CULTURAL TOURISM SEMINAR 1 MARKETING & SELLING CULTURAL TOURISM OVERSEAS.
Seminar 2: Cultural Entrepreneurship · Seminar 2: Cultural Entrepreneurship the newentrepreneurs....
Transcript of Seminar 2: Cultural Entrepreneurship · Seminar 2: Cultural Entrepreneurship the newentrepreneurs....
A seminar held on
Wednesday 23rd June 1999
11 Downing Street, London
Seminar 2: CulturalEntrepreneurship
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inar 2: Cultural Entrepreneurship
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THE SMITH INSTITUTE
“I believe that the challenge to us is to create a society which is productive and
prosperous, but which shares its wealth with a sense of justice, in the knowledge
that it is not only a better way, but a more secure foundation.”
Rt. Hon. John Smith MP QC
(John P Mackintosh Memorial Lecture 1987)
The Smith Institute is an independent Think Tank that has been set up to look
at issues which flow from the changing relationship between social values and
economic imperatives, an area that was of particular interest to the late John
Smith, leader of the Labour Party 1992 - 94.
T H E S M I T H I N S T I T U T E
A seminar held on
Wednesday 23rd June 1999
11 Downing Street, London
Published by The Smith Institute
ISBN 1 902488 12 1
© The Smith Institute 2000
Seminar 2: CulturalEntrepreneurship
entrepreneursthe new
Preface
The Smith Institute has been set up to look at issues which flow from
the changing relationship between social values and economic
imperatives. The Institute takes its lead from the belief of the late John
Smith MP that social justice and economic progress can go hand in
hand, and it currently centres its work on these themes.
This booklet is based on the presentations made by Janice Kirkpatrick,
Jez San and Charlie Leadbetter during a seminar held on 23rd June 1999
at 11 Downing Street. We have tried to reflect the debate which
followed. Inevitably, in transforming a live event into print, some of
the colour and the texture of the original have been lost. We hope,
however, that those who attended the seminar will recognise much of
what is included here, and that those who read it fresh will respond to
the flow of good ideas which emerged during the morning.
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Rt. Hon. Chris Smith MP Secretary of State for Culture, Media and Sport
I am delighted to have been asked by The Smith Institute to open
this morning’s seminar on cultural entrepreneurship. The research
undertaken by Charlie Leadbeater is vital if we are to nurture and
support our cultural entrepreneurs. The emergence of the cultural
entrepreneur in the UK, within creative sectors such as design, film,
broadcasting, fashion and music, has been very marked. These are
industries which help to generate enormous wealth for this country.
The total value of these activities in the UK economy, as we found when
we carried out the mapping exercise which we published last December,
is something like £60 billion a year, with well over a million people
employed in these sectors. And perhaps most significantly, these
various sectors are showing a rate of growth at least twice that of the
economy overall. If we are looking to where a lot of the wealth of this
country is going to be created as we move into a new century, these
sectors are certainly very high up the list.
The importance of the entrepreneur within this setting was highlighted
in the Government’s Competitiveness White Paper and has a high
priority on the agenda of the Creative Industries Task Force which, at
the Prime Minister’s request, I have chaired since the election in 1997.
To encourage entrepreneurship, there must be collaboration and
sharing of best practice between businesses, investment in people,
skills development and, in the modern world, use of information
and communications technology. The government are introducing
mechanisms already, thanks in part to the work of the Chancellor of the
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Exchequer, to stimulate inward investment, to deliver training
opportunities and to assist businesses to increase productivity
and competitiveness in order to achieve sustainable employment and
economic growth.
Today our creative entrepreneurs not only need creative talent, they also
need business acumen. They need to be able to establish and then to
run a successful business. It has often proved difficult in the past for
them to gain access both to the knowledge about running a business
and also to the funds for establishing the creative project in the first
place. This is one of the first areas that our Task Force is keen to examine.
We are holding a workshop in the late summer, followed by a national
conference in the autumn, to look very specifically at the financial
problems facing new creative businesses. We want to identify possible
solutions and examples of best practice. The participants will be
leading figures from the creative industries, but also importantly from
the world of finance and business support organisations, bringing
together the worlds of creativity and the worlds of finance.
These are not the only things that the Task Force is looking at. There are
four other major areas that we feel need consideration.
First, skills development. We have already had a skills development
workshop in May to explore the nature and scale of the perceived
mismatch between skills supply and demand in the creative industries.
Are the people that are coming out, particularly from further and
higher education, equipped with the right skills that creative business
requires? We are taking forward the recommendations from that
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workshop in consultation with other interested parties, and will be
publishing our conclusions on that in a few months time.
Secondly, nothing is more important for this whole sector than having
secure intellectual property rights, because it is intellectual property
that is the added value in all of these creative industries. Making sure
that those property rights can be properly protected is one of the
crucial things we need to do. Our work on this is targeted to changing
the public perception of copyright as being anti-consumer, and
improving understanding of its importance. We have made a decent
start, I think, with some of our parliamentary colleagues, for whom
the very mention of the word ‘copyright’ a year or two ago would have
produced instant glazing over of the eyes. People are now gradually
beginning to accept its importance. We hope to publish a report with
guidelines and possibly have a publicity campaign early next year.
Thirdly, we need to ensure that there is a real export strategy for the
creative industries. The Creative Industries Promotion Advisory Group,
chaired by Charles Allen of Granada, has been taking forward, together
with the Foreign Office and the DTI, some very valuable ideas in this.
It will include information on the type of help available to exporters in
these various sectors, what is needed to add value to export effort and
who should be providing extra value. Again, we hope to publish later
in the year.
Fourthly, we have a tendency in some of these sectors to regard them as
being based primarily in London. Of course they are not. Although
London has great strength in these areas, the regions of this country,
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and the nations of Scotland, Wales and Northern Ireland, also have
enormous strength. So we are holding a series of regional workshops
from July through to September, leading to the publication of a further
report later this year. We are also taking forward the overall national
audit that we carried out of the creative industries, to ensure that we
have an audit, region by region, of the contribution of the creative
industries to their regional economies. With the establishment of the
Regional Development Agencies, that will be a very powerful tool to
ensure that there is a focus within the work of the RDAs on what can be
done to stimulate creative entrepreneurship in the regions.
