Zorloni the economics of contemporary art

Alessia Zorloni

The Economics of Contemporary Art Markets, Strategies, and Stardom

The Economics of Contemporary Art

.

Alessia Zorloni

The Economics of Contemporary Art Markets, Strategies, and Stardom

Alessia Zorloni Institute of Arts, Cultures and Comparative Literature IULM University Milan Italy

This research was supported by a Marie Curie Intra European Fellowship within the 7th European Community Framework Programme.

ISBN 978-3-642-32404-8 ISBN 978-3-642-32405-5 (eBook) DOI 10.1007/978-3-642-32405-5 Springer Heidelberg New York Dordrecht London Library of Congress Control Number: 2013936078 # Springer-Verlag Berlin Heidelberg 2013 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher’s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center.

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Foreword

There is no doubt that economic factors underpin contemporary art and, therefore, demand our attention. The artistic and aesthetic dimension in itself does not explain the huge global development of the contemporary art market. Works of art, especially contemporary art, are economic goods (both luxury and investment ones), a combination that is hard to replicate in other industrial or financial sectors.

Alessia Zorloni backs up this thesis, which can be widely shared by a significant segment of private collectors and occasional buyers, with a broad and systematic approach, applying microeconomic and industrial models of analysis to a substantial body of data and information.

The attempt is ambitious but convincing, and it is consistent with my personal experience as consultant for Italian and international cultural institutions.1 For instance, in defining the strategy of fund-raising through private companies used

by Istanbul Modern, one of the most dynamic contemporary art museums in Europe, I have recently recommended a diversification of potential contributors that borrow elements of diversifications used for the consumers of a luxury goods company and by buyers of media spaces. As in any comparison, caution is warranted, but microeconomics and business economics tools certainly help to shed light on a reality that is otherwise difficult to interpret. In my eyes, therefore, this work has at least three main strengths.

The first is the breadth of the analysis. The author goes beyond simply discussing the most debated issues, such as the characteristics of art as an investment asset class or the comparison between the experience of purchasing works of art and high-end luxury goods. In addition to this, she identifies the stakeholders along the value chain and explores their dynamics and patterns of behavior, highlights the barriers to entry posed by the distributive channel, and asks probing questions about artists’ branding, pricing, and innovation strategies. Contemporary art is compared to high-end luxury markets, with which it shares some basic characteristics.

1 Federico Lalatta Costerbosa is a Partner & Managing Director in The Boston Consulting Group (BCG) Milan office.

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Foreword

The first of these is the demand pattern, which is accessible to a pyramid of consumers who have an income ranging from medium high to very high and is cyclical in the midrange while being less elastic in the highest bracket. Next comes the importance of barriers to entry created by distribution. Beyond the artistic product itself, for which excellence during both the creative and production phases is required, Zorloni explores in depth the crucial role played by art dealers in creating a work of art’s value.

This mechanism is not really found in other markets, where the producer/creator is more in control of brand and product positioning than distributors are. In the haute couture sector, for instance, positioning takes place on catwalks and in singlebrand boutiques, even if distribution often occurs via multi-brand channels such as department stores or via the Internet (which is comparable in the art world to fairs and auctions). The affinity with contemporary art in this case is more tenuous, although this interpretative model helps to understand Damien Hirst’s 2008 attempt to disintermediate the distribution channel with the sale of nearly 300 works at the Sotheby’s auction “Beautiful Inside My Head Forever,” which however will probably remain an isolated case. Also the adoption of the concept of artist branding might appear a bold move, but it seems appropriate to me. The artist’s reputation has an obvious economic value and is subject to dynamics similar to those of luxury brands, where some companies prosper by remaining faithful to their stylings over time (e.g. Hermes) while others flourish through relentless innovation in models and styles (e.g. Prada). Some companies can be seen as “faders,” as after a relatively brief period of notoriety, they are unable to fuel their image and creative production on an ongoing basis (e.g. Cerruti); there is also the category of “phoenixes” that find the strength and the capacity to resurrect themselves after a period of decline (e.g.

Versace).

The book’s second main strength consists in highlighting how the contemporary art market is exposed to mega-trends in consumption comparable to those that have irreversibly influenced the global markets over recent decades. The book emphasizes three such mega-trends: the growing importance of women as decision makers for purchasing, Trading Up, and the shifting focus toward emerging markets, especially Asia and China.

In cultural consumption and especially in the contemporary art world’s success stories, the role of the female consumer has become more established, in accordance with the economic and cultural emancipation that characterizes Western countries. We can realistically state that this increased role is one of the elements that contribute to the development of cultural consumption.

Trading Up, on the other hand, is a model developed in the late 1990s by BCG to explain the apparent paradox in the democratization of luxury: How can we interpret the fact that growth rates of high-end products are consistently higher than those of the underlying economies? I advise the reader to refer to Silverstein and Fiske’s book for an in-depth coverage of the topic2; I would only observe that in

2

Silverstein, M., & Fiske, N. (2004). Trading up. La rivoluzione del lusso accessibile. Milan: Etas.

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this respect the artwork demonstrates luxury product–style characteristics (such as the complexity of a luxury watch or the innovative way an installation is put together). These characteristics offer tangible benefits to the consumer while also generating functional and therefore emotional benefits (such as a luxury car retaining its value over time or the value appreciation of a photograph). The latter are typically different for each consumer, but can be broadly classified into four types: personal gratification (“I deserve it”), improving one’s image, care for people who are dear to us (“I do it for my family”), and the feeling of belonging to an elite group (a feeling shared by lovers of luxury watches and wines). With due precautions, it is clear that a large part of the interpretive model can be applied to the decision processes behind the purchase of a work of contemporary art.

The third trend, the affirmation of the emerging markets, is perhaps even more evident in the contemporary art world than in many markets of consumer goods.

The book mentions some facts that speak for themselves: China has over 42,000 galleries compared to 68,000 in Europe and 67,500 in the USA and is now the largest market for auction sales of artistic goods. Meanwhile, of the top ten artists with the highest revenues at auction in 2011, no fewer than six were Chinese. And we should note that Beijing’s second most popular tourist attraction, after the Forbidden City, is the Ullens Center for Contemporary Art, the space created in 2006 (with the help of BCG) to host the 1,500 pieces that compose the largest collection of Chinese contemporary art, having been assembled by Mr. and Mrs. Ullens over the last 25 years.

This book contains stimulating reflections and analyses of the concept of value in contemporary art, offering convincing examples of the contemporary art market’s specific characteristics compared with other consumption or investment markets. Through the simple yet powerful model of elasticity of demand in relation to price, Alessia Zorloni shows how price plays a very important informative role in the perceived quality of the artist and his works of art – much greater than, for instance, with jewelry and yachts – with the result that price increases can stimulate demand while decreases can depress it.

Equally clear are the observations on the characteristics of the works of art as investment or speculation assets. In spite of this being one of the main reasons for purchasing, the book properly shows that contemporary works of art lack some key attributes which characterize the majority of investment goods. Not only does art not offer returns (like gold), but it also has very high transaction costs and poor liquidity. No intrinsic market value is therefore attributed to it, to the extent that almost no Italian financial institution accepts works of art, especially contemporary ones, to guarantee loans, and the financial institutions that own collections do not register their book value in the balance sheet. This results, inter alia, in indexes of economic return in view of a single investment having only limited reliability and means that investment funds specialized in art have so far had difficulty in generating a significant economic return (and not only because several of these were launched shortly before the financial crisis of 2008). All the above helps to

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explain the profound asymmetry of information that exists between sellers and buyers of contemporary art and suggests that, as for some classes of shares, speculative profit expectations are often the prerogative of insiders only, which is a key message for occasional buyers.

Milan 15 March 2013

Federico Lalatta Costerbosa

About the Book: Introduction

Over the last decade, the contemporary art market has increasingly been seen as a store of value that is able to maintain the purchasing power of one’s investments, especially in a period of low economic growth. It is no coincidence that in addition to foundations, which for years have been purchasing works of art and creating precious collections in order to document their own local history and to create an artistic heritage of inestimable value, banks too have been keen to enter this field in an attempt to offer their customers an advisory service in the acquisition and sale of works of art. Art banking grew out of financial institutions’ need to differentiate the services offered to clients, particularly in the private segment as compared to the retail one. Identifying art as a financial asset has led to the establishment of the art stock exchange. China is a pioneer in this field as in 2009 the Chinese government launched the Shenzhen Cultural Assets and Equity Exchange (SZCAEE), namely, the stock exchange of cultural assets in Shenzhen. This model of a stock exchange dedicated to art is already gaining ground worldwide, particularly in France, where in January 2011 Pierre Naquin launched the Art Exchange.3 Purchasing works of art (and particularly those of already internationally acclaimed artists requiring a certain monetary commitment) can be regarded as a good investment from a financial standpoint. This appraisal does not refer to the average returns that can be obtained by holding a portfolio of artworks, which are characterized by a particularly high risk and by transaction costs largely surpassing those of financial assets. Instead, the financial justification for holding these artistic assets derives from the low correlation of their returns with those of other activities and, therefore, from their ability to diversify one’s portfolio. Empirically, this results in works of art being used as a wealth buffer, to be exploited in the long term, when the time is right. However, investing in art is a delicate and complex operation: it is not enough to be able to recognize a work of art and estimate its possible economic value, it is

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https://www.aexchange.net/ ix

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About the Book: Introduction

also necessary to know the market and to understand its rules and the economic mechanisms that it employs.

This volume sets out for the first time, most often in economic terms, a theoretical and analytical framework that can be specifically used to understand the system of contemporary art. The book examines this system by analyzing the behaviors of its main players, both on the demand side (visitors, collectors, and private companies) and on the supply side (artists, art dealers, auction houses, and fairs).

The conceptual and analytical framework – which is overriding even if not exclusive – is that of modern theories of the firm and the industrial organization. Some models borrowed from contracts theory, which are useful for understanding the crucial role that information plays in this market, are also proposed. The volume is also enriched by field experience. The book, in fact, stems from a personal passion for contemporary art and direct and in-depth contact with art dealers, critics, museum directors, and artists as well as with many professionals who I have had the good fortune to meet, observe, and know. Precisely because of its exploratory nature, the volume’s contents and approaches are diverse, aiming by this token to link together the various aspects of the art market. It also aims to integrate, through theoretical models and empirical analysis, industrial economics to disciplines such as art history, marketing, and finance, in order to analyze and understand the contemporary art market from an interdisciplinary perspective. Without being a handbook in the narrow sense of the word, the book reviews the main stages of the sector’s production chain, offering a concise and effective overview of all the actors present in the system of contemporary art and often supporting it with data and information of both conceptual and practical value. This text could therefore be used by students eager to better understand the complex dynamics governing the contemporary art market, by culture professionals, collectors, and potential investors or by art lovers who simply need a rapidly consultable text providing information and baselines. It is organized as follows. Chapter 1 briefly describes the characteristics of the creative economy, highlighting the relationship between culture, innovation, and competitiveness in a given country. In Chap. 2, the system of contemporary art is defined and I present what economists call the production chain, namely, a breakdown of the production process into phases or stages, involving individuals who play different roles but who are connected within the same chain. After this presentation of the system of contemporary art’s production chain, Chap. 3 is devoted to analyzing the industry’s structure and in particular how an offer is researched and made. In this context, I analyze the main economic aspects of contemporary art markets and identify the different market segments, with the aim of measuring the turnover of the art market at a global level, broken down by intermediaries (galleries and auction houses), areas (paintings, sculptures, videos, and photographys), and exchanges by territorial classification. Chapter 4 analyzes the variables that affect a work of art’s price and deepens our understanding of the economic mechanisms that lead some artists to success and others to failure. In this chapter, we explore how contemporary art markets, or at least a significant element within them, form global contexts featuring buyers and sellers from all over the world, focusing on particular markets to develop the assets that are

About the Book: Introduction

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subject to exchange. This means that price and demand trends in local markets (such as in Italy) are directly influenced by dynamics and rules that belong to other contexts. Extending the analysis of the industry’s structure, Chap. 5 specifically analyzes demand. How can we differentiate different collectors’ demands? What are the purchasing methods? Who is the audience for contemporary art? Why were corporate collections created? How do art investment funds function? This final chapter attempts to answer these questions. Finally, the text concludes with an appendix that contains useful web resources and links related to general art market topics, some information on the best-known international contemporary artists, and a list of the world’s most expensive contemporary art works.

This book is based on several years’ work gathering, processing, and interpreting data, cases, and theories, involving many people in Italy and abroad. Although the roots and the intellectual stimulus of this work are related to my research activity (first at the Istituto di Economia e Marketing of the IULM University of Milan, then at the Kunsthalle Wien in Vienna and at the Milan office of The Boston Consulting Group), the basic inspiration and most interesting insights were given to me by art dealers, critics, museum directors, artists, as well as by many operators in the sector that I have had the pleasure of knowing during this period. My sincere thanks go to all those who agreed to tell their stories and to provide data. In addition to those operating in the sector, a special thank-you goes to Federico Lalatta Costerbosa for reading the first draft of the text and providing useful suggestions and precise recommendations for every chapter. My gratitude to Giulia Rosso, who has been not only a translator but also a careful reader and considerate counselor. This book owes a great debt to those who have helped to build up my knowledge base in the field of art and culture economics. In particular I thank Pierluigi Sacco, Michele Trimarchi, and Stefano Baia Curioni who have been a constant source of rigor, encouragement, and inspiration for years. My final thanks go to my parents who over the years, without fully understanding what I was looking for, have always supported me and taught me to pursue my ideas and projects with courage and determination.

Alessia Zorloni

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Contents

1

2

3

The Economics of Creativity Between Culture, Innovation, and Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1 When Art Met Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.2 The Development of the Creative Economy . . . . . . . . . . . . . . .

1.3 The Origin of Individual Creativity . . . . . . . . . . . . . . . . . . . . . .

1.4 Creativity as an Economic Resource . . . . . . . . . . . . . . . . . . . . .

1.5 Comparative Analysis of the Innovation Potential of Leading Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.6 The Economic Value of Culture in Italy . . . . . . . . . . . . . . . . . .

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The System of Contemporary Art . . . . . . . . . . . . . . . . . . . . . . . .

2.1 Defining the Art System . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.2 The Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.3 Economic Nature of Artistic Goods: from Luxury Good to Store of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.4 The Economic Characteristics of Artistic Production . . . . . . . .

2.5 Artist Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 1 5 6 7 8 15 16

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21 21 25

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26 26 30 32

Contemporary Art Markets and Supporting Sectors . . . . . . . . . . .

3.1 The Offer of Works of Art and Market Segmentation . . . . . . . .

3.2 Horizontal Segmentation: The Primary and Secondary Markets . . .

3.3 Vertical Segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.3.1 The Classic Contemporary Market . . . . . . . . . . . . . . . .

3.3.2 The Avant-Garde Market . . . . . . . . . . . . . . . . . . . . . . .

3.3.3 The Alternative Market . . . . . . . . . . . . . . . . . . . . . . . .

3.3.4 The Junk Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.4 Supporting Sectors and Economic Impact . . . . . . . . . . . . . . . .

3.4.1 The Publishing Industry . . . . . . . . . . . . . . . . . . . . . . . .

3.4.2 Fairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.4.3 Art Advisory and the Services Offered . . . . . . . . . . . . .

3.5 Structural Features of the Market . . . . . . . . . . . . . . . . . . . . . .

35 36 38 38 38 40 41 42 42 44 45 47 49

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3.6

Problems around Asymmetry of Information . . . . . . . . . . . . . .

3.6.1 Price as Indicator of Quality in the Contemporary Art Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.7 Signalling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.7.1 Certification of Quality through Awards: Turner Prize and Hugo Boss . . . . . . . . . . . . . . . . . . . . . . . . . .

3.8 Organization Size and Structure of the Primary Market . . . . . .

3.9 Relationships Between Artist and Art Dealer . . . . . . . . . . . . . .

3.10 Selection of Artists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.11 Auction Houses and the Secondary Market . . . . . . . . . . . . . . .

3.11.1 Overview of the Economic Theory of Auctions . . . . . .

3.11.2 Operators’ Strategies at Auctions of Paintings . . . . . . .

3.11.3 Turnover in the Art Auctions Market . . . . . . . . . . . . .

3.11.4 The Contemporary Art Market . . . . . . . . . . . . . . . . . .

3.11.5 Market Segments in the Contemporary Field . . . . . . .

3.12 European Trade in Works of Art and Fiscal Asymmetries for Import and Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.13 Impact of Resale Rights on the Art Market . . . . . . . . . . . . . . .

3.14 Where Is It Worthwhile to Buy? Comparison of the Tax Rate in 20 Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . .

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Art Appraisal and Value Creation Strategies . . . . . . . . . . . . . . . . .

4.1 Variables That Influence Prices . . . . . . . . . . . . . . . . . . . . . . . .

4.2 The Media System and the Spectacularization of Art . . . . . . . . .

4.3 Art Market and Economics of the Star System . . . . . . . . . . . . . .

4.3.1 The Effects of Network Externalities in the Contemporary Art Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.3.2 Positive Feedback and Valorisation Strategies . . . . . . . .

4.4 The Birth of a Star: the Case of Maurizio Cattelan . . . . . . . . . . .

4.5 Competitiveness of Countries in the Valorization of Contemporary Art . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.5.1 U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.5.2 Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.5.3 France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.5.4 Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.6 Investment in Culture by Private Individuals and Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.7 Use of Culture as a Marketing Lever . . . . . . . . . . . . . . . . . . . . .

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Collecting: Motivations and Patterns of Consumption . . . . . . . . .

5.1 Characteristics of Collector-Demand . . . . . . . . . . . . . . . . . . .

5.2 Assessing the Demand Function . . . . . . . . . . . . . . . . . . . . . .

5.3 Theories on the Consumption of Artistic Goods and on Rational Addiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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5.4 5.5 5.6 5.7 5.8 5.9

Income and Potential Demand . . . . . . . . . . . . . . . . . . . . . . .

Audience for Contemporary Art in Italy . . . . . . . . . . . . . . . .

Private Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Segmentation of Demand . . . . . . . . . . . . . . . . . . . . . . . . . . .

Corporate Art Collecting . . . . . . . . . . . . . . . . . . . . . . . . . . .

Motivations Driving the Creation of a Corporate Collection . .

5.9.1 JP Morgan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.9.2 UBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.9.3 UniCredit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.9.4 ING Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.9.5 Deutsche Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.9.6 Unilever . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.9.7 The Akzo Nobel Foundation . . . . . . . . . . . . . . . . . . .

5.9.8 The Generali Foundation . . . . . . . . . . . . . . . . . . . . . .

5.9.9 The CRT Foundation for Modern and Contemporary Art . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.10 Speculative Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.11 Characteristics of Speculative Demand . . . . . . . . . . . . . . . . .

5.12 How to Evaluate Investment in Art . . . . . . . . . . . . . . . . . . . .

5.13 Indices for Evaluating Investments in Art . . . . . . . . . . . . . . .

5.14 Art Investment Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Prices of Leading Contemporary Artists . . . . . . . . . . . . . . . . . .

The World’s Most Expensive Contemporary Art Works . . . . . . . . . .

Web Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The Economics of Creativity Between Culture, Innovation, and Competitiveness

1.1

When Art Met Economics

The idea of linking the themes of art and economics has recent roots. When these issues are debated together, we usually name the discussion art economics: a fascinating notion for some, a blasphemous one for others, depending on whether or not you believe that economic value has anything to do with artistic value.

According to Candela and Castellani (2000), art and economics are closer than commonly thought. In fact, if rationality, creativity, method, intuition and informality are common ingredients to economics and art, the difference lies only in the varying priorities given to these ingredients. The artist and the economist perceive something more than what everyone else sees. For instance, a wheel has always been seen as part of a bicycle and a stool as a piece of furniture: only Duchamp, placing them one above the other, combined them into a work of art. Similarly, who knows how many, like John Nash, observed men in a bar competing for the attention of a breathtaking blonde – but he was alone in intuiting the theory governing the behaviour of individuals in situations of strategic interaction.1 If art is intuition, this does not mean that it is devoid of rationality, or that it does not apply the rational method in its quest; just think, for instance, of the geometric abstractionism of Piet Mondrian, the pointillism of George Seurat, or the Optical Art of Victor Vasarely (who used ophthalmologic scientific research and visual perception to give prominence to his own art forms), or even M.C. Escher’s applications of science, which use the calculation capability of computers to produce beauty through fractals. Furthermore, pace the surrealists who have repeatedly declared that only irrationality can create art, rationality has become a constitutive element of contemporary trends from Dadaism to the intellectual provocations of Piero Manzoni (as the renowned Merda d’artista), and up to the movement named Conceptualism which privileges mental processes over technical production.

1

Nazar (2002).

