choice, followed by a breakdown of how to measure the utility of the consumer, as well as how the consumer maximizes utility. We also show how to derive demand and supply curves which are essential to analyze the market powers at play in the cultural sector. Finally, we will show how to use the market demand and supply curves to determine the market price.

In this chapter, we examine and analyze private support for the arts, mostly in the form of household, corporate, foundation, and other donations. In addition to this, we also explore the role of “indirect” government support in the form of tax forgiveness for private donors. We compare arts support across countries and explain the vastly different levels of private support. Additionally, we discuss the concept of nonmonetary private donations, often in the form of works of art. Finally, we outline the advantages and disadvantages of private and/or public support.

The chapter examines what gets lost analytically when governments move from thinking empirically about complex interdependent systems to relying instead on decision-making models that assume an unchanging mode of human rationality and fixed economic laws. Having set out the neoclassical theory behind outsourcing, privatisation and agencification, the chapter investigates how these policies have played out in practice. It demonstrates that although more critical i.e. ‘second best world’ neoclassical economic theories help us understand the chronic contractual, regulatory and oversight problems that prevail at the microeconomic level, it is the lessons of Soviet enterprise planning that tell us more about the systemic failures of these policies. Soviet planning failures illuminate why these reforms induce bargaining games between firms and ‘firm-like’ state agencies that the state cannot win, and why government attempts to solve chronic policy failures with remedial regulations that conform to orthodoxy create an ever more rigid bureaucracy over time, and in the case of outsourcing, increasingly informal relations prone to corruption, exactly as they did in the USSR.

In this chapter, we investigate the economic choices – especially the price-output choices – made by performing arts firms. We cover the factors that help in determining the optimal price–output combination for performing arts firms. Furthermore, we discuss a multitude of market types and how these market types influence the behavior of performing arts firms. We also present the objectives of the performing arts firms, which depend on whether they are in the commercial or the not-for-profit sector of the economy. Ultimately, we end up with a model for the performing arts firm that is able to predict both ticket prices and length of season.

This chapter sets out the dystopian critique of the liberal democratic state that emerged when neoclassical economic reasoning was applied to the political realm. The resulting ‘public choice theory’ made assertive claims of democratic state failure that became a mainstay of neoliberal argument, but here they are shown to possess clear affinities with the Leninist account of bureaucracy as the ‘real’ centre of power in a bourgeois democracy. It follows from the deterministic, closed-system reasoning in both Leninist and neoclassical 'public choice' theory that these affinities continued into the respective prescriptions for the preferred constitutional order. The ideal constitution of limited government set out in public choice theory, most notably by James Buchanan, Gordon Tullock, and Geoffrey Brennan is shown to be a logically inevitable counterpart to the ‘withering away of the state’ under socialism anticipated by Lenin. The adjacent constitutional arguments of Friedrich August von Hayek are also considered, as is the more empirically robust account of bureuacracy as an essential feature of modernity set out by Max Weber.

Who engages with art? This chapter outlines methods for art companies to gain a better understanding of the socioeconomic background of their audience. We also present a cross-country comparison on participation rates in the arts to illustrate the patterns of cultural consumption around the world. To get a better understanding of the audience characteristics, this chapter also summarizes the findings of several participation studies on the socioeconomic characteristics of art attenders across countries and over time.

This chapter presents the importance of productivity in the growth of the cultural sector. We describe the concept of productivity lag, as explained by Baumol and Bowen, followed by a more formal algebraic analysis of the effects of productivity lag. In addition to a theoretical approach, we provide historical evidence on the productivity lag and its consequences. We also turn to a discussion of the forces that countervail productivity lag. Finally, we outline evidence that growth of the earnings gap has been forestalled by artistic innovation and an increasing artistic deficit.

This chapter examines UK welfare reforms. The strategy of ‘quasi-markets’ in welfare was a New Labour innovation, and this chapter sets out why even intentionally ‘progressive’ neoliberal state reforms succumb to the flaws in neoclassical reasoning. The ‘choice and competition’ agenda was conceived in arguments about the relative benefits for ‘end-users’ of publicly funded but privately provided welfare services. As a closed-system argument about a marketplace, it thus wished away the actual terrain of education policy in which the state becomes the disempowered, and yet still responsible planner of outsourced educational enterprises, now governed through contract. The chapter investigates how quasi-market theory played out in the Academy Schools programme in England. It demonstrates why outsourcing complex welfare provision will tend create the worst of public and private regimes: the exploitation of incomplete contracts by producers, informational fragmentation, a loss of public accountability, financial corruption and increasingly Kafkaesque efforts at bureaucratic remedy, all reminiscent of Soviet enterprise planning failures.

