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Title:  Nonprofit organizations and the Intersectoral division of labor in the arts

Author(s): Paul J. DiMaggio

Publisher: Yale University Press (in The Nonprofit Sector: A research handbook)

Year: 2006

URL: https://www.princeton.edu/~artspol/workpap/WP30-DiMaggio.pdf

Topics: Nonprofit arts sector, commercial arts sector

Methods: Analysis of economic census data, literature review

What it says: The article explores the division between nonprofit and commercial organizations within particular sub-fields within the arts. DiMaggio primarily uses data from the 1997 US Economic Census, which collects data on tax exempt (nonprofits and public) and taxable (for profit) entities in multiple categories. DiMaggio acknowledges several limitations of this data set, most notably that it tends to exclude or underestimate small or unincorporated arts organizations as well as those embedded within larger institutions like universities. DiMaggio relies on the data set despite these drawbacks, since he believes that it is the single best source to determine how arts activities are divided between the for profit and nonprofit arts sectors in the United States.

DiMaggio’s analysis finds that art and history museums are primarily non-profit. Within the performing arts, he finds that fields with the longest history of prestige and recognition as high art (symphonies, resident theatres, operas) tend to adopt non-commercial form while other less prestigious fields (popular music, dinner theatre) tend to adopt commercial status. Fields that have recently gained respect from critics and scholars, such as ethnic dance or Jazz, contain either a mix of organizations of both types, or skew toward the commercial. Overall, the majority of the categories DiMaggio examines are largely dominated by tax exempt organizations.

The author reviews three theories frequently cited in the literature to explain this division between nonprofit and commercial structures, or more specifically the dominance of the nonprofit form in the majority of many arts fields.  The first theory is market failure, or the idea that certain arts activities are not feasible as commercial enterprises and so can only thrive with private or public subsidies (Baumol and Bowen’s landmark work on cost disease in the performing arts is cited). DiMaggio points out that cost disease explains why subsidy is needed, while theories about collective or public goods, or goods which have benefits that accrue beyond those who utilize them, help explain why subsidy is made available.

The second group of theoretical approaches that DiMaggio examines are industrial-organizational in nature. These theories focus on the specific characteristics about the nonprofit organizational form that make it a well-suited for artistic endeavors. DiMaggio discusses literature focused on  variable demand for products, with some patrons willing to pay high amounts to subsidize the availability of the arts product (this “demand” is met by accepting donations from individuals) while  another segment of patrons with less interest or ability to pay have a drastically lower price point and contribute via ticket sales.)  He also discusses “club theory,” which discusses how the governance models of nonprofits are particularly suited to a small group seeking to ensure that their aesthetic sensibility is privileged over business needs. He also discusses theories positing that nonprofit status is useful for organizations in order to signal their commitment to artistic excellence and thereby attract and retain high caliber artists.

Finally, DiMaggio turns to historical and political analyses, which he identifies as an important addition to the theoretical explanations listed above. DiMaggio describes the establishment of nonprofit cultural organizations like museums and symphonies in the 19th century by elites, and then the slow diffusion of this model to other geographic areas as well as additional disciplines like opera or theater. DiMaggio states that, by the mid-20th century “the contours of the intersectoral division of labor in the arts were well defined. All that remained was to fill them in.” According to DiMaggio, this began to happen through the arts funding and field building programs led by the Ford Foundation, as well as the establishment of the NEA and other public funding sources. Public funding also served to broaden the range of arts activities likely to receive institutional subsidies, to include new types of activities like photography or ethnic dance. DiMaggio posits that the availability of private or public subsidies may have made organizations pursuing these activities more likely to be established as or become nonprofits. DiMaggio also references larger demographic shifts that made Americans more educated and prosperous, which in turn created a wider audience for more serious art forms. DiMaggio suggests that these three historical analyses, taken together, provide a solid overall explanation for the intersectoral divisions that appear in his data analysis.

DiMaggio concludes his paper by exploring patterns in the data not accounted for by these theories which also serve as potential areas for further research. He leads with a discussion of efficient boundaries, or tendencies  of organizations to form different types of employment relationships, i.e. long term employment relationships or shorter term contracts with workers (in this case artists). He notes that nonprofit organizations tend to dominate in fields which pursue long term employment arrangements, both in the arts and other sectors. DiMaggio suggests that for those types of organizations that gained an early foothold within the system of philanthropic support as it was being built, the nonprofit form provided an opportunity for managers and artists to limit risk. In fields without this longstanding access to grant support, DiMaggio notes that managers limit risk by decoupling presenting  and artistic activities, while many artists limit risk by subsidizing arts activities through alternate employment, or day jobs.

Next, DiMaggio raises the question of whether cost disease can be addressed in the future, citing recent methods to lower costs within some traditional disciplines, such as delivering symphony music through technological means. Finally, he returns to the importance of arts organizations and programs embedded within universities, churches, and other larger organizations as well as unincorporated organizations and hybrid organizations, which combine characteristics of multiple forms. DiMaggio recognizes that these groups are not fully accounted for in the theories in the article but make up a significant portion of arts activities. He also discusses the division of labor between the public and private sectors, noting that there are few arts fields where public and commercial institutions compete.

DiMaggio’s final question is this: Does organizational form matter? How does it affect the actions of decisions made by organizations? He notes that while there are numerous comparative studies on the differences between nonprofit and commercial organizations for fields like healthcare and education, these are few such studies related to cultural organizations. This means that case studies and theory provide the only available set of literature.

To conclude, DiMaggio highlights larger changes that may affect the sectoral division of labor in the arts going forward. He discusses demographic changes such as new waves of immigration that will lead to a boom in arts activities presenting and furthering the cultures of immigrant groups. These organizations may adopt the nonprofit or the commercial form. He also discusses the eroding boundary of high and popular culture and a gradual erosion of ideologies which privilege European culture over other forms. These trends could lead to future growth areas. He also notes the erosion of clear boundaries between nonprofits and commercial organizations, as many nonprofits are adopting language and practices from the commercial world, and embracing modes of distribution or business endeavors previously seen as too market-based. Lastly, DiMaggio discusses the disruption that new technologies are likely to produce. He predicts that these technological shifts may result in some services currently provided by arts nonprofits shifting to commercial arts firms and vice versa.

What I think about it: DiMaggio’s use of intersectoral division of labor as a framework to examine the contours of the arts sector proves to be a rich investigation, as evidenced by the number of critical arts issues that come up in his theoretical exploration of this one data set. While there are issues inherent in the data used for his analysis, DiMaggio fully acknowledges these limitations and takes time to explain how they may limit his sector analysis and where they may point to further research. DiMaggio’s literature review is particularly helpful since it combines theories and approaches from economics, organizational theory, and history.

What it all means: While Createquity understands that organizations as such are not a prerequisite for a healthy arts ecosystem, they can be important factors in the success of the ecosystem. DiMaggio acknowledges the influence that organization types have on the arts sector while refraining from assuming a  default or obvious form for organizations. Instead of letting the current boundaries within the arts sector frame his inquiry, DiMaggio probes them, and in the process identifies multiple avenues of inquiry that may be able to provide insight into critical major arts issues.