A. Zorloni, The Economics of Contemporary Art, DOI 10.1007/978-3-642-32405-5_1, # Springer-Verlag Berlin Heidelberg 2013

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The Economics of Creativity Between Culture, Innovation, and Competitiveness

The economics of art consists in both theoretical and applied contributions, stemming from the history of economic thought and from studies by art experts.2 Looking for the roots of art economics among the noble fathers of economics, we must start with Adam Smith, who by the end of the eighteenth century was already writing essays on art; much later, between 1934 and 1938, John Keynes became interested in painting and in particular in ballet. More recently, John Kenneth Galbraith has been involved in art economics and Lionel Robbins has dealt with the public funding of art (Candela and Castellani 2000). However, the first organic contributions in the economics of art can be traced back to the work by William Baumol and William Bowen, Performing Arts: the Economic Dilemma (1966) and

by Mark Blaug, The Economics of the Arts (1976). Many artists have effectively managed their production in an economic way: Andy Warhol, Jeff Koons, but also Mark Kostabi or Takashi Murakami; there are also economists like Richard Murphey Goodwin or Hans Abbing who themselves engaged in art, producing works with a dedication similar to their passion for political economics. Only in the 1990s did art economics achieve the dignified status of a field within political economics; i.e. it has become a field of applied economics since economists have dedicated themselves to subjects originating from a specific object of research rather than an abstract interest.3 The themes that traditionally compose art economics cover many aspects of culture and can be described by using the well-known distinction between: 1. Visual arts: meaning everything that is exposed to and appreciated by sight, for instance the different art forms that arise from painting and sculpture; 2. Performing arts: meaning all forms of entertainment, whether easily-accessible ones such as rock music, jazz or cinema, or elite forms such as classical music, opera or ballet; 3. Cultural heritage: meaning tangible and intangible heritage, which is the expression and manifestation of a people’s culture; 4. Fine arts: meaning the whole segment of collectible items that satisfies the aesthetic needs of a niche market and takes on a symbolic function (antiques, jewellery, rugs, clocks, vintage cars).

Economic research on the market for visual arts and fine arts can be subdivided into four main branches. • The first relates to studies on the private art market, with specific attention to the analysis of the prices of works of art (Candela and Scorcu 1997, 2001; Candela et al. 2004; Scorcu 1997; Picci and Scorcu 2003) to the formation of value

2

Art economics originated as part of political economics.

Baumol has measured the rates of return of investment in paintings because he is a passionate connoisseur and collector; Mark Blaug has talked about performances because he is a competent spectator; Keynes invested his financial profits in support of his activities as a collector of paintings and rare books. Finally, Keynes spoke about painting and ballet, not only thanks to his ideal of beauty, but also because stimulated by his relationships, since his Russian-born wife Lydia Lapokova was a ballet dancer (Candela and Castellani 2000).

3

1.1

When Art Met Economics

3

(Locatelli and Zanola 1999; Forsund and Zanola 2006) and to the assessment of profitability (Rush 1961; Anderson 1974; Stein 1977; Frey and Pommerehne 1989; Chanel 1993; Forte and Mantovani 1998; Fase 1994; Renneboog and Van Houtte 2002). • A second type of investigation has concerned the attempt to define and calculate index numbers on the art market. In this field, the most relevant studies are those conducted by Keen (1971), Pesando (1993), Candela and Scorcu (1995, 1997) and Mei and Moses (2002). • A third line of investigation has focused on the demand for culture and its dynamics, on the evolution of cultural markets and on the design of policies (Fuortes 2001; Fuortes and Coppa 2006; Pasquali 2003; Trimarchi 2002). • Finally there is a line of study that deals with the analysis of cultural investments but also with the management and the development of museums (Matt and Zorloni 2011; Forte and Mantovani 2004; Fedeli and Santoni 2006; Valentino 1999; Zorloni 2012).

In particular, the economics of contemporary art has been analyzed with reference to: the formation and evolution of markets (Lind and Velthuis 2012; Baia Curioni et al. 2011; Zorloni 2005a, b; 2011); the conventions that sustain their dynamics (Thompson 2008; Santagata 1994, 1995); the processes of artist selection (Sacco 1997, 1998, 2005); the structure and management of intellectual property rights (Guerzoni 2003; Stabile and Guerzoni 2004); the design of institutions; the instruments of supporting public policy (Trimarchi 1997, 2004; Lavanga and Trimarchi 2005). An interesting spillover effect of these investigations is represented by research on the diffusion of Italian contemporary art abroad (Sacco et al. 2005), which resulted from a collaboration between the Ministry of Heritage and Cultural Activities, the Ministry of Foreign Affairs and the University of Turin.

In the field of performing arts we find many empirical analyses measuring the demand- and production-function of live shows; but there are also theoretical analyses on the balance struck between public companies (profit or non-profit) that set up and/or manage theatres. On these aspects, see among others Throsby (1994) and Besana (2002). Finally, the typical economic issues of cultural heritage are the policies for and the costs of its conservation, protection and development, but also the objectives and tools enabling it to be supported through public and private funding. Among the most important contributions in this field we should signal Peacock (1991), Trimarchi (1993) and Peacock and Rizzo (1994). The study of art economics has been institutionalized by the Association for Cultural Economics International (ACEI), which organizes a conference every 2 years and publishes a journal entitled Journal of Cultural Economics, as well as by the International Association of Arts and Cultural Management (AIMAC), which organizes a biennial conference and publishes the International Journal of Arts Management. Most articles relating to these topics are published here, but other contributions can be found in academic journals such as Museum Management and Curatorship, Asia Pacific Journal of Arts and Cultural Management, International Journal of Cultural Policy, Journal of Arts Management, Law and Society,

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The Economics of Creativity Between Culture, Innovation, and Competitiveness

International Journal of Nonprofit & Voluntary Sector Marketing and, in Italy, Economia della Cultura, the official organ of the Associazione per l’Economia della Cultura. Research centres dedicated to studying and strengthening arts and culture economics have also been created. Naming only the most important, for Italy we can mention the Bocconi ASK centre directed by Paola Dubini, the Ebla Center (International Center for Research on the Economics of Culture, Institutions, and Creativity), founded by Walter Santagata and associated with the University of Turin, and the research activity coordinated by Pierluigi Sacco that gravitates around the IULM University of Milan; in Europe other important research centers can be found in Switzerland with the Center for Research in Economics, Management and the Arts (CREMA) founded by Bruno S. Frey, and in the Netherlands with the research activity coordinated by Arjo Klamer that gravitates around the Erasmus University Rotterdam. The increasing interest in art as an asset class has coincided with the increasing transparency and access to information offered by specialist information providers such as Artinfo.com, Artnet.com, Artprice.com, ArtTactic.com, ArtFacts.net, Artvalue.com, and numerous consulting firms focused exclusively on the art economy such as Art Economics, Art Market Monitor, Artvest and Tutela Capital. For some years now some consulting companies have been specializing in this segment of the market, creating, on their own initiative and on behalf of external clients, research studies aimed at meeting knowledge needs related to the main aspects of creativity, production, organization, evaluation, and consumption of art and culture. These are large international networks, such as Lord Cultural Resources, which has offices in New York, Toronto, London, Paris and many other cities, or multinational management consulting firms, such as The Boston Consulting Group, which helps important cultural institutions in many countries by applying the methodologies of strategy and organization used for corporate customers. These mainly deal with strategic planning, increase of direct and ancillary revenues, marketing strategies, fund-raising and cost reduction. In the U.S. numerous national research initiatives exist, each of which targets a specific area of interest and serves an important purpose: • The Cultural Policy and the Arts National Data Archive (CPANDA) is an interactive digital archive of policy-relevant data on arts and cultural policy. It is a well-respected, comprehensive, and valuable national repository for arts data.

• The National Endowment for the Arts conducts a national survey of public participation in the arts every 6–10 years and publishes a variety of reports based on its findings. These reports are extremely valuable but they are somewhat infrequent.

• The RAND Corporation conducts research in Education and the Arts and has published a number of high quality, important reports centered on arts education issues, including stimulating demand for the arts.

• The Urban Institute, a nonpartisan economic and social policy research institute, regularly publishes research and reports related to the relationship between the arts and their communities.

1.2

The Development of the Creative Economy

5

• The National Center for Charitable Statistics (NCCS), which is part of the Urban Institute, provides IRS Form 990 data on all nonprofit organizations, which are required to register with it, and makes these data available to researchers.

• Americans for the Arts periodically publishes the highly-regarded Arts and Economic Prosperity reports, which focus on the economic impact of the arts.

These reports focus on total expenditures, jobs, resident household income, taxes generated by arts consumption, and the economic ripple effect on communities.

These studies have all made important contributions to knowledge about the U.S. arts industry.

1.2

The Development of the Creative Economy

The current economy is made up of hyper-competitive markets, where it is increasingly difficult to differentiate oneself from one’s competitor. In the traditional industrial system, which was characterized by relative stability in terms of market, technology, and competition, the manager’s job was to stick to the routine. Today, companies exist in a state of constant vigilance, attempting to dominate a complex environment in which dismantling the rules of the game has become the new rule of competition. All or most of what we buy is replaceable. Everything has already been done. Competition therefore tests one’s ability to innovate and to create the ideal conditions for extraordinary results to be achieved with ordinary resources.

Knowledge, imagination and intuition – in a word, creativity – are now the resources that companies consider the most valuable. This idea can be illustrated by representing schematically the historical process of change in the main components of the economic system and their organization. According to this schematization, the phenomenon of intangible inputs (especially knowledgebased and creative jobs) replacing tangible ones can be represented graphically as in Fig. 1.1.

Having defined four categories of resources – physical capital (K), natural resources (NR), labour (L) and knowledge (C) – and assigned a value of 100 to the overall use of resources needed to obtain a unit of GDP, it is possible to represent with hypothetical values, attributed to the weight of the four categories, the change in the percentage composition in the input of productive factors associable with the transition from a pre-industrial economy to a creative economy.

Having clarified the meaning of substitution of productive factors which increases the weight and role of knowledge and creative work in the organization of the economy, and therefore the transition from an economy that produces tangible items to a dematerialized economy, it is necessary to dwell on the importance of creativity as a resource and as a factor determining the success and economic power of companies and socio-economic agents. But before doing this, let us attempt to figure out what gives rise to creativity and the stakes that it raises.

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The Economics of Creativity Between Culture, Innovation, and Competitiveness

a

b

C

c

C

100

C

100

100 50

10

5 K 100

5

30

100 NR

60

K 100

50

20

NR 100

20

K 100

20

10

NR 100

80

100

100

100

L (executive)

L (executive)

L (creative)

Label: C= Knowledge, K= Physical capital, L=Labour, NR= Natural Resources

Fig. 1.1 Structure – by type of resources – of the input of production factors used in the production of one unit of GDP (a) Pre-industrial economy, (b) Industrial economy, (c) Creative economy (Source: Adapted from Ricciardi and Gambaro 1997)

1.3

The Origin of Individual Creativity

The concept of creativity has long been explored by all disciplines. Psychoanalysts, neurologists, psychologists, sociologists, historians and economists have analyzed creativity, each from their own point of view, giving it their own definition (Howkins 2001; Florida 2002; Amabile 1996; Legrenzi 2005; Bryant and Throsby 2006; Santagata 2007). According to the Italian-American psychiatrist Silvano Arieti, creativity is an ongoing battle between the unconscious level, which makes impossible materials emerge, and the conscious level, which selects these materials and, for some, allows them to be shaped and given form. The unconscious level can develop atypical ideas; the conscious level, if it is particularly open, does not censor these ideas but translates them into paintings, poems, music, and scientific ideas. Domenico De Masi (2003) adds another dimension to this one.

To the vertical level that goes from unconscious to conscious he adds a horizontal axis that goes from the emotional dimension to the rational dimension. On one side we find emotions, attitudes, opinions, feelings. On the other one, knowledge and rational abilities. In this double-entry table, imagination and concreteness emerge.

The two axes create four areas, of which we will analyze only two. One area is constituted by the intersection between the emotional sphere and the unconscious.

This is the imaginative area that produces many materials, but without any selflimitation; therefore these are often useless materials. The other extremely important area is the opposite one, born from the intersection between the conscious level and the rational sphere: the area of concreteness.

According to De Masi (2003) creativity is therefore the synthesis of imagination and concreteness. There are people who have both these abilities. The possession of these two capabilities leads us to consider these individuals as geniuses, because it is clear that the normal person is more likely to be particularly fanciful with little

1.4

Creativity as an Economic Resource

7

concreteness or mostly concrete with little fantasy. Only very few can be very imaginative and very concrete. Having clarified the meaning of creativity it is necessary to dwell on the importance of this as a resource and factor determining the success and economic power of companies and socio-economic agents.

1.4

Creativity as an Economic Resource

Creativity is one of the salient features of human behaviour and is dictated by a nonlogical intelligence that is more evident in some individuals who are able to produce innovations because of their ability to perceive new connections between thoughts and useful objects. The categories of what is new and what is useful implant creative activity in society and history. Newness is related to the historical period in which it is conceived; utility is related to comprehension and the social recognition. Newness and utility adequately illustrate the essence of the creative act: an overtaking of the existing rules (newness) which have been granted economic, aesthetic or ethical value (utility). Two dimensions of the creative process that combines order and disorder, paradox and method can also be identified. Here creativity can therefore be defined as the resource through which new ideas are generated, developed and transformed into social value, as evidenced by the Nobel Prize Laureate in Economics Herbert Simon: ‘Actions are considered creative when they produce something that is original, interesting or has social value. An original element that is interesting and of social value represents the foundation of creativity’ (Simon 1986). Smith compares creativity to talent and claims it as a gift of nature, which allows those possessing it to more easily acquire abilities and skills and to achieve higher levels of artistic productivity than their competitors, but also as something that is acquired.

The difference in natural talents in different men is, in reality, much less that we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labour. The difference between the most dissimilar characteristics, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. (Adam Smith, The Wealth of Nations, Book I, Chapter II, ed. Cannan)

This definition allows us to highlight how at a subjective level the creative process is strongly influenced by the education and by the cultural atmosphere in which it develops (Simonton 2000; Damasio 1994; Elster 1996). This is the key for the production of creativity. In fact, the freer the cultural environment is, the more interdisciplinary and stimulating, the greater the production of creativity and talent is.

At an objective level, creativity is an inherently immaterial and intangible resource that, if it is to be transformed into an innovation and to be disseminated, needs to be incorporated into material formats (a painting, a movie, a book) or immaterial ones (a performance, a theatrical performance, an exhibition). While the format is typically a private good, the creativity embedded in an object is a public

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The Economics of Creativity Between Culture, Innovation, and Competitiveness

good, characterized by non-rivalry in consumption and low costs of exclusion. So, like an idea, creativity must be protected on the market through intellectual property institutions (Benghozi and Santagata 2001). As a source of knowledge, creativity has the typical characteristics of other economic resources, i.e. the ability to meet individual or collective needs (utility) and scarcity relative to its possible and alternative uses. The utility or productivity of creativity is evident and universally recognized. Through creative ideas that materialize into works of art, discoveries, inventions, new products and new processes, people and companies are able to temporarily create monopolies, allowing extra profit to be made. Being useful and productive but scarce, creativity is thus an economic resource, alongside labor, physical or financial capital, natural resources, to which agents attribute economic value and for which they are willing to invest money. The exorbitant prices paid by collectors, companies and organizations to acquire works of art at London, Beijing and New York auctions are tangible proof of how creativity is actually a scarce resource and, as such, extremely valuable (Table 1.1).

1.5

Comparative Analysis of the Innovation Potential of Leading Countries

As a result of the profound political, economic and social transformations of recent years, with the advent of a post-industrial economy that increasingly favors the production of an added value of an intangible nature, a country’s competitiveness seems to be increasingly influenced by the ability to innovate. Knowledge, imagination and intuition – in a word, creativity – are today the resources that companies consider the most valuable. The reason for this has to be growing competition in the most developed economies, based on the foundations of the post-industrial economy: investment in research, production of patents, availability of skilled human capital, and so on. The economy of the intangible requires as its precondition an open, tolerant, innovation-oriented society, characterized by a high level of education, high levels of cultural consumptions and attentive to quality of life issues.

Intangible prerequisites that, according to many economists, we can find in the most advanced countries, if by this term we mean those countries characterized by a postindustrial economy (Sacco and Ferilli 2006).

To understand these processes of transformation in their full complexity, and especially to evaluate the position that each economy assumes in this new competitive landscape, it may be interesting to analyze the Innovation Union Scoreboard 2011, a study conducted by the General Directorate for Enterprise and Industry of the European Commission, in which various indicators to assess the level of innovation of the EU nations are presented. The Innovation Union Scoreboard is based on 25 indicators related to research and innovation, and considers the EU27 Member States, as well as Croatia, Serbia, Turkey, Iceland, the Former Yugoslav Republic of Macedonia, Norway and Switzerland. The indicators are grouped into three main categories:

1.5

Comparative Analysis of the Innovation Potential of Leading Countries

9

Table 1.1 The 20 record sales at auction in 2011

2 STILL Clyfford E.

Hammer price ($) Artwork 57,202,000 Eagle standing on pine tree; Four-character [. . .]

55,000,000 1949-A-No. 1 (1949)

3 WANG Meng

54,040,000

Artist 1 QI Baishi

4 LICHTENSTEIN 38,500,000 Roy 5 GUARDI Francesco 38,256,120 6 XU Beihong

36,679,200

7 PICASSO Pablo

36,274,500

8 KLIMT Gustav

36,000,000

9 SCHIELE Egon

35,681,800

10 WARHOL Andy

34,250,000

11 BACON Francis

32,957,850

12 STUBBS George

32,158,000

13 FU Baoshi

31,520,000

14 ROTHKO Mark

30,000,000

15 STILL Clyfford E. 28,000,000 16 QI Baishi

26,786,500

17 ALMA-TADEMA 26,000,000 Lawrence 18 PICASSO Pablo 25,872,000 19 BACON Francis

25,536,000

20 WARHOL Andy

24,500,000

Sale 22 May (China Guardian BEIJING) 09 Nov. (Sotheby’s NEW YORK) Zhi Chuan moving to 04 June (Poly International mountain BEIJING) I can see the whole room!. . . 08 Nov. (Phillips de Pury & and [. . .] (1961) Company NEW YORK) Venice, a view of the Rialto 06 Jul. (Sotheby’s LONDON) Bridge, kooking [. . .]

Cultivation on the peaceful 05 Dec. (Poly International land (1951) BEIJING) La lecture (1932) 08 Feb. (Sotheby’s LONDON) Litzlberg Am Attersee 02 Nov. (Sotheby’s (c.1914/15) NEW YORK) Ha¨user mit bunter wa¨sche 22 June (Sotheby’s (Vorstatdt II) [. . .](1914) LONDON) Self-portrait (1963–1964) 11 May (Christie’s NEW YORK) Three studies for portrait of 10 Feb. (Sotheby’s Lucian Freud LONDON) Gimcrack on newmarket 05 Jul. (Christie’s LONDON) heath, with a trainer [. . .]

Landscapes (1964/65) 17 Nov. (Beijing Hanhai Art BEIJING) Untitled No. 17 (1961) 11 May (Christie’s NEW YORK) 1947-Y-No. 2 (1947) 09 Nov. (Sotheby’s NEW YORK) Landscape (1931) 13 Nov. (China Guardian BEIJING) The meeting of Antony and 05 May (Sotheby’s Cleopatra: 41 Bc NEW YORK) Femme assise, robe bleue 21 June (Christie’s (1939) LONDON) Study for a portrait (1953) 28 June (Christie’s LONDON) Self-portrait (1986) 11 May (Christie’s NEW YORK)

Source: Artprice (2011)

• Enabling elements, i.e. the fundamental elements that make innovation possible (human resources, funding and support, open research systems, centres of excellence and other attractive elements);

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The Economics of Creativity Between Culture, Innovation, and Competitiveness

0,8 0,7 0,6 0,5 0,4 0,3 0,2 0,1 0 SE DK DE FI BE UK NL AT LU EU27 IE FR SI CY EE IT PT CZ ES HU GR MT SK PL RO LT BG LV

Fig. 1.2 Innovation index of leading European countries (Source: European Commission 2011)

• Firm activities, which show how European firms are innovative (investments, collaborations and entrepreneurial activities, intellectual property); • Outputs, which show how the competitive innovation translates into benefits for the economy as a whole (innovators, economic effects).

According to the Innovation Union Scoreboard 2011, we may classify countries into four categories: 1. Innovation leaders: Denmark, Finland, Germany and Sweden (which present results well above the EU-27 average).

2. Innovation followers: Austria, Belgium, Cyprus, Estonia, France, Ireland, Luxembourg, the Netherlands, Slovenia and the United Kingdom (which present results that are close to the EU-27 average).

3. Moderate innovators: Czech Republic, Greece, Hungary, Italy, Malta, Poland, Portugal, Slovakia and Spain (with results below the EU-27 average).

4. Modest innovators: Bulgaria, Latvia, Lithuania and Romania (well below the EU-27 average).

Italy is in sixteenth place, ahead of the Czech Republic, Spain, and Greece, in the Innovation Index, the measure of synthesis used in the study that includes various indicators related to patenting intensity, human capital and the number of creativeclass workers (Fig. 1.2). Furthermore, as regards the Innovation Trend Index, i.e. the dynamic assessment of progress recorded by the different nations since 2006, Italy ranks, with a score of 2.71, ahead of Germany (2.6), the Czech Republic (2.57) and Ireland (2.55), but at a considerable distance both from Slovenia (third in the ranking with a score of 6.52) and Portugal (the first in the ranking with a score of 8.31) (Table 1.2).

From this and previous studies (Florida and Tinagli 2004), it emerges that the Scandinavian countries (Finland, Sweden, Denmark) are the new creative hubs.

