Art and the Global Economy

Art and the Global Economy

by John Zarobell

ISBN: 9780520291539

Publisher University of California Press

Published in Arts & Photography/Business of Art

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Sample Chapter


Museum Funding



If you have ever wondered how museums are financed, you are not alone. Every museum director has asked herself that question, and the answers are never the same. Nor should they be. Each institution has its own advantages and its own community, and in order for a public institution to exist, an equilibrium must be struck between a museum and its audience. So the question of financing is finally a question of audience. Who values what your museum does? Who is able to enjoy the benefits of it? Whose interest is served by the museum's activities (both collecting and exhibiting)? Since this book is concerned with art, these questions ought to be addressed to an art museum, and if one examines the history of art museums, it is clear that they have some divided loyalties. Before diving in, let's turn back the clock to 1989.

In order to lay out some basic concepts in museum funding and to flesh out a baseline measure of where American museums stood a generation ago, it will be helpful to turn to a key text on the topic, a National Bureau of Economic Research conference report, The Economics of Art Museums (Feldstein [1989] 1991). A chapter titled "Museum Financing" resulted from a conversation between eminences such as Harry Parker (of the Fine Arts Museums of San Francisco), Thomas Krens (of the Guggenheim), and Neil Rudenstine (who would later become president of Harvard University) to discuss museum financing and changes in that area. Discussing the Fine Arts Museums of San Francisco, which, as the name would suggest, were formerly funded principally by the city, Parker discussed the merging of the public and private administrative segments of the museum for more stable financing and "a related change in the government structure ... to tie the Fine Arts Museums Foundation more firmly to the trustees" (63). For a publicly funded museum to have had two separate administrative units might seem odd, but it is not at all exceptional. However, merging them seemed the best way to promote further evolution of the institution, uniting private and public funding and giving the trustees a more prominent role in funding and governance. In this way, the public aspect of the institution yielded to the wealthy patrons who served on the board.

Though he represented an ostensibly private institution originally funded by and devoted to the collections of a single family, Krens addressed public funding for art museums. He pointed out that aggregate public arts funding was declining in the United States and correctly predicted a continuation of this trend, even though museum expenses had increased, meaning that institutional endowments were not able to cover so much of operating expenses as they had before. In the case of the Guggenheim, he noted that the change over twenty-five years was from 75 percent to "about 20" (Feldstein [1989] 1991, 64). Krens was a brilliant strategist, and he had already begun to develop one of the most effective and lasting solutions to this problem, museum branding or franchising. This strategy will be investigated in detail in a later section of this chapter.

William Luers, the chief financial officer of the Metropolitan Museum in New York, reinforced Krens's assertions, noting that between 1967 and 1989, the Met's budget had increased tenfold, from $6.98 million to $68 million, due to the growth of buildings, staff, and programs (in Fiscal Year 2015, it was $361 million). In 1989, 20 percent came from the city and only 14 percent from endowments (Feldstein [1989] 1991, 67). Currently, the city pays less, just under 8 percent (Metropolitan Museum of Art 2015). Rudenstine sized up the trends nicely by demonstrating the shrinking share of municipal and endowment support at the same time that exhibitions, staffs, and physical plant had increased to meet growing demand. He proposed two solutions to this evolving problem. The first suggestion was for museums to solicit more gifts and grants, and this seems to have been followed by all art museums. But his other recommendation — that museums should not take on more fixed costs and tone down special exhibitions — was clearly not embraced at the Met, or anywhere else. All of these institutions, and indeed almost every other art museum in the United States, has expanded considerably since 1989, with the result that museums are larger, fuller, and more in debt than ever before. Further, the number of art museums has increased in the ensuing years. In his 1989 talk, Rudenstine referred to 550 art museums; in 2014, according to the Institute of Museum and Library Sciences, there were 1,581 (Feldstein [1989] 1991, 79; IMLS 2014). Today, moreover, there are a lot more museums overall competing with art museums for visitors and revenues.

These directors and others were addressing major changes in art museum culture that had taken place in a very short span of time (from the 1960s to 1989). Museums and their financing have changed even more in the ensuing years. Dwindling public financial support is only part of the story. Museums everywhere have expanded their buildings to accommodate increased visitor demand, more popular exhibitions, and exceptional growth in collections.

