Handbook on the Digital Creative Economy
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Handbook on the Digital Creative Economy

Edited by Ruth Towse and Christian Handke

Digital technologies have transformed the way many creative works are generated, disseminated and used. They have made cultural products more accessible, challenged established business models and the copyright system, and blurred the boundary between producers and consumers. This unique resource presents an up-to-date overview of academic research on the impact of digitization in the creative sector of the economy.
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Chapter 2: Reining in those unstoppably rising costs

William J. Baumol


Most readers already will be familiar with my ëcost diseaseí theory, which seeks to explain why the costs of labor-intensive services experience dramatic increases. (Indeed, I have been introduced as the only economist whose name has been given to a disease.) In brief, my analysis asserts that some services, notably the live performing arts, health care and education, are vulnerable to decline in quality if there is a reduction in the time and effort devoted to them. Meanwhile, in other sectors of the economy, notably manufacturing, there have been impressive and continual savings in the labor time entailed in their production processes with no corresponding reductions in the quality of their outputs. As a result, the relative cost of producing labor-intensive services (that is, ëhandicraftí or ëpersonalí services) must increase relentlessly and substantially, eliciting deep concern from the public and elected leaders, who predictably call for budget cuts and other punitive reforms. Yet, as it is generally told, the cost disease story is more than a bit misleading for at least two reasons. First, we live in an economy with near universal productivity growth, though it is slower in some arenas than others. But, as Joan Robinson once pointed out to me, in such a situation all goods and services must be growing less costly in terms of the time and effort required for their production.

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