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On the Economics of Art and Business

As we conclude the final push for our “spring appeal”, I thought I’d reflect a bit on fundraising.  I was recently asked, at a dinner party, “Why do you waste so much time fundraising?” After a deep breath, I launched into the reasoning that ticket sales and other earned revenue only cover a small portion of what it costs to run all our programs. About how we need people to invest in our mission for the return of seeing our programs thrive, not to see that return in a monetary form. But, meeting intelligent, thoughtful and well-intended insistence that we should run more like a business and shouldn’t rely on donations, I realized I needed to make a better case.  To explain why all organizations should not necessarily be run as businesses, and to better articulate the value and return of a donation to a nonprofit like ours.

“It is the economy, stupid”

First, I must start with and admission: I’m guilty. I listen to NPR, but have changed the channel during the pledge drives; I’ve avoided phone calls when I recognize my alma mater’s fundraising line; and I’ve thrown out many year end “ask” letters without reading them thoroughly.  However, recently, I’ve come around to listening, talking, reading and giving back because I better understand how investing in a social enterprise has a multiplier effect.

Nonprofits like ARB, by definition, serve a mission. There’s a double bottom line - how well we serve our mission, and our net income.  Because we serve a common good, we can and should take on some projects that might not be a net positive project if it contributes greatly to our mission.  This works out, for you economic types, because we create “positive externalities” and contribute to society (yes, even monetarily, if you read on) in a different way.  So, when a corporation dumps pollution into the water because it’s cheaper than dealing with it in an environmentally sound way, they make their bottom line better, but create negative externalities for those around them.  These “others” (individuals, businesses) pay the price in the form of clean up, health care costs, more expensive sushi imported from somewhere else, and whatnot.  If these costs were subtracted from the “bottom line”, the corporations’ profits would plummet.  The opposite is true for us. And, just as some have begun to “translate” these costs into monetary terms and “charge” corporations for these negative effects through fines and other sanctions, nonprofits have begun to “translate” their positive impacts as well. Americans for the Arts recently published this report on the economic impact of arts and culture organizations. In fact, ARB participated in this local study that contributed to the report.

So, the arts do produce a real economic return on investment, but many would still rather go out to a restaurant and support the local economy directly that way (at least they’d personally experience a steak dinner in return for their dollar spent). So, I’ll continue…

Do it for the kids, do it for our future!

Research shows that exposure to the arts:
Prepares students to be better learners 
Helps students perform better academically
Particularly impact the achievement of students from low socioeconomic status families, even while they are less likely to receive arts education

Nuff Said.

Gee, Officer Krupke, we’ve got a social disease!

In her incendiary series in the Huffington Post, “The Poorest Art: Dance and Money”, Lightsey Darst laid bare the frightening economic reality for the dance industry (Part I , Part II, Part III and Jennifer Edwards’ insightful response).

You’d never know this harsh reality, though, especially judging by the excitement and recent success and exposure of dance in pop culture - from TV’s Bunheads, Breaking Pointe and all the other competitive reality dance shows, to the silver screen’s recent First Position, The Joffrey Ballet: Mavericks of Dance (which, shameless plug, ARB will be screening on July 12 at the Princeton Garden Theater), and Pina. Dance is obviously on the forefront of the cultural zeitgeist in a way it has not been since Baryshinikov’s defection (with apologies to the Black Swan blip). If we love it so much, why does it feel so unsupported?

Well, turns out, it’s not necessarily our fault.  We’ve got a bad case of the Baumol’s Cost Disease. You can read the Wikipedia article or this New Yorker article, but simply put, dance, like other service-oriented sectors, cannot optimize for efficiency in ways that other sectors can. To make a dance, it still takes a certain number of people working in a room for a certain amount of time.  In other industries, robots, assembly lines and other technological advances allow many industries to produce more for less.  Our choice, then, is either to raise prices or reduce costs.  Since demand won’t support the $2,000/ticket price necessary to generate the income we need to produce a performance (not to mention that we’d then have to raise prices even more because we’d have lower volume), we’re stuck working hard and close to the line on everything. And this, unfortunately translates to low wages for all of us in this industry, particularly for the artists who deserve so much more because their supply is in surplus.  We need those who can and who have benefited from having arts enrich their lives, fill this economic gap - otherwise the arts (and, for that matter, education, public radio, health care...) would cease to exist.

So, there’s my long winded answer to why we fundraise. Nonprofits like ARB need investors who realize what their return will be. Our model isn’t predicated on the expectation of a “hockey stick” revenue chart.  We take on some projects that do not make money because they contribute in other ways - ways that we do not necessarily directly realize the monetary benefit from.  This is not to say we shouldn’t and don’t do things that will help keep us sustainable financially, but the revenue we do generate, we must invest back into our organization to better serve our mission and secure our future.  Fundraising will always be an important piece of our revenue pie.  Diversify your investment portfolio and invest in our mission.
 

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