[Createquity Reruns] The Top 10 (U.S.) Arts Policy Stories of 2009

(With the last week of summer upon us – yes, it’s technically still summer – our season of reruns is about to come to a close. To finish out with a bang, we’re republishing our Top 10 Arts Policy Stories list from each of the past five years. Every December since 2009, we’ve attempted to highlight the most significant trends and important developments of the past year. Looking back on this list from the end of last decade, I’m struck by how some things that seem like a really big deal in the short term are quickly overshadowed by shifts that take place more gradually but have much farther-reaching implications. Who remembers, for example, the tempest in a teapot that led to the forced resignation of NEA communications director Yosi Sergant? As with any set of predictions, ours contained both hits and misses – see if you can spot which was which! -IDM)

OK, so I know I’m a little late to the party with the year/decade-in-review lists, but since no one other than me apparently cares enough about arts policy to make a top 10 list about it, I’m happy to be the doofus who takes the plunge. 2009 featured no shortage of tumultuous and game-changing events in arts policy, and it was a pleasure (though sometimes an exhausting one) to cover them here on the blog. Here are my picks for the year’s top ten:

10. The L3C Gains, Loses Momentum

Last year, many in the arts who found themselves frustrated with the limitations of the 501(c)(3) nonprofit business model looked to the Low-Profit Limited Liability Company, or L3C, for an answer. An L3C is basically an LLC that has pledged to pursue a social mission as its first priority, even though it still intends to make a profit. The new legal form has been hailed as a potential panacea for businesses that serve an important social function but have trouble attracting capital because they can’t generate profits at market rates, such as newspapers, small biotech firms, and even North Carolina’s furniture manufacturing industry. Spearheaded by a foundation president, Mary Elizabeth and Gordon B. Mannweiler Foundation head Robert M. Lang, the L3C scored some early victories this year as Michigan, Utah, Wyoming and the Crow Indian Nation all passed it into law within a span of two months. However, things hit a snag in August when a technocrat from the IRS told everyone to hold their horses at an accounting conference (aside: I know I shouldn’t make fun, but an accounting conference? seriously?), claiming that “no one has really signed off” on the legal form at the federal level, which sparked an angry exchange between L3C Advisors and the agency. Since then, Illinois has been added to the list of states in which L3C formation is possible (Vermont was already there in 2008), but absent a federal mandate it’s unclear how far the movement will go.

9. NEA Webcasts Cultural Workforce Forum

The National Endowment for the Arts has had a research unit for a number of years. It’s published a number of important contributions to the literature in that time, most notably its recurring series on public participation in the arts and on artists in the workforce. This year, however, instead of simply releasing its studies in print and online, the NEA went one step further: it gathered an impressive coterie of researchers and arts organization representatives to react to the study and share perspectives from similar studies with which they had involvement. The real game-changer, though, was the agency’s decision to broadcast this forum to the public via the web so that anyone could follow along and participate. (A second forum focusing on the most recent Survey of Public Participation in the Arts took place in December.) This is what field-building looks like: bringing a mishmash of parties together around a nexus of common interest so as to move forward together. Research is at its best when it’s a team sport, and I am extremely heartened to see that our Endowment understands that as well as it does.

8. Changing of the Guard at Hewlett, Irvine

The West Coast arts funding landscape changed dramatically in 2009, as California’s two largest grantmakers in the arts found themselves in the midst of leadership transitions at a time of drastic transition in the field as a whole. Things kicked off with the impending departure of the Hewlett Foundation’s Moy Eng, who came to the end of her eight-year term as Director of Hewlett’s Performing Arts Program in November. As the search for her replacement drew to a close, her successor was identified as none other than Irvine Foundation arts program director John McGuirk, who had previously worked under Moy at Hewlett earlier in the decade. This, of course, opened up a new vacancy at Irvine, which has yet to be filled to date.

7. GIA Opens the Gates

I hope you’ll forgive me for including something in which I directly participated, but I really do feel it’s important (and the fact that I was the one participating is not what made it important). The annual Grantmakers in the Arts Conference, the only national convening of the folks who collectively have more influence over the future of the arts in America than just about anyone else, has traditionally been a closed-door affair. While you don’t have to be a member to attend, you do have to be staff at an arts grantmaking institution unless you’ve been offered a specific invitation to speak or perform. With one exception, the conference had never had press at any of its events and even then, they only covered the full plenary sessions, not any of the individual panels. In other words, if you weren’t there, you didn’t know what was happening, and you couldn’t participate in any way. This year, under the new leadership of Janet Brown, GIA has taken steps to open things up. In addition to inviting a blogger (me) to cover the conference, including workshops and breakout sessions, for the public, the organization has started two blogs of its own (authored by Brown and deputy director Tommer Peterson) and just unveiled a new website with an eye towards dramatically increasing the possibilities for substantive interaction online. Given the oft-heard criticism of funders as being too isolated and risk-averse, I can only say that this represents a giant step in the right direction.

6. The NEA Gets Stimulated

This was a big year for the NEA, as evidenced by its inclusion on this list four times. The first big story of the year involving the Endowment was the fight to include money for it in the American Recovery and Reinvestment Act, better known as President Obama’s economic stimulus package. It was initially expected that the biggest fight over the NEA would be among Democrats, as Americans for the Arts and other advocates urged the administration and Congress to include as much as $1 billion for the agency in the bill. But it wasn’t until after the stimulus package passed the House with what at the time seemed like a disappointing $50 million for the NEA that the real fireworks started. Republicans, who had voted as a unanimous bloc against the legislation despite numerous compromises on the part of Democrats in the name of bipartisanship, began decrying “waste” in the bill and using the arts to draw media attention to their cause. Senator Tom Coburn, whose daughter is an opera singer, actually succeeded in passing an amendment that would have barred any of the stimulus money from going to museums, theaters, and arts centers. Fortunately, the $50 million was restored in conference committee, and the NEA had a small but real pot of money to help the arts community weather the storm. If only that had been the end of it…

5. Grand Dreams for Federal Arts Policy Fail to Materialize

It may be unfair to give the Obama administration anything other than an “Incomplete” on this one. Nevertheless, it does seem clear that artists’ hopes for a dramatic reorganization and integration of cultural policy at the federal level, manifested most obviously in the hugely popular Quincy Jones-inspired petition to create a Cabinet-level Secretary of the Arts, are not going to be realized anytime soon. Despite running the first Presidential campaign in memory to pull together a committee to advise on arts policy, since taking office Obama has mostly kept the arts at arm’s length as he (understandably, for now) focuses on frying bigger fish. Rather than the Arts Czar many were hoping for (and some were dreading), the only real effort to reform the system to date has been the appointment of two officials in the Office of Public Engagement with seemingly limited, ill-defined roles, both of whom have been virtually invisible since the summer.

4. The Conference Call Heard ‘Round the World

It all seemed so innocent at the time. Yosi Sergant, newly installed as the head of communications for the National Endowment for the Arts after a successful stint mobilizing artists, designers and other creative types for the Obama campaign, had an idea. He wanted to build a bridge between the NEA and the President’s United We Serve initiative, involving artists across the country in local community service projects — thus increasing the profile both of service and of the arts. His hope, as he explained it to me one warm June night in Seattle, was to make the NEA look good through this association, to be able to say to Congress, “look what we can accomplish just on a volunteer basis; now see what we can do if you actually give us some money!” So he organized a conference call with some of his old friends from the campaign, with the help of colleagues from the Office of Public Engagement and the Corporation for National and Community Service, which ran the United We Serve program, to try to get the word out about his idea. And being that the call largely featured old friends, and that he’s a blustery person in general, he indulged himself in some blustery praise for the President which sounded, well, a little over the top if you didn’t share his political views. Just one problem: one of the people he’d invited was Patrick Courrielche, a marketing professional who most definitely did not share his political views…and wouldn’t you know it, the two of them also used to work together. Courrielche took it upon himself to secretly record the entire exchange and bring it to Andrew Breitbart’s ultra-conservative Big Hollywood blog. Courielche’s widely-circulated piece cleverly presented actual information only in bits and pieces, woven together throughout with a paranoid vision of how the call might, just might, have really been an attempt to coerce artists into becoming ideological slaves for the government. Though the original essay retained some degree of humanity and had the decency to frame the title with a question mark at the end, the conspiratorial frenzy of the Big Hollywood/Big Government community soon had Courrielche playing investigative reporter, “discovering” more and more pieces of a puzzle that ultimately fit together into something not at all like what he was describing. The damage was done, however; under intense pressure from conservative media outlets, Yosi Sergant was first reassigned from his post, then resigned from government altogether. After nine months of trying, the NEA bashers on the right wing had finally drawn blood.

3. State Arts Agencies Decimated

The numbers say it all: New Hampshire, down 32%. Ohio, down 47%. Illinois, down 51%. Arizona, down 54%. Florida, down 94% in three years. It was a terrible year for state arts agencies as the sluggish economy opened up yawning holes in many states’ financial registers. South Dakota, Pennsylvania, Connecticut, and Michigan all faced the serious prospect of closure of their state agencies and in some cases the loss of all state funds for the arts. (With the exception of Michigan, the former prospect was averted.) Hawaii’s briefly lost its executive director position; New Jersey’s governor actually ignored a law in order to cut his agency’s budget to the bone. The lone bright spot was Minnesota, where a new Constitutional amendment is expected to triple the total available for the arts in that state. Many state arts agencies had just recently returned to funding levels, in non-inflation-adjusted terms, seen prior to the last recession; it will take them a long, long time to recover from this one.

2. Rocco

For most of the first half of the year, the hottest arts policy question on everyone’s minds was the identity of the next Chairman of the National Endowment for the Arts. The LA Times ran a memorable feature in which thirty artists and celebrities were asked what they would do if they found themselves in the position. Many names were thrown around, including those of Michael Dorf, Claudine Brown, Caroline Kennedy, and Bob Lynch. Even so, Rocco Landesman’s nomination seemed to take everyone by surprise. The brash director of Jujamcyn Theaters was known for running his mouth, and sure enough he got himself into trouble almost from the moment he entered the spotlight by insulting Peoria’s theatrical community in an interview with the New York Times. (Rocco and Peoria have since become “best friends” after he kicked off his Art Works tour in that city.) Loose lips aside, though, many in the field are eager to see what comes of the Landesman chairmanship; he’s signaled an admirable understanding of and enthusiasm for the economic dimension of what the arts do, and the efforts to open up the NEA’s research to public comment have his stamp all over it. The NEA even has a new blog, Art Works, which opened with two posts from the Chairman himself. If nothing else, Landesman will keep things interesting over the next three years, and early signs suggest that his leadership may well take the agency in promising new directions.

1. The Great Recession

Rarely has a single event had so dominating an effect on the arts community as the stock market crash of September-October 2008 has had on the field this year. The Great Recession thoroughly reshaped the landscape in 2009 and served as the lens through which every decision was made and every strategy was considered. In addition to its impact on state arts agencies mentioned above, its influence was felt among the ranks of private foundations, where the Hewlett Foundation cut grantmaking by 40%, the Ford and Robert Wood Johnson Foundations offered buyouts to huge proportions of their staffs, and the Wallace Foundation let go of longtime program officers; among cultural institutions, a number of which (such as the Baltimore Opera and Los Angeles’s Museum of Contemporary Art) either closed for good or required extraordinary rescue; and among artists themselves, who despite occasionally finding creative inspiration in poverty nevertheless suffered through fewer work opportunities. Unfortunately, there isn’t much talk anymore of a swift recovery; indeed, some observers actually think 2010 will be even worse. That doesn’t mean we’re powerless, though: there are things we can all do to beat this recession together.

Honorable mention:

  • White House Social Innovation Fund
  • Michael Kaiser’s Arts in Crisis program
  • The Rise of the Twitterverse

And as a bonus, here are my picks for the top five new (in 2009) arts blogs:

5. <100K Project (Scott Walters)
4. Better Together (Janet Brown)
3. Unquiet Thoughts (Alex Ross)
2. Real Clear Arts (Judith H. Dobrzynski)
1. Arts, Culture and Creative Economy (Gary Steuer)

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[Createquity Reruns]: Arts Policy Library: Arts & Economic Prosperity III

(Arts Policy Library week at Createquity finishes up with this monster review of Americans for the Arts’s flagship economic impact report, Arts & Economic Prosperity III. Written in 2009 during a brief moment between graduating from school and starting my present job when I actually had lots of time on my hands, this is the longest post we’ve ever published and the one that famously prompted Rob Weinert-Kendt to declare Createquity “so amazingly good it’s almost in its own category of resource; ‘blog’ hardly does it justice.” You’ll want to set aside an hour or so for the full effect, but if you’re short on time, you can also check out the Cliffs Notes. -IDM)

Arts & Economic Prosperity III

Perhaps no arts-related research study is cited as frequently in the mainstream media these days as Americans for the Arts’s gargantuan economic impact survey, Arts & Economic Prosperity III. Its key message, that the nonprofit arts sector is responsible for $166.2 billion in economic activity nationwide, has been hammered home relentlessly to policymakers, politicians, grantmakers, and arts managers around the country since the report’s initial publication in 2007. Americans for the Arts clearly sees the report itself, along with the general theme of economic relevance, as central to its overall advocacy strategy: as AFTA’s Director of State and Local Government Affairs, Jay Dick, put it while speaking at the 2007 Wyoming Arts Summit,

In the past, when we went to do funding for the arts, we said, “fund the arts, it’s good for the soul.” […] That’s true, [but] it doesn’t work anymore. You know, we have to have a business argument for it. So, “fund the arts because it’s good for the soul—and they bring to the jobs to the economy and they bring taxes back into the [government].” That’s what we have to do.

Not everybody, however, is convinced. For one thing, the dual role that AFTA assumes as impartial researcher and impassioned advocate renders the report vulnerable to criticism on the grounds of bias, criticism that the report itself goes to great lengths to counter. Moreover, even assuming the numbers are accurate, thinkers from Tyler Cowen to Greg Sandow have assailed the very concept of economic impact studies and their utility in advocacy discussions. Indeed, when last we paid a visit to the Arts Policy Library, the authors of Gifts of the Muse: Reframing the Debate About the Benefits of the Arts argued that relying too heavily on economic and other “instrumental” arguments for the arts is a trap, pointing out that that economic impact studies

…receive criticism because most of them do not consider the relative effects of spending on the arts versus other forms of consumption—that is, they fail to consider the opportunity costs of arts spending. Some economists dispute the validity of the multipliers used in economic studies because they assume that spending on the arts represents a net addition to a local economy rather than simply a substitute for other types of spending.

The tension between the two approaches led journalist John Stoehr to set up a kind of debate between the AFTA and RAND texts in a 2007 article for the Savannah Morning News, a debate that in Stoehr’s mind Gifts of the Muse ultimately won.

As always, though, much is lost in a public debate about a study when most of the participants have only read the press release. The full Arts & Economic Prosperity III report contains some 314 pages of findings, facts, and figures, including 27 multipage data tables and one of the most thorough explanations of methodology I’ve ever encountered in a research report. So let’s dive in and find out what Arts & Economic Prosperity III actually has to say about the economic impact of nonprofit arts organizations in the United States.

Summary

The first thing to understand about Arts & Economic Prosperity III is that it is comprised of many studies in one. It makes use of an innovative distributed data-gathering strategy that involved partnerships with organizations and agencies in some 156 study areas across all 50 states and the District of Columbia. The study areas included 116 cities and counties, 35 multi-county regions, and five entire states. These 156 partners were tasked with identifying and coding the universe of nonprofit arts organizations in their area, using the Urban Institute’s NTEE codes as a guide; disseminating, collecting, and reviewing organizational expenditure surveys; conducting audience-intercept surveys at a minimum of 18 representative events in the area; and paying a modest cost-sharing fee (though the study authors take care to note that no community was turned away out of inability to pay this fee). The partners collectively produced 6,080 completed organizational surveys1 and interviewed some 94,478 audience members about their spending over the course of 2004 and 2005.

Americans for the Arts then collected this data and created four sets of numbers with it. First, it tabulated the total organizational expenditures in each community, noting the breakdown of artistic versus administrative versus capital expenses, and calculated the averages for each of six community cohorts based on population size, labeled A-F (0-49,999, 50,000-99,999, 100,000-249,999, 250,000-499,999, 500,000-999,999, and 1 million and up). Second, AFTA tabulated the audience expenditures related to arts events in each community (excluding the cost of admission), and calculated the averages in the same way. Third, researchers at the Georgia Institute of Technology ran both the organizational and audience expenditure numbers through a sophisticated econometric tool called an input/output model to estimate the cumulative local transactions that those expenditures might cause in each community. Though those results aren’t reported in the study directly, the researchers ran them through another set of models to come up with estimated resident household income, employment figures, and state and local government revenue that could be attributed to the organizational and audience expenditures. Finally, taking the averages for each of the six population groups, AFTA calculated national estimates for all six of the metrics listed above by mapping the averages on to the populations of the 12,662 largest cities in the United States. (Note: only the 116 cities and counties, the smallest unit studied, were used in the calculation of the national estimates.)

The resulting figures will look familiar to anyone who’s read a news story about arts funding lately. Nonprofit arts organizations account for $63.1 billion in organizational spending and $103.1 billion in audience spending nationally, for a total annual industry footprint of $166.2 billion. Collectively, these expenditures support an estimated 5.7 million full-time equivalent jobs, $104.2 billion in annual household income, $7.9 billion in local government revenue, $9.1 billion in state government revenue, and $12.6 billion in federal income tax revenue.