In addition to all of this work, the task force is holding particular
specific enquiries. First, on the television programme supply market,
looking at how we can improve our export performance in television
programmes. We make very good programmes. Why can’t we sell more
of them around the world? Secondly, on the internet, on how it impacts
on the creative industries and its own nature as a creative industry of
itself, and on the wider impact of creativity, how the profile of the
creative industries can be maintained and how to develop them to assist
in the development of the social objectives we all have, as well as the
economic objectives.
There is a big agenda here that we in government have taken on and
want to push forward with, but this seminar, coupled with the other
seminars which are happening under the auspices of The Smith
Institute, will, I believe, give us very valuable insights into the way
in which many people in the field are thinking and how we can
progress this work even further. Thank you very much for giving me
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the opportunity to speak. I look forward to listening to all the
contributions this morning.
Case Study 1Janice Kirkpatrick
The Accidental Birth of a Design Consultancy
Graven Images was a happy accident that began fifteen years ago when
I went on to do a theoretical design degree after my first BA Honours in
the Graphic Design Department, in which I specialised in film. Instead
of going on yet another dull and boring industrial placement (I had
already survived a two week stint at BBC Television Centre, which I
hated - it felt like working for the regional council) I thought, through
complete naivety, that it would be a good idea to set up in business so
I had a job when I left. I went round the town together with Ross
Hunter, who is an architect and my co-conspirator, and another girl
called Adele Patrick, asking the city council and whatever agencies
were there if there was money available and how we could do it. So a
graphic designer, an architect and a fine artist set up together in
business. We received some help from a wonderful agency that existed
at that time called the Scottish Co-Operative Development Committee,
who set us up as a co-operative. This has since changed for other
reasons, but they were very good at hand-holding and showing us how
to make entries in books, etc.
We gave ourselves three years to find out if this experiment would work.
We had decided that we liked living in Glasgow, despite the fact that
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Ross had worked in LA and I’d worked down south and Adele had
worked in various places, because we wanted to prove that we could
work in a European model, we could work across disciplines.
Architects, product designers and fashion designers could, we believed,
work together because the creative process was common to every single
creative activity. It doesn’t matter whether you are designing a book,
a train or a building, the process of thinking and of evolving ideas
doesn’t vary. What does vary is the technical specialisms, and you can buy
those if and when you need them, or attach them onto your business.
As a result, we have 17 people working with us from a base in Glasgow.
They are interior designers, graphic designers, exhibition designers,
architects. We have a turnover in excess of £1m a year and we have
clients in the UK and abroad. We spend vast amounts of time in
London, because this is where all the work is in Britain. We design
things like corporate graphic work, corporate identity work, publica-
tions, signage, retail and workplace interiors, pubs, clubs, restaurants
and international travelling exhibitions. We work as curators; we write
strategy for other organisations; we help play an ambassadorial role
within Scotland as well, informing local policy and education. I have
had a long relationship with the education sector ever since I graduated,
through teaching and through working as an external examiner. I am a
Professor of Glasgow University and a Governor of the School of Art for
my sins.
The Rich Sources of Design
Design is about shaping and controlling experience. It is a hugely
misunderstood activity. It is not about fashion labels, it’s not about
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names and bits of clothing. It is a process that is about shaping and
controlling experience. We help our clients control their transactions
with their own customers and their own clients. Design operates at the
crossroads between art and commerce. It underpins intuition with
methodology, which we thieve from everybody and anybody.
Methodology changes from day to day. We can move quickly, and pull
in pieces of research from science, from arts, it doesn’t matter, anything
we need to prove that what we feel is going to work, will work. It also
legislates against too much risk. Risk is essential if you are going to do
anything new and anything different, but if you underpin intuition
with methodology, the risk is reduced.
We give culture a tangible shape that can be turned into business. Our
interiors, objects and publications are collectively created from the
backdrop of props and the dialogue in our national theatre. All
industries are cultural industries: not just ballet and art and design, but
every single thing. Even shipbuilding, although it’s dead in Glasgow, is
still part of the cultural industry. It crops up in shiny, titanic shaped
architecture in buildings. It is part of the folk memory. All nations
judge us on the quality of our theatrical performance. Everybody. That’s
why Britain is kicking just now, because we are moving so quickly,
we are a mongrel nation that does lots of different things at the same
time. People are fascinated by our culture, it is so rich. Where I live
is different from where most of you are in London. In Sheffield, it is
every bit as different. I don’t know how many local languages there
are throughout the United Kingdom, all of which inform, the shape of
our landscape, the way we talk, the way we speak, our typography, our
clothing. We are so rich, so lucky.
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Glasgow for me was a conscious choice. I had travelled fairly widely, but
I liked the place, because there is a memory there of what it was to be
‘the best’, ‘the very best’, and there is also a pride and the memory about
manufacturing. People in Glasgow don’t think a good day’s work is
when you walk into a service industry, they really value objects. They
like touching things; they like making things; there is a pride about how
materials come together which is absolutely unique. I have not been
anywhere else in the world where that exists, and you can use that
energy to reorientate people away from old industries and make them
interested in new product industries.
For Graven Images, our future is in consolidating our core expertise. It
is to become better at understanding and manipulating culture. Better
at making interiors, better at understanding people’s motivation in
wanting to purchase in one store rather than another, or to drink in one
kind of bar rather than another. That’s what we are good at. We are also
starting up new businesses with partners, usually ones we have met just
through the day to day running of the business. We are about to create
a new restaurant with a chef, Nick Nairn, who we did corporate
identity with. We are looking at the production of food, how that can
become a product which will again employ people within our area.
We are very interested also in developing the strategic planning part
of our business. We are very good managers, and that is a transferable
skill that we can take to many other industries.
Farming Creative Talent
At six o’clock this morning, I came up with four ideas. I hope you will
forgive their being drawn from the farming industry, which I don’t
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think is a very good basis for paradigms at the moment. They are called
Business Parenting, Business Breeding, Valuing Mongrels, and Looking
for Lost Lambs.
I think the practice of Good Parenting is an important one. You have to
get graduates and turn their naivety and energy and idealism into new
businesses. When you are a recent graduate, you have nothing to lose.
