Accounting for cultural heritage — A theoretical and empirical exploration with focus on Swedish reindeer husbandry
Göran Bostedta and Tommy Lundgren, a,
a Department of Forest Economics & Centre for Environmental and Resource Economics, Swedish University of Agricultural Sciences, S-901 83 Umeå, Sweden
Received 27 February 2009;
revised 20 August 2009;
accepted 7 October 2009.
Available online 10 November 2009.
Abstract
The aim of this paper is to explore some of the theoretical and empirical aspects of an economy which includes cultural capital. We use a simple dynamic growth model and the concept of a social accounting matrix (SAM) to illustrate how the addition of income flows and net changes of various natural and cultural resources can be incorporated into a broader measure of welfare. The Swedish reindeer industry, managed by the indigenous Sami people, is used as an example since it is generally regarded to have significant cultural heritage value, beyond its contribution to conventional national accounts. We discuss a theoretically correct compensation to a cultural sector for preserving and maintaining a cultural heritage. Furthermore, we attempt to estimate the cultural value of the Sámi Reindeer sector in Sweden using a CVM survey. The results suggest that the willingness to pay (per year) to maintain cultural heritage at least at the current level may be quite substantive, estimates showing it can be several times the industry's turnover per year.
Keywords: Capital theory; Cultural capital; Dynamic growth; Natural capital; Social accounting matrix
JEL classification codes: Q2; Q51; Q56; R11
Article Outline
1.
Introduction
2.
Welfare accounting with natural and cultural capitals
3.
Estimating the value of cultural heritage: an exploratory study
4.
Conclusion
Acknowledgements
References
1. Introduction
Measuring comprehensive welfare growth indices at the national level has been an important and vibrant part of economics research for a long time. National income accounts became important in the 1940s, primarily to aid macro-economic policy analysis. The accounts were designed to provide detailed information about e.g. total supply and total demand, savings and investments in man-made capital, and imports and exports. Gross national product (GNP, value of production in a country) has been used to indicate the welfare of a nation. Criticisms against GNP are plentiful; one argument being that GNP is a gross measure and should be replaced by net national product, NNP, where capital depreciation is included. NNP, however, may still be a poor measure of welfare because it does not treat environmental and natural resources. Numerous attempts to augment the traditional NNP measure to include environmental and resource stocks and flows are now available (see e.g. Heal and Kriström, 2002, and references therein). One major conclusion is that depreciation/appreciation terms of stocks (man made, natural, etc) in an economy appear on the expenditure side of the economy (see e.g. [Hartwick, 2001] and [Mäler, 1991]). Also, income terms, such as interest on various stocks in the economy, have been suggested to be included on the income side of the economy. Hultkrantz (1992) outlines an extension of the national accounts in Sweden to include various flows from the forest resource stock, so-called green accounting. He finds that the total net value added provided by forest resources and forestry labor in 1987 was 22 billions SEK, which is one third more than the contribution of forestry to the “conventional” GNP. This suggests that ignoring environmental and resource stocks and flows in the measurement of welfare from the forest resource could lead to serious misallocations of resources.
Alternative welfare measures are potentially yet further important when looking at regions or countries with various and vast natural and cultural resources. An example of such a region and country is the Swedish mountain region situated in northwest Sweden. Pristine and scenic landscape, clean air and water, various game and carnivore populations, extensive forest resources, are just a few examples of natural and environmental resources that can be found in this region. Furthermore, an indigenous population — the Sami people — contributes to a cultural resource stock by operating reindeer husbandry and by various other activities that affect economic output and welfare. These effects can be both positive and negative (externalities). For example, reindeer husbandry is in conflict with forestry since silvicultural activities negatively affect the biomass of lichen, a crucial food resource for the free-ranging semi-domesticated reindeer during the winter season. This is a clear case of an externality from forestry on reindeer husbandry, which remains unsolved due to an unclear legal situation. Technically, the reindeer herders have grazing rights for their reindeer on private forest land, but their only way of influencing forest owners is through mandatory consultation meetings. Forest owners are however not required to follow recommendations by the reindeer herders. On the other hand, the Sami people uphold a cultural heritage that, inter alia, attracts tourist. These are just two examples of situations where traditional welfare accounting methods would underestimate the welfare importance of a natural resource dependent industry, in this case the reindeer industry, since these accounts ignore the welfare effects which are not priced by the market provided by the cultural resource stock.
