Digital economy

Money management in the creative and conventional economies does not substantially differ. Thinking and creating are not free. Research represents a long and strenuous process of investment (time and money). The cost of operating a business with intellectual assets only is lower than the cost of starting a conventional business which uses both physical and intellectual assets. The former also has the advantage that it can delay paying for the intellectual assets, or pay them with equity. But the insubstantial nature of these assets deters would-be investors, and even those who have a stake in the business have problems in valuing it and their share. That is why patents, copyrights and trademarks have seldom been used as collateral for loans and, when they are, their value is underplayed.

One of the fields where more intellectual assets are used is the digital economy. With regard to the research in software industries, I shall further develop a separate chapter in which I shall describe the main types of innovation and the impact of open source.

Creative workers

However, creative workers can start up their own business at any moment. What they need to possess are: vision, focus (on one thing only), financial skills, pride and urgency (doing things at the right moment). The work of a creative person may be intermittent and volatile, but someone who creates their own intellectual property and manages their own work can be more secure than a salaried employee of a large corporation.

In the creative economy, people start their own companies, process which entails a decrease in traditional full employment. The post-industrial society needs the post-employment job. Employment will only include just-in-time persons (people who are hired only when and where they are needed) with specific expertise and the ability to insert into the team. Gerard Fairtlough, the former chief executive of Celltech, believes the ideal size of a team is seventy, which he calls a creative compartment. This team should be dynamic, so as to encourage leaders.(1)

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(1) HOWKINS, John, “The Creative Economy. How people make money from ides”, London Allen Lane, The Penguin Press, London, 2001, p. 150

Thinkers and creative people

In a creative organization, creative people must take control. Thinkers are highly needed, as their job involves not only pondering, but also the use, the management, of every kind of thought process. The team should be guided by the creative entrepreneur. Entrepreneurs in the creative economy believe that creative wealth, if managed right, will engender more wealth. Sometimes, workers have better ideas about how to run their company than do the managers, but they can never put their ideas to practice. They have no access to financial capital and their intellectual capital is not sufficient.

There are innumerable obstacles to innovation in the actual corporate environment. Thus, managing innovation is an absolute must. Competition, mistrust, and scarcity of time, money and other resources make it very difficult to innovate. These same reasons make innovation imperative. Almost any major innovation was developed as a response to a problem of some kind. Besides, there will never be a shortage of opportunities to innovate. Historically speaking, a series of innovations have changed the economy of many countries and the world. Most often, these innovations were badly managed (or not managed at all) and had unfavourable or tragic consequences for the people involved with them.

In order to capitalize on the innovative capacities within a company, there are some basic elements that foster it in the organization. The way these elements are provided can be formal or informal, and adapted to the size and nature of the company, but they must be present in some form to truly encourage and leverage innovation. They are direction and alignment between the goals of the individuals and the company, a safe environment to take risks and share ideas, and a compensation system that recognizes and rewards innovation and collaboration.

The economics of creativity

The economics of creativity differs from Adam Smith’s conventional economics. The latter revolves around the firm, which is considered more efficient than the individual in identifying and using resources. In the economics of creativity, creative people are not dependent on organizations to the same extent. They do not need large resources of capital and equipment. They often have low transaction costs. The law of diminishing returns, first formulated by David Ricardo, hardly applies. It states that each additional input factor of production becomes harder or more expensive to acquire and that therefore at some point the cost of producing one more unit exceeds the revenue obtained from selling it. The point at which marginal cost meets marginal revenue is called the equilibrium point. This holds true if resources are limited and under price competition. But in an economy based on intangible and often immeasurable resources the costs of production are less important.

In the creative economy, individuals and firms use resources which are not rare, over which they assert intellectual property rights, which may be short-run, and which do not compete primarily on price. The world of diminishing returns and scarcity of physical objects is being replaced by a world of increasing returns based on the infinity of possible ideas and people’s genius for using those ideas to generate new products and transactions. Control of product and price (performed by the company) become less relevant if production resources are freely available, if products are intangible, if price competition is negligible, and if the market is driven by demand not by supply. In the knowledge economy, firms either charge prices well in excess of marginal costs, or they give their products away for free (the case of free software and its mechanism will be approached in the next part of the paper).