You have no cash. You probably have the concept of an overdraft, and
that’s a good thing to get used to if you are going to be in business,
because you are going to have one for quite a long time. Recent gradu-
ates also have great clarity of vision, and that’s what you need. Business
is something that you can’t really teach. Everyone’s business is different
from everybody else’s business. You can show people how to keep
accounts and how to do their VAT returns, but when it comes to how
you go about getting your business and working with other people,
every single business is different. What you do need are great energy
and tenacity. It is a good time to get people when they are young
enough not to have the clutter of families and children and other things
to worry about. You should get them then and give them the help and
support required to make their new ideas, their strange new things that
have no precedent yet in the world, into commercial reality.
You have to Breed Businesses. The way businesses are bred is through
bringing people together, people who might never otherwise meet.
Because the arts and the sciences are at the moment converging at a
rate we cannot keep up with, it is important that scientists and artists,
people who would never normally meet, are brought together to talk to
one another. If you have gone through a creative education, you have
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lots of transferable skills. The skills you use in presenting an idea to a
tutor are valuable when it comes to presenting a business idea. Your
skills in persuasion are very high when you leave Art School. Those
should be used. Scientists can use them. We share the same software, the
same hardware, we all work across Apple Macintosh platforms or PC
platforms, so the language has never been so familiar. We should use that.
We should also Value Mongrels. Because of this convergence, there are
lots of weird hybrid companies appearing which bank managers just
don’t recognise and won’t fund. The old categorisations of areas of
expertise are changing and this has to be reflected in education. At the
moment we are still producing graduates who are perfectly good at
working in one particular software platform. In typography it’s Quark
Xpress. You can learn Quark Xpress in three weeks: you don’t need four
years of undergraduate education to learn it. What you do want is a
chance within education to explore the outside edges of what is
happening within our culture, because the world is moving so quickly.
We need to be able to seize and recognise these special people who are
working in odd ways and use them and encourage them. The banks have
to be taught to recognise them. The people who fund people have to be
taught to recognise the value of difference. We ended up having to form
a property development company in order to make money to capitalise
our own business. It wasn’t hard to do, but it is inconvenient if you have
to do things like that, just to find money. It is a waste of time.
Lastly, I am going to ask the impossible and say, “Can you please Look
for Lost Lambs”, because the focus of the media is in London. I live in
Glasgow. People need to know what we do and it costs an awful lot of
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money to be here all the time. It has cost us a lot of money to come
down over a period of fifteen years and speak to these people because
they are too lazy to go north of Watford. I think that in the broader
sense, and I am perfectly serious when I say this, it is actually damaging
investment and growth in the north, because if a business isn’t visible,
you don’t know it’s there. If we don’t read about people in the press, or
see them on the television, they simply don’t exist. It is a much bigger
problem than people recognise.
Case Study 2Jez San
Two Companies Successfully Launched
I own and run two companies - Argonaut and Ark. Argonaut is a
computer game company which I founded whilst still at school in 1982.
It has had many hit games and several of those have sold over a million
copies each. Argonaut and Ark now employ over 200 highly skilled
people in North London. Both companies are growing fast.
Ark is a hi-tech intellectual property company. It licenses silicon
know-how to manufacturers of electronic devices. It’s the young
whippersnapper that competes with the multi-billion-dollar big boys
like ARM, based in Cambridge, and MIPS in Silicon Valley. Each of
those companies is worth $2 billion. Most electronic devices, whether
cell phones, digital cameras or digital television set-top boxes, will
contain powerful computer chips and, hopefully, Ark will be in one of
those. Since consumers own multiple devices and each one can contain
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multiple Arks, our potential for growth is very good. If things go well,
Ark will go public next year on NASDAQ.
Argonaut, on the other hand, is a computer games company operating
in an industry worth $10 billion to $20 billion a year, which is said to
be larger than the movie and music industries combined. There are
hundreds of game developers like us in England. Like music, Britain
develops and exports more than its fair share of games sold in the
world market. Developers make the games and publishers market and
distribute them. Games developers make their revenue from advances
and royalties from the retail revenue, just like the music business. A hit
game can generate hundreds of millions of dollars for the publisher and
a fair slice for the developer too.
One of our games, ‘Star Fox’, cost $1m to make and grossed over $300m
at retail, which puts the profit margins of the movie industry to shame.
Another of our games, ‘Croc’ - he is a cute crocodile - has sold over 2
million copies this year and is now being made into a television cartoon
by Fox. The sequel, ‘Croc II’, comes out in two weeks. Please buy it.
The Conditions of Growth
There are many developers in England but very few publishers. Maybe
it’s because of a lack of confidence in our industry by the financial
sector, so there is little or no investment in the business. Argonaut is
the exception that proves the rule. Perhaps the British finance sector
doesn’t think that games are serious enough, despite the fortunes that
can be made in the business. Many developers like us are publishers in
the making, or would be if they had access to finance.
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A successful developer has many problems to overcome. There are
set-up costs in getting an office, buying equipment, recruiting staff,
getting licences to make the games, and there are risks versus rewards
as in any business. Investing more in a game prototype to take it further
down the line will be more attractive to a publisher, and a publisher will
pay more for the intellectual property. Smaller developers can’t take the
same risks and may have to sell out cheaper to a publisher.
The talent pool is limited, since there are few formal qualifications that
are appropriate. Possibly the only computer games degree is taught at
Dundee University. Lack of skill and talent means that game companies
hire from each other, rather than from a new pool, and of course there
is the ‘brain drain’. Our people are so good that California pays them to
emigrate for double pay and triple sunshine. Somehow we need to find
ways of encouraging investment in the games business. We need to
educate our children better in computer skills, and especially the multi-
disciplines of art and technology and music that the games industry
needs. Coincidentally, the computer graphics and film industries have
the same needs, so we could kill two birds.
The French stock market values games companies much higher than
their British counterparts. For instance, Infragram and UB Soft are both
listed in France with P/E ratios of over 50, where similar companies listed
in England like Eidos have P/Es of only 10. The companies with the
high P/Es are able to acquire the other companies in paper for paper
transactions. Most of the British publishers have already been acquired
by their French or American counterparts.
