The Making of Cultural Policy: A European Perspective

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5. Quality versus popularity

5.1 Different ways of funding culture in Europe

There are different systems of supporting the arts, varying from tax incentives, supply subsidies, demand
subsidies and granting privileged positions possibly in exchange for satisfying certain requirements from
the government. First, one can grant privileged positions. Public broadcasting organisations in Europe get
first right when allocating air space for TV and radio on top of a hefty subsidy. In return they offer a
broad mix of programmes for all and program minimal amounts of information, education, arts and
culture. Commercial broadcasters in Europe have more freedom. They have more advertising time and
can interrupt programmes for advertisements. Another example is the fixed book price, where booksellers
are granted monopoly power for each book that is published - see van der Ploeg (1994). Figure 1a show
the costs of a granting a privileged position such as the fixed book price agreement: higher prices and
lower sales. The loss in welfare can be approximated by the sum of the consumer and producer surplus
triangles. Critics argue that the fixed book price is bad for low incomes and hurts the democracy of
culture. Others counter by arguing that books are heterogeneous goods, which are produced and sold
under monopolistic competition. They argue that the agreement allows for cross-subsidies from
bestsellers towards less popular books and a more diverse supply of book titles and bookshops. This
cross-subsidy argument is unlikely if bestsellers are highly price elastic and thus permit little monopoly
power while less popular books are price inelastic and allow a lot of monopoly power. The agreement
then induces substantial welfare costs. This may happen if bestsellers are easily digestible, require little
time to read and have higher price elasticities while, say, poetry readings demand a lot of time and thus
have lower price elasticities. Many granted privileges and other monopoly positions will be undermined
by technical changes. For example, the fixed book price may be undermined if people order books on the
Internet through amazon.com and other virtual book suppliers. Hjorth-Andersen (2000) documents how
the advent of new printing technology and new media have cut costs and led to an avalanche of new book
titles in the Danish book market. Although it is much easier to get a book published for an author, turn-
round of books has increased enormously and it is much more difficult to attract large groups of readers.
Digital camera's and recording & editing equipment make low budget radio and TV possible. Internet and
digital frequencies will abolish ether scarcity. Also, the monopoly of public and commercial broadcasters
is challenged by the arrival of narrowcasters.

Second, the tax system can be used to grant demand or supply subsidies. Figure 1b shows that
boosting demand through lower VAT, interest-free loans for buying visual arts or tax deductions for
restoring monuments raises prices of and volume of cultural goods. The volume of cultural goods rises a
lot if demand and supply are highly elastic. If the demand elasticity is large and the supply elasticity is
small, there is not much of a change in consumer prices while producer prices fall a lot. Since consumers

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