The study reports that the typical attendee forked out $27.79 per event on top of any cost of admission—what the study calls induced spending—on things like meals, refreshments, clothing, lodging, souvenirs, child care, and transportation. As one might expect, the numbers vary dramatically between local and nonlocal attendees (nonlocal defined as traveling from outside the county). Tourists spent more than twice as much on average as residents on event-related items ($40.19 vs. $19.53), the biggest increases coming from single-night lodging (more than tenfold) and transportation (nearly threefold). Tourists also spent 40-50% more on average than residents on meals/refreshments, gifts/souvenirs, and “other.”

Arts & Economic Prosperity III is, as the title implies, the third study in a series. (A fourth is planned for launch next year.) Comparisons to the previous edition, using data collected in 2000, show a growth of 24% in the five years between studies—a rate that sounds impressive at first, but was actually outpaced slightly by growth in overall US GDP during the same period. Twenty-five communities were represented in both the second and third editions of the study; this group grew more than twice as fast as the national estimates.

Some of the most interesting statistics from the study aren’t the ones that usually make it into the press release or the media alerts. For example, the 6,080 participating organizations reported an average of 125 volunteers who donated a mean of 45.3 hours each in a year. That’s a simply astounding level of volunteerism. The total of 191,499 hours is valued at $3.4 million using Independent Sector’s 2007 valuation of volunteer time. Those hours have no economic impact as defined by the study (and are not included in the national estimates of economic activity), but the study authors take care to note that they add much value to artistic communities anyway. In addition, 71% of responding organizations received in-kind support of one kind or another, valued at an average of $47,906 per organization. The largest source of such support was corporations at 61%, with the balance from individuals, local and state government, local arts organizations, and other.

Though not reported in the study text, the audience demographics (Tables 25-27) are worth a look. Women consistently outnumbered men by nearly a 2:1 margin in almost every community. Assuming the survey samples were representative, we can conclude that arts audiences are VERY well-educated (more than 83% reported having a college degree, and fully a third had one or more graduate degrees) as well as quite affluent (30% reported a household income of more than $100,000). More than 80% of audience members are 35 or older. These results tracked quite consistently between urban and rural areas and between residents and tourists, with the exception that audiences tended to be a bit richer and better-educated in big cities.

I also found Table 9 notable for its breakdown of organizational expenditures on artists. In almost all communities, artists themselves get a truly tiny slice of the money that goes to support the nonprofit arts. Their share was only 11% overall, and ranged as low as 7% in the group of the smallest cities and counties. In a few areas, like Lauderdale County, MS and the entirety of Northwest Minnesota, the total amount spent on artists in a year was not even enough to pay one person’s salary.

Analysis

Since there seem to be a number of misperceptions about Arts & Economic Prosperity III in the media and elsewhere, perhaps the most helpful step I can take at the beginning is simply to delineate what the study is and what it is not. I can tell you that Arts & Economic Prosperity III is:

  • A serious study. One thing that becomes clear from reading the entire report is that the people behind Arts & Economic Prosperity III invested significant time and care into getting the numbers right. As I mentioned earlier, A&EP III has one of the most comprehensive explanations of methodology I’ve seen in a research study – a full ten pages of information representing one-third of the non-appendix portion of the report. The authors even make a valiant effort to explain the mechanics of input/output analysis, an advanced econometric technique involving matrix algebra and other graduate-level technical sophistications. Time and again, as questions popped into my mind while I was reading along, I would find them answered in the next section or by the end of the report. Wary of any perception of bias on the part of an advocacy organization tasked with making the case for government funding of the arts, researchers took numerous steps to ensure that the final estimates would not be skewed too far in favor of that conclusion. These steps included large decisions with major implications—the country’s two largest cities, New York and Los Angeles, were excluded from individual study in part because of their outlier status among American arts scenes; areas with unusually high economic activity for their population group, like Teton County, WY and Laguna Beach, CA, were excluded from other national estimates—and small details—like the fact that the audience expenditure survey checked to make sure respondents were over 18, or that organizations collected data throughout the year in order to guard against effects of seasonality.
  • A legitimate estimate of total annual nonprofit arts organization and event-related audience expenditures in the United States. Even if you find yourself confused or unconvinced by the input/output model, that $166.2 billion number has nothing to do with it. The organization expenditure estimate is a direct extrapolation from the responses of 6,080 survey participants (which is quite a robust sample) based on the populations of the communities in which they operate. There’s nothing mysterious about this part of the study.Likewise, the audience expenditures—which don’t include tickets or admission prices—are extrapolations of the information from 94,478 survey respondents and everyone in their party (so, in actuality, a sample of nearly 300,000). By excluding airfare and more than one night’s worth or lodging, researchers did their best to limit their inquiry to expenditures directly linked to arts events that would mostly be staying in the local area.
  • Clear evidence that the arts are a big deal in this country. The core takeaway of Arts & Economic Prosperity III – that “the arts mean business” – is amply demonstrated by the data. $166.2 billion is a lot of money, well more than one-thousand times the direct support provided by the National Endowment for the Arts in 2005. The $63.1 billion represented by the organizational expenditures alone is more than the revenue figures for spectator sports, furniture stores, coal mining, or the hunting, fishing, and logging industries combined. And as the authors point out, most industries can’t claim the same kind of “induced” spending—related payments made by consumers to third parties in connection with a core purchase—that the arts can. Even if the numbers aren’t dead on—a possibility I’ll explore in a bit—the point is clear: nonprofit arts organizations play a far more central role in the nation’s economy than commonly believed.

 

On the other hand, Arts & Economic Prosperity III is not:

  • A perfect study. Despite the authors’ seriousness of intent, the study does contain a few errors, idiosyncrasies, and other less than ideal aspects of its construction. These range from embarrassing but ultimately unimportant mistakes like the mislabeling of the audience income demographics in Tables 25-27 (the last column in each table should read “$100,000 or More” instead of “$120,000 or More”) to potentially more significant issues like the inclusion of both Miami and Miami-Dade County among the 116 cities and counties used for the national estimates, which would lead to an over-representation of Miami’s organizations and audiences in the sample. Other issues will be examined when we take a look at the actual numbers.
  • A demonstration that the arts cause economic growth. This is perhaps the single most prevalent myth about Arts & Economic Prosperity III and economic impact studies in general, a myth that is in no way dispelled by language like “the nonprofit arts industry generates $166.2 billion in economic activity every year,” that often accompanies the report. Merely counting up the activity associated with the arts in that community doesn’t show that the arts created that activity. Indeed, they easily could have just pointed it in a different direction. If there were no arts, would the audiences who spent $40 to buy dinner across the street have gone hungry instead? Would the office bookkeeper for the local museum not have found another job elsewhere? As I understand it, the arts (or anything else) can cause a net local increase ineconomic activity under traditional definitions essentially in two ways: 1) if they satisfy an unmet need such that people are motivated to spend more money on the arts than they would have spent on other things, thus inducing demand and ultimately driving a higher standard of living; and 2) if they draw money into a community from outside of it. The arts can actually make a pretty decent case for the latter on a local level, thanks to cultural tourism. But once you combine all of those local communities together to make a national estimate, all of those “nonresidents” of your county—with the exception of international travelers—suddenly become residents of the good ol’ USA, and the economic activity associated with the arts is no longer being drawn in from outside the community but merely shifted around within it. As for the first way of creating value, it’s anyone’s guess as to whether and how much that really happens. Essentially, we would need evidence that the same people, on average, are willing to spend more money over the course of a year to attend arts events than they would if there were no arts events to attend. So willing, in fact, that they would take steps in their lives to ensure that they have more money to spend on such things, which (by economic logic) would mean that they would increase their own productivity and value to society, thus making us all better off. No one, to my knowledge, has conducted a study like that, though some researchers have made strides in showing a causal relationship between arts activity and other indicators like housing prices.
  • Particularly useful for policy decisions on its own. Let’s say I have some money to give out to improve the city, and I have to decide how to spend it. You come to me and you say, “you should spend that money on nonprofit arts organizations. Nonprofit arts organizations spend a lot of money.” I reply, “umm…okay, that’s interesting.” You go on: “nonprofit arts organizations employ a lot of people.” “So do our pharmaceutical and insurance industries,” I answer. “Should we subsidize them as well?” Finally, you bring out the big guns. “Nonprofit arts organizations produce revenue for your tax base.” “Well, clearly you are already doing a great job of that without my support,” I conclude. “I don’t see a reason why I should give you any.” Do you see how most of these arguments, in a vacuum, are kind of non sequiturs? If one is making an economic argument, policymakers need to know not just what the arts do now but what they can do in the future with an additional investment—their investment. And they need to know how that compares with other potential recipients for that investment. I believe that there are ways to do this, but unfortunately, this particular study is hardly…
  • A study of the arts’ “return on investment.” Out of all the report’s assertions, the only one I’d describe as downright false appears right there in the introductory letter on page one—and never again in the report:

    Our industry also generates nearly $30 billion in revenue to local, state and federal governments each year. By comparison, the three levels of government collectively spend less than $4 billion annually to support arts and culture—a spectacular 7:1 return on investment that would even thrill Wall Street veterans.

    It’s only a seed, but it’s been enough to sprout numerous other attempts to use this logic (like in this piece from earlier in the month in Miami-Dade County). This much is true—a 7:1 return on investment would indeed thrill Wall Street veterans. It’s too bad the examples aren’t remotely comparable. The $4 billion in government investment and $30 billion in government revenue are two different beasts, apples and oranges. As the report itself tells us, nonprofit arts organizational expenditures total $63.1 billion—which means that the $4 billion coming from the government only accounts for about 6% of this total. Take away that 6%, and you’d still have 94% of those expenditures left—and, presumably, something like 94% of the tax revenues. So, that $4 billion in government investment is really only “responsible” for that last 6%—which turns out to be about $1.9 billion, or considerably less than a 7:1 return (more like 0.5:1, for those keeping count). Now, in fairness, the real story is probably more complex than this—surely the government’s impact is not strictly linear, but makes certain projects possible where none had been before, and communities may be able to leverage that support in other ways. But to realize what a junk statistic this is, think about it this way: if a state, oh, let’s say Pennsylvania, were to get rid of its arts funding entirely, all of the sudden it would be able to claim an infinite return on investment from any arts-related tax or other revenues that come in after that! I’m not sure this is really the line we want to be pushing in these battles.

 

Now that we understand what A&EP III is trying to do, let’s take a close look at the numbers the researchers actually came up with. I’ll divide these into five categories: the organizational expenditures, the audience expenditures, the volunteer contributions, the input-output model, and the national estimates.

Organizational expenditures

The collection of the organizational expenditure data for each community was probably the simplest aspect of the study, so I think it’s reasonable to assume that, in most areas, the numbers represent decent estimates. A few caveats do apply, however, which I’ve listed with the direction in which they are likely to have skewed the totals (if any):

  • First, it worries me a little that the partner organization in each community was given the autonomy to implement the study themselves. While it was probably the key factor in making the scale of the study possible, this distributed approach opens up a number of quality control and consistency issues. For example, who from the organizations was conducting the surveys? Was it senior management? Program staff? Interns? LIKELY IMPACT: UNKNOWN
  • The report mentions that the Urban Institute’s NTEE designations were used as a starting point for identifying relevant arts nonprofits in their area. Hopefully, partners would have gone the extra mile to edit those lists, but I can tell you from experience that going by the NTEE codes will tend to result in missed organizations, sometimes important ones, that are coded incorrectly or not at all. LIKELY IMPACT: SKEW LOW
  • The study only counted the numbers for organizations that responded to the survey, which means that for communities that saw less than 100% response (which was most of them), there’s almost certainly an undercount. (It also means that communities that had higher response rates were over-represented in the national estimates.) Response rates ranged from 10.4% to 100%, with an average of 41.3%. LIKELY IMPACT: SKEW LOW
  • Though responding organizations were asked not to include grants to other arts organizations, any payments to other arts organizations (for example, a presenter paying a nonprofit chamber ensemble, or renting performance space from another nonprofit) could result in double-counting. LIKELY IMPACT: SKEW HIGH
  • When you get down to the itemized level, there are some bizarre oddities in the data that, taken together, throw a bit of a shadow on the rest of the numbers. For example, in Table 9, Allegheny County (Pittsburgh) arts organizations are shown as spending nearly eight times as much on artists as Philadelphia, despite having only a third of the total expenditures. Similarly, Jefferson County, AL (Birmingham) is shown as spending more than three times as much on artists as Baltimore, despite budgets only 40% the size. LIKELY IMPACT: UNKNOWN

Audience expenditures

A&EP III employed the audience-intercept method for collecting information about audience expenditures, which from what I can gather is similar to the method used for exit polling in national elections. The caution I mentioned above about the autonomy of the partner organizations applies even more strongly to this portion of the study, as administering survey instruments in person is something usually done by professionals. The survey asked audience members not to report expenditures on airfare, presumably because most of that spending would not impact the local community (also because it’s unlikely that most tourists had flown to the area specifically to see that one event, which is the rationale behind counting only one night of lodging). Other notes and caveats include:

  • Audience members provided information about their entire party, which might have decreased the reliability of the data since the practice assumes that respondents knew what other people in their party spent. I’d think this would be more likely to result in undercounting (missed purchases) than overcounting. LIKELY IMPACT: SKEW LOW
  • Any spending on concessions at the event (e.g., buying a glass of wine in the lobby at intermission) would be double-counted, since that money would become revenue for the organization and eventually show up in its expenditures. I believe the same is true for items bought at museum gift shops. LIKELY IMPACT: SKEW HIGH
  • Though audience members were instructed to report lodging expenses for the night of the event only, it’s a bit questionable how attributable some of these expenditures really were to the arts event. For example, if someone bought an outfit to wear that night, does that mean they wouldn’t have bought the same outfit on some other occasion? If someone was in town overnight, does it mean that they were there specifically for that event? LIKELY IMPACT: SKEW HIGH

Volunteer contributions

As mentioned in the previous section, the volunteer hours reported by nonprofit arts organizations are extraordinarily high. According to the study, volunteers supply the labor equivalent of two full-time staff positions to the average arts organization each year. Upon closer examination of the numbers, I couldn’t find any obvious red flags—while there’s some variation, nearly all communities reported a higher level of volunteerism than I would have expected, even when considering the contributions of board members, etc. I can think of only two plausible explanations. One is that organizations must be counting unpaid internships. The other is that some, especially smaller, organizations may be counting uncompensated time put in by founders or artistic/executive directors, which is likely to be substantial in many cases. These are not the kinds of things that normally come to mind when I think of “volunteer work,” but of course that is what they are, so I guess I’m inclined to take the results at face value. The valuation of volunteer time at $3.4 million comes from Independent Sector’s Giving and Volunteering in the United States 2006, which pegs the value of an average volunteer hour at $18.04 in FY05.

Input/output model

As explained by the report, an input/output model consists of “systems of mathematical equations that combine statistical methods and economic theory” that trace “how many times a dollar is respent within the local economy before it leaks out” and quantify “the economic impact of each round of spending.” The ”economic impact” in question is no more and no less than transactions: if I pay you $20 to serve me food, I have increased economic impact by $20 according to this definition. I won’t attempt to recreate the report’s detailed and extremely technical explanation of how the input/output model works; you can read it for yourself if you like. The basic idea is that for each community, a team led by the former chair of the school of economics at Georgia Tech, Bill Schaffer, constructed a matrix of the dollar flow between 533 industries based on data from the Department of Commerce and local tax records. After adjusting to include only local transactions, this table was then simplified to a matrix of purchase patterns of 32 industries plus households. The table was then run through an iterative model that, at each stage, sought to calculate the local requirements in terms of output to make possible the numbers seen in the previous iteration of the table. After a certain number of rounds (I think 12, but it’s a little hard to tell from the description), the numbers are all added up to get the total cumulative transactions made possible by an infusion of the amount of money represented in the organization and audience expenditures.

I don’t really have any complaint with the input/output model itself—it was constructed by a trained professional, and without having access to the actual spreadsheets and models used, there’s no way for me to verify its conclusions independently. The main issue is more conceptual: namely, that the model takes for granted that all of the money coming in as a result of organizational and audience expenditures is new money, money that would not have been available to the community otherwise. But of course this isn’t true: if people weren’t working as or for artists, and going out to see arts events, they’d probably be doing something else that would involve money—quite possibly more money than there is in the arts, given the high education levels of many in the field. One way to deal with this, at least on a local level, would be to simply exclude the spending of residents, figuring that what we care about is new money brought into the community by those outside of it. This methodology would break down significantly at the level of a national estimate, however. Perhaps this is why the study authors admit,

…as in any professional field, there is disagreement about procedures, jargon, and the best way to determine results. Ask 12 artists to define art and you will get 24 answers; expect the same of economists. You may meet an economist who believes that these studies should be done differently (for example, a cost-benefit analysis of the arts).

Indeed, I would have been very interested to see the results of a cost-benefit analysis, as it would seem to me to be a more relevant measure of the value of public investment in the arts. However, the input/output model is what we have, and so it is up to us to understand properly what it means. As with the expenditure totals, the impacts on things like employment, household income, and tax revenue are associations rather than causal links. The arts may account for 5.7 million jobs nationally, but that doesn’t mean that they’ve added 5.7 million jobs to the economy that wouldn’t be there otherwise.

National estimates

At first glance, one would assume that the national estimates of organizational and audience expenditures are almost certainly skewed low. As mentioned earlier, the study leaves out specific estimates for our nation’s two largest cities, New York and Los Angeles, instead assigning them the averages for the 1-million-and-up population group. This decision was made, according to AFTA’s Senior Director of Research Services, Ben Davidson, thanks in part to cost considerations as well as a desire to avoid overinflating the national totals. By how much does this downplay the overall national estimates of economic activity? Well, the average for the Group F (population 1,000,000+) bucket of cities and counties is $408 million in total expenditures by organizations and audiences. Two estimates for organizational expenditures alone are $5.8 billion for NYC and $1.5 billion for LA; assuming a similar spread on the audience side, we’re probably looking at a gap in the ballpark of $13 billion caused by not measuring those two cities directly. Furthermore, an untold amount of activity is left out because the study tabulated spending figures and estimated audience totals only from organizations that responded to the survey. One would hope that the most significant organizations in each community were more often than not in the responding column, but even so it’s likely that a fair amount of economic activity in the 156 study regions simply was not counted.

