Toward a 21st-Century Strategy for Grantmakers

October 11, 2008

As I prepared these remarks, I had occasion to look at an issue of your GIA Reader that came out almost exactly two years ago. It contained the very good AEA/Irvine report on the arts in California, and I was drawn to the list of “external influences” cited at the beginning of the text. They include changing demographics, reluctance of government to fund public services, dominance of the market, new technologies, and a shift in the way the public values culture.

These observations of the context surrounding the nonprofit arts were, and remain, accurate, but from a vantage point removed by just a couple of years the formulation appears too benign; it's clear that these influences represented the tip of an iceberg — specific manifestations of deep forces that are transforming the context in which all of us do our work. A number of major foundations are rethinking the depth and character of their commitment to the arts; at least one has significantly reduced national grantmaking. The current meltdown of our financial system is almost certain to exacerbate this trend. We should be so lucky as to face “changing demographics” as our greatest challenge.

I believe that we are truly at a watershed in philanthropy that supports art and culture, and further I am convinced that it will take leadership of the most-coordinated, most thoughtful, and most imaginative character if we are to advance, or even maintain, a significant relationship between foundation work and the U.S. arts system. In the past, America's foundations have demonstrated the capacity to lead and effect change; although the task will be daunting, that is what I am asking of you today.

A number of you have heard me talk about challenges facing the arts in the U.S., and some of you may have read Arts, Inc., my assessment of the health and possible future of cultural rights and the U.S. arts system. However, today I want to put a finer point on those arguments, direct them straight at this audience, in order to address three things:

First, how can we frame the current situation in a way that truly helps us understand the nature of the problem and the character of the choices we face? Second, if we turn our watershed metaphor on its side to imagine our cohort of grantmakers in the arts standing at a fork in the road, what opportunities lie down each path? Finally, what are the down-and-dirty obstacles to success that are likely to be encountered as we work our way toward a robust vision of 21st century arts grantmaking?

I noticed a couple of months ago that my friend Bob Lynch, of Americans for the Arts, has begun to use the number “100,000” when indicating the total number of cultural nonprofits in the U.S. We all know that the equivalent figure from the early 1960s was something on the order of 6,000. This dramatic increase in the number of nonprofit arts organizations is the most visible and lasting achievement of what John Kreidler a decade ago labeled, “the Ford era.”

Now I will not bore this crowd by endlessly reciting evidence that the Ford era is coming to an end; that the nonprofit sector is, as I have put it in the past, “overbuilt,” or that conservative programming, difficulty in leadership recruitment, flattening attendance, reduced reserve funds and the like are signs that the period in which supporting the arts meant building institutional capacity by funding supply-driven nonprofits in the fine arts is over. In fact, contraction has already been underway for a while. Nearly half of the 80 or so major dance companies in the U.S. — what the LA Times calls “the canary in the mine” of arts organizations — have downsized over the past decade. You know better than I the multiple symptoms that are showing up among your individual grantee partners; after all, like families, each cultural organization is unhappy in its own way.

Instead of describing the problem, I'd like to dig into it a bit, to figure out why our 20th century funding model has topped out, and, if my analysis convinces you, talk about what real-world factors will have to be addressed if we are to make policy choices that will enable travel to and beyond our looming fork in the road.

(In preparing these remarks, I returned to my paper, and the papers of colleagues Adrian Ellis and James Allen Smith, that were commissioned by the Wallace Foundation last spring. I am indebted to Jim and Adrian and to Wallace for encouraging us to make our work available.)

To describe the situation of our arts sector, I'm going to borrow (and perhaps slightly modify) concepts from two disparate fields, economics and law. Back in 1957, an economist named Richard Musgrave was conducting research into the way U.S. Federal Agencies prepared budgets. His analysis ultimately appeared in a 1959 book, The Theory of Public Finance.

