The Economics of Contemporary Art: Markets, Strategies and Stardom

By Alessia Zorloni

The book examines the contemporary art system with a broad and systematic approach, through the application of models of microeconomics and industrial organizations. By breaking down the traditional barriers between different academic disciplines such as art and economics, this book offers a unique opportunity to grasp the complexities of the contemporary art world and provides the tools to conduct a structural analysis of that market. The result is an in-depth analysis of the contemporary art market from an interdisciplinary perspective. While it is not a textbook in the strictest sense, the book offers a concise and effective overview of all actors in the art system, and provides supporting data and valuable information, both conceptual and practical. It is therefore a text that can be used by students wishing to better understand the complex dynamics that govern the contemporary art market, but also by cultural managers, collectors, potential art investors or simply art lovers who need a quick reference.​

• Language: English
• Publisher: Springer
• Release date: Apr 16, 2013
• ISBN: 9783642324055

Book preview

Alessia ZorloniThe Economics of Contemporary Art2013Markets, Strategies and Stardom10.1007/978-3-642-32405-5_1© Springer-Verlag Berlin Heidelberg 2013

1. The Economics of Creativity Between Culture, Innovation, and Competitiveness

Alessia Zorloni¹  

(1)

Institute of Arts, Cultures and Comparative Literature, IULM University, Milan, Italy

Alessia Zorloni

Email: [e-mail]

Abstract

This chapter provides a review of the literature on art economics and in particular, the economics of contemporary art. After the analysis of creativity, as one of the main inputs of cultural production, this chapter focuses upon the characteristics of the creative economy, highlighting the relationship between culture, innovation and competitiveness in a given country.

1.1 When Art Met Economics

The idea of linking the themes of art and economics has recent roots. When these issues are debated together, we usually name the discussion art economics: a fascinating notion for some, a blasphemous one for others, depending on whether or not you believe that economic value has anything to do with artistic value. According to Candela and Castellani (2000), art and economics are closer than commonly thought. In fact, if rationality, creativity, method, intuition and informality are common ingredients to economics and art, the difference lies only in the varying priorities given to these ingredients. The artist and the economist perceive something more than what everyone else sees. For instance, a wheel has always been seen as part of a bicycle and a stool as a piece of furniture: only Duchamp, placing them one above the other, combined them into a work of art. Similarly, who knows how many, like John Nash, observed men in a bar competing for the attention of a breathtaking blonde – but he was alone in intuiting the theory governing the behaviour of individuals in situations of strategic interaction.¹

If art is intuition, this does not mean that it is devoid of rationality, or that it does not apply the rational method in its quest; just think, for instance, of the geometric abstractionism of Piet Mondrian, the pointillism of George Seurat, or the Optical Art of Victor Vasarely (who used ophthalmologic scientific research and visual perception to give prominence to his own art forms), or even M.C. Escher’s applications of science, which use the calculation capability of computers to produce beauty through fractals. Furthermore, pace the surrealists who have repeatedly declared that only irrationality can create art, rationality has become a constitutive element of contemporary trends from Dadaism to the intellectual provocations of Piero Manzoni (as the renowned Merda d’artista), and up to the movement named Conceptualism which privileges mental processes over technical production.

The economics of art consists in both theoretical and applied contributions, stemming from the history of economic thought and from studies by art experts.² Looking for the roots of art economics among the noble fathers of economics, we must start with Adam Smith, who by the end of the eighteenth century was already writing essays on art; much later, between 1934 and 1938, John Keynes became interested in painting and in particular in ballet. More recently, John Kenneth Galbraith has been involved in art economics and Lionel Robbins has dealt with the public funding of art (Candela and Castellani 2000). However, the first organic contributions in the economics of art can be traced back to the work by William Baumol and William Bowen, Performing Arts: the Economic Dilemma (1966) and by Mark Blaug, The Economics of the Arts (1976). Many artists have effectively managed their production in an economic way: Andy Warhol, Jeff Koons, but also Mark Kostabi or Takashi Murakami; there are also economists like Richard Murphey Goodwin or Hans Abbing who themselves engaged in art, producing works with a dedication similar to their passion for political economics. Only in the 1990s did art economics achieve the dignified status of a field within political economics; i.e. it has become a field of applied economics since economists have dedicated themselves to subjects originating from a specific object of research rather than an abstract interest.³

The themes that traditionally compose art economics cover many aspects of culture and can be described by using the well-known distinction between:

1.

