All the economic studies, and all the economic arguments, can’t fix this

Humpty Dumpty CroppedLast month, at a conference in Amsterdam, Randy Cohen reported the findings from the National Arts Index, a Project of Americans for the Arts.  The report has some troubling headlines, among them:  While the number of arts organizations has increased significantly, one out of three has failed to achieve a balanced budget even during the strongest economic years of the decade; nonprofit arts organizations are losing their market share of philanthropy to other charitable areas, a decline that began well before the current economic downturn; and while personal arts creation and demand for arts education are increasing, attendance at mainstream nonprofit arts organizations within many sectors is in decline. 

The overall Index score for the 11-year period ending in 2008 is 98.4, down 4.2 percentage points since 2007 and down 7.1 percentage points since 1999.

Cohen ended a rather sobering report on the Index on a much more upbeat note by sharing the news from another Americans for the Arts report, Arts and Economic Prosperity III:  nationally, the nonprofit arts and culture industry generates $166.2 billion in economic activity every year. 

It’s an impressive number—one that can almost make you forget about the more worrisome findings from the National Arts Index.  

Cohen was quick to point out that having the data from the Arts and Economic Prosperity III (and other such reports) enabled Americans for the Arts to help make the case to Congress to include $50 million to the NEA in the 2009 stimulus package.  He went on to state (quite accurately, I believe) that economic impact arguments are the only ones that seem to work these days with most politicians in the US. 

I remember when these economic impact studies first hit the arts and culture sector.  They almost seemed like hocus-pocus (could that magical multiplier effect be real?).  We presented them as fact, but they felt like fiction.  And they were often the last resort, not the first, when we went to plead for support.  Now it seems we can’t make the case for our existence without them. 

I worry, however, that we may be building our case on quick sand. 

For one, many cultural economists (who were among the first to conduct economic impact studies in the arts) have become skeptical of the their use in the arts sector, in large part because they are often poorly executed and, thus, inaccurate.  Additionally, some economists have come to believe there are better ways to measure the value of the arts.

For another, economic impact studies may be working with politicians and others, for now, but one imagines that they could be turned against the nonprofit arts sector if the Index and some its indicators of industry health (notably audiences, contributions, and finances) continue to trend downward–that is, if we appear to be an industry that is in … um … economic decline

Finally, no matter how large the number, economic impact studies and arguments can’t fix a declining intellectual relevance problem, which it appears that more than a few organizations in the nonprofit arts sector may have.

William Wallace Denslow illustration of Humpty Dumpty is in the public domain, accessible via the Wikimedia Commons/Wikipedia.

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  1. AdamTheHutt says

    Congrats on the new soapbox!

    Very glad you're talking about this. John Kay's critique of conventional economic impact analysis captures the underlying absurdity of a "let's add up all our expenses and call it our value" approach.

    I'm curious if you have thoughts on Stephen Sheppard's work. While it raises troubling questions related to gentrification and doesn't actually refocus attention on the intrinsic value of the arts, it seems to me that an asset-centric framework ultimately makes a lot more sense than an expense-centric one.

    • says

      Adam – thanks for sharing these links and for your posts! I’m still a beginner in the field of cultural economics and learning the lay of the land, but, indeed, much of the cost-benefit analysis conversation in the field does seem to have shifted away from economic impact studies to willingness to pay studies, (including contingent valuation, which uses surveys of people’s subjective estimates of the value they place on public projects, and hedonic analyses [like those mentioned by Sheppard], which reveal that value indirectly by examining housing prices, etc.). All of these methods, however, are essentially attempts to apply the traditional economic toolkit to the arts. For my money, some of the most exciting work in cultural economics is among those who have beening trying to augment the conversation on economic value with one on cultural value and social value. I’ll be writing more about this in future posts. I hope you’ll keep sending/posting links as you come across interesting work. Cheers!