Despite the factors mentioned above, I think that there remains a pretty compelling reason to think that the national estimates are actually overinflated after all. The reason is simple, but easily missed. It is selection bias among the 156 study regions—and specifically, among the 15 communities in the smallest population category, that of cities and counties containing fewer than 50,000 people.

Think about it this way: in order to participate in the study, a community needed to have a nonprofit organization or government agency with the following attributes: a) a programmatic focus on the arts (preferably exclusively on the arts); b) the staff capacity, expertise, and interest to manage a research project that involved identifying and surveying all of the nonprofit arts organizations in their area and conducting in-person audience surveys at a minimum of 18 events throughout the year; and c) the financial capacity to participate in AFTA’s cost-sharing fee (note: though this fee was supposedly waived for any partners that couldn’t afford to pay it, it’s unclear to what extent partners who didn’t take the time to ask were aware that this was an option—the call for participants for Arts & Economic Prosperity IV, for example, does not mention the fee waiver.)

Out of the thousands of cities and counties in the United States with populations of less than 50,000, how many of them do you think meet these criteria? Do you think that there might be some important differences between the ones that did and chose to participate in the study versus the ones that didn’t? Like, for example, a LOT more arts organizations and arts spending?

Luckily, Arts & Economic Prosperity III studied a few different kinds of regions, including entire states, making some interesting comparative analysis possible. I put together a table below with the average economic activity per capita for each of the six population subgroups for the cities and counties, as well as the average for the 35 multi-county regions and the estimates for each of the five states studied. First, looking at the different population subgroups, rather than per-capita spending going down as populations get smaller and more spread-out as one might expect, there’s a big jump in both organization and audience expenditures from group B (50,000-99,999) to group A (under 50,000). More interesting, however, is the comparison between the cities and counties and the multi-county regions, and especially the entire states. A statewide count would not suffer from the selection bias discussed here: instead, it would incorporate urban and rural areas in proportions not all that dissimilar from the rest of the country. Similarly, some of the multi-county regions studied occupy large swaths of land, and their arts organizations could pool their resources to meet the requirements for participation in the study.

AFTA report numbers

The average expenditures in the smallest city and county population group are absolutely off the charts. Group A cities’ and counties’ arts organizations spent nearly two and a half times as much per capita as the regional average and more than three times as much as the statewide average. Their audiences spent more than five times as much as the statewide average.2 It’s not just group A, though—all of the city and county subgroups have per capita expenditures higher than those for the regions and states. In fact, the highest average for a state in the study was lower than the lowest average for a city/county subgroup. That’s not random. That’s selection bias.

So what happens when your national estimate is based on the city and county averages in Groups A-F (and especially sky-high group A) rather than the lower regional and statewide averages? Remember, the estimate is based on the populations of the 12,662 largest cities in the US—all the ones with populations of at least 500, according to Davidson—and more than 90% of those cities would have been in Group A.

Well, we can do a little exercise to sense-check the numbers. The total nonprofit arts organization expenditures nationally should be roughly equal to total arts organization revenues. I checked the Giving USA statistics for arts and culture, which include contributions from individuals, foundations, and corporations but not government support or earned income, and got an estimate of about $12 billion for 2006. Then I checked data from the National and Local Profiles of Cultural Support study that looked at the typical breakdown of income sources for nonprofit arts organizations and pegged the contribution of private donations from individuals, foundations, and corporations at 25% as of 1998. So if $12 billion accounts for 25% of arts organizations’ budgets, their total budgets should be around $48 billion—not outrageously off, but nevertheless only about three-quarters of AFTA’s $63.1 billion estimate. And 25% was the lowest estimate I found on the web of private contributions to nonprofit arts budgets. Now, this is not conclusive–it’s certainly possible that Giving USA itself undercounts the revenues of nonprofit arts organizations and foundation contributions. And maybe the breakdown of income sources was dramatically different in 2005 for whatever reason. But given the information we have, I think it’s fair to assume that AFTA’s expenditure numbers are probably not that conservative after all.3

Implications

So is Jay Dick right that we need “a business argument” for the arts? I think he is, and I think Arts & Economic Prosperity III is helpful in that regard—to an extent.

As I read Arts & Economic Prosperity III, I found myself coming back again and again to the theme of language. A&EP III is a serious study, one worthy of our attention and use for advocacy and research purposes. However, some of its potential impact is undermined by the hyperbolic language with which it is often presented to the press and politicians. The first several pages of the report are cluttered with spurious or misleading statistics and graphs that distract from the more strongly supported of the study’s findings. For example, on page seven there’s a graph that shows “jobs supported by nonprofit arts” apparently outnumbering several categories of specific professions, including lawyers, farmers, and computer programmers. Of course, there’s a crucial difference: the arts number includes all jobs supported by the industry (according to the study’s calculations–so, not just artists and arts organization employees but people at Staples, Guitar Center, etc.), rather than jobs in specific professions. Any of those industries—software, legal, agriculture—could likely draw up a similar graph to make itself look good. Or take the consistent use of the word “generates” when talking about the economic transactions associated with arts organizations and audiences, which clearly implies a causal connection that has not been shown to exist. There is a whole section entitled “Nonprofit Arts & Culture: A Growth Industry” that conveniently downplays the fact that the arts grew at rate slower than overall GDP between this study and the last one. And then there’s that bogus 7:1 “return on investment” figure that we dissected earlier. These overreaches ultimately provide fuel to the economic impact naysayers such as Cowen and Sandow, and may only encourage those with an axe to grind against the arts to sharpen their instruments.

That’s a shame, because I think there is a real case to be made for the economic impact of the arts. As we’ve seen in several smaller studies that focused on particular geographic areas, there seems to be strong evidence for a causal relationship between the density and proximity of arts providers today and growth in local real estate prices tomorrow. That, pure and simple, is economic impact right there. Furthermore, though I’ve spent much of this article talking about substitution effects and pooh-poohing the notion that all of the spending associated with the arts represents spending that wouldn’t have occurred otherwise, it would be equally foolish to assert that none of that spending represents new value being created, either through bringing money into the area via cultural tourism or improving quality of life such that people are willing to spend more than they would have otherwise.4 Even if the arts turn out not to be the absolute most surefire way to spur economic development in local communities in all cases, I think we can assume that they often represent one component of a successful growth strategy. And certainly we can argue with a clear conscience that the arts support real jobs, that they play a much bigger role in the economy than commonly assumed, and that public subsidization for the arts is not the same thing as a giveaway.

For the fourth edition of Arts & Economic Prosperity, which is in its planning stages right now, I hope Americans for the Arts will take advantage of its strong local partnerships and infrastructure to help fill in some of the gaps in what we know. The building blocks for causal analysis are already there. In fact, the audience questionnaire for A&EP III did ask audience members the reason why they were in town that evening, and one of the options was “I am here specifically to attend this arts event.” Alas, this information never found it into the data tables or the report itself. Another question on the survey could ask audience members what they would have done with their time and money instead that afternoon or evening if they had not attended the event. Even though this wouldn’t be the most reliable data in the world due to its reliance on self-reports of hypothetical situations, it would nevertheless get us a step closer to an understanding of the true economic impact of arts events. Finally, at the organization level, it seems obvious that government investment in the arts must have some return, we just have to be careful about attributing outcomes to it that would have happened anyway. So why not ask organizations where they would make cuts if deprived of government funds as part of the expenditure survey? If you really wanted to go nuts with it, you could literally ask them to submit a revised budget that doesn’t include government support and see what they end up cutting. This last approach, needless to say, would be difficult to pull off, but one wouldn’t need to do it everywhere to get some idea of what the overall picture would tell you. A few sample communities might be sufficient as a pilot.

We should be grateful to Americans for the Arts for investing as much time, capital, and seriousness of purpose into this research as it has. While there are a number of paths open for improvement of this work, the foundation upon which those improvements would be laid is solid. I look forward to finding out what Arts & Economic Prosperity IV will have in store for us.

 

1Since the study focused on nonprofit arts organizations, spending by for-profit creative firms and industries was excluded, as was any spending by individual artists. However, government-sponsored arts councils and presenting facilities were part of the study, and so were select programs embedded within non-arts organizations, such as university presenters.

2In fairness, the authors did exclude Laguna Beach, CA from the organizational expenditures and Teton County, WY from the audience expenditures when calculating the national estimates. However, even with this precaution in place, the averages still compute to $210.76 and $251.93 respectively–far above the next-highest number in each category.

3Part of the problem, really, is that organizational and especially audience expenditures just aren’t that strongly correlated with population. Looking at the data tables, one sees huge variances in nonresident spending totals between cities in the same category, like Miami Beach ($72.2 million) vs. Lauderdale County, MS ($502k), or Philadelphia County ($565 million) vs. Suffolk County, NY ($5.7 million). I’m guessing there are a lot more Lauderdale Counties in this country than Miami Beaches. (Indeed, according to Davidson, this is the reason why the cities with a population of less than 500 were not included in the estimates.) If it were possible to extrapolate the national estimates using local estimates of economic activity rather than population size, this approach might yield a more reliable result.

4While this study documents attendance at arts events by nonresidents, it does not do much to show that their travel plans were dictated by those events. However, it does point us to resources that go farther: a 2001 study by Travel Industry Association of America and Partners in Tourism found that 65% of adult travelers attended an arts and culture event while on trip 50+ miles away from home, and that 32% of these (i.e., about 20% total) stayed longer because of event. And of those that stayed longer, 57% (or about 11% of all travelers) extended their trips by one of more nights. So we can infer from this that arts and culture events were directly responsible for one or more nights of lodging expenses for approximately 11% of adult long-range travelers in 2001.

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[Createquity Reruns] Arts Policy Library: Fusing Arts, Culture and Social Change

(Holly Sidford’s “Fusing Arts, Culture and Social Change” is perhaps the most talked-about arts research publication of the past five years, and Createquity’s take on it went against conventional wisdom in several important ways. This review by Talia Gibas is a great example of the nuance we try to capture when we’re considering what research efforts have to teach us. -IDM)

FACSC Cover

(For a quick summary of this post, see “Fusing Arts, Culture and Social Change: the condensed version.”)

Holly Sidford’s “Fusing Arts, Culture and Social Change: High Impact Strategies for Philanthropy” calls for a major overhaul in arts philanthropy in the United States. It is one of a series of reports commissioned by the National Committee for Responsive Philanthropy (NCRP) as a follow-up to its 2009 Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact. NCRP established benchmarks for funders to strive toward in order to “maximize their impact and best serve nonprofits, vulnerable communities and the common good.” Those criteria, along with their associated benchmarks, are as follows:

  • Values: at least 50% of grant dollars provided to benefit marginalized communities (defined broadly using 11 categories, which include the economically disadvantaged; racial/ethnic minorities; victims of crime/abuse; single parents; and LGBTQ citizens), and 25% for advocacy and civic engagement
  • Effectiveness: providing at least 50% of grant dollars for general operating support and 50% as multiyear grants, and ensuring that application and reporting timelines are aligned to grant size
  • Ethics: maintaining a board that serves without compensation and includes representatives from the community it serves
  • Commitment: paying out a minimum of 6% of a foundation’s assets annually in grants, and investing at least 25% of those assets in ways that align with its mission.

“Fusing Arts, Culture, and Social Change” examines how current practice in arts funding holds up against the NCRP benchmarks, and calls on the field to refocus its energies and resources in a number of different ways.

Summary

The central argument of “Fusing” is that arts philanthropy, as currently structured, perpetuates inequality across the arts and culture sector, and across society as a whole, by disproportionately funding large institutions that focus on Western European traditions. According to the report, this practice is problematic for a number of reasons:

  • It “restricts the expressive lives” of a large swath of our society
  • It benefits institutions patronized primarily by the wealthy, and, by extension, benefits the wealthy themselves, flouting justification for the tax-exempt status foundations and arts organizations enjoy
  • It ignores emerging practices within the artistic landscape, threatening to render arts philanthropy irrelevant
  • It undermines the potential of arts and culture to be tools promoting democracy and social change

This practice is not new. Arts philanthropy, Sidford argues, was from its early days “not motivated by a desire to relieve suffering, help the poor or find systemic solutions to pressing social problems,” but to reinforce an elitist system in which wealthy individuals patronized museums and orchestras to signal their status. Arts and culture philanthropy was firmly divorced from any funding meant to address social inequity. To this day, “early arts patrons’ preference for the European high art canon, and for the institutions that reflect and support social elites, continues to frame funding patterns.” To support this claim, “Fusing” examines Foundation Center data on how many funding allocations for arts and culture are made with the specific intention of benefiting disadvantaged communities:

95% of the foundations analyzed gave grants with a primary or secondary purpose of arts and culture. But only 10% of these arts and culture grant dollars were classified as benefiting one of the 11 underserved populations included in the NCRP’s analysis, and only 4 percent were classified as advancing social justice goals.

Furthermore, the Foundation Center data suggests “the greater a funder’s commitment to the arts, the less likely it is to prioritize marginalized communities or advance social justice in its arts grantmaking… arts funders whose main focus lies outside of the arts appear to value the catalytic role of the arts in serving social justice goals more than funders with larger arts portfolios.”

GRAPH 9: The Greater a Funder's Commitment to the Arts, the Less Likely They are to Prioritize Marginalized Communities or Advance Social Justice

Sidford cites a number of present-day factors – demographic, aesthetic/artistic, and economic – that she believes make the case for change in philanthropic practice all the more pressing.

Demographics

“Fusing”’s demographic data, mainly drawn from the 2010 U.S. Census, centers on the changing racial and ethnic composition of the United States, the widening gap between the rich and poor, and persistent inequities in education, civic participation and health care. Each of these inequities, according to Sidford, is currently being addressed in some way by artist-activists and community-based cultural organizations that are not receiving the recognition or support they deserve. Their existence, and the fact that there has been an “enormous increase in the number of cultural organizations in the past two decades,” underscores the “universal desire for arts and culture in every community” – a desire that needs to be acknowledged with broader philanthropic support.

Artistic/Aesthetic

Despite being persistently undervalued and underpaid, artists play a vital role in preserving non-European cultural traditions, contemporizing and blending them to create new ones, and breaking new ground in finding ways to apply the arts toward social justice goals. “Fusing” cites Americans for the Arts’ 2010 “Trend or Tipping Point: Arts and Social Change Grantmaking,” which reports growing funder interest in supporting arts and culture projects that intersect with other social justice goals such as health and education. Many organizations engaged in this type of hybrid work, however, “do not fit the classic model of an arts institutions, operating more on a collectivist or community organizing model” that renders them difficult to assess or to assign to a particular funding category.

Cultural Economics

The report’s final case for change revolves around the distribution of funding, pointing to inherent inequities in large, mid-sized and small organizations’ access to private and public capital. According to data from the Urban Institute, organizations with budgets under $500,000 generated 51% of their revenue from contributions, gifts and grants, while the largest nonprofits with budgets over $5 million reported receiving just over 60% of their revenue from such sources:

TABLE 1: Arts Nonprofit Revenue Sources by Budget Size

The disparities appear even greater when looking at how all contributed revenue is distributed across arts organizations of various budget sizes. Only 18% of all contributions, gifts and grants made to arts nonprofits in 2009 went to organizations with budgets less than $500,000, despite the fact that these organizations represent 84% of the total. By contrast, 55% of contributions, gifts and grants go to organizations with budgets more than $5 million. Put another way, organizations that in number represent only 2% of the nonprofit arts sector receive 55% of public and private subsidy:

TABLE 2: Distribution of All Arts Nonprofit Revenue By Recipient Budget Size

Sidford suggests that these disparities are likely mirrored individual donor practice, citing a study by The Center on Philanthropy at Indiana University that found more than 70% of highly affluent households gave to the arts in 2009, compared with less than 8% of the general population. Artists and organizations serving marginalized populations, she argues, have more difficulty soliciting individual donations because their constituencies are less able to provide financial contributions. Recent drops in public arts funding (including a 20% decline in local government expenditures on the arts between 2008 and 2010) make circumstances all the more bleak considering that public funding has traditionally been moreaccessible to cultural groups serving marginalized populations. “Shifts in public sector funding,” Sidford writes, “have both immediate and long-term implications for the cultural ecosystem, particularly for the smaller, newer, edgier parts of that system and the artists and groups serving our least advantaged communities.”

Recommendations for Moving Forward

In light of these trends and challenges, “Fusing” asks that arts and culture-focused foundations “make equity a core principle of [their] grantmaking by paying more attention to the people who will benefit from [their] grants and the processes by which the arts and culture provide those benefits.” To assist in this process Sidford provides questions designed to help funders make equity a greater focus in their work. The questions are grouped under five broad purposes for arts philanthropy:

  • Sustaining the canons (defined as “important works from established traditions”)
  • Nurturing the new (including new artistic works and new audiences for that work)
  • Arts education (including media literacy, art appreciation, and advocacy for equity of access to arts education for all children)
  • Arts-based community development (“endeavors and organizations that intertwine artistic and community goals”)
  • Arts-based economic development (includes arts incubators, spaces for artists, cultural tourism, etc)

The questions under each category focus primarily on diversity (i.e. “Are we recruiting actively applications from artists and organizations working outside the European canon?” “Are artists from diverse cultural backgrounds involved in the programs we fund?”) and breaking down traditional silos between arts and non-arts funding (i.e. “Are we funding both arts and non-arts organizations doing this work?” “Do we recognize art and social change as a form of artmaking?”) “Fusing” concludes by challenging funders to re-examine longstanding assumptions about the role the arts can and do play in our society,“asking, in an authentic way, ‘What is the purpose of philanthropy in the arts today?’”

