Increasing Arts Demand in Untraditional Consumers

A Defense of Demand-Side Subsidies

While the National Endowment for the Arts (NEA) is a large, complex agency with many goals, one of its highest callings is to ensure that all Americans have some access to artistic experiences. According to 2010’s Performance and Accountability Report, this was to be accomplished through the agency’s Access to Artistic Excellence goal. In the same report, performance indicators for FY 2007 are listed for this goal. Included is “the number of individuals directly benefiting from projects whose primary purpose is to make the arts widely available to the public (excluding broadcast audiences).” (National Endowment for the Arts 2010)

While the aggregate number of individuals is, of course, of interest, it’s also important to note that the NEA’s 2008 Survey of Public Participation in the Arts details how this participation breaks down by age, education and region, among other characteristics. This survey is the agency’s first since 2002. It is notable that despite the NEA’s access to this more disaggregated information, they’ve not made public any goals relating to increasing arts participation by any particular sector of audiences, nor do they detail any plan to track this participation more closely in the future.

Up until now, the NEA’s focus has been on subsidizing both arts education and arts products from the supply side. Rather than developing methods of subsidizing both education and arts experiences for consumers, the NEA instead provides grants for organizations that produce both arts products and arts education. While this makes a certain amount of sense from an organizational perspective, by subsidizing suppliers, the NEA removes itself as an agent of demand increase.

What is Art?

Any examination of public funding for the arts necessarily begins with the question of what, exactly, art is, economically. Clearly, art producers are able to charge consumers for their products, so the arts don’t qualify as a pure public good. Two descriptive models of the arts are useful: the arts as an addiction good and the arts as a merit good.

While an addiction good most easily calls to mind cigarettes or illicit drugs, art consumption can also be the product of a certain kind of addiction in that each unit of consumption makes it more likely that the consumer will demand an additional unit. In other words, individual demand for art will necessarily change over time (Blaug 2001) and, we can presume, will increase. This idea of rational addiction in art consumption presents the potential for an information-based market failure. Consumers who have never consumed art are unable to accurately value their potential utility from art consumption. Government intervention with a goal of increasing individual consumption of art is thus intended to correct this market failure by providing more consumers with an introductory experience in the arts that will lead them to be able to more accurately assess the utility they’ll gain from future arts consumption. It follows, then, that government intervention into the arts ought to incentivize lower-income, less educated individuals to consume more arts products.

The addiction good model is primarily focused on the loss of utility to individual consumers when art is undersupplied. A merit good model, though, is more concerned with the communal benefits of the good. Colonna describes merit goods rather broadly as “being mainly private in character, but allocated under major government influence” and concludes that “[i]t is likely that a merit good (art) will either be under-produced or not provided at all under the private market mechanism.” (Colonna 2011) While Colonna’s reference to the market failures that are likely to emerge in the provision of merit goods will prove helpful, a narrower definition is more useful for considering the public funding mechanisms in art. Marriott defines a merit good as “one that, ideally, is maximized as it is deemed socially desirable…[it is] provided on the basis of need, rather than ability to pay.” (Marriott 2010)

The idea of a merit good is related to that of an externality; the good provides utility that isn’t captured in the transaction price of the good. However, while externalities (both positive and negative) are considered problems that need to be solved by internalizing them into the market, the additional benefits delivered by merit goods are often less quantifiable and as such, the better solution is some measure of government provision, rather than an attempt to affect the market so it will account for the unrecognized benefits. Key to a discussion of public arts funding in the United States is the idea that the existence of the arts is socially desirable beyond economic utility. While the NEA underplays its involvement in high-quality art in favor of more politically viable initiatives like arts education and expanding access to the arts nationwide, it is notable that the opening clauses of the agency’s authorizing legislation for fiscal year 2010 specifies its commitment to art for the benefit of the consumer:

An advanced civilization must not limit its efforts to science and technology alone, but must give full value and support to the other great branches of scholarly and cultural activity in order to achieve a better understanding of the past, a better analysis of the present, and a better view of the future. (National Endowment for the Arts 2010)

While government intervention in the arts model clearly has benefits for the artists and institutions who typically receive the subsidies, the NEA also believes that consuming more art can bring benefits to the consumers, as well, by providing the consumers with new ways to understand the world around them. Like the addiction good model, the merit good model can be used to justify government intervention in the arts market to incentivize new consumers to enter the market.