The presentations cited above, outdated though they now may be, all touch on the essentials of managing collections of art. Sources of revenue were the topic of preeminent concern during these conversations, and these needs ought to be explicated at greater length. Another central issue is the physical plant of the institution, the museum's building, and the management of its facilities. While most thinking on museum buildings centers around the appeal of the architecture, another set of issues is at the core of museum planning and sustainability: how large are the galleries and storage facilities to be, and how do these numbers relate to the size of the current collection, as well as to how it will expand in the future (Merriman 2008)? Collection expansion raises questions about acquisitions. Where do new objects come from, how are they paid for, and who determines whether gifts will be accepted and what works of art will be purchased? Presumably, there is some plan in place, or at least a strategy for collections management (Fahy 1994; Evans and Saponardo 2012; AAM 2012). Collections management, which includes storage, conservation, and display of the collection, is one of the most expensive line items in any art museum's budget, and museums have continued to build apace without considering the concerns raised by Rudenstine in 1989, especially how to find funding in a rapidly shifting economic climate.

In 2016, the funding climate remains volatile, but we need to look at the big picture. Every national gallery exists to serve the state, and much the same could be said of cities and their museums. The goal is to serve the entire public, so entry to such institutions is often free to all or some the population (e.g., children and students). Although they derive some revenue from their restaurants, cafeterias, and shops, public museums get the bulk of their incomes from line items in the annual budget of a national, state or municipal government (or some combination of these). This is an implicit guarantee the museum will be supported from year to year. Fiscal accountability is more or less required, but government has made a commitment to supporting the institution as part of its responsibility to its citizens. Of course, this depends on government solvency, and public museums, particularly in some European countries, have consequently faced new funding challenges. Significant individuals, whether trustees, collectors, or representatives of the government, do have unique relationships with public arts institutions, whether in terms of collection building or governance and planning, but the role of private citizens is much greater in nonprofit institutions.

Fundamentally, there are two groups that are served by an institutional art collection. On the one hand, it is the public who benefits from a public institution that collects and exhibits visual art. Through museums, countless individuals have the opportunity to see treasures that were paid for and hoarded by the upper classes for centuries before public art museums came into existence. Yet the museum serves another group that could be called an "internal public" far more graciously.

This group of trustees, patrons, artists, and scholars has unique access to both the building and the works in the collection beyond what the general public enjoys. It could well be argued that every institution has its insiders, but museums thrive by virtue of the generosity of key figures who literally create the meaning and mode of public address within an institution. Unless the institution is entirely funded by the government or a private entity, someone has to pay the bills. So donors must be cultivated and, once they become active, they are coddled. The reason is not merely to ensure their consistent commitment to the institution, but also to encourage them to represent the museum to their friends and acquaintances as worthy of support, because donations are the result of social networks (Becker [1982] 2008). The social network of any single institution may overlap with many others, but art museums are unique because they are focused upon collecting and most serious donors to them are themselves major collectors of art.

In simple terms, museums are built upon hierarchies: hierarchies of art and hierarchies of public. Just as museums do not put up just any art in their galleries, they cannot rely on just any public to keep the doors open. So those that can afford to pay more than the price of admission have greater access to the opportunities that an art museum can offer. Donors have come to serve not just a symbolic role but a structural one within the emergent business model of art museums. They are not merely the prominent individuals who know how best to appreciate the cultural treasures on view, their contributions fill out the spreadsheet that determines the institution's budget. And this introduces the most essential aspect to note about art museum financing in the nonprofit model: it is paid for and supervised by the same individuals, namely, the trustees.

Museum trustees, boards of directors, and the like are not, and perhaps never were, disinterested third parties. As donors, whether of art or money, they have the role of overseeing the governance of the institution. It is possible to reverse this equation and to argue that because they are responsible for governance, they see the need to contribute support, but either way this is a clear conflict of interest. The result is that those who possess the greatest resources have the most power to direct the activities of the institution, though this influence is usually wielded as "soft power." Strong-minded board members have been known to handpick directors and other key staff members of art museums, but it is by no means the norm for board members to involve themselves directly in day-to-day governance. To be fair, there are a variety of nonprofit cultures and differences among boards, and their responsibilities are legion. But given their key role as funders, board members have a major negotiating tool at their disposal, and the defection of a major donor can be disastrous for an art museum. As a result, donors are kept happy, and the bigger the donor, the happier they are kept. This is the role of development departments that cultivate donors and raise funds for the museum, and it should come as no surprise that these departments have expanded considerably in recent years. In effect, art museum governance revolves around patrons who provide a structural and even a moral role for the institution. While it would be incorrect to assert that art museums exist for the benefit of their donors, it is nevertheless true that their concerns are the central preoccupation of a large portion of the staff of each art museum. Furthermore, while knowing and maintaining boundaries is part of the trustee's role, they nevertheless dominate the institution's energy and their preeminent concern is not only the museum's greatness, but its solvency.