Finland, in particular seems to be very competitive on the creative front, with a high rate of innovation (Innovation Index) and rapid growth in innovative dynamism (Innovation Trend Index). Countries like Portugal and Greece, which for the moment are less innovative, nonetheless have innovative dynamism above the

1.5

Comparative Analysis of the Innovation Potential of Leading Countries

11

Table 1.2 Innovation trend index (innovative dynamism of countries from 2006 to 2010) PT EE SI MT BG RO GR TR CH RS HR FR FI IT LV DE CZ IE NL BE FK ES PL AT NO LU IS HU EU27 SE UK DK CY MK LT

2006 0.320 0.388 0.404 0.276 0.159 0.195 0.322 0.180 0.745 0.219 0.258 0.493 0.638 0.380 0.163 0.639 0.379 0.553 0.545 0.578 0.265 0.379 0.273 0.562 0.430 0.576 0.482 0.298 0.505 0.758 0.600 0.734 0.411 0.192 0.244

2007 0.341 0.391 0.426 0.306 0.166 0.219 0.322 0.184 0.779 0.218 0.251 0.504 0.644 0.397 0.176 0.657 0.395 0.570 0.559 0.592 0.277 0.384 0.280 0.581 0.436 0.571 0.500 0.296 0.518 0.757 0.611 0.737 0.428 0.196 0.259

2008 0.380 0.423 0.450 0.328 0.192 0.241 0.351 0.191 0.805 0.225 0.263 0.512 0.673 0.395 0.199 0.670 0.369 0.553 0.574 0.597 0.273 0.397 0.269 0.602 0.444 0.593 0.532 0.307 0.517 0.760 0.589 0.682 0.482 0.212 0.230

2009 0.401 0.463 0.473 0.340 0.197 0.256 0.365 0.199 0.814 0.231 0.273 0.517 0.696 0.398 0.195 0.689 0.376 0.561 0.587 0.595 0.285 0.397 0.285 0.605 0.454 0.593 0.540 0.304 0.515 0.759 0.591 0.702 0.464 0.218 0.241

2010 0.436 0.466 0.487 0.351 0.226 0.237 0.364 0.202 0.831 0.237 0.301 0.543 0.696 0.421 0.201 0.696 0.414 0.573 0.578 0.611 0.269 0.395 0.278 0.591 0.463 0.565 0.487 0.327 0.516 0.750 0.618 0.736 0.495 0.228 0.227

Growth Rate (%) 8.31 6.59 6.52 6.42 6.15 5.23 4.70 4.06 3.78 3.63 3.55 2.74 2.72 2.71 2.71 2.60 2.57 2.55 2.02 1.97 1.96 1.91 1.79 1.62 1.35 1.27 1.26 1.15 0.85 0.62 0.47 0.36 0.28 0.36 0.70

Source: European Commission (2010)

European average. With equal clarity the results also give a rather alarming framework of the current situation of Italy, which is signalled as one of the least innovative nations in Europe. But what are in detail the major weaknesses? Let us briefly analyze the individual indicators. The critical area for Italy is confirmed as that of human capital, where Italy is in last place in the ranking, compared to the

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The Economics of Creativity Between Culture, Innovation, and Competitiveness

55-64

25-34

60 50 40 30 20 10 0

Fig. 1.3 Percentage of the population that has attained tertiary education (Source: OECD 2010b) Table 1.3 Public investment in education Public expenditure on education over GDP Public expenditure on education over total public expenditure Average cost per student Average cost per university student Total expenditure per student between 6 and 14 years Total expenditure per university student Average number of pupils per class Average number of pupils per teacher Annual salary of primary teachers at the end of their careers Annual salary secondary school teacher at the end of the career Annual salary upper secondary school teacher at the end of the career

Italy 4.5 % 9% $7,650 $8,600 $101,000 $39,000 18 10.6 $38,000 $42,000 $44,000

OECD average 5.7 % 13.3 % $8,200 $13,000 $93,000 $53,000 22 16.4 $48,000 $51,000 $55,000

Source: OECD (2010a)

main European countries with regard to the investment in education. Figure 1.3 and Table 1.3 refer to the availability of qualified human capital and to the importance that is given, within national politics and policy-making, to the support and training of staff professionally in line with the needs of innovation.

The most palpable delay suffered by Italy remains that relative to higher education. Only 19 % of the population between 25 and 34 years old has a tertiary-level qualification, a percentage that is considerably below both the average of OECD countries (34 %) and from that of the EU countries (32 %), almost three times lower than that of Canada (56 %), and roughly half that found in countries such as Spain (39 %), U.S. (40 %) and France (41 %). Despite this situation of backwardness in the educational level of the Italian population, public investment in education (from primary school to the university system) as a percentage of GDP has further reduced in recent years, from the peak reached in 2006 of 5.1 % of GDP to the current 4.5 %, compared to an average of OECD countries of 5.7 % (Table 1.3).

1.5

Comparative Analysis of the Innovation Potential of Leading Countries 7 6 5 4

6,3

13

5,8 5,7 5,6 5,4 4,5 4,4

4 3,5

3,2

3

3

2,9 2,8

2 1 0

1= countries unable to develop talent,where the brain drain is stronger.

7= countries offering opportunities to talented people.

Fig. 1.4 Relevance of the brain drain phenomenon (Source: World Economic Forum 2011)

The main element that distinguishes the Italian system is the proportion of resources devoted to the university sector, representing only 17 % of the total resources, compared with 25 % in Germany, 24 % in the U.S. and 21 % in France.

Italian universities also welcome the smallest percentage of foreign students (only 2 %) and a relentless and worrying brain drain, which, according to the recent report

by Federculture (Grossi 2010), seems to number about 6,000/year. Moreover, according to the estimate of the significance of the brain drain phenomenon by the World Economic Forum (2011), Italy with a score of 2.8 is in fifth place in Europe for outflow of talent, preceded only by Bulgaria (2.2), Romania (2.4), Lithuania (2.6) and Greece (2.7) (Fig. 1.4) By analyzing data from the recent Eurostat report (2011) it emerges with some clarity that there is a strong relationship between cultural employment and levels of development and technological innovation. Among the countries with a higher incidence of cultural employment we can find, in fact, Norway (2.6 %), Denmark (2.3 %), Finland (2.3 %), the United Kingdom (2.1 %) and the Netherlands (2 %).

These are the European economies that not only have the highest levels of income per capita, but that in recent years have also shown high international competitiveness indices. The characteristics of the workers employed in the different cultural sectors confirm that cultural employment is an indicator of high quality. In fact, almost one employee in two holds a degree or a higher qualification, while the same ratio is one in four when considering the workforce as a whole. There are also twice as many self-employed workers in this field as compared to the rest of the economy.

An above-average weighting is also found for temporary employees, for part-time workers and for those who have a second job. These first distinctive features of the offer seem to indicate that more qualified profiles are delineated in cultural production, but that more also display greater instability, even ‘precariousness’, compared to other sectors of the economy. However, the attitude that holds entrepreneurship

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The Economics of Creativity Between Culture, Innovation, and Competitiveness

Table 1.4 Cultural employment in Europe EU – 27 BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK IS NO CH HR TR

Total employment 217,828 4,421 3,254 4,934 2,776 38,797 596 1,917 4,509 18,888 25,704 23,025 381 983 1,416 219 3,782 162 8,596 4,078 15,868 5,054 9,244 981 2,366 2,457 4,499 28,923 166 2,500 4,280 1,605 21,271

Total in cultural sector 3638.5 63.5 1.5 84.1 63.2 847.2 10.5 28.2 52.6 243.4 437.3 246.7 4.5 22.4 28.3 2.9 68.2 2.8 176.2 64.1 222 47.4 69.4 20 26.1 55.6 105.3 597.1 5.2 65.9 59.9 31.8 81.5

Cultural sector % of employees 1.70 % 1.40 % 11.20 % 1.70 % 2.30 % 2.20 % 1.80 % 1.50 % 1.20 % 1.30 % 1.70 % 1.10 % 1.20 % 2.30 % 2.00 % 1.30 % 1.80 % 1.70 % 2.00 % 1.60 % 1.40 % 0.90 % 0.80 % 2.00 % 1.10 % 2.30 % 2.30 % 2.10 % 3.20 % 2.60 % 1.40 % 2.00 % 0.40 %

Source: Eurostat (2011)

to be an irreplaceable part of cultural or creative activities would explain why the high level of self-employment in these sectors cannot easily be reduced (Table 1.4).

It should also be observed that, paradoxically, the countries where employment in cultural activities is higher do not seem to excel for ‘original cultural endowments’. None of them, in fact, is at the top of the Unesco World Heritage List, which measures the number of cultural sites of significant international interest

1.6

The Economic Value of Culture in Italy

15

and which has precisely Italy at the very top. This means that cultural production is not necessarily linked to the activities developing historical and artistic heritage.

1.6

The Economic Value of Culture in Italy

The creative and cultural sector contributes 2.6 % of European GDP and employs 5.8 million people. Italy, where the cultural sector contributes €39.7 billion to GDP (i.e. 2.6 % of the national GDP), is one of the countries with the highest number of employees in this field (approximately 550,000 workers). When the tourist economy and the cultural and creative sectors are taken in the aggregate, contribution to GDP reaches 13 %, equivalent to around €203 billion of turnover. Italy also has the widest cultural heritage worldwide with more than 3,400 museums, approximately 2,100 archaeological areas and parks, and 43 UNESCO sites. Despite these worldleading figures, a study on the country’s UNESCO sites, commissioned by Confcultura and produced by PricewaterhouseCoopers in 2009, estimates that the RAC (return on cultural assets) i.e. the ratio between revenues from merchandising and the number of UNESCO sites, is significantly lower for Italy than in other countries. The ‘commercial’ return on cultural assets (RAC) of the U.S. is about 16 times the Italian RAC, while the return on cultural assets in France and in the United Kingdom is between 4 and 7 times that in Italy. Given the richness of Italy’s cultural heritage, compared to other countries, enormous potential for growth still lies untapped. To confirm this, research by Confcommercio of 2009 on the relationship between small and medium enterprises and culture reveals that 67.8 % of businesses consider our cultural heritage to be a competitive resource not efficiently exploited by the current system. 81.9 % of firms believe that public investment devoted to the protection and development of cultural goods should be increased, despite the difficult economic situation and the need for rigorous control of public finances. Despite these firms’ beliefs, in Italy public expenditure on culture is three times lower than that of the main European countries and is in steady decline both in absolute terms and as a percentage of total expenditure. In 2010 in Italy the State spent 0.21 % of the national budget on culture, which corresponds to €25 of expenditure per capita per year, compared to €46 per capita in France and Germany (Fig. 1.5).

Moreover, to tackle the global recession, the 2011 financial bill further reduced funding for culture, with a reduction equal to 33 % over the last 10 years. The results that emerge from this data are hardly positive, especially for a country like Italy that with an annual public investment in culture of €1.7 billion obtains a contribution to GDP of €39.7 billion, thus highlighting a multiplier of investment equal to 23.3, the second best in the European Union. This element underlines the strong attractiveness of Italy’s cultural heritage and demonstrates a significant potential for growth if investments were carried out in line with the average amongst major EU countries (Table 1.5).

If Italy invested a sum equal to the average of what is made available by France, Germany, the UK and Spain (€6.65 billion), the economic potential of culture

16

1

The Economics of Creativity Between Culture, Innovation, and Competitiveness

2500

2241

2116

2201 1987

2000

2115

2037 1719 1710

2197 1860

1500 1509 1000 500 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Budget of MiBAC ( )

Fig. 1.5 Budget of MiBac, time series (€ m) (Source: MiBAC) Table 1.5 The cultural investment multiplier Country France Germany Great Britain Spain Italy

Expenditure (billion €) A 8.4 8 5.1

Contribution to GDP (billion €) Expenditure multiplier B B/A 74 8.5 68.2 8.5 53.3 10.5

5.1 1.7

27.4 39.7

5.4 23.3

Source: StageUp elaboration on data from ‘Economy of Culture’ EU research

represented by its contribution to GDP, with the same investment multiplier, would reach €155 billion, giving an increase of €115.2 billion compared to the current situation.

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Lavanga, M., & Trimarchi, M. (2005). Le politiche di promozione dell’arte contemporanea all’estero: Modelli, strumenti e meccanismi d’azione. In P. Sacco, W. Santagata, & M. Trimarchi (Eds.), L’arte contemporanea italiana nel mondo. Analisi e strumenti. Milan: Skira.

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Locatelli, M., & Zanola, R. (1999). Investment in painting: A short-run price index. Journal of Cultural Economics, 23(3), 211–222.

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Peacock, A., & Rizzo, I. (Eds.). (1994). Cultural economics and cultural policies. Dordrecht/ Boston: Kluwer.

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Picci, L., & Scorcu, A. (2003). Bidders’ and Sellers’ strategies in sequential auctions. New evidence about the afternoon effect. Empirica, 30, 163–178.

Renneboog, L., & Van Houtte, T. (2002). The monetary appreciation of art: From realism to Magritte. Cambridge Journal of Economics, 26(3), 331–357.

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2

The System of Contemporary Art

2.1

Defining the Art System

The emergence of new needs, especially modern society’s aesthetic, symbolic and emotional needs, has led to the birth and development of industries specialized in the production of goods and services that are highly creative in content, and whose use- and exchange-value is determined by their aesthetic and symbolic content (Santagata 1998a).1 As presented in Table 2.1, the cultural and creative sector concerns the historic and artistic heritage of a country, which is the cultural capital resulting from the creativity of past generations but also the artistic production of present generations. Secondly, creativity is an input contributing to the production and communication of content by the cultural industries that provide goods and services with a high symbolic content. Thirdly, the creative process is strongly present in the sphere of material culture, as an expression of the country or region and of the communities that live there (Santagata 2009).

According to this classification it is possible to identify 11 economic sectors characterized by creativity and cultural production. The sectors related to material culture are Fashion and Design. The classic cultural industries are considered to lie within the sphere of content production: these industries are linked to the ability to store, reproduce and transmit information (Publishing industry, TV and Radio, Cinema). The Computing, Software, and Advertising sectors have also been included. Finally, the historical and artistic heritage sectors cover activities and goods that are central for producing, expressing, and adding economic value to culture, but which are often produced in non-industrial ways. Cultural heritage, with museums, monuments, archives and libraries, represents the showcase of culture and may have a significant impact on the economic activities connected to it, especially cultural tourism. The field of Music and Performing arts is included in the sphere of artistic and historical heritage, especially in relation to cultural

1 Domenico De Masi includes among the emerging needs intellectualization, aesthetics, subjectivity, emotions, and quality of life and culture. See http://www.domenicodemasi.it/paradigma/.

A. Zorloni, The Economics of Contemporary Art, DOI 10.1007/978-3-642-32405-5_2, # Springer-Verlag Berlin Heidelberg 2013

21

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2 The System of Contemporary Art

Table 2.1 Sectors in the cultural and creative industries Material culture Production of content, information and communications

Historic and artistic heritage

Fashion Design Software Publishing industry TV and radio Advertising Cinema Cultural heritage Music and performing arts Architecture Contemporary art

Source: Personal elaboration on Santagata (2009)

production in theatres and at festivals. Contemporary art and Architecture are two other fields whose goods have a high symbolic content, where laboratories, ateliers or studios do not produce objects according to the logic of industry, but rather services according to a neo-artisanal logic (Santagata 2009). These markets and creative industries (KEA 2007), although they differ in significant respects, depend on one another in technical, economic and social ways. The human factor plays a key role in the characteristic way that production comes about. Secondly, they are concerned with creating and communicating a symbolic meaning. Finally, the end result implies some form of intellectual property (Throsby 2001). However, in order to define the visual arts industry it is necessary to find further common points by which the sector’s boundaries can be determined. It can therefore be stated that the system of visual arts is composed by all the socio-economic agents involved in various capacities in the cultural and creative sector, and which: 1. Have a production function in which the human factor, and especially creativity, plays a key role (Throsby 1994) (A); 2. Are based on the existence of some form of intellectual property (Throsby 1994) (B); 3. Produce a unique (and thus irreproducible) cultural output with a high symbolic content (Throsby 2001) (C); 4. Satisfy a need for aesthetic and cultural distinctiveness (Pommerehne and Granica 1995) (D) (Fig. 2.1).

The system of visual arts defined in this way is an aggregate of such size and complexity that it can be considered as a cluster (Porter 1990) of operators of varying value and importance.2 These operators are closely interconnected and offer, for different purposes (with commercial or cultural goals), and in appropriate

2 A cluster can be defined as a group of economic operators and organizations whose competitive advantage is enhanced by the interrelationship and the bonds that develop between them. For further deepening the concept of cluster and effects on the competitiveness of a country see Porter (1990).

2.1

Defining the Art System

23

Fig. 2.1 The visual arts industry (Source: Personal elaboration)

B A C

D

structures (galleries, auction houses, fairs, museums, foundations), luxury goods with a high symbolic content designed to satisfy an aesthetic and cultural need that the consumer expresses as an alternative use of his economic power (Zorloni 2005b). This sector groups together a series of rather heterogeneous activities and operators: from an institutional perspective (e.g. public- or private-sector firms, whether or not with commercial objectives); from the perspective of the motivations met (e.g. cultural, financial or social ones); concerning funding streams (whether or not public subsidy is prevalent). A study conducted by Arts Economics for the 2012 Maastricht Tefaf Fair highlights that over 400,000 companies are currently active in the global art market (380,100 galleries and advisors, and 23,000 auction houses) occupying about 2 million workplaces (McAndrew 2012); while research by Unioncamere from 2009 states that the production chain which falls in a more or less direct way into the Cultural Heritage sector in Italy involves over 900,000 companies and about 3.8 million workers of which about 10.5 % (i.e.

400,000) are in the field of Cultural Heritage in the strict sense.

The demand for goods and services that allow the art system to function stems from four categories of socio-economic agents: private collectors, companies, public bodies and cultural institutions. A specific demand for goods and services related to the art system stems from the needs of each of these categories. The literature that has dealt with the topic has generally assembled the benefits of art consumption according to functional, cultural, symbolic and emotional criteria.

Functional benefits are sought when the individual feels a tension caused by a concern over need. Art could satisfy a functional need when purchased with decorative intentions (to furnish the house in a pleasant way), or with speculative ones. Art fulfils a cultural need when it offers educational benefits. A large number of studies, for instance, have shown that the acquisition of knowledge is one of the major reasons why people visit museums and art galleries (D’Harnoncourt et al.

1991; McLean 1995). The symbolic benefits, unlike those that are strictly functional, refer to the meaning that the product acquires at a psychological and social level, but are also related to the semiotic aspects: the consumption of artistic products reveals, in fact, on one hand the personality (Mastandrea et al. 2007) and the cultural level of the individual, on the other hand a desire to attain a certain social status. Finally, the emotional benefits are tied to the desire for a stimulating and fun experience and come down to the sensations and fantasies offered by the experience of consumption (Codignola 2006). It seems clear then that the

24

2 The System of Contemporary Art

consumption of artistic goods satisfies needs of various kinds, some extrinsic (utilitarian ones) and other intrinsic (emotional ones). Specifically, it is possible to identify at least four motivations for consumption in the contemporary art market, linked to the objectives and needs of families, companies, associations and cultural institutions. The first of these requirements is related to the need to decorate one’s house in a pleasant way and feeds the demand for decorative works of art. The need to communicate an image of prestige among notable stakeholders leads collectors and firms to demand works of art by famous artists. The need to display both culture and a credible representation of the self feeds the demand for works of avant-garde art. Finally, the need to speculate and to diversify one’s portfolio by making alternative investments fuels the demand for works of art and art banking services. Although it is linked to mainly different institutional objectives (the promotion of culture), artistic need and the consequent demand for works of art stemming from public institutions (museums, agencies, municipalities, provinces) arises from motivations largely similar to those relating to companies. However, compared to the latter, cultural institutions promotional activity is more conditioned – in volume of resources involved and mode of development – by the bureaucratic management that traditionally characterizes them, making them less market-oriented.

A large part of collectors’, companies’ and public bodies’ activity and artistic demand – and thus expenditure on goods and services – is determined and channelled towards the markets by companies specialized in artistic consultancy, the so-called art advisory. These companies (private banking, art consultants or auction houses) essentially act as intermediaries between specialized collectors of works of art and firms offering them on the market. From this simplification four visual arts markets emerge, which are fundamental to the competitive, strategic and structural analysis of the system of contemporary art. These are the avant-garde market, the classical contemporary market, the alternative market, and the junk market (Zorloni 2005a). Schematically, the system of contemporary art, that is the network of interdependencies linking agents, industries and markets carrying out activities of production, promotion and exchange of goods and services functional to it, can be represented as in Fig. 2.2.

On the left-hand side the offer of companies producing products and services for the contemporary art market is represented. All those companies offering consulting services, producing information (such as art advisors and publishing houses), and organizing and promoting cultural events, operate in support of the activities of artists, art dealers, auction houses and fairs. On the right-hand side the demand of private collectors, i.e. consumers of works of art in the strict sense, is represented, as well as that of companies, foundations, museums, public bodies that, in various capacities, demand works of art. Finally in the centre there are the contemporary art markets.

2.2

The Value Chain

25

Art dealers

Artists

Museums Institutions

Junk Market

Auction houses

Art fairs Insurance services

Alternative Market

Publishing industry Art Advisory

Companies Foundations

Avant-garde Market Private collectors Classical Contemporary Market

Fig. 2.2 The system of contemporary art (Source: Zorloni 2005a)

2.2

The Value Chain

To analyze the structure of the contemporary art sector, in the sense defined above, I will use the concept of the supply chain, since this better allows us to highlight the different stages, which are structurally very different, of the product’s valorization process. Starting with Santagata’s model (2009), the chain that I propose consists of four stages: production, distribution, valorization and consumption. Upstream of the chain there is an idea to be communicated by the artist, i.e. by the person who produces the work of art. This phase includes in an articulated way the creation, i.e. the conception of the idea to be communicated, the choice of the medium (painting, photography, sculpture, video) and production. This stage of the supply chain is clearly fragmented because artists are in competition with each other to gain critics’ attention and interest, but also those of the art dealers, who may be able to promote, develop and launch them on the market. At this stage there are no formal barriers to entry, since anyone can claim to be an artist; yet barriers implicitly occur when one is faced with the alternative of earning one’s living with the artistic career or having to find other employment. The product differentiation is high because each artist is characterized by his own identity and a specific language; however, it is true that the trends and styles prevailing in a particular cultural context and historical period do affect production, leading artists to work in a similar way. The distribution phase consists in the promotion and sale of works of art, making them accessible to the collector through various channels (galleries, auction houses, fairs, TV, internet).

