Cost Disease Confusion: Part 2

Here’s the riveting conclusion of a two part essay examining Duncan M. Webb’s Baumol’s Cost Disease Is Killing Me. To read part one, click here.

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A wise man asked me a great question:

Why now? If this problem has been around forever and has even had a name since 1965, why is it suddenly something we absolutely positively have to deal with today?

My answer is that there is now a convergence of challenges (you can call it a perfect storm if you’d like) that make Baumol’s Cost Disease that much more toxic – namely, declining audiences for classical music (see the 2012 Survey of Public Participation in the Arts)…

Let’s start there. I’m guessing that link is a cue to look at the 2012 Survey of Public Participation in the Arts. Here’s the PDF. So let me scroll down and check out what’s said about classical music attendance…

(By the way, what is classical music? Professional orchestral concerts? Amateur orchestral concerts? Chamber music? Recitals? And what might the regional variation be in these numbers? And why has my head suddenly started hurting?)

Notice at the bottom: “None of the changes between 2008 and 2012 are statistically significant.”

To prove I’m not being a complete Pollyanna, and hopefully not letting preordained narratives skew my interpretation of this report, here’s one important asterisk.

What about figures from previous surveys? How about the 2008 Survey of Public Participation in the Arts survey? On page 26 of the 2008 survey, there is a table that not only tracks percentage of adults attending, but actual numbers of adults attending. I’m including the whole table since it’s so interesting, but the highlighted part is the one relevant to this discussion.

The number of adults attending classical music concerts in 1982 was 21.3 million – in 1992, 23.2 million – in 2002, 23.8 million – in 2008 (aka Recession Time), 20.9 million. Maybe I’m very dense, but I don’t understand why someone would use the Surveys of Public Participation in the Arts to make an argument about massively declining audiences? It seems like it would be okay ammunition for “percentage of adults declining”, but not for total attendance?

So let’s look at the other reasons why Webb says the effect of Baumol’s cost disease is so acute right now…

My answer is that there is now a convergence of challenges (you can call it a perfect storm if you’d like) that make Baumol’s Cost Disease that much more toxic – namely, declining audiences for classical music (see the 2012 Survey of Public Participation in the Arts), growing reluctance of government to provide direct financial support to performing arts organizations, and increasing competition for private sector philanthropy for causes like the environment.

I’m not sure that the American government ever did provide much direct financial support to performing arts organizations, relative to their budgets…? This article on governing.com claims

As for direct support, all three levels of government provide grants to orchestras. These make up the smallest slice of the revenue pie at 3 percent.

And the League of American Orchestras had a press release in April 2014, discussing federal grants:

The National Endowment for the Arts awarded 116 grants to orchestras through the Grants for Arts Projects categories in FY2014, totaling $2,891,500.

For comparison’s sake, the Minnesota Orchestra’s annual budget alone hovers around $30 million.

So I’m not sure where Webb’s coming from? Might the idea of falling government support be more relevant in Europe?

In 2010, I made a bet (for dinner) with a senior executive of the Metropolitan Opera that the organization would collapse under its own weight by 2014. I’m not going to win that bet,

No…

but frankly I don’t think I’m off by much.

Okay. Well, how much is “much”? A year? Five years? Ten years? Credibility is on the line here.

Here’s an organization that had, in 2004, an annual operating expenses of $211 million, with some $94 million in contributed income. By 2013, the operating budget has reached $311 million and contributed income has increased to $158 million.

Yes, and the reasons for that ballooning budget were discussed ad nauseum during their recent rocky negotiations. Various bystanders suggested that one reason the budget was growing so rapidly was because of the choices management was consciously making.

For what it’s worth, here’s a chart the Met orchestra musicians put together examining the Met budget:

I’m not saying this one chart tells the whole story, but it does offer an alternative interpretation to the ballooning budget besides prickly unions. In fact, the Met itself later offered a response to this chart, explaining, “The Met’s expenses increased in order to build the profitable HD program, expand new productions that were largely funded by donors, open the profitable Met Opera Shop, and institute fully-funded programs like HD education.”

How could this trend possibly continue? Do we really believe that the Met can keep growing its budget with an increased reliance on grants, donations and other types of philanthropic support? The latest set of labor agreements certainly represents some progress in slowing down the rate of cost increase, but it doesn’t even come close to reversing the trend of a growing budget supported by donors.

Different choices on the management end would also “reverse the trend of a growing budget supported by donors.” Right? This isn’t an either/or proposition here.

Anyway. After all that, here comes the big question.

So what do we do?

Yes. What do we do?

I’m sure this will be the portion of the article where Webb really gets down to brass tacks and provides workable suggestions of how to create healthy thriving non-profit organizations, so I’ll be sure to listen extra closely here.

Someone at this point inevitably suggests that all we need to do is operate arts organizations like businesses —

Yeah, I’m going to stop “someone” right there. Please don’t think of your arts organizations like businesses. We tried that strategy in Minnesota. It failed.

That being said…

the implication being that staff with the proper skills, training, resources and motivation can fix the problem.

Staff with proper skills, training, resources, and motivation can definitely fix a lot of thorny problems.

Well, they can’t fix this problem.

Oh.

Baumol’s Cost Disease is right up there with death and taxes. But there are two things we can do.

