Do we invest enough in creativity?  The question may seem absurd in an era dominated by the “knowledge economy,” in which companies create value through ingenuity and expertise, while many of our most important emerging product lines enable the advance and communication of knowledge.  But a casual review of the business press reveals that some companies that market themselves as innovators also suffer from toxic workplace cultures and dysfunctional corporate governance.  These problems suggest that it is not enough to invest in “knowledge” while neglecting the people who create this knowledge. The contributions to this report offer impact investors a roadmap for investing directly in the individuals and communities that make creative enterprises possible.

Challenges of Today’s “Knowledge Economy”

Why have so many companies dependent on a motivated and engaged workforce become so toxic for employees?  Finance may be part of the problem.  The need to deliver financial returns pressures companies to bring products to the broadest possible market in the shortest amount of time.  Achieving scale rapidly allows companies to dominate their market and generate outsized returns to investors, while companies that fail to deliver scale in a short timeframe often get left behind.  The pressure to focus solely on growing revenues, market share and company valuations can distract from critical, but less tangible, imperatives such as developing constructive corporate cultures in which creativity can thrive over time.

This model of growth fuels expanding inequality as a few companies come to dominate the market.  The six largest U.S. technology companies make up almost 18% of the S&P 500 by market capitalization.  Despite their size, these companies employ few workers relative to the industrial giants of the past—General Motors employed about 10 times as many people in 1979 as Alphabet does in 2018.

While those who work at top companies enjoy generous pay and benefits, incomes for the most families have stagnated as middle-class manufacturing jobs have been replaced by lower-paying service jobs.  By 2017, median household income in the United States had grown only 2% since 1999. During this time the typical household had suffered through two substantial downturns in median income (2000 and 2008), both of which exacerbated inequality as top incomes recovered quickly and continued to grow.

Inequality may insulate top corporate executives and professionals from the communities that are impacted by their actions. They may forget that their companies can do harm as well as good, and may come to tolerate inappropriate and unacceptable workplace behaviors.  Their product offerings may cater to the elite audience that is familiar to them, neglecting the needs of the broad population that may have very different needs and interests.

Employees may hesitate to bring concerns for fear of seeming disloyal or insufficiently committed to the goals of the company.  Customers may feel powerless to challenge companies with near monopolies over services that seem essential to modern life. Many traditionally marginalized social groups, including women, people of color, and rural communities, find that barriers to inclusion in the “knowledge economy” remain as high as ever.

As numerous examples (e.g., Uber, SoFi, Weinstein Co.) demonstrate, the resulting tensions and resentments may undermine the company’s ability to continue to innovate.  This is bad news not only for investors, but also for employees and a public that hopes for a continual flow of new products and services that improve lives.

An Alternative Approach

An alternative is to invest directly in enabling and nurturing creativity itself.  Each of the business models described in this report exists to develop the human capital embedded in every community, especially those marginalized groups who struggle to compete in the economy because of a lack of resources or because the existing knowledge economy does not sufficiently value their unique capabilities.  The role of these entities is to empower people to transform local artistic, design and cultural resources into sustainable businesses that serve their communities and create engaging work opportunities that will not be lost to outsourcing or automation.

Scale is achieved not by dominating markets with commoditized products but by replicating successful local models in ways that are tailored to the needs of each individual community.  While financial capital is an important resource for these companies, the interests of the community, not the demands of capital, drive business strategy.  Market returns are delivered by unlocking talent untapped by the market and by the creation of sustainable businesses that are deeply embedded in local culture and traditions.

There may be many strategies for accomplishing these goals.  The organizations represented in this report are each involved in one or more of four “enabling technologies” that provide access to resources that are critical to the success of local, sustainable, and replicable cultural production.

