Baumol's cost disease

Abstract

The Economic Dilemma.Their book was extraordinarily influential and it is generally agreed that analysis of the economics of the arts had its origin in that work.The economic dilemma Baumol and Bowen referred to was the problem of financing the performing arts in the face of ineluctably rising unit costs.These, they argued, are the result of 'productivity lag'.The resulting cost pressure has come to be known as 'Baumol's cost disease'.Productivity is defined by economists as physical output per work hour.Increases in productivity over time may occur for the following reasons: (1) increased capital per worker, (2) improved technology, (3) increased labour skill, (4) better management, and (5) economies of scale as output rises.As this list suggests, increases in productivity are most readily achieved in industries that use of a lot of machinery and equipment.In such industries output per worker can be increased either by using more machinery or by investing in new equipment that embodies improved technology.As a result, in the typical manufacturing industry the amount of labour time needed to produce a physical unit of output declines dramatically decade after decade.The live performing arts are at the other end of the spectrum.Machinery, equipment and technology play only a small role in their production process and, in any case, change very little over time.That is not to say that technological improvements are entirely absent.For example, stage lighting has been revolutionized by the development of electronic controls and audience comfort greatly enhanced by air conditioning, which also facilitates longer seasons and more flexible scheduling.But these improvements are not central to the business at hand.As Baumol and Bowen point out, the conditions of production themselves preclude any substantial change in productivity because 'the work of the performer is an end in itself, not a means for the production of some good' (ibid., p.164).Since the performer's labour is the output -the singer singing, the dancer dancing, the pianist playing -there is really no way to increase output per hour.It takes four musicians as much playing time to perform a Beethoven string quartet today as it did in 1800.

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