Tuesday, March 18, 2008

On William J. Baumol and the "Cost Disease"

I love the theatrosphere. What is best is when a discussion happens elsewhere that leads you to make connections to people and ideas you hadn't considered. This is certainly true of the discussion at 99 Seats on "A Multitude of Casualties" and "Good Point...And Some Follow-Up Thoughts." Both of these are addressing the discussions concerning new business models for nto-for-profit theatres. I was particularly inspired to respond by a section of Chris Casquilho's comment that is quoted in the former post. Chris writes:
One of the glaring oversights in every thread I've read about creating a
new business model is the total lack of math. The general agreement among
audiences and NFP theatre producers is that ticket prices are too high - that
costs are too high to take risks, etc. Due to tricky things like Baumol's Cost
Disease, "affordable" theatre exists in a state of what traditional economists
call "market failure" - meaning the cost of the supply is higher than the
existing demand is willing or able to bear. NFP status provides a vehicle
through which we create subsidy that compensates for the difference.

If we ditch the NFP model, where is the subsidy going to come from?
I'd like to talk about "Baumol's Cost Disease," which had a major impact on the development of the regional theatre movement through William J. Baumol's and William G. Bowen's 1966 book Performing Arts, the Economic Dilemma: A Study of Problems Common to Theater, Opera, Music, and Dance. At the time that Baumol and Bowen were writing, a "cultural explosion" was being declared by writers like Alvin Toffler (The Culture Consumers, 1964) and the Rockefeller Brothers Fund panel report The Performing Arts: Problems and Prospects (1965, headed by Nancy Hanks, who would become the frist NEA Chair), both of which helped lead to the passage of the National Foundation on the Arts and Humanities Act of 1965. Baumol and Bowen, and the Twentieth Century Fund who paid for their report however, deflated that bubble.

As Joseph Wesley Ziegler put it in his 1973 book Regional Theatre: The Revolutionary Stage, "the 'cultural explosion' had already proved to be largely a myth: the natural increase in population and per capita income had given the appearance in the early 1960s of increased interest in the arts, but the percentage nof people interested in the arts had not grown significantly." (63) This inconvenient truth, however, was largely ignored in favor of a truth that was more useful to the growth of the regional arts -- the "cost disease."

What Baumol and Bowen said that had the most traction was that the income gap in the performing arts was inevitable because unlike industry, the performing arts did not benefit from increases in productivity -- it took the same number of actors to perform Hamlet in 1965 as it did in 1601, and it took the same number of musicians to play Beethoven's Fifth Symphony now as it did in the 1800s. So while productivity remained flat, wages continued to rise as did other costs, and the result was that either ticket prices would have to rise beyond levels that patrons would be willing to pay, or there will be an income gap. Based on this "cost disease" concept, Baumol and Bowen made a strong case for foundation and governmental support for the arts by pointing out the "inevitability" of this income gap. The effect of this can be most dramatically illustrated by the case of one of the eraly regional theatres, the Arena Stage in Washington DC as led by Zelda and Thomas Fichlander.

Again Ziegler, who in 1962 went to the Arena Stage as an "administrative intern" on a grant from the Ford Foundation to improve his management skills (and who later served as the head of the Theatre Communications Group), provides the perspective:
By the time I arrived, the Fichlanders [Zelda and Thomas] had mastered running their theatre to the point where they could do the job without a budget. They simply never spent more than the box office and grants brought into their coffers. Each year there was either a breakeven situation or a surplus....Since that time, however, the picture has changed. During recent years, Arena Stage has always incurred an "income gap" -- commitments to creditors over and above funds brought in as earned income. It is characteristic, I think, that after moving into its new building Arena Stage did not have income gaps until they became acceptable. Income gaps in the performing arts became acceptable with the publication of the Twentieth Century Fund's The Perfomring Arts: The Economic Dilemma, which proved their inevitability and opened up the possibility of deficit funding for theatres. The other justification for income gaps came from the establishment, at the same time, of the National Endowment for the Arts, the federal government's first step in accepting support of the arts as a proper function. Arena Stage, with its extraordinary administrative savvy, saw the income gaps could be funded; from then on Zelda instituted additional programs which could be judged suitable for foundation assistance and which assured the Arena Stage would need help. (34-35)
Thus, Baumol's "cost disease" became a self-fulfilling prophecy, and like a crack dealer introducing the drug at the schoolyard, Baumol quickly had the performing arts addicted to a combination of government and foundation subsidy. The other pusher in this scenario was the Ford Foundation, which pumped millions into the regional theatre, pushing small-scale operations like the Mummers Theatre in Oklahoma to build a huge theatre far beyond their needs, and funding young regional theatres to import actors from NYC to fill its stages instead of building ensembles committed to a community.

