You’ve got $7 billion – so how will you fund the arts?
In this crossposting from The Conversation, Jason Potts from RMIT University, argues public arts funding should create unintended consequences.
Arts and cultural funding could be improved if we could just agree on a level of funding – and then use economic analysis to design the models of funding delivery. In short, give the tax system a bigger role – and the expert panels a smaller one. Make differences at the margins by funding skewed toward outputs and the demand side.
Last year the Australian Bureau of Statistics did the maths – government spends about A$7 billion annually in Australia on arts and culture. The exact dollar figure varies depending on what we count, but it includes heritage, broadcasting and botanical gardens, along with all the usual suspects: performing arts, literature, film, visual arts, and so on.
For the sake of argument, let’s assume A$7 billion is exactly the right amount of public funding for the arts.
To make this exercise fun, let’s suppose that no political horse-trading was involved in reaching this figure. Let’s assume this figure is the result of disinterested economic calculation of the size of the positive externality in the production of a public good, all wrapped in willingness-to-pay studies, and tied with a big bright cost-benefit ribbon.
So what’s next?
Do we put away our box of shiny economic tools and turn to grubby political compromise to allocate the exact market-failure correcting amount of public funding?
In Australia, as in Europe, this is more or less what we do. Economics to justify an economically efficient level of spending – and politics to implement it.
Estimate market failure, then politically intervene in direct proportion. This is the standard 20th-century model of applied public goods.
Observe this in action in science (CSIRO), academic research (Australian Research Council), and sports (Australian Institute of Sport), among others.
Yet modern economics suggests that it would be better if we turned the process upside down. Let politicians determine the level of funding in a given area – and let economists determine the allocation.
Why? The political model of funding allocation is very bad at creating – or even recognising – new knowledge. In fact, political allocation mechanisms cause incentives that reward lobbying and punish experimental or innovative thinking.
Only by weakening those incentives can arts and cultural funding seek to be more than a rearguard preservation exercise or sinecure for vested interests.
There are four principles we should consider:
One: favour indirect over direct funding
Direct funding takes small amounts from many taxpayers and pools it in a few large granting bodies for dispersal to many recipients. The indirect funding model eliminates those big pools – incidentally the places where all the layers of necessary accountability, governance, expert-committees, lobbying and rent-seeking accumulate.
The indirect model offers tax credits to anyone – private citizen, corporation, foundation or NGO alike – for spending on arts and culture. This approach has at least three great strengths:
1) It does not require government approval of arts and cultural activities. Philanthropists can be great patrons. They can be far more edgy and engaging than government – just look at David Walsh’s Museum Of Old and New Art in Hobart and the art collections of advertising tycoon Charles Saatchi. Tax breaks allow for public support of the arts – without the public judgment of funding criteria (which eventually, inevitably collapses into the politicisation of art and culture).
2) Indirect funding sets up a diversity of funding options: private and public, philanthropic and corporate, big and small. This is messy, and it certainly makes arts management more difficult – but such diversity promotes the spread of ideas. It also serves to protect the quirky idea from being catastrophically overlooked by one dominant funding source. A diverse funding mix will be a more robust and resilient funding ecology that is actually more likely to find the crazy genius.
3) Indirect funding weakens incentives to capture by lobbyists and bureaucrats. In other words, less time and resources need be devoted to political organisation and lobbying. This mitigates the arts and cultural grants “support industry”. The cost of this support industry, as Nicholas Rothwell reported recently, can be observed in Australia’s Indigenous arts sector.
Two: fund outputs, not inputs
We tend to fund inputs for political reasons, specifically as ways of tying funding to particular jobs, groups or regions. The political reasons may be good – but they always add up to bad economic reasons, otherwise known as deadweight losses.
A practical example of the difference is to fund prizes – which are awarded for achieving some specified output – rather than grants. Grants often promise some output but they only contractually fund the input.
Prizes have long been part of art and culture, just as they have in sports, science, innovation, and other fields of human endeavour. The enormous popularity of the various “So you think you can dance/sing/debate …” franchises illustrates the creative energy and diversity that such prizes stimulate. We should probably make more use of prizes in public arts and cultural funding than we do.
Funding outputs can also depoliticise arts funding by focusing attention on what we actually want to achieve rather than how we want to achieve it. Applicants are evaluated purely on their ability to be the best at what has been sought. There tends to be a lower bullshit component to prizes than to grants.
Three: fund demand, not supply
Demand-side funding is often superior to supply-side funding because it better aligns producer incentives and it more effectively aggregates consumer preferences. In both cases you’re seeking to fund those who receive the output – in this case, audiences – who therefore are in the best position to evaluate and monitor quality.
Supply-side funding involves a lot of trust and often expensive monitoring. This is why economists tend to favour demand side funding: it economises on information and the need for human perfection. Again, it’s a more robust institutional solution.
A useful example is to compare vouchers, where the funding amount is gifted to the consumer, to grants, where the funding amount goes to the producer. Vouchers are used to allocate money to schools, business innovation, and numerous other public services; this is a model that could be adapted to arts and culture.
Four: be more like venture capital
Some of the lessons of venture capital – which is also in the creativity business – have not been learned by public sector arts and cultural bureaucrats. (I’m not being ironic: really – there are actual lessons to learn.)