Analysis

As noted above, “Fusing Arts, Culture and Social Change” was written with the intent of applying the NCRP’s criteria for effective grantmaking to the arts. Those criteria generated a good deal of discussion and controversy when they were released. Members of the philanthropic community, such as then William and Flora Hewlett Foundation President Paul Brest, questioned whether funders should prioritize reducing poverty and discrimination over other social goals such as addressing climate change, pursuing medical breakthroughs, or supporting – you guessed it – the arts. “Fusing” takes NCRP’s criteria for philanthropy, and their underlying premise that serving disadvantaged populations should be a focus for all grantmaking, as a given.

Like the NCRP report, “Fusing” provoked strong and varied reaction across the arts and funding communities (GIA’s online forum on equity in arts funding provides a good sample) when it was originally released. It also provoked a strong and varied reaction in me. Reading it evoked frustration similar to what I feel when I read arts education reports that draw conclusions affirming my fundamental beliefs (i.e. that the arts are a powerful learning tool for children), without providing clear evidence for those conclusions. I understand and support the arguments the reports are trying to make, but wish they did a better job making them.

“Fusing” contains a number of such arguments – about the role of philanthropy and of art in society – that are more values-driven than data-driven. In many cases those values align with my own. I believe, for example, that the arts provide concrete social benefit beyond simple aesthetic pleasure. I believe that all members of our society do not have equal access to that benefit, and that is a problem the private funding community can and should address. “Fusing” does a very good job of affirming those beliefs for me, both by calling attention to organizations doing some very compelling work with arts and social change, and by raising important questions about the extent to which entrenched inequities in early arts philanthropy continue to the present day.

Unfortunately, “Fusing” does not provide a clear vision for how funders should redistribute their resources in response. Two questions loom over the report: 1) in which contexts are the arts the most efficient and effective means of addressing social inequity?, and 2) how can private grant resources most efficiently, effectively and sustainably address inequities within the artistic field?

I don’t think we have concrete answers to either question, and the report muddies the waters further by failing to distinguish consistently between the different segments of the arts sector it identifies as disenfranchised. Specifically, it conflates arts organizations (and individuals) pursuing social justice, arts organizations serving specific non-European ethnic communities, small arts organizations, and individual artists. Clearly, some organizations meet all these descriptors – they are culturally-specific, artist-led, justice-seeking and resource-starved. But rather than keeping consistent focus on the intersection of those qualities, the report treats them somewhat interchangeably. This is more confusing than illuminating, since many small arts organizations, individual artists and culturally-specific organizations have little in common beyond being ignored by mainstream institutional funding.

Collapsing together these segments of the arts sector makes it difficult at times to discern what the report is actually arguing for. For one thing, the report’s data doesn’t clearly align with its recommendations. By emphasizing large organizations’ share of foundation giving, for example, the report implies that funding should be redistributed to small organizations – but never specifically recommends this course of action. For another, its bold but largely unsupported assertions about the role of arts and culture in communities (like “these artists and arts organizations are powerful agents in the struggle for greater fairness and equality”) lump all such entities together without acknowledging their varying levels of quality, capacity, relevance, and impact. As a result, it’s difficult to know which practices deserve greater support, or how to identify them.

Below are some specific ways in which these issues manifest.

The 55%/2% statistic

One of the most jarring (and often cited) statistics from the report is that the “richest” 2% of arts organizations receive 55% of all contributions, gifts and grants made for arts and culture – reminiscent of the “99-percenters versus 1-percenters” divide that fueled the Occupy Wall Street protests this time last year. On the surface it doesn’t seem particularly fair that the largest 2% of organizations would receive the lion’s share of arts funding – but those large organizations tend to have large buildings to maintain, a heck of a lot more people to pay and a broader programming scope. Some of them may be incredibly efficient with the resources they are given, and others may be extremely wasteful – but without considering what their large budgets are being used for, it seems premature to jump to the conclusion that funding a large organization perpetuates inequity.

Moreover, redistributing private grant resources might not even make all that much difference. It’s a common misperception that the 55% number refers just to foundation funding. In fact, it also includes contributions and gifts from individuals, which are actually twice as important as foundation funding for arts organizations in the aggregate. Moreover, according to the report, the proportion of the revenue that large organizations receive from contributions, gifts and grants relative to their budget size (61%) isn’t much different from the proportion received by midsized (59-60%) and even the smallest organizations (51%). Essentially, this statistic is telling us simply that some organizations have larger budgets than others.

That revelation would be more compelling, and provide more cause for alarm, if it were accompanied by findings that culturally-specific organizations tend to receive a proportionally smaller percentage of their grant requests compared to their euro-centric counterparts, or of a substantial inequity in the amount of funding small organizations receive relative to the number of people they serve. But without such context, the most famous number coming out of “Fusing Arts, Culture, and Social Change” is not particularly meaningful.

Capacity and need

”Fusing” argues forcefully that past inequities, in arts funding and beyond, have created a caste system in which organizations that serve marginalized populations are at a disadvantage in obtaining capital relative to established institutions. But “Fusing” presents little evidence that small or mid-sized arts organizations are inherently better equipped to advance social justice than large ones – and that they have a concrete need for more funding in the first place.

Some large arts institutions already spend a substantial amount of money presenting, documenting, conserving and protecting works of art and performance from a wide variety of cultures for the benefit of present and future populations. Others, by virtue of the scope of their work, may be in a much better position to examine themes relevant across cultures, foster dialogue and exchange programs with artists in other parts of the country and the world, and so forth. If funders wanted to influence broad-scale change by reaching a large audience in a short amount of time, large organizations might actually represent an attractive return on investment. A substantial number of them already aim to engage a wide array of audiences, either through targeted outreach activities or by providing free or reduced priced events. For example, well over half of concerts by American orchestras, many of which were the earliest beneficiaries of “elitist” early arts funding practices, are now specifically performed for community engagement or education.

Many programmatic advantages large organizations enjoy are resource-based, of course, and redirecting funding toward small and midsized organizations would obviously allow them to do similar work. Why, however, should we assume that the small and mid-sized organizations would do a better job of advancing social equality if they had more resources? Sidford might argue that culturally-specific and social justice-driven organizations, which are mostly small, would advance equality simply by virtue of their very being. But if the need here is for more culturally-specific, social justice-driven organizations, their numbers appear to already be growing without substantial foundation support. Using the example of the Silicon Valley, Sidford writes, “in 2008, 70 percent of the region’s 659 cultural groups were less than 20 years old, and 30 percent of the new organizations were ethnically-specific… While Silicon Valley may be somewhat ahead of the national demographic curve, related changes are occurring in communities across the country.”

If the number of “artists and tradition bearers” is already on the rise as a natural result of demographic shifts, what additional role is there for private philanthropy to play? Should foundations support these artists and organizations to simply continue doing what they are already doing, or instead ask that they expand or shift their scope? How would the strings (justifiably) attached to traditional grantmaking practice affect what the report implies is a naturally occurring growth in artistic expression and exploration? “Fusing” provides few insights on these important but difficult questions.

Sidford writes,

“activist-artists, tradition bearers, and progressive cultural institutions are using their skills to illuminate our increasing cultural diversity, and to challenge our increasing social, economic and educational divides. They are helping disadvantaged groups give voice to their stories… They are assisting people to exert their political and civil rights… These resources are at every community’s disposal and, with greater philanthropic support, they can be deployed more extensively and effectively” (emphasis mine).

With greater philanthropic support, any resources can be deployed more extensively. Whether or not they are also deployed more effectively, and in particular more effectively than the larger organization down the street, is a different and more complicated question than “Fusing” acknowledges.

None of the issues identified above undermines the assertion that inequities exist within the arts sector. They do, however, raise questions about the extent to which those inequities are problematic, and whether they are problematic for the same reasons that the report identifies.

Implications

“Fusing” does not, in my mind, provide a comprehensive argument for how private grant dollars should be restructured to better address social ills, but where it does succeed is in raising very strong and pointed questions to compel us to think more deeply about how and when the basic notion of equity informs arts funding. What I find to be Sidford’s best and most thought-provoking question isn’t included in “Fusing,” but raised in GIA’s online equity forum: “What if we could start fresh and design a new system of support for arts and culture in this country,” she asks, “with equity as one of its fundamental tenets?”

If “Fusing” had been written as an extended meditation on possible answers to that question, I suspect the resulting essay would envision, among other things, a much greater government investment in the arts. Government institutions in a democratic society are, in theory at least, more naturally aligned toward equitably serving the public, and providing basic services to the disadvantaged, than private institutions. ”Fusing” highlights this point in noting that public arts’ agencies “broad mandate” has historically made their funds more accessible to cultural groups serving marginalized communities. If the demographic and aesthetic statistics in “Fusing” had been applied toward arguing for greater and more stable public investment in the arts, I doubt I would have found as much to quibble with.

Barring a massive reinvestment in public arts funding, which given our current economic and political environment isn’t likely to happen anytime soon, uncertainties remain about how and how much the role of private funders should change. As mentioned earlier, two unanswered questions hover over “Fusing,” both of which have implications for private grantmakers. To revisit them one at a time:

1) In which contexts are the arts are the most efficient and effective means of addressing social inequity?

This question is one that, as a field, we are only beginning to answer. As the report states, “in the past 100 years, we have made a science of developing nonprofit arts institutions but we are still relative neophytes in understanding the role of the arts in catalyzing individual and community capacity, and sustaining individual and community health.” Private funders are well poised to help us deepen that understanding in two ways: first, as “Fusing” suggests, by seeking out and learning from the higher-quality work undertaken by arts and social change organizations; and second, by supporting systems through which our field can become more systematic and thoughtful in exploring and documenting the impact of arts programming on the general public. This latter strategy could take two forms. The first involves incentivizing/requiring grantees to collect more specific information on who their programs are reaching and how exactly those audiences are being served. (The Cultural Data Project springs to mind here as a potential resource with opportunity for expansion.)

The second involves funding third-party research to study both the intended and unexpected consequences of arts programming in underserved communities. Sidford refers to existing research on the impact of art and social change, and implies that established best practices exist (“documented in a growing body of various resources including books, studies, films and websites”). The report doesn’t delve into either in detail, however, so it’s unclear how many models exist and which could (and should) be brought to larger scale. Increased funding for third-party research would be less burdensome to small organizations, which lack infrastructure to support robust research and data collection. It could also help refine best practices and research tools that could then be applied back to large and midsized organizations.

2) How can private grant resources most efficiently, effectively and sustainably address inequities within the artistic field?

The answer(s) to this question will depend in large part on how those inequities are defined. They include inequity of access to artistic and cultural capital, inequity of access to and preservation of cultural heritage, inequity of access to audience, and so forth. If we focus on inequity of benefit from artistic practice, broadly defined, then I think we could use a better understanding of how newer, more grassroots organizations evolve as they expand their scale and scope, both with and without private funding support. Sidford states that “many [such] organizations do not fit the classic model of an arts institution… their internal structures and more informal than conventional arts institutions, their modus operandi more nimble and opportunistic, and their resources almost never in line with their commitments.” As the aforementioned “science” of building nonprofit arts institutions has taught us, organizations undergo fundamental changes in both their administrative structures and their delivery systems as they build up private grant support. These organizations may not now operate under a “classic model,” but the models they do offer seem like fertile testing grounds for better understanding not just the impact of artist-activism, but the impact of private grant support on that activism.

“Fusing Arts, Culture and Social Change” raises compelling questions about inequities in arts and culture funding that demand to be taken seriously. In the end, I cannot dispute the claim that many small and culturally-specific arts organizations deserve to receive more attention and resources than they do. In order to determine how best to identify and support them, however, our field must identify and pursue learning opportunities that can help arts funders be as efficient and impactful with existing resources as possible. As Sidford notes, shifting arts grantmaking toward a greater focus on equity is a long-term process. Managing that shift well requires care, experimentation, and a lot of trial and error. It also requires our collective willingness to set ideology aside and, without apology, question, examine and clarify the benefit and impact of artistic practice on all communities.

FURTHER READING

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[Createquity Reruns] MASS MoCA and the Revitalization of North Adams

(This week, we’re celebrating the Createquity Arts Policy Library, our collection of in-depth investigations of specific research reports and other publications that have something of interest to say about the arts. Today’s entry highlights a lesser-known study published in 2006 that provides some of the best evidence we’ve amassed to date about the causal relationship between the arts and local economic development. Creative placemakers should take note! -IDM)

MOCA2This particular Arts Policy Library entry is a bit of a reprise, since I read and discussed “Culture and Revitalization: The Economic Effects of MASS MoCA on its Community” for my independent study on public policy and the arts earlier this year. However, in recent months I’ve had a few experiences (including a session on community economic development at the Grantmakers in the Arts Conference last month) that suggest this study and its implications are less well known in the field than I would have thought. To help get the word out, I’m now doing a more complete analysis as part of the Arts Policy Library series.

“Culture and Revitalization” is the economic anchor of a four-part multidisciplinary examination of the impact of the Massachusetts Museum of Contemporary Art (MASS MoCA) on its hometown of North Adams, MA that also included historical/ethnographic, anthropological, and sociological approaches. The study was funded by the Ford Foundation’s Shifting Sands initiative and completed in 2005 by Stephen C. Sheppard, Professor of Economics at Williams College, along with co-authors Kay Oehler, Blair Benjamin, and Ari Kessler. Sheppard and his team are or were all associated with the Center for Creative Community Development (C3D), which began as a Ford Foundation initiative and has received additional grants and contracts from the likes of LINC and the Institute for Museum and Library Services to improve our collective understanding of the role arts organizations play in their communities.

Summary

North Adams is a small industrial town that was once home to vital textile and electronics firms that played a key role in the regional economy of Western Massachusetts. Thanks to the changing nature of industry and misguided urban renewal policies, however, the city began a steep economic decline beginning in the late 1960s. By the time the Sprague Electric Company closed down its factories in the center of town in 1985, North Adams was in bad shape.

It didn’t take long for the arts to step in. Thomas Krens, the erstwhile director of the Guggenheim who was at that time head of the nearby Williams College Museum of Art (WCMA), came up with an idea to repurpose the now-abandoned factory space in North Adams for large contemporary art works. Krens was inspired by an art fair he had attended in Cologne where dealers rented abandoned factories as exhibition space. He quickly won the support of North Adams’s mayor, John Barrett III, and the Massachusetts State Legislature approved a $35 million bond to build the facility in 1988. Krens installed his young WCMA colleague Joseph Thompson as the museum’s inaugural director.

The same year, however, Krens left to take over the reins at the Guggenheim, and for various reasons the project began to stall out. It wasn’t until 1995 that construction began on the facility and 1999 before the museum finally opened to the public, more than a decade after it was first envisioned.

This is where Sheppard et al.’s study steps in. Broadly speaking, the paper is structured around a kind of “before and after” snapshot of North Adams’s economy in the wake of the museum’s appearance on the scene, as variously manifested in employment figures, payrolls, housing values, and hotel tax receipts. In doing so, it takes full advantage of the natural experiment presented by the sudden infusion of $56 million in public and private funds toward the transformation of what had become a brownfield site into the largest center for contemporary art in the country.

The study begins with a helpful review of important recent cultural economics literature, including the work of Americans for the Arts, the Social Impact of the Arts Project (SIAP), the Urban Institute, and Richard Florida. The authors explain that each of these research efforts approach the problem of measuring the economic impact of culture from a slightly different angle, implying various advantages and disadvantages. For example, the approach employed by Americans for the Arts is easily ported to cities not included in the original study, but it focuses entirely on regional impacts rather than the arguably more important effects seen at the neighborhood level—a weakness shared by the Creative Economy Council’s report on the “creative sector.” SIAP’s work, by contrast, is lauded for its careful attention to spatial analysis, but is not as easily replicable in other settings outside of Philadelphia. The authors perceptively note that most of these efforts, whether focused on cultural tourism or Florida’s creative class, examine only one side of what is really a dual process: the long-term productivity potential of creative residents and the immediate benefits of discretionary spending by creative visitors. Interestingly, the authors also assert that Florida’s theories are of “little relevance” to rural areas and small towns, though they offer little evidence for this claim.

To understand the economic impacts of MASS MoCA in the greatest possible depth, Sheppard et al. employ several distinct tools. First, using employment data from the museum, an input-output model similar to that used in Americans for the Arts’s Arts & Economic Prosperity study is constructed via the Minnesota IMPLAN Group’s software package IMPLAN. As the authors explain, the language and framework of input-output models are familiar to policymakers and their results are loosely comparable between cities, but they miss a lot of depth due to overemphasis on regional effects and undercounting of artists and independent contractors. Nevertheless, the estimates provided by IMPLAN turn out to predict with almost eerie precision the actual growth in total local employment headcounts and payrolls in the years following the opening of the museum.

The authors’ input-output model reports a total increase in output of $9.4 million resulting from the museum in 2002, with $5.6 million of that total represented by museum expenditures, $1.9 million accounted for by expenditures on the part of other local businesses related to the museum (indirect effects), and another $1.9 million coming from the additional household expenditures of local employees supported by the museum’s and local businesses’ spending reported above (induced effects).[1] Using data from Americans for the Arts’s survey of non-local audience members’ expenditure habits as well as MASS MoCA’s own records, the authors estimate an additional $4.8 million of increased output resulting from audience spending on related items such as lodging, transportation, meals, etc., for a total yearly impact of over $14 million. The same model estimates an increase of 230 jobs throughout the local county economy as a result of MASS MoCA’s existence in 2002, with the bulk of the benefits accruing to the museum, restaurant, educational services, hospitality, and transportation industries.