Since few if any art museums exist solely as a result of their trustees' contributions, the central questions are increasing the revenue stream and limiting expenses. Nonprofit museums are thus not only responsible for eliciting charitable contributions, they are also yoked to the logic of the market, despite the appearance of offering an alternative. Yet art museums do not actually operate like corporations, since most of the employees come up with ways to spend revenue rather than to generate it. This explains a lot about why so may college graduates are interested in working in art museums, and indeed why so many young hopefuls labor without pay as interns there. Anecdotes aside, it is crucial to figure out how such an institution has been transformed into a workable business model and, more important, how fundraising has changed in the past generation to accommodate the demands for transparency and balanced budgets increasingly voiced by those who run nonprofit art museums.

Revenue comes primarily either from public or private sources, but museums also derive income from shops and restaurants, as well as from reproduction services and private rentals for special events. These are the most obvious forms of museum financing, but some sources of income are not so evident at first glance. For example, any institution that has an endowment is generating income from its investments, and to maximize returns on these without jeopardizing core funds, nonprofit museums have investment committees made up of members of the governing board members whose specialty is finance. However, such investments are as volatile as the financial world is today, and the size of an endowment is highly flexible. Since 2000, there have been two major shocks to endowments at American nonprofit museums, the fi rst after the Enron crash in early 2002 and the more considerable one with the stock market decline in 2008. Both of these changed the financial dynamic for art institutions. The Getty Center in Los Angeles, for example, is reported to have lost around $1.5 billion from its endowment in 2008 (Kaufman 2009). Though the value of the endowment has since increased, the loss of around 25 percent meant that the amount that could be drawn from the endowment in the next few years was considerably lower, resulting in a tremendous loss to the annual budget and layoffs at the foundation and the museum. The lesson here is that income can go up or down, and that nonprofits, like businesses, are vulnerable to broader economic trends, even if they are prudent in their economic planning (Ojama 2013).


All art museums occupy buildings that provide not only the frame but the best visual advertisement for the museum's collection. The commissioning of a showpiece building to house the collection is one of the major developments of the past generation in the art museum domain (Newhouse 1998; Davidts 2006; Smith 2009). So many articles and even books have been written on Frank Gehry's Guggenheim building at Bilbao that it seems hardly necessary to repeat the refrain but art institutions everywhere have sought out major architects to make statements with their buildings, in a rhetorical strategy to put art museums at the core of an emergent urban fabric, whether the city is Paris or Cincinnati. When Robert Lynch employed the term "placemaking" in his summary of the Americans for the Arts economic impact report (see Introduction), he was making reference to the role that art institutions of all kinds can make in creating an active and visible civic culture, and art museums, for better and for worse, are at the forefront of this trend in urban planning.

While the immediate result is greater visibility for art museums worldwide, it also means that institutions are investing heavily in buildings designed as showpieces by the most famous "starchitects" available. Many questions have been raised about whether unique art museum spaces in such landmark structures are suitable for the art they are ostensibly designed to highlight. Yoshio Taniguchi's redesign of the Museum of Modern Art in New York that opened in 2004 at a price of $858 million was considered a success in providing a suitable environment for the variety of art works in its collection (Baker 2004; Goldberger 2004; Ouroussoff 2004). Conversely, Daniel Liebeskind's expansion of the Denver Art Museum was flogged for designing an architectural gem that did not stoop to providing vertical walls useful for hanging pictures (Ourossoff 2006).

Excerpted from "Art and the Global Economy" by John Zarobell. Copyright © 2013 by John Zarobell. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided solely for the personal use of visitors to this web site.
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