Mediamatic Magazine Vol. 6#2/3 Ruud Nederveen 1 Jan 1991

The Fodor Cycle

Alternative Approaches to Financing Museums

If the question is asked of the methods a museum can adopt to raise the funds needed to carry out its function, a couple of things should first be clarified. First of all it should be stated that we talk about museums of contemporary art that are responsible for their own collection. Moreover we are certainly not talking about the Museum Fodor. The second point is that I do not intend to discuss every aspect of museum policy. I will not deal with the creation of the collection, or the museum's policy towards the public, or how it publicizes itself; nor with the running of the building or personnel policy. Let us imagine a museum of contemporary art. Let us say that it is in the city E and let us call it the Museum. The Museum has a Board of Management. And the Management has one Problem, namely that the Museum would be able to carry its function out better if there was more money.

The Management assesses the collection of the museum and realizes that under previous management certain somewhat one-sided emphases have been placed in collection policy. The budget for making purchases is limited enough. The Museum is entirely financed by the authorities: local and central government fix the budget; although it is tied to the rate of inflation over the past few years this does not represen any real increase. Moreover the Management has other expenditures: parts of the collection are due for restoration, security must be modernised, etc. The Management turns to its regular source of supply: the authorities. But they are currently seeing where they can make cuts. The authorities admit that they are responsible for developing an art policy, and that they must also do this through the Museum. Art policy is the responsibility of government at least in the sense that they must create th( conditions in which art can be produced. They never bother about the content of art, but they are aware of its social importance. Daniel de Lange proposes a thesis that is a clear statement of the social importance of art: Time and again art gives life to culture, either by validating it or through its function of criticism. It disturbs the mirror image in which every culture becomes a Medusa's head; staring at its own image freezes the culture until it becomes a lifeless ghost. In this sense art is an indispensable factor ftr the survival and ftr the possibilities ftr growth and change of every culture; the reverse is also true – the willingness of the culture to allow the mirror image of itself to be altered by art, is a measure of its vitality. Considerations such as these are a convincing argument for the authorities to release funds for art policy; they are in keeping with the Thorbeckian principle of never commenting on the content of art. (Thorbecke: 19th century Dutch Prime Minister responsible ftr the introduction of the Dutch written constitution. Translator's note.) In the meantime there is no chance of allocating more funds to the art budget.
The Management is not prepared to leave it at that. If government is unable to raise more money then they must look to the private sector. Large-scale funds for the promotion of culture do in fact exist, but it soon turns out that these sources of money
have their limitations; they are insufficient to provide structural support for the functions of the museum. The Museum is used to getting money simply by asking for it. Normally speaking it turns to governmental or semi-governmental bodies. The request is turned down, even though it is described as being not unreasonable. Why should there be a request for extra money right now, and why can it not be granted? The Management considers that it is time to pause for reflection.
The question why the Museum needs more money is not so difficult to answer. The largest proportion of the extra money it needs goes to building up the collection. The reason for this is t~at the price of contemporary art is very high, certainly if we ar, talking about work that is patently representative of a specific development or tendency. A museum needs to buy work at a very early stage. If it has missed out on a specific tendency it is often too late: the prices have soared to such an extent that they simply do not bear any relation with the budget available for making purchases. As soon as someone's work gets a certain name for itself its market price rises on average IS to 20 per cent per year. Art is increasingly seen as an object for investment. This tendency is partially responsible for the fact that the prices for art are constantly rising. Contemporary art is part of the economic process of supply and demand. This development takes some time to emerge. The market first waits for a certain level of recognition and only then does a movement in price occur. Moreover this movement i strange in more than one respect: the work has not been created in response to a demand from the market; it is a progressive response to a demand, that, in view of the value placed on it, must imply a great scarcity. Market research would indicate that ou mode of production is a response to a quite specific demand. Prices are normally speaking determined by production and distribution costs. In the case of art these aspects of evaluation playa negligible role. This is the basic difference between art and other processes of production. During the moment of its creation art fails to comply with the laws that we recognize in economic affairs. Once it has been produced and receives recognition, it begins step by step to participate in our economic cycle. This is a development that artists have not failed to notice. Not so long ago artists had an image of themselves that was still modelled on a 19th century non-economic pattern; now we have the phenomenon of artists who are acquainted with their business interests. This is a development that the museums follow with mixed feelings. After all isn't it the museums that have given art and the artist their position in the market?
Museums are a 19th century institution. This was the century that invented industrial capitalism and it needed a protected and privileged place where cultural values could be celebrated by and on behalf of the established bourgeoisie in order to demonstrate that they weren't just ferocious money grubbers. In every city concert halls and museums rose from the ground and public art was able to get under way. A public art moreover that gradually emancipated itself from both the church and the secular rulers, who were the original patrons of art. As the process of democratization developed the authorities increasingly gave form to these bourgeois aspirations. The museums and the concert halls were created by the bourgeoisie who met in their art salons, but they gave the responsibility for them to the institutions of government which were in fact run by the same group of people. In the meantime to all appearances the artists complied with the wishes of their masters. They presented themselves as political or a-political depending on the times. But they always maintained a display of being non-economic in their work and in their mode of production. They stormed the Bastilles that were permitted them: the theatre and the museum. And the people in power were highly entertained by the artists, regarding them perhaps as pampered children.
The Management went on with its evaluation: it began to notice that somewhere along the line art had taken another direction that no longer corresponded to its original model. Even so the artists continued indefatigably to use the museums to exhibit their work, but there was a discrepancy in their attitude. Where however did that discrepancy lie?
Art is cunning. It is so cunning that it has always found a way, often an underground one and often unconsciously, to resist the arguments of power. Or else it has made use of these very arguments to erode power itself from within. Because it is in this way that art becomes a mirror held up to culture. It is an apocryphal and dialectical process: statement is constantly met with counter-statement that confirms while at the same time proposing a meaning that erodes the original meaning till it becomes something entirely different. This cunning, this vital will to live that is the nature of art, is not a quality that the museums, possess. A museum is literally a follower of tendencies.
This discussion will perhaps need some elaboration. It can be found in the realm of casuistry. When Mondrian produced his apple tree series he was, of course, producing an experiment in form, but at the same time he was also demonstrating in a fashion that almost reminds one of Foucault that the order of nature escapes our ability to perceive it. He did not make an abstraction of the apple tree. He simply painted it. And he painted a new world order. This is why Mondrian was both child and prophet of his time. What about the museum then? The museum waits a while, but in the end it decides to hang the work.
Meanwhile we have landed in the post-capitalist era and our mode of production has also become a subject for art. Moreover the authorities have switched their emphasis from artists' policy to art policy; they have abolished the BKR (government regulation by which artists were guaranteed a basic income. Translator's note.) and in its stead they have created the conditions for a broader commissions policy. The artist once again apparently does his master's bidding and organizes himself in a more business-effective fashion. The museum follows suit. The museum does this by focusing on management techniques and sponsoring facilities.