As you know, economists talk about two kinds of “goods” — products or services that are exchanged or made available in the economy. There are private goods provided by the marketplace and available to purchasers — hamburger buns, automobiles, Caribbean cruises, and the like. There are also public goods that are either free (like sunlight), or provided for all by the government. Public goods are, in the first place, available to all, and second, when a public good is consumed by one person, that doesn't prevent someone else from consuming the same good. In economic terms, they are nonrivalous. Government-provided public goods are things like national defense, street lighting, and a judicial system.

In the course of examining government finance, Musgrave observed something different; he saw the hand of government at work in the economy modifying the consumption of goods and services that were not public goods, but in fact resembled everyday private goods. Musgrave proceeded from this observation to describe a new kind of good — one that exhibits some characteristics of a public good and some of a private good. He called these merit goods, areas of the economy where government is justified in interfering in markets, the preferences of individuals, and in the availability of certain private goods: products and services like free public education, subsidized housing for the poor, or airports and a system of air traffic control. While merit goods can generally be purchased like private goods (individuals can build and own airports, for example), government experts determine that the quantity or distribution provided by market forces alone is inadequate, so subsidies are applied to increase availability or ease consumption.

It may clarify this basic idea to note that he reverse is also true; by the 1960s Musgrave had expanded the merit good concept to include what he termed demerit goods — components of the economy, like cigarette smoking, where government intervenes to reduce the consumption or availability of a product or service.

So merit goods (or demerit goods, for that matter) possess an interesting dual character; they can be purchased and consumed like private goods (and in that sense, they only benefit purchasers), but the extent of consumption is analyzed and manipulated in relation to perceived, diffuse, overarching public benefits that justify expert tinkering with markets.

What empowers government experts to intervene in the marketplace, disrupting the normal economic forces that enable consumers to maximize satisfaction by consuming goods? I would argue that things like subsidized housing for the poor, free school lunches, and free counseling sessions for troubled teens are justified by social norms — arenas of agreement among citizens or consumers that there exist sufficient public benefits to make government interference in the supply of certain goods and services acceptable.

“Norms” are used in sociology, economics, philosophy and law; each discipline defines the term somewhat differently. For my purposes I will rely on a general notion — a norm is an “arena of agreed-upon importance.”

Now these arenas of agreement can be strong or relatively weak. The norm that citizens should not take one another's property is strong; setting law aside, if you leave a cell phone or pair of sunglasses on a restaurant table, there's a good chance it will promptly be secured in Lost and Found awaiting your return. Likewise, the norm against littering is strongly held and probably quite resilient; even if you encountered a research paper demonstrating that Americans expend significant energy and time in strategies designed to prevent littering, you would still be unlikely to change your behavior and start tossing empty soda cans out of your car window.

Other norms are less firmly held, however. There are norms that exist merely because citizens observe societal leaders engaging in an activity that seems to make sense. For example, many people believe that foreign cars are better made or more economical than domestic equivalents; it is widely assumed that breast feeding conveys health benefits to recipient infants. Though widely held, few could cite specific evidence or research that supports such assumptions. My Vanderbilt Law School colleague Steven Hetcher labels such norms “epistemic,” and it is clear that while they are widely held, they are not as “thick” as norms that discourage theft, or littering, or norms that encourage us to stop and help a fellow motorist in trouble. The foreign car norm, though widespread, is thin; after all, despite the assumption that, say, Volvos are especially safe and therefore serve as appropriate starter vehicles for teenage drivers, that norm would be readily abandoned if a consumer encountered research that clearly demonstrated otherwise.

[It is easy to see that norms can create a kind of demand for a product or service; a strong norm regarding the dangers of HIV infection linked to the norm of “care for the less-fortunate” justifies the discounting of anti-viral medicines in poor countries.]

I believe you see where I am going with this talk about “merit goods” and “norms.” Obviously, the entire U.S. nonprofit system can be characterized as an effort to institutionalize merit goods by endowing their purveyors with permanence and legal standing. By conferring nonprofit status on a wide range of businesses, government is in effect saying that “even though your product may function to some extent as a private good that benefits a small group of individual purchasers, there exists sufficient indirect, diffuse public benefit so you will be relieved of the burden of taxation, and will be afforded other advantages that will make your service or product widely available in the marketplace.” It's obvious that a symphony concert is a private good — the event benefits purchasers: ticket buyers. However, there exists a norm that the presence of a symphony in a community, and the availability of classical music, affords diffuse public benefits that justify support in excess of what ticket sales alone provide.

