For Artist’s Sake

This article from the July 2014 edition of the IPA Review is by Senior Fellow at the IPA and Professor of Economics at RMIT, Jason Potts.

A standard justification for public funding of arts and culture is market failure. Economists explain that because of ‘uncompensated positive externalities’ or the public good-like nature of arts and culture, a free market will undersupply art and culture. They usually have in mind ‘high culture’ here—opera and ballet, public galleries, ‘quality’ documentaries about ‘socially important’ topics.

A manifest social harm to taxpayers is offset, so it is claimed, by a larger social benefit through supply of the public good. Reasonable people can disagree about the extent of the alleged market failure, or whose social welfare is being maximised, or what counts as quality. But the virtue of this argument is that it focuses on benefits to consumers in the aggregate. The economic rent created and captured by the subsidised artist is simply an unintended consequence of such intervention. Indeed, if private benefits accrue to the recipients along the way, then all the better, surely.

But just as social welfare can harm private recipients because it distorts their incentives, as the likes of Charles Murray has pointed out, and foreign aid can retard economic development, as Bill Easterly explains, so too can public funding of arts and culture harm the recipients of that funding.

This is not the standard line of argument against public subsidies for arts and culture, which mostly focuses on the harm to taxpayers. But the harm to artists themselves takes a particularly damaging form in that it retards career development. The language of entrepreneurial venturing is useful here: it incentivises them to choose the wrong ‘business model’.

Artists don’t have jobs per se, at least not in the industrial sense of the word. They tend to work on projects to produce something: a work of art, a performance, a curated collection, an effect, etc. This involves not just skills of ‘artistry’ broadly conceived, but also of entrepreneurship in figuring out an effective way to organise the undertaking to create the greatest value, which is to say in figuring out a good business model.

Thus rather than supporting and fostering an artistic and cultural ecology, public subsidy interventions tend to create unsustainable economic ecosystems through the proliferation of jobs that have, by design, entirely the wrong business model for subsequent development.

A business model is the way you capture the value you create. You can sell direct to market; you can sell your work as an input to a firm; you can start your own firm or form a collective; you can create intellectual property; you can give away some parts and charge for others, you can price discriminate; you can subcontract to galleries who finance you; you can seek private patrons; you can work a 40-hour secure-job week and make art in the in-between; you can seek crowd-funding.

Each of these business models works better in some situations than others. The viability of each depends on various factors, such as the costs of organizing and coordinating activities. Each business model also draws on different skills, such as managing resources, making contracts, building networks, experimenting with delivery models, adapting to consumer demand, finding supplies, discovering sources of value, and so on.

A popular business model is to use the state. You lobby for taxpayer support of your activities. Obviously, you argue that this private transfer to you will maximise social welfare. But is it also true that it will maximise your private benefit too?

There is a saying in the venturecapital start-up world along the lines of ‘it’s not my fault your business model sucks’. It means that you might be brilliant and your idea might be a winner—but I’m still not going to invest in you because your execution plan to market is awful. A bad business model can be catastrophic for venture investment.

From the perspective of the artist the relevant question is not ‘is public support good? Do I want more of it?’ Instead, it should be ‘is this the best business model for me? What are the costs of pursuing this business model?’

There are clear benefits to the taxpayer-funded business model. Specifically, it’s a large source of perennial funding with relatively clear rules and reasonably predictable outcomes. You can acquire expertise in exploiting it.

But there are also costs to this model, many of which flow from the necessary investments that this model requires and the consequences these investments have. In essence, the more you use the government business model, the harder it is to use other business models, and it is the atrophy of these other models that explains the harm done.

The government-funded model doesn’t scale. There are plenty of private fortunes that have been assembled in the arts and cultural sector, but none that use the government business model.

It requires that the art be ‘political’ in order to satisfy your crony client, rather than producing for the market. So your art will probably be bitter and unpalatable. Even Billy Bragg toured and sold records, as did the folkiest of rockers—Bob Dylan.

The public business model is costly in terms of overheads. It requires heavy investment of time and energy in getting grants and being an insider. This tends toward over-credentialing, for example.

It warps feedback, where you’re paying probably too much attention to the artistic values of experts in funding bodies, and not enough to your actual audience. The problem is a weak and distorted feedback mechanism.

It discourages you from teaming up with others, forming collectives and companies that might develop effective business models. It forces you to think of your work as a job (that must be supplied), not as a career (that might be developed).

If the objective is to subsidise cultural consumption, then a better way to do that is probably with some sort of voucher system, keeping the art market focused on consumer demand.

But if the objective is actually to help struggling artistic and cultural producers then although the public option has benefits—the rents to be captured—there are also hidden costs. You’ll never be seriously rich or influential. You’ll learn the wrong skills and meet the wrong people. You’ll end up investing in the wrong business model.

For the sake of the artists, direct public subsidy needs to stop.