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The government might be able to help. We need to raise the profile of
the computer game industry, encourage investment, help the industry
to plan better for its long-term growth, and encourage higher valuations
to allow our companies to compete more favourably with those in other
countries. British companies should not be disadvantaged because the
British financial markets are unimaginative and conservative. Perhaps
we also need tax breaks, development loans and guarantees, better
education to nurture a more talented workforce, sponsorships and
grants for students in our field, and incentives for entrepreneurs,
investors and professional management to encourage their participation
in hi-tech games companies: for instance, capital gains tax incentives.
I am very proud to be part of the computer game and silicon chip
businesses. As always, brains are Britain’s best natural resource. Unlike
oil, they are limitless. Our challenge is how to finance the computer
game industry before we lose it to other countries, like so many
industries before. A bit of investment and encouragement now will
go a long way to encouraging the growth of an industry in which we
already excel, but don’t own.
An OverviewCharlie Leadbetter
Why the New Independents Matter
The cultural entrepreneurs I shall talk about are called ‘The New
Independents’ in our report. My colleague Kate Oakley and I, drawing
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on the work of people like Justin O’Connor at Metropolitan University
in Manchester, have interviewed about forty of these cultural
entrepreneurs up and down the country. Focusing mainly on four cities,
Cardiff, Sheffield, Glasgow and Brighton, we wanted to work out what
it was that made them do what they do, why they were good at it and
where they came from. We also wanted to look at the environment
in which they operated, and at the part played by institutions like the
BBC, the European Commission, local authorities and so forth in
their creation.
I just want to share with you five thoughts about why what these
people do matters - why it matters outside these cultural industries,
why it matters to business and politics, and policy making in general.
The first reason it matters is Chris Smith’s reason, which is that these
people are a source of growth and jobs. These industries are growing
faster than other parts of the economy and it is where future employment
will come from. But it is also worth noting that some of these industries
are in the process of great turmoil and change. It is worth reflecting as well
that a huge portion of the growth is in self-employment, microbusinesses
and small businesses. That has some important implications.
Jez’s company is actually very large for this sector. Computer games has
bred some large companies, but often you find that companies that are
only 20 or 30 people strong are really quite large. The reason for that is
that it is very difficult to keep companies going beyond that scale when
the basis is a service model, where you get a management fee for
producing a television programme or a film or so on. Breaking beyond
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that level to base your business on a product is very risky. So often you
find that companies are trapped in that kind of band. They get to a
certain stage, but growing beyond it is very difficult.
Now does that matter? Does it matter that we don’t have more growth
companies, that we are not really generating many Disneys or Time
Warners or those kinds of companies? It certainly means that institutions
like the BBC and Channel 4, large established cultural enterprises, have
a very big and important role in managing this flotilla of small, self-
employed producers. But if the computer games industry (like
Argonaut) needs to be able to grow through several stages of
development and change, that requires, as Jez says, a much more adept,
agile and intelligent financial market and set of advisors. Those companies
will then be the source of spin-off companies which will feed the
industry in the future.
So growth is an issue, creating large companies, particularly outside
London - London is home to some of the biggest, particularly in
television production. How do we do that? How do we get the
necessary kind of expertise to these companies?
A New Model of Work
The second reason why these people matter is that they represent a
completely different account of the future of work. In the 1980s, there
were really three dominant accounts. One was Norman Tebbit’s:
“You get on your bike and look for a job”. It presumed a kind of open,
flexible, environmentally-friendly labour market. A second account
was André Gorz’s prediction of the end of work. Capital had become
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so sophisticated, so concentrated, that it didn’t need workers. A variant
of that was the core/periphery model: companies would focus
increasingly on their core and contract out to a periphery.
What many of the people in our report represent, and what, for
instance, Janice did, is really an idea of ‘workers without capital’. This is
a completely different account of what you need to start earning your
living. These New Independents offer a new model, which is based on
self-employment. Independence is central and fundamental to what
they do. This is being driven by three factors.
The first is that all these people value independence. They prize
autonomy, choice and freedom, and they want to express themselves
through what they do at work. So they value independence; they are
freedom’s children. They all grew up in the 80’s under Mrs Thatcher
and they have imbibed a lot of those values of independence. Secondly,
they are the first generation to really understand and benefit from the
explosion of computer and communications power. They feel enabled
by it, not threatened by it. There are lots and lots of people up and
down the country with a couple of computers in a room, hoping to
create the next internet product, or the next computer games company.
Technology is lowering the barriers of entry. And thirdly, economics.
They came into the jobs market at a time when large companies of all
kinds were downsizing.
So technology, values and economics all encouraged them towards a
form of self-employment. As a result, they have quite an interesting mix
of values, which Janice showed in many ways. They are certainly not
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into the poverty of genius. These people are not existential artists
working in their garrets. They want to make money. They recognise
commercial imperatives. They are at the meeting point of commerce
and culture. But they are not ideological about the market, they are
quite pragmatic about it. They recognise in many ways that their
skill has to be tested in the market, so they are very suspicious of
public subsidy. They don’t want public interference. They don’t go
around looking for public money to keep them propped up. They
accept the need for working in the market, as the best way to allow them
to continue to pursue what they are doing.
They are sustained in that partly by the acquisition of skills as they go,
but often by a kind of passion, an obsessiveness, a single-mindedness,
which is bred often when they are quite young. This bears on the
question of Business Schools. When I was in Glasgow, I went to the
Glasgow School of Art and interviewed the Principal and said, “Why
don’t you teach most of your undergraduates some skills about being
self-employed, because most of them end up doing that?” He said,
“There is absolutely no point in doing that even though that is what
most of them end up doing, because all these people want to be
Kandinsky and Picasso, and the thing that is going to keep them going
is wanting to be Kandinsky and Picasso.” That is the most important
thing, that kind of passion, vocation and drive.
This has a large number of policy implications, but let me just spell out
one very big thing, which is that most of our policy making, most of
our policy thinking, most of our institutions, are organised around an
economy of jobs. They are about educating people for jobs, training
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people for jobs, finding people jobs, getting in investment to create
jobs, subsidising jobs to save them, regulating hours that people work.
