Why a Nordic Network for economy and cultural heritage?Why the need for economic studies and tools and what the focus for the

competent authorities should be.

T. Nypan. Nordic Networking Event, 12.-13.2.2007, Hämeenlinna.

Content1. Economic studies; some examples2. The Zeitgeist and some heretical thoughts on limitation of

economic studies5. The challenges of using economic value of CH. What the competent

authorities need.

“Finance Minister Halvorsen emphasised when presenting the budget for 2007 that there is a connection between economy and culture and nature. It is this interconnection that disappears when we use mechanical eyeglasses.”

O. Jakbosen. Ø. Nystad, Center for ecologic economy and ethics, Economic University Bodø. Morgenbladet 19-25 januar 2007. The climate economy debate and CO2 quotas.

1.1 Stonehenge

Two miles of brand-new dual carriageway bulldozed through the World Heritage Site, effectively cutting it in two. Add six miles of four-lane road in the landscape and a gigantic interchange at the site boundary of Longbarrow Crossroads.

1.1. Stonehenge motorway

• had a calculated cost benefit ratio of 1,3. cost £125 million including works, land, archaeology, preparation and supervision (2002.). Without any tunnel.

• The Highways Agency's Stonehenge manager, Chris Jones said (2004) about the initial plans without a tunnel: "With these sorts of economics, it would not be in the [government roads] programme".

• Willingness to pay study proved that is was economically feasible and beneficial to include a tunnel solution even at triple the price. A tunnel was incorporated into the project. Cost with tunnel estimated cost soared to over £ 470 million in 2005.

• 2005 Transport Minister announced his decision to rethink the controversial road tunnel proposed for Stonehenge.

1.1. Stonehenge - motorway

• Are CH willingness to pay studies weak compared to the more common and accepted calculation methods for the cost benefit of transport investments?

• How do we carry out cost benefit analysis based on a given value of a cultural heritage object?

• About the Willingness to pay method and other examples“Valuing Cultural Heritage”, Ståle Naverud, Richard C. Ready, Edward Elgar, Cheltenham UK Northampton USA. ISBN 1 84064 079 0

1.2 Borgund Stave church, Norway

1.2 Borgund stave church

Cost to society in needed support funding is NOK 500.000 (€ 62.000) pr. year

Noter: Suppliers and public administration / governement calculated by use of ’NHO model’ (No Confederation of Business and Industryl. Personal income calculated at avarage salary of NOK 220.000,- (Euro 27.500). Taxes calculated on the basis of average income tax of 30%.

Income: instumental in generating 168 man years yearly, which again generates NOK 11 million (€ 1,4 mill.) in tax income to society pr. year.

1.3 Premium real estate prices - UK

Source: Cultural Heritage and Sustainable Economic and Social Development, Donovan D. Rypkema.

HIGHER THE OLDER THEY ARE.

1.3 Return on office buildings USA

Source: Cultural Heritage and Sustainable Economic and Social Development, Donovan D. Rypkema.

HIGHER THE OLDER THEY ARE.

1.3 City center of Quito, Ecuador

Source: Cultural Heritage and Sustainable Economic and Social Development, Donovan D. Rypkema.

HIGHER THE OLDER THEY ARE.

More on economic studies in

EUROPEAN LEGISLATION AND CULTURAL HERITAGE, A GROWING CHALLENGE FOR SUSTAINABLE CULTURAL HERITAGE MANAGEMENT AND USE

Editors: Prof. A. Ronchi, Politechnico Milan, Dr. T. Nypan, Directorate for Cultural Heritage (No).Dewala Editore, Milano 2006, ISBN 88-88943-05-6

1.4 The economy of Culture in Europe

Cultural heritage as competitive factor, generates how much?

• cultural tourism can be assimilated to an export potential except that it is not products that are exported but consumers that are brought in”. 2005, the continent recorded 443.9 million international arrivals

• CH a key competitive tool to promote Europe’s attractiveness as a destination for people from all over the world. In turn, cultural heritage is also a testimony of Europe’s political, social history and values.

• Europe is cultural diversity, combined with the multitude of attractive landscapes and gastronomy, is a strong advantage in the competition with other tourist destinations in the world.