Access to Affordable Spaces: The concentration of U.S. economic activity into a relatively small number of urban centers has created an affordability crisis for many artists and creative professionals who live there. In many cases, the appeal of these cities is in part the presence of art and cultural institutions that moved in and preserved these communities when industrial and retail companies abandoned them.  Artspace and Continuum are now in the process of developing affordable living and working spaces that will nurture artistic communities and allow them to continue to serve their surrounding areas, network and collaborate with one another, and serve as a platform that amplifies their work. Over in the U.K., where London’s notorious real estate prices have created a similar squeeze on artists, impact investing firm Investing for Good has formed The Creative Land Trust, which intends to build a network of sustainable, permanent spaces that will remain affordable for artists and creative producers in perpetuity.

With projects such as these, government entities often have a role to play, as illustrated by the work of the Newark Community Economic Development Corporation to close funding gaps for private development projects that bring specific benefits to the arts and creative communities; in representing the city of Newark, New Jersey, the NCEDC’s goal is to foster economic revitalization while preserving that city’s vibrant identity as a cultural melting pot.

The actor Mary Stuart Masterson is taking a slightly different approach with her nonprofit organization Stockade Works and intention to launch a for-profit production facility, Upriver Studios. These organizations are intended to build a television and film production industry in the Hudson Valley of New York, which not only offers a beautiful backdrop for the creation of content, but also a high quality of life and reasonable cost of living, making it attractive to the thousands of professionals who work in the film and television industry.

Access to ownership and influence:  Core to the philosophy of the creative economy is inclusive decision-making and common ownership of resources.  CultureBank and Meow Wolf are exploring new models of inclusive ownership that give creative professionals a stake in the organization and ensure that the organizations serve the interests of their stakeholders.  Meow Wolf is expanding on the initial success of its business model in the Santa Fe area by constructing and operating arts and entertainment spaces that are in part owned by the artists who will display and perform their work there.  In exchange, the artists donate their time to building and maintaining the space itself, which ensures that the properties will themselves be entertaining works of art.

CultureBank seeks to unlock the “assets of value, opportunity and inspiration” held by communities “traditionally understood as poor.”  It seeks to create businesses where all stakeholders are considered investors.  Founded in collaboration with the Yerba Buena Center for the Arts, CultureBank plans to include local academics and cultural institutions to perform due diligence on possible investment recipients and to invest through collaborative “gifting circles” that unlock community assets such as language skills, natural green spaces, or creative approaches to food security.

Access to Expertise: Local communities, such as indigenous communities or communities of color, are often rich in history, tradition and capability but may not possess the technical skills to bring their narratives to a wide audience.  Creative economy companies can connect this needed expertise with local cultural assets to reach a wider audience.

E-Line Media offers a compelling case study of the possibilities. What began as an idea of Alaska’s Cook Inlet Tribal Council—to use gaming as a way to connect Alaska Native individuals to their culture and to increase self-sufficiency—grew into a highly profitable partnership that is now extending to other creative initiatives. E-Line media made this venture possible by connecting the community to experienced game designers who could make their vision a reality.

Stockade Works, mentioned above, is training local people in the Hudson Valley for well-paying jobs in the film production industry.

More broadly, Think Like a Genius® makes use of some proven, arts-based learning methods and tools for catalyzing and cultivating innovative thinking, while creative entrepreneur Robyn Ziebell uses her unique methodology to help clients from a variety of backgrounds tap their innate creativity to see solutions and opportunities.

Access to Capital:  Often, creative enterprises lack access to finance, which flows more readily to technologies that scale.  Fortunately, there are companies exploring ways to provide essential financing to distinctive cultural products that can sustainably serve niche markets and maintain market diversity.

Exponential Creativity Ventures believes “creativity and self-expression are human rights.”  It makes market rate investments in “human centered creativity platforms, global networks for developing creative voices, and frontier innovation.”

LISC (Local Initiatives Support Corp) has a long history of serving as an intermediary connecting funding sources with hard-to-reach communities. The LISC NYC branch of this community development organization is launching a fund specifically targeting investments to support creative businesses in the city.

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Our present era of inequality of opportunity brings with it previously unimagined new products and services that enrich lives.  It also brings abuse, exclusion, and inequality. By investing in creativity and the arts, investors can contribute to sustainable innovation that nurtures talent, empowers communities and brings diversity of thought to the market.

This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.