Creative and Innovative Management - part 1

Business is one of the most creative activities ever. It creates ideas. Both creativity and business can go together, they are not mutually destructive as the majority believes. The economics of creativity deals with two system values. One concerns the physical products, which are tangible. The other is based on intellectual property, which is intangible. Managing creativity involves knowing when to exploit ideas and then when to assert intellectual property rights.

Despite the fact that business is meant to make a profit, free-riding, which means benefiting from another person’s ideas without paying, occurs. Free riding can be seen as a cost for the creative economy. Some of the most self-explanatory costs of creative economy are broadly described in the second last part of this paper. People use free-riding to enhance their own knowledge and skills. From a supplier’s point of view, free-riding shortens technological and product life cycles. Being first to market is a major advantage but an innovator has only a short time to establish a new product before others begin to compete. But, in order for some people to benefit, others must go without. Debate has gone on about this exchange. Some economists argue that any constraint on idea hampers creativity slows down economic development; others consider that monopoly is necessary to reward innovation and to better allocate resources.

The Recognition, Protection and Classification of Creative Products - Part 3

Human beings are called homo creator, but creativity does not always lead to a creative product. The creative equation deals only in creative products, not creativity, and differentiates between a creative product and a transaction. It states that the creative economy (CE) is equivalent to the value of creative products (CP) multiplied by the number of transactions (T); that is, CE=CPxT. Creativity itself cannot be quantified. The number of creative products can be quantified, but the multiplicity of products and the confidentiality of many deals may hamper the process of making an accurate account.(1)

Apart from the creative products and the transactions incurred which come to a fore when talking about creative economy, management plays an important role in the deployment of the creative activity. Thus, a creative and innovative management system best suits a creative and innovative activity.

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(1) HOWKINS, John, “The Creative Economy. How people make money from ides”, London Allen Lane, The Penguin Press, London, 2001, p. xi-xiv

Copyright, patent, trademark and design

Copyright law covers an individual’s creative expression. It accrues automatically to any qualifying work and does not need to be registered. It normally lasts for the author’s lifetime plus seventy years. Patent law originated in the need to protect inventions of new industrial products and processes. It gives the inventor a monopoly in the making of the new product, typically for twenty years. Whereas copyright accrues automatically, a patent has to pass stringent tests before being approved. It must be novel, non-obvious and useful. None of these tests applies to copyright. Once registered, a patent gives stronger protection than does copyright. A trademark does not require any artistic or creative expression or any expert skill. It is a mark or symbol that represents an organization or trade. Trademarks are registered, they have to be actively traded and to pass tests of type and uniqueness. A design is a shape or symbol that, like a trademark, has the character of being distinctive and unusual. Legally, it is a hybrid. It often qualifies for copyright; it may also qualify for a special design right (as in Britain); and it is usually registered like a trademark.

These systems can overlap. An artist’s working sketch for a trade-mark qualifies as an artistic work and merits copyright protection quite separately from the trademark itself being registered as a trademark or a design. Computer programs which automatically qualify for copyright may in some countries also be awarded a patent.

The copyright industries consist of all industries that create copyright or related works as their primary product – advertising, computer software, design, photography, film, music (publishing, recording and performing), performing arts, publishing, radio and TV, and video games. The International Intellectual Property Alliance (IIPA) distinguishes between the “core” copyright industries and the total copyrights industries, which also include the manufacturing of products which depend upon copyright goods (computers, TV receivers).

The patent industries consist of all industries that produce or deal with patents. The dominant ones are the pharmaceuticals, electronics, information technology, industrial design, materials, chemicals, engineering, space and vehicles. The dominant activity is scientific research and development which is carried out by commercial companies, technical laboratories and universities. The US, Japan, Germany, France and UK are only some of the most prolific countries in this field. Patents registered by the US and UK Patent Office by country of applicant in 1999 can be found in the appendix section

The trademark and design industries are more widespread, and their size and diversity make them less distinctive. It is possible to identify the creativity involved in the creation of a trademark, but it is less easy to calculate its economic value or to identify the economic gains attributable to the trademark in the total product mix.

Together, these four industries constitute the creative industries and the creative economy. The creative economy consists of the transactions in these creative products. Each transaction may have two complementary values: the value of the intangible, intellectual property and the value of the physical career or platform. This creative economy covers a wide range of branches, and money made out of them reach significant figures. To have an idea, the market size of the creative economy in 1999 is depicted in the appendix section.