Described this way, foundations are doubly meritorious — nonprofit organizations that deliver the merit good of support (grants) to other purveyors of merit goods, nonprofit institutions. In fact, were Musgrave to look at foundations, he would no doubt view them as government surrogates; private actors who can be trusted to apply expertise and judgment to marketplace interventions that advance a public interest. Put another way, in carrying out their mission, foundations are continually adjusting grantmaking to match the importance of different merit goods and the relative strength of the norms that justify them.

I have taken the time — mine and yours — to work up the idea of merit goods and epistemic norms because I believe the combination gives us an explanatory framework that will help us diagnose and analyze our current problem and then help us figure out how to act.

For example, when I say, “The nonprofit arts are a weak merit good supported by a thin epistemic norm,” you now understand what I have in mind. And, of course, I believe that is exactly the case. This formulation explains the reality we face all the time — budget levels for public and foundation support of the arts that continuously bump against low, glass-ceiling limits; Gallup and other polls that report high percentages of citizen support for public funding of the arts and arts education even as, in practice, culture is inevitably subsumed beneath other priorities. The arts lose out to more-robust merit goods sustained by stronger norms.

Today, the “low-grade flu” experienced by the nonprofit arts can be interpreted as the inevitable condition that arises when a weak merit good with a thin norm expands to or beyond its natural limits. And, because today other merit goods backed by more-robust norms dominate public policy and foundation giving (think The Gates Foundation, Warren Buffett, health care, the environment, education), it is not sufficient for those who care about the arts to simply relax within a comfortable status quo. Remember, we've already seen that as foundations re-think culture, the tendency has been to devalue art in grantmaking, retreating even from today's modest investments.

So leaders today — and I view program officers in art, media, and culture as key leaders — need to find ways to advance culture and art as strong merit goods; we need to justify our convictions with compelling argument and evidence, expanding and deepening the norm that sustains public and philanthropic support.

The problem is clear but, as is usually the case, any solution demands that we choose.

So, as I move to the middle section of my remarks, I'll restate the second question raised at the outset: If we are at a fork in the road, what do the two paths look like? What do we gain or lose by choosing one direction instead of another?

One alternative, of course, is to continue on our established direction, discovering new sources of support and new business models, crafting new arguments for maintaining or even expanding the existing capacity of nonprofit fine arts organizations. Get more people to buy into our current norm, strengthening the nonprofit arts as a merit good.

I would argue that we have been traveling this road for a decade or more, employing a number of different strategies to shore up current models.

Most obviously (and I think the merit good/norm formulation helps unpack this strategy), we've poached on the norms of other merit goods, adding value to the arts by claiming that arts engagement makes young people more capable in math, or that training students in a “hot-box” glass studio prevents juvenile delinquency, or that paintings deployed on hospital walls helps patients heal more efficiently, or that strong nonprofit organizations are magnets attracting a “creative class,” and on and on. We embrace such claims because they offer the allure of a kind of merit-good “safe harbor.” The nonprofit arts are bigger and more important if they are part of education, health care, economic development, transportation, or some other domain that benefits from the support of a widespread, deeply-held norm.

We've been at this long enough to generate the push-back argument that we must stop poaching and return to advancing art in its own terms. The field was understandably dismayed, of course, when the Wallace-funded Rand study, Gifts of the Muse and Harvard's Project Zero deflated many of our arts-help-you-do-x-or-y claims. And the Rand literature review added insult to injury by offering up as a substitute argument, “intrinsic value” — a proposal that produced plenty of eye-rolling and “been-there; done-that” comments from nonprofit and foundation insiders.

