For the Minister for Arts etc. If Funding is the solution then what’s the problem?

Lenny Abrahamson tweeted recently, referring to the  range of stimulus measures for the media, tourism, arts, culture, sport and Gaeltacht sectors announced by the Minister as part of the July Stimulus package :

I agree that it is good news, but I think the numbers involved are too small and aspects of the delivery reveal a deep misunderstanding of how the sector works. So this blog is for the minister and bureaucrats.  I share Lenny’s caution, and “hope” it bodes well for future engagement. However, unless the Minister and the bureaucrats understand the underlying trends shaping the sector their policies will fail and conditions for artists can only get worse. Here’s why….

The Size of the State

Let’s start with the basic idea of state funding. This gets a bit technical, but if we want to understand the challenges facing artists and people working in the arts, and the challenges for policy making,  it’s important we understand the wider context.

So, the first thing to bear in mind is that state funding is, historically,  a really really recent idea – and a very short lived one.  The second thing to bear in mind is that consecutive governments in Ireland only ever really flirted with the idea of state funding and the public good, and consequently our bureaucracy is “culturally” averse to it.

From the end of WWI to about 1980 (only 62 years) Europe and the US experienced the greatest ever decline in inequality and the emergence of the idea of the Public Good as we understand it in a social democratic sort of way. This was the era of free education, public health systems, massive social housing projects, arts councils and arts funding, and some of the highest levels of taxation on wealth ever seen.

As you can see from the above chart the top rate of tax in the UK went as high as 98% in the aftermath of WWII and spiked again from 1974 to 1978, before dropping sharply in the wake of conservative victories in the US and the UK.

The French economist Thomas Piketty argues that  “The 70–80 percent tax rates on the highest incomes and largest estates between the 1920s and the 1960s admittedly affected only a small fraction of the population (generally, 1–2 percent of the population but in some cases barely 0.5 percent). All signs are that these taxes played an essential role in durably reducing the extreme concentration of wealth and economic power that characterized Belle Époque Europe (1880–1914)…The system was clearly progressive, and people at the bottom or in the middle of the social hierarchy could understand that great effort was being demanded of those at the top, which served not only to reduce inequalities but but also to generate support for the tax system.” (Piketty, T. Capital and Ideology (p. 462). Harvard University Press).

All that changed in the decades after 1980 and today the average tax rate of middle and working class people is the same or greater than the tax rate for the wealthiest.  This has driven the increases in inequality  we are now experiencing, a contempt for the tax system (resulting in all manner of tax avoidance and evasion schemes, tax havens etc), and low overall accumulation of wealth. (Wealth accumulation is confined to the top 1%)

Built on these levels of taxation from the 1920s to the 1980s what we understand as the public sector grew to account for between 40%  and 60% of the GDP of the countries that now form the EU.  However, Ireland only ever really flirted with this social democratic model. The newly independent state didn’t have the industrial  base to support it and – perhaps more importantly – it was inherently conservative in its economic thinking. Consequently many of the key areas of a social democratic state were outsourced to the Catholic Church (Health and education in particular) and the idea of the “public good” became an object of “charity”.  (Which is in part why the arts are associated with hobbies and volunteerism).

How is this relevant to artists? The size of the tax take reflects the size of the state as a percentage of GDP (Gross Domestic Product), and more importantly it tells us how the state thinks about the idea of public goods, the public space, and the idea of equality of access to things like health, housing, education and arts and culture.

Ireland’s state expenditure in total is about half of most its European partners as a % of GDP. On a global comparison  even the US has a bigger % spend than we do! (Although if you strip out the military spending its probably about the same).

It’s also really interesting to look at the shrinking of the state over time.

As you can see there is a general downward trend with all countries, but Ireland’s is really quite spectacular. (The spike around 2010 is an anomaly associated with the impact of the Great Recession). We will probably see a similar spike over the next couple of years as the pandemic recession bites, but we shouldn’t confuse that spike with a reversal of the downward trend.

These charts tell us why we have a housing and healthcare crisis, the most expensive  third level education system in Europe, childcare problems, rising inequality and an arts and culture sector that is built on precarity,  free labour, and persistent underfunding: because the wealth in the economy is not being effectively recycled through the tax system,  because our social and economic policies are designed to shrink the size of the state and open the public space to “free market” players. Another important understanding is that if the wealth is not being recycled, it is being extracted.

For people working in the arts and culture sector the important takeaways are that the Irish state, in terms of its size, values and ideology is not designed on a social democratic model and is not predisposed, nor does it have the capacity, to adequately  fund anything – particularly the arts!