• Europe has the highest density of cultural heritage worldwide. Of 812 UNESCO WHS, 300 are located in the European Union.

• Historic buildings and authentic heritage sites cited by tourists as crucial to their decision to visit a destination. The considerable efforts to restore and preserve heritage throughout Europe pays off.

• In the UK the number of people visitng cultural heritage sites exceeds the number of spectators at football matches.

Economy of cultural & creative sector - main findings

• In 2004, a minimum of 4.714 million people worked in the cultural & creative sector alone, equivalent to 2.5% of the active employed population in the EU25.

• An additional 1.171 million were employed in the sector of cultural tourism. In sum 2004, 5.885 million people worked in the cultural and cultural tourism sectors, equivalent to 3.1% of the active employed population in the EU25. In 2003, the turnover of the cultural & creative sector in Europe amounted to € 654,288 million

Cultural & creative sector - main findings

• The turnover of the cultural & creative sector in Europe amounted to € 654,288 million. In terms of value added to the European economy as a whole, the 2003 turnover of the cultural & creative sector represented 2.6% of Europe’s GDP.

• The relative importance of the cultural & creative sector becomes more apparent when its value added to Europe’s GDP is compared with that of other industries.

cultural & creative sector compared with other industries

Industrial sector Contribution to EU GDP 2004

cultural & creative sector 2.6%

Real estate activities (including the development, buying, selling and letting of real estate),

2.1%

food, beverages and tobacco manufacturing

1.9%

textile industry 0.5%

chemicals, rubber and plastic products industry

2.3%

Industrial sector Turnover

cultural & creative sector 2003 € 654 billion

manufacturing industry in 2001 € 271 billion

ICT manufacturers 2003

€ 541 billion

Employment Cultural industries

The Zeitgeist

Benefit, money, profit, cost-benefit etc, the critical dimensions for any choices.

Everything must be measured in economic terms.

Everything must generate economic value to be considered.

Our soul, spirit or intellect and nature subjected to such ‘market’ rationalism.

If this is a good or bad thing I leave you to ponder on.

Legitimisation and the demand for economic data - methodological / philosophical

considerations .

• The cultural heritage policies are among the last social sectors to bend to the need for economic facts and competition.

• As the neo-liberalistic concepts spreads it carries with it increased focus on materialistic values. Society increasingly looks to economy as its utilitarian expression.

• Is this a trend we need to bend to? No and YES.

New Public Management -effects

• ” When you start considering students and patients as customers then it is not a far step to consider them as bad payers”. (says an anonymous professor, 26.01.07)

• “The customer base was not good enough. We loose money on it, that is why we had to close it down.” The head of the St Hanshaugen social security office

explains why they are closing after school offers to

handicapped children.

Limitation of economic studies or challenges to be overcome?

• Economic analysis indicates an (immediate) willingness to pay for a good. How to calculate ?.

• Does not include:– long term generated economic value of the experience

itself.– future generated economic value, by the maintenance

of the CH object as compared to another (economic) alternative.

– the spiritual / intellectual value memory– the spiritual / intellectual value of knowledge– the spiritual / intellectual value of the experience

• Value of cultural capital? • The cultural heritage sector works with

preserving memory, knowledge and (historic) experiences; such as experience tourism

Non economic impacts – World Bank

• Beneficial impact on educational levels and identity cultivation

• Beneficial impacts on social cohesion, inclusion and social capital development

• Beneficial impact on continuously enlarging the nation’s cultural patrimony

• Beneficial impacts on safeguarding and substantially conveying the heritage to future generations

Both sets of impacts or benefits are tremendously important.” (…)

• But how can we measure such impacts? Maybe they cannot be measured? Maybe only the harvestable values can be measured in economic terms?

• But, if the last is the case, economic analysis will be a narrow value evaluation and not include critical values that contribute to generating social and economic wealth?

3. The challenge for administrations; models & tools.

The demand for economic parameters.– EU legislation, own national administration– Projects for value creation, regional development,

etc. etc. How to measure value creation? • isolate factors that add a potential value to an

existing value?• Is the measure generating (economic) growth?