Visual arts: meaning everything that is exposed to and appreciated by sight, for instance the different art forms that arise from painting and sculpture;

2.

Performing arts: meaning all forms of entertainment, whether easily-accessible ones such as rock music, jazz or cinema, or elite forms such as classical music, opera or ballet;

3.

Cultural heritage: meaning tangible and intangible heritage, which is the expression and manifestation of a people’s culture;

4.

Fine arts: meaning the whole segment of collectible items that satisfies the aesthetic needs of a niche market and takes on a symbolic function (antiques, jewellery, rugs, clocks, vintage cars).

Economic research on the market for visual arts and fine arts can be subdivided into four main branches.

The first relates to studies on the private art market, with specific attention to the analysis of the prices of works of art (Candela and Scorcu 1997, 2001; Candela et al. 2004; Scorcu 1997; Picci and Scorcu 2003) to the formation of value (Locatelli and Zanola 1999; Forsund and Zanola 2006) and to the assessment of profitability (Rush 1961; Anderson 1974; Stein 1977; Frey and Pommerehne 1989; Chanel 1993; Forte and Mantovani 1998; Fase 1994; Renneboog and Van Houtte 2002).

A second type of investigation has concerned the attempt to define and calculate index numbers on the art market. In this field, the most relevant studies are those conducted by Keen (1971), Pesando (1993), Candela and Scorcu (1995, 1997) and Mei and Moses (2002).

A third line of investigation has focused on the demand for culture and its dynamics, on the evolution of cultural markets and on the design of policies (Fuortes 2001; Fuortes and Coppa 2006; Pasquali 2003; Trimarchi 2002).

Finally there is a line of study that deals with the analysis of cultural investments but also with the management and the development of museums (Matt and Zorloni 2011; Forte and Mantovani 2004; Fedeli and Santoni 2006; Valentino 1999; Zorloni 2012).

In particular, the economics of contemporary art has been analyzed with reference to: the formation and evolution of markets (Lind and Velthuis 2012; Baia Curioni et al. 2011; Zorloni 2005a, b; 2011); the conventions that sustain their dynamics (Thompson 2008; Santagata 1994, 1995); the processes of artist selection (Sacco 1997, 1998, 2005); the structure and management of intellectual property rights (Guerzoni 2003; Stabile and Guerzoni 2004); the design of institutions; the instruments of supporting public policy (Trimarchi 1997, 2004; Lavanga and Trimarchi 2005). An interesting spillover effect of these investigations is represented by research on the diffusion of Italian contemporary art abroad (Sacco et al. 2005), which resulted from a collaboration between the Ministry of Heritage and Cultural Activities, the Ministry of Foreign Affairs and the University of Turin.

In the field of performing arts we find many empirical analyses measuring the demand- and production-function of live shows; but there are also theoretical analyses on the balance struck between public companies (profit or non-profit) that set up and/or manage theatres. On these aspects, see among others Throsby (1994) and Besana (2002). Finally, the typical economic issues of cultural heritage are the policies for and the costs of its conservation, protection and development, but also the objectives and tools enabling it to be supported through public and private funding. Among the most important contributions in this field we should signal Peacock (1991), Trimarchi (1993) and Peacock and Rizzo (1994). The study of art economics has been institutionalized by the Association for Cultural Economics International (ACEI), which organizes a conference every 2 years and publishes a journal entitled Journal of Cultural Economics, as well as by the International Association of Arts and Cultural Management (AIMAC), which organizes a biennial conference and publishes the International Journal of Arts Management. Most articles relating to these topics are published here, but other contributions can be found in academic journals such as Museum Management and Curatorship, Asia Pacific Journal of Arts and Cultural Management, International Journal of Cultural Policy, Journal of Arts Management, Law and Society, International Journal of Nonprofit & Voluntary Sector Marketing and, in Italy, Economia della Cultura, the official organ of the Associazione per l’Economia della Cultura. Research centres dedicated to studying and strengthening arts and culture economics have also been created. Naming only the most important, for Italy we can mention the Bocconi ASK centre directed by Paola Dubini, the Ebla Center (International Center for Research on the Economics of Culture, Institutions, and Creativity), founded by Walter Santagata and associated with the University of Turin, and the research activity coordinated by Pierluigi Sacco that gravitates around the IULM University of Milan; in Europe other important research centers can be found in Switzerland with the Center for Research in Economics, Management and the Arts (CREMA) founded by Bruno S. Frey, and in the Netherlands with the research activity coordinated by Arjo Klamer that gravitates around the Erasmus University Rotterdam. The increasing interest in art as an asset class has coincided with the increasing transparency and access to information offered by specialist information providers such as Artinfo.com, Artnet.com, Artprice.com, ArtTactic.com, ArtFacts.net, Artvalue.com, and numerous consulting firms focused exclusively on the art economy such as Art Economics, Art Market Monitor, Artvest and Tutela Capital. For some years now some consulting companies have been specializing in this segment of the market, creating, on their own initiative and on behalf of external clients, research studies aimed at meeting knowledge needs related to the main aspects of creativity, production, organization, evaluation, and consumption of art and culture. These are large international networks, such as Lord Cultural Resources, which has offices in New York, Toronto, London, Paris and many other cities, or multinational management consulting firms, such as The Boston Consulting Group, which helps important cultural institutions in many countries by applying the methodologies of strategy and organization used for corporate customers. These mainly deal with strategic planning, increase of direct and ancillary revenues, marketing strategies, fund-raising and cost reduction. In the U.S. numerous national research initiatives exist, each of which targets a specific area of interest and serves an important purpose:

The Cultural Policy and the Arts National Data Archive (CPANDA) is an interactive digital archive of policy-relevant data on arts and cultural policy. It is a well-respected, comprehensive, and valuable national repository for arts data.

The National Endowment for the Arts conducts a national survey of public participation in the arts every 6–10 years and publishes a variety of reports based on its findings. These reports are extremely valuable but they are somewhat infrequent.

The RAND Corporation conducts research in Education and the Arts and has published a number of high quality, important reports centered on arts education issues, including stimulating demand for the arts.

The Urban Institute, a nonpartisan economic and social policy research institute, regularly publishes research and reports related to the relationship between the arts and their communities.

The National Center for Charitable Statistics (NCCS), which is part of the Urban Institute, provides IRS Form 990 data on all nonprofit organizations, which are required to register with it, and makes these data available to researchers.

Americans for the Arts periodically publishes the highly-regarded Arts and Economic Prosperity reports, which focus on the economic impact of the arts. These reports focus on total expenditures, jobs, resident household income, taxes generated by arts consumption, and the economic ripple effect on communities.

These studies have all made important contributions to knowledge about the U.S. arts industry.

1.2 The Development of the Creative Economy

The current economy is made up of hyper-competitive markets, where it is increasingly difficult to differentiate oneself from one’s competitor. In the traditional industrial system, which was characterized by relative stability in terms of market, technology, and competition, the manager’s job was to stick to the routine. Today, companies exist in a state of constant vigilance, attempting to dominate a complex environment in which dismantling the rules of the game has become the new rule of competition. All or most of what we buy is replaceable. Everything has already been done. Competition therefore tests one’s ability to innovate and to create the ideal conditions for extraordinary results to be achieved with ordinary resources. Knowledge, imagination and intuition – in a word, creativity – are now the resources that companies consider the most valuable. This idea can be illustrated by representing schematically the historical process of change in the main components of the economic system and their organization. According to this schematization, the phenomenon of intangible inputs (especially knowledge-based and creative jobs) replacing tangible ones can be represented graphically as in Fig. 1.1.

A305576_1_En_1_Fig1_HTML.gif

Fig. 1.1

Structure – by type of resources – of the input of production factors used in the production of one unit of GDP (a) Pre-industrial economy, (b) Industrial economy, (c) Creative economy (Source: Adapted from Ricciardi and Gambaro 1997)

Having defined four categories of resources – physical capital (K), natural resources (NR), labour (L) and knowledge (C) – and assigned a value of 100 to the overall use of resources needed to obtain a unit of GDP, it is possible to represent with hypothetical values, attributed to the weight of the four categories, the change in the percentage composition in the input of productive factors associable with the transition from a pre-industrial economy to a creative economy. Having clarified the meaning of substitution of productive factors which increases the weight and role of knowledge and creative work in the organization of the economy, and therefore the transition from an economy that produces tangible items to a dematerialized economy, it is necessary to dwell on the importance of creativity as a resource and as a factor determining the success and economic power of companies and socio-economic agents. But before doing this, let us attempt to figure out what gives rise to creativity and the stakes that it raises.