The Management of our Museum has some experience with sponsoring. The conclusion it reached confirmed the research carried out in England. Sponsoring is useful for additional financing of thematic activities up to a maximum of IO% of its own budget. It is clear to the Management that sponsoring and fund-raising (the latte has never got off the ground in Holland) are not the answer to its Problem. But gradually the Management is beginning to appreciate one thing very clearly: to raise money you have to be cunning. Art is cunning. Why shouldn't the Museum be like art? It understands art after all. How to put this idea into practice however requires a great deal of thought.
If the current slogan is: be business effective - in what respects can museums be business effective in their approach? And, moreover, how can they achieve this in the area of generating revenues? The Museum has already become as business effective as
possible in its policy of expenditures: it applied a whole variety of techniques in a number of areas: financial administration, building and personnel management, security and public relations, but all of this only covered the aspect of expenditure. How can you become business--effective with regard to raising revenues?
Traditionally the museums carry out a variety of activities in the field of publications; sometimes they also issue special editions of multiples. These raised plenty of money but always on too small a scale to solve the Problem. Even an adequate fiscal policy, for instance in the area of sales tax, might offer some room for manoeuvre but not enough to be equal to the Problem. No, it is time to do a radical about-turn. What does a museum possess then that is both valuable and that can be converted into money? Its own collection. Discussion has already begun about the important capital that art in museums represents. The Mondrian in Hilversum set the tune; Rudi Fuchs of the Haags Gemeentemuseum has formulated the question more incisively: why do we not sell a number of the works that we keep in storage in order to make substantial improvements in our collection? There are a number of argument! against doing this and this is not the place to go over this discussion all over again. There is, it is true, something relative about a museum collection in the sense that it accumulates by chance: purchases, bequests in sums of money and in works owned by collectors and artists - from the point of view of developing a collection, there are bargains enough to be made here - and, of course, there are 'remainders' from project1 Even so, despite its weaker elements, this collection is also a product of time and circumstance. The Management sees no reason for selling...