  2. michael rohd says

    Diane- I am thrilled to find this blog. I have my students at Northwestern read your writings regularly, and I follow with interest. As i work on a center I am building focused on creative practice as a lab for civic and social innovation, your thoughts are so valuable, and i'm appreciative you're taking the time to share them. I look forward to following along, and i'll spread the site around. Hope you are enjoying the new surroundings.

    • says

      Michael – Thanks very much for posting a comment and for your kind words. You are doing amazing work at Sojourn, the kind of work that has deep, meaningful impact on communities. I look forward to following your work, as well! Stay in touch!

  3. Polly Carl says

    So excited about this blog!! Your article makes me think a lot about how grant makers have taken this notion of economic impact to heart in the way they fund projects. I spend so much time thinking about things like metrics, how to make the numbers add up in convincing ways. I try to plead my case–that impact is more complicated, more anecdotal but I also recognize that grant makers need these numbers for the reasons you articulate. Last night at the theater a friend of mine came up to me to say that it was the 20 year anniversary of her husband’s stroke. He was cut down in the prime of a brilliant legal career, permanently disabled. He started the day very low but after seeing a show at Steppenwolf and hanging out for an audience event, he looked at his wife and said “thank you for this day.” She said to me, “now that’s the power of theater.” How do we quantify that?

  4. says

    Diane, Great to see you doing this online.

    As an artist and as an American arts administrator I approach the topic of economic impact from a necessarily practical point of view. Unfortunately my experience has been that cost/benefit based economic impact studies of the arts in the U.S. have had net negative consequences for arts practitioners so far.

    The recent 2005 study in New York is a case in point. Despite showing fairly clearly that the arts are a job engine in NYC and that the smaller non-profits have an impact similar in scale to the Film and Television industry, support has continued to decline significantly for many years and no substantial policy change has even been seriously suggested (for example the idea that arts non-profits are small businesses and should have the same support from economic and community development agencies as other small businesses). The study seems to have had no more impact on funders or arts policy than the fact of the art community’s very visible hyper accelerator effect on real estate development has had over the years. It’s as if people can’t hear that art is a serious and necessary human endeavor in and of itself or even that in and of itself it is a labor intensive (and therefore job creating) industry.

    I have come to believe that this is because the economic development frame does not encompass the real value of the arts to any given community.–that economic impact is in fact an innately secondary effect value from the arts–and that the reason the numbers fall on deaf ears even among our friends is that they don’t address the real contributions we make and so they sound false, irrelevant or odd to civilians and political leaders. Aside from the fact that some of our “advocates” insist on either discounting the numbers we do have (nobody has effectively counted the freelance jobs in our sector) or inflating them beyond credibility (the Americans for the Arts “multipliers”), the real problem is that we have failed to articulate the actual primary value of the arts in the U.S. which has nothing to do with money, real estate or tourism. Also, in making an argument for the efficacy of the arts with the economic impact argument we fall into the trap of market evangelical rhetoric and end up giving the impression that we agree that the value of all human endeavor is finally about the bottom line.

    The fact is that since at least the dark ages in the west and probably since neolithic times, the arts have been subsidized by the government (including the church) and by wealthy patrons. Only with the application of industrial production and distribution techniques in recent times have the arts been able to be broadly self supporting–and even these arts (the film and music industry) need upfront speculative investment from patrons, take advantage of heavy government subsidies in the form of tax relief and are by their nature highly speculative in general. There are actually some new opportunities for a few practitioners of the living arts to tap into this kind of industrial mass production-style business model but these opportunities are likely short lived and will ultimately put the artists who take advantage of them in direct competition Lady Gaga and “Jackass 3D.”

    There is another practical consequence of creating a credible economic impact-based data pool that I experienced this year. The Cultural Data Project has been put in place and participation is now required by many funders. Theoretically this system is meant to reduce the administrative workload of strapped non-profits as it collects data from the field that might (or might not) support the credibility and viability of the field in the future. However far from reducing our administrative workload this program has added another layer to our burden even as economic reality forces staff reductions. In some cases funders who used to require an income/expense budget and an audit, this year required four separate forms of financial reporting: one report from the culture data project (which we generated) and two other custom views of the same financial data entered by hand from QB reports that could not be produced using the CDP tools and a standard audit.