1.3 The Origin of Individual Creativity

The concept of creativity has long been explored by all disciplines. Psychoanalysts, neurologists, psychologists, sociologists, historians and economists have analyzed creativity, each from their own point of view, giving it their own definition (Howkins 2001; Florida 2002; Amabile 1996; Legrenzi 2005; Bryant and Throsby 2006; Santagata 2007). According to the Italian-American psychiatrist Silvano Arieti, creativity is an ongoing battle between the unconscious level, which makes impossible materials emerge, and the conscious level, which selects these materials and, for some, allows them to be shaped and given form. The unconscious level can develop atypical ideas; the conscious level, if it is particularly open, does not censor these ideas but translates them into paintings, poems, music, and scientific ideas. Domenico De Masi (2003) adds another dimension to this one. To the vertical level that goes from unconscious to conscious he adds a horizontal axis that goes from the emotional dimension to the rational dimension. On one side we find emotions, attitudes, opinions, feelings. On the other one, knowledge and rational abilities. In this double-entry table, imagination and concreteness emerge. The two axes create four areas, of which we will analyze only two. One area is constituted by the intersection between the emotional sphere and the unconscious. This is the imaginative area that produces many materials, but without any self-limitation; therefore these are often useless materials. The other extremely important area is the opposite one, born from the intersection between the conscious level and the rational sphere: the area of concreteness.

According to De Masi (2003) creativity is therefore the synthesis of imagination and concreteness. There are people who have both these abilities. The possession of these two capabilities leads us to consider these individuals as geniuses, because it is clear that the normal person is more likely to be particularly fanciful with little concreteness or mostly concrete with little fantasy. Only very few can be very imaginative and very concrete. Having clarified the meaning of creativity it is necessary to dwell on the importance of this as a resource and factor determining the success and economic power of companies and socio-economic agents.

1.4 Creativity as an Economic Resource

Creativity is one of the salient features of human behaviour and is dictated by a non-logical intelligence that is more evident in some individuals who are able to produce innovations because of their ability to perceive new connections between thoughts and useful objects. The categories of what is new and what is useful implant creative activity in society and history. Newness is related to the historical period in which it is conceived; utility is related to comprehension and the social recognition. Newness and utility adequately illustrate the essence of the creative act: an overtaking of the existing rules (newness) which have been granted economic, aesthetic or ethical value (utility). Two dimensions of the creative process that combines order and disorder, paradox and method can also be identified. Here creativity can therefore be defined as the resource through which new ideas are generated, developed and transformed into social value, as evidenced by the Nobel Prize Laureate in Economics Herbert Simon: ‘Actions are considered creative when they produce something that is original, interesting or has social value. An original element that is interesting and of social value represents the foundation of creativity’ (Simon 1986). Smith compares creativity to talent and claims it as a gift of nature, which allows those possessing it to more easily acquire abilities and skills and to achieve higher levels of artistic productivity than their competitors, but also as something that is acquired.

The difference in natural talents in different men is, in reality, much less that we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labour. The difference between the most dissimilar characteristics, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. (Adam Smith, The Wealth of Nations, Book I, Chapter II, ed. Cannan)

This definition allows us to highlight how at a subjective level the creative process is strongly influenced by the education and by the cultural atmosphere in which it develops (Simonton 2000; Damasio 1994; Elster 1996). This is the key for the production of creativity. In fact, the freer the cultural environment is, the more interdisciplinary and stimulating, the greater the production of creativity and talent is.

At an objective level, creativity is an inherently immaterial and intangible resource that, if it is to be transformed into an innovation and to be disseminated, needs to be incorporated into material formats (a painting, a movie, a book) or immaterial ones (a performance, a theatrical performance, an exhibition). While the format is typically a private good, the creativity embedded in an object is a public good, characterized by non-rivalry in consumption and low costs of exclusion. So, like an idea, creativity must be protected on the market through intellectual property institutions (Benghozi and Santagata 2001). As a source of knowledge, creativity has the typical characteristics of other economic resources, i.e. the ability to meet individual or collective needs (utility) and scarcity relative to its possible and alternative uses. The utility or productivity of creativity is evident and universally recognized. Through creative ideas that materialize into works of art, discoveries, inventions, new products and new processes, people and companies are able to temporarily create monopolies, allowing extra profit to be made. Being useful and productive but scarce, creativity is thus an economic resource, alongside labor, physical or financial capital, natural resources, to which agents attribute economic value and for which they are willing to invest money. The exorbitant prices paid by collectors, companies and organizations to acquire works of art at London, Beijing and New York auctions are tangible proof of how creativity is actually a scarce resource and, as such, extremely valuable (Table 1.1).

Table 1.1

The 20 record sales at auction in 2011