– Cost-benefit studies, cost efficiency, now-value and discounted now-value

– Profitability or productivity? How to calculate?

• An example of specific demands: The Water Framework Directive

3.1 The environmental or sustainability issue.

• What is (economic?) benefit in economic terms of consuming more culture and fewer things; – as Swedish eco-philosopher formulated it?

There is evidently an environmental profit advantage.

• Is protecting the environment a cost or a benefit? • How can we calculate this and what are the

alternative options? • But is this economically beneficial? • What is benefit of not releasing CO2 and therefore

of keeping old buildings etc.

3.2 The value creation issue.

• Individual and social creation and prioritising of values.

• Ascibing, Ascribing value. These are the chooices, criteria, the historic tales etc used to describe / ascribe value to an object.

• Creating, Value creation. The effect oriented measures, including investments intended to create a (increased) use value added by using the ascribed value as economic and / or social ressources.

• In environment economic thinking cultural value creation is based on imaterial and symbolic values which are difficult to measure. But at one point in the value creation chain the cultural value creation will have an economic effect.

• The relation between economic and cultural value is a complex one?

3.3 Values created by CH

To be created value has to be harvestable as (social) economic value and be capturable as social cognitive value.

–The Use value which can generate harvestable economic values and can contribute in a larger socio-economic value creation process.

–The cognitive values (non-economic dimensions)

•(the understanding or appreciation of history, belonging, esthetical and visual attraction, local environmental stability contributing to social stability to which we ascribe value).

3.4 The Ministry of Finance, Centre for Government Economic Management

demand

”The Ministry of Environment must increase its knowledge and capability in socio economic analysis.” (Min Finance 2006)

”There is much indicating that the public CH administration must clarify its role and relevance in new manners and relate better to todays major social challenges… In addition the humanistic values, such as understanding and experience, the role of the CH as a starting point for value creation must be better analysed / understood.”

(Norwegian Research Council 2006)

It is critical for the environmental authorities that the present and future environmental values are visible and are part of the framework for all private and public adjustments.

”There is much indicating that the public CH administration must clarify its role and relevance in new manners and relate better to todays major social challenges … In addition the humanistic values, such as understanding and experience, the role of the CH as a starting point for value creation must be better analysed and understood.”

(Norwegian Research Council 2006)

3.2.1 What is most appropriate: Productivity or Profitability?

• Productivity: the ratio between value-added and employment costs. This indicator shows how much value is created for every Euro spent on employment costs (wages, salaries and social costs).

• Profitability: measured by the operating margin of companies active in the cultural and creative economy. This indicator shows what percentage of the turnover is left after the deduction of operating costs.

• Which one to choose?– Which are we asked to use?– Problem: how to do this when only 6%-10% of

spendings are left at the site?

3.2.2 Cost-benefit vs cost-effectiveness

Cultural heritage has an economic role and can be measured according to: Cost-benefit and / or cost-effectiveness

• Cost-effectiveness. Sites or artefacts that many people are so valuable they should be conserved at all costs, ( uniqueness or transcendent significance). Appropriate approach is one of cost-effectiveness rather than cost-benefit.

• Cost-benefit. In New Public Management and government policy papers cost benefit analysis must be used. The cost-benefit is a question of the moneys invested related to what is earned at the end.

• Total economic value (TEV). All direct and indirect values.

• So how calculate TEV, entry value, discounted now-value and future-value?

3.2.2 Professor in risk management, Terje Aven, University of Stavanger.

“Economists a danger for security”.

“The overreaching rationale ”is that different security preparedness measures must be evaluated according to a ‘Now value’ calculation. Everything else is irrational. But this is a line of thinking which only minimally allows considerations or emphasise security and preparedness measures.” … “With such principles it becomes almost impossible to justify preparedness measures (security measures) ”. …”If we are to find the correct preparedness measures we must be able co come up with the risks and the uncertainties. The cost/benefit analysis does not make allowances for such considerations.”

Or the limitation of cost-benefit analysis.