Distribution is followed by the exhibition phase – that is valorization – and finally that of consumption. The contemporary art industry also includes sectors that are not arranged along the chain, but which support the entire system: the specialized publishing sector, and the various branches of the advanced tertiary sector (fairs, art advisory, insurance services, transport etc.). With respect to the diagram above proposed in order to represent the art system, in the next paragraphs the supply side, and therefore also the organization of production, will be analyzed.

26

2.3

2 The System of Contemporary Art

Economic Nature of Artistic Goods: from Luxury Good to Store of Value

Before diving into the analysis of artistic production and its agents, it is necessary to define the nature of the goods it deals with. Technically a work of art can be defined as a unique object, made by hand with decorative intent, under the direct control of the artist. The particular classification of the artistic product is determined by the processes used (painting, drawing, photography, sculpture, video, installation), by the medium used (acrylic, oil, tempera, collage, pastel, etc.), by the type of material support (cardboard, canvas, linen, metal, wood, aluminium, etc.), by the artefacts’ size, end-purpose or function. The work of art is certainly, in the case history of economic goods, the one with the most peculiarities: it can be considered a durable good because it fulfils its function many times over, and because its life is prolonged for many years. It can be seen as a store of value, or as a form of certainty in the face of inflation, because, like gold, it is an unproductive investment used for speculative activities. The work of art is also a luxury item, the possession of which, as a source of social prestige, communicates as perhaps no other good does the refined taste of its purchaser and therefore his belonging to a cultural elite (Table 2.2). In this sense it belongs to that particular class of symbolic goods (Throsby 1994; Santagata 2004) which give utility to the owner by virtue of the fact that they can be collected and exhibited, and whose value increases in inverse proportion to their availability on the market.

A work of art is thus characterized by multidimensionality as it can be evaluated in many respects, from the fulfilment of an immaterial hedonic need expressed by the individual collector, to the ability to generate monetary value with the passage of time (Trimarchi 2004). This is a product with a predominantly informative value, which is entirely devoid of functional capabilities (which prevents an objective assessment in technical terms), which becomes the object of subjective evaluations characterized by a significant emotional component. It is therefore a product of an ambiguous nature, which can be assessed in very uneven ways, depending on the institutional role or the aesthetic competence of the person performing it: i.e. whether he is an artist, a critic, a merchant, or a dealer (Trimarchi 2004).

2.4

The Economic Characteristics of Artistic Production

If we consider the artist as an entrepreneur making use of his talent and observe the production function of the latter, we note that four economic characters differentiate it from a traditional enterprise: 1. The product (the work of art) is unique, original, and the result of creative work, therefore it is similar to an invention; 2. The production process is characterized by diseconomies that constrain its productive capacity; 3. The valorization of the product requires a cooperative team of agents; 4. The incentive to innovate is not a financial one.

2.4

The Economic Characteristics of Artistic Production

27

Table 2.2 Different definitions of luxury Authors Veblen (1899)

Leibenstein (1950) Mason (1981, 1992) Bearden, Etzel (1982) Houriuchi (1984)

Rossiter, Percy (1987) Quelch (1987) Garfein (1989)

Richins (1994)

Dubois, Laurent (1994, 1996)

Dubois, Paternault (1997) Kapferer (1997, 1998)

Nueno, Quelch (1998)

Wong, Ahuvia (1998)

Characteristics of luxury consumption Ostentatious consumption – Pecuniary emulation – Status and wealth – Envious comparison–Distinction–Fashion–Bourgeoisie – Upperclasses–Leisure class – Pleasure Veblen effect – Snob effect–Bandwagon effect – Aesthetic quality Ostentatious consumption–Status quest–Scarcity–Distinction–Compliance – Success Ostentatious consumption–Exclusive – Excellence in function and style–Craftsmanship – Public or private consumption Price – Limited production – Low frequency of purchase – Demonstration of identity– Provides intrinsic pleasure and satisfaction – Not necessary for life and health – Historical brands High involvement – Ostentatious brand – Social approval – Searching an audience – Personal recognition – Sensory gratification High price, selective distribution – Qualitative excellence – Tradition – Prestigious image–Status symbol–Limited publicity – Investment factor Expensive–Limited supply–High quality–Being one of the few selected–Assessment skills–Impeccable taste–Admiration and envy–Appearance, elitist and snob–Limitation of risk Ostentation–Social visibility–Expensive–Concerns about status–Success–Achieving results – Selfexpression–Stereotypes–Happiness–Hedonistic pleasure Very expensive–Elitism–A few people–Enables to stand out–Snob–Better quality–No mass production–Imitation of the well-off–Reveals who you are–Sophisticated people–Hedonistic motivations–Makes life more beautiful–For one’s own pleasure–To offer as a gift Expensive–Exclusive clientele–Scarcity–Extreme quality – Craft–Aesthetic pleasure–Rituals–Uselessness/futility The price of quality–Made with the highest perfection–Allows one to express one’s own good taste–Ennobles the object and its owner – Artistic, creative – Sensual dimensions Premium pricing–Association with a country of origin–Limited production and distribution–Exclusive–Uniqueness–Recognizable style/ design–Quality–Handicraft tradition–Provides information on social status Ostentatious–Wealth and social class–Expensive–Materialism–Compliance versus distinction–Branded manufacture–Producer country–Public appearance–Concept of the self–Personal success–Reputation–Hedonic value–Pleasure of consumption experience – Gift

Source: Brioschi (2000)

The production and dissemination processes relating to artistic research require that creativity be used, which, as a process whereby the mind transforms information (Goleman 1997), could be seen, from an economic standpoint, as a knowledgebased technology (Chartrand 2000). This technology has particular and distinctive characters compared to other technologies. A first distinctive feature consists in the

28

2 The System of Contemporary Art

fact that the knowledge-based technology (Chartrand 2000) is the leading type of technology for the productive processes in which knowledge and human capital are both the essential input and the output. The production of a painting, a photograph or a sculpture, requires – in combination with other factors or resources such as labor, physical and financial capital – the availability and use of information and knowledge that, creatively processed and organized, determine the nature and quality of a work of art. Creativity is the fundamental and irreplaceable input of the artistic products’ production and dissemination processes: the quality and economic value of the latter depend on the ability to create added value through the innovative processing and organization of ideas. The relevant aspects here are the significant fixed or constraining factors that may be present in the creative process (which are partially modifiable only in the long term and in a discontinuous way), such as the ability to receive and process information and to intuit new connections between thoughts and objects. From the economic point of view, the limited personal capacity to process information is determined not only by physiological or psychological constraints on the perceptive and cognitive activity of an individual, but also by the stock of relevant knowledge that the artist has. The ability to know how to use software for video editing or being able to master a photographic technique, as well as knowledge of art history, are typical examples of factors restricting the individual’s ability to produce high-quality works of art. The presence of fixed factors, which are variable only in the long run and in a discontinuous way, limits the overall capacity of the productive process, subjects it to the law of the diminishing returns regarding variable factors (time and effort devoted to creative work) and affects its cost structure. The hypothesis of diseconomies of scale in the creative process reflects the idea that productivity and overall cost of the process are still conditioned by artists’ limited ability to acquire knowledge and creatively process it. Artistic production has thus a cost structure characterized by: • Significant diseconomies due to pre-existing constraining factors (primarily creativity, then stock of knowledge, ability to process information) which constrain production capacity; • Diminishing returns regarding the variable factors (time and effort devoted to creative work); • Sunk costs in relational capital.

In particular, the fact that – particularly at the initial stage of the artist’s career – the exhibition activity of an artist requires significant costs to be borne or sunk in relational capital (Sacco 1998), may constitute a hindrance or a barrier to the development of artistic activity. Also, just from an economic standpoint, it could be argued that the product-work of art is incomplete in the place of creation (the studio of an artist, for instance), because at this level it would include only its own physical characteristics. The quality and value of the work of art cannot, in fact, be appreciated in its particularity until you know its intangible characteristics, that is to say by whom it is sold, acquired, evaluated, communicated and criticized (Codignola 2006). This implies that the valorization of a work of art is essentially a team production (Besana 2002), which:

2.4

The Economic Characteristics of Artistic Production

29

1. Requires the establishment of a cooperative team of agents (art dealer, critic, collector, artist), each of whom provides, through his activity, value to the artistic product; 2. Is the result of the activity of the team members, with particular reference to those providing creative work (artists) and promotional work (art dealers, museums, collectors); 3. May not be measurable in quantitative terms, i.e. it is not possible to determine the individual contribution of each agent to the valorization of the work of art.

Finally the last feature that differentiates the artist from a traditional company is the fact that the incentive to innovate is not financial. Artists, unlike companies, are driven to innovate because they are moved by an internal force, which cannot be rewarded by financial benefits (Caves 2000). On the other hand, studies on the living and working conditions of contemporary artists highlight that artistic income alone is insufficient for most artists, who often need a second non-artistic job (Bondi and Sitton 2007). A general difficulty from the economic point of view is also confirmed by research on the artist’s profile carried out by Ipso (2008) on behalf of Terna, on a sample of 400 subscribers to the Terna award. This research shows that only 32 % of artists make a living from art alone, while 68 % of them have to perform another parallel activity. But then why do some individuals decide to pursue a career that presents few opportunities? What are the motivations lying behind such a choice? While behavioural economics generally ignores affective motivations, a large literature in psychology suggests that intrinsic (affective) motivations provide greater subjective well-being than extrinsic motivations (Kasser 2000). With the former well-being originates from within the individuals and activates behaviors which themselves produce well-being, regardless of any separate external pay-off (‘I choose to be an artist because it allows me to creatively express myself, to be free to manage my time and this makes me richer psychologically’); with the latter well-being depends on the acquisition of goods and wealth. In support of this hypothesis the research conducted by Ipso on behalf of Terna confirms that personal satisfaction is the main motivational driver sought by the artists. 64 % of them, in fact, measure their own success on the degree of personal satisfaction given to them by their own works. A minority, only 20 %, identify the achievement of success when appreciated by art critics as a factor. 11 % consider that economic reasons are the sole measure of success (Fig. 2.3).

From these analyses it can be concluded that, even if the artistic career is certainly not an easy one, not to mention a profitable one (except for a few lucky cases), it is psychologically very satisfying because it does not represent a cost for the artist (Horvath 1999; Throsby 2001), but works as a factor of self-realization (Santagata 2004); on the basis of this hypothesis, the artist’s generally lower income can be interpreted as a cost that must be borne in order to exercise the ideal job, which, as such, represents a benefit for the artist.

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2 The System of Contemporary Art

Fig. 2.3 An artist can consider himself successful when. . . (Source: Ispo 2008)

5% 11% He creates works of art that fully satisfy him He is appreciated by art critics 20% 64%

2.5

He earns large sums of money with his own works of art He does not know

Artist Marketing

If the art market contributes to create an artist’s success, and in many ways it is even the most quantifiable parameter of this success, it is useful to examine how marketing principles can provide explanations for more general questions like: why are some artists, of similar talent, more successful than others? Why are market valuations, and often criticisms too, so volatile and transitory? There is a belief that any product has a lifecycle, which includes birth, development, maturity and decline. Whatever the duration of the cycle, it runs through the various phases, which are represented by a curve divided into four stages: the first marks the introduction of the product onto the market and the promotional launch; the second stage designates the growth of the product on the market, i.e. when demand increasingly grows; the third stage is that of maturity, that is when demand reaches the maximum level, as it has saturated all the potential buyers; at this stage similar competitive products, that meet the same needs and offer the same advantages, enter the market (Kotler 1976) (Fig. 2.4).

If we apply this model to the art world, we see that it is perfectly suited to the succession of artistic movements. As acutely observed by Angela Vettese (1998), the last 50 years have seen a succession of primary movements lasting 10–15 years, and of secondary movements of about 2 or 3 years. One feature to underline is that the movements’ lifecycles are getting shorter: some are born and die within a couple of artistic seasons, as in the case of the Hyperrealism of the early 1970s, or of Pattern Art, which was fashionable at the end of that decade. But the model is always the same.

• The first phase (one or two years) regards the formation of a group of artists, usually grouped around an attractive central character who may be an artist, a critic, an art dealer; in this phase the group binds to an emerging gallery and tries to make itself known through exhibitions, autonomous publications, and small pieces in magazines.

• The second phase (two or three years) requires the intervention of very attentive critics, who organize an informal exhibition to illustrate the new style; attention from specialized journals usually arrives at this point.

• The third stage (from two to five years) is characterized by the emergence of many imitators, of artists who follow because they are still immature or lacking in inventiveness; auction houses begin to disseminate the works of art which,

2.5

Artist Marketing

Fig. 2.4 Artist life cycle stages (Source: Personal elaboration)

31 Visibility Demand cycle

Creativity cycle

Time Introduction

Growth

Maturity

Decline

duly supported by the promotional activity of the art dealers, reach record prices; books and catalogues are published; at this point of the lifecycle the artists are invited to participate in the most important regular and museum exhibitions, from the Biennale di Venezia to the Whitney Museum Biennial, from Documenta up to Manifesta; museums also begin to buy and compete in the creation of protagonists’ solo exhibitions.

• The fourth stage (which can also last many years) sees the decline of the trend with exhibitions in peripheral galleries and the conquest of a wider market.

Prices decrease, especially when it comes to secondary artists, and the works of art become more and more repetitive. The protagonists come into contact with major international galleries and the avant-garde press abandons the trend, which is in turn taken from more widespread and less specialized magazines (Vettese 1998).

But a product is not always destined to disappear. In fact, sometimes it can happen that after a certain period there is a revival and a new lifecycle begins; this can happen for a song, for a dress, or for a character in show business. One characteristic graph behaves like a phoenix, being characterized by two phases: after an initial success and a period of involvement, the artist is “retrieved” by the system, either because he had a second phase of creative fertility, or because taste and cultural trends have modified in his favour. In other cases artists enjoy a steadily growing cycle: this is the case of John Baldessari who since 2003 has had over 360 exhibitions worldwide and is present in 61 collections including that of the Tate in London, of the MoMA in New York, of the Los Angeles County Museum, of the MOMA in San Francisco and of the Museum of Contemporary Art in Sydney (Table 2.3). This is an artist whose contribution to art history is unquestionably original and capable of stimulating further developments. Then there are cases, like that of Mariko Mori, in which an artist’s visibility cycle can take on a different shape such as that of the meteor, which involves a rather quick ascent and an equally rapid fall. This is because the art system is characterized by a very strong innovative drive and every artist is susceptible to the critics’ and public’s enthusiasms, as well as being vulnerable to their equally abrupt disenchantments (Vettese 1998).

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Table 2.3 John Baldessari’s visibility in the world Region Central America South America North America East Asia West Asia Eastern Europe Northern Europe Southern Europe Western Europe Australia and New Zealand

Exhibitions (2004–2010) 3 3 136 5 1 3 27 45 135 3 361

Museums

Galleries

25

9

1 1 5 7 21 1 61

1 5 8 23

Source: Artfacts

References Besana, A. (2002). Economia della cultura. Milan: Led Edizioni.

Bondi, G., & Sitton, S. (2007). Non di sola arte. Viaggio in italia tra voci e numeri della giovane arte contemporanea. Turin: Edizioni Fondazione Giovanni Agnelli.

Brioschi, A. (2000). Comunicare il lusso. International Convention Le Tendenze del Marketing, Universita` Ca’ Foscari Venezia, 24 November.

Caves, R. (2000). Creative industries. Cambridge, MA: Harvard University Press.

Chartrand, H. (2000). Towards an American arts industry. In J. Cherbo & M. Wyszomirski (Eds.), The public life of the arts in America. Newark: Rutgers University Press.

Codignola, F. (2006). Economia globale, concorrenza e mercato dell’arte contemporanea.

Symphonya Emerging Issues in Management, 2, 22. Milan: University of Milan-Bicocca.

D’Harnoncourt, A., DiMaggio, P., Perry, M., & Wood, J. (1991). The museum and the public. In M. Feldstein (Ed.), The economics of art museums. Chicago: University of Chicago Press.

Goleman, D. (1997). Emotional intelligence. New York: Bantam Books.

Horvath, S. (1999). Economic modelling of creative behaviour. Society and Economy, 4, 1–11.

Ipso. (2008). L’arte contemporanea: l’opinione degli artisti partecipanti al premio Terna. Rome: Terna.

Kasser, T. (2000). Two versions of the American dream: Which goals and values make for a high quality of life? In E. Diener & D. Rahtz (Eds.), Advances in quality of life theory and research.

Dordrecht: Kluwer.

KEA European Affairs. (2007). The economy of culture in Europe. Brussels: European Community.

Kotler, P. (1976). Marketing management. London: Prentice-Hall.

Mastandrea, S., Bartoli, G., & Bove, G. (2007). Learning through ancient art and experiencing emotions with contemporary art: Comparing visits in two different museums. Empirical Studies of the Arts, 25(2), 173–191.

McAndrew, C. (2012). The international art market in 2011. Observations on the art trade over 25 years. Helvoirt: Tefaf.

McLean, F. (1995). A marketing revolution in museums. Journal of Marketing Management, 11, 611–616.

Pommerehne, W., & Granica, J. (1995). Perfect reproductions of works of art: Substitutes or heresy? Journal of Cultural Economics, 19(3), 237–249.

Porter, M. (1990). The competitive advantage of nations. New York: The Free Press.

References

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Sacco, P. (1998). La selezione dei giovani artisti nei mercati delle arti visive. In W. Santagata (Ed.), Economia dell’arte. Istituzioni e mercati dell’arte e della cultura. Turin: Utet.

Santagata, W. (1998). Simbolo e merce. I mercati dei giovani artisti e le istituzioni dell’arte contemporanea. Bologna: Il Mulino.

Santagata, W. (2004). I beni della creativita` tra arte contemporanea e moda. Working paper no. 2, Dipartimento di Economia. Turin: University of Turin.

Santagata, W. (Ed.). (2009). Libro bianco sulla creativita`. Per un modello italiano di sviluppo.

Milan: Universita` Bocconi Editore.

Throsby, D. (1994). The production and consumption of the arts: A view of cultural economics.

Journal of Economic Literature, 32(1), 1–29.

Throsby, D. (2001). Economics and culture. Cambridge: Cambridge University Press.

Trimarchi, M. (2004). I mercati dell’arte contemporanea: preferenze individuali, azione pubblica e strategie private. In M. De Luca (Ed.), Creazione contemporanea. Arte, societa` e territorio tra pubblico e privato. Rome: Sossella.

Vettese, A. (1998). Artisti si diventa. Rome: Carocci Editore.

Zorloni, A. (2005a). Structure of the contemporary art market and the profile of Italian artists.

International Journal of Arts Management, 8(1), 61–71.

Zorloni, A. (2005b). Il mercato dell’arte contemporanea. In M. Trimarchi & F. Severino (Eds.), Sette idee per la cultura. Milan: LabItalia, Edizioni Professionali Italia.

3

Contemporary Art Markets and Supporting Sectors

Maurizio Nannucci’s aphorism, ‘tutta l’arte e` stata contemporanea’ (‘all art was contemporary once’), underlines the fact that even the great masters of the past, from Giotto to Caravaggio, were once contemporary artists. Yet the concept of contemporary art is today among the most elusive. For some it starts from the end of the 1960s, for others in the post-WWII period. Some people define as contemporary the art created by living artists and some tend to use this term only for those born after 1945. Even Sotheby’s and Christie’s have different ideas on the subject. The same artists end up in Contemporary Art auctions for the former, and in Post-war and Contemporary art auctions for the latter.1 The concept of the market is much easier to define. The dictionary of twentieth-century art (Corgnati and Poli 2001) defines the contemporary art market as a complex system which is articulated at various levels (international, national, local) and structured around the system of private art galleries, representing the circuit of production, diffusion and sale of the artistic product. The contemporary art market is thus an aggregate of such size and complexity that it can be considered as a cluster of operators of varying value and importance, offering, for different purposes (with commercial or cultural goals) and in appropriate structures (galleries, auction houses, fairs, museums, foundations), luxury goods with a high symbolic content that are designed to satisfy an aesthetic and cultural need that the consumer expresses as an alternative use of his economic power. Contemporary art manifests itself in various modes (video art, painting, photography, sculpture, digital art, drawing, music, performance, installations) and includes everything that was produced from the 1960s to this day. On the basis of this definition, in this chapter we will analyze all the firms offering and promoting, for commercial purposes, works of contemporary art.

1

Source: Diez (2009).

A. Zorloni, The Economics of Contemporary Art, DOI 10.1007/978-3-642-32405-5_3, # Springer-Verlag Berlin Heidelberg 2013

35

36

3.1

3

Contemporary Art Markets and Supporting Sectors

The Offer of Works of Art and Market Segmentation

Every product has a value not in itself, but as a response to a particular set of needs.