Practical assessments of natural resources and their importance on a national or regional level are scarce in the literature. Prudham and Lonergan (1993) outline and discuss how practical regional resource accounting could be performed along the lines of the theoretical literature. In principal, this means adjusting income and production accounts to include flows and depreciation from natural resources. Comments and experiences with practical regional social accounting in general, not focusing specifically on natural or cultural resources, can be found in Schwarm and Cutler (2003). Cultural capital and analyses of its interactions with an economy is scarce, to our knowledge, in the literature. A few attempts have been made though; see e.g. Throsby (1995, 1999). The concept of “culture” is somewhat different in his analysis, focusing mainly on performing arts and culture and not the social and economic aspects of a cultural heritage. Social capital, intuitively closely linked to cultural capital and cultural customs, has been suggested to be the missing link in growth theory aside from human, man made, and natural capital (see e.g. [Grooteart, 1998] and [Nyangena, 2006]). Cultural capital or resources is somewhat similar to the notion of social capital as it tries to account for social structures and other intangible assets connected to cultural heritage.
The purpose of this paper is to begin with to develop the theoretical aspects of measuring welfare in an economy where a natural resource dependent industry provides important cultural benefits. We will use the concept of a social accounting matrix (SAM) to illustrate how the addition income flows and depreciations of natural and cultural resources can, theoretically, be incorporated into a more comprehensive measure of welfare, something which to our knowledge has never been done before. We also suggest how to compensate a cultural sector for preserving a cultural heritage. This is followed by an attempt at empirically estimating the cultural benefits of Swedish reindeer husbandry through the Contingent Valuation Method (CVM), cf. Mitchell and Carson (1989). Although we will use the Swedish reindeer industry to show the potential importance of incorporating cultural resource stocks, the theoretical model is completely general and applicable to other settings that involves cultural capital, and there is considerable scope for potential further applications. Examples that spring to mind are the Maori culture on New Zealand, the Maasai culture in East Africa, or the Native American population in Alaska.
To our knowledge, the theoretical and empirical contributions in this paper are novel to the economics literature. We explore theoretically how cultural heritage may change the conception of welfare measurement, and how it is linked to a renewable resource. Furthermore, we attempt to actually value the benefits of a cultural heritage, which, at least in the context of conventional evaluation studies such as contingent valuation, has not been done before. The theoretical results show that if the individuals in an economy can enjoy benefits from a cultural heritage, then, in welfare terms, this value is equal to the monetary value of the cultural stock as a consumption good. The empirical results suggest that the estimated value of maintaining a Sami cultural heritage may be considerable higher than current actual subsidies.
The paper is organized as follows. Next section discusses how cultural capital can be incorporated into a simple dynamic growth model and we focus specifically on the pastoral Sami culture of northern Scandinavia as an illustrative example. Further, we explore the welfare issues related to this phenomenon and discuss a theoretically sound compensation to the Sami people for upholding and maintaining a cultural heritage. This is followed by empirical results from a CVM survey on the cultural benefits of the Swedish reindeer industry. Finally, the implications of these results are discussed in a concluding section.
2. Welfare accounting with natural and cultural capitals
The framework presented here builds on the social accounting modeling framework developed by Hartwick (2000, 2001). We use a social accounting matrix to describe how the inclusion of natural and cultural resources in a simple dynamic model of an economy can alter the notion of national income and production.
A recent attempt to come to terms with culture in the specific context of economic activities can be found in a report of the U.N. World Commission on Culture and Development (WCCD, 1995). The report has two interpretations of culture. The first one defines culture as a set of activities undertaken within the so-called “cultural industries”. Culture can thus be thought of as being represented by a “cultural sector” of an economy. Economic activities associated with this cultural sector could be a variety of different things. It could be 1) arts and/or music, or 2) some economic activity connected to some cultural heritage, such as reindeer herding performed by indigenous Sami people in northern Scandinavia, or some other cultural heritage associated with indigenous people. The second interpretation is that culture is expressed in a particular part of a society's values or customs (a local variation), which evolve over time as they are transmitted from one generation to another (Throsby, 1995).
