The Economic Crisis and Arts Industry - Literature review Example

Name: Tutor: Course: Date: How does economic crisis effect on arts industry and how does government help arts companies? Introduction The world at present times is suffering a major economic crisis in which many areas of the society has been affected. Not only have commercial industries been affected by economic crisis, but arts and culture have had the brunt of the crisis too (Flew, 2011). However, some of the arts organizations are experiencing growth contrary to the general trend of industries facing a downturn. The aim of this essay is to research on the reason why the economic crisis has had a different effect on industries. This is based on examples from China and western culture film industry, and also research on the policies of the government to analyse how the policies effects on these industries. Effect of economic crisis on the arts industry and government intervention Arts companies can be separated into two categories based on whether the market rules can be applied to the companies (Hai, 2005). The first category is commercial based art companies such as pop music companies and film companies. The second category is community art institutions such as orchestras and opera performers. The two types of arts industries have been affected to a varying degree by the economic crisis (Zemin, 2009). To start with, the economic crisis may provide opportunities for growth to the commercial arts industries in what is called the ‘lipstick effect’. Lipstick effect appeared in the 1930s in America, during an economic crisis, when people were more likely to buy less costly luxury things. For example, people could not afford luxury fur coats but they could buy luxury lipstick that was much affordable. According to Schaefer and Poffenbarger (2014) people have the desire to buy goods but do not have sufficient amount of money so spend during the economic crisis. Moreover, lipsticks were welcomed and subsequently encouraged people to overcome the stress of the economic crisis. Lipstick Effect by definition encompasses purchases of inexpensive luxury products other than lipsticks as applied, in theory, such as films. The ‘lipstick effect’ had a greater influence on the movie market, which is the advancement of the movie industry in the 1930's in the United States. Movie attendance from the year 1927 to the year 1930 on average soared from 57 million dollars to 90 million dollars (GDP per capita, 2013) as shown in figure 1 and 2 below. Figure 1: United States Gross Domestic Product between 1929 and 1931 Figure 2: Movie attendance in the US between 1927 and 1931 The Chinese movie industry had the same experiences in the year 2008. In that year, the world faced a crunching economic downturn when the Chinese economic climate and particularly its manufacturing sector decelerated (Hai, 2005). However, its effect on the growth of general gross domestic product in Chinese economic was catastrophic. Even so, the movie sector in China began an upward growth during this period. In contrast to the information on general GDP and box office of Chinese movie sector, it was observable that the movie sector was experiencing a stable increase. For example, in the year 2007 and 2013, the percentage of Chinese GDP slumped from 13 percent to 7.5 percent as shown in the figure 3 below. Figure 3: China GDP annual growth rate However, the development percentage of Chinese movie sector increased to 35 percent in 2013 from 20 percent in 2007. (Source: China Film Industry Report 2012-2013) Figure 4: Scale and Growth of Chinese Film Industry, 2007-2013. From figure 4 above, owing to the economic downturn, the Chinese movie sector in the year 2009 and 2010 saw an improvement to an amazing percentage of 52 percent. As a matter of fact, this increase proved that the economic downturn would not decrease the advancement of Chinese movie sector (Chinese Creative Industry Research Centre, 2013). Instead, the development of movie sector in China had taken the opportunity to grow from the economic downturns. The lipstick effect impacted efficiently on the movie sector in America and China because consumers were willing to add to the development of movie sector despite the economic downturn. Decreased by the economic downturn, the money that people could spend was limited ; hence, customers found elegant commodities such as houses and autos quite expensive. Jia (2010) observes that people were able to save more money by spending on various other goods and services that were cheap. People demonstrate more willingness to change their stressful lives through entertainment to avoid the stress from financial downturn. In this scenario, movies became a perfect choice to satisfy the needs of consumers during this period. Moreover, movies are a lot cheaper than any other form of entertainment. For example, a movie ticket in China costs around 3 dollars to 14 dollars (15 to 70 Chinese Yen) during a concert cost more than 20 dollars (around 100 Chinese Yen). Therefore, movies are a lot more economical. Besides, fine arts is favored by many people and takes advantage of being conveniently accessed by communities, which is the reason it stimulated the lipstick effect in the Chinese movie sector. The movie sector in China saw a fundamental role by the government to deliver lipstick results. The movie sector in China, historically, belonged to the planned economic climate. From 1950 to 1993, the total planning for the production was conducted by the Chinese federal government in areas such as usage of the movies, circulation