The characteristics of the product, intended as meeting different types of needs – which may be material and limited only to physical attributes, or associated with the consumer’s psychological motivations and thus refer to the product’s intangible values – represent the starting point for any segmentation and positioning strategy.

An artistic product, be it a sculpture, a photograph, a painting or an installation, assumes for the collector a significance that goes beyond its aesthetic characteristics, and refers to the symbolic communicative contents that the consumer projects onto it at the moment of purchase and consumption. A painting often becomes a tool to communicate a way of being and living and, as such, is consumed through an act of symbolic interpretation. However, not all works of art can be considered cultural products and therefore as being highly symbolic in content; even within the contemporary art industry, there are products that satisfy needs more oriented towards physical attributes (works of art purchased in order to furnish a property), and products more geared towards meeting cultural and symbolic criteria. The art market is divided into segments which are often very distant from each other, to the extent that it is possible to talk about different markets and systems with little mutual interaction. Anyone buying a painting by Federico Guida, would most likely not be interested in a work by Jeff Koons and vice versa. Galleries mirror this segmentation because their goal is to reach a specific group of buyers: for instance, a gallery located in the centre of London caters to a wealthy, mature clientele, that focuses on well-established names. In contrast, a gallery that is located further out from the city-centre, and acts as the active promoter of a group of little known artists, will have a customer base unwilling to pay high amounts of money. Segmentation allows a gallery to position itself in a specific niche market and to create a product with a competitive advantage.

According to Kotler (1976), the success of a product or of a person, does not depend on chance or luck, but on appropriate positioning. This means not only physical positioning and the ability to keep in touch with the geographical centres of international contemporary art, but also the positioning of one’s offer relative to the market segment that can guarantee its success. There are galleries, for instance, that have special relationships with museums and institutions and therefore hold works of art that are not destined to enter homes, but public and corporate collections. A typical market segment which opened in the 1960s–1970s, but greatly developed during the 1980s, especially in the Netherlands, Germany, Switzerland, and France, is that of avant-garde museums. It is a sector that turns its attention to ‘difficult’ artistic endeavours, which by their nature produce works that are unsalable through the normal, private collector circuits, also and above all because of the large size of the spaces that these installations require. Consider for example Damien Hirst’s works of art, which often consist of large tanks of formaldehyde containing animal carcasses; compositions by Paul McCarthy, multimedia installations by Matthew Barney, but also production by artists of previous

3.1

The Offer of Works of Art and Market Segmentation

37

Table 3.1 The cradles of contemporary art 1950s France Italy

Nuclear movement

1960s Nouveau Re´alisme Arte Povera

1970s

U.S.

Transavantgarde Neopostmodernism

Visual poetry

Conceptual art Minimal art Fluxus

Pattern painting

Graffiti art

Postmodernism

Hyper-realism Land art

Neo Geo New abstraction

Video art

Pop art

Narrative art; Body art; Happening Conceptual photography Body art

Simulationism

New York photography Germany

UK

1990s–2000s Postmodern

Hypermannerism Nuova Figurazione Italiana Nuovi-Nuovi Postmodernism

Gruppo degli Nuova otto Figurazione Italiana Op art Azimuth Social realism Spatial art Action painting Neo-Dada Post painterly abstraction Hard edge painting

1980s Figuration libre

Pop art School of London

Neoexpressionism

Young British Artists (YBA) New British sculpture

Video art Dusseldorf school photography YBA Video art

Source: Personal elaboration

generations such as the great photographic and object installations by Christian Boltansky, or environmental works by Richard Long.

It is possible to segment the art market according to different criteria: by historical character (ancient art, modern art and contemporary art), by geographical character (international market, national market, local market), by distributive character (primary market and secondary market), by qualitative character (photography, sculpture, painting, video, etc.) or even by collectors’ purchasing capacity (low, medium, high-end). A segmentation model can be established with a matrix that takes into account two variables: the geographical area in which the artists worked and the historical period in which they developed their artistic research (Table 3.1).

38

3.2

3

Contemporary Art Markets and Supporting Sectors

Horizontal Segmentation: The Primary and Secondary Markets

The primary market is where works of art are presented to market for the first time and includes artists’ studios, galleries and contemporary art fairs. The primary market is the area in which the most important innovations in terms of artistic research are realized, and it is therefore marketing-intensive by nature, given galleries’ need for large investment in advertising and promoting young talents.

The exchange of works of art already present on the market constitutes the secondary market, in which, unlike the primary one, operators enjoy an informational advantage because they have at their disposal information on both artists and their market prices. This market is made up of auction houses, of courtiers, but also of all those galleries dealing with works of art by historic contemporary artists. A peculiar aspect of this market regards the presence of erratic and occasionally even anti-cyclical price patterns. But if the functioning of the primary market is characterized by uncertainty and price fluctuations which are difficult to explain, that of the secondary market appears close to more predictable modalities and confirms the role of more traditional economic factors such as variations in the number of agents, income effects and variations in macroeconomic context.

In addition to the official structures of the market, those of galleries and auction houses, the existence of a large sunken market, which is clearly present at all levels, should not be forgotten. The size of this market cannot be determined in a precise way because its turnover cannot be measured, even more than so than in the already quite mysterious case of the primary market. Especially at lower levels of the market, many artists, officially tied to one or more galleries, are prepared to sell their works of art privately, with the risk of inflating the market, damaging the interests of the art dealers who have invested in them and who may cease to be able to bear their prices. Major credit institutions are among the new subjects oriented to meet the earnings expectations of private collectors: these institutions, within the private banking division, have organized art advisory departments to provide a consultancy service to their wealthiest clients.

3.3

Vertical Segmentation

The contemporary art industry is horizontally differentiated into two sub-markets (the primary market and the secondary one), but it can be further segmented according to the quality of the products offered, to the geographic boundaries of the market, and to price range, and divided into four markets (Zorloni 2005).

3.3.1

The Classic Contemporary Market

The classic contemporary market is a global one, formed by living, but already historic, artists (precisely defined as the classics of contemporary art), whose works

3.3

Vertical Segmentation

39

Table 3.2 Market segmentation Budget Market Junk market

Very high (> 100,000)

Avant-Garde market

Maurizio Cattelan Jeff Koons Damien Hirst

Takashi Murakami Andreas Gursky

David Altmejd

Robert Gober

Bill Viola Yinka Shonibare

Barbara Kruger Thomas Demand Franz Ackermann Francesco Vezzoli James Rosenquist Richard Artschwager Sigmar Polke Jannis Kounellis Edward Ruscha Alighiero Boetti Louise Bourgeois Peter Halley Francesco Clemente Christian Boltanski Fabrizio Plessi

Classic contemporary Frank Stella market Gerhard Richter Close Chuck Bruce Nauman Robert Rauschenberg

Alternative market

High Low Very low (50,000–100,000) (25,000–50,000) (0–25,000) Teomondo Scrofalo Matthew Barney Ellen Gallagher Chris Ofili Anish Kapoor Vanessa Beecroft Gregory Crewdson Thomas Ruff Tony Oursler

Gordon Douglas Grayson Perry Julian Opie Shirin Neshat Jim Lambie Daniel Richter

John Baldessari Lucas Samaras Vito Acconci Giulio Paolini Nabuyoshi Araki

Federico Guida Maurizio Galimberti Matteo Basile` Francesca Galliani

Source: Personal elaboration on Artprice data

of art have widely circulated in the secondary market. This market includes that vast number of artists, quite different among themselves and belonging to different schools, who, being active since the late 1970s, have profoundly influenced the international contemporary art market and have now become superstars (e.g.

Michelangelo Pistoletto, Robert Rauschenberg, Bruce Nauman, John Baldessari, Gerhard Richter, Gilbert and George, Sigmar Polke) (Table 3.2). It is a concentrated market with high reputational entry barriers, controlled by a few dozen operators and characterized by a small number of large and powerful galleries, often organized as real commercial companies with a wide network of connections with other galleries, and in the most important cases with branches in other cities (e.g. Larry Gagosian in New York, London, Los Angeles, Paris, Athens,

40

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Contemporary Art Markets and Supporting Sectors

Table 3.3 America’s most powerful art dealers Art dealer Larry Gagosian David Zwirner Arne Glimcher Iwan Wirth Marian Goodman Matthew Marks Dominique Levy and Robert Mnuchin Paula Cooper Barbara Gladstone William Acquavella

Age 67 47 74 42 84 49 44 and 79

Name of the gallery Gagosian gallery David Zwirner The pace gallery Hauser and Wirth Marian Goodman gallery Matthew Marks gallery L&M arts

74 77 74

Paula Cooper gallery Gladstone gallery Acquavella galleries

Gallery locations 11 3 6 4 2 5 2 2 3 1

2011 revenues ($m) 925 225 450 225 150 100 275 100 100 400

Source: Forbes, May 21, 2012

Hong Kong and Rome, Marian Goodman in New York and Paris; Spru¨th Magers in London and Berlin; Hauser and Wirth in London, New York and Zurich).

These galleries usually operate on both the primary market and the secondary one and offer their works of art to wealthy clients (major collectors, banks, companies) and institutions (museums and foundations). Among the active players in this market is possible to mention Forbes’ ranking of America’s most powerful art dealers, which is based on a combination of 2011 revenue, and influence, as estimated by Linn|Press Art Advisory Services. Influence gauges dealers’ power to build artist’s careers and shape a market, plus the number and caliber of their collector clients (Table 3.3).

These galleries try to obtain control of artists’ production with exclusive agreements, at least for their national area. Even if a work of art by Gerhard Richter can easily cost several million Euros and historic works of art by Robert Rauschenberg are offered on average at about €1 million, it can be said that the investment in this market can give good satisfaction to those who have an average amount varying between €100,000 and €300,000 and intend to have a low degree of risk.

3.3.2

The Avant-Garde Market

The avant-garde market is formed by the most highly-rated artists, internationally managed by the most powerful and exclusive galleries, who are present at major international contemporary art fairs (Art Basel, Frieze Art Fair, ARCO, FIAC).

These artists are those who are invited to exhibit at major significant biennials; their active production dates back less than 20 years and their works are beginning to circulate in the secondary market (e.g. Grayson Perry, Chris Ofili, Ghada Amer,

3.3

Vertical Segmentation

41

Ellen Gallagher, Tacita Dean, Jim Lambie, Patricia Piccini, Angus Fairhurst, Assume Vivid Astro Focus, etc.). This market consists of all those artists who in the past decade have begun to attract the attention of the specialized press, thanks to their exhibitions, earning invitations from prestigious curators to international events of the calibre of the Venice Biennale, Manifesta, Documenta in Kassel, or winning major awards, like the Turner prize and the Hugo Boss prize. This market, albeit a niche one, has a strong commercial impact and very fierce public collecting; it can provide big gains but also losses. Those who decide to invest in this sector must therefore take into account a high degree of risk. The role of the art dealers focuses on the most important art centres like New York, London, Beijing and Hong Kong, and is of paramount importance in the first phase of discovery and valorization. This is an oligopolistic market controlled by a few dozen operators who are able to determine emerging trends and to make a stiff defence of prices, which can be very high even in the launch phase. It is possible to mention a few names among the active players in this market, in relation to the geographic extent they serve. Thus in New York: Pace Gallery, Larry Gagosian, Barbara Gladstone, Marian Goodman, Mary Boone, Sperone Westwater. In London: Lisson Gallery, White Cube, Gagosian, Victoria Miro Gallery, Sadie Coles HQ. In Italy among the galleries that are most attentive to the latest international trends let us recall Massimo De Carlo, Francesca Kaufmann, Studio Guenzani and Le Case d’Arte in Milan; Marco Noire, In Arco e Alberto Peola in Turin; Alfonso Artiaco and Lia Rumma in Naples; Massimo Minini in Brescia and Lipanjenipuni in Trieste; Larry Gagosian in Rome and Galleria Continua in San Giminiano.

3.3.3

The Alternative Market

The alternative market is a national market in which traditional or moderately modernizing artists operate, who are present at the major national contemporary art fairs (in Italy MiArt, Artissima, and Arte Fiera) and are invited to exhibit in public spaces. On one hand this means recognized artists, the key players of some already historic trends (e.g. artists of the Corrente movement such as Renato Guttuso, Ernesto Treccani, Bruno Cassinari, or of the Italian Pop Art such as Mario Schifano, Franco Angeli, Lucio Del Pezzo); and on the other, it means emerging young talents who express national cultural identity (e.g. Dany Vescovi, Federico Guida, Maurizio Galimberti, Matteo Basile`, Davide Nido, Roberto Coda Zabetta, Jonathan Guaitamacchi, Paola Pezzi, etc.).

This is a market segment that offers good possibilities and caters to a moderately innovative collector with relatively little money and good taste. Even in this field it is convenient to rely on the limited number of dealers who are specialized in new trends, who have been operating on the market for several years and have ongoing relationships with young artists. One way of identifying the core group of artists with the greatest chances of success is to observe whether a substantial number of

42

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Contemporary Art Markets and Supporting Sectors

Monopolistic power Market boundaries Price high, international high

C B

medium, national high

A

low, local competitive

artist of great fame auction houses and famous museums

young artist small collectors

Characteristics of operators

established artist national museum

Fig. 3.1 The expansion path of the contemporary art market (Source: Besana 2002)

art dealers tip them, whether the critics like them, and whether they are invited to public exhibitions. In this segment an investment ranging from â‚Ź5,000 to â‚Ź15,000 may be calculated according to author, year and size of work.

3.3.4

The Junk Market

The Junk market is the market segment that deals, locally, with the sale of paintings for interior decoration, in which commercial activity is absolutely prevalent over cultural activity. All these paintings, which are poorly differentiated, fulfil a decorative need and are addressed to interior designers interested in creating harmonious and liveable environments, belong to this segment. They are unbranded products, sold in malls, supermarkets, department stores, or even by the framers in the stalls on the streets for a few hundred dollars.

The expansion path of the market for works of art sees transition from a local and competitive market (minimum ability to set prices), dealing in the work of young non-established artists who rely on the small merchant or collector to resell their work, to the national market, which is imperfectly competitive (medium ability to set prices) and which offers works of art by an established artist to be bought and shown by larger-scale collectors (Fig. 3.1). The last phase of the expansion of the contemporary art market is the avant-garde artists’ international and monopolistic market. The offer alters as we move from A to C, from the local market to the national and international one, through dealers, courtiers and auction houses (Besana 2002).

3.4

Supporting Sectors and Economic Impact

Companies offering financial or legal consultancy and that can take care of shipping, insurance or marketing of the works of art operate to support the activities of artists, art dealers and auction houses. The art market generates significant

3.4

Supporting Sectors and Economic Impact

43

Advertising and Marketing

3.673,8

Art fairs

1.765,4

Conservation and restoration

1.114,3

Hospitality and travel

1.095

Insurance

1.103,3

IT

1.015,7

Packing and shipping

946,9

Professional fees

829,7 0

500

1000

1500

2000

2500

3000

3500

4000

Fig. 3.2 The indirect economic impact on the art market expense in million Euros by sector (Source: McAndrew 2012) Table 3.4 The indirect economic impact of the European art market Sector Advertising and marketing Art fairs Conservation and restoration Insurance Packing and shipping IT Hospitality and travel Professional fees Total

Revenue generated (m) €1,243.4 €597.5 €377.1 €373.4 €320.5 €343.8 €370.6 €280.8 €3,907.1

Corresponding workers 42,589 20,466 12,918 12,791 10,977 11,774 12,694 9,618 133,827

Source: McAndrew (2012)

indirect impacts, and the economic activities related to it can be divided into three categories: secondary activities (such as art advisory services, advertising, fairs, insurance of artworks, transportation, technologies), occupations generated by secondary services, and cultural tourism. The research conducted by Arts Economics for the Tefaf Fair in Maastricht has estimated that in 2011 around €11.5 billion were spent for secondary services in the field of art. The highest total expenditure was on advertising and marketing, at nearly €3.7 billion. Spending on art fairs, although only incurred by dealers, was the second largest area of expenditure in 2011 at nearly €1.8 billion. The following table estimates the economic impact globally generated for each of these activities (Fig. 3.2).

At a European level the indirect economic impact of the art market amounted to €3.9 billion and ancillary services created about 134,000 jobs (Table 3.4).

Another important way in which the art market generates positive externalities in the economic system is through the impact it has on the support of cultural

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tourism. Visitors of art fairs, auctions and other cultural events also tend to be among the tourists with the highest purchasing power.

3.4.1

The Publishing Industry

An analysis of the contemporary art market cannot be complete without a few remarks on publishing, one of the most important sectors in support of the broader visual arts sector, which includes all those publishing companies offering information on the art market. Among the magazines that deal with the avant-garde market, the leading magazine is the American Artforum. This is followed by Flash Art, which was founded in 1967 and is published and directed in Milan by Giancarlo Politi, the undisputed first mover in the field. Over 30 years it has developed a greatly appreciated formula that made it possible to add to the national edition also an international one, Flash Art International, which in turn has been able to earn itself a place among the most popular art magazines in the U.S. By virtue of its excellent international relations, since the late 1980s Flash Art has published Spanish and Russian editions and was the first art magazine to penetrate eastern markets (Vettese 1991). In this segment the Swiss quarterly Parkett, published in English and German, has found increasing acceptance. Its formula involves the publisher collaborating with an established artist for each number: artists like Enzo Cucchi, Sigmar Polke, Jannis Kounellis, Brice Marden, and Jeff Koons have produced limited edition multiples to support the costs of printing. Other important instruments for staying informed are the American Arts and the British Frieze, ArtReview, Contemporary and Art Monthly. Two American giants of the sector, which are of a journalistic rather than critical conception and which, being addressed to a wider audience, are therefore more populist namely Art in America and ARTnews. In Italy, in this category we have Arte, the historical review run by Giorgio Mondadori. There are also other magazines such as Juliet, published in Trieste, and specialized in youth art. Then there are editorial platforms, such as The Art Economist and The Art Newspaper, edited by Umberto Allemandi, which pay constant attention to the sector’s economic and financial trends, both by reporting auction results, and through a large space devoted to issues concerning the management, organization and promotion of artistic heritage. More mainstream newspapers such as The Financial Times, The New York Times and The Wall Street Journal are increasingly dedicating more space to their coverage of the art market, as are financial news agencies such as Bloomberg and Thomson Reuters. The increasing interest in art as an asset class has coincided with the increasing transparency and access to information offered by specialist information providers such as Artinfo, Artnet, Artprice, ArtTactic, ArtFacts and Artvalue. This availability of information has helped to increase public awareness and appreciation of art, making the market more democratic and open to all rather than it continuing to be

3.4

Supporting Sectors and Economic Impact

45

the exclusive domain of experts. This development had led to more interest, greater enthusiasm and ultimately a wider customer base.

3.4.2

Fairs

Art fairs were born in the late 1960s, but were developed in the 1970s, coinciding with the emergence of a mind-set that considers the work of art as a store of wealth.

They represent the most markedly commercial aspect of the art market, but they are also opportunities to weave relationships and expand one’s customer base. The advantage that the dealer gains by participating in a fair is the possibility of hundreds of people visiting one’s stand, many more than those who normally attend galleries. The audience, on the other hand, gets a chance to see in a few hours what many galleries from different parts of the world are offering, comparing prices and updating on the latest trends. The fair is the place that better than any other reflects the latest fads and trends; and since everyone goes there to sell, no one is interested in exhibiting works that are unsalable at that moment. The balance between an abundant supply and a prestige presentation is a dilemma that arises for each artist presenting his work at the fair. That is why the wisest artists dose their presence not only in the number of artworks on display, but also in relation to the prestige of the galleries exhibiting at the fair. The fair mirrors not only the artists’ success, but also the quality of the national markets, their degree of development, the emergence of new trends and not least the amount of money circulating in the art world. There are at least 30 important fairs, capable of providing real opportunities for sales and visibility at an international level. The most important ones, such as Art Basel and Art Basel Miami, Armory Show in New York, Frieze in London, and Arco in Madrid, have become unmissable cultural events for industry players, enthusiasts and onlookers. Following these, in order of importance and prestige, we can note FIAC in Paris, Art Brussels, Art Cologne, Art Forum in Berlin and the fairs in Bologna (Arte Fiera), Milan (MiArt) and Turin (Artissima). Set up on the model of the French ‘Salon des Refuse´s’, there are also other complementary fairs, events dedicated to youth art that take often place in informal locations such as hotels, and are held in conjunction with the most prestigious fairs. Among these we can recall Liste in Basel, Pulse in Miami, the Art Show and Independent in New York and Scope, which is held annually in London, Miami, New York and Basel. Fairs have also become a strategically-important promotion tool to attract economic resources to cultural niches on the fringes of the international circuit. Examples are Art Moscow, Zona Maco in Mexico City, Art Athina, CIGE Beijing, Art Fair Tokyo and others founded in the last 5 years. It is estimated that the 10 most important fairs in the world together attract about 600,000 visitors per year, with a decidedly bullish trend. And the figures tell us the following: 30,000 visitors for MiArt in Milan, 31,000 for Arte Fiera in Bologna, 40,000 for Art Forum in Berlin, 47,000 for Artissima and Art Basel Miami, 60,000 for Art Cologne and Frieze, 65,000 for the Armory Show and Art Basel; and whilst FIAC in Paris numbers 85,000, Arco in Madrid is a major cultural event, with 150,000 visitors. Contemporary art has therefore chosen the fair as the most appropriate institution to represent itself,

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Contemporary Art Markets and Supporting Sectors

Table 3.5 Fairs and visitors Fair MiArt Arte Fiera Art Forum Artissima Art Basel Miami Art Cologne Frieze Armory Show Art Basel Fiac Arco

City Milan Bologna Berlin Turin Miami Cologne London New York Basel Paris Madrid

Visitors (2011) 30,000 31,000 40,000 47,000 47,000 60,000 60,000 65,000 65,000 85,000 150,000

Source: Interviews

even from a commercial standpoint, and has effectively replaced the traditional periodic exhibitions (e.g. the Venice Biennale, Documenta in Kassel, Manifesta) in the task of exploring, selecting, and presenting new expressions of creativity to a wide audience. In fact, if we consider that Manifesta, the European Biennial of Contemporary Art, requires 4 months to mobilize 100,866 visitors, it is now possible to compare the contemporary art fairs, in terms of turnouts, with major sporting events (Tables 3.5 and 3.6).2 Modern fairs no longer have New York, Basel, Paris and Madrid as reference points, but instead prefer to offer innovative formulas, hyper-specialization and the identification of new targets. Accreditation within the international circuit passes through the support of sponsors (big companies, especially strong banking groups) but the quality of each initiative lies in the authoritativeness and prestige of the selecting committee. In fact, if we consider that only 34 % of applicants succeed in entering at Frieze (i.e. 170 galleries out of 500), and fewer than 30 % at Art Basel (300 from more than 1,000), we understand how, for an operator in the sector, being able to join one or more organizational committees plays a crucial role in marketing strategies and therefore demonstrates belonging to a cultural elite. Regarding the costs, the average registration fee to attend a fair ranges from a minimum of €300 to a maximum of €2,000, and is returned (with the exception of the Armory Show) if the galleries are not selected; as for the stands, the prices range from just over €200–€500 per square meter, excluding VAT, to which is added the cost of transport, which is between €2,000 and €6,000. If you then add travel, meals and lodging for the art dealer, the staff, and some artists, it is not surprising that the average cost of a fair easily exceeds €25,000, which, multiplied by five to ten fairs per year, makes investment in promotion consistently high (Table 3.7).