The fact is that Baumol and Bowen were right on both counts: there WAS no "cultural explosion," it still was and would continue to be a pastime aimed at the economic elites, and they were also right that given a business model that emphasized large theatres, large budgets, and a production aesthetic that mimicked NY, an income gap WAS inevitable. But the conclusion that was drawn from those two truths -- that what was needed was private and public subsidy -- was flawed.

First of all, in the case of theatre there was, in fact, an increase in productivity: it was called film and television. While we choose to see these as different art forms, the amount of crossover that occurs between the artists of all three belies their difference. While it still took the same number of artists to perform Hamlet, film and television multiplied exponentially the size of the audience. In other words, theatre was being mass produced through film and television. What should have happened at that point, and didn't, was a reconsideration of the business model. Instead, Baumol and Bowen recommended that the government and rich people bail us out.

Think of this in terms of, say, furniture. For most of history, furniture was created by local craftsmen who made chairs one at a time and sold them to customers in their town. With the rise of industrialization, chairs could now be mass produced in factories, with the result that prices fell. There still were craftsmen making chairs by hand and selling them to people in their town, but the business model had changed as had the market. Chairmakers did not demand government subsidy, but rather went about changing their way of doing business.

Theatre might have done the same in 1965, but didn't. Instead, we learned to beg. According to the most recent Theatre Facts published by TCG, regional theatres now have a whopping 48% of their budget coming from contributions, and only 52% is earned income. Chris is right to wonder "where the subsidy is going to come from," because we have reached a point, like Blanche Du Bois, where we are completely reliant on the kindness of strangers!

To me, this is unacceptable. The NEA annual budget is an insult, and an intentional one in my opinion. Artists continually point with outrage to the fact that more money is allotted to military bands every year than to the arts in the country. Do we really think that is an accident? The federal government annually reminds us how little our work is valued. Meanwhile, in response to the gutting of social services by the administrations of the last two decades or more, the private foundations have shifted their money elsewhere to address the myriad social problems that have worsened. So the arts experience a double-whammy: both sources of largess suddenly are reduced precipitously.

And what is our response? Like infants who suddenly find their bottle taken away, we wail at the top of our lungs about the injustice of it all, and we point at Europe and complain that they have higher allowances than we have.

It is so undignified, and so disempowering. How in the world can anybody in this country take us seriously?

So we need to go back to Baumol and Bowen, yes, but we need to address the economic issues they raised from a different perspective, one that looks at how our so-called "aesthetic choices" are not only aesthetic but also both economic and ecological -- in fact, essentially economic and ecological . We need to question ourselves about what values are reflected in our way of doing theatre, and whether, in fact, they reflect a typically American reliance of more and bigger "stuff" instead of creativity and hard-headed realism. Take a look at this picture from the recent production of Tamburlaine the Great at the Shakespeare Theatre Company in Washington DC and ask yourself whether it is likely that Marlowe's original production was quite that elaborate. Perhaps it isn't just lower wages that made Hamlet economical in Shakespeare's time, but also a commitment to an aesthetic that relied on language instead of "stuff."

We need to stop crying and figure out a way to stand on our own two feet and reclaim our power and dignity as independent artists rather than pathetic and ungrateful beggars groveling and sneering at the kitchen door of our society. Until we do that, we will always be looked down on by American society.


Tom Kephart said...

"We need to stop crying and figure out a way to stand on our own two feet and reclaim our power and dignity as independent artists rather than pathetic and ungrateful beggars groveling and sneering at the kitchen door of our society. Until we do that, we will always be looked down on by American society."

Amen, brother.

99 said...

I'll double down on that amen. Great post, as always, Scott. You really nail it: so many of us have bought into the narrative of our own inherent worthlessness.

Grinder said...


You've really hit the nail on the head! I'm a theatre producer working in Canada, and we're suffering from the exact same affliction. I've been railing against theatre living off government hand-outs for years now, and it's nice to know there's someone out there who agrees with me.

Check out my blog at http://grindersgrumblings.blogspot.com. I think you'd find a lot we have in common.


Chris Casquilho said...

Much of what you lay out is right on. But whether cost disease has a self-fulfilling element is only a partial consideration. Cost disease is a side effect of labor-intensive industries. I recently visited the home of famed furniture maker Sam Maloof. Maloof has sidestepped cost disease in a mathematically satisfying way - one of his chairs retails for around $15,000. I'm sure some theatres have nailed this on the head by locating in affluent neighborhoods of Westchester County, NY and Orange County, CA, for instance. Interestingly, the Civic Theatre of Allentown operates on about an 80% EIR stream, which is phenomenal - though they don't pay actors (community theatre). The Missoula Children's Theatre had an almost 90% EIR stream the last time I checked because they export multiples of their product. Models do exist, but they rely on economic tricks, like getting labor on the cheap, or mass producing multiples of one product (bus-and-truck outfits also succeed at this). The question remains - how can a theatre artist make a respectable middle class income living in one place and working for an outfit that offers tickets at a price that actor's family can afford on what she makes?