Sheppard et al.’s model also provides estimates for revenue paid to the government as a result of MASS MoCA (even though the museum itself does not pay income or sales tax). “The government,” of course, is perhaps a misleadingly monolithic label: of the approximately $2.7 million per year attributable to MASS MoCA that goes to government coffers, more than half ends up at federal level, with the balance staying with state and local government. The biggest sources of this revenue are from personal income and social security taxes paid by/on behalf of new employees at the federal level, indirect business sales tax at the state level, and property taxes on improved real estate asset values at the local level.

A model means little, however, if it’s not grounded in reality. Fortunately, the authors took the time to compare the model’s outputs with actual trends in regional economic growth during the period following the museum’s opening. MASS MoCA’s own budget is well-forecasted by the input-output model, which makes its estimates based on the number of the museum’s employees. In 2002, MASS MoCA’s actual expenditures, according to tax records, were $5.56 million; the model’s prediction of $5.62 million (which forms the bedrock of its $14.2 million total impact estimate for that year) was therefore off by only 1%. Meanwhile, annual payrolls for the area increased a total of $24 million (in 2004 dollars) between 1998 and 2001 according to Census data. So in other words, the model implies that the birth of MASS MoCA was responsible for nearly 60% of the region’s net economic growth in the three years following its opening. Similarly, the model predicts an addition of 230 jobs to the county economy attributable to the museum; records show that actual job growth between 1998 and 2001 was 510. And if the average of the three years following MASS MoCA’s debut is used, the prediction of 230 new jobs comes even closer to the actual growth figure of 255.

In addition to total payroll and employee counts, Census employment data shows substantial increases in the average employee salary since MASS MoCA appeared on the scene. It appears that the museum helped bring more professional/white-collar workers to the city, with the average from the four years prior to the museum’s opening jumping from $24,991 to $27,114 in the three years afterwards (all numbers in constant 2004 dollars), an 8.5% real wage increase. Furthermore, there was a 12-15% increase in the number of small and medium businesses with fewer than 100 employees, particularly between 1998 and 1999 (the first year of the museum’s existence). The authors also examined the growth in hotel tax receipts to double-check the model’s assumptions about the impact of new cultural visitors to North Adams, and this time, they compared the numbers to those for surrounding communities. As it turns out, tax revenue for all of northern Berkshire County rose some 75% between 1994 and 2003—but the corresponding figure for North Adams was over 300%, far above that of any neighboring city or town. Both construction of new hotels and greater occupancy rates in existing facilities made the increase possible.

The true star of this study, however, is its innovative use of multivariate regression analysis to pick out the impact of MASS MoCA on local residential real estate prices. Sheppard developed aspects of this technique himself, based on the hedonic analysis pioneered by Ridker and Henning in 1967. Essentially, the team looked at actual home sale prices within a 2-km radius of the MASS MoCA campus (and the brownfield site that was there previously) during the period between the mid-1980s and 2003 and inferred the values of surrounding properties from what people were willing to pay for the ones that sold. The prices were normalized to the shelter component of the regional Consumer Price Index to cancel out any broader fluctuations in housing values during that period, and the regression analysis controlled for other variables that might influence prices on a house-by-house basis, including lot size, internal space, the age of the building, whether it was Tudor style, and so forth (full diagram below).

MOCA4Sheppard et al. found that MASS MoCA did indeed appear to have an impact on real estate housing prices. Before the museum opened, properties closer to the MASS MoCA campus were actually less valuable than those farther out, because at that time it was a brownfield site with only the hulking remains of an electronics factory occupying it. For every meter further away a house was from the factory, its value went up by about $9. This result was statistically significant when controlling for the factors mentioned above. After MASS MoCA’s debut in 1999, property values still increased slightly with distance from the campus, but the value was much lower (just over $2 per meter) and the statistical significance disappeared (meaning that we can’t even say for sure whether distance from MoCA made any difference at all in a house’s price after 1999). Effectively, controlling for a whole host of other factors that might affect housing values, this means that the houses closer to MASS MoCA became a whole lot more valuable after that brownfield site was turned into a world-class contemporary art museum—to the tune of around $11,000[2] in the case of the properties closest to the action. The effect was noticeable out to a radius of about 1.7 kilometers (or just over a mile) from the museum. The authors estimate that the total rise in residential property values attributable to MASS MoCA was just shy of $14 million – and that number doesn’t include any increases in value that accrued to North Adams as a whole relative to surrounding communities because of MASS MoCA, or two extraordinary commercial investments (i.e., hotels) totaling $11 million that almost certainly would not have taken place if not for the museum.

MOCA3This is one of my favorite visuals ever, showing the increase in property values in North Adams attributable to MASS MoCA, as modeled by Sheppard et al. Each dot represents a single residential property and its predicted property value increase as of 2004 as a result of the museum. Note that the perfect concentric circles are a result of the linear nature of the model; the actual impact of the museum on each property would probably not be quite as neat, but should follow the same general pattern.

Analysis

This is really impressive work on a number of levels: from the earnest attempts to ground modeling in actual data, to the multipronged and multidisciplinary approach, to the savvy exploitation of the natural experiment afforded by the museum’s opening. The advanced regression analysis of real estate prices is particularly notable and begs for replication in other communities. An exceptional package of materials is provided alongside the study, even including a rudimentary cultural asset map of North Adams showing visitor origins against a backdrop of demographic data. At almost every turn, it is clear that the authors have thought through the full implications of what they are claiming, and done their best to explore alternative explanations and identify competing or obscuring factors. They take their social science seriously.

MOCA1The fact that “Culture and Revitalization” covers the birth of an institution adds a significant degree of credibility to its conclusions. My objection to much of the analysis contained within Americans for the Arts’s Arts & Economic Prosperity studies, for example, is that it assumes that if an art organization disappeared tomorrow, all of its money and employees would disappear with it. To be sure, losing an organization is always a traumatic experience for the community, but the strong likelihood is that many of the employees would eventually find work with other employers; some might form new businesses or organizations, and so on. Indeed, in some cases it’s possible that an arts organization might even be standing in the way of a more economically efficient business environment taking shape. In the case of MASS MoCA, though, the city was under such duress and the investment was so centrally placed that it’s hard to imagine the impacts on payroll, jobs, and salaries observed in the study if the town had just stood pat. The people who moved to the area to work for the museum almost certainly would not have done so otherwise; the Porches Inn almost certainly would not have been built if there were no museum to draw tourists; etc. For these reasons, the input-output analysis carries far more weight here than it does in most other circumstances.

With that said, there are two parts of the study that I find less compelling than the others, which is why they are not mentioned in the summary above. First, Sheppard et al. attempt a return-on-investment analysis of the Commonwealth of Massachusetts’s initial $35 million bond issue that helped MASS MoCA get off (or, I guess, into) the ground. The analysis is based on a total annual return to government revenue of approximately $2.7 million based on figures from 2002 (this includes the estimates for residential and commercial property tax revenues driven by the museum). Without knowing the full details associated with the bond issue, I have to take the authors’ word that the public’s investment will pay off when taking inflation and growth projections into account. However, the bigger problem is that more than half of the $2.7 million in anticipated annual revenue is going to the federal government, not to the Commonwealth of Massachusetts or the city of North Adams. Even with some of that money eventually finding its way back to the state, it seems likely that the $35 million bond issue is actually resulting in a net outflow of public funds from Massachusetts to the rest of the country. For this reason, I find the authors’ case that “in fifteen years taxpayers will have recovered the initial investment” in MASS MoCA a weak one, at least from the perspective of Massachusetts taxpayers.

Second, the authors claim that North Adams has not suffered the negative effects of gentrification due to MASS MoCA’s arrival because the percentage of residents who have moved in the past five years actually went down nearest the museum between 1990 and 2000. There are all kinds of problems with this analysis (increased occupancy rates or new buildings could account for more people who have recently moved without implying any displacement; if displacement moved people into another neighborhood, they would show up in the new neighborhood rather than the old), but the biggest issue is that the data from 2000, barely a year after MASS MoCA came into existence, is not fresh enough to capture any serious displacement trends in the community. After all, the authors’ own models have the impact on real estate prices taking place from 1999 through 2003, or three times longer than the time window used for the gentrification analysis. We’ll need to wait for information from the next Census, in 2010, before this approach can shed any real light on displacement trends in North Adams as a result of MASS MoCA. (To their credit, the authors do note this deficiency in their approach, but that doesn’t stop them from declaring confidently that “MASS MoCA as made North Adams a better place to live without causing gentrification.”)

Implications

So, what’s the bottom line here? Did MASS MoCA cause the revitalization of North Adams or not?

Certainly, North Adams experienced a pretty impressive revival in close temporal proximity to the opening of the museum. The hardest part of any rigorous study in the social sciences, though, is establishing what’s known as the counterfactual: that is, what would have happened if MASS MoCA had not, in fact, been built? It’s not enough to look at action A and outcome B and conclude that A caused B. You can only know that if you know that B wouldn’t have happened anyway. Short of renting a time machine and assassinating Thomas Krens before he came up with the idea, there aren’t too many tools at our disposal to figure that out. One thing we can do, though, is compare MASS MoCA to communities that are similar in important ways: either by virtue of geographic proximity, demographic and historical parallels, or (preferably) both. “Culture and Revitalization” admirably takes steps in this direction for parts of the study, specifically for the comparison of hotel tax receipts which pitted North Adams against other towns in the Northern Berkshires, and for the real estate regression analysis by adjusting sale prices according to the shelter component of the regional consumer price index. One way in which the authors could have built an even stronger case would have been to compare trends in job creation, salaries, small business growth, and downtown real estate to a “sister city” or two that did not have a world-class cultural institution dropped into its center one year. It might not have been enough to establish conclusive proof (I’m not sure that will ever be a realistic goal with this type of work), but it would give us some pretty strong evidence to work with when considering policy decisions.

Even without this extra layer of evidence, though, the case for MASS MoCA’s role in the revitalization of North Adams is quite convincing, due largely to the absence of other obvious factors that could have explained the remarkable growth seen by the city following the museum’s opening. While it’s important not to overhype these impacts—North Adams is still a city with a lot of problems, after all, and residential properties are still more valuable if they are farther away from the museum as of 2003—to think that a single cultural institution could become this kind of an immediate force in a community is remarkable. A follow-up study, taking place perhaps early in the coming decade, would likely provide us with a richer understanding of the true extent of the museum’s transformative power, or lack thereof. In the meantime, the multidisciplinary companion documents prepared by the C3D team present the qualitative aspects of MASS MoCA’s regenerative properties in sharper relief, particularly the history of the museum’s inception (from which some of the material in the first section of this essay is drawn) and the paper describing the city’s neighborhoods and organizational infrastructure. An innovative fourth document uses social network analysis to describe MASS MoCA’s connectedness in the communities of North Adams and Williamstown relative to other prominent organizations. The museum ranks 7th-10th on various measures overall, and first among arts organizations.

This study demonstrates pretty clearly that arts organizations can provide strong economic benefits to their community. Before we get too excited, though, there still remain some unanswered questions. MASS MoCA’s situation—a huge, world-class facility coming into existence in an economically depressed city of fewer than 15,000 people—is highly unusual as arts organizations go. It’s unlikely, though certainly not impossible, that the birth of a single institution could meet with similarly dramatic results in other socioeconomic contexts. Furthermore, the study does not do anything to compare the arts with other types of investments. Remember, MASS MoCA would not have been possible without a $35 million bond issue from the state and over $20 million in other funds to pay for its construction. How much of North Adams’s revitalization was attributable to MASS MoCA itself and how much simply to the money that funded it? In other words, if $50 million had been spent on, say, converting the Sprague Electric Company site into a biotechnology office park instead, would we have seen the same results? “Culture and Revitalization” provides us with few clues.

Nevertheless, this study and its companion pieces represent an important, and under-recognized, contribution to the cultural economics literature. It is one of the only research reports I have seen that makes a convincing case not just that an arts organization was associated with economic revitalization, but that it caused the revitalization. That is no small thing, and policymakers and researchers alike would do well to pay heed to the methods and circumstances that made such a striking finding possible.

Further reading:


[1] Note that this construction and terminology diverges slightly from the Americans for the Arts model, which treats all local household spending (not just employees’) as just another industry in the matrix of local businesses. AftA also has a different meaning for “induced” spending, using the term to refer to audience expenditures.

[2] Several variations of this figure ranging from $9500 to $11,728 are seen in the report. It is unclear which of these represents the most accurate value.

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[Createquity Reruns] Economicsitis: A Response

(If left on their own, are markets in the real world more likely to work or to fail? That’s the fundamental issue at hand in this week’s reruns, including this one which features a lengthy back and forth both in the post itself and in the comments. Though it’s a little on the abstract side as Createquity posts go, the answer to the fundamental question above has huge implications for policy and strategy to support the arts and everything else. Plus, anybody who enjoys a good debate should dig this exchange between me and my own boss. -IDM)

Last week’s post, provocatively titled Economists Don’t Care About Poor People, attracted two lengthy, substantive critiques. One was from Michael Rushton, with whom I’ve tangled previously on the subject, and the other from Adam Huttler. (Note to self: when your own boss writes an eleventy-thousand-word comment refuting your twelvety-thousand-word blog post, maybe it’s time to, uh, throw in the towel. Just kidding, it’s on!)

I decided to address Adam’s and Michael’s critiques together since there is some degree of overlap. Below, I’ll distill each man’s arguments into bullet-point form and number them so they can be addressed more clearly.

Adam thinks that I am overstating my case and “foster[ing] false hope in a bogus alternative.” He claims:

  • My example of the Costner memorabilia auction is undermined because the dotty old rich guy does not realize what he’s buying, and thus does not have perfect information. (1)
  • The goods cited in the examples given are “luxury goods” (goods in limited supply that have high demand), and thus do not typify markets in general (though Adam allows that the normal rules of supply and demand do not apply to luxury goods). (2)
  • I’m missing the point of Baumol and Bowen’s argument; the real point is that producers should have the option of claiming the full value generated by their product, and they do not have the option to do so if prices are regulated. (3)
  • Anyway, instituting a lottery system for ticket distribution just randomizes wealth, it doesn’t equalize it. (4)

Michael says that I’m too mean to economists and that most of them do have a heart. He writes:

  • Libertarians’ arguments don’t deserve to be taken seriously, so why am I even bothering? (5)
  • He doesn’t know “serious” non-libertarian economists who disagree with a vision of good policy that includes (among other things) a progressive income tax, publicly-provided health care and dental services, and public pre-school, along with most other things that the U.S. government currently provides. (6)
  • Most goods in a marketplace are run-of-the-mill products that are regulated by supply and demand, and that’s okay; the things I’ve mentioned are exceptions. (2)
  • “Efficiency” is a separate concept from “justice” in economics. (7)
  • Instituting a lottery system for ticket distribution just randomizes wealth, it doesn’t equalize it. (4)

OK, let’s see, taking these in order from least salient to most:

First, the appropriateness of using lotteries to distribute expensive tickets to arts events (arguments #3 and 4). Adam & M-Rush’s point that lottery systems randomize wealth rather than equalize it is fair enough – I didn’t necessarily mean to hold lotteries up as the be-all and end-all, but only mentioned them since Baumol & Bowen specifically seemed to think their solution (let the free market decide) was fairer than the lottery. To Adam’s point about commercial operators having the opportunity to claim their own value, I am more sympathetic, though even in the case of some commercial entities the question may not be as easy as all that (e.g., the Red Sox employ a lottery system for distributing hot-ticket items like Yankees games; one might argue that this would be justified as an enforced policy because baseball enjoys an antitrust exemption from the government which allows the Red Sox to have the grip on Bostonians’ identity that they do). And in an environment where nonprofit arts administrators across the country are tearing their hair out trying to understand how to reach new, younger, and more diverse audiences, a lottery system is perhaps a fairer way to distribute scarce resources than relying on market forces to distribute them according to society’s existing unfairnesses.

But I don’t want to let the lottery issue distract from what I see as the bigger fish. The real question here is how well what Adam calls the price =value equation (aka neoclassical pricing theory) describes the real world and how much it influences mainstream economic thought. So let’s begin.

Regarding argument #1, I thought about the issue of perfect information, but I could just as easily have made it a situation where he was buying the memorabilia as a gift for his wife, who divorced him a year later and threw out everything he had ever given to her; or if that’s not good enough, just that it pleased him in the moment to own this item and that he bought it for no real reason other than that he could. Either way, the point still stands, if not quite as dramatically. But this is supposed to be an extreme case for purposes of illustration. The price = value equation is challenged in much subtler ways all the time.

Which brings us to #2: I’m not convinced that these “luxury goods,” and the attendant supply-and-demand weirdnesses that go along with them, are such edge cases after all. Adam goes so far as to say, “while Price = Value in the aggregate, the formula doesn’t necessarily hold for any individual purchaser.” Huh? If the formula doesn’t hold for any individual purchaser, why would we assume that it holds in the aggregate? I’m open to the possibility that it could, if confronted with irrefutable empirical evidence, but I have a hard time believing a priori that the disconnect between utility and willingness-to-pay for individual market players doesn’t bias and shape the market in specific, systematic ways. And if anything, this seems like it would be especially true in the arts. After all, the original discussion that led to all this was about whether unpaid internships were a threat to diversity in the arts because low-income individuals could not afford to take them (and thus were at risk to remove themselves from contention at the front end for an important career stepping-stone towards more potential income later on). One might think of this “willingness-to-accept” problem as a kind of corollary to the “willingness-to-pay” issue that I pointed out with my post. We also looked recently at the possibility of pernicious effects on the socioeconomic diversity of artists that compete for recognition through competitions if entry fees were raised to nontrivial prices. And it doesn’t end there, certainly. Think about what kinds of investments are needed or helpful to jumpstart an artistic career: training, documentation (e.g., recording), production values, marketing, travel, living expenses in expensive cities, time not spent earning income. If anything, in many of these situations willingness-to-pay may be inversely correlated with utility/personal value, not one and the same–not even close.