With these interpretations, we are able to define cultural capital as an asset that contributes to cultural and economic values. More specifically, cultural capital is the stock of cultural value embodied in an asset (Throsby, 1999). This stock gives rise to a flow of goods and services over time, i.e., to commodities which themselves may have both cultural and economic values. The asset may be tangible or intangible. Tangible cultural assets exist in buildings, structures, sites and locations endowed with cultural significance; such as the Himeji castle in Japan, or the Alhambra in Spain. Intangible cultural capital is a set of ideas, practices, beliefs, traditions and values that serve to identify and bind together a given group of people, like the cultural importance of practices that bind together certain indigenous people. Both tangible and intangible cultural assets give rise to a flow of services, negative or positive, which may form a part of private final consumption.
Now let us try to incorporate the notion of cultural capital into economic analysis. There is likely to be a correlation between the cultural value and the economic value, but the relationship is by no means a perfect one. The causal direction is likely to be that cultural value augments economic value, but not by necessity. The question is what impact cultural capital has on welfare. As mentioned before, neo-classical models of economics have been developed to include both human and natural capital in addition to physical or man-made capital. Human capital has been shown to be important in endogenous growth modeling (see e.g. Aghion and Howitt, 1998), and as we shown above, natural capital can be added to the picture improving descriptive and predictive powers of such models. Specifying a production function that accounts for cultural capital could provide insights into, e.g., substitutability between different types of capital (if it exists). A useful specification of such a production function would be one that is articulated both in terms of economic and cultural values and their contribution to output. Throsby (1999) suggests the following general dynamic specification of the stock of cultural capital
dKc(t)/dt=[Ic,m(t)–δc(t)Kc(t)]+Ic,n(t)where (suppressing time index), Kc is the stock of cultural capital, Ic,m is maintenance investment, δc is the depreciation rate, and Ic,n is new investment in the cultural stock. This is basically the standard physical capital equation of motion found in the economics literature (recognizing that Ic,m + Ic,n = gross investment). This specification is “blunt” and not very useful since it does not specify exactly what new investment in culture is or in what way it affects the economy. Including this in a model of an economy would simply mean that an additional capital stock is added to operate in the production function. However, the crucial problem is to define what governs new investment in the cultural stock, and how this cultural capital affects the economy. It is, for example, reasonable to assume that culture heritage or capital enters foremost as an argument in the utility function, and not necessarily the production function (or a combination).
Let us focus ideas and think of a particular cultural phenomena; the Sami culture found in the mountain region of north Sweden. The Sami are an indigenous people and are spread out in the north of Scandinavia. The core feature of their culture is reindeer herding which plays a key role in their own cultural identity and traditions, but also contributes to the overall cultural heritage of northern Scandinavia. Beside this main occupation, they also manufacture and sell Sami artwork and contribute to the tourism sector in various ways. How can we incorporate this cultural phenomenon and its contributions into a model of an economy?
Since reindeer herding is the core activity in the Sami culture and has been for a long time, we first specify a dynamic equation for this renewable resource (suppressing time index):
(1)dR/dt=z(R)–g(R,L1)where R is the stock of reindeers, and L1 is the amount of labor used in reindeer herding, z(R) is an inverted U-shaped biomass growth function, and g(·) is the harvest production function (which is assumed homogenous of degree unity in its arguments, R and L1). The harvest g(·) is used as input to produce consumer goods; products based on reindeer meat such as “renskav” or “souvas” (thin slices of meat prepared in various ways), or dried and salted meat (similar to “beef jerky”).
Our main assumption about Sami cultural capital, S, is that it is fundamentally a function of the stock of reindeer, R, used in reindeer husbandry.1 Assume that the change in the cultural stock, dS/dt, depends on current cultural stock, S, some exogenously given policy parameter vector, x,2 and the change in the reindeer stock, dR/dt. We write this relationship as follows;
(2)h is homogenous of degree unity in L1, S and x, but not in R due to the non-linearity of the biomass growth function, z(R). The latter has implications for our accounting exercise. More on this matter further down below.
