Why the performance income gap doesn’t matter

I had done all the blogging I thought I was going to do about the
Flanagan report (start here and work backwards). But then a friend
pointed me to a long post that Greg Sandow did in mid-April defending
Flanagan’s report against many of the attacks that had been made. Greg
is always worth reading: I find I learn as much from him when I
disagree with what he writes (which is often) as when he tells me
something I didn’t know. This was one of the "disagree" kind.

Greg is frustrated with the tone of much of what was written about Flanagan, and he has a point.

But what I can’t understand – or at least don’t have much sympathy for – is the hysteria (there’s no other word) in the musicians’ response. When they start talking about "our great art form," as they do toward the end of their statement, it’s clear that their emotions have surged way beyond overdrive. It’s as if they’re afraid of bad news. "Bankruptcy used as a fund raising tool," they scream. "Ridiculous." But Flanagan never talks about bankruptcy. Nor does he think that orchestras are going bankrupt.

And if the financial news is bad, should orchestras hide it? Are they even able to hide it? This actually is a subject discussed behind the scenes in the orchestra world, and with my own ears I’ve heard at least one powerful orchestra manager say the public should never be told how bad things are, because that would scare off donors. The answer of course would be that donors would be more than scared if they find out they’ve been lied to. They’ll be furious.

But there’s an additional problem with hiding bad news – you might go into denial, and hide the bad news (or at least the extent of its badness) even from yourself. At least if you admit your problems it publicly, you’re forced to do something about them. (Or at least to say you are.) The ICSOM musicians, I fear, sound like they’re in the denial zone, since one reading of their statement might be something like this: Bad news is bad for us! So there isn’t any!

It’s not a good argument against Flanagan’s conclusions to say that orchestras should be immune from economic realities just because we play great music and people need great music. Great music, and great orchestras, are luxuries that 99.99% of human beings, alive and dead, have managed without. Orchestras do not have a right to exist. Nor is their continued existence inevitable. Orchestras have a claim on societal resources solely to the extent to which they serve societal needs.

Nor is it a good argument that bad news should be hidden, although I don’t think anyone’s making that argument. I think Greg is erecting a straw person here. The real argument against doing something like Flanagan is not that we should hide bad news, but rather than such reports provide nothing useful to the field.

Of course there are people in our business who simply refuse to believe that orchestras might have problems and that bad news and economic constraints are simply management plots to get musicians to accept lower compensation. I’ve dealt with some of them over the years. But there are, I believe, far more musicians, staff, board members, funders, and audience members who sense that these are difficult times for orchestras in ways that previous difficult times weren’t.

Orchestras have never been easy to run; they weren’t easy to run when the performance income gap was much smaller. But there is a sense that something has changed in the last decade or so. I don’t see anything in Flanagan that tells me what that might be. And there is an almost willful refusal on Flanagan’s part to make any conclusions that might help those in the trenches deal with the problems, whether new or old, in our field. That’s my fundamental grip with Flanagan; that and the fact that in too many ways he’s clueless about our field. (You want an example? His infamous conclusion about orchestras spending more on fund-raising than they actually raise excludes endowment gifts – but not the money spent soliciting such gifts. I grew up on Stanford campus surrounded by Stanford professors, and I can assure you that research done by Stanford profs used to be done to a lot higher standard than that.)

Greg went on to write:

And one final point. Some critics of the report seem to have anointed themselves as economists, and go around disputing any economic analysis that they decide they don’t like. I found this happening when I e-mailed privately with one published critic of the report, someone I’m friendly with, and I’ll admit I called him on it. There’s also a notable music blogger whom I won’t name, someone I otherwise greatly respect, who – though he probably wouldn’t tell physicists what’s wrong with the theory of relativity – runs out to tell the world why Baumol was wrong, why Baumol’s dilemma shouldn’t be taken seriously.

I’d be flattered to think that this was me, but I’m pretty sure it was. Actually if I had any opinions on relativity, I’d be happy to share them with anyone. As my dad’s first cousin won a Nobel for physics, though, and I was lousy at it in school, I don’t have such opinions. I’ll admit to a full dose of the outspoken gene, which I got from my Dad (also a prominent scientist,) and which permits me to call “bullshit” whenever I see it. And I don’t see that I need to be an economist to find fault with Baumol, and in particular his relevance to an industry I know very well.

Baumol’s thesis is not bullshit, of course. It’s an interesting theoretical observation that, until fairly recently, was accepted as gospel truth by people who know a lot more about economics than I do. (OK, I did call one post “Baumol was wrong,” but that was to be provocative, and apparently I succeeded.) But Baumol doesn’t know our business, and I do.

