GETTY: More capital ideas

NOTE: This entry is part of a continuing series sprouting from a leadership roundtable hosted by the Getty Leadership Institute and National Arts Strategies in June 2004. For links to all posts in the series, see below.

In the exploration of the differences between nonprofit and commercial cultural enterprise, we’ve already touched on the challenge of fungibility, on the myths that dog the comparison, and on the specific differences in how capital is built and used. In almost every case, the challenge and complexity of the nonprofit form seem strangely high. Why don’t nonprofits have ready and flexible access to cash? Why is it that finding and holding enough capital to do a job effectively proves such a challenge to nonprofits? And why, if it’s so hard, have so many entities chosen that convoluted and complex organizational form?

Here’s one shot at it: Any advanced society has a bundle of things — actions and artifacts — it believes to be important. Some of these things are brilliantly provided and sustained by commercial incentive, others are not. Those actions or artifacts not consistently served by commercial incentive are particularly vulnerable to decay or destruction, or at least collective neglect. To preserve and promote these things, a separate system of incentive and support is necessary. The nonprofit corporate model is the best response we’ve figured out so far.

Without this separate model, the thinking goes, our individual and collective choices would lead us to a world lacking the balance we would like. Historic downtown theaters would become car parks or office supply stores. Downtowns, themselves, might give way to the centrifugal forces of suburban migration. Essential artifacts of our history, our society, and our expressive efforts would be discarded or lost under traditional cost/benefit analysis (it’s expensive to preserve and present this photo, this recording, this performance, this handicraft; not many people want to experience it right now; therefore, our energy is best spent somewhere else).

Given this need for a separate space, we require different rules of engagement, different rules of capital, and different rules of cash. As the nonprofit industry drifts closer to the financial flexibility and fungibility of its commercial cousin, it can threaten the different choices it was designed to make.

So, what might happen if we allowed capital to work among nonprofits as it does in the commercial realm? Might major museums use their collections as collateral against major debt (rumors swarmed about the Milwaukee Art Museum considering this, whether true or not)? Might we lose access to and collective ownership of essential elements of our heritage? Consider a warning from Bill Ivey, former chairman of the NEA and now director of an arts and entertainment policy center (from a speech he gave back in March):

The pending merger of Sony Music and BMG will, among other things, bring together the two most consequential archives of recorded American music and spoken word assembled during the 20th century under the ownership of a single, non-U.S. corporation. The exact size of the two collections of master discs and tapes has never been made public (and is most likely unknown), but it is fair to assume that the combined archive will include at least four million recorded performances. Of course, mergers and acquisitions in the media industries have been commonplace for decades. But, given the historical depth and sheer size of these collections, it is significant that the placement of large blocks of heritage in a giant, non-U.S. company has to date generated virtually no public outcry.

In short (okay, it’s too late for that), there are reasons for at least part of the strange and bureaucratic mess of nonprofit tax and finance rules. The trick is in sifting away the messes that aren’t necessary from those that actually make us who we are.