2 Manifesta is the visual arts exhibition that takes place every 2 years in a different location.

Founded in Rotterdam in 1996, has its centre of operations in Amsterdam.

3.4

Supporting Sectors and Economic Impact

47

Table 3.6 Visitors of Manifesta in its nine editions Edition Manifesta 1 Manifesta 2 Manifesta 3 Manifesta 4 Manifesta 5 Manifesta 6 Manifesta 7 Manifesta 8 Manifesta 9

Year 1996 1998 2000 2002 2004 2006 2008 2010 2012

City Rotterdam, The Netherlands Luxembourg Ljubljana, Slovenia Frankfurt/Main, Germany Donostia/San Sebastian, Spain Nicosia, Cyprus Trentino – South Tyrol, Italy Murcia, Spain Limburg, Belgium

Visitors 35,000 28,000 21,000 23,000 18,000 Cancelled 108,000 110,000 100,866

Source: Manifesta

3.4.3

Art Advisory and the Services Offered

The art advisor is the consultant expert on art, usually operating within an art banking structure. In addition to specific competence in the field of art history and critique, the art advisor knows the rules of the international market and the prices of the artistic goods and is able to best advise his client, both in the case of artistic heritage valuations, when buying and selling works of art, and regarding all the issues attached to the good management of a collection. The services offered in general terms by all art advisory companies, are: • Assessments and estimates: the estimate of market value constitutes the basis for the sale or purchase of a work of art. Expert advice is of primary importance for a correct evaluation of the works of art and for their correct placement on the market; • Expertise: the historical and critical analysis of a work of art and its context is necessary for an exact attribution of its value, considering the key variables such as provenance and state of preservation; • Sale and purchase: the relationship between quality and price is a determining factor when buying a work of art. Experts make their knowledge available to customers, whether when searching for one or more specific works of art, or regarding the various phases of sale or purchase; • Insurance appraisals: special items require a special insurance policy and, above a certain threshold, it becomes necessary to insure individual works of art. The policy must provide the certainties that only competent advice can guarantee.

The valuations given by experts are accepted and recognized by the major European insurance companies; • Inventories and cataloguing: these operations are carried out with the most modern digital equipment, which allows proper management and continuous updating of data concerning each individual work of art of a collection;

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Contemporary Art Markets and Supporting Sectors

Table 3.7 Art fair costs Fair Frieze, London Art Basel, Basel MiArt, Milan Artissima, Turin Arte Fiera, Bologna Arco, Madrid Fiac, Paris

Application fee £265 500 CH €1,800 €2,000 €1,000 €300 €450

Cost per square meter £320 590 CH €215 €220 €240 €260 €465

Source: Interviews

• Management and valorization: advice for forming a new collection or for coherently improving and expanding an already existing heritage. Significant works of art in a collection can be increased in value through specialized publications, participation in exhibitions and by the certificate of authenticity being issued; • Tax and legal advice: consultancy to identify all the possible solutions related to fiscal, legal and taxation aspects, both in terms of investment for establishing foundations or for awarding a collection in trust; • Property divisions: in the case of hereditary successions, an assistance service aimed at better managing the division of the artistic heritage is provided, from evaluating works of art to legal and taxation matters; • Conservation and restoration: state of conservation is a key element in determining the value of a work of art. An expert can determine if a restoration is needed, to what extent, how it should be carried out, or whether it is better not to intervene.

The benefits to banks from a service of this type can be manifold: retention of private clients, developing a competitive advantage over competitors by offering a professional service, reaching a new type of clientele through ad hoc and diversified investment solutions. Art banking was born in New York in the early 1980s as an exclusive service for high-end customers (so-called high net worth individuals). At that time the international art market was in resounding ascent and investing in this sector became an educated way of diversifying one’s portfolio. Too much euphoria, however, brought along the speculative bubble of 1989–1990 and the subsequent collapse of the values of art (Dimichino 2009). During the 1990s values have stabilized often reflecting, with one year’s delay, trends in world stock markets indexes. Today, the major international credit institutions from Paribas to Deutsche Bank, from Schroder to Citibank, and up to the major investment banks, have internally structured a department of art advisory for high-end customers with a portfolio of over €500,000. In response to the significant growth of global interest in art as an investment, industry associations have been established in the United States in order to promote a greater understanding of art as an asset class by encouraging transparency, best practices and knowledge-sharing. The first one to set up was the Association of Professional Art Advisors in 1980 and recently the Art

3.5

Structural Features of the Market

49

Fund Association and the Art Investment Council have been established in New York. Art banking certainly impacts in a still restricted way on the overall turnover of art, hitting an elite circle of customers that almost prefer to consider it an intellectual choice rather than a financial investment. What is certain is that banks, providing clients with the opportunity to buy works of art, also give art banking an important role as patron and talent scout, increasingly reinforcing their image of leaders in the field of contemporary art.

3.5

Structural Features of the Market

The arts sector presents itself as a fragmented industry with many small organizations, but, unlike the industrial sector, it does not provide any possibility of concentration. In fact, when considering the specific field of contemporary art, there are no barriers to entry (opening a gallery does not require an initial investment as high as that necessary to start up an industrial company), and, given the nature of the product, economies of scale cannot be implemented. In this sector organizations should seek a competitive advantage which can aid their emergence, for instance by building a positive reputation. The contemporary art sector is structured in segments which are often very distant from one another, so much so that it is possible to speak of different markets and systems with little mutual interaction. From an economic standpoint it is possible to speak of markets endowed with a proper specificity in that the conditions for supply of the traded goods are different, show a different propensity to risk and speculative activities, and have particular problems regarding information asymmetry. With regard to the conditions underpinning the offer, it is possible to observe that the latter is rigid, i.e. non-expandable and scarce in the classic contemporary market; rigid for purely strategic reasons, but more substantial in the avant-garde market; in continuous expansion even if affected by oligopolistic systems in the alternative market; and fuelled by an almost competitive offer in the junk market. In particular, in the case of the avant-garde market and to a lesser extent in the alternative one there is an attempt to restrain the offer in order to monopolistically exploit the market.

Minimality is therefore a feature of the contemporary art market; every movement has a few artists, a few big collectors, a few art dealers, a very few works of art in circulation with extremely high prices, with the possibility to sell the stocks accumulated and in the meantime valued at very high prices.

The second distinguishing feature of the markets for visual arts regards speculative activities. The most up-to-date economic studies set the rate of annual return on an investment in works of art, net of inflation, between 0.6 % (Baumol 1986) and 1.4 % (Frey and Pommerehne 1989), up to 3.9 % calculated by Candela and Scorcu (1997), and even 8.3 % according to Czujack (1997). As can easily be guessed, speculative activities are less relevant in the classic contemporary market, where quotations are generally more stable and a source of lower earnings, but have a large importance in the avant-garde market. After all, the demand for works of art belonging to these two market segments is often fuelled by mere speculative

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expectations rather than by expectation of aesthetic enjoyment. Risk tolerance must therefore be very high because the chances of revaluation of the capital invested are associated with often unpredictable elements such as the credit that critics might place on the work of art of a particular artist in the future and the role played by the latter in the general context of art history.

Regarding the third distinctive feature of the different market segments, namely the problem of asymmetry of information, attention should be given both to the relationships linking the art dealer with the artist, and to those between the art dealer and the collector. In the first case, the artists have to convince dealers to invest in their works of art and their career by giving out strong signals. The most appreciated signals are continuity in the work, regularity in the management of the supply of art works, pricing policy practiced in the studio and constancy of presence in the national and international circuit of exhibitions. Other problems around the asymmetry of information arise after the signing of contracts between artist and art dealer. A typical contract is one that guarantees the artist a fixed salary in return for exclusive acquisition of all his artworks. In this case the merchant is unable to control the artist’s commitment during the contract period, also because the contractual terms that determine the minimum amount of artworks to be delivered each year cannot cover their quality level. On the other hand, if the contract is a short-term one, the dealer is not incentivized to promote the artist, because he risks looking after the latter’s image, investing time and money, without then being able to enjoy the fruits of these investments. In the classic contemporary segment the problems around asymmetry of information concerning the link between art dealer and collector are of particular significance. The guarantee of the artwork’s authenticity becomes the feature that defines this segment. Only the merchant, as an expert, knows the origin of the work and is able to place the artist and his poetic and aesthetic contribution within the hierarchy of artistic values, to which the hierarchy of prices then corresponds in turn. In this segment, the informative power of the art dealer is huge and only his reputation allows the consumer to trust him.

3.6

Problems around Asymmetry of Information

One of the economic features characterizing the exchange of artistic goods is that they are ‘information goods’. This entails enormous difficulties in evaluating the quality of the object, especially for those consumers who do not have sensitivity or historical-artistic skills and as a result it determines a high asymmetry of information between buyers and sellers. This situation is exacerbated by the large sums demanded by the most sought-after artists and derives from the fact that the works of art are unique goods, and thus enjoy a situation of natural scarcity. Therefore, exchanges made in the contemporary art markets are characterized by the presence of high transaction costs, because it is necessary a variety of information before making a purchase (Trimarchi 2004): first one must consider the information content of the product itself, which is subject to assessment and appreciation by

3.6

Problems around Asymmetry of Information

51

the potential buyers; moreover a series of critical pieces of information, which constitute true and proper evaluations and which significantly affect the trend of the art market, are also added to those pertaining to the work of art itself; finally, one must also consider purely economic information relating to the artist’s reputation and to its trend over time. In order to take their decisions, agents operating in the system must rely on information characterized by a high degree of subjectivity, whose reliability is directly proportional to the reputational capital of the source from which they originate. Contemporary art markets thus seem to be considerably distant from the possibility of an optimal balance, since the same distribution of information, and the influence it exerts on their overall structure, configures them as a cascade of transactions with a high degree of monopoly or monopsony (Trimarchi 2004).

3.6.1

Price as Indicator of Quality in the Contemporary Art Market

In many transactions, the potential buyer does not have the cognitive capacity and the stock of necessary information to evaluate the qualitative characteristics of a good. This information asymmetry is typical of the contemporary art market, where the product traded is configured as a trust good, whose quality is not assessable by the buyer neither before nor after purchase due to lack of technical and cultural knowledge, which is available only to a specialist (for instance, a critic). In all these situations that are characterized by incomplete and asymmetrical information, the collector can form rational expectations about the quality of the work of art that is offered to him by using price as substitute information. This is because price is a signal of scarcity and value for goods and services. Economic theory shows that in highly competitive markets, higher-quality goods have higher average and marginal costs than those of lesser quality and are thus sold at higher prices. In these situations, prices depend on quality, and can therefore be taken as signals of the same. It is interesting to note the implications of the fact that in the absence of direct information a potential collector forms his expectations about the quality of a work of art according to its price.

In this case his behaviour can be rationally inconsistent with the law of demand and justify a decrease in the quantity demanded, in reaction to the reduction of its price. Economic theory, thanks to Joseph Stiglitz (1987), came to the general conclusion that the law of demand has no rational foundation when buyers evaluate the quality of a good from its price. Consider, for instance, a potential collector, and assume that, due to lack of information, he estimates the quality of the work of art on the basis of its price. The relationship between the expected average quality of the work of art and its price can be expressed by the demand curve represented in Fig. 3.3.

If buyers infer quality from price, the market demand has a section (P1B) that grows in correspondence with the dominance of the quality effect over the convenience effect. For price levels <Pe â&#x20AC;&#x201C; as P1 â&#x20AC;&#x201C; the market tends to increase the price both because there is an excess of quantity demanded in relation to the quantity

52 Fig. 3.3 The use of price as a signal of quality (Source: Ricciardi and Gambaro 1997)

3

Contemporary Art Markets and Supporting Sectors P S P3

D

B

P2 P0

PE

P1

Q

supplied, and because an increase in price is convenient for buyers and sellers. The demand curve indicates that the collector assesses as maximum the expected average quality of the work of art corresponding to the price P2 and that price reductions up to P2 are accompanied by an increase in the price-quality ratio, while price falls below P2 are accompanied by reductions of the same ratio. If we assume that the potential collector is oriented towards obtaining the best quality-price ratio, his individual demand has the particular and anomalous trend represented in Fig. 3.3. The decrease in price induces the collector to increase the quantity demanded only for price levels higher than P2, which correspond to the maximum quality-price ratio. For prices lower than P2, the decrease in price induces the collector to reduce the quantity demanded as the decrease of the quality-price ratio causes the quality of the work of art to be reduced, which prevails over the positive convenience effect. From this simple model it is possible to deduce that when the buyer infers his assessments about the quality of a good from price, each variation in price causes two effects: the convenience effect and the quality effect.

The significant conclusion stemming from this model (adapted from the original one by Stiglitz) is that if a collector infers from price his assessment of the quality of a work of art, his behavior as a buyer can induce him to violate the law of demand.

This means that he decides, in case of a reduction of the price, to reduce the quantity demanded, as the expected loss of quality is not compensated by greater motivation to purchase. At this point it is possible to analyze the consequences that these anomalous collector behaviors have on the contemporary art market. A first possible consequence is that the evaluation of the quality of the work of art through price may prevent the process of adjustment between supply and demand operating as mechanism balancing the market. It may, indeed, happen that given an excess of quantity supplied, over quantity demanded, art dealers do not find it worthwhile to propose or pursue a reduction in price because they know that this reduction could result in a further decrease in the quantity demanded. Consider the situation shown in Fig. 3.3. If the market is initially in a state of imbalance, with an excess of quantity supplied over the quantity demanded â&#x20AC;&#x201C; in correspondence with the price P3 â&#x20AC;&#x201C; there is a motivation for art dealers to reduce prices because they expect an increase in quantity demanded. A reduction in price, indeed, implies an increase in the quality-price ratio. However, price P2 has been reached, dealers no longer have any motivation to further reduce prices, and this continues up to the possible

3.7

Signalling

Fig. 3.4 Special cases of equilibrium rationing or stable disequilibrium (Source: Ricciardi and Gambaro 1997)

53 P S D

Qd,s P S D

Qd,s

equilibrium price Pe. In fact, they foresee that with a reduction of the price below P2, potential collectors would react by reducing the quantity demanded. Any reduction in price, starting from P2, implies the assessment of a deteriorating quality of the artwork superior to the price reduction, and therefore a lower quality-price ratio. The market is thus found in a state of stable disequilibrium, which Stiglitz called equilibrium rationing. To complete the arguments made by Stiglitz, Ricciardi (1997) notes that in the assumed conditions of imperfect information and association of price and quality, the anomalous demand behaviour may entirely preclude the possibility of a stable equilibrium or disequilibrium. This configuration is represented in Fig. 3.4. In the first case, anomalous demand behaviour prevents any equilibrium being achieved; at that point the market is in stable disequilibrium.

In the second case, the functioning of the market is more articulated because there are two possible equilibrium situations.

3.7

Signalling

Communication, understood as signalling activity, is specifically determined by the existence of information asymmetries and stems from the initiative of the most informed party who tends to reveal the best or the most substantial piece of information in its possession (Ricciardi and Gambaro 1997). An agent that has an information advantage may in fact find himself in the situation of having to inform other agents in order to benefit from it. Think for instance of the relationship between an artist who is aware of being more creative and innovative than others in his artistic research, and his potential stakeholders (art dealers, critics, curators) who do not have enough information to assess what creativity he truly possesses. A similar situation occurs in the relationship between a dealer who promotes on the

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market artists of superior quality compared to their competitors, and potential collectors who are unable to appreciate the artistic research, and thus the quality of the work, due to lack of information.

In both cases, the better informed agent (the more creative artist, the avant-garde art dealer) may benefit by communicating the private information at his disposal to the less informed agent (the art dealer in the first case and the potential collector in the second).

The fundamental problem in this situation is deciding how and what to communicate and above all how to be credible in doing so. The economic theory of signalling proposes two fundamental principles that are aimed at assessing the credibility of a signal. The first tells us that actions mean and communicate more than words. Therefore, a signal is effective if is made not only of statements but is complemented by actions and behaviours attesting its truthfulness. An art dealer declaring the quality of one of his artists is not credible per se, even if he is being truthful. He becomes credible if he shows that the artist in question has won an important prize (e.g. the Turner Prize), has received critical acclaim (expressed by the number of reviews published in specialized magazines) or has exhibited in major museums and cultural institutions worldwide. The second principle that determines the credibility of an action states that the latter must be expensive in an irrecoverable and asymmetrical, as well as irrevocable and visible way for the person who performs it. If the signalling of a character or behaviour was not irretrievably expensive, any agents could carry it out and subsequently, regardless of the truthfulness of the information sent, recover any costs incurred once the desired effect had been achieved. If organizing an exhibition at the Guggenheim in New York were not an expensive action (both in economic and political terms), every dealer would have the same motivation to spend time and energy trying to organize it. Moreover, for the signal of quality to be credible, it is necessary that the cost incurred be greater than it would be for a gallery promoting an already established artist. This means that given equal conditions, organizing an exhibition in a major museum like the Guggenheim is a more costly action for an emerging artist, whose quality is still uncertain, compared to an already established one that already possesses some relational capital. There are also certain actions, such as realizing a prestigious exhibition space, that partially possess the characteristics of strong signals and thus prove to be partially credible. Apart from organizing an exhibition, the construction of a positive reputation and the quality certification by an independent authority are actions that demonstrate all the features defined above and play the role of strong signals. â&#x20AC;˘ Reputation: an art dealer or an artist with a good reputation can rely on it in order to indicate that his products are of high quality. If a collector makes repeated purchases, the art dealer has a significant incentive to build a positive reputation.

The signals that are most valued by the market are continuity in the work, regularity in the management of the supply of artworks, constant presence on national and international exhibition circuits and pricing policy. Indeed, unlike in other markets, it is impossible to think to a policy of reduction of prices, that would aim to increase demand. As we showed in the previous section, the

3.7

Signalling

55

reduction of prices is understood to signal deterioration in product quality, and can lead to a decrease in demand and a tendency towards the liquidation of the works of art possessed.

• Experts: a third party, who is disinterested regarding the contractual relationship but an expert in the sector (a critic or a curator) may be able to provide potential collectors with information regarding the quality of the product. For example, being asked by a prestigious curator to attend the Venice Biennale, Manifesta or Documenta in Kassel, represents, from an artist’s perspective, one of the most important signalling tools; this is because for a long time the most innovative artists and the most cutting-edge research were launched in these contexts and participating in one of these events – historically the Venice Biennale – sanctioned one’s entry into a higher circle of the art world. In fact, at least for the post-WWII period, almost all the artists who have won a major award in Venice have considerably increased the value of their works of art: from Hartung and Fautrier in 1962 to Rauschenberg in 1964, and from Lucio Fontana in 1966 to Jasper Johns in 1988.

• Standards and certifications: institutions, consumer associations and other bodies can provide information to potential collectors in the form of standards and certifications. A standard is a measure for assessing the quality of a particular product, while certification is a report that proves that a particular product meets or exceeds a certain level of a quality standard (Carlton and Perlof 2000). For example, belonging to the Association of Professional Art Advisors can serve as a guarantee capable of signalling the quality of the services offered to potential clients. In addition to the verdicts of the critics, of the art dealers and the membership of professional associations, the certification of artistic quality occurs also through attending certain colleges or through prizes and awards.3 Internationally-famous awards such as the Hugo Boss, the Turner Prize, or the Cartier Award, and others of lesser importance as the Baloise Art Prize or the Duchamp Prize,4 assess artistic merit; the same prizes signal the quality of the artworks to collectors, including the assignment of a monetary advantage.