The collection of the Museum may represent a source of capital, but it is a fixed asset, and therefore from the point of view of the 'firm' it is an unalienable, active reserve. The Museum has another active element at its disposal: its expertise.
The Management ended its evaluation by drawing three main conclusions:

  • the museum is an institute that is distinguished by a 19th century task and form of organisation.
  • the museum would be well advised to situate itself closer to art than to society.
  • the museum must acquire greater familiarity with the world of finance and

The Management prepared to draw up plans.
But before the Management could make its plans it first had to have an answer to
an important question. How does the price-making process develop in the case of art and why does it show such a tendency to soar?
Sotheby's, the art auctioneers, maintain an index of the sales of modern art. The course this index has taken since 1975 definitely deserves further study: the average annual increase is 136.73%; at the same time there are hardly any fluctuations in the trend towards growth. The annual performance seems to be hardly affected by the fluctuations in the economic situation. The oil crisis of 1979, for instance, to mention; moment in recent history that was a major cause of fluctuations in the economy for that year and for some years afterwards, had hardly any perceptible influence on the
development of the stock market index for art. This is all the more striking if we also bear in mind that the index is made up of the total turnover of modern art that is sold in that year. Good or mediocre, famous or obscure, it all comes under the hammer of the auction houses. The stock market index may show a steady increase for art; but the absolute increase in the value in modern art for the periods of modern art described here is, to an investor's way of thinking, simply incredible. A share in the collection that had the index value of DFL IOO, - in 1975 would be worth DFL 2.051 in March 1991. To make a comparison: an investor's portfolio with a real profit of 6 to 8% is regarded as very promising. Investors would call it a 'good performance'. The performance of modern art and, it should be stressed, of contemporary art as well would amount to many times the amount of an effective year's profit. The reverse of this situation is in fact the cause of the problem: the prices paid for art are rocketing to such a degree that museums are hardly able to continue collecting. The Museum disposes of the expertise to spot valuable art at an early stage, or to be able to distinguish between passing trends and genuine new tendencies. A museum possesses the expertise it needs for collecting and managing its collections. A collection increases in value to the extent that it is put together on the basis of quality. For this reason the Museum needs to have the same expertise as the art investor.
Let us take a closer look at the business of investing in art:
Both the fact that it is unaffected by the fluctuations of temperature on the market and the size of the increase in its value call for an explanation that we do not yet have. Too little research has been done on the subject of art investment. And yet the phenomenon can hardly be called a new one. The only thing that is new about it is that in Europe a broader social circle is beginning to participate in it than was previously the case. So far, however, they seem to me to be doing so with a degree of hesitation. Apparently we still prefer to preserve the 19th century attitude towards art intact. Because no other explanation can be found than 'cold feet' for the fact that, contrary to all the evidence of the figures, the interest in art as an object of investment is taking root so slowly. Any new product that was put on the market with a performance forecast comparable to that of art would normally speaking be assimilated by the market much faster. The hesitant attitude can only be explained by a cultural paradigm: the price-making process in art is shrouded in mystery: it is worth what anyone is crazy enough to pay for it. There are no objective indicators for ascertaining the value of art.
In art circles the development of art as an investment object is being followed with deep suspicion. Once again the reaction is one of cold feet. In one respect artists have admittedly every reason in the world to react in this way. Speculation with your products is obviously no joke if you don't profit from it substantially yoursel£ But this does not seem to be the main cause of complaint: more important is the fact that artists often want to know where their work has ended up and who owns it. They boggle at the thought of air-conditioned vaults where their works may remain deposited for 30 years without people ever getting the chance of seeing them. This picture, however, is not entirely accurate: it is in the investment funds' interest to make the contents of its collection known, to encourage loans and publications of work and perhaps to show work somewhere for an extended period of time. This means that the work has much greater exposure than when it hangs in a private house or a board room. Furthermore, and this seems to me to be the most important argument: by means of an investment fund money is released for art and this contributes directly to the creation of income for artists. Moreover, this money also means an expansion of the volume of the art market in the full sense of the term: the participation capital of the investment funds would otherwise never have become available on the art market.