But the New Independents don’t work in a jobs economy, they work in
an economy of self-employment, where things like the 48 hour working
week directive make absolutely no sense. They want to make their
own future. This is not a jobs economy, it is an economy of self-
employment. It is a model of the future, and one which will apply also
to large companies. The more that the key assets of companies are the
intellectual capital of the workers involved, or the key knowledge
workers, the more that big companies will have to adapt to models
which are more akin to self-employment. So this is why these people
represent a future of work which is quite different from the account of
the 1980s.
A New Model of Production
The third reason why the New Independents matter is that they
represent a completely different approach to production as well. These
people are involved in the commercial application of creativity, and the
more that that becomes critical to large companies, the more that large
companies can learn from the creative and commercial processes that
these people engage in. They have some important things to tell us.
The first is that they don’t recognise a very neat dividing line between
consumption and production. If you are going to be a good designer,
you have to consume a lot of design. If you are going to be a good
computer games programmer, you need to consume quite a lot of
computer games. The corollary of that is that what you do outside work
has a considerable bearing on what you do in work. Often these people
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have their best ideas, not when they are at a computer terminal, but
when they are away from it. So valuing, if you like, redundancy, free
time, time outside work, is very important to the creative process. That
is very difficult to do when you are in a large organisation. It is one
reason why they favour self-employment, because when you are in
charge of yourself, you can be in charge of your time.
As well as having highly independent values, they also have instinctively
collaborative working practices. They are used to working in teams
together, forming teams that can complete complex projects. So as well
as being independent, they are collaborative. They are often brought
together by cultural intermediaries to combine in those teams. This
mixture is increasingly important, and it is the model that large
companies are going to have to look at.
A key issue, however, for a lot of these companies is that they are very
fragile and weak, often under-capitalised and under-resourced, with
very little management. And as Jez says, in a lot of these industries,
the power is in publishing and distribution. So you see many small
producers throwing themselves at the market. How we build a stronger
publishing and distribution industry in this country is a critical issue,
particularly in areas like computer games. It is all very well having a
lively cultural scene, but that does not create a lively and thriving
industry.
Reviving Cities
The fourth reason why the New Independents matter is that they are
critical to the future of our cities. These kinds of producers tend to
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congregate in cities. Not exclusively, but they tend to. Cities have had a
huge pounding over the last two decades and have continued to lose
jobs in all sorts of ways. This is one of the main ways in which cities can
be revived and can find a new role.
There are three aspects to this. One is the creation of jobs. They
generate jobs, not just in these industries, but in related industries like
tourism and leisure. The second is that they are important to social
cohesion, because culture is an important aspect of social cohesion in
hugely divided cities. If you can share a common sense of cultural
activity and cultural experience, that is part of what cohesion is about.
So one of the critical questions about these new industries is, are they
simply a shell, for a middle-class graduate elite, or do they have a
capacity to extend their reach, not just in terms of job creation but also
in terms of their products more broadly? Thirdly, they are vital to a
sense of civic pride and civic purpose. The most outstanding example
of that recently is the amazing transformation in Bilbao’s reputation
and standing which has come from a single investment in a cultural
asset, the Guggenheim. A high risk act of civic entrepreneurship has
completely transformed the way in which Bilbao is seen.
The best example in this country of that strategy developing over
a period of time is Glasgow, but it means that the kind of cultural
entrepreneurship that Janice is engaged in there depends, in a sense, on
a complementary kind of activity at a public level. The capacity of
councils, political leaders and others to take that kind of risk is very
important. I am sure that the national rugby stadium in Wales will be
very, very good, but I am also sure that it won’t have as big an impact
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on the reputation of Cardiff as building Zaha Hadid’s opera house
would have done. Culture can create a reputation for a place that other
investments can’t.
Holes in Policy-Making
The final reason for thinking that the New Independents are important
is that they expose a huge kind of policy gap. Here we have a process of
adaptation and change led by entrepreneurship, often amongst young
people, who have no clear institutional voice. They have no ‘home’.
They are not represented by the CBI or the IOD, or by small business
federations, and yet they are creating jobs at a rapid rate. Policy making
is outpaced by that. Policy makers and public institutions don’t know
how to respond, they don’t have the capacity to learn, they don’t have
the capacity to intervene. Traditional tools of subsidy through arts
organisations or small business grants don’t reach these kinds of
entrepreneurs. Business links advisors can go to these kinds of people
wearing their suits, but they are simply talking a different language.
So here we have a growing industry, and a public policy machine which
is completely ill adapted to deal with it. It requires considerable
adaptation. If you go to Glasgow, which has a reputation for thinking
strategically in this area, it is only recently that the economic bit of
the council and the cultural and leisure bit have started talking to
one another. It requires organisational change, but it also requires
considerable innovation in policy tools.
There is a huge agenda here. These are impressive, interesting
industries. As Jez said, if you look at computer games, it is on a cusp,
and it is on a cusp that many British industries have been on before -
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the textiles industry, for example. It’s being bred entirely without
public policy. Almost by chance, we happen to have a world class
industry. To take that forward, so that it will remain competitive in the
future, now requires an engagement with financial markets, business
advice, broadcasters and publishers, and the government which will
be very demanding. Whether we are up to that is a test for the next five
to ten years.
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Discussion
An Exit Route for Venture Capital
Ian Stewart
A number of things have been said this morning about the relationship
between the creative sector and the financial services industry. As
somebody who straddles both, I can offer one reason why, in the short
term at least, investors in this country are going to be reluctant to invest
in the early stages of creative companies. I became involved in a project
in 1988, a company called Wired Magazine in the US and its related
digital products. In three weeks time, I shall finally be able to get out of
it in terms of money. That is eleven years, a long time.
The average venture capitalist (insofar as they exist in this country,
because there are few real venture capitalists here) requires an exit in
three to four years. That’s what they tell their investors. Companies like
computer games companies, internet development companies, many of
the companies we have started to see here in the last twelve months,
are going to need deficit funding for quite some time, because their
marketing and development costs are expensive. The market in the UK
is developing; in Europe it is nascent. We don’t have the same home
market that the US has in the internet space, which means that any new
company is not likely to be profitable for at least three, four, maybe five
years, depending upon the level of growth you are expecting. In that
time frame, no venture capitalist will go in, because they can’t get out.