How to Build Demand for Art

Two methods of demand-building are mentioned in the literature: education and introductory experiences.

In the popular imagination, someone who consumes a lot of art is often considered to be someone who is highly educated, with a great deal of disposable income. Research stretching back to Baumol and Bowen’s landmark work in 1966 demonstrates that this image of the art consumer is mostly true; both education and income are strong predictors or art consumption. (Bowen 1966) Clearly, then, the NEA’s strategy of providing arts education experiences is meant to increase the likelihood that less-educated populations will participate in the arts. Supply-side subsidies also strive to achieve this goal by ensuring that arts producers are available in communities all across the country, guaranteeing that geography is not a barrier to access.

Current NEA Policy

The NEA’s most recent strategic plan lists four major goals:

1. The Creation of Art that Meets the Highest Standards of Excellence

2. To Engage the Public with Diverse and Excellent Art

3. To Promote Public Knowledge and Understanding about the Contributions of the Arts

4. To Enable the NEA Mission through Organizational Excellence (National Endowment for the Arts 2010)

Goals 1 and 2 are relevant to a discussion of the funding mechanisms of the agency, so those are the two goals that will be considered here.

The strategic plan also lists the NEA’s strategies for achieving these goals. (National Endowment for the Arts 2010) It’s notable that the primary mechanisms for achieving these goals is grants to arts organizations, arts educators, and, in rare cases, directly to artists themselves, i.e., supply-side subsidies. There is no strategy for directly engaging the audiences that the NEA invokes in Goal 2.

Supply-side subsidies are designed to defray some of the costs of art production. In general (there are, of course, always exceptions), the fixed costs of art production are very high while the marginal costs are very low. Consider, for example, a play. The fixed costs include all of the production costs, like theater rental, salaries, and production costs, among others. The marginal costs, on the other hand, include program printing and concessions, if that’s something that’s offered. The costs of raising the production are gigantic when compared to the costs of each individual audience member. Typically, in an efficient market, the price of a good is equal to the marginal cost of the producing that good. However, as anyone who has been to the theatre can tell you, ticket prices are certainly higher than the cost of providing a program and a drink or two. In order to cover their fixed costs, theatres charge ticket prices above the level of their marginal costs, resulting in a market that is not perfectly efficient. To counteract that inefficiency, the NEA subsidizes part of the producer’s fixed costs, which achieves many goals, but, undoubtedly, one of them is to allow producers to charge lower prices and create a market that is as efficient as it possibly can be.

Policy Recommendation

There are clear reasons for the current system. Supply-side subsidies allow the government to support not only the production of individual pieces of art but also to contribute to ongoing artistic institutions through grants and endowments designed to pay the salaries of particular employees, in part, propping up the current infrastructure of our arts institutions.

However, in all of the NEA’s publications, it is obvious that expanding access to the arts beyond the traditional, well-educated and wealthy arts consumer imagined above is at least an equally important goal to the NEA, if not a higher priority. Despite this, the NEA’s policies do not target traditionally underserved arts audiences. In order to more directly affect the arts audience demographic breakdown, I recommend that the NEA shift 50% of its spending to targeted demand-side subsidies. These subsidies could be achieved through a tax credit for a certain percentage of all arts consumption for the target demographics, although the political difficulties of altering the tax code shouldn’t be underestimated. Alternatively, the NEA could offer an arts discount card to anyone who qualifies for the Earned Income Tax Credit, entitling them to a certain percentage discount on any arts purchase. The discount card has the added benefit of flexibility, allowing for adjustments of the discounts in order to more narrowly target the incentives, if necessary. Additionally, the discount card would make this consumption trackable, so the agency could measure the effectiveness of its efforts to target this population.

The political climate for arts subsidies has never been welcoming and in times of economic hardship, justifying government expenditures on goods that are typically seen as luxury goods for wealthier Americans becomes nearly impossible. The NEA’s strategy has been to emphasize the arts’ economic benefits, like job creation and spillover effects to other industries in communities with high arts participation, but the agency has been relatively silent about the direct benefits to arts consumers, and no effort has been made to address ways to directly increase participation among populations who currently consume low levels of art. Demand-side subsidies would not only create a mechanism to directly incentivize target audiences, their implementation could serve as an advertising campaign for these populations, reminding them that art is available for consumption. More importantly, it would give the NEA the ability to measure its progress against one of its major goals, expanding access to the arts to all Americans.