So, strengthening our current model by positioning the arts under the protective umbrella of strong merit goods like education and health care is alluring, but critics have made it clear that the arts rarely can offer up the hard evidence necessary to make our case within these highly-evolved, strenuously-research policy domains.

A second strategy frequently deployed on the “business-as-usual” path is the notion of new business models — the exploitation of nonprofit assets (musicians' talents; art collections; buildings) in innovative ways to produce extra revenue. Adrian Ellis (in his Wallace paper) defines a “new business model” as “a robust way of generating new sources of net income that is mission-congruent.” For Ellis, “robust” means the addition of 7% to the total annual operating budget of a nonprofit within three years.

Ellis is dubious about the real efficacy of new business models. He observes that any successful entrepreneurial activity requires an exploitable asset, sufficient capital, and the application of entrepreneurial skill, and that cultural nonprofits tend to be thin in all three areas. He suggests that talk about new business models — especially those based on Internet magic or the new application of digital technology — may be little more than “a displacement activity, drawing focus away from long-term truths about the conditions for underlying financial vitality in support of mission.”

That said, there is no harm in pursuing new sources of revenue, as long as the activity doesn't pull an institution off-mission. The Memphis Symphony has contracted with Federal Express to engage FedEx middle managers in the orchestra's rehearsal and performance process in a program that brings additional revenue to the organization, provides a benefit to FedEx management, and no doubt generates new pockets of support for the symphony and for classical music. I have no idea if the program generates seven percent of the orchestra's annual budget, but it certainly appears to be a genuinely new business model that hews to the Memphis Symphony's core mission.

For you as funders, there is nothing wrong with supporting projects that explore new sources of revenue or, for that matter, helping the nonprofit arts execute programs that justify themselves by using the value language of health care, education, or by attaching themselves to other merit good agendas. However, we must acknowledge that for many, many cultural nonprofits today's real mission is survival; we must be cautious because foundation enthusiasm for new directions, or new business models, can all too easily pull an institution off-mission as it pursues support critical to survival.

And we must be realistic; using new arguments and new business practices to pump up the old system will at best produce mostly small effects on the margins, and such strategies will be forced to compete in an increasingly-challenging funding environment dominated by Gates-style priorities. And, unfortunately, the all-but-certain recalibration of our economy to a new, lower “set point” will reduce foundation assets, further encouraging a migration of grantmaking from the arts to education, health care, and the environment. In addition, the convergence of cultural delivery systems onto the Internet and to personal devices like IPods, cell phones, time-shifting equipment, and the like cannot be stopped or deflected by nonprofits. The system within which art is distributed, financed, and consumed is being altered in ways that cannot be undone by arguments on behalf of the critical importance of a robust supply of the fine arts.

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What about the other path: the other tine of our fork in the road?

I would argue that our alternative is to step back to view the arts system as broadly as is possible in order to craft a new merit good around culture — one that can be supported by a deeply-held norm shared by a larger cohort of citizens.

My own recommendation, argued in my book, Arts, Inc., is to advance cultural policy within public policy and public policy studies. That process will involve identifying compelling public benefits that derive from a healthy arts system by marking the connections within culture that define critical issues while advancing overarching theories that employ research to link key issues and theories, applying new knowledge to major social problems.

Today, whenever I get a chance to speak on a campus, I only agree if the talk is co-sponsored by whatever Public Policy program exists on campus (programs where, as you all know, cultural policy has almost no traction). I am basically going “bird-by-bird,” advancing the notion of cultural policy as an undeveloped but fruitful domain of U.S. public policy. I will briefly summarize my argument here.