If you move into the US and set up a subsidiary there, they might try a
launch on IP or NASDAQ, but there is no satisfactory exit route in this
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country. The German Neuer Markt has a problem with second round
financing - in Germany, if you launch a company on the public market
and you go back in two years, they are astonished that you need more
money. Until we get used to the sort of nine month refinancing cycles
that happen on the west coast of the US, very few investors are going to
want to go in. I have a slightly longer timescale, but then I don’t report
to anybody else.
One more comment: my biggest problem in trying to found companies,
either as an entrepreneur or as an investor, is locating business-literate
creative people. There is a very strong division between courses in the
UK. In the US, almost every creative course has business electives. We
should go even further. All creative courses in the UK should include a
short, compulsory business course, giving some sense of what it means
to raise money; what it means to be a sole trader versus a cooperative,
or a small limited company, or a plc; what types of relationships
businesses need to have with bankers, suppliers or customers. Some
people say that business can’t be taught, but I think some of the
grounding can be given in creative courses. If there was more of that in
this country, I’d find more people to back, to invest in and to make grow.
Why Britain Lags Behind the US
Lord Puttnam of Queensgate
The danger of a seminar like this is that we forget that there are no
surprises here. We were discussing the same things five years ago, and
ten years ago! One of the core problems is a kind of ludicrous cultural
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inflexibility. For example, the major universities took at least ten years
too long to understand the value of the MBA and in fact actively
resisted their introduction. The LSE still doesn’t have one. There is no
reason why you can’t put a London Business School module into every
Design school in the country, other than a kind of inbuilt institutional
resistance to that.
More importantly, I want to discuss the issue of capital. Robert Reich
has written about the astounding growth of capital as opposed to
income in the last twenty years, and it is this capital growth that has
been driving the United States. What we need to do is find an original
route of getting capital to interesting and ambitious young people very
early on in their careers. We obviously cannot rely, I am sorry to say, on
the financial institutions of this country. They don’t get it, and there’s
no sign that they are even beginning to get it.
It’s no accident. We pride ourselves in the most extraordinary way on
our own investment climate and our own financial acumen, but the sad
truth is, British banks have died on their feet in the last twenty years,
whilst the American ones have grown exponentially. It is absolutely
clear that we are doing it wrong, but there is no acknowledgement of
this. There is still a neurotic defensiveness in the City. We do not have
the relaxed investment climate which creates access to capital. We do
have massive capital resources which are invested worldwide through
pension funds and institutions, but they are dividend focused, not growth
focused. US investment is, for the most part, a start-up focused community,
they know that’s where real growth comes. Therefore the average portfolio
in the US contains a high risk element, which is focused on start-ups.
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Lastly, we do have a cottage industry culture which is creatively
focused. That’s not bad. The difference is, the US has a marketing and
distribution focus, because they have understood for years and years
that you can buy creativity. You can literally shop around the world
for creativity. What you can’t buy is sophisticated distribution and
marketing companies, and it is these distribution and marketing
companies that own the brands, and it is the brands that carry the
long-term value. So again, we are completely vulnerable because we
are not building value in the areas where we need it.
Response: Jez San
Eleven year exit - gosh, I’ve never heard of that in my industry. An
average computer game takes eighteen months to make. If it’s good,
it can be profitable within two years. If you have two games, you
probably have a fantastic track record. Certainly my company probably
has had nine-month venture cycles, but as I mentioned, we are one of
the exceptions. I think if venture capitalists in England are thinking that
there is an eleven year cycle before they can get an exit, then that is the
wrong way of thinking. Whether it is technology or computer games, if
it is done right, it is profitable in two or three years and you can get
your exit, and even with multiple venture finance there is a good chance
they might get everything out.
I agree wholeheartedly with Lord Puttnam. I think it is lack of access to
capital that is the problem in my industry, certainly in Britain.
American companies can get financed just by being in America. The
British companies, as far as I am concerned, have got the right skills,
but we just don’t have access to the capital.
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Response: Janice Kirkpatrick
On the question of business education, I think is absolutely vital and
should be happening at primary school, never mind as an add-on.
I resent the fact that I had contemporaries who left school with thirteen
years pre-understanding of the area they were going on to study at
university, yet I had to go on and do an honours degree with absolutely
no pre-understanding in my subject area at all. When I am learning
about that, I certainly don’t want to waste time having to worry about
business studies.
When I left school, I felt incredibly resentful that I had no idea how the
world worked politically or financially, when these are the two things
you need if you are ever going to be in control of your life. You need to
understand how society is structured, what the purpose is of the vote
and freedom of speech and all those kinds of things, and how you go
about controlling your own finances and your own freedom. If you
don’t have that, then what’s the point?
A View from the Regions
Stephen Hill
I am interested in prosperity in the regions and I would particularly
like some big ideas about how we can influence what appears to be a
very delicate process in moving from ideas to tradeable products and
services. How can we impact on that process at the very time it is
happening, with the very people that Charlie rightly describes as
independent? And secondly, how can we keep the benefit of this creative
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success in the locality, and prevent the nationals and the multinationals
from appropriating that benefit and moving it back to London?
I congratulate Janice on staying in Glasgow, but I would guess that
for every Janice, there’s a whole bunch who have succumbed to the
transaction costs and moved to London.
A Lifestyle Business or Not a Lifestyle Business?
Lucy Kimbell
I’m from a mongrel microbusiness called Soda. I wanted to follow up
the point on venture capitalists. Most of the time we are presented with
this option: either you’re a lifestyle business or you’re not. There is
a gap in the conception of what it is we do. It often works through
splitting off and forming other little microbusinesses, with a lot of
movement between them, and some people may then go off and become
product based companies which require venture capital. But there
needs to be some filling of the gaps. For example, when we started three
years ago, we went to see some Euro quango person who had money for
innovation. He said, “OK, what are you? Are you a lifestyle business or
the other? Tell me now.” And we didn’t know, because we just wanted to
get on with it and see what we could do. Yes, we can write business
plans, but there is this sense of drive we have all been talking about,
which this guy couldn’t get his head round, nor could the bank
manager.
We’ve managed to survive, and we prefer to stay a lifestyle business,
but that doesn’t necessarily mean, just do OK. We have vision and
excellence and good products and services. We do have things which
might spin off into the venture capital model, but with the choices
that are available, it is difficult at the moment. The key issue is this
either-or approach from the bank manager or potential funder and us
not fitting easily into it.