Do economists understand this? Here’s where Michael Rushton and I just don’t see eye-to-eye (arguments #5, 6, and 7). I applaud his list of policy recommendations–clearly, he is living proof that not all economists are heartless bastards. And surely there are others – Paul Krugman, for one, and the fact that the latter won the Nobel Prize speaks volumes. Perhaps the kinds of economists I want to see are more in evidence in the international community. But here in the US, I wish I could believe they were as mainstream as he says. I mean, really? No serious economists would dispute that we need government-provided universal health care and a no-fucking-around progressive income tax? Has Michael Rushton not heard of the Chicago School? Are these people not mainstream? Have they not had a tremendous formative impact on public policy in this country over the past 30 years? The foundation of their philosophy is the very libertarian principles that Michael is so quick to reject as not being worthy of debate. Yet the shadow they cast over the national discussion of economics is tremendous.

Interestingly, my two contenders reserve their strongest criticism for things I didn’t even say.

Adam, for example, concludes:

Ultimately my concern with your line of reasoning here is that I can’t see how it leads to anything but trouble. Markets are deeply imperfect, but they’re the best tool we have. To the extent that they result in undesirable outcomes, then we should seek to tweak their functioning, not abolish them in favor of some kind of centralized arbiter of happiness.

OK, so I never suggested that we abolish markets. That would be pretty nonsensical of me–after all, markets are there whether we like it or not; they happen. I think of marketplaces like biological ecosystems. Sometimes, depending on what’s going on inside of them, they work extraordinarily well, with everything going according to Nature’s plan in a sustainable, virtuous cycle. Other times, though, again depending on what’s going on a the micro level, they get out of balance; portions flourish while others flounder, leading to displacement or the loss of biodiversity or even wholesale collapse. To fix the imbalance, one must help the system to function again. Whether we call it a market or not doesn’t really matter; it is what it is.

Meanwhile, Michael thinks that I want to achieve utopia through micro-manipulation of the prices of everyday goods.

My problem with IDM is that he wants to achieve income equality through a lottery of opera tickets, where poor winners could keep them or sell them, and the rich could still obtain them. But that’s…well, goofy. This just randomizes wealth, handing out valuable tickets to a lucky few and letting them trade them. I have a better idea…

Of course a lottery of tickets isn’t going to achieve income equality. At best these measures are a small band-aid on a much larger problem, and I’m planning to address that problem in a future post. In the meantime, though, a band-aid is better than salt, is it not?

If anything, in the last two years, my orientation towards markets has become more positive, not less; I now believe that markets are one of the most efficient and effective ways of advancing the social good, when they work. So I think Adam, Michael, and I are actually in quite similar places here after all, broadly speaking. It’s just that I think of markets as systems that occasionally bear a resemblance to the idealized marketplace seen in economics textbooks, but much more often don’t.

*

Here’s the point in all of this.

I have all the respect for Adam in the world (love ya too, boss!), but I remain convinced (or at any rate, I strongly suspect) that it’s the neoclassical model that’s the edge case, not luxury goods. How common is it, really, for people to have full and relevant information on what they’re getting? How common is it that their preferences are really rational? Just because your mind works that way doesn’t mean most people’s do. Likewise, I think Michael Rushton is a smart, smart cookie, but his campaign to limit the discussion to (what seems to me) a relatively narrow group of middle-of-the-road, professional academic economists does a disservice by ignoring the vastly disproportionate impact that the free-market purists have on the national conversation. Dude, if you want to call yourself an economist and be proud of it, you need to take some responsibility for the damage your crazy-ass colleagues are doing to the credibility of your profession.

Rushton thinks it’s unfair that I implied that William Baumol and William Bowen don’t care about poor people, when clearly they do. I agree that it’s an unfair characterization. But I need to explain something about that quote in my last post. For those who have not had the opportunity to read Performing Arts: The Economic Dilemma, the book is through most of its pages a model of “telling it like it is” understatement: the authors clearly identify the limits of their knowledge and analysis, every assertion is thoroughly documented, a host of alternative explanations are examined at every turn, and issues of class, race, and gender are given fairly enlightened treatment by 1966 standards. In short, they approach the issues at hand exactly in the way I would ask.

The outburst I quoted on page 286 is not an offhand remark taken out of context; it is part of an impassioned five-page rant that is completely at odds with the tone seen in the rest of the book. The authors offer no empirical evidence for their claims in this section, only a few quotes from historians and their own very obvious frustration (some of it perhaps justified) at overzealous regulation of ticket prices. Clearly, one if not both of the authors felt very strongly about this issue, strongly enough to break with decorum and tone to take a stand. That they did it while disparaging the notion of “public virtue” and ignoring the very obvious benefits to access for lower-income people (remember, it’s not like these were considered and dismissed, they weren’t even discussed) from one of the suggested solutions, a lottery system, is telling to me. It’s like even Baumol and Bowen suffered from a temporary bout with Econ 101 disease.

*

I’ve used the words “sickness” and “disease” before to describe what I feel is wrong with the economics profession. I do not use these terms lightly. I use them because, though I am ready to believe that the field has no shortage of thoughtful, level-headed, and compassionate people working diligently within it, I truly believe that as a field itself its foundations are rotten at the core. The neoclassical pricing model is not just some important but outdated anachronism in the history of intellectual thought, like Freud’s Oedipal complex or Marx’s proletariat. It is the active basis of the majority of economists’ working lives. It is the foundation of all economists’, and a lot of non-economists’, first instruction in the field. This conversation, again, was prompted by a debate about the minimum wage. If Wikipedia is to be believed, the empirical evidence that a minimum wage is even marginally detrimental to employment totals is inconclusive at best. Yet according to the same source, nearly all economics textbooks have a nice, neat graph that explains exactly why a minimum wage is detrimental to employment totals. It generally looks something like this:

That graph is in my textbook, too, Pindyck and Rubinfeld 5th Edition, right on page 299. I believe that practices like this foster an anti-scientific a priori mindset in the economics profession that hamstrings progress. It empowers those with libertarian leanings to pollute and distract the conversation with theorems proving the supposed moral righteousness of their views, and forces even economists who stray from the neoclassical model to define themselves in opposition to it, to acknowledge its primacy in the face of competing evidence. Assuming for the moment that textbooks are a reflection of what a field thinks about itself, if the textbooks started from the premise of, “this is how markets might work in a laboratory, but we recognize that real life is much more complicated than that,” I would be satisfied. If the textbooks started out by asking questions rather than providing answers, I would be satisfied. If textbooks treated micro and macro as the same thing on different scales rather than two totally separate disciplines, I would be satisfied. If textbooks addressed the issue of externalities and public goods sooner than page 621 (which is where they first pop up in mine), I would be satisfied. If every graph in an economics textbook was taken from an empirical study with true causal implications rather than from a calculus problem set, I would be satisfied. But so long as these things remain the way they are, no, I will not be satisfied with the economics profession.

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[Createquity Reruns] Economists Don’t Care About Poor People

(Economics week at Createquity continues with this provocatively-titled post (don’t worry, it’s a reference) published in March 2010. In addition to the post itself, the original comment thread is well worth checking out (and generated a follow-up post, which is coming next). -IDM)

My around the horn post from this week included an item on the ethics of offering unpaid internships and a proposal under consideration across the pond to force arts organizations (and other employers, presumably) to pay interns the minimum wage if the engagement is longer than a month. This sparked a lively discussion, first on Michael Rushton’s Arts Admin blog, and subsequently on a site that’s new to me called Art and Avarice, written by young voice teacher and entrepreneur Milena Thomas.

The discussion quickly evolved into a back-and-forth on basic economic principles, and I don’t know why, but such topics always get me riled up. I found myself debating with a pseudonymous libertarian purist, the worst kind of people to argue with because the moral nihilism underlying their ideology amounts to a cop-out from considering society’s best interests at all.

In the course of doing some research a few weeks ago I came across a devastating takedown of libertarian ideology in, of all places, The American Conservative. Called “Marxism of the Right” (there’s an attention-getter for you), Robert Locke’s article argues that libertarianism is seductive on the surface but riddled with internal contradictions. Here are some of my favorite quotes:

If Marxism is the delusion that one can run society purely on altruism and collectivism, then libertarianism is the mirror-image delusion that one can run it purely on selfishness and individualism. Society in fact requires both individualism and collectivism, both selfishness and altruism, to function. Like Marxism, libertarianism offers the fraudulent intellectual security of a complete a priori account of the political good without the effort of empirical investigation.

Empirically, most people don’t actually want absolute freedom, which is why democracies don’t elect libertarian governments. Irony of ironies, people don’t choose absolute freedom. But this refutes libertarianism by its own premise, as libertarianism defines the good as the freely chosen, yet people do not choose it. Paradoxically, people exercise their freedom not to be libertarians.

A major reason for this is that libertarianism has a naïve view of economics that seems to have stopped paying attention to the actual history of capitalism around 1880. There is not the space here to refute simplistic laissez faire, but note for now that the second-richest nation in the world, Japan, has one of the most regulated economies, while nations in which government has essentially lost control over economic life, like Russia, are hardly economic paradises. Legitimate criticism of over-regulation does not entail going to the opposite extreme.

This contempt for self-restraint is emblematic of a deeper problem: libertarianism has a lot to say about freedom but little about learning to handle it. Freedom without judgment is dangerous at best, useless at worst. Yet libertarianism is philosophically incapable of evolving a theory of how to use freedom well because of its root dogma that all free choices are equal, which it cannot abandon except at the cost of admitting that there are other goods than freedom.

Anyway, I thought this would be a good time to break out a post I’ve been meaning to write for a while. I’ve gone on at great length about my various problems with the neoclassical economic model (someday I’ll collect them all into one place), but one I haven’t touched upon much yet is the way that economists deal with income.

Consider two people who are participating in an auction for a rare piece of Kevin Costner memorabilia. One is a billionaire who happens to be staying at the hotel where the event is held. The other is a teenager who has spent her (life) savings on the plane ticket that allows her to be at this event in person. She has a shrine to Kevin Costner in her room at home, and this is the one item that will complete her collection. If she misses out on it, she’ll never have another chance. Not only has she scrounged up all of her own savings, but she’s spent a month fundraising pledges from her friends and family to help her buy this item. After exhausting every avenue she can possibly think of, she comes to the auction with $3,000 to spend.

The auction begins, and she and the rich guy are the only two bidders. The price quickly gets up to her maximum of three grand, and she keeps going. It’s up to $4,000, $5,000—at this point she has no idea what she’s even bidding with, all she knows is that she has to have this item. After a while, though, it becomes obvious that she’s not going to win this contest, and she runs from the room in tears and defeat. She commits suicide the next day out of grief.

The rich guy, meanwhile, a big NBA fan, is a little dotty and thought it was an article of Kevin Johnson memorabilia. He takes it home and means to resell it, but he forgets about it (again, he’s a dotty billionaire) and it sits in his closet until he dies, whereupon it’s found by his son who doesn’t realize what it is and tosses it in the trash.

According to the neoclassical economic model, the above is a just and efficient outcome of a fair transaction. The rich guy prevailed in the auction because his willingness-to-pay, as judged by the price he actually paid, was higher than the teenager’s willingness-to-pay (as judged by the price she didn’t pay). Thus, economists would say, the dotty old rich guy “valued” the item more.

This absurd result is made possible because the neoclassical method of modeling demand has no real way of distinguishing between “don’t want” and “can’t afford.” All it sees is that a transaction didn’t happen, and the default assumption on the part of economists is that it must be because the girl didn’t want it as much as the rich guy. The economist’s response to “but I couldn’t afford it!” is, essentially, to say that if she’d really wanted it, she would have proven it by finding some way, somehow, to afford it, even if that meant selling her body or stalking the dude for another 15 years until she could buy it back from him. That the rich guy faces no such great sacrifice to obtain the item is irrelevant to them.

“But Ian,” I hear you thinking, “no one could possibly be that stupid. Real economists know what income effects are and of course they wouldn’t make policy recommendations based on what, on its own, seems like a blunt instrument for estimating demand.”

Ah, if only it were that simple! Alas, economists (with the exception of behavioral economists) all too often have a nasty anti-scientific habit of prescribing policy based solely on their flawed and incomplete theories rather than empirical observation and testing. It’s ingrained into them from their earliest training. And despite Michael Rushton’s protests that “only a fringe” of economists fail to understand the criticisms that I hurl against the neoclassical model, we’re not talking about wackos—these are mainstream, well-regarded figures in the field. I give you William J. Baumol and William G. Bowen, authors of the seminal study on the economics of the performing arts:

Not that [ticket scalping] is necessarily undesirable – indeed, as we have maintained, it is part of the normal allocation process. Suppose only one seat is left for a particular performance and two persons wish to buy it – a visitor to New York who will have no other opportunity to see the show and a native New Yorker who can attend almost any performance. If the two contenders have roughly equal incomes, the visitor will offer to pay more because the seat at this particular performance is of greater value to him; and we see nothing “immoral” in this act. Things go wrong only when someone tries to maintain a “just price” artificially, either through legislation or through self-denial on the part of the supplier in response to a questionable notion of public virtue. If those who supply the product are unwilling or unable to collect what would normally be its market price, invariably someone else will volunteer to take their place. The speculator who had nothing to do with the production will then reap the rewards which would otherwise have gone to those who contributed their labor and resources to the performance.

Nice trick there, guys, to cherry-pick the one extremely rare situation in which your logic actually works. In practice, of course, the two individuals’ incomes or asset levels will almost never be equal, and they could just as well be as divergent as our Kevin Costner-obsessed teenager and dotty old rich guy above. If the authors had stopped there, of course, that would have been fine—but they go on to disparage the “questionable notion of public virtue” that benefits “speculators” rather than “those who contributed their labor and resources to the performance,” completely ignoring the fact that some of those “speculators” might be people who actually really want to see the show who otherwise would not be able to. And sure, there would be some reselling on the secondary market, but if, say, legislation put in place a lottery system, that would arguably result in a more just sorting of tickets – because the lower-income people who wanted the tickets would keep them, while higher-income people who wanted tickets would still be able to obtain them. If the tickets are all uniformly at a high price, you would have some higher-income people with tickets who don’t actually want them as much as some lower-income people who don’t have a chance to access them.

Or take Tyler Cowen, a tenured professor and author of a fantastically popular economics blog:

One way of measuring the value of health insurance is by its market price and by that standard many of the current uninsured just don’t value health insurance very much.  That’s why they don’t buy it.

Riiiight, because the cost of health insurance strains people’s family finances beyond what is feasible, that means they don’t value health insurance at all. Having been uninsured for extended periods twice in my life (most recently just this past fall), I can serve as my own counterexample on this one – I certainly would have bought myself insurance had I the money.

Cowen goes on to qualify his statements in a way that makes it clear he is open to other interpretations. But that’s not good enough. To me, the notion that “the value of a poor man’s life is not measured by his money” is even a question up for debate is the ultimate sign of economics’ sickness. That Cowen has to lead off with the neoclassical interpretation almost apologetically before presenting alternative views shows how much weight that framework, with all its flaws, still carries with his readers.

We’ve learned this week that our aversion to economic inequality is not just a philosophical abstraction; it may in fact be hardwired into our brains. Human beings have a need for moral fairness and just desserts as part of our biological makeup, it seems, just like sex and food. But it’s no surprise that our economic models don’t take this into account; after all, it seems the people we put in charge of telling us how the world works are the rare people who don’t share this characteristic. In short, it’s true: economists really don’t care about poor people. It’s time we had a framework for understanding our actions that speaks for the rest of us.

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[Createquity Reruns] Economics myths

(Happy Labor Day! For those of you who are wondering when the new Createquity is coming, never fear – we’ll have an announcement about that soon. In the meantime, our rerun programming continues with a series of posts about economics. Createquity has always loved exploring the intersection between the arts and various other fields, but if there’s one social science discipline that holds more sway over this site than any other, it’s econ. And yet at various points I’ve expressed intense frustration with conventional thinking around economics, the kind of textbook insights that free-market fundamentalists rely on when making arguments apologizing for selfishness. This post, written not long after I completed my first economics course in business school, is where that all started – and it’s pretty much a pure rant. But I enjoy it, and I hope you will too! -IDM)

When I first studied music theory approximately a decade ago, I was rather shocked to discover, unbeknownst to me and apparently every rock band whose music sent me into spasms of ecstasy when played on my headphones at high volume, that parallel fifths in music—not to mention octaves, cross relations, and leaping to a leading tone, among countless other infractions—are bad, bad, evil, bad. Of course, no one who writes music nowadays actually believes this. But that’s not what they told me at the time, and that’s not how my assignments were graded. To this day, as a composer, I have yet to encounter a situation in which the ability to write sonatas in authentic 18th-century style has come in handy. Anyone? Anyone? Maybe it’s just me.

This is not a case of running into some bad teachers. This is the way music students are taught introductory music theory. It’s a conservatory tradition that goes back hundreds of years, to a time when those parallel fifths actually mattered to people writing music professionally. It’s just that the pedagogy has fallen behind where the field is, to the tune of a decade or twenty.