3.4.1 Cost benefit analysis, relevant?Cost benefit analysis must presupose that the possible future cost-benefit effects be discountet to present value. This will mean that effects that are expected on the long term perspective will be ascribed minimal value in the benefit analysis (Min Environment)

•Different future environmental conditions will, as a consequence have minimal value or be given little consideration in a chooice of alternative (actions).• How do we handle this challenge?

3.4.2 Cost benefit analysis, relevant? Ministry of Environment:

• The Ministry requests that when the guidelines (for cost benefit analysis) are developed, consideration should be given to establishing clear rules for future development in calculation of prices in those cases when such are calculated.

• The Ministry proposes that this problem be solved by other means than manipulating the dicounting factor. It is mentioned that a number of environmental effects cannot be valued / priced (and therefore may also not be discounted (neddiskonteres)

• The Ministry remarks that they have principal arguments against the use of market based interest rates and other market prices / values as a basis for the analaysis of important projects or initiatives.

4.2 Wealth, value or value-added?

• All buildings that are 100 yers old or more at discounted to 0 value by national Bureaus of Cencus in their calculation of National Wealth.

• what is the value of the entire site is, as an asset. Implicitly, we are asking how much worse off we would be if the site vanished tomorrow.

• We might be ask what the benefits or costs of actions that change the cultural heritage site in specified ways are. value resulting from the project

3.4.3 "WATER DIRECTIVE“ EU DIRECTIVE 2000/60/EC (OCTOBER 23 2000),

ESTABLISHING A FRAMEWORK FOR COMMUNITY ACTION IN THE FIELD OF WATER POLICY.

Wasserschloss – Erwitte www.fotocommunity.deExample of a monument potentially endangered by the Water Directive.

DEMANDSClear criteria for the use of cost-benefit analysis to be applied when decisions pertain to the possible removal of or other changes to cultural heritage objects where the directive demands to restore water sources to ‘natural’ conditions is applicable.

Where a body of water is so affected by human activity or its natural condition is such that it may be unfeasible or unreasonably expensive to achieve good status, less stringent environmental objectives may be set on the basis of appropriate, evident and transparent criteria, and all practicable steps should be taken to prevent any further deterioration of the status of waters.

3.4.3 "WATER DIRECTIVE“ EU DIRECTIVE 2000/60/EC (OCTOBER 23 2000),

ESTABLISHING A FRAMEWORK FOR COMMUNITY ACTION IN THE FIELD OF WATER POLICY.

4.4.3 “Water Directive“ & cost benefit analysis.

Sections 31 and 32 raise the question of how to interpret the term “unreasonably expensive”. The directive states that the answer is given by a cost-benefit analysis. How cost and benefit will be defined when applied to cultural heritage objects?

• cost-benefit method must contain clear definitions and guidelines for application on cultural heritage.

• How is value to be ascribed to the cultural heritage in the cost-benefit analysis? What values should be included? What is the entry value (now-value)?

• What is the discounted now-value? As the text of the directive supplies no precisions or definitions that are applicable to such cases and the matter is therefore, perforce left to the competencies of national authorities.

4.3. Programmes for value creation – how to measure effect?

• A programme for value creation based on CH to contribute to increasing the value (appreciation) of cultural heritage was initiated in 2006 in Norway.

• Measure the effects to legitimise the utilitarian investment criteria. Which parameters to use? Cost-benefit, cost-effeciency, or….

• Measures affect both value creation dimensions; ascribing and creation.

• Measure impact(s).• How do we do this best?

“Peter Wong, using the local culture as a starting point for the hotel management..” Aftenposten 04.02.2007

• “Increasingly tourists are discovering that it is much more cosy to live in places with a traditional atmosphere that to take lodgings in yet another star hotel with marble floors and fast elevators.”

• “Until today Wong has built 7 hotels in China. All has as a goal to use the local culture as a starting point for the hotel management..”

• “Cultural preservation can give good income” says Peter Wong, “But this is far from the only reason I mean that it is important to take care of the cultural history”, he says.

T H E E N D Thank you.

“The revolutionary reality is that 1.3 kilogram's of brain holds the key of all our futures. Competitive

advantage comes from being different. Kjell A. Nordström and Jonas Ridderstraale in Funky business, Bookhouse publishing, Stockholm, 2000.