Transfer Fees when Trained People Move?
Albert-Marin Catterall
I work for Scoot.com as an economist for its new media and internet
firm. We make content or information, but we came up against
problems in getting it distributed. The solution was buying our
own distributional channel, taking us into call centres, net servers,
interactive TV ventures, but this is not quite what we want to do, we
want to be creating content.
I was always taught that a company is a kind of economic failure. It’s
where people can’t perform very well as individuals through the
market, so they set up a kind of Soviet style planning in a company. But
nowadays you often don’t have a formal organisation, or if you do, it
doesn’t have a head. In fact, something that has inspired me is the
passion and joy people have in creating something. But that leads on
to training: if you are not going to reap, you will not sow. I wonder
whether it would be an idea to have football style transfer fees, so that
if you train someone and they move on, you can get back what you
invested.
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Three Main Problems: Distribution, Business Skillsand the Gap in Understanding
Chris Smith
It seems to me three themes have emerged from the comments so far.
First, the need for the creative side of a particular enterprise to have
access to distribution, to the ability to market that creative product, and
that isn’t always easy, particularly in sectors where the publishing and
distribution networks are dominated by key players normally based in
the US. Secondly, the need for the development of business skills for
creative people, and that is something which the formal education system
can and should be doing something about, but we need, I think, to look
beyond the formal education system for the full answer to that problem.
The third issue, however, seems to me to be the dominant one that
people have raised, and that’s the whole issue of the gap of understanding
between venture capital and creative entrepreneurs, and the difficulty
of bridging that gap. This is precisely the area that we are looking at in
some detail now with the Creative Industries Task Force. The answers
aren’t easy. There are no obvious handles that you can pull, but it must
be possible to move gradually towards a better picture, because it
happens in other places. The US is a very clear example of this, and we
need to get the investment sector in Britain to understand better about
the nature of risk in cultural enterprise and more comfortable about
how and when and in what form their return is going to come.
Venture capital rightly wants to know what’s in it for them. They are not
doing this out of the goodness of their heart and getting those two
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things to connect is something that I very much want to put quite a lot
of time and effort into producing at least some hint of a solution, over
the next few months.
A Place for Co-operatives?
Peter Slowe
I run a company called Teaching Abroad which employs about 35
people. Our strength is based on the hegemony of the English language.
We send teachers abroad and bring young people to the UK. The
problem we’ve got in this climate, as a creative business, is in creating,
or developing, or nurturing entrepreneurship amongst people in their
twenties who are taking responsible positions in the organisation.
What strikes me as we get bigger is the confines of the conventional
structure of the company. To raise finance, we have to be absolutely
conventional. Yet Janice mentioned that she got money from the
Scottish Co-Operative Development Committee. We have talked about
collaboration, participation and co-operation, but you can’t raise money
if you have that sort of organisation. I just wondered if the government
are still interested in co-operatives or some sort of alternative corporate
governance.
Better Access to the Internet
Janek Alexander
We support about 50 small microbusinesses. It seems to me one
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difficulty lies in bringing together the perspectives of the individual
arts entrepreneur and the venture capitalist, who is looking for product
growth on an industrial scale. Also, the whole question of how you
intervene is very tricky. The computer games industry is on a cusp, and
the computer industry has been there before. But there is one thing
that’s new since ten years ago, and that’s the internet. The internet
offers the individual the same access, at the same time, as the major
corporation. Before the internet, you could develop a computer game in
your bedroom at home and then offer it to a games software publisher,
but you didn’t have the same access to the world as the big corporations
had - you had to fight for parity. With the internet, someone at home
can have the same access as a big corporation. This is a major change,
but Britain is lagging far behind. The government has been concentrating
on things like encryption when it should be concentrating on giving
people better access. One of the biggest problems we have in this
country is British Telecom.
Riding the Waves of Change
Simon Waterfall
I would just like to stress the importance of timing. I was lucky enough
to ride on the crest of a wave, when technology, entrepreneurialship and
creativity seemed to pick us up and lift us forward. Where government
and finance have a responsibility is to catch and support people when
they have missed the wave or, if they spot a wave coming, to pick people
up and boost them. If I was to set up another company, it would not be
in the internet sector at all, because you now have to be absolutely
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amazing to stand head and shoulders over everybody else, and the people
in need of support are those companies starting up, who have missed
that wave. But there are these waves happening all the time - waves of
education, waves of finance, waves of creativity and culture. It is when
a few of them coincide that you get the massive surge forward, so we
have to watch out for them.
Small Business Finance
Martin Freeth
Charlie suggested that neither Jez nor Janice would want to accept
public money. However, there are a number of bodies, including
NESTA (of which Janice is a trustee) and many government and non-
government departments, who have small amounts of Lottery money
and public money to distribute. I would be very interested to know
what both Janice and Jez feel is the right way to use this. In terms of
their own careers early on, what sort of contribution from such bodies
would have helped them most to get to where they have got?
Jonathan Charkham
I very much agree with Chris Smith’s point about the financing
problems. As he will know, the Bank of England has been looking at this
for years and when he does his studies there are, I suggest, two rocks
you have to steer around. The first is simply the cost of monitoring. It
actually costs a great deal of money to lend small sums of money, as
much as it does to lend larger ones. What you can’t do and don’t want
to do at that point is to pass the economic costs on to a small emerging
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business, because they just can’t bear it. The second problem is the
question of independence. The reason why people go into small
businesses is precisely to be their own bosses and because they want a
part of the equity, so the difficulty is how to finance these businesses
and still leave them in charge. We need some kind of very imaginative
solution to this problem of how you get equity finance without the
proprietors, as it were, losing control.
Response: Jez San
The only way to do that is to have high valuations of the companies
so that the venture capitalists leave something on the plate for the
entrepreneur. I was lucky in that my company had been going a
while and I had grown to a certain point before I refinanced, and
consequently I kept most of the pie. I know friends of mine in different
situations where the venture capitalist owns 80% or 90% of the pie and
that doesn’t leave very much on the plate for the entrepreneur.
On Martin Freeth’s question, if I’d had finance from somewhere when I
was starting out, I could have taken more risk on my own and
developed my first game far enough to sell it to a publisher for a higher
piece of pie. In short, I cut my teeth doing games for other people,
making a smaller piece of the pie than if I had been able to stay
independent. I am sure it is the same with many other people in my
industry and other industries. A little bit of capital will go a long way
towards building the business.