It doesn’t matter how much, it will never be enough

Another challenge is that it genuinely doesn’t matter how much the state invests in arts and culture in any given year – once it starts the amounts required will always increase.  There are a lot of reasons for this, but at the heart of it is a handy little economic theory called Cost Disease. This was first formulated by Baumol in the early 1960s in his book Performing Arts, The Economic Dilemma: a study of problems common to theater, opera, music, and dance. (considered to be the founding work of the economics of Culture). Essentially, if inflation is present in an economy then costs go up; however we can counteract rising costs by increasing productivity,  usually through technology (produce more stuff faster and cheaper); however, if the technology does not change and productivity does not increase then the cost of production will continue to rise over time. And this is a dilemma that affects artists and all sectors dependent on people as the primary “technology”.

For example, if it took four people in a string quartet one week to rehearse a new piece  of music in 1920, it will – more than likely – take four people the same amount of time in 2020. But all of the costs in the wider economy have gone up – musical instruments, rent, labour etc. It doesn’t matter if a novel is typed on a laptop or an old typewriter the human technology of imagination has not been enhanced and so the productivity rate in novel writing has not increased in any significant way since Cervantes wrote Don Quixote over 400 years ago! Any sector that depends to a great extent on significant human input and non-routine human interaction or activities, (e.g. health care, education, creative practice and performance), will experience low productivity growth over time. They get more expensive. Which is why – when you think of it – nearly every productivity increase is built on a technology that eliminates differences between people, making them replaceable and cheaper.

Both the EY report to the Arts Councils advisory committee, and that committee’s  final report, both make the point that “The arts sector is labour intensive and the employment impacts of the crisis are profound” (Survive, Adapt, Renew).  The number of jobs in the Arts and Culture Sector, and the “stickiness” of those jobs are frequently mentioned in EU reports on the importance of the sector. However, by their very nature most of those jobs are  characterised by low productivity and therefore become more costly over time.  The same is true for most of the tourism sector (and for education and health).  The only way to deal with this cost disease is to  devalue the labour.

Given the persistence of Cost Disease throughout the arts and culture  sector there are  two options: either the cost to the “consumer” goes up (either directly through price or indirectly through tax/state funding), or we drive the production costs down.  Now, for the cost to the consumer to go up we would need a significant number of consumers with a significant disposable income. However, not only is the size of the state contracting, real incomes (wages)  have declined since 1980 (which is why it takes two people in employment to buy a house these days) and audience tastes have significantly shifted. So we have to take the other route: we have to find a way to drive the costs down and so we  devalue the labour (its not really work, its unskilled, nurses are not really as skilled as doctors etc), and then we separate the labour of the worker (the artist or performer) from the result of their labour and bingo! – the cost of production drops. People get paid after the point of sale and not before (as part of the production costs), and so the sale price need not necessarily reflect the cost of labour. Contract workers, deliveroo workers, uber drivers, nurses, care workers, part time lecturers, people working in the home,  and artists are all attempts to deal with cost disease by systematically devaluing people and their work and extracting as much free labour as possible in order to drive their “productivity” up.  Similar practices were quite common in the 19th century during the industrial revolutions.

The Digital Revolution and The Price of Nothing

There are some areas of creative practice that allow for increases in productivity through technology (usually classed as creative industries). Back in the early 2000s it  was claimed that the internet would give everybody free access to the tools they needed to make and record music, TV, films, and for people to reach and manage global communities of fans and effectively monetise that community.  That landscape has changed considerably and the promised productivity rewards have evaporated. Why?

Unfortunately, there’s another economic principle that says that marginal cost (the cost of producing one additional unit of an item) is the same as the price. However, if the marginal cost approaches zero, then the price approaches zero. Now think about streaming services, or making work available on social media platforms. The cost of making the original recording or performance is absorbed by the artist; the cost of uploading an original master file is almost zero, and the cost of each additional play or like is almost zero therefore….the price is zero.  (The recent discussions around Facebook’s partnership with Culture Ireland illustrates this point nicely, as does the absurd artist payment structure of Spotify) . The zero marginal cost principal will continue to have a negative impact until we have robust copyright protections in place, and a copyright collection agency that can effectively represent all artists.

And there’s more!