I encountered this same feeling again this past semester when learning about economics for the first time. Now, I’ll be the first to admit that there is still much about economics, as a field, that I do not yet know or understand. I’m sure that there are smart people out there developing models that take into account the concerns I detail below. For now, though, I want to take a look at the assumptions that underlie the very practice of economics, and the way that those assumptions are presented unchallenged in the standard introductory curriculum.

If all economics tried to do was observe and model human behavior, I wouldn’t be writing this screed. But economists apparently feel that it’s okay to make not just “positive” statements, about what is, but “normative” statements as well, about what ought to be. I often felt, in my introductory econ classes and while reading my textbook, like I was watching an advertisement for Republican fiscal policy. Our reference text, the popular Microeconomics by Robert Pindyck and Daniel Rubinfeld, does not shy away from applying classical economic theory to the issues of the moment. On the contrary, the book analyzes taxes, wage floors, price subsidies, and other attempts by the government to gain revenue or regulate prices for some social purpose. Each discussion is accompanied by helpful graphs that show you how each of these policies creates “deadweight loss” resulting from the reduction in the number of transactions. That’s right, they call it “deadweight loss.” Could they think of a more biased term? I mean, there’s no “happy joy gain” on the graph from the public benefits of fewer people smoking cigarettes or everybody having access to heat and hot water.

And that, friends, is the problem. Classical economics models have no reliable way to represent human happiness or suffering in a supply-and-demand graph. Little things like that are what economists call an “externality” – i.e., they don’t know how to make it into a formula, so they’re just sort of going to pretend it doesn’t exist. (The issue of externalities is first addressed on page 621 of the Pindyck and Rubinfeld textbook, in the 18th and final chapter.) On the other hand, any attempt to mess with the market causes measurable deadweight loss, so that means it’s bad. It’s all so simple and convenient!

I wouldn’t be harping on this except for the fact that there are actually people, seasoned professionals with jobs teaching economics to young minds, who think this way. Earlier this year, I attended a panel discussion (which was really more like a Lincoln-Douglas style high school debate on steroids) at the Yale Law School entitled “The Myth of the Rational Voter.” The guest star was an associate professor from George Mason University named Bryan Caplan, whose book was both the subject of discussion and the title of the event. Hoping to gain expert psychological insight into electoral politics, I was disappointed to find that the book was apparently an investigation into why “correct” economic policies generally become law despite a vast majority of voters holding “wrong” views about economics. And what were these “wrong” views, one might ask? Yup, you guessed it—tariffs are bad, taxes are bad, rent control bad, free markets good good good. Leaving aside the obvious methodological issues with such a survey (after all, government policies are generally designed to be of greater benefit to the average layperson than the average professional economist), what disturbed me was that there was absolutely no challenge to these basic assumptions from the other panelists. Caplan was allowed to present these opinions as foregone conclusions, as if economic science had shown them to be as obvious as the law of gravity. He also couldn’t help throwing in some smug digs at the (lack of) intelligence of his own students, which of course just made him all the more endearing.

I hear people talking like this and it makes me want to scream. Folks, there is no such thing as free markets in modern society. If markets were truly free, slavery would still be a booming industry in this country, as it was in the 1600s. If markets were truly free, we’d have paid bounty hunters roaming our cities, putting on hits for anyone who wanted to get rid of an inconvenient rival or former spouse. If markets were truly free, crime in poor areas would spiral out of control as public police departments were replaced by private security agencies who would charge more to serve high-crime areas because of higher costs. Heat? Electricity? Firefighting? Forget it, those would be private too. Can’t pay? Too bad.

The fact is, there is a basic tension in economics between efficiency and equality, which Pindyck and Rubinfeld readily acknowledge. Getting maximum productivity (from a profit standpoint) in a market means that people with lower incomes will be left out of the picture. Economists even have a name for these people. It’s “low-value consumers.”

There is an alternative way of looking at the above, which is that there is no such thing as something that’s not a free market. After all, the government systems we do have in place for human services, infrastructure, price regulation, and so on, are essentially the result of consumer action. They voted people into office to institute these reforms, a power no consumer had on his or her own. One could argue that these policies are the result of the “market” deciding, in aggregate, that prohibitions against certain industries might be a good thing. That environmental protection was worth setting limits on what large companies could put into the air or water. This view requires a broader conception of market activity that goes beyond merely buying and selling. It essentially says that whatever happens is part of the larger organism of humanity, that the actions companies and consumers take to affect the market are as much a symptom of the market as a driver of it. It says that markets will always be free so long as human beings are creating and living them.

To believe that, though, would invalidate the classical economic assumption that the only thing people are interested in is maximizing profit. Whoops!

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[Createquity Reruns] Supply is Not Going to Decrease (So It’s Time to Think About Curating)

(Our reruns this week have focused intensely on the competition among artists that makes it difficult to make a sustainable living as one. This exact issue blew up in the arts world some three and a half years ago, after then-NEA-Chairman Rocco Landesman dared to invoke the words “supply and demand” at a convening and suggest that reducing supply was more realistic than increasing demand. Many people in the arts disagreed, and we did too – but not for the same reasons. Leaving aside the moral arguments, we simply don’t think that decreasing supply is ever going to happen no matter what anyone does, so any strategy to deal with the issue needs to accept “oversupply” as a given. This response was originally published on the NEA’s Art Works blog. -IDM)

Image by Flickr user Waddell and Condor

I’ve been waiting for a while to respond to the controversy that erupted after Rocco Landesman’s comments on supply and demand in the arts at Arena Stage in January. (Createquity’s previous coverage, provided by Aaron Andersen, is here.) Most of the very thought-provoking commentary in the interim has taken issue in one way or another either with the notion that demand cannot increase, or the appropriateness of the supply/demand construct altogether. Now that the dust has settled a bit, I want to propose a slightly different way of thinking about the situation.

The first thing for us to understand is that Rocco’s comments did not come out of nowhere. People in arts policy circles have been grumbling about the dramatic increase in arts organizations for years. I had actually been collecting links on this topic all through last year in preparation for a post on oversupply when the news of Rocco’s speech hit. Here’s Michael Kaiser, for example, noting that “so many people” over the past two years have suggested to him that we must thin out the field (he does not agree). Jim Undercofler, arts management professor at Drexel and former CEO of the Philadelphia Orchestra, admitted recently that he was questioning his “initiating assumption” that there are too many nonprofits.1 Here’s former Mellon Foundation Associate Program Officer Diane Ragsdale with a post on oversupply 10 days prior to Rocco’s address at Arena Stage. And this past fall, Grantmakers in the Arts’s much-heralded National Capitalization Project Report ended up making a lot of people nervous, primarily because of the inclusion of this statement among its core hypotheses: “there is an oversupply of product in some marketplaces, and…current funding practices do not address this issue.”

I take the view that, whatever the merits might be of reducing supply, there is virtually nothing anyone—funders included—can do to actually make it happen. For one thing, conversation about supply and demand breaks down a bit when the suppliers have an intrinsic motivation to be in the marketplace. Classical economic models assume that suppliers don’t have any particular emotional attachment to what they’re supplying; all they really want to do is to make money. As a result, if they’re not making money, they’ll exit the industry, leaving more to go around for everyone else. As we see from Kirk Lynn’s contribution to the discussion, however, many artists (especially artist-entrepreneurs) have far too much passion for their work to consider exiting solely for financial reasons. The result of this lack of exit is a surfeit of fantastic art that few aside from its creators have time to take in.

Notice that I didn’t say in that last sentence “a surfeit of fantastic art that few want to take in.” An immutable fact of contemporary culture is that the volume of expressive content and product available for us to consume overwhelms not just our desire, but our physical ability to experience it all. The number of albums released on CD in 2008 is enough that a listener couldn’t get through more than an eighth of them even if he had his headphones on for 24 hours a day, 365 days a year. Users upload the equivalent of 176,000 full-length movies to YouTube every week. And that’s just the stuff that’s being released today! Meanwhile, every creator must compete not only with all of her contemporaries, but also with all of those who came before her whose work survived to the present—and that supply is not about to decrease anytime soon. (Unfortunately, creators cannot similarly count on dead audience members to be a part of their fan club.) Moreover, the phenomenon of oversupply—or, put another way, hypercompetition—is far, far bigger than the nonprofit arts sector. It affects industries ranging from video games to smartphone application stores, Facebook, cable TV, and yes, blogs. In many ways, it is existential in scope: our brains and lifespans are not built to withstand this onslaught of choices. The supply of artists, arts organizations, and even capital may increase with relative ease, but the supply of time in the day, last I checked, remains pretty constant.

So to me, the conversation we should be having is not about reducing supply. Instead it is about defining the responsibilities of cultural institutions to provide stewardship for a world in which supply of creative content is exploding and will never shrink. In this era of infinite choice, there is a desperate need for guidance as to how we should allocate the precious few hours that we have to experience something that will feed our souls, make us think differently, or incur a hearty laugh. In other words: for curation. We need someone to listen to, watch, and view all of the chaff so that we can confine our own time to the wheat. But quality curation-that is to say, curation that results from independent, original research and informed, critical judgments-is not just good for us as consumers. It’s just as important for the artists. In particular, in a hypercompetitive environment like this one, we need to look out for the artist with the talent and drive to make great art, but without an income stream that will support her as she makes it. The voices of these artists—the gifted but resourceless—risk getting shut out unfairly because many others have the capital and connections to bring their work to the attention of gatekeepers, even if that work is inferior.

I believe it’s critically important that, as we seek to impose structure and sanity on this world, we do not cut off the flow of new ideas and new voices in the name of triage. The main reason why we have this proliferation of nonprofits, I think, is because artists think it’s the only vehicle they have available to them to do their work. But as Adam Huttler points out, it’s not – in particular, fiscal sponsorship provides an attractive and immediately available alternative structure in which to accomplish one’s artistic goals. With fiscal sponsorship, there is no assumption of perpetuity; no mandate to form and submit to a board that may not understand or share the founder’s agenda; and much less in the way of paperwork and reporting requirements.

So why would anyone form a nonprofit? A nonprofit still makes sense, in my view, if its focus is not on a specific artist or group of artists. Any organization that provides infrastructure - presenters, community arts organizations, arts education providers, local arts councils, service organizations, and the like – is a good candidate for the nonprofit form. Rule of thumb: if an organization would have no reason to continue on if its founder(s) left tomorrow, it probably shouldn’t be a nonprofit.

If I were a funder, I would be thinking about how to focus my support on organizations that are nonprofits for the right reasons. Funders can accomplish more impact by supporting institutions that work with and involve a wide range of constituents, be they artists, audience members, community members, etc. And yes, that does suggest—as both Rocco and Grantmakers in the Arts have suggested—larger grants to fewer organizations. However, this only works with the other pieces of the puzzle if all of the following three things are true about the organizations receiving grants:

  1. They actually pay the artists. This is how we can get away with not supporting artistic producers directly. There needs to be a mechanism for those producers (i.e., dance and theater companies, musical ensembles, individual painters, sculptors, etc.) to make money through the system that is being set up. If grantees that present the work of artists to the public are not compensating their creative collaborators proportionately with the support they’re receiving, this strategy is undermined.
  2. They’re performing their curatorial duty. If all the organizations that hire artists and ensembles are too lazy or hamstrung by commercial pressures to seek out new voices and instead simply work with the same narrow pool of established names, there will be no room for innovation and the field will stagnate. Many funders’ well-intentioned focus on butts in seats in the name of community relevance creates incentives counter to providing good curation, while failing to instigate widespread increases in arts engagement. Institutions already have all the incentive they need to maximize butts in seats – it’s called earned revenue. By accepting charitable support, I would argue, organizations have an obligation to seek out work that isn’t guaranteed to put butts in seats. And if an institution’s cost structure won’t allow for that, even with subsidization, that is a telling sign that it may be overbuilt.
  3. They play well with others. At this time of extreme pressure on philanthropic and especially government support for the arts, the field needs to make efficient use of scarce resources like buildings, equipment, real estate, and attention. There’s no sense in pouring millions of dollars into a new facility only to have it sit dark three-quarters of the time. That’s not only a huge waste, it is deeply uncharitable. Donors (including institutional funders) should demand accountability on this point.

Much has been written about the increasingly blurred line between creator and consumer of art. With plummeting production and distribution costs, unprecedented levels of global interconnectedness, and nearly 50% of the United States population engaged in some form of personal creation, it’s no surprise that we are faced with art all around us – more than at any previous point in history. Abundance of creative expression isn’t going away; it is our future. Maybe what really needs to be “fixed” is not supply and demand – since, with due respect to the NEA, that issue is a whole lot bigger than us – but rather, the processes and rationales we use for determining how to distribute public subsidy.

*

1 All of the “too many nonprofits” talk reminds me of how differently we treat nonprofits from businesses for no good reason (after all, donors are customers too). You never hear anyone saying “there are too many small businesses”—by contrast, private-sector entrepreneurship is recognized as a critical mechanism for spreading innovation and a key source of real economic growth, especially in a recession.

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[Createquity Reruns] Artists not alone in steep climb to the top

(For all the talk of how artists face challenges making a living, they’re not alone. Former Createquity Fellow Jena Lee takes a look here at how individuals in other fields, including fashion and even law, are singing the winner-take-all blues. Some of the lyrics might sound surprisingly familiar. -IDM)

A mural by street artist Scotch 79 reads "Will Work 4 Food." Photo credit: carnagenyc

“Will Work 4 Food,” a mural by New York street artist Lord Scotch 79. Photo credit: carnagenyc

Philip Glass drove a taxi, Patti Smith was a bookstore clerk, and William Faulkner worked the night shift at a power plant. It’s an old story: when they aren’t working in their studios, recording, or rehearsing for upcoming auditions, many, if not most artists spend their time at another job that brings in a steady income. Some take what few teaching positions they can at colleges and universities – an increasingly unstable source of employment. Others land full-time jobs in the commercial arts. They set aside their own visions and projects in service of students and clients, while earning a salary that no doubt inflates the $43,230 median wage of U.S. artists reported in a 2011 NEA study. Offering limited opportunities for recognition and financial growth, these gigs can seem like consolation prizes in a field where few ever achieve stardom. However, for those artists lucky enough to make it big one day, the financial rewards can be enormous.

The arts labor market has been called one of the oldest examples of a “winner-take-all” economy, a term popularized by Robert Frank and Philip Cook in their 1995 book, The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us. The hallmark of this kind of market is extreme income inequality, whereby a small number of the bright, talented, and fortunate generate the majority of economic value. Case in point: according to the New York Times, 56 percent of all concert revenue in 2003 flowed to just a handful of pop music stars like Justin Timberlake and Christina Aguilera. That left less than half the year’s proceeds to be divided amongst all other performers.

But the arts aren’t the only field in which a huge number of aspirants compete for few professional gigs, often choosing between what will sell and what they really want to do. Here we take a look at two other examples of “winner-take-all” economies and consider a future in pursuit of superstardom.

Fashion Models

In 2012, Gisele Bündchen earned $45 million. In addition to working her typical modeling gigs, the Brazilian thirty-something is a spokeswoman and endorsement queen contracting with big name brands such as Pantene, Esprit, and Versace. Her commercial success and business savvy have made her the Andy Warhol of the modeling world, although he never made nearly as much while alive. Gisele leads her supermodel pals in yearly earnings by a cool $36 million, with Kate Moss in distant second place.

Supermodel Gisele Bündchen reportedly earned $45 million in 2012. Photo credit: Tiago Chediak

Supermodel Gisele Bündchen reportedly earned $45 million in 2012. Photo credit: Tiago Chediak

The allure of such multi-million dollar salaries, the jet-set lifestyle, and the promise of beauty immortalized on the cover of Vogue has inspired many young women to pursue a modeling career. Popular TV shows like America’s Next Top Model have steadily increased the number of new hopefuls into the industry. Unfortunately, that has only made the dream harder to attain. Ed Razek of Limited Brands puts into sharp perspective just how tough it is to be one of 140 women to have strutted the catwalk for Victoria’s Secret over the years:

“There are seven billion people on the planet. That makes each of them not one in a million, not one in five million, not one in ten million. That literally makes them one in 50 million humans.”

All Bündchens aside, success in the fashion world is extremely difficult to attain. In fact, the median income for an American model in 2009 was $27,330. How is that possible? According to sociologist and ex-model Ashley Mears in her book Pricing Beauty: The Making of a Fashion Model, the sheer number of women competing for modeling opportunities today has caused pay rates to drop. A few years back a runway show would typically pay $1,000 to $5,000 a day. At this year’s New York Fashion Week, one model made between $800 and $1,000 per show and sometimes was only compensated in trade such as clothing, jewelry or makeup. She was also expected to front the expenses for her transportation to and from gigs, as well as for hotel stays. After all that, her agency still took a commission. A model can quickly find herself in debt if the jobs don’t line up – and they very well might not. It’s common for a model to go weeks without another opportunity. So why does she suffer through it all? For the exposure. Sound familiar?

Just like artists, models will often spend their own money on projects and ply their craft for next to nothing for the sake of exposing their work to a broader audience in hopes that they will eventually be “discovered.” If that moment never comes, the model may have to find a more reliable means of support. These jobs are usually less glamorous than shooting couture magazine spreads in exotic locations. In Pricing Beauty, Mears identifies the highest earner at one New York agency: a perfect size 8 who can charge $500 per hour for fittings with major American retailers. For all the cash she brings in, there’s little prestige in this type of work and agencies actually frown upon these jingle-makers of the fashion world.

MAandWAGE

The Bill of Rights (left) drafted by Model Alliance and W.A.G.E.’s “wo/manifesto” both advocate for fair pay and ethical treatment of industry workers.

