Baumol Effect Is A Blessing, Not A Disease

Economist Alex Tabarrok recently made an interesting post on Baumol’s cost disease.  The concept usually explained by noting that since it doesn’t take any less time to perform a string quartet than it did when Beethoven wrote it, orchestras have no way to save money by taking advantage of advances in productivity and efficiency.

Tabarrok comes at it from the perspective that it is only more expensive to perform a string quartet now because productivity has increased in other industries.

The Baumol effect is easy to explain but difficult to grasp.

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Growth in average labor productivity has a surprising implication: it makes the output of slow productivity-growth sectors (relatively) more expensive. In 1826, the average wage of $1.14 meant that the 2.66 hours needed to produce a performance of Beethoven’s String Quartet No. 14 had an opportunity cost of just $3.02. At a wage of $26.44, the 2.66 hours of labor in music production had an opportunity cost of $70.33. Thus, in 2010 it was 23 times (70.33/3.02) more expensive to produce a performance of Beethoven’s String Quartet No. 14 than in 1826.

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The focus on relative prices tells us that the cost disease is misnamed. The cost disease is not a disease but a blessing. To be sure, it would be better if productivity increased in all industries, but that is just to say that more is better. There is nothing negative about productivity growth, even if it is unbalanced.

If that is a little hard to understand, he uses a more relatable example to point out that “…over time prices have very little connection to affordability.”

If the price of the same can of soup is higher at Wegmans than at Walmart we understand that soup is more affordable at Walmart. But if the price of the same can of soup is higher today than in the past it doesn’t imply that soup was more affordable in the past, even if we have done all the right corrections for inflation.

So just because a ticket costs more than it did years ago, doesn’t mean it is necessarily less affordable. Granted, it may still be a bit more difficult to get the funds together than in the past. I have had people tell me they were able to see Broadway shows for $15 at one time. While I suspect they may be mis-remembering how much of their weekly salary that $15 represented, it wouldn’t surprise me to learn that tickets today are a greater portion of the weekly salary for that same job today. The production values are likely a lot higher than people saw when they were paying $15 so the ratio of value to money spent is probably fairly good.

Based on Tabarrok’s explanation, the concept that certain artistic expressions are fated to be an increasing burden on society because they can’t be executed with greater efficiency is not valid. Productivity growth in other areas provides the capacity to support those artistic expressions.

The Gallery At The End of The Rainbow

There was a piece on Hyperallergic last month that seemed to be continuing an ongoing conversation about the fact that most university based arts programs seem to be oriented toward training students to enter a narrowly defined career path. Where theater programs seem focused on Broadway and music programs on orchestras, Sharon Louden suggests visual arts programs identify gallery shows as the goal.

I hadn’t really thought about visual arts programs promoting unrealistic expectations about an ideal career path given the myriad media suggest so many options to pursue, but it makes sense that one might exist.

Louden says that for most visual artists, gallery sales are not a stable source of income. Many artists have become adept at diversifying their income streams and gallery sales isn’t at the top of the list of revenue sources most pursue. She argues that by subscribing to an emerging centralized MFA Fair, artist training programs are sending a message that gallery sales should be the central ambition of graduates.

Louden’s second objection really caught my eye because she says art schools are doubly profiting from their students by advancing participation in the MFA Fair.

We are all likely aware of the incredibly high cost of enrolling in MFA programs around the country. If universities end up paying for booths and/or taking a percentage of money from recent MFA artists, shouldn’t that be considered a form of double-dipping? Students who often have to take out huge student loans to pay for their education are now going to provide work to their alma mater so it can take a commission from sales of that work?

If a training program is profiting off the labor of students, Louden asks, doesn’t have a greater incentive to cultivate students’ whose work is more marketable and suppress those who push boundaries and take chances? As she says, time in a training program is the period when artists should have the most permission, (if not insistent prodding), from their mentors to diverge from the commercial motive.

How does the institution-turned-gallery decide who gets to show? Will they only accept artists who make conservative work that’s most likely to sell? What happens to the artist who makes work that is not easily accepted in the gallery paradigm? And most darkly, what happens when a former student sues a university for not including them in this fair?

Finally, she asks, if the metric of number of students selling work at an MFA Art Fair becomes a recruiting tool in the same manner as US World Report university rankings, does this not create pressure for non-participant training programs to join or suffer from the inability to guarantee “employment” upon graduation granted by the imprimatur of having a small percentage of students sell works?

Don’t forget there is a growing general societal pressure that university students pursue majors with proven career paths. It isn’t out of the realm of possibility that training programs will look to accentuate the successes of graduates by arranging high profile opportunities.

Don’t Forget That Failure Is An Option

It has only been in recent years that a message of embracing and talking about our failure has been part of a public conversation among arts and cultural organizations. I am not sure how many people are including these stories in their reports to funders, but little by little people are willing to admit that not everything has gone has planned.

Still, we don’t see a lot of articles and case studies where people are analyzing where they went wrong. It was for that reason that Madhavan Pillai’s account in Arts Management Quarterly drew my attention. Pillai had experienced great success with a walking project which drew attention to the polluted ecosystem along the Cooum River near Chennai, India. Buoyed by this success, he wanted to create an arts festival along the river to inspire people to take ownership in the well-being of the river.

