Europe’s biggest challenge, and what it’s overlooking
The global geopolitical landscape is shifting rapidly, and not always in Europe’s favour. There is a growing sense that the EU is falling behind major powers such as the United States and China, especially on capacities for technological advancement. The influential report by Mario Draghi on the future of European competitiveness warns that that the foundations of Europe’s welfare states are under pressure, and concludes that the most important area of action for Europe is to ‘profoundly refocus its collective efforts on closing the innovation gap with the US and China.’
Since its publication, the report has left a clear mark on EU policy. Yet both Draghi and the European Commission take a narrow approach when defining the ‘gap’: they focus on economic growth and innovation in the technical sense, rather than a broader focus on for instance inequality and social welfare. Due to this narrow approach, they overlook a crucial driver of innovation: the CCS.
The Draghi report mentions “innovation” hundreds of times, but it never meaningfully connects it to culture and creativity. It does refer to the existing Horizon Europe programme, the EU’s framework programme for research and investment, where culture, creativity and inclusive society is one of the thematic clusters. But it does not say anything about the importance of this cluster and the relatively limited funding it receives.
Below, we explain why the positive impact of the CCS deserves far more attention. Furthermore, we explain why the EU cannot see the CCS separately from the big societal challenges that Europe currently faces, such as the energy transition. In dealing with these societal challenges, the CCS can also be of great value.
The positive impact of the CCS
As a first step we can examine the ways in which the CCS impacts society. In the EU, 7.9 million people worked in the CCS in 2024, accounting for approximately 3.8 percent of total employment. But the sector has a far greater impact than just on employment and GDP. The CCS is crucial for the development of wellbeing, with prosperity not only in the economic sphere, but also ecological and societal. The sector’s positive impact should therefore not be merely quantified in monetary terms. Triodos Bank distinguishes five ways in which the CCS has a positive impact on society:
1. Individual wellbeing: Next to being fun, engaging in or attending cultural activities has positive effects on mental and overall health, thereby contributing to overall individual wellbeing. A study commissioned by the UK government found that attending arts events or engaging in cultural activities, even if only done a few time a year, can yield a range of meaningful benefits, including reductions in pain, frailty, depression, and reliance on medication.
2. Social cohesion: Arts and culture bring people together across backgrounds, languages and cultures. They promote a sense of collective identity and create opportunities to connect with others. They also stimulate the transfer of collective memory through cultural heritage.
Europe is currently faced with many challenges that can only be tackled with collective effort. For example, climate change asks for large-scale action on lowering emissions and resource use, which is to a large extent regulated and mandated on the EU-level. On the topic of defence we also see increased collaboration and joint procurement, to form a strong and united front against geopolitical threats from outside EU-borders. One could argue that given all these challenges that require joint action, fostering a shared European identity is more important than ever. The CCS can play a role in this by bringing Europeans together and creating a shared European identity.
3. Collective development: A shared culture is an essential building block for societal progress. Culture provides shared values and practices that strengthen the trust and collaboration needed to address collective challenges and large-scale projects. This does not only apply within a country, but also between different countries. As already mentioned, Europe is currently faced with many challenges that require working together across national borders.
Arts and culture can help to build the trust and connections that are needed to make this collaboration successful. A report developed with support from the US National Endowment for the Arts for instance found that place-based arts and cultural practices can stimulate social cohesion and thereby community wellbeing.
4. Vibrant spaces: Arts and culture have the power to transform our surroundings. They can revitalise buildings, neighbourhoods and towns, shaping environments in which people want to live, work and connect.
5. Drive for innovation: Artists and creatives play a fundamental role in innovation. A study focused on regional innovation systems found that cultural industries and patents interact positively with each other. CCS approaches and insights often spill over into other sectors like industrial design, but also to less expected sectors, such as healthcare (for example through art-based therapies).
But the innovative power of the cultural sector stretches further, beyond ‘normal’ R&D. Its true power lies in the ability to challenge assumptions and offer new perspectives on what could be possible and what we find desirable. In a time of uncertainty and unprecedented challenges, the CCS can help us to quite literally imagine what the future could look like, inspiring and mobilising us to make the changes and develop the means we need to reach that desired state. Sometimes this is not even innovation in the technical sense, it can also be a shift in mindset or behaviour. That power of imagination (and inspiration) is a unique feature of the CCS.
Comparing the EU and the US
At first sight, the CCS of the EU and the US appear remarkably similar. The US CCS accounts for approximately 3.3 percent of total employment and 4.2 percent of GDP, while the EU CCS accounts for around 3.8 percent of employment, and 4.0 percent of GDP. Despite these similarities in economic weight, the two systems differ substantially in how they are financed.
The European CCS is characterised by a greater reliance on public funding, although the exact funding mix varies across countries and subsectors. Most European cultural organisations combine public subsidies with earned income, whereas US organisations generally rely more heavily on earned income, philanthropy, corporate sponsorships, and foundation grants.
For example, in the Netherlands the CCS (excluding advertising and publishing) derives approximately 63 percent of its income from public funding, 31 percent from earned income, and 6 percent from private donations.
By contrast, US nonprofit arts organisations obtain just under half of their revenues from earned income, less than 10 percent from public funding, and roughly 40 percent from private contributions.
These different funding structures reflect different viewpoints. European cultural policy has historically regarded culture as a public good that generates societal benefits extending beyond market value, including cultural diversity, social cohesion, democratic participation, and the preservation of linguistic and cultural heritage. In the US, culture is more seen as a commodity, and there is a heavier reliance on the market as an arbiter.