    Similarly, when the recession hit the non-profit arts sector in late 2007 rather than creating a common disaster response plan, the philanthropic community flooded us with surveys (I received requests to participate in a total of 34 such surveys in 2008 alone) even as we cut our staffs by as much as 60% to survive the drastic loss in funding support from those foundations many of whom ironically seem to have used the survey results to justify drastic cuts.

    I have recently been working a lot with Danish, French, German, Belgian and British government cultural agencies and arts organizations. Many of these organizations are coming to us for advice about how to plan for drastic cuts in government support. The main question seems to be something like: ” How do I effectively present my organization to corporations and private individuals within a market frame?” Many assume correctly that they will have to alter their missions and position themselves as work-for-hire service providers to access corporate support. The problem in answering these queries is of course that every answer must begin with the statement: ” Please understand that you are asking us to advise you about how to interact with a system that will not work for most arts groups.” It is appalling to think that the American system is being seen as a model for European arts. But when you disregard our real value, I guess it looks attractive to be able to produce a countable job for $23,000 a year or less.

    Finally, I have had one positive experience involving the collection of data about economic and community development in the arts that might be helpful in general. The 11 groups of the Lower Manhattan Arts League collected direct data from their bookkeeping, ticketing and web statistics systems and compiled them to show that these 11 small organizations created 1200 jobs in 2008, generated $14 million in revenue, paid $8 million in payroll and $500,000 in payroll taxes and served live audiences of 400,000 and web and broadcast audiences of 20 million. The fact that these groups exist in a tangible geographic area (within walking distance of each other) and the comparison of their financial (and physical) scale with their community impact has resulted in nearly $600,000 in additional funding and in the group being awarded a U.S. Senate earmark through the State Department for our existing international programs which serve 66 countries. The intimate, neighborhood scale of this exercise seems to have made the message more palatable and comprehensible for politicians, community activists, local business leaders and our neighbors and has had a direct impact on our viability (aside from the benefits of cooperation in general). I think there may be a partial answer in working at a human scale in presenting (and collecting) data about the arts.

    Anyway, It is great to see you doing this and I hope this forum will help us all find a way forward.

    • says

      Kevin, thanks so much for the thoughtful post. You make many excellent points; I’m unable to respond to all of them but will give a few thoughts. First, I particularly like your point about the inadequacy of the traditional economic framework. Too much (almost all) of what we intuitively know (as practitioners) to be the real value of the arts, and what we know creates (or destroys) that value, is not addressed in those frameworks.

      Second, your anecdotes about filling out 34 surveys on the impact of the economic downturn and CDP speak to the utter lack of coordination and cooperation in the sector when it comes to data collection and dissemination. I think CDP was a tremendous step in the right direction and has the potential to be a great tool (and is already successfully used by many cities and organizations) but until there is widespread adoption and funders simplify their requirements and trust (their grantees and the adequacy of CDP as a tool for evaluation) then, regrettably, grantees are left doing more work, rather than less. On the other hand, funders are facing increased scrutiny of their grantmaking practices, so it’s a difficult time to make the case that they should get rid of some of their application or reporting requirements.

      Finally, your successful experience with the 11 groups in Lower Manhattan (congratulations on the earmark, btw) is promising (though, regrettably, anomolous these days). Your sense that “working a human scale” might have been a key factor in your success brings two things to mind: (1) it is sector-wide impact studies, in particular, that have drawn skepticism from economists–for many reasons, including the fact that it is not valid to generalise to the national level using local studies. (2) I keep thinking that Jane Jacobs, if she were still with us, would have some words of wisdom about “working at a human scale” and why that might be more effective in collecting data and making our case for support. Thanks for posting and I hope you’ll keep sharing your thoughts!

  5. kevin says

    Thanks Diane, I think the fact that funders are facing more scrutiny argues for a simpler more streamlined and most importantly standardized request and reporting format.

