Arts funding in New Zealand: a proposal for reform

Abstract

The article outlines the current system of central government financial support for the arts in New Zealand and critiques this on the basis of the nature of the market failures that justify public support in principle. It is noted that the design of arts funding systems is a neglected topic in Cultural Economics, despite the relatively large sums involved and the unevenness of their disbursement. In New Zealand, on average, more than 40 cents of public money is handed over to arts producers for every dollar that the sector earns in the private market (the “box-office”), but with huge variations for different art categories. Nearly all support is directed at the supply side of the arts, whereas the principles of public finance suggest that funding should be ex post, topping-up revenues earned from the sale of art in the market. The article develops the mechanics of a performance-based arts funding system.

Keywords:

• performance-based arts funding
• New Zealand
• externalities

Acknowledgements

The author thanks the editors, two referees and, in particular, Bruce Seaman for expert and helpful comments on the first draft. Stephanie Collins provided excellent research assistance, with funding from the University of Auckland Business School. The ideas developed in this article were germinated in discussions with a wide range of art practitioners when the author was a member of Prime Minister Helen Clark's Heart of the Nation Taskforce on arts policy.

Notes

These and other examples are from Creative New Zealand's report on grants issued in its July–October 2007–08 funding round.

An art-team may be a formal arts organization, such as the New Zealand Symphony Orchestra, or it may be an alliance of organization and artist, such as between the New Zealand Symphony Orchestra and a composer commissioned to write a new work for performance, or a painter and their dealer gallery, or an author and their publisher.

Arts Council of New Zealand annual report, June 2008, p. 5.

So, instead of supporting artists, “We will invest in an arts sector that generates [sic] NZ artists making world-class work that delivers to targeted markets”. Instead of encouraging consumption, there is a “strategic priority [to] give New Zealanders regular opportunities to access diverse, high quality arts experiences in identified centres”. These quotes are, alas, not untypical. Creative New Zealand's annual reports are also now saturated with the pseudo-“accountability” mandated throughout the New Zealand public sector by the pervasive application (since the economic “reforms” of the late 1980s) of Agency Theory. Sometimes the results are almost comical. Thus, “measuring performance 2007/08” against “Key objective: developing potential … to deliver enduring international success for New Zealand work” we have “Achieved: Relationships have been established with the Australia Council for the Arts [a little late …?]. Contact has been established with … key influencers [sic] in Sydney to discuss the regular presentation of New Zealand work” [trans-Tasman wining/dining junket, perhaps?].

Hans Abbing (2003) recounts the predictably appalling consequences of the Dutch experiment with generous direct grants to visual artists, as do Rengers and Plug (2001), who also develop the issue of supply- versus demand-side funding support.

A “free” visit to New Zealand's National Museum Te Papa, for example, is cheaper for those who live or work in downtown Wellington, than for families who have to travel in from the (generally poorer) suburbs in the hinterland (not to mention travellers from the rest of the country).

If the upfront (fixed) costs of writing a book are, say, $60,000, then if you go from selling 1000 to 2000, average fixed costs halve (from $60 to $30), but if you then go from 2000 to 3000 units, average costs become $20 – a further reduction of just one third, and so on.

A linear demand curve has the realistic property that “elasticity” – the relative responsiveness of demand to price – decreases as price falls. That is, customers are more sensitive to price changes when price is very high than when it is very low.

Since costs are not the issue here, there is no point in complicating the analysis by drawing different AC curves for the three cases.

2010 Contestable Funding Guide, p. 102, emphases in original (http://www.creativenz.govt.nz/LinkClick.aspx?fileticket=yluOJOfbLnQ%3d&tabid=4923&language=en-NZ).

Especially given another finding from Seaman's survey, that the demand for art appears to be price inelastic, which does not make price cuts a generally attractive means of increasing patronage.

These are the words of Mr Willard Rouse, promoter of the new Kimmel Center for the Performing Arts, quoted by Nicholas Lemann (2000).