Okay. So here must be Brass Tacks Time. What are the (…only two, apparently?) things we can do to battle Baumol’s Cost Disease?

First, we have to let organizations come and go in a lot more realistic way — the way commercial sector companies come and go. The laws around nonprofit governance make it very difficult to close up shop.

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Wait, WHAT? We save ourselves from death by making it easier to die? Why is that your very first point? How can that be your very first point? Even assuming everything in this essay up until this point is completely totally 100% accurate, how is this advice remotely helpful or illuminating to anyone? This boggles my mind!

And the prospect of a failing arts organization often leads to a desperate and emotional campaign to “Save Our  (insert organization name/type here).” And I do think that organizations are partly to blame for this.

And now I don’t even know what we’re talking about. Is he talking about “save our symphony” campaigns originating from inside of the organization, a la the Milwaukee Symphony’s successful 2013 campaign? Since he capitalized the phrase and put it in quotations, is he talking about specific “Save Our Symphony” organizations, formed outside of the purviews of the institutions they support (as happened in Detroit, St. Paul, Minneapolis, and most recently Atlanta)? Other Save Our Something movements that I’m not aware of?

Well, regardless of if they originate inside or outside the organization, I’m assuming these campaigns are distasteful in some capacity, because organizations are “partly to blame” for them, and you don’t exactly “blame” organizations for good things. (“I blame these record ticket sales on our marketing team!”) 

I’m hugely interested in this topic, so I’m looking forward to Webb following up on this in the next paragraph.

Flanagan’s research suggests that changes in what is paid to musicians is not a function of the financial condition of the orchestra but rather the private donations made to the organization. In some cases it is only the possibility of more private support that gives management the confidence to increase pay. And that increase is not easily reversed in conditions when private support drops.

Or you know, don’t follow up on it. Either/or.

Second,

Okay, so back to the brass tacks. What’s the second suggestion to battle Baumol’s Cost Disease after “make it easier to officially go out of business”?

Second, we’re going to have to do is forget this idea that nonprofit arts organizations should be stable, permanent entities with all of the attendant infrastructure, overheads and benefits.

So…..non-profits should be unstable, impermanent entities?

I’m afraid we’re going to have to organize ourselves a lot more like the film and television industries, with smaller full-time staff and lower overheads.

Did you see what happened in Minnesota?

I’ve been telling my students that it is highly unlikely that their careers in the nonprofit arts sector will provide steady and secure employment.

When was it ever likely that students would be provided steady and secure employment in the arts?

Rather, I’m suggesting to them that they need to develop a clear, marketable set of skills that they may have to sell to multiple arts organizations over time.

Well, yes. But that’s a key to success even when you work at an organization with a large staff and high overheads, isn’t it? In fact, I’d hope that’s Employee Self-Promotion 101.

They must brand themselves (ouch) as service providers, providing effective and efficient support for the creation, promotion and support of creative endeavors.

And yet, if I’m understanding correctly, this shouldn’t be done within the context of a stable permanent entity?

In my mind, cost disease is a dangerous thing, but it need not prove fatal for the nonprofit arts sector if we are able to reinvent ourselves in time. But make no mistake about it: time is short.

Wait. That’s the conclusion? Baumol’s Cost Disease is threatening to upend the entire non-profit field, and those are the two (TWO) ways we combat it? By making it easier for non-profits to dissolve, and by becoming impermanent organizations with low overhead? THAT’S the big takeaway here?

If Baumol’s Cost Disease is a major problem, that is not an appropriate response, and if Baumol’s Cost Disease isn’t a major problem, that is not an appropriate response.

Keeping orchestras in business is a hard business. They’re big unwieldy voracious beasts. On the other hand, I think we do ourselves a disservice by forgetting the precariousness of the relatively recent past. Take the example of the Minnesota Orchestra. Years ago a board member used to stand on the corner of Nicollet and Eighth with a sign called “Save Our Symphony.” I’m not joking. There was a “Dollar Up” drive in the early 1930s to keep the organization from collapsing entirely, even with a “low overhead” and low labor costs. And according to the “Minnesota Orchestra at One Hundred” book, Ken Dayton once mused:

We used to borrow the plates from Westminster Church and pass them through Northrup Auditorium, [taking a collection] to raise the last $25,000 of the annual Guaranty Fund. We would announce that if we couldn’t raise it, the Orchestra would have to close. One of the things I vowed as president is that we would never do that again. After a few years we discontinued the practice, but that’s how desperate it was then. I have no doubt in my mind that this community will rise to support all of the arts in the ways that are needed to keep them all first class. I know it’s tough and it’s going to be tougher, but I have no doubt that the leadership of the Orchestra, the other arts organizations, and the community is up for it.

I’m not pretending to be an expert in arts administration. But I did live through a very specific (and ultimately historic) place and time, and I’m well-educated about what happened in the run-up to the Minnesota Orchestra’s lockout. I saw firsthand how dangerous these kinds of ideas can be in the wrong hands. I’m also seeing firsthand how a culture of growth is reinvigorating the entire organization and providing our best hope at creating a stable, vibrant, successful non-profit. (Although there is obviously a lot of work left to do, and the final outcome is still very much in doubt. Then again, isn’t it always?)

After the cultural nightmare my adopted city endured, I feel the impetus rests on the austerity advocates to win me over. And arguments like these sure won’t.

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