Reforming arts funding is not a job for the market

Should the state become a funder of last resort for the arts? Abode of Chaos

Jason Potts’ article for The Conversation earlier this week purports to bring an economist’s clear-eyed vision to the small problem of arts funding – and in this it follows quite a few others who tell us to stop worrying and love economics.

Or love economists perhaps. In this particular school of thinking, economists are the only experts left standing now that politicians, bureaucrats and (non-economist) experts have been discredited.

How this should be, after the catastrophic complicity of the economics profession in the biggest economic crisis since 1929 requires serious scrutiny.

To paraphrase, Potts puts the situation thus: the arts are public goods but prone to market failure. And the solution?

[M]odern economics suggests that it would be better if we turned the process upside down. Let politicians determine the level of funding in a given area – and let economists determine the allocation.

In fact, economists have never determined how much is spent on culture in this way. Public goods and market failure arguments were post hoc rationalisations in the face of criticisms – usually from economists – that the taxpayer was funding useless and/or elitist activities.

Such arguments emerged, starting around the early 1980s, in a struggle between already established and needy arts sectors and finance ministries set on restraining budgets.

= World of Good

Underlying these battles over cultural budgets was a new kind of rationale for public funding in general: it was bad because it tried to do what the market did better. States, under this line of thinking, would do better to both encourage and act like markets. These, of course, are the key tenets of neo-liberalism.

The market decides: it is a giant information processor in the face of which politicians and experts need to step aside. The only role of government is remove the obstacles to a freely competitive market. Or, to put this in Potts’ words:

The political model of funding allocation is very bad at creating – or even recognising – new knowledge. In fact, political allocation mechanisms cause incentives that reward lobbying and punish experimental or innovative thinking.

To my knowledge, there is no evidence to support this assertion (indeed most of the USA’s “knowledge economy” came from direct state investment). And yet this assertion underlies current attacks on universities, research funding and any kind of industry policy – in fact all those areas where “experts” (rent-seekers and lobbyists) interfere with the free market in knowledge, where its value is determined by how much people are prepared to pay for it.

Potts’ article outlines four principles “we should consider” – so let’s consider them:

One: favour indirect over direct funding

To paraphrase, Potts’ article seems to suggest we should encourage philanthropists to invest in the arts through tax breaks. We should cut out lobbyists, bureaucrats and public judgement systems in general, all those places where “necessary accountability, governance, expert-committees, lobbying and rent-seeking accumulate”.

Certainly the privately-funded MONA and the Saatchi Gallery are successes – but are private galleries always more edgy and innovative than state-funded ones such as London’s Tate Modern?

Toban B.

Is Potts’ proposing we privatise the gallery sector? What about theatres and opera houses, where philanthropists seem thin on the ground? Should the state become the funder of last resort for the bits the private sector won’t touch? Such a model has run down health, social insurance, schools and public transport systems the world over.

So do we now apply those failed privatisation models to culture? To heritage?

Two: fund outputs, not inputs

Potts’ argument here seems to be that funding “inputs” (work not yet undertaken and supported by grants) is bad economics, leading to monopolies, deadweight losses and other such distortions of the market. Grants contract for promised (i.e. not guaranteed) “outputs” while prizes are good because they award actual outputs (end results).


This raises some big questions. Is the individual artist or institution now expected to invest their own money into a product that may or may not win a prize? Presumably the risk is theirs if they come second?

Actually, in my experience, an artist who gets a grant already feels like they’ve won a prize: they get to know they will have some kind of income in the near future rather than going into debt in anticipation of a prize.

Potts suggests funding outputs over inputs is a depoliticisation of arts funding, “by focusing attention on what we actually want to achieve rather than how we want to achieve it”.

But how, exactly? Who awards the prizes and on what criteria? Is this not “political”? The answer ultimately lies with the market.

Three: fund demand, not supply:

Potts writes:

Vouchers are used to allocate money to schools, business innovation and numerous other public services; this is a model that could be adapted to arts and culture.

We should, then, give people vouchers to spend on culture, thus cutting out the expert-committees.

This is a well-worn neo-liberal prescription for public funding, used to introduce quasi-markets to universal health services, public school systems and universities. That these lead to diversity is of course one of the biggest cons of the public privatisation program.

Four: be more like venture capital

Potts’ article suggests we have to act like venture capitalists, spreading our portfolio and taking risks. All fine, but that’s something arts funders have long argued for both overseas and in Australia.

Amy Groark

Finding ways of enabling new, small-scale experimental work has concerned many, such as the broadcaster and festival organiser Marcus Westbury. But though this sometimes comes with a call to abolish or radically restructure the arts funding system, it remains within the frame of public funding.

The values arts and culture embody are not just ones of innovation in a vacuum: they concern the values involved in being individuals in collectivities. Markets have a place here, as do multiple forms of state and non-for-profit activities.

What has no place is the abstract principle of “the market” to which economists have fatally tied themselves, with deleterious consequences for social equity, quality of life and the condition of the global environment.

We would do well, in our search for new models, to keep such ideologically-driven market nostrums well out of cultural policy.

Further reading:
You’ve got $7 billion – so how will you fund the arts?