and options allocation. He (2012) asserts that the movie sector advancement was constricted because the intended economy disregarded the marketplace laws. Until 1993, the Chinese government had not published any policies or suggestions on how to standardize Chinese movie sector (He, 2012). The movie market twenty years later, in China, has grown into a vibrant sector in the country’s economic climate. The authorities, with the help of lipstick impacts, are finally realizing the outcomes of the revolution of movie sector. The authorities in China accelerated the growth of the movie sector by permitting foreign and domestic organizations to invest and operate within the sector. Just before 1993, Beijing Film Studio and Chinese Film Group being state-owned organizations were involved in film manufacturing, distribution, and cinemas. The Chinese government realized that to stimulate the movie sector, it must allow personal organizations and foreign organizations to enter the Chinese movie market. Before 1993, the government only allowed public owned or state owned organization to operate the domestic movie sector. He (2012, p.124) notes that the central or regional federal government controlled tickets costs, film production budget, movie materials, and the distribution network. From 1993 onwards, the Chinese government saw the need to deregulate the movie market by branching out the business framework of the film companies in the country. The Administration of Movies Regulation issued in 1996 provided an explanation on how foreign and Chinese private movie firms developed movies to be watched in the country (Xiang & Walker, 2013). The state-owned companies, on the other hand, experienced a decision by the government to reform the ownership structure. By the year 2000, a significant number of state-owned movie businesses had moved to a shareholding corporation pattern. Hai (2012, p. 118) found out that all deregulation plans have enriched the development of the Chinese film industry. From the year 2005 to 2012, there was a complete variety of domestic films and residential function movies being evaluated. After the 2008 economic crisis, much individual and exclusive funding moved to the film operations. This was as a result of the loss in assets returns in safety market and power sector in some standard locations. As a result, the federal government encouraged the private investment in the film market. Consequently, within five years from 2009 to 2012, a number of residential feature films had surged from 456 to 745 respectively as shown in figure 5 below. (Source: China Film Industry Report 2012-2013) Figure 5: Total Number of Domestic Featured Films and Number of Screened Domestic Films 2005 - 2012. The private Chinese movie companies developed swiftly with the growth in arts sector reforms. Huayi Brother Media Group, one of the significant movie production businesses in China, in 2009 filed for a preliminary public offering in China Growth Enterprise Market (Knowledge at Wharton, 2014). The company became the first public specified movie firm in China, and recorded a steady success in the following. More notably, compliance to the funding policies of the Chinese film firms provides a reason for its successful public listing (Wang, 2012). The federal government in the circulation and event industries established a total commercial chain for Chinese film market by taking a collection of plans (Zhu, 2003). For example, in 2002, the Administration of Movies Regulation included the reform on cinema system. This move was a bad solution as it damaged the syndicate of state-owned theatres as it was always tied to the antique establishments. Investing in Chinese Theatres according to the Provision of the Foreign Business was provided in 2003 (Knowledge at Wharton, 2014). The overseas financiers became involved in circulation and event industry distribution when they founded a company with the local movie companies collectively. It made up a lot less compared to 50 percent of their share. Dalian Wanda Cinema Group is also one of the movie theatre giants in China in cooperation with Warner Brothers. Together, Hai (2005, p.17) observes that they have managed to built theatres in Nanning and Tianjin hence, improving the local box workplace revenue of the two cities. The number of displays and theatres with the assistance of these plans have shown considerable enhancing fad as shown in figure 6. The rate of development on the screen numbers increased from 16.2 percent to 42.6 percent in the year 2007 and 2012 respectively. In addition, the total number of theatres increased from 1,325 to 3,680 in 2007 and 2012 respectively as shown in figure 6 below. (Source: China Film Industry Report 2012-2013) Figure 6: Growth Trends for Screen Numbers and Theatre Numbers in China, (2007 - 2013). In the year 2009, the aftermath of the 2008 financial crisis, theatre and screen numbers grew much faster. Therefore, in the past decade, the federal government plans have helped with the lipstick effect efficiently. Nonetheless, during the monetary crisis, the booming Chinese movie sector is something that could not be disregarded by simply attributing it to the effective government policies and the lipstick impacts (Hill et al. 2012). In the last 30 years, the quick Chinese economic development has laid a solid structure for its cultural industries’ advancement. From the previous of world economic advancements’ encounters, national social consumption will increase once its per-capita GDP exceeds $3,000 and takes advantage of the booming market when it crosses the $5,000 