Not all models are willing to accept current wage inequities within the industry. Model Alliance is an unofficial union formed by supermodel Sara Ziff that aims to establish ethical standards and fair pay for its workers. Their interests mirror those of labor advocates in the arts, such as Working Artists and the Greater Economy (W.A.G.E.), a New York-based group fighting for regulated payment of arts workers at nonprofit institutions. While both industries remain wholly unregulated, these labor organizations give voice to an under-paid and under-represented workforce. Which brings us to…

Lawyers (the curveball)

Practicing law has long been touted by many a family member as one of the most lucrative, and therefore reliable, careers. However, a shift in economic climate and rise in digital technology and information access has eroded this old standard. Once upon a time in 2008, recent law graduates had a job placement rate of 76.9% in positions that required passing the bar exam. Since then many changes have swept the industry, including automation of once labor-intensive work, the outsourcing of mid-level clerk positions, an increase in price competition, and a trend towards doing away with the billable hour structure. Last year, the American Bar Association (ABA) reported that barely half of law school graduates had found work in comparable full-time positions. Couple this high level of unemployment with the enormous amount of debt incurred by students—the average is about $125,000 for private law school—and the situation starts to seem a little desperate.

Andrew Carmichael Post, a “boy-genius” who passed the California State Bar at the age of 22, still wasn’t exceptional enough to land a job with a firm after graduating. He resorted to living with his parents, wearing Goodwill, and working four jobs as a computer programmer while taking on small business clients just to afford his $2,756 monthly loan repayment. His total debt of $215,000 far exceeds the national average. Post is not alone in having to adjust his career expectations. Above the Law recently stumbled across a job post on Boston College Law School’s website with an annual salary of $10,000. Not only is that below the minimum wage, it contrasts starkly with the $6,500,000 earned by the highest paid general counsel in 2012 – and that figure doesn’t include his stock option. Incidentally, the law office that posted the listing defended the low salary, citing “valuable experience” as a perk of the position. Thirty-two hopefuls applied.

Detail of an epic flow chart created by Connecticut attorney Samuel Browning based on the book Don’t Go to Law School (Unless) by Paul Campos.

Detail of “Bad Reasons to Go to Law School,” an epic flow chart created by attorney Samuel Browning based on the book Don’t Go to Law School (Unless) by Paul Campos.

The legal industry has begun to respond to the changing shape of the marketplace. The ABA recently presented a report calling for education reform that would help reduce the time investment needed to obtain a law degree and promote lower tuition costs. It suggests training non-legal professionals in limited services and lowering requirements for taking the bar exam. Some law schools have already reacted by reducing class sizes. One has even lowered acceptance standards in an attempt to boost admissions after a drop in enrollment. A number of schools have opened nonprofit law firms to give graduates a little income and real world experience, while also addressing a growing need for affordable legal services. Dozens more plan to offer similar programs for alumni in coming years.

It’s uncertain whether changes within the legal field are here to stay, but for the moment they threaten to upend the lawyer’s traditional career trajectory from student to clerk to firm associate. They also hint at a future with more affordable basic legal services provided by lesser-paid specialists, while the talented and ambitious few in Big Law continue to command eye-popping salaries. Reflecting on the results of the 2013 Law Firms in Transition Survey, Tom Clay of Altman Weil wrote, “Firms are beginning to think more strategically about growth – trading up to improve profitability, rather then bulking up to drive gross revenues.”

Artists (home plate)

The rise of nonprofit law firms provides an interesting comparison to the arts. What would happen if arts schools now examined the law school model of running spaces where alumni gain experience, earn income, and provide a service to the community? Would this model temper dreams of art world superstardom and promote a more sustainable career path? Would it also provide a means of lowering education costs for artists, an issue the arts sector has debated heavily as more and more artists enroll in MFA programs, some with tuitions of nearly $100,000?

Many of those artists, just like Andrew Carmichael Post and his classmates, will likely have difficulty repaying their student loans. In “Artists in the Winner-Take-All Economy,” sociologist Mark Stern surmises that income disparity in the arts is representative of overall trends in our society, and we ignore it at our own peril. He also paints a rather pessimistic picture of an economy that perpetuates the culture of superstars ad infinitum once it takes hold. The outcome is a country wholly divided by income and accessibility, a depressing thought. However, if the arts are in any way representative of the rest of the system, then working to transform its micro-economy into a healthier and sustainable one may provide clues as to how to pull our society out of the superstar spiral.

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[Createquity Reruns] TEDx Talk

(By 2011, I was writing pretty frequently on the issue of how high-quality curation connects to the distribution of opportuniteis for professional artists. My views were encapsulated most fully in this talk for TEDxMichiganAve at the Chicago Symphony Center’s Club 8, May 7, 2011, which discusses rationales for subsidizing the arts, the debilitating effects of hypercompetition facing artists, and how all of this adds up to a huge class issue that we don’t discuss nearly enough. The talk is printed below, or you can watch the video here. -IDM)

 

“Never Heard of ‘Em”: Why Citizen Curators (not Daddy’s Money) Should Decide Who Gets to Be an Artist

For the past few months, you’ve probably been besieged with emails and Facebook posts asking you to convince our politicians not to cut public funding for the arts. Often these appeals will include a link to some news story about how the arts will suffer if government grants are reduced. And if you click through and read the comments, invariably you’ll come across something like this:

The government—at whatever level—has no business funding the arts, especially so, when much of that art is mediocre or worst. Why should my tax dollars go to fund the fun of someone who thinks himself or herself the next Picasso? Exceptional art will find funding, as it always has.

In my arts policy coverage, I find this argument comes up a lot, and there’s a good reason—it’s difficult to parry.

Our first response to such arguments is usually to talk about the value of the arts. But note that the commenter is not saying that art itself doesn’t have value. The dispute is about the value of subsidy to the arts. The commenter claims, and quite rightly so, that art would still happen if the government didn’t help pay for it. In fact, that’s exactly what took place in this country for the first 175 years or so of its existence, before a real infrastructure for government arts funding came into being.

So why would we want to subsidize the arts anyway? I mean, if the deli on the corner is losing customers because its meats are stale and the service is slow, we don’t say that the government should subsidize the corner deli. We say good riddance! So is it really such a big deal if the arts are left to fare for themselves?

The way I see it, there are basically two reasons to subsidize the arts:

  1. To give us cool art that the market wouldn’t otherwise support
  2. To give access to the arts to people who wouldn’t otherwise have it

Each of these reasons assumes a market failure when it comes to the arts. The first suggests that, while the market can determine which art or entertainment makes people happy in the here and now, it is bad at judging the long-term value of art. It’s pretty easy to come up with examples of people who we now consider to be Great Artists who were not recognized as such in their day. The only reason their work has survived until now is sheer luck. Often, an artist’s real value to society comes not so much from the direct experiences that audiences have of his or her work, but rather from the profound influence that the artist has on other artists, some of whom may eventually reach a wider public.

The second reason is a straight-up class argument. Just as with many other services, because art has value, people shouldn’t be denied access to art just because they are poor, or happen to live in a rural area, or are confined to a nursing home or mental institution. The same argument applies to kids – just because their parents can’t afford to provide them with access to art, doesn’t mean they shouldn’t have it.

I’m going to focus most of this talk on the first argument: that it’s important to subsidize art because the commercial marketplace is not good at judging art’s long-term value to society and future generations.

So we are agreed that the commercial marketplace is not so good at judging the long-term value of artistic product. But if you’re not going to let the marketplace decide who succeeds and who fails in the arts, then who should decide?

To be honest, I don’t have a great answer to this question. But the best that I can come up with is that I would want the people deciding to really know their shit. I expect that someone who has studied the arts, or even better, my specific discipline, or better yet, my specific genre and subgenre within my specific discipline, will have a better idea of the long-term value of my work to society than some schmoe off the street. That’s not elitism, that’s just common sense.

But you know, art is still a matter of taste. And people always have personal agendas, scores to settle, and so on. One of the really nice things about the commercial marketplace is that no one person really has that much power to determine what happens on their own. But the problem with the commercial marketplace is that most of the people in it are not the experts we want judging the long-term value of the work.

What we need is something I call an artistic marketplace: a system of buying and selling artistic products and services in which the currency is not money, but instead the respect of experts. In which success is determined not by how many butts in seats you have, or how many records you can sell, but by the extent to which your work impresses people who really know their shit.

So who are these people? They are anyone who experiences a lot more art than the average person, and thus has a basis for informed opinion. Professional critics are probably the most obvious exemplar of this category. But it also includes anyone who judges artistic work samples for a living: publishers, artistic directors, booking agents, record company execs, gallery curators, and the list goes on. It even includes, I would argue, people like this guy. [Slide: grocery store clerk who’s watched and ranked over 7000 movies] These people collectively form the demand curve within the artistic marketplace.

As we said earlier, the currency of the artistic marketplace is the respect and endorsement of experts. The problem is this: that respect does not exchange properly with the currency of the commercial marketplace: money.

This is important because the whole purpose of subsidy is to make that exchange possible. Remember, with subsidy we are actively intervening in the commercial marketplace because we don’t agree with the choices it is making about which artists and institutions should stand the test of time. And yet I am sure that any of us in this room, or any of us watching, can point to examples of brilliant artists working today, who are well-recognized by their peers, who nevertheless struggle to make ends meet. This wouldn’t happen if the artistic marketplace were functioning the way it’s supposed to.

So why is it that philanthropic subsidy isn’t more effective at helping critically acclaimed artists make a living? Well, for one thing, we can’t talk about this phenomenon without mentioning the intense competition for attention between artists of all stripes. I don’t need to tell you that the past 20 years have completely revolutionized our society’s level of access to art of all kinds. Production costs have fallen drastically, making it possible for amateur creators and performers to use equipment that only professionals could have taken advantage of a generation ago. And because of the internet, distribution costs have nearly disappeared entirely, particularly for film and electronic media, recorded music, and writing. Finally, storage costs – with the transfer of so much information to digital format and hard drive capacities metastasizing every year – are dropping through the floor as well. The net result of all of these changes is that it’s easier than ever before for people to create art that can “pass” for professional; it’s easier than ever before for these amateur artists to enter the public sphere by distributing their works to the world; and those works get preserved in the public sphere, accessible by anyone at any time, rather than languishing in the attic or in the creator’s imagination.

Bottom line: a lot more people are entering the artistic (and commercial) marketplaces on the supply side—they engage in personal creation or performance for public consumption. And because the same technological innovations apply to retired artists – even deceased artists!—not only does each new playwright or composer or painter have to compete with all of her peers, she must also compete with every artist who came before her. Unfortunately, she cannot similarly count on dead audience members to be a part of her fan base.

So there is a tremendous amount of competition in the artistic marketplace—a marketplace in which the currency is respect. But in order to get respect, one of the “experts” in the artistic marketplace has to give you their attention – which means they have to give you their time. They have to listen to your piece, read your play, look at your slides, be present at your audition. And time is becoming – for all of us – a really, really scarce resource. Our lives are being filled up – not least by all of this content that we are bombarded with every day. In fact, we are producing so much art in this world these days that we are overwhelming the human capacity to evaluate it all. Let’s say you are a music fan. If you decided you wanted to listen to all of the albums released in the United States in a given year – say, 2008 – you could put your headphones on for every hour of every day of every week of the year – and you still wouldn’t get through more than an eighth of them! So now it’s 2009, and you have seven-eighths of the previous year to listen to – plus all the albums from 2007, and the albums from 2006, and you get the picture. Or let’s say you enjoy hunting for videos on YouTube. Guess what: there are 35 hours of video uploaded to YouTube every minute. That’s the equivalent of 176,000 full-length Hollywood movies every week!

So you see what I mean when I say that we don’t have the capacity to evaluate it all. And more to the point, those experts in the artistic marketplace don’t have time to evaluate it either. So they triage. They take some shortcuts.

Let’s take an example – an example from music, since that’s the world I know best. If you review the rosters of major classical music presenters around the country, you will start to see a lot of the same names over and over and over again. The fact is, the first instinct of anyone awarding a high-profile gig will be to choose proven commodities: names that audience members are familiar with, excited by, and motivated to buy tickets for. There is a powerful incentive for these curators to make that choice: it’s called earned revenue! Even though presenters operate in the artistic marketplace, they also operate in the commercial marketplace, and the commercial marketplace demands that one take advantage of star power.

But let’s say that in this particular case, a presenter has decided to take a chance on a chamber ensemble that is not so well-known – in fact, it’s the first gig they’ve ever had at this level. But are they really unknown? For that programming decision to happen, the work of those musicians has to be brought to the attention of whoever is doing the artistic programming for the presenter. I’m telling you right now that it didn’t happen because that person was reviewing unsolicited work samples that came in through the mail or over the internet. The tidal wave of submissions is in all likelihood so massive that they can’t possibly give their full attention to each one. So what do they do instead? They are probably plugged in to the next level down of presenting opportunities, and may get out and see shows on a regular basis. They monitor what their peers are saying in their local community and around the country about particular artists, keeping an ear out for those that are generating buzz. And it is on this basis – career momentum, essentially – that programming of “new” artists actually happens.

So for an unknown chamber ensemble to get a major opportunity like this, they have to already be generating buzz and getting smaller performance opportunities. Here’s where it gets tricky. Those smaller performance opportunities don’t really pay the bills. Maybe the musicians are self-presenting, and thus sees their income swallowed up in production costs. Maybe they’re doing a lot of unpaid gigs as favors just to get exposure. They might even be doing club shows where the payout at the end of the night is $50 per musician if they are lucky. That doesn’t go very far toward paying for instruments, practice space, or the van rental if they’re on tour.

And how did they get those smaller gigs anyway? It certainly helps if they had a killer demo – the kind that it takes money to record. It helps if they had a lot of time to practice together, which means they have a dedicated rehearsal space. These things cost money.

And finally, in all likelihood, those musicians paid a lot of money for conservatory training, at the bachelor’s and possibly the master’s level. And during that time when they were getting trained, they probably weren’t making money either.

So we’ve just outlined a number of problems standing in the way of an unknown artist or group of artists getting a gig that pays them enough money to live on.

  • There’s the problem of profile: in order to get that gig, people have to already know who you are.
  • The problem of curatorial capacity: in order for people to know who you are and to stand out from the crowd, you need some career momentum.
  • The problem of presentation: in order to get that career momentum, you need public showings and documentation of your work which you have to either pay for or subsidize.
  • And there’s the problem of uncompensated time: in order to get and make those presentation opportunities successful, you need to spend thousands of hours in training and practice, which are thousands of hours that you’re not earning a living.

Do you see where I’m going with this? This process of getting attention presents us with a HUGE class issue. Is it any mystery why our arts organizations have trouble connecting with less affluent members of society? It’s not because they can’t afford the tickets. It’s not because they can’t get to the venue easily. It’s not because the genre as a whole isn’t “relevant” to them. Okay, I lied – it is all of those things. But I don’t think any of them are the main reason. I think the main reason is because these less affluent populations don’t know anyone in their communities who is a professional artist with those organizations. Because how could you be, if you grew up poor and couldn’t afford conservatory training and weren’t given lessons in school and anyway now you have to work two jobs to put food on the table and feed the kids? We talk a lot about cultural equity in the arts, and we typically frame it in terms of audience access: who has the opportunity to see one of these amazing artists perform, or witness their creations? But as more and more of us turn to creative expression as a way of affirming our identities in an increasingly connected world, I think the most importantcultural equity issue of our time isn’t who gets to see the amazing artist, it’s who gets to be the amazing artist.

I’ve almost reached the end of my time, but I want to leave you with a few thoughts about where to go from here.

One of the big problems with the current system is that, of all the “experts” we identified way back in the beginning of this talk, only a few of them can back up their opinions with more than token amounts of money. I gave you the example of a presenter earlier, and others, such as grantmakers and some artistic directors, share this privilege. But that leaves out most critics, booking agents, and radio station programmers. It leaves out superfans and aficionados. Doesn’t their opinion count too? Apparently not, if you follow the money.

What we need to do is pretty clear. First, because supply in the artistic marketplace is increasing so dramatically, we need to bolster the demand curve to meet it, by getting more people who really know their shit to evaluate unknown artists. This will address the problem of capacity. And second, we need to do a better job of making sure that people who know their shit can back their opinions up with money, so that those who succeed in the artistic marketplace can also succeed in the economy more generally.

In “Audiences at the Gate,” an article published in Edward Clapp’s 20UNDER40 anthology last year, Daniel Reid and I discuss a model that aims to accomplish both of these goals. We suggest that one or more foundations could funnel some of the money that they give to the arts each year through a community of citizen curators who interact with each other via a web-based platform. These citizen curators could be anyone, really, but their influence on the foundations’ decisions – and thus their ability to direct the flow of philanthropic capital – would depend on their ability to build a reputation among their colleagues for knowledgeable, fair, and thorough evaluations of artistic proposals and work samples uploaded to the site.

This approach increases the number of people participating on the demand side of the artistic marketplace, and it explicitly directs philanthropic subsidy into the hands of experts. And there’s a third advantage as well: by consolidating discussions about which artists to support into one place, the model transforms curation into a team effort, avoiding needless duplication and saving everyone precious time.

I’m sure there are other approaches that might work too. But I do fervently believe we need to do something. As it stands, because the artistic marketplace isn’t functional, less affluent individuals get shut out, and we don’t get a chance as a society to benefit from their talents or perspectives. Thus, the first goal of artistic subsidy—cool art that we wouldn’t otherwise get to experience—is not fully met.

But if you’ll recall, the second purpose of artistic subsidy is to give people access to the arts who wouldn’t normally have it. And we’ve just said that access isn’t just about experiencing art as an audience member, it’s about getting to be in the show as well.

So if we can someday reform the artistic marketplace, we’ll actually be serving both goals of artistic subsidy at once – not to mention addressing the most important cultural equity issue of our time. Not bad, right? Let’s just hope that our government funding survives until then.

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