3 Among the most prestigious schools in the international arena, we recall: School of the Museum of Fine Arts; California Institute of the Arts; Cooper Union; Glasgow School of Art; Goldsmiths’ College; Hunter College; Maryland Institute College of Art; Kansas City Art Institute; Parsons School of Design; Rhode Island School of Design; Pratt Institute; the Cranbrook Academy of Art; Royal College of Art; San Francisco Art Institute; School of the Art Institute of Chicago; School of Visual Arts.

4 The Duchamp is organized each year by ADIAF, the Association pour la Diffusion de l’Art International Franc¸ais, with a value of €35,000, reserved for French artists. http://www.prixmarcel-duchamp.com/

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3.7.1

3

Contemporary Art Markets and Supporting Sectors

Certification of Quality through Awards: Turner Prize and Hugo Boss

Introduced in 1984, the Turner Prize was the first prize with the declared objective of promoting knowledge of contemporary art. It has defined a format and acquired a reputation advantage comparable to that of the Oscar in the film industry, of the Polar Music Prize in the music field and the Nobel in the scientific field.5 Annually organized by the Tate Gallery in London, under the supervision of Nicolas Serota, director of the Tate, the Turner Prize is an award worth £25,000 and is specifically dedicated to British artists who have significantly contributed to British contemporary art and have exhibited their works in a museum or a gallery of international importance in the last 12 months. Sponsored by the Channel 4 television network, which broadcasts the event in prime time, and supported by powerful authorities in the field of contemporary art, such as Saatchi, Christie’s, White Cube, Lisson, Anthony d’Offay and Victoria Miro, the Turner Prize in 26 years has launched several generations of British artists, from Tony Cragg and Anish Kapoor to Damien Hirst and Chris Ofili (Table 3.8).

Remaining within the British borders the value of the prizes is the same: both the John Moores of the Walker Gallery in Liverpool and the BP Portrait Award of the National Gallery in London offer £25,000 in prize money. More recent is the biennial Vincent award of the Stedelijk Museum in Amsterdam, worth €50,000, which from 2000 to 2008 has been awarded to some of the names that are most cherished by cultured and refined collectors, such as Eija Liisa Astila, Neo Rauch, Pawel Althamer and Francis Aly¨s. Organized by the Guggenheim in New York, the Hugo Boss Prize has been an institution in the artistic field for 14 years and has presented established and emerging artists, selecting them without restriction of age, sex, nationality or medium, from those who have actively redefined the parameters of contemporary cultural production; in this way it has helped to expand the boundaries of visual arts. Conceived by Thomas Krens and sponsored to the tune of $100,000 by the famous men’s fashion house, the Hugo Boss Prize has presented, in its 10 editions, production by artists from all over the world, certifying the triumphal entry of Asian artists into the tastes of American and European collectors. The average age of the participants, 39 years old, is quite low, given that all the artists before appearing as finalists had already been involved in exhibitions at major venues. Douglas Gordon, to whom went the $100,000 for his victory in 1998 at the age of 33, had already won the Turner Prize in 1996, and received an award at the Venice Biennale the following year. When Maurizio Cattelan was chosen among the finalists in the edition of 2000, he already had, among other things, participated in the Venice Biennale three times and had a solo

5 The Polar is a prize of €110,000, annually organized by the Royal Swedish Academy of Music and which has rewarded artists of the calibre of Paul Simon (2012), Patti Smith (2011), Bjo¨rk (2010), Pink Floyd (2008), Gilberto Gil (2005), Keith Jarrett (2003), Stevie Wonder (1999), Ray Charles (1998), Elton John (1995), Quincy Jones (1994).

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Table 3.8 Winners of the Turner prize Year 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Winning artists Malcolm Morley Howard Hodgkin Gilbert and George Richard Deacon Tony Cragg Richard Long Suspended award Anish Kapoor Grenville Davey Rachel Whiteread Antony Gormley Damien Hirst Douglas Gordon Gillian Wearing Chris Ofili Steve McQueen Wolfgang Tillmans Martin Creed Keith Tyson Grayson Perry Jeremy Deller Simon Starling Tomma Abts Mark Wallinger Mark Leckey Richard Wright Susan Philipsz Martin Boyce Elizabeth Price

Source: Tate

show at Castello di Rivoli. And if Olafur Eliasson, Pierre Huyghe (winner in 2002), Pipilotti Rist, and Lorna Simpson, all aged between 35 and 40 years old when they took part in the Hugo Boss, had already exhibited their works of art in museums like the Art Institute, the Moca in Chicago, the Muse´e dâ&#x20AC;&#x2122;Art Moderne and the Centre Pompidou in Paris and the Kunsthalle in Vienna, Matthew Barney, who won the first edition of the award in 1996 at only 29 years of age, had already exhibited at the Venice Biennale, Documenta in Kassel, the Boijmans van Beuningen in Rotterdam, the Tate in London and had staged a solo show at MOMA in San Francisco.

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3.8

3

Contemporary Art Markets and Supporting Sectors

Organization Size and Structure of the Primary Market

The contemporary art market falls into two segments: primary and secondary. The primary one is where private collectors or dealers buy works of art directly from the artist or other private individuals, whilst on the secondary market the exchange takes place between individuals via the intermediary of the auction house. Each of these markets presents different characteristics, and in general, passing from the primary to the secondary market, both the reputation of the artist and the economic value of the artwork increase.

Art Economics estimates that the art marked is composed of over 400,000 businesses (380,100 galleries and advisors, and 23,000 auction houses) which directly employ nearly 2 million people, generating a significant turnover. Specifically, the EU ranks first with 71,750 businesses (including 3,750 auction houses and 68,000 galleries) employing a total of nearly 330,000 people. Second place belongs to the U.S. with 346,740 employees in 71,260 firms, followed by China with 42,365 businesses employing around 231,360 people (Table 3.9).

The primary market is worth €23 billion (approximately 50 % of the global art market) and is highly fragmented with thousands of galleries worldwide, but it is concentrated at the top end of the market in term of value. The top 5 % of the market accounts for as much as 70 % of gross sales in the sector in 2011. Depending on the specialization (photography, installations, painting, sculpture, video) it is possible to distinguish galleries that privilege certain artistic tendencies (e.g. Arte Povera, YBA, Conceptualism, Neopop), galleries that bet only on young artists, and galleries exclusively oriented towards the best-known contemporary artists. There remains a basic distinction, however, between galleries that promote and launch emerging young artists and those specializing in already well-established ones.

Since galleries tend to specialize in a specific sector, many dealers pursue an international strategy. According to the survey conducted in 2010 by Arts Economics on behalf of CINOA (Confe´de´ration Internationale des Ne´gociants en Oeuvres d’Art) on a sample of about 5,250 dealers from the U.S. and Europe, an average dealer manages 72 % of sales locally and 28 % elsewhere. These percentages vary according to the country with a prevalence of local sales in Italy (86 %), the U.S. (81 %) and Germany (80 %) and a trend towards a greater incidence of foreign sales in the United Kingdom (38 %) and in France (48 %). For French and English art dealers, the largest target markets in 2010 were the U.S., Europe and the Asian markets. In recent years, merchants have expanded the channels through which they sell their works. Although the gallery has remained the most common sale channel, a trend that emerges from the research is the decline of the retail sale. Many reasons are provided to explain this change, including prohibitive rental costs, the fact that increasingly fewer people visit galleries and the increasing tendency of the market to be ‘event-driven’ and thus focused on events such as art fairs (McAndrew 2011b).

Figure 3.5 reveals that according to the survey, 43 % of the turnover is generated from sales made through galleries, 31 % comes from sales made through art fairs, whether local or international, and the rest from private sales (10 %), auction (6 %) and over the internet (10 %).

3.8

Organization Size and Structure of the Primary Market

59

Table 3.9 Estimated number of businesses and employees in the art market, 2011 Country Austria Belgium Denmark France Germany Ireland Italy Netherlands Spain Sweden United Kingdom EU total Switzerland Usa China Total estimate

No. of businesses Auction houses Galleries 35 2,250 135 3,500 55 1,500 450 12,000 110 4,500 35 800 250 7,500 150 3,950 125 3,550 35 1,350 1,195 8,000 3,750 68,000 70 2,500 3,760 67,500 365 42,000 23,000 380,100

Total 2,285 3,635 1,555 12,450 4,610 835 7,750 4,100 3,675 1,385 9,195 71,750 2,570 71,260 42,365 403,100

No. of employees Auction houses Galleries 840 7,875 3,240 12,600 1,320 5,250 10,800 36,000 2,640 21,150 840 2,800 6,000 18,750 3,600 15,405 3,000 12,425 840 2,970 28,680 36,800 90,000 239,940 1,680 11,000 90,240 256,500 8,760 222,600 552,000 1,460,395

Total 8,715 15,840 6,570 46,800 23,790 3,640 24,750 19,005 15,425 3,810 65,480 329,940 12,680 346,740 231,360 2,012,395

Source: McAndrew (2012)

6% 10%

43%

10%

14%

17% Gallery

National fairs

International fairs

Private sales

Internet

Auction

Fig. 3.5 Sales by distribution channel in 2011 (Source: McAndrew 2012)

From the research commissioned by CINOA it emerges that the sector is characterized by SMEs (21 % of the sample is composed by firms consisting of one individual and 26 % where two people work together) which are strongly linked to the life and personal experience of the founder, which employ on average threefour people including the owner. The sector is mainly composed of a male population (56 % of the workforce), and the majority (70 %) of individual companies are run by men (McAndrew 2011b). Most of the galleries surveyed fall at the low end of the market, with a turnover lower than â&#x201A;Ź2 million a year (79 %). Also the prices greatly vary depending on the sector and on the size of the market. However, as for the auction market, the majority of exchanges take place at the lower end of the

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Contemporary Art Markets and Supporting Sectors

60,0% 51,6% 50,0% 40,0% 30,0%

27,9%

20,0% 11,7% 10,0% 3,8%

1,8%

2,4%

0,9%

0,0%

Fig. 3.6 Dealer sales by price level in 2011 (Source: McAndrew 2012)

market, at prices below €50,000. Figure 3.6 shows that in 2011, nearly 80 % of sales were at prices equal to or below €50,000, with only 3 % of sales exceeding €500,000 (Table 3.10).

The characteristics of workers employed in art galleries confirm that the cultural pedigree is given high standing. In fact, 68 % of art dealers surveyed obtained a university degree, compared to only 35 % on average in the U.S. and 29 % in Europe. In addition, 42 % of art dealers interviewed reported that all their employees had a university degree. The percentage of employees with a university degree is higher in the U.S. (89 %), in Italy (66 %) and in France (65 %) compared to Germany (58 %) and the United Kingdom (53 %). Auction houses’ employees tend to be well educated too. In the leading auction houses, the share of employees with a university education is 77 % on average, while in local or national auction houses it is 57 % on average. These percentages are higher than other cultural industries in Europe, where on average approximately 48 % of workers have a degree (McAndrew 2011a).

3.9

Relationships Between Artist and Art Dealer

Merchants have an important role in determining the success of artists; they can also be considered responsible for a substantial part of artistic production, since the visibility of the artist and his creative possibilities largely depend on their activities.

Between the artist and the art dealer there exists a relationship of bilateral monopoly (Vettese 1998). The art dealer spends time and resources to introduce and describe the objectives of the artist to a group of certifiers, represented by intellectuals, curators and critics, providing a contextualization of the artworks and interpreting their meaning. For these purposes, exhibitions are organized and promoted. The artist for his part has an alternative to the prevailing relationship whereby a single

3.9

Relationships Between Artist and Art Dealer

61

Table 3.10 Percentage of dealers by turnover 2008–2011 Turnover < €500,000 €500,000 – 2 mil €2 mil – 10 mil €10 mil – 50 mil > €50 mil

Dimension Very small Small Medium Medium-large Large

2008 (%) 42 44 12 1 1

2009 (%) 40 40 17 2 1

2010 (%) 42 37 17 3 1

2011 (%) 44 35 17 2 2

Source: McAndrew (2012)

agent exclusively represents him: to sell his works a` la carte, i.e. to any art dealer interested in reselling them. Where no exclusive relationship exists, the promotional efforts of any art dealer tend to give an advantage to competitors offering works of art by the same artist, thus ultimately limiting the incentive for promotion.

A clear example of this effect, called spillover, is provided by the prices charged for an artist’s works in the secondary market. The artist-art dealer relationship clearly illustrates the problems that the parties may encounter in the management of cooperative economic relations. Creative effort by the artist is necessary to the success of the art dealer, but promotional effort by the art dealer is also necessary for the value and visibility of the artist; as a consequence, the actions of one party affect the benefits that the other can get. As a contract, the artist-art dealer relationship looks more like a joint venture rather than an agency relationship (Caves 2000). Such a mechanism is not really reflected in other markets, where the producer/creator is more in control of the positioning of his brand and his product with respect to distributors. This interpretive model helps us to understand Damien Hirst’s 2008 attempt to disintermediate the distribution channel with the sale at Sotheby’s of nearly 300 works, in the auction ‘Beautiful Inside My Head Forever’, which will probably remain an isolated case.

The agreements between art dealer and artist can have a more or less constrained nature, so that it often happens that artists propose their works to several galleries, each targeting a different sector of demand. The advantages for the artist are being able to impose his own conditions, to secure a better distribution of his artworks and to freely dispose of his own creativity. The disadvantages are not being certain of being remunerated for his activities. In this case, the agreement is that a series of works of art will be left with the merchant: he will pay for them only after the sale.

In order to exert the maximum effort in promoting the artist’s works, the dealer should be able to gain compensation for all direct sales between artist and collector.

The artist and the collector, however, have an incentive to directly negotiate and divide among themselves the share of the intermediary. Despite all the complications described above, the dealers and the artists surveyed said that the most common form of agreement is the one of the informal agreements based on trust, with which the art dealer commits to promote and exhibit the works of art in return for exclusive supply and a percentage of revenues and sales. To the art dealer a previously agreed upon percentage is due and can range from 30 % to 80 % according to the promotional commitment entered into. The useful, but risky, solutions of advanced payments and

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of brokersâ&#x20AC;&#x2122; purchases for investment purposes seem to be used rarely. Intermediaries who use them have substantial financial resources, or deep motivations that drive them to support and invest in artists. The policy of offering discounts depends on many factors including the more or less close relationship with the customer, the timing of the payment, the amount that the art dealer aims to obtain when taking a work of art into his charge and, what must not be neglected, the relationship between artist and art dealer. If an art dealer deals with an artist exclusively, he will try to defend him, by supporting his quotations. The attitude of those who deal with artists occasionally will be different. Such people are interested in making a sale, even at a price lower than the market norm.

3.10

Selection of Artists

There are now millions of aspiring artists who aim to obtain space, attention and credibility within the art system. Despite an abundant supply, however, there are very limited resources and opportunities because of the shortage of public spaces (museums and galleries of contemporary art), the small size of the market (due to a high cultural level and to a substantial financial availability), not to mention the costs that aspiring artists must bear for their training and for realizing their works of art. One of the most relevant aspects in how the contemporary art system functions is selection: in fact only a small fraction of aspiring artists will have the opportunity to exhibit in prestigious venues, to give their works to private collections or museums, to see their work published in magazines and catalogues and to be invited to events and fairs. And of this small number only a further fraction will reach the avant-garde markets which lead to the possibility of working with the most prestigious museums and galleries in the world and being invited to attend major international events like Documenta, Manifesta and the Venice Biennale. In the contemporary art market the criteria for selection of young artists reflect the orientations and values of a small circle of players, which gives a character of self-referentiality to the selection process. Any consideration linked to the constructive ability of the artist or to the aesthetic pleasantness of the work of art seems completely irrelevant, because the artists are evaluated according to their ability to generate â&#x20AC;&#x2DC;processes of senseâ&#x20AC;&#x2122; (Sacco 1998). The quality of a work of art therefore does not depend on what it displays but on what it evokes, where of course the evocative potential has to be measured on the basis of the mental categories and the culture shared by the sector operators (critics, art dealers, curators and collectors).

Each new artist who proposes himself on the scene must justify his own work before the entire past history of visual arts, demonstrating both its necessity and its innovativeness. Many of those who aspire are eliminated from the selection process even before having access to the system because their work repeats well-established experiences and models. Only a small number possess the cultural training and sensitivity that provide the determination to develop, carry out and promote a credible artistic project with a language of its own (Sacco 1998). The selection process is characterized by density-dependence (Adler 1985), whose cumulative

3.11

Auction Houses and the Secondary Market

63

effect determines the individual artist’s probability of success. Indeed, on condition that the artist proves to be credible in the eyes of the art system, his success will depend on his ability to influence in his favour the greatest number of operators.

Critical factors for success are therefore to be sought in the offer of a quality product and then in the elaboration of an original artistic project and in the entrepreneurial attitude, meaning the ability to manage oneself and to self-promote.

Obviously the two conditions are interdependent, as the acquisition of a certain relational capital and the set of opportunities related to reputation (being invited to the most significant events, receiving in one’s own studio critics, art dealers and collectors, presence of one’s work in specialist magazines, press coverage of one’s own exhibitions) depend on the solidity of the artistic project. Furthermore, it takes great determination and perseverance in carrying out and supporting one’s project, and the humility necessary to deal with other artistic research. Because great art, as expressive research, stems from comparison.

3.11

Auction Houses and the Secondary Market

The natural structure of the auction house market tends to push its own boundaries at the international level for works of art of great value and to reduce them locally for works of art of lesser value, as in the case of works of decorative art. The major auction houses comply with this logic: Christie’s and Sotheby’s dominate the global market for works of art of great value which arouse the interest of international operators, while a small number of other organizations control the national markets for less important works of art, and a large number of organizations manage the auctions of decorative items of still lower value (Caves 2000). While galleries also have a cultural task, because they are involved in promoting the protagonists of art and artists who, have not yet made their mark on history, the auction is a purely commercial phenomenon, which presents works of art with an already consolidated market. The procurement processes in the gallery and at auction are diametrically opposed. In the first case it starts from a top price which then decreases during negotiation. In the second case, it starts from a low price, which rises depending on bids made. This means that psychologically, those who buy in galleries are always convinced that they have struck a good deal. Buying at auctions suits those who have a good knowledge of the market, a strong commercial mind, love to compete, know what they want and make decisions very quickly.

Public sales allow the buyer to purchase, in addition to a work of art, the certification of a social status besides the economic one. The seller is offered the opportunity to monetize with the highest confidentiality and at the highest possible price. At London and New York auctions the most expensive works of art are offered in the Evening sales, while in the Day sales, it is possible to find compositions of an excellent level, but suitable for a wider audience. All works of art published in the auction catalogues are exposited from between three to six days before the sale, but for potential records exclusive cocktails parties and private dinners around the

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world are organized. In some cases, works of art worth tens of millions are even left in collectors’ hands for a few days, who can judge them in a domestic setting.6

3.11.1 Overview of the Economic Theory of Auctions The auction is a mechanism for the exchange of resources in which the seller tries to get the highest possible profit from the sale, and the buyer tries to get the good at the lowest possible price. This sales system is more efficient if the asset is allocated to those who value it more highly (Candela and Scorcu 2004). There are two types of auctions: those for purchase and those for sale. In the first ones there is only one buyer and numerous vendors in competition with each other. The active role is played, in this case, by sellers. Typically, this type of auction is used to allocate public contracts. In sale auctions there is a single vendor with multiple potential buyers. In this second type of auction, the active role is played by the buyers. When the good is rare, it suits the seller to offer the good at auction rather than by fixing the price, because in this way he can maximize profits by selling to the person who values it most highly. The aim is, in fact, to bring out the reserve price attributed to the good by each bidder.

The main types of standard auctions are: (a) English auction. The auctioneer provides a starting price and the participants make bids to raise it. The good is sold to the person who offers the most; he pays exactly the amount of the winning bid. In this type of auction the seller prefers to have the largest possible number of participants in order to make a greater profit and, for this reason, open participation is often scheduled. Since this is an oral auction, each bidder can derive information from the other participants about how they value the good. In most cases, the bidder must be present at auction either directly or through an authorized representative; this type of auction is easily subject to phenomena of collusion. (b) Dutch auction. The auctioneer starts from a high price that is progressively reduced. The good is sold to the first one who blocks its descent, by paying that price (descending auction). It derives its name from the typical procedure in the Dutch flower market.7 If the bidder is very interested in the good, he cannot wait too long for the award of the auction and blocks the descent of the price when this is still high. The good remains unsold if, when a predetermined minimum price is reached, no one has stopped the procedure.

6

Source: Diez (2009).

This type of auction is so called because it is used in the Netherlands to sell flowers. But it is quite common also for other types of goods. Such an auction mechanism was already used in the seventeenth century, as there are records of a catalogue that describes an auction called mineing, very similar to the present-day Dutch auction. The auctioneer marked the beginning of the auction with a high price that was progressively diminishing, until someone shouted ‘mine’ (whence the name of the auction); at this point the auction became ascending and ended with sale to the highest bidder. Even today, Filene’s, a department store in Boston, exhibits goods bearing the date of exposure and the price, and price decreases with increasing the time of storage of the good.

7

3.11

Auction Houses and the Secondary Market

65

(c) First-price sealed-bid auction. This type of auction takes place in two stages: an offer period in which participants submit bids in sealed envelopes and a later stage when these are announced as the envelopes are opened. The highest bid wins the auction. Every participant makes his bid without knowledge of those made by the others, and whoever wins the auction must pay the amount he wrote down. In this type of auction the risks of collusion between participants are very high. Furthermore, the integrity of the mediator and his compliance with the rules about keeping the envelopes sealed prove to be crucial. (d) Second-price sealed-bid auction. This type of auction is as above in the execution, and the good is always awarded to whoever offers the most; the difference consists in that the winner does not pay the price offered by himself, but the one immediately below his.8 This mechanism ensures that no participant is held back by fear of bidding too high, something that instead happens in the firstprice auction.