mark. (Report on Chinese Creative Industry, 2014). In 2011, the China’s per-capita GDP was merely reached $5,447 (The World Bank, 2012). Consequently, the booming movie sector as a common cultural sector is not an unexpected sensation. On the other hand, the quick development of shopping centres and entertainment venues was facilitated by the program of urbanization in Chinese cities that also led to an increase in the number of theatres promoted by this trend. Besides, the recently formed middle class in China with the improvement of the economic situation has become very significant to consumers of fine arts and cultural products. The highly paid and well enlightened youthful specialists are increasingly considering watching movies (Sina News Online, 2009). Although the recession brings growth possibilities to the business based fine arts firms through lipstick effect, it cannot go without notice that the various types of arts are associated with market failure and negative experiences from the recession. Market principles are not appropriate for the fine arts business because they rely on federal government funding and lasting advancement. In the 1990s, many Australian companies involved in fine arts suffered economic consequences, and with the aid of the Major Performing Arts Inquiry (MPAI) they survived. Indeed, the fine arts industry got a boost of 49 percent by the Australian government. Nonetheless, it is expected that when the economic crisis is over, the government assistance will have certainly influenced the sector in an adverse way. In one perspective, the slowdown on federal governments’ financial improvement will lead to lower earnings as the companies less obligated to pay higher taxes. As a consequence, the budget plan to fund fine arts and cultural activities may also reduce. Just what is also worse in the times economic dilemma, is the significance of cultural collections and fine arts being utilized by the federal government to repay the city’s debts. For example, Detroit city in 2013 was qualified for bankruptcy (The Guardian Online, 2013. As a result, the government of Detroit considered a decision to sell the art collections. Detroit Institute of Arts, one of the most effective museums in America, was on sale to repay financial obligations to the creditors (Farago, 2013). Despite the negative experiences of financial recession, the federal governments can still embrace some steps that may help non-commercial based fine arts firms to survive the difficult atmosphere (Ent group, 2013). The federal government as a result of the reduction in public funding during the crisis may motivate private financiers to support fine arts sectors. In the Australian case, the Creative Partnerships Australia enabled the arts operations to obtain huge financial investments from personal donation and exclusive industries such as comply enroller (Minister of Communications, Information Technology and Arts, 2000). In England, the private contributions and investors contributed £80 million to match-funding systems launched by Arts Council England (UKGNS, 2010). The Arts Council England was established in the year 2010, by investing the 80 million British pounds in fine arts organizations annually and elevating at the very least 80 million British pounds from companies and individuals for fine arts sector (Activity strategy to improve philanthropy announced by Jeremy Hunt: 2010). The government could regenerate the city throughout the financial recession and improve the regional economic situation by taking advantages of the arts and cultural sectors. Since in 1991 when the neighbourhood federal government introduced Bilbao’s Guggenheim Museum, the post industry city has endured the slowdown in financial growth and enhanced unemployment price (Plaza, 2000). The city enjoys brand-new opportunities for economic advancement. Since fine arts and culture are the city’s intangible assets, the federal government optimizes the value of fine arts and society throughout the situation hence, gaining huge economic benefits in the long run. Conclusion In conclusion, the ‘lipstick effect’ in times of recession favourably influences businesses, especially in based arts sectors. As provided in the historical data of United States and Chinese film market, the lipstick effect could sustain the film sector during the recession. With deregulation and reliable sector reforms, Chinese federal government has been instrumental in creating and maintaining the ‘lipstick effect’ in China during the economic crisis of 2008/09 (He, 2012). On the other hand, it cannot be ignored the fact that non-business based art forms such as performing arts can be detrimentally affected by the recession. In this circumstance, the federal government can intervene in the fine arts business by diversifying the resource of supporting arts and funding. By doing so, the social industry will re-invigorate the domestic economy. References Chinese Creative Industry Research Centre (2013). Report on Chinese Creative Industry. Beijing: Chinese Creative Industry Research Centre Ent group (2013). China Film Industry Report 2012-2013. http://english.entgroup.cn/uploads/reports/ChinaFilmIndustryReport2012-2013in brief.pdf6th, June, [date accessed] Flew, T. (2011). The creative industries: culture and policy. Sage. GDP per capita (2013). World Bank Website, http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries/CN?display=gr aph7th June,[date accessed] Hai, K. (2005). Cinema System: The breakthrough in the reform Chinese film industry. 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