First, a cultural policy template enables us to analyze and set priorities for a set of issues that seem unconnected, but actually share deep underlying meaning. These issues include, but are not limited to, duration of copyright, scope of fair use, government support for artists and for cultural nonprofits, trade in cultural goods, media regulation, an open and accessible Internet, mergers in cultural industries, access to cultural heritage owned by corporations, equity in access to arts education and arts learning, access to art and artists of the world, and choice in the consumption of art products. In the U.S. arts system, government authority and responsibility that addresses these issues is scattered among such disparate agencies as the Copyright Office (Library of Congress), federal courts, the NEA, our state courts, the Office of the U.S. Trade Representative, the FCC, the Federal Trade Commission, Department of Education, Department of Homeland Security, and Wal-Mart. Although each issue is now treated separately in terms of the legislative language defining the work of different agencies, their true significance is linked because, in aggregate, the resolution of many individual issues produces the cumulative effect of defining the character of the system in which art is produced, distributed, preserved, and made available.

For example, the merger of Sony and BMG, a move that combined the century-old vaults of RCA and Columbia Records, was evaluated by the FTC like any other “four-to-three” or “three-to-two” merger by assessing its likely impact on consumer price. I would argue that such a merger should primarily be appraised in the light of potential cultural impact — how does the merger influence equity and access to heritage recordings. Similarly, much work of the USTR's office, the FCC, and legislation affecting rights of personality or the duration and scope of intellectual property should also be crafted or critiqued primarily in relation to potential effects on the cultural system, and on the public interest.

In my recent book, Arts, Inc.: How Greed and Neglect Have Destroyed Our Cultural Rights, I argue that by elevating the role of cultural policy in legislation, regulation, and marketplace practice, we will strengthen our arts system, advance public purposes, and also introduce policy leaders (and policy students) to an exciting realm of theory and research.

In Arts, Inc. I advance a six-point “Cultural Bill of Rights:”

1. The Right to our heritage — the right to explore music, literature, drama, painting, and dance that define both our nation's collective experience and our individual and community traditions.
2. The right to the prominent presence of artists in public life — through their art and the incorporation of their voices and artistic visions into democratic debate.
3. The right to an artistic life — the right to the knowledge and skills needed to play a musical instrument, draw, dance, compose, design, or otherwise life a life of active creativity.
4. The right to be represented to the rest of the world by art that fairly and honestly communicates America's democratic values and ideals.
5. The right to know about and explore art of the highest quality and to the lasting truths embedded in those forms of expression that have survived, in many lands, through the ages.
6. The right to healthy arts enterprises that can take risks and invest in innovation while serving communities and the public interest.

In addition to the Bill of Rights, Arts, Inc. presents two theoretical concepts that help explain the benefits that can accrue when our arts system is aligned with public purposes. Expressive life is the component of human behavior in which identity is defined by balancing heritage against individual voice. Cultural heritage gives us a sense of belonging, of community, and a sense of continuity and connection to the past. Voice provides autonomy, personal achievement, distinction, and freedom. When citizens have access to a cultural system that frames a healthy expressive life by providing access to both heritage and voice, our society exhibits cultural vibrancy — a public good in democracy.

Because access to creative heritage and to the tools of art and art making enhance identity and voice, a vibrant cultural scene can be linked to important new research on positive psychology, happiness, and quality of life.

Finally, this new way of approaching disparate issues, and new arenas of theoretical speculation and research, can have real-world consequences as the U.S deals with a number of immediate or looming social issues.

Certainly, engagement with art, and the connections to heritage and voice that proceed from this engagement, can be an economical path to a high quality life for older citizens, and for young people who are even now shaping lives in a challenging economy. Certainly a new engagement between government action and art can be a path to a healthy 21st century public diplomacy regime — one that provides a unique arena in which to identify overarching shared interests that transcend policy conflict. And finally, challenging media, Internet, and IP legislation and regulation in the light of cultural impact will initiate a much needed pushback against the high-priced art permission system that's dismantling America's cultural commons.

Now this is “50,000-foot” stuff; what can foundations, and arts leaders within foundations, actually do in order to reinvent cultural as a merit good of critical importance? If we decide to follow this path, advancing a robust model of cultural policy in order secure a vibrant arts system as a public good, what should we do?