  6. says

    Diane can manage to start interesting conversations from halfway around the world. I like that.

    Polly is right on the money – her story of the Steppenwolf patron is replicated daily wherever artistic excellence can be found. I’ll follow your suggested link about measuring the intrinsic value of the arts.

    Call me a crazy optimist, but I’m hoping the economic impact argument outlives its usefulness soon – it’s just one in a long line of “new and better metrics” funders use to evaluate that which can’t be measured. And theater artists have mastered the game of demonstrating their intrinsic value through alternate (and often senseless) means for different types and generations of patrons. When I started off-Broadway 20 years ago, a theater was only funded if it could demonstrate a certain number of students per year in its outreach programs. With the rise of corporate funding came the marketing metric, and the need to count eyeballs on logos, tickets and posters. In the late 90s, diversity metrics were introduced, and the more nontraditional audiences that came through your doors and sat on your boards, the higher your funding went. Economic impact studies arrived near the turn of the millenium, and have persisted as the way for state and federal arts councils to justify funding for their constituencies. And in the past year, faux populism has gotten some play, with corporate funders using Facebook marketing tools to measure effectiveness: the more “friends” you’ve got, the more dollars we give.

    Will we still be in this faux populist phase ten years from now? If so, we won’t have to worry about the economic argument: artistic directors will have to start popping up on Dancing With The Stars or they’ll be voted off the island.

    In the meantime, I worry that artists aren’t addressing the critical finding that we’ve got more arts organizations now serving fewer people. The more mediocre art out there, the less funding we’ll all receive, no matter how good the economic index.

    • says

      Jason, thanks for your great comments! You’re brief outine of our history of shifting metrics makes me shake my head … Jim Collins warns about counting the numbers that are easy to count rather than finding a way to measure what really matters. I worry that this heightened focus on economic impact may be orienting both funders and arts organizations to the wrong priorities and crowding out the more important values that the arts (could and should) provide.

  7. says

    Diane, welcome to this part of the universe. I’ve lived this way for a long time, originally from Canada. I look forward to reading how you engage with European cultural sensibilities, and how the familiar (the US) gradually becomes foreign.

    Have you come across Bruno Fey’s work (among many of course)?

    I share the views of other comments, and wonder whether the economists are actually able to construct useful insights, as we now know economic models are built on untested assumptions (wrapping itself in quantification, economics has sought the legitimacy of a science, a bit like counting angels on the head of pin — as an economist might say, assume you have angels, now count).

    For me the question is, are the arts, culture, exceptional, and therefore worthy of being treated differently? The reason I put it this way is I think we risk confusing the performance of the ‘arts welfare state’ — of public money funding the arts, like the snake devouring its own tail — with artistic/cultural “entrepreneurialism” — in all its energetic forms, the kind we see in other areas of our cultural mosaic, whether medical research or writing a novel.

    • says

      Mike, thanks for your provocative comments and the warm welcome! While an insufficient response, I would offer the following: It seems to me that there is an assumption of certain inherent values provided by the “arts welfare state” that we can no longer take for granted. Re: Bruno Frey – yes I am familiar with some of his books and papers. I think “Arts & Economics” and “Not Just for the Money” are well worth a read, as well as his essay “What Values Should Count in the Arts? The Tension betweeen Economic Effects and Cultural Value” in the Hutter and Throsby compilation “Beyond Price”.


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  2. […] In last week’s blog I relayed the story of attending a presentation by Randy Cohen of Americans for the Arts in Amsterdam and how it got me thinking about economic impact studies and arguments.  (Thanks to all who posted comments.)  In response to Cohen’s assertions that economic impact arguments are the only ones that seem to work with most politicians in the US these days, Arjo Klamer (the Chair of Cultural Economics at Erasmus University) raised his hand and said (and I’m paraphrasing from memory):  Economic impact arguments are the only ones that work because they are the arguments you have been making.  I would encourage you to work on strengthening your arguments for the cultural and social values of the arts.  […]

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