Furthermore, assume that production of consumer and investment goods is given by
(3)where (as before) C is consumption, I = dK / dt + δK is gross investment in man-made capital, and L is the fixed amount of total labor (production is assumed homogenous of degree unity in its arguments).
The utility function has consumption and culture as arguments and is separable:
U(C,S)=U(uC(C), uS(S)).
The economy strives to maximize the discounted infinite flow of utility such that Eqs. (1), (2) and (3) and initial conditions K(0) = K0, R(0) = R0, and S(0) = S0, are satisfied. We assume that the first derivatives of U(·) w.r.t. C and S are positive and the second derivatives are negative (concavity).
The current value Hamiltonian for this problem is
(4)where X = (L − L1), and λ, μ, and θ are co-state variables. Beside the commonplace transversality conditions, the optimal conditions then becomes (sub-index indicate derivative, except for L1)
(5)dH/dC= 0 or UC=λ
(6)
(7)−dH/dK=dλ/dt−rλ or r−(dλ/dt)/iK=fK−δ
(8)(where hR = h(dR / dt)(dR / dt)R)
(9)−dH/dS=dθ/dt–rθ or r–(dθ/dt)/θ=iS=(US/θ)+hS.
We now insert these conditions into a SAM using the following procedure; normalize the optimal conditions by dividing through by the marginal utility of income, UC = λ, to obtain SEK-values, then multiply each optimality condition with its “corresponding variable”, and — after some re-arranging — then insert them into the SAM (Table 1). Next, linearize the utility function with respect to private consumption, C, before inserting it into the household column in the SAM (to get C in Table 1).
Table 1.
Social accounting matrix (non-renewable resource, R-capital, and cultural resource, S-capital).
Receipts → expenditures ↓ / Consumption and K-investment / K / L / R / S / HConsumption and K-investment / C + I
K / KfK / −δK
L / XfX / −gL1(μ / λ − fg)L1 − (θ / λ)hL1
R / gfg / −gR(μ / λ − fg)R + (θ / λ)hRR − gfg + (μ / λ)z + h(dR / dt)(θ / λ)z
S / (US / λ)S + (θ / λ)hSS
H / KiK / LfX / (μ / λ)iRR + (μ / λ)[z − zRR] + h(dR / dt)(θ / λ)[z − zRR] / (θ / λ)iSS
Full-size table
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First, let us take a closer look at the household “income”-row (H). Recognizing that iK = r − (dλ / dt) / λ we reformulate the R- and S-rate of interests, iR = r − (dμ / dt) / μ and iS = r − (dθ / dt) / θ, and rewrite (μ / λ)iRR and (θ / λ)iSS to become
(10)iK(μ/λ)R–[d(μ/λ)/dt]R+iK(θ/λ)R–[d(θ/λ)/dt]S+(μ/λ)[z−zRR].
Total income for households is then
(11)KiK+LfX+ iK(μ/λ)R+iK(θ/λ)S–[d(μ/λ)/dt]R–[d(θ/λ)/dt]S+(μ/λ)[z−zRR]+h(dR/dt)(θ/λ)[z−zRR].
The first two terms are income from man-made capital and labor. The third and fourth terms represent interest rate on natural and cultural capitals. The following two terms are capital gains/losses on natural and cultural capitals that occur due to changing stock prices. The last two terms are “surplus” incomes accruing to the harvesting sector and cultural capital due to the non-linearity in the reindeer biomass growth function, z(R).
The household column is the linearized, SEK-valued, current value Hamiltonian (LSCVH), which in national accounting has been recognized to represent net national product, NNP (see e.g. Mäler, 1991, or Weitzman, 2000).3 The household column, NNP, reduces conveniently to
(12)C+I–δK+(μ/λ)(dR/dt)+(θ/λ)(dS/dt)+(US/λ)S.
That is, consumption and net changes in the man-made capital, reindeer and cultural stocks (in monetary terms), plus a term which represents the “consumption” (or disutility in case of negative marginal utility of S) of Sami culture in the economy. NNP is now the conventional NNP, C + I − δK, plus a natural resource term, (μ / λ)(dR / dt), and two terms which are related to cultural capital, (θ / λ)(dS / dt) + (US / λ)S.