See Baumol (2003). Interestingly, successful price discrimination, by carving up the demand curve and charging the highest price possible for each segment of the market, can generate total revenues that, in the limit of “perfect price discrimination” may as much as double the revenues to be extracted by setting a single price for all (Hazledine, 2006). This can mean that an apparently commercially unviable art activity such that represented by D2 on Figure 1, could actually be able to pay for itself with sophisticated pricing. Note that the potential for price discrimination is increased by the typically low variable costs of arts outputs, which implies a commercially usable gap between marginal cost and willingness to pay over a wide spectrum of potential patrons. Indeed, it is hard to think of commercial activities – apart perhaps from airline pricing – more susceptible to price discrimination than the arts.

Frey and Pommerehne (1989, p. 46).

We are not here considering the museum and public art gallery sector.

Movie funding is made up of the New Zealand Film Commission's expenditure on development, production and marketing given in its 2008/09 annual report ($20.2 million), plus one-ninth (the annual average) of the New Zealand Film Fund's expenditure since its inception in 2000 through March 2009 ($3 million). Data on the visual arts are from Hazledine, Vavasour and Gotlieb (2008).

Literature is made up of non-genre fiction, poetry, and “serious” non-fiction – i.e., the categories that are eligible for Creative New Zealand funding, in general (so excluding self-help, gardening, cooking, sports etc. books).

Note that the Authors' Fund – though usually justified on Intellectual Property grounds – can be seen as a smart and successful example of the type of ex post engagement-based funding that I am advocating in this article. Authors receive annual cheques based on the number of copies of their work held in public libraries. Librarians have scarce shelf space, and can be trusted to not stock books that people don't want to read.

These estimates exclude TV programming, because this is not sold on a pay-per-view basis in New Zealand. As I understand it, the system here works as follows. Would-be producers of a drama or documentary must first “sell” their proposal to one of the TV channels, which means a commitment from the latter to screen it. With this, the producers then go to the funding agency, NZ On Air, which will usually support the production, wholly or as a top-up of the network's funding.

Symphony, opera and ballet also attract quite large sums of corporate sponsorship, and rather less in private philanthropy.

And note that production costs don't include costs of distribution.

Imagine the fuss if Creative New Zealand tried to tell our writers to put more jokes into their novels. You can't force people to be funny. That said, a pervasive feature of just about all our art is lack of wit and humour, often leading to accusations of dourness. The funniest living New Zealander is John Clarke, who decamped decades ago to Australia. Why did he leave New Zealand? “Because it was there”.

I am happy to report that four recent New Zealand movies – Untouchable Girls, Dean Spanley, Home by Christmas and Boy – have all been judged well worth my own household's discretionary dollar, and in two cases have broken (inflation-unadjusted) domestic box office records for New Zealand-made films.

Such motives may be applied to the Lord of the Rings trilogy, which was partially paid for by New Zealand taxpayers by way of several hundred million dollars of tax expenditures, according to New Zealand Treasury analysis. Also, since 2003, nearly $190 million has been given to foreign movie producers under the Large Budget Screen Production Grant scheme, which rebates up to 15% of monies spent in New Zealand – most recently, $45 million for Weta Digital and other work done on the blockbuster Avatar. These subsidies must be justified on (dubious) infant industry development grounds that do not coincide with the issues dealt with in this article.

A practical issue of importance is whether the box-office top-ups should be capped, and if so, at what levels for different art forms and art-teams.

These costs are not included in the funding payouts shown in Table 1.

Quoted by Klamer (1996, p. 25).

For a rather more sophisticated discussion of the relation between cultural value and price paid, see Pinnock (2009).

In a broad sense this is an “instrumental” approach, since it accepts that the public is entitled to expect something good from its subsidies, but it is not narrowly instrumental in the sense of requiring a “discernible return on investment” (Bunting, 2008, p. 323).

Of course “innovative” does not necessarily mean “original”. The idea of attaching funding to box-office is not new, and has been discussed (in particular with reference to the related idea of giving people vouchers to be cashed in for tickets for the performing arts) by, for example, Frey and Pommerehne (1989, pp. 182–186), and Frey (2000, pp. 107–114).

A referee tells me that performance-based funding is successfully used in the French film industry, along with other more discretionary measures.

Most government research funding is “contestable”; students are subsidised on a numbers-enrolled basis.