Wednesday, October 17, 2007

Music, intangible value and the economics of meaning

In a previous post I argued that the diminution of production costs associated with recording and distribution would reduce the music distribution industry but not the calibre or breadth music production. My opinions seem to be supported by the unfolding events as described in the Time article "Behind the Battle for Madonna"

Records, it seems, have merely become advertising for live performers- and promoters are the new economic power.

"At a time when lagging CD sales and music piracy have made the album a mere accessory to touring, merchandising and licensing, it's no wonder that ailing record labels like Warner Music Group have been exploring ways to get a piece of that much more lucrative side of the business. So just imagine how they must feel now that Live Nation, the world's largest concert promoter, is close to stealing away pop music icon Madonna for a cool $120 million in cash and stock."

On a more theoretical level, at what point does a product( a record, film, book, t shirt) or a service (live performance, theatre) transcend it's role as itself and become advertising? I'd argue that from the time it leaves the sole awareness of its originator that it starts with it functions as advertising.

Advertising----> Social capital-----> hidden capital of education, law, social relations
The Secrets of Intangible Wealth- Reason Online
Two years ago the World Bank's environmental economics department set out to assess the relative contributions of various kinds of capital to economic development. Its study, "Where is the Wealth of Nations?: Measuring Capital for the 21st Century," began by defining natural capital as the sum of nonrenewable resources (including oil, natural gas, coal and mineral resources), cropland, pasture land, forested areas and protected areas. Produced, or built, capital is what many of us think of when we think of capital: the sum of machinery, equipment, and structures (including infrastructure) and urban land.

But once the value of all these are added up, the economists found something big was still missing: the vast majority of world's wealth! If one simply adds up the current value of a country's natural resources and produced, or built, capital, there's no way that can account for that country's level of income.

The rest is the result of "intangible" factors—such as the trust among people in a society, an efficient judicial system, clear property rights and effective government. All this intangible capital also boosts the productivity of labor and results in higher total wealth. In fact, the World Bank finds, "Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries."

Once one takes into account all of the world's natural resources and produced capital, 80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type. The bottom line: "Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity."

This idea of intangible wealth explains why file sharing and not copyright advances the economy- and why outmoded relationships rather than technology must fade away at the hands of a free market.

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"If I had to choose between betraying my country and betraying my friend, I hope I should have the guts to betray my country."
-E.M. Forster