As a result, the two systems tend to produce different outcomes. In the US, commercial success plays a larger role in determining which organisations and cultural products grow and attract investment. Combined with deep and integrated capital markets, this has enabled the emergence of globally dominant cultural industries, particularly in film, music, and digital media.
By contrast, the European cultural ecosystem supports a larger share of locally oriented, language-specific, and niche cultural production. While this diversity can make it more difficult for cultural organisations to scale across Europe, it contributes to the preservation of a broad range of cultural expressions.
These considerations are particularly relevant when discussing European strategic autonomy. If the EU wants to strengthen a shared culture, sustain independent cultural production and reduce dependence on external cultural platforms and content providers, sufficient public funding is essential.
While the US model has proven highly effective at scaling cultural products and creating globally dominant firms, a shift towards a more market-oriented approach in Europe could come at the expense of cultural diversity, linguistic plurality, and locally rooted cultural production, with the risk of still being outcompeted by larger US cultural organisations.
The challenge for European policymakers is therefore not to replicate the US model, but to preserve and strengthen the distinctive features of the European cultural ecosystem while ensuring its long-term sustainability.
The CCS and societal challenges
Alongside Draghi’s goal of becoming more competitive and autonomous, the EU is facing large societal challenges to restructure its economy, like the urgent need to shift to renewable energy sources and a more circular economy. With its creativity and power to imagine alternatives, the CCS can contribute to such complex European societal challenges in three main ways:
- Exploring issues and interests: The CCS offers different perspectives, interprets and gives meaning, asks unexpected questions and redefines existing ideas. By doing so, it can help us to gain a deeper understanding of the viewpoints of others. This is an important step in navigating the polarisation that currently characterizes many societal problems (climate, food, etc) and finding common ground to move towards joint action.
- Developing potential solutions: The CCS functions as a creative niche for innovation through experiments, prototypes, testbeds that may spark new ways of designing, making and doing. Potential solutions are found through trying new things. The CCS offers the opportunity to try ‘unusual’ things on a small scale, see what works and what does not, without the final product or service immediately having to be commercially viable or universally liked. Elements of ‘crazy’ CCS experiments can later be taken up by the mainstream.
- Implementing solutions in sustainable way: Once potential solutions are there, they need to be implemented long-term. The CCS can help people and communities integrate change in a sustainable (lasting) way. Examples are cultural interventions (using arts, design or creative practices) in healthcare or community initiatives that target liveability and safety in neighbourhoods. Rather than being one-off instances, these types of projects aim to embed change into regular practices, thereby adding (ultimately) to systemic change.
These potential contributions from the CCS are easily overlooked if one thinks solely in economic and technical terms. Yet, they make tangible contributions to the wellbeing of society. Even if one merely focuses on innovation as a means to economic growth, it would be a mistake to not invest in the CCS.
Funding and financing the CCS
Because the impact of a museum visit or theatre performance on wellbeing, social cohesion or innovation is hard to attribute to an individual experience, the value created is not incorporated in market prices. The societal value of a museum, theatre show or music record often exceeds the sum of its individual experiences. As a result, individuals will likely be unwilling to pay a price that fully reflects the true value that goods and services generate. This market failure makes government funding essential to sustain a strong and diverse CCS.
If we require the CCS to be entirely self-financing and adopt a purely commercial model, we would push it to conform to dominant taste. Consequently, it’s capacity to bring innovative or challenging perspectives within society is severely weakened. In general, studies of innovation systems suggest that public funding often plays a particularly important role in supporting exploratory activities and knowledge creation, whereas private funding tends to prioritise commercialisation and scale. Although evidence for the CCS is more limited, a similar tension can be observed between public support for cultural diversity and the market pressures favouring commercially successful productions.
The EU supports the CCS through the ‘Creative Europe’ Program, established in 2014. Its budget for the period of 2021-27 amounts to 2.59 billion euros, which is 0.2 percent of the total EU budget. For the period of 2028-34 the proposed budget is 4.4 billion euros, which also equals 0.2% of the total EU budget. Industry associations such as the European Culture Foundation advocate allocating at least 2 percent of the EU budget to the CCS. Indeed, to ensure a strong and resilient cultural landscape, public funding for the CCS should be increased. By comparison: defense and space get allocated 131 billion euros in the new budget, which equal 6.6 percent.
Private finance can help fill gaps
Private finance can also play an important role in supporting and strengthening the CCS. In line with Draghi’s recommendations, the private sector is more likely to step up its financing investment with the backup of strong public sector support. Providers of credit can help fill gaps that government cannot or will not address. In some cases, government guarantees for private finance are available (for example through the European Investment Fund). The idea of such guarantees is to ‘derisk’ loans to the CCS, to stimulate private financial institutions to finance the sector.
Ideally, public money is used primarily for programming and operational overhead, providing the basis for actual creation of cultural goods and services. This is also the part of the financing that comes with the highest risk. Loan money, on the other hand, can support (lower-risk) ‘basic’ needs such as facilities and inventory. An example where this is done is at the Frascati Theatre in Amsterdam. Frascati’s programming is supported by government funding; the expansion of Frascati’s real estate to be able to open a restaurant was financed by Triodos Bank.
Broadening the focus
Europe is currently heavily focussed on economic competitiveness and innovation, yet the potential of the CCS to contribute to these policy goals remains overlooked. Furthermore, the value of this sector extend far beyond economic impact: a strong CCS brings communities together, opens our eyes to new perspectives and can help drive the societal transitions we urgently need. To ensure that the CCS remains resilient and future-proof, increased public funding is essential.
This article is based on Triodos Bank publication ‘Vooruitgang door verbeeldingskracht: de noodzaak van een sterke culturele sector’ (2026).