My argument was not that Baumol was wrong; it was that Baumol was irrelevant to us:

Secondly, does it really matter? If orchestras were for-profit
ventures, it certainly would. The price a business can charge for its
products is not dependent on its costs, but rather on its market. So if
its costs go up faster than average, and at the same time it is unable
to change its price (or, more accurately, to increase its revenue),
then it’s going to be in trouble at some point.

But orchestras (and non-profits in general) have other ways to increase
revenue, most notably by fundraising. As Flanagan states in his report:

Of course, other methods of addressing the cost disease, including
private philanthropy and government support, can mitigate the need for
price increases. Moreover, whether or not the increasing relative price
of the symphonies and other performing arts discourages attendance
depends on how the population’s taste for symphony music changes as
incomes increase.

I think the same argument applies to the performance income gap.  There is no question that the performance income gap is far greater now than it was 50 or 75 years ago. There’s also no disagreement about why. Orchestra concerts cost a lot more to produce now than they did before orchestras provided full-time employment, and that’s because some orchestras now pay a living wage to their musicians, which was the case with no orchestra prior to World War II. But that’s not a bug; that’s a feature. Orchestras play a whole lot better now than they did back then, and provide far more service to their communities now than they did then.

What’s happened to the performance income gap since orchestras went full-time? According to Flanagan, the trend since 1987 has been downwards (although the endpoints matter a lot: 1987 and 1997 are precisely the same).

But why does it matter? There’s nothing magical about performance income; a dollar from ticket sales buys precisely the same number of notes played by the lead viola operator as does a dollar from donations, or endowment earnings, or government funding. There is no theoretical reason to suppose that one level of performance income is healthier, or more sustainable, than another. There are non-profits and quasi-non-profit cultural organizations that depend hardly at all on performance income and do just fine.

Consider, for example, an art museum. Our local museum, the Milwaukee Art Museum, has a collection worth who knows how much, most of it either donated directly or bought from donated funds. It has a building worth who knows how much, with a recent addition designed by Santiago Calatrava that cost $120 million – none of which appears to have been paid for out of the museum equivalent of performance income. MAM only exists because somewhere north of $200-300 million was provided in “non-performance income.” Their actual reported “program service revenue” on their 990 is laughably small by comparison. If they had to aquire paintings, or build buildings to house them, out of "program service revenue," there simply wouldn’t be a Milwaukee Art Museum – small, large, or in-between. (If, by the way, that $200-300 million could be magically transferred to my orchestra’s endowment, we could stop fund-raising and selling tickets. We would have no gap of any kind.)

And yet no one suggests that this "performance income gap" is a threat, short-term or long-term, to the continued existence of MAM or art museums in general. Why should a declining percentage of orchestra expenses paid for by performance income threaten orchestras, if such a decline is even happening (as opposed to having happened once when orchestras went from per-service to full-time)? Nothing in Flanagan, or in Baumol, answers this question. I think that’s because the answer is that, by itself, such a decline is meaningless – if orchestras can find other sustainable sources of revenue. And so far they have.

So we’re out of the woods? I don’t think that’s a conclusion that can be safely drawn either. As I said earlier, orchestras have a claim on societal resources solely to the extent to which they serve societal needs – just like art museums and airlines and buggy manufacturers. I have no doubt that orchestras will find ways to pay their bills , but only so long as people want what orchestras produce; live music and educational services related to our art form. If that ceases to be the case, then we’ll be out of business, and rightly so.

We should worry about that. We should worry about that a lot. We shouldn’t let the fact that we play great music lead us to assume that people will always want to hear great music done by orchestras in live performance. We should take action to make sure that people will continue to want such performances. I think the League of American Orchestras has done a superb job in identifying, in its recent Strategic Plan, what the field needs to make sure that doesn’t happen – which is why I agreed to join the League board and make what is, for me, a substantial financial contribution to that work. And there are orchestras that are finding solutions locally that are working to maintain, and even build, audiences and community support.

What we shouldn’t do, as a field, is seek out, and pay for, work like the Flanagan report; work that neither provides help in finding solutions to the problem of orchestras nor provides fresh insight into our current difficulties. Even if the Flanagan report had been done by someone who had a clue about our field, it shouldn’t have been done. There is no utility in it.

Are orchestras sustainable? Consultants and their reports have never predicted that correctly, and never will. We’ll only find out by trying to make them so.

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