I made the point in my last blog that the funded arts sector is not really funded.  It needs to find about 50% of its total turnover from sales.  Because the funding is only 50% of the total turnover it is possible for much of the funding to be reclaimed through the tax on the total turnover. The additional funding granted to the Arts Council this year  replaces the lost sales income (and not all of it, look to my next blog for an analysis of the available numbers) in an attempt to stabilise the funded infrastructure – it is not additional money in any meaningful sense of the word.

Now, that 50% of turnover dependent on sales is in turn dependent on disposable income and taste.

Let’s look at disposable income first. It seems that wage stagnation has been a global phenomenon  since the mid 1970s. This is a controversial statement, so I don’t propose to cover all sides of the debate here, but let’s look at some numbers. According to the Central Statistics Office average weekly earnings in 2017 rose to €734.60 in the final quarter  (before tax).  At the same time rent had reached €1300 per month. And then of course there’s health insurance, travel, pensions etc.  While wages had risen by 3% on the previous year, rents had gone up by 11%.  The reality for most people is that the cost of those non-compressible items (rent, mortgage, education, health insurance, etc) are increasing at a rate in excess of wage growth. Again according to the CSO over the last twelve years poverty rates have increased and deprivation has increased by a third. According to Eurostat, productivity increased by 34% in our economy from 2010 to 2017, but according to a report from the Macroeconomic Institute labour costs fell by 17% in the same period. The Central Statistics Office has estimated that the top 5% of households (85,000) own 33% of the national wealth, while the top 10% holds 48%.

From the perspective of the artist it means that for the greater part of the Irish population disposable income is declining rapidly, and that means that the funded sector will start to see a decline in the value of its sales, which account for 50% of its turnover,  as the contraction in disposable income bites deeper into the middle classes. The wider arts sector, which is dependent entirely on sales, will come under enormous strain.  Neither sector can raise its prices to the “consumer” without contracting their market as overall disposable incomes are dwindling, so the only solution is to further reduce the costs, and that means….

Its not really my kind of thing

And of course there’s the question of taste.  Taste formation starts at home, in the neighbourhood and at school.  Its why what club you support is a generational thing,  it’s why children whose mothers hold a college degree tend to do better in school,  its why – if I’ve spent my childhood watching Nickelodian, and attending a school that’s trying its utmost to get me to focus on STEM subjects, sport and business studies – it’s highly unlikely that I will suddenly be compelled to attend a gallery, a concert hall or a theatre when I hit nineteen.  Add to this the state investment in education is one of the lowest in Europe, and investment overall (as % of GDP) is declining across the EU!

So not only do I not have the disposable income to spend on arts and cultural experiences, I don’t even have the inclination.

So how much is the state actually investing to deal with all this?

This is really interesting.  I noticed that Richard Boyd Barrett raised the issue of the lowest levels of state investment in Europe with Catherine Martin about two weeks ago.  Unless I misunderstood Minister Martin replied that according to the advice she was getting  Ireland’s funding levels were more or less in line with the famous EU average of 0.6%.

Earlier this year the PBO (Parliamentary Budget Office) issued Publication 6 of 2020, Identifying and Costing Various Programmes that Support the Arts in Ireland.  It’s a really interesting piece of work and it captures the spend across various departments using 2017 as a base year (the latest year for which full and complete information is available). According to the report the “…best estimate of the total amount provided in support of the arts is at least €372 million (rounded) spread across multiple departments. This is approximately 2.4 times the allocation to Programme A (Arts, Culture and Film) of the Department of Culture, Heritage and the Gaeltacht and indicates that the Arts Council contributes approximately 17.5% of total funding for the sector”.

Let’s stick with that for the moment.  GDP in 2017 was €294.1 billion. The €372 million total identified by the PBO report is 0.126% of GDP.  So, if state funding in 2017 were to match the EU average of 0.6% the state would have needed to commit the guts of €1.8 billion.

A long long way from where we are.

What are we to do!?

As we can see the problem begins to get very interesting for Irish Artists and for politicians and policy makers.  So what the Minister and her advisers need to understand and accept is that the state’s capacity to fund anything is dwindling; the arts are incapable of serious productivity increases and so they become more costly to produce every year; real wages are stagnating and disposable income is contracting throughout the economy so people can’t absorb the rising costs and therefore the overall market size is contracting; the idea of an education based on the humanities is already a thing of the past further contracting the market; the artists’ labour has been separated from the artists’ product and so their labour is free, and in an increasingly digital world the price of their product is close to zero.

In a complex environment such as this a policy response based on doing what has always been done but just spending more is not effective. Each of the trends above can be addressed; some require simple policy actions  but others require real political and ideological changes.

The nature of the responses to date do not fill me with hope.

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