The project concept was well received among partners and supporters, the goals and objectives were crystal clear. A proposal was written, presentations were made, budgetary details worked out, teams were set, their roles and responsibilities were defined and agreed on. A strong network was established without leaving a single stone unturned including a focus on public relations and advertisement. With all ingredients for a very successful international festival in place, the project failed

Among the factors Pillali attributes to the failure was actually not acknowledging that the project might fail. The other was using a democratic leadership style that sought the consent of all the partners. (my emphasis)

The overemphasis on democratic leadership, which is otherwise considered to be a best practice, turned around to become disastrous…During the high-point of crisis I was consulting team members and addressing everyone’s concerns….A consent with all members could never be reached. The mode of action instead geared towards an apologetic atmosphere with self-satisfied and settling egos within the team.

Based on this experience, I think that leadership should be trained to face failure as the most powerful source for know-how and understanding. It teaches survival, renewal and reinvention of yourself and the organization you are leading, but this learning about failure should be built in education. If the control over the team and partners is not strong, the leadership is forced to accept new ideas that emerge every day.

The lack of factoring the failure left no room to fight the crisis and I was left alone with unnerving thoughts, waiting for a miracle to happen. Irrational and persistent fear of failing kept me towards pushing my limits and digging inside to explore….As the famous proverb goes “success has hundred fathers, failure is an orphan”, I was abandoned.

A lot of interesting thoughts here. In addition to the text I bolded regarding how experiencing failure makes you stronger, Pillali’s mention of being paralyzed by fear and waiting for a miracle were not unfamiliar. I have seen a good number of arts and cultural organizations where miracle seeking in the face of a paralyzing crisis has been the default mode of operation. I have felt fortunate that I was not on the inside of those organizations because I have had the unfortunate experience of being on the inside of organizations that operated in this way.

Talking About Impact of Casinos Now Might Mean You Don’t Have To Lose Even If The House Always Wins

Four years ago I wrote about a coalition of performing arts organizations in upstate NY that was fighting to mitigate the impact of having new casino projects compete with them for performing arts talent.

As I had written, what often happens is that a casino is in a position of offer a lot more money to artists thanks to their revenues from gambling and hospitality. So an artist you could contract for $25,000 for a single performance can now get $40,000 a night for a week at a nearby casino.

Even if the artist might be willing to accept a lower fee at your venue, exclusivity clauses in their contract may prohibit them from performing in a 50-75 miles radius 90 days prior and 60 days after their casino engagement.

When I wrote that post four years ago, a commenter asked that I keep up on the efforts of the performing arts organizations, Coalition for Fair Game and update readers. I have been thinking I needed to circle back to the story and write another post.

The topic got brought to the top of my attention today at a meeting of Georgia performing arts presenters where a group that has been lobbying legislators on this issue gave a report on their efforts.

One of the things I did not realize is that many states are requiring that casinos earn a certain portion of their income from non-gambling sources like entertainment and hospitality. To some degree then, casinos are being forced to move into competition with non-profit performing arts organizations.

The guy reporting on the lobbying efforts said until they started talking with lawmakers about the repercussions of this requirement, it never occurred to the government officials that these requirements would have a negative impact on arts organizations locally and statewide.

So if your state is starting to look to legalize gambling or increase the presence of large casino complexes, it may behoove you to start conversations with lawmakers about the implications of these decisions.

As the discussion of the problem and lobbying efforts was occurring, I did a quick online search to learn more about what might have happened in upstate NY over the last few years. It just so happens, a newspaper wrote a pretty detailed story on the subject last month.

According to the Poughkeepsie Journal, the Coalition for Fair Game has received $500,000/year to help offset the impact of the casinos’ entertainment operations.

“If there wasn’t an agreement and this ongoing, open dialogue, we’d be constantly broadsided,” said Silva, who runs the Bardavon, presents shows at UPAC and Hutton Brickyards in Kingston and is currently president of the theater coalition. “We could be negotiating in good faith for an act and make an offer and get bumped because the casino gave $10,000 more.”

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The money is designed to offset any negative economic impact that the casino’s headlining entertainment could have on the Bardavon and Bethel Woods. Resorts World Catskills allocates the funding to the theater coalition, which emerged in 2013 and includes venues from Albany to Elmira.

Similar deals are in place elsewhere in the state and can be found in Massachusetts.

In addition to the cash, this deal gives the Bardavon and Bethel Woods a say in the size, scope and number of entertainment offerings at Resorts World Catskills. The agreement and the casino licenses last 10 years and the payment from the casinos to the coalition is not affected by any fluctuations in gambling revenue.

Armed with the knowledge that the arrangement in upstate NY was working, I asked the speakers if they were aware of this arrangement and if they contemplated creating a similar situation if legislation went forward to authorize construction of proposed casinos.

They were aware of the arrangement in NY, but said while it was by far the best arrangement of its kind in the country, it is still an imperfect situation and that they would endeavor to carve out a better environment for the state.

Seems like something to continue to keep an eye on.

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