This chapter addresses resource allocation, management of investment portfolios, and price determination issues of museums. We start by describing the role of museums and summarizing attendance at art museums. Next, we describe the cost conditions under which museums operate as well as the sources of revenue of museums. Following this, we describe the acquisition policies and management of museum’s collections. Finally, we elaborate on the concept of “superstar” museums.

This chapter provides insights into how economics can inform managers of arts organizations. First and foremost, we discuss why arts organizations exist and how they are structured. We will cover the principal–agent theory that will inform a discussion of decision rights and incentive compensation within organizations. To gain a better understanding of organizational boundaries, we dig deeper into contract theory. Finally, we use transaction-cost economics to explain the existence of art organizations and their strategic positioning.

This chapter shows how successive UK governments have applied a first-best-world neoclassical approach to climate policy: one that understands risk as something that can be calculated, modelled, and integrated within market mechanisms by essentially rational market actors. This was not just the economics that gave us the Global Financial Crisis, the chapter shows that the underlying Rational Expectations and Efficient Markets hypotheses are the market analogues to Soviet theories of optimal planning, and built on the same ontological and epistemological fallacies. The chapter explores how dependence on closed-system reasoning condemns government to ‘write out’ the uncertain dynamics of the climate emergency and the precautionary principle that should follow. The empirical section shows how successive governments of New Left and New Right have implemented regulatory and market-making policies built on the assumption that market agents not only can but will behave rationally in the face of future risk. They have also relied on carbon budgeting, forecasting and audit as dependable methods of risk management, though such methodologies are only coherent in a closed-system world.

This chapter outlines the growth process as well as determinants of growth for the cultural sector. We touch upon supply and demand factors that have stimulated growth. To illustrate the growth process across countries, we present data on attendance at the live performing arts in seven European countries and in the United States, Canada, and Australia. Finally, the chapter covers important institutional changes that occurred in the live performing arts sector from the twentieth century and beyond.

British neoliberalism was taken up by democratic parties in an open society, so this chapter explores what, if any, lessons about its political consequences can be drawn from the political evolution of the Soviet Union. Political parties in Western Europe by the 1970s were struggling to keep pace with the changing social needs and preferences of their electorates when neoliberalism emerged. This social dis-embedding of parties would only worsen in the UK, however, when neoclassical economic diagnoses became the bipartisan methodology, and electoral choices around economic strategies were duly narrowed. The chapter traces how, as the tide of neoliberal developmental failures has risen, the Conservative Party embraced the same political strategies as late Soviet regimes. The ‘combat task’ rhetoric of economic change was replaced with the charismatic politics of nationalism, and governments increasingly resorted to demonstrable lies and invented realities to deflect from the real effects of policy and after 2016, its most utopian expression: Brexit. The chapter also reviews the rise of political corruption under neoliberalism, another Soviet affinity, as ideology morphs into alibi.

Neoliberalism is often framed as the victorious doctrine against Soviet communism: its nemesis and antidote. When we examine how Soviet and neoliberal economics understand the nature of political economic reality, however, British neoliberalism and Soviet communism turn out to be exact mirror images. In this introduction, Innes sets out the book’s argument, and the philosophy of science perspective on which it is based. Why do Soviet and neoliberal orthodoxies have such affinities? Both are based on closed-system reasoning about the political economy; both assert that there are predetermined laws of the economy that each doctrine alone can apprehend, and both schemes require the operation of a universal and consistent rationality: socialist versus utilitarian. The ‘critical realist’ perspective in the philosophy of science focuses on how we apprehend reality, and what we can reasonably claim to know about it, and the introduction explains how this lens allows us to see why a ‘governing science’ built on closed system reasoning is doomed to produce a rising tide of unanticipated social and institutional consequences in societies that are evolving, open, and hence uncertain systems.