The Museum realized that making its own expertise in collecting available to an investment fund was one possible solution for the Problem. In fact, in addition to its own collection which, we should again stress, is inalienable, the Museum disposes of the specific knowledge that will enable investors to make choices that will maximize the returns on their investment. In addition to its own collection the Museum is in a position to fulfil the functions of administering an investor's collection and organizing its purchasing policy. What is in this for the Museum?
Here is one calculation. The Museum or its representative writes out participation certificates for the investment funds to be developed. Let us say there are 1,000 shares with a par value of Dfl IO,OOO. The starting capital amounts to Dfl 10 million guilders in the first year. The staff of the Museum uses this to buy art. With adequate preparation the staff will be able to convert the 10 million guilders into art in a space of no more than 2 months. The IO millions will be invested with a maximum spreading of risks: 6 millions go to pre-war modern art: Picasso, Boccioni, Klee, De Chirico etc. 20%, 2 million that is, then goes to post-war work: Rothko, Stella, Johns, Kienholz, Moore, Oldenburg etc. The final 2 million is reserved for work that is being made now, by the generations that are not yet to be found in the art guides and which are gradually beginning to be purchased by the larger museums. The bulk of the fund consists of recognized work of museum quality. The good pieces by well-known artists, that have already reached a certain price, but which show a powerful increase in value in the above-mentioned index. The index relates to this part of the collection in particular. The collection that was bought for 6 million is worth more than 123 million IS years later. The remaining 4 million will show a somewhat more graduated increase in value and will represent a value of 95 million guilders after IS years.
The total collection that was bought in the subscription year gives a gross return of 208 million guilders on the investment at the end of the period of IS years. That is a lot of money. A staggering amount of money. If the investment returns after IS years were 9 millions, it would still be considered a good performance. To achieve returns like
this there are still some costs that must be reckoned, from management and security, say 3% of the nominal capital per year. In our calculation that means 4.5 millions. Finally the museum can calculate 20% of the gross investment returns for the contribution of its own expertise. In this case then a revenue of So million guilders.
The Management sat at its computer and blushed. Figures like this were absurd. Furthermore to have a collection of such outstanding quality for IS years was very worthwhile. And to think that every year you could launch a new investment collection.
The Management was faced with the prospect of a whole new set of problems:
would government continue to serve as a co-financier if the museums themselves were able to develop revenues on this scale? Moreover an investment project brings organizational problems with it Moreover, is the market really so insatiable that the ad lib increase in values will continue indefinitely? What would be the effects on the price development if funds like these became generally accepted? In short, it is high time to ask the government for a subsidy to do the necessary research...

From an economic point of view art is a strange phenomenon. In the meantime it is becoming fashionable for museums, along with other non-profit making organizations, to make use of all kinds of management techniques from the private sector. We are talking about a shift towards the cultural institutions: museum director> are going on courses and a new market is opening up for the banks, certainly since the authorities are amongst other things also making proposals to privatize the museums. To pass any judgment on this policy is beyond the scope of this essay. I would only say that if the museum world wants to solve its money problems, that there are ways of doing this but they require another mentality than the museums or the authorities in this area seem to possess. The feasibility of one source of museum financing as I have described it here – and it is possible to imagine other sources – would seem to offer enough material to make a start. Ladies and Gentlemen, who's turn is it next?

translation DONALD GARDNER