First, on a national level, we should argue on behalf of the creation of a cabinet level Department of Cultural Affairs. We will not have a meaningful, coordinated connection between government policy and the arts system until we develop a central “hub” around which to argue the public interest. We will not strengthen our the merit good of art and the norm of vibrant culture until public policy takes cultural policy seriously. Environmental policy flourishes in Masters in Public Policy programs in part because the EPA exists — providing an arena for policy debate, research, and implementation.

And this kind of policy intervention is not beyond our reach. Remember, foundations possess a distinguished history of developing policy domains around education, health care, and social services, and then handing off responsibility to government agencies. It is time to do the same for culture.

Second, on both the national and community level, we must argue on behalf of an open Internet, accessible to all. Cultural content is migrating to the digital realm and toward handheld, Internet-dependent devices that integrate communication, entertainment, and information. Broadcasting — terrestrial and online — remains an important vehicle enabling cultural consumption. All cultural actors, including our long-time nonprofit partners, will be forced to navigate some elements of this emerging digital system. We must begin to think of the arts realm as an arena that includes media, Internet access, and intellectual property, and foundation arts programs must engage community projects that improve the quality of this broad arts system. It is no longer sufficient to focus so intently on the quality or quantity of services provided by nonprofit organizations through traditional performance and exhibition spaces.

Further, the cost of full participation in access to the hardware, software, and Internet and cable services that link consumers to culture are increasingly available on a high-priced rental basis; foundations and their partners must be vocal proponents of equity and access in relation to the Internet, cable television, and new media.

Third, funders can demonstrate the significance of cultural vibrancy by assessing the state of the arts system within our own communities, and by investing in and partnering with a wider range of actors than has been our habit. This will require the creation of community cultural studies and arts action plans that look beyond our usual cohort of nonprofit partners, to note the penetration of live music in night clubs, foreign films at the multiplex, published fiction writers in residence, music learning in private studios and retail establishments, the vitality of for-profit art galleries and independent bookstores, as well as the availability and affordability of high-speed Internet and cable television services. Our colleagues at the Urban Institute and the Irvine Foundation have been steadily moving their analysis of art in communities in this direction, but we need to do much more.

These changes will not take place overnight. Government will not suddenly roll up 20 agencies into a new Department of Government, and it will take fresh research to really understand the character of art participation in our communities.

If art is to be a strong merit good supported by a thick norm, we need a new definition of the sector we serve. This may mean making a new case to your board or your president, a task that will not be entirely comfortable. After all, I doubt there's anyone in this room who got into the business of arts grantmaking in order to worry about bar bands or Comcast, or whether Barnes & Noble was out-competing your locally-owned book retailer, or whether kids in poor neighborhoods had guitars and guitar lessons. And, unfortunately, our boards generally take on faith the importance of the environment, public education, and health care as critical arenas of engagement — arts and culture still have to make their case.

In fact, the arts are often budgeted (at a relatively modest level) mostly because two or three foundation board members also serve on the boards of orchestras, dance companies, and art museums — a symptom of our weak norm within the philanthropic community and a thin personal link that forms a shaky basis for our future grantmaking in a recalibrated economy.

But if we work toward a central federal hub dedicated to advancing the public interest in a vibrant cultural system, and if we actually demonstrate value by pursing a broad agenda of public purposes around art in our own communities, we can revitalize art and culture as a merit good grounded in a widely shared and deeply held norm.

A couple of years ago I was giving a speech in Chicago, talking about the need to choose a new path for justifying our investment in art, arguing that we had to do more than one thing. I closed with a quote from the legendary Yogi Berra, who possessed the unique ability to craft humerously-scrambled homilies that were simultaneously meaningful. (A favorite is, “If you don't go to his funeral, he won't come to yours.”)

I closed the talk by quoting Yogi: “When you come to a fork in the road, take it!”

After the talk, I was approached by someone who had actually known Berra. “You know,” he said, “when Yogi gave that direction, he was telling the truth. He lived at the point where two roads came back together; whatever fork you took, you still ended up where you wanted to be, at Yogi's house.”

So the instruction is even more useful than I had imagined. We are at a fork in the road; let's take it!