Who needs writers? Readers, in their millions, need them. Film and TV producers need the crude stuff on the page to adapt for the screen. Media pundits need writers, so that they can bang on pompously about drugs or dentistry. The multinationals who chew up publishers need a steady supply of those endlessly exploitable commodities called books. Amazon.com needed writers to grow into the planet's most successful on-line sales operation. Everyone wants a slice of the folk who put finger to keyboard - except the nation whose writers have created perhaps the richest continuous literary tradition in the world.

The Arts Council of England has just announced the winners of 15 bursaries designed to buy time for writers to complete new work. Each award is worth pounds 7,000, and they went to well-known figures as well as newcomers: poets such as Robin Robertson and Jane Duran, fiction writers such as Alan Garner and Andrea Levy, and two Independent regulars, Carole Angier and Justin Wintle. The entire cost of this, the largest gesture that our grant system makes to support authors, more or less matches the figure the Arts Council spends to fund the bands at the Notting Hill Carnival. As it happens, pounds 100,000 or so seems a modest subsidy to the best street festival in Europe. The point is that Britain treats literature - its trustiest source of prestige - with a meanness that makes Scrooge look like Getty.

Around 1.3 per cent (or pounds 1.5 million annually) of the English central arts budget goes to sustain writing. To the poet and biographer Andrew Motion, speaking at a recent Warwick University conference on the needs of writers, that level of subsidy seems "scandalous" and "laughably small". The biographer Michael Holroyd, who chairs a Society of Authors panel that gives less than lavish grants to needy writers, reports that "the applications for these quite small awards are heartbreaking". When the Hamlyn Foundation surveyed poets' earnings, it found that its highly respected names earned, on average, pounds 12,000.

Why can't the market alone provide for every good writer's need? Because factors extraneous to sheer quality - fashion, fame, beauty, the push for chart success - will always intervene. And, crucially, because the market can reward success, not invent the Next Big Thing. Like Hollywood script- pitchers, publishers love to perm last year's triumphs ("I see this book as Bridget Jones meets Longitude") rather than bet on innovation.

So what can the public sector do? Andrew Motion suggests a boost to Public Lending Right, with stronger encouragement for writers from schools, universities and libraries: "The time is ripe for literature to have a bigger slice of the cake." Middle England will enquire why taxpayers should hand out lollipops to wacky bohemians. Sensible souls will respond with sage ideas about the export value of creative work. The aesthete answers that the civilised state has a solemn duty to hand out lollipops to a few wacky bohemians. Yes, some may well shovel top-rate tax back to the Treasury for decades. Even if they don't, the chances are that one pounds 7,000 bursary winner will attract more glory to his or her country than the entire pounds 750 million Millennium Dome.