What does this mean in practice?
Adopt a portfolio approach which explicity recognises probabilities of success and failure. This will inform a funding model that incorporates variance endogenously, rather than getting all upset when things don’t work out.
This will often mean aggressively pursing difference – and supporting it not as a sop to the weird, but as a rational risk-management strategy.
Crowdfunding arts and cultural public goods should be considered.
Rather than gift, or what is these days mostly debt funding, take equity stakes in artists to fund training and development. If we must persist with direct/input/supply funding, this will enable us to at least create a more liquid public asset.
Fund experiments and demand discovery. Experiments are a public good because they provide new information to others.
Seek voluntary funding models such as lotteries. Lotteries may even be effective for allocation of funds as well as for raising them – and this would also limit the conformity and conservatism that expert panels tend to exhibit.
Let’s encourage unintended consequences
Arts and cultural funding could be improved if we could just agree on a level of funding – and then use economic analysis to design the models of funding delivery. In short, give the tax system a bigger role – and the expert panels a smaller one. Make differences at the margins by funding skewed toward outputs and the demand side.
Public funding of arts and culture should concern itself with producing unintended consequences. The problem with the existing direct, input focused model is that it at best only produces intended consequences, and at worst collapses to a kind of welfare.
We really should be more ambitious than this.
This is a foundation essay for The Conversation’s Arts + Culture section. If you are an academic or researcher with relevant expertise and would like to respond to this article, please use our pitch facility.
Jason Potts does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
This article was originally published at The Conversation.
Read the original article.
Love it.
More articles like this please.
The way we fund the arts is fucked and needs a good kicking… so ideas for how we might do that are desperately needed.
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The tax system was given a bigger role in the film and TV industry by the introduction of the 10BA tax incentives. They were steadily rorted by a mass of producers, lawyers and bankers and whittled down until ineffective and there were many examples of films falling over and crews left unpaid.
Direct funding through the establishment of the Film Finance Corporation stabilised the system, flushed out the rorters and its model was “market driven”. It was a very efficient way to distribute subsidy.
The new Producer Offset system which replaced it is a form of indirect funding based on a tax rebate. It is incredibly inefficient. Producers other than large multinationals with umbrella corporate lending are forced to borrow against the tax rebate from third party lenders to cashflow production.
Audit, legal, accountancy, loan establishment fees, high interest and company formation for special purpose production vehicles amount to over 20% plus of the loan amount. This is dead money never on the screen.
After much gnashing of teeth the conclusion seems to be that direct funding of the specialist film and TV drama and documentary business by government is easily the most efficient way to fund.
The caveat is that these organisations needs to work with a level of clarity, transparency and accountability and that industry bodies need to keep them on their toes.
In a small market with demonstrable market failure for Australian product no system will be perfect and there will always be people very disgruntled with the system. Further little mention is made of arts training. The situation where the Australian Film & TV School now has no courses over one year in duration, in direct contrast to the three years degrees of the most outstanding schools in the US and Europe should surely be a cause for concern but there hasn’t been a peep out of the industry.
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Harry I love your bland assertions that the Film Finance Corporation stabilized the system, because its model was “market driven”. and that It was a very efficient way to distribute subsidy. Another economic rationalist trying to run the arts.
It was and still is totally flawed Harry.
It stabilized the system so much it became moribund. You think by saying it was market driven that that automatically made it efficient? Have a look at its balance sheet Harry it’s pathetic. And so is the balance Sheet of Screen Australia. They both traded while insolvent under their unsound financing model. All this neoliberal market failure hocus pocus will not solve the problem. But good luck Jason and Harry.
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Mike. There is no film industry outside the US and India which is self sustaining and even states in the US are offering incentives. If you want local films to be made you need subsidy and then the issue becomes how finite the money and how to achieve measurable results. If nobody wants to pay to see your money then that it is a pretty measurable result and has nothing to do with economic rationalism.
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Harry you miss the point. When examined you will discover the current film financing model is a restraint of trade, creativity and culture. The model makes no money for anyone (except Baz Luhrmann), homogenises creativity and promotes cultural cringe. Why? Because the cornerstone and prerequisite of financing is a pre sale to a single bidder (distributor) who calls the commercial. creative and cultural tune. Enough with your platitudes Harry. Do your homework on why the model doesn’t work, and why they have to subsidise television networks and production companies just to keep going.
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Excellent article.
The issue of funding for Australian arts and creativity is at the very core of why we are currently founding the Australian Arts Party.
Jason, you’ve touched on an amazing number of ideas we’ve been workshopping on this very subject. Inspiring stuff!
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A fine article and one full of inspiration.
The arts must be supported, and funding is the most important way to do it, however arts education is vital, and should be reviewed and guided from time to time, as should arts spending by those who receive the subsidies.
The A.B.C is and should be subsidised and scrutinised, but funds allocated to film makers should be very closely scrutinised and subject to penalty systems and even repayment systems.
In any advanced and civilised society, it is vital to support the arts, but art baggers and charlatans are everywhere in such societies, and must be either prevented or routed out and made to pay for their crimes.
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Great article and good to see reflection on topics beyond media and marketing.
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