Response: Janice Kirkpatrick
When we set up Graven Images, we got three regional development
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grants of £3,000 each, and a discretionary grant from Glasgow City
Council because we were a co-operative, which was enough to sustain
us for the first year. It was more money than we had ever seen in our
lives before, so it felt great, but they were all stupidly small pieces of
money. At one point we were actually in discussion with the regional
council about the possibility of setting up a furniture production
facility in Glasgow, and the minimum grant they were willing to give us
was £1m. It was either £10,000 or £1m, there was nothing in between.
In my experience, it is quite often the small amounts of money that
you need, but they are actually very difficult to get. The banks don’t
want to know about a loan of £3,000.
What would help now? Now is less of a problem, because we have got
capital, and we have got ways of raising money ourselves if we want
to. I would be reluctant to share with anyone a slice of my business.
I wouldn’t give anybody equity in my company, because that’s my
motivation for getting out of bed in the morning, and I would rather
live the life I really enjoy than create an awful lot of money for
someone I really couldn’t care less about, whose values I simply didn’t
share. So I’ve no intention of getting huge, but I think that it would
have been useful to have time to pause and reflect on what we have
learned and maybe to package that information in a form that
could be useful to someone else. I would be very happy to become
involved in education and to help to write the curriculum needed,
so that I could use the experience in a positive way. Money could
be a useful way of achieving this, to allow taking time out to do that,
covering my position.
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Response: Jez San
Can I just add something? Argonaut, my company, was a lifestyle
company for many years. When I started it, I grew it organically, and
I was doing exactly the same as Janice. I didn’t want to let anyone in.
It was mine and I was going to grow it myself. The last few years,
I changed my mind and brought in venture capital and I am very glad
I did - I should have done it a long time ago. Access to capital has given
me so much more freedom to do what I wanted. Venture capital is great,
but the valuation is the question.
Chris Smith
I just wanted to pick up on the point that was made about the difficulties
of monitoring and the whole issue of independence. Part of the solution
is trying to find a new method of engagement between the venture
capital and the entrepreneur which allows capital to make a return
and to have some degree of security against the risk, but doesn’t involve
taking a great chunk of the equity of the enterprise, thereby potentially
killing off the creativity. Trying to find that new mechanism and
thinking imaginatively about how to do it, I think, is where the
solutions may lie.
People are Fundamental
Eric Salama
WPP are probably one of the largest marketing services companies in
the world. We have invested in about 30 or 40 start-ups in the last few
months. I have a different take on the valuation issue. It is not, I think,
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to do with access to capital, or valuations. We are valued lower than our
American counterparts and that is largely to do with the fact that
most UK quoted companies went through a bad phase during the
last recession. We are cyclical industries, and we are seen as cyclical
industries in the UK, whereas in the US they managed the recession
much better. They are seen as growth stocks.
We invested in Wired years ago and we also only got out this month.
It had nothing to do with fundamental problems with the venture
capitalist, it was the fact that the management was arrogant and poor,
and screwed up the flotation four years ago. So we shouldn’t get too
hung up about some of those things. There is a very active debate in the
States at the moment as to whether the American money going into new
companies is actually a good thing or a bad thing, because most people
are putting money into companies, and people are starting companies
not just to build them, but just to sell them on. They are not really
creating any wealth.
I think the venture capital issue is much more complex than simply the
UK is lousy and the US is great. Starting from that point of view, the
much more interesting issue which Charlie, Janice and Jez all touched
upon is the people issue, because it is fundamental. When Jez says we
are losing people to California because they can pay them stock options
and twice the salary, that is a fundamental issue. When Janice says we
don’t need education establishments to train people in Quark Xpress
because we can do it, that is a fundamental issue. When Charlie talks
about the fact that there is a much more freelance economy and
therefore the BBC and others are not training in the same way because
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they are not holding on to these people, that is a fundamental issue. The
issues that are really important are the people issues and how we retain
them and how we train them and give them the skills.
Changing the Accountability Framework
Peter Hewitt
I am interested in this question of how public subsidy can be made
relevant to cultural entrepreneurs. We are reflecting a lot on this at the
moment and my perception is that bodies like the Arts Council have to
change their mind set from one which is dependency based to one
which is investment based. I think we are reasonably ready to do that,
but this is a big issue which we need to discuss with the government,
with particular reference to the government’s accountability
requirements. I think that government and bodies like ours need an
agreed change of approach, allowing much more of a risk based
approach to supporting cultural entrepreneurs than is possible in the
current accountability framework, which is fairly tight and defined.
A Flexible Approach to Learning
Bob Gregory
I absolutely welcome the comments that have been made here this
morning about the need to change what we are doing in education and
to look at our education systems and values. A very important comment
was made about the need to emphasise informal learning in addition to
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the formal learning, with opportunities to encourage these ‘bright
sparks’ that Janice spoke about. To give them the independence, to let
them find a voice, to give them ownership, to widen their horizons, to
encourage their creativity, and so on. A small step in the right direction
is the government’s drive to promote out-of-school-hours learning and
the use of Lottery money to do that. It is so important that we monitor
that, because I hope it will impact on the whole of our education
provision, and I look forward to seeing how it develops.
Justin O’Connor
In a recent survey we found that only 1 in 10 people in the cultural
industries had a specific creative education, whereas 70% had higher
education. It is obvious to us that people are learning at a very informal
level how to deal in this world that we have heard about this morning.
The problem with business education is that, for the vast majority, they
don’t get it. It is difficult to bring it into a curriculum until they begin
to see that this sort of knowledge is potentially valuable.
The other issue about offering business education whilst in college
is how we make the HE and FE sectors flexible enough to actually
underpin these activities, especially new start entrepreneurs. Things
happen fast so they need non-linear courses, they don’t want to go on
an eighteen months course on entrepreneurship. They have got to get in
and get some knowledge very quickly. Also, they fail. One computer
game or one record, great; the next one you bomb. You are only as
good as your last hit and you have to be able to go back into an education
system. So in short, we need a much more flexible system of training
and business support structure and it doesn’t really exist at the moment.
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