3.11.2 Operators’ Strategies at Auctions of Paintings Those participating in an auction of paintings may have different strategies, being motivated by personal considerations such as aversion or appetite for risk, the option of holding or reselling the asset, or the presence or absence of an informational advantage over other participants before the auction begins. But, above all, the participants’ strategy will depend on the goals they have set for themselves. If the bidder’s intention is indeed to resell the item purchased, he will have a different behaviour from the case in which he will keep it for himself (Ashenfelter 1989).

The different types of buyers may thus be divided: (a) The occasional buyer who rarely participates in auctions and is interested in a specific purchase either for personal use or to donate; (b) The pure collector who does not buy the work of art to sell it but only to possess it and increase his collection; (c) The pure speculator who buys the work of art with the intention of reselling it quickly, in the expectation of an increase in prices; (d) The dealer who lays in supply of the works of art on sale by working on his own, or acting on behalf of a client, for whom the work of art is resold immediately after the auction; (e) The museum which, through the director or a delegate, tries to enrich its collection by resorting to buying at auction.9

8

See W. Vickrey 1961. This type of auction is also known as Vickrey auction, as introduced in the literature for the Nobel Prize for economics in 1996.

9 In France, in case of English auction, a representative of the Louvre is entitled to exercise an option after the last bid, standing up and saying: ‘pre´emption de l’E´tat’ (State pre-emption).

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The auctions of paintings are usually sequential English auctions of heterogeneous objects (paintings, sculptures, drawings, etc.) belonging to the same artistic period (e.g. modern or ancient art). These auctions cover a certain group of established artists, whose paintings have an expected price superior to a minimum threshold. So, if an auction house puts a painting by a certain artist up for auction, it sends a signal to the market about the fame and the general evaluation of the artist.

An auction of paintings is characterized by three aspects: 1. Incentives to produce information. Before the auction sessions, the auction houses prepare and disseminate the catalogues of the works of art that will be on sale. They have the possibility of choosing how much space to give each work of art, if providing a photograph, the description of the painting, or even a brief critical presentation. The more important the painting is, the more accurate the information will be.

2. Moderate specialization. Usually the auction houses avoid overly narrow and specialized auctions (for example, with works by the same author), but also those which place overly heterogeneous works of art together. This is to create the right number of participants for each painting so as to ensure the competition and at the same time, however, to reduce the possibility of creating a cartel when treating overly specialized works of art.

3. The structure of prices. The significant prices of an auction are: the opening price, the reserve price, the hammer price and the estimated price. The opening price, or suggested opening bid, is the one from which the offers begin, and is determined by the auction house. It is usually significantly lower than the estimated price. The reserve price is the minimum price that a seller is willing to accept for a property to be sold at auction. The reserve amount is set by the auction house in agreement with the seller and is kept secret. The hammer price is the one that corresponds to the purchase, determining the sale price, but does not include the buyerâ&#x20AC;&#x2122;s premium.10 The estimated price, then, is what is supposed to be the market price of the author.

Now let us analyze the relations between these different values. (a) Relation between opening price and reserve price. Normally, the opening price is lower than the reserve price. This may seem inefficient, since it would seem normal to start the auction from the reserve price, because below this no sale would occur. The justification is that starting from a low initial price the auction house believes it can trigger a competitive mechanism that increases the bids.

Starting at a price lower than the reserve price also allows a larger number of bids and, consequently, produces more information on biddersâ&#x20AC;&#x2122; individual assessments, allowing other bidders to observe and possibly build their own evaluation. Among other things, usually the auction houses put first in sequential auctions paintings that are used to create an atmosphere (Milgrom and Weber 1982; Vincent 1995).

10 An additional fee imposed on the buyer, added to the highest bid to determine the total contract price. Normally the fee is a percentage (10â&#x20AC;&#x201C;30 %) added onto of the final bid price.

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(b) Relation between reserve price and hammer price. The good is not sold until the reserve price is exceeded. If there are no bids on a lot, or if bidding does not reach the reserve price, the lot is ‘bought in,’ meaning it is left unsold and remains the property of the owner. (c) Relation between hammer price and estimated price. The estimated price can influence the hammer price of the good. Sometimes, in the presence of a maximum and a minimum estimate, the maximum value is tied to the real reputation of the painting, while the minimum is linked to the reserve price. A low estimated price published in the catalogue before the auction session could both entice numerous bidders to offer, and generate on the other hand the feeling of paying too much for the good; just as a high appraised price could, for some poorly informed bidders, increase the same evaluation of the good, whilst discouraging others from purchasing. However, systematically wrong estimates of the correct value reveal a lack of professionalism on the part of the auction house and have a negative impact on its reputation. In auctions of works of art by young artists whose prices are not very consolidated yet it can happen that the artist has two types of quotations: the auction price and the market price. The difference between the two can be very notable, especially in the case of artists with whom the galleries operate a ‘protectionist regime’. It is a common practice, therefore, that to maintain the prices of artworks the same art dealers go to the auction and buy back the lot at a price as close as possible to the market price, although this is an expensive practice that not all the merchants are able to sustain.

3.11.3 Turnover in the Art Auctions Market In 2011 the art market showed signs of substantial progress. Growth was characterized by a strong performance by Asian markets. Since the turn of the new millennium, the center of gravity of artistic creation and demand has moved very markedly to the East. Underpinned by strong economic growth, China, India and Indonesia, amongst others, have rapidly imposed themselves as major players on the international art market. Today, Taiwan, South Korea, Singapore and Japan have become unmissable marketplaces on the global art map. Along with China, Japan is generating enough revenue to topple American leadership of the global art market. In fact in 2011 the value of global sales significantly increased both in China (76 %) and in Japan (150 %) (Table 3.11).

A study of Art Economics for the Maastricht Tefaf Fair of 2012 highlights that between 2009 and 2011 the total turnover generated from sales of works of art around the world almost doubled. Globally, the sales of works of art have produced about €46.1 billion, an increase of 63 % from the market crisis of 2009. The auction sector made up around half of the market’s value in 2011, totalling €23.1 billion in sales of fine and decorative art (Fig. 3.7).

China has become the world’s leader of the art market with a more than 40 % share of the global art market and six out of the world’s top ten best-selling artists

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Table 3.11 Growth in sales of the art market: some countries 2009–2011 Country Austria Germany France UK Italy Netherlands Sweden EU Switzerland U.S. China Japan

2009–2010 (%) 19 15.7 5 26.3 106.4 31 23.6 33.8 5.5 31.4 24.4 24.8

2010–2011 (%) 13.6 0.3 1.5 11.1 71 1.5 16.1 9 3.1 7.7 75.8 150.2

Source: McAndrew (2012) 60.000 48.065

50.000 43.331

46.137 42.951

42.158

40.000

30.000

28.833

28.335

20.000

10.000

0 2005

2006

2007

2008

2009

2010

2011

Fig. 3.7 The value of transactions in the global art market (Source: McAndrew 2012)

(Zhang Daqian, Qi Baishi, Xu Beihong, Wu Guanzhong, Fu Baoshi and Li Keran) (Table 3.12).

In just 3 years, China has moved from the third place to first, imposing itself on the markets of London and New York. By contrast, North America has lost ground against the advance of the Asian market: in 2010 the turnover of the fine arts sector in North America represented 30 % of global turnover, compared to 47 % in 2004.

Today Asia produces 43 % of worldwide turnover (41 % of this contribution is made by China). With some of the most important cities for art sales in the world (Hong Kong, Beijing, Hangzhou, Shanghai, Taiwan) China is winning market share from the U.S. whose 2011 output of $2.72 billion represented 23.5 % of global art sales compared with a share of 29.5 % in 2010. The United Kingdom maintained

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Table 3.12 The top 10 artists by turnover in 2011 Rank 2011 1 2 3 4 5 6 7 8 9 10

2010 3 2 4 1 6 13 9 16 108 11

Artist ZHANG Daqian (1899–1983) QI Baishi (1864–1957) WARHOL Andy (1928–1987) PICASSO Pablo (1881–1973) XU Beihong (1895–1953) WU Guanzhong (1919–2010) FU Baoshi (1904–1965) RICHTER Gerhard (1932) BACON Francis (1909–1992) LI Keran (1907–1989)

Auction turnover ($) 554,537,029 510,576,030 325,884,120 314,692,605 233,488,777 221,158,432 198,335,740 175,673,073 129,202,110 115,361,356

Lots sold 1,371 1,350 1,624 3,387 416 318 199 265 127 298

Source: Artprice (2011)

third place with $2.24 billion and 19.3 % of the global market and France kept fourth place ($521 million) but lost competitiveness (Figs. 3.8, 3.9, and 3.10).

Christie’s and Sotheby’s still dominate the market generating almost half the total volume of global art business. New York and London are their main markets and Hong Kong has become their third marketplace. London and New York have lost market share, not because they sell less but because the Asian auction houses are growing more aggressively. The third auction company, the Chinese Poly International today generates $901.8 million from art sales and 7.8 % of the world’s art auction revenue from a small proportion of the global volume of transactions (only 2 %). In Beijing, the auction companies in competition with China Guardian include Poly International, ranked fourth globally (with $901.6 million in 2011), Beijing Council, fifth globally (with $298 million representing 2.58 % of transactions) and Beijing Hanhai, ranked seventh after Phillips. Indeed, Beijing is where the market’s pulse beats strongest now, generating over $3.17 billion in annual revenue, representing more than 27 % of global art auction revenue. Behind Beijing there is New York ($2.593 billion), $380 million ahead of London with $2.214 billion and then Hong Kong, which has climbed to fourth place with $796 million, representing nearly 7 % of global art auction revenue. Beijing, Shanghai and Hong Kong have not only attracted the largest auction houses, but also a number of Western galleries, which are opening branch offices, and art fairs (Hong Kong Art Fair, CIGE, Art Stage, Art Taipei, etc.) which, several times a year, attract collectors from all over the world. There are two further strong points for China: art is supported by the Chinese government which in recent years has demonstrated that it confers considerable importance on culture with the 2008 Beijing Olympics, the 2010 Shanghai World Expo and the fundamental work performed by the Ministry of Culture and Finance in order to make entry to the country’s public museums free of charge. It is expected, in fact, that all public art museums will become free by the end of 2013. Finally, art enjoys the support of private collectors, who are ready to act as investors. The relationship between art

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45,0% 41,4% 40,0% 35,0% 30,0% 23,6%

25,0% 20,0%

19,4%

15,0% 10,0%

6,7% 4,5%

5,0%

1,8%

1,2%

1,4%

Germany

Italy

Switzerland

0,0% United Kingdom

France

China

USA

Others

Fig. 3.8 2011 fine art auction sales revenue, breakdown by country (Source: Artprice 2011)

Painting

Print

Sculpture

Photography

0,40%

Drawing

Other

4,80% 21,80% 1,60%

67,60%

6,50% 20,60%

0,20%

2,30% 8,30%

44,30%

21,00% Asia

Rest of the World

Fig. 3.9 Lots sold in 2011 in Asia and in the rest of the world, breakdown by medium (Source: Artprice 2011)

and money is totally uninhibited in China and generates ever more ambitious projects, including the creation of the first financial centre dedicated to art in the city of Xianem, near Taiwan. The International Art and Xianem Financial Center is a project implemented by Beijing Huachen Auctions, to try to impose a new platform via exhibitions, auctions and other services linked to art and its market (Artprice 2012).

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Auction Houses and the Secondary Market

71

1400

100 44 86

1200

70 24 67 40 60

1000

490 800

440

63 30

22

505 600

278 4

400

35 52 84

22 12 176 614

133

437

200

271

431

276

401 224

0 2005

2006 USA

2007 United Kingdom

2008 China

France

2009

2010

Rest of the world

Fig. 3.10 Million-dollar auctions by country ($). Annual growth (2005–2010) (Source: Artprice 2010a)

3.11.4 The Contemporary Art Market In compliance with the sector, the positive trend of 2011 may be appreciated even for the contemporary art market with revenues that nearly doubled compared to the 2009. According to the Arts Economics estimates, the contemporary art market reached a high of €955 million in 2011 with close to 35,180 transactions at auction.

The continued increase in sales in 2011 brought the market above levels achieved at its previous peak in 2008 (€915 million). The segment’s effervescence can be attributed to the entry into the market of new collectors who, over recent years, have been trying to buy works of art in tune with the mood of their times. At the beginning of the decade, many operators in the art market were suspicious of the newest creations. In 2000, the art market had the following hierarchy of values: in the first place modern art (market share equal to 45.29 % in terms of sales turnover), then nineteenth-century creations (28.38 %), old masters (15.16 %), post-war art (8.33 %) and, finally, contemporary art sales (equal to 2.83 % of the entire market).

Ten years later, contemporary creations represent 10.2 % of worldwide sales. If modern art is confirmed as the backbone of the auction sales, the growing importance of contemporary art in recent years is demonstrated by a hugely increased turnover (from €92 million in 2002 to €955 million in 2011) (Figs. 3.11, 3.12, and 3.13).

The crisis of 2008 and 2009 has resulted in a downward shift in the price of artworks offered at auction. During 2011, with the resumption of the market, prices have started to rise again, even if the trend of collectors investing in selected, safe works of art persists. Figure 3.14 shows the dynamics of the average price for the major auction houses over the past 9 years, highlighting how the average price resulted in progressive decline from the peaks of 2007, to then start growing again from the end of 2009. The decrease in the average price is linked to a change in the buyer profile: once the speculation phase ended, the number of ‘status-symbol

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1.200,0

955

871,3 914,9

1.000,0 800,0

580 433,7

600,0

200,0 0,0

91,7

84,7

2002

2003

312,7

172,5 219,8

400,0

2004

2005

2006

2007

2008

2009

2010

2011

Auctions turnover

Fig. 3.11 Contemporary art auctions turnover (â&#x201A;Źm) (Source: McAndrew 2012) 120%

100%

3% 8%

3% 11%

3%

4%

6%

6%

13%

13%

13%

15%

8%

13%

16%

17% 20%

80%

10%

10%

17%

18%

48%

51%

19%

45% 49%

60%

48%

46%

48%

49% 51%

46%

44%

15%

14%

40% 29%

24%

23%

24%

13%

13%

13%

20% 15%

23%

19%

10%

11%

16% 8%

7%

7%

2006

2007

2008

13%

10%

12%

11%

0% 2000

2001

2002

Old masters

2003

2004

XIXth century

2005 Modern art

Postwar art

2009

2010

Contemporary art

Fig. 3.12 Fine art auctions sales turnover. Breakdown by period. Annual growth (2000â&#x20AC;&#x201C;2010) (Source: Artprice 2010a) 40000

35180

35000

31810

30000 23370

25000 20000 13427

15000 10000

9751

15527 10372

5000 0

23336 19729

24308

2002

2003

2004

2005

2006

2007

2008

Number of lots sold

Fig. 3.13 Contemporary art sales volume (Source: McAndrew 2012)

2009

2010

2011

3.11

Auction Houses and the Secondary Market 40.000

73

35.842

35.000 28.763

30.000

24.856

25.000

26.858

20.000 12.840

15.000 10.000 9.406 5.000 0

18.557 15.850

14.155 8.161

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Average price

Fig. 3.14 Evolution of the average prices of contemporary art (Source: McAndrew 2012)

collectors’ diminished too, and collectors who are more knowledgeable, competent and attentive to the quality of the artworks emerged as the most common type.

Figure 3.15 shows the territoriality of the average price of contemporary artists and clearly discloses collectors’ preference for works of art of the American artists, which appear to be those with the highest average prices. The average prices for Chinese artists follow the American trend, though generally more contained. The average price in the EU in 2011 was €16,215, with the highest prices on average in the United Kingdom. Italy does not seem to shine in the contemporary art sector, with artists’ average prices below €8,000. The motivation for this must be sought in many international auction houses’ tendency to offer the most valuable Italian artists directly abroad and not in Milan (a striking example are the Italian Sales in London).

In 2011 China continued its exponential growth, moving from a market share of almost 1 % in 2002 to 45 %, becoming the world’s leading auction marketplace for contemporary art, while the United Kingdom ranks third, behind the U.S., with a market share of 19 %. France has lost market share, passing from 4 % to 2 %, while Germany and Italy have remained more or less stable at 1 % (Table 3.13).

A significant part of the development of the contemporary art market has occurred throughout 2010 due to the strong economic growth of India and China.

In fact, driving this market was mainly domestic demand favoured by collectors with their growing disposable income, which has led many auction houses to open new on-site retail locations. China has now seven auction houses in the field of contemporary art, ranking among the top ten in the world by revenue, and it is maintaining its attractiveness by approaching more and more cultural institutions interested in investing (Table 3.14).

Hong Kong has become an epicenter of the art market and the combined forces of Christie’s, Sotheby’s and Ravenel accounted for 13 % of global revenues from Contemporary Art (€113 million) over the 2011/2012 period, with each company respectively generating 21 %, 28 % and 54 % of its total global revenue from Contemporary art in the city (Artprice 2012). The power of Hong Kong is also being fuelled by the vitality of the city’s growing non-auction Contemporary art sector: the fifth and most recent edition of Art Hong Kong, held in May 2012, attracted 266 galleries from 38 countries and over 67,000 visitors, making it one of

74

3 90.000

Contemporary Art Markets and Supporting Sectors

81.308

80.000 70.000 60.000 44.763

50.000 40.000

29.851

30.000 20.000

13.418

10.000

8.497

4.141

0 USA

China

United Kingdom

France

Italy

Germany

Fig. 3.15 Average prices of contemporary artists in 2011 (€) (Source: McAndrew 2012) Table 3.13 The market share of countries in the contemporary art trade (2002–2011) 2002 Market share Country (%) U.S. 57.2 China 0.9 UK 22.2 France 4.5 Italy 2.8 Germany 1.9 Other 10.5 Total 100

2006 Market share (%) 47.2 19.9 19.8 4.2 1.4 1.5 6.1 100

2009 Market share (%) 32.3 23.3 24.8 6.2 1 1.4 11 100

2010 Market share (%) 38.3 27.7 19.1 3.4 0.8 1 9.7 100

2011 Market share (%) 24.7 45.4 19.2 2.2 0.7 0.6 7.2 100

Source: McAndrew (2012) Table 3.14 Contemporary art: top 10 auction houses 2011/2012 1 2 3 4 5 6 7 8 9 10

Auction turnover €244,006,580 €189,004,193 €89,961,674 €56,323,539 €37,715,050 €23,077,565 €19,877,113 €16,631,453 €12,794,077 €12,649,905

Source: Artprice (2012)

Market share (%) 28.25 21.88 10.41 6.52 4.37 2.67 2.30 1.93 1.48 1.46

Auction house Christie’s Sotheby’s Phillips Poly International Auction Co., Ltd China Guardian Auctions Co., Ltd. Hanhai auction Rong Bao auctions Ravenel art group Council auction Xiling Yinshe auction

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75

the most important art fairs in the world. In May 2013, the fair will officially change its name to adopt the Art Basel logo (Basel Art Hong Kong). Indeed, over the coming years, Hong Kong can only gain momentum because the prestigious galleries now installed there will allow the region’s art buyers to refine their perception of Contemporary art and expand their knowledge of the field. Among the firmly established high end galleries to have opened premises in the city, Emmanuel Perrotin, Larry Gagosian, White Cube, Pearl Lam, Ben Brown and Edward Malingue. Moreover, during the summer of 2012, even Artprice – the world leader in art market information– opened an office in Hong Kong (Artprice 2012).

3.11.5 Market Segments in the Contemporary Field 3.11.5.1 Contemporary Painting Painting remains the most highly rated segment of the contemporary art market. Its persistence and vitality can be measured on the basis of the total auction revenues that, according to a recent Artprice report, in the 12 months analyzed (July 2009June 2010) accounted for 67.4 % (€296.4 million) of global auction revenues obtained in the contemporary art segment. The number of contemporary paintings sold at auction was three times higher than the number of drawings, 4.5 times higher than the number of photos and 5.7 times higher than the number of sculptures. The ten contemporary painters with the largest annual auction revenues generated 35.5 % of the total auction revenue for contemporary art, with occasional multimillion dollar results. The largest collectors’ interest shifted to American and Chinese figurative painting, to the detriment of European works of art. Artprice’s ranking of the top 10 artists by auction revenue works includes four American artists (Jean-Michel Basquiat, Richard Prince, Christopher Wool, and Jeff Koons), five Chinese artists (Chen Yifei, Zeng Fanzhi, Zhou Chunya, He Jiaying and Zhang Xiaogang) and one European artist (Damien Hirst) (Table 3.15).

3.11.5.2 Sculpture As for sculpture, today’s artists express themselves using a variety of materials ranging from marble to resin, from bronze to plastic, from paper to ceramics and even the ready-made. Typically these are unique pieces, but they can also be editions of three, five, seven or nine identical copies. Normally after nine copies the sculpture is considered multiple, with a lower value (Pratesi 2010). Unlike contemporary painting which is dominated by American, British and Chinese artists, the best-selling artists in the contemporary sculpture sector have more diverse origins. In 2011 the top 10 leading contemporary artists by auction records in the field of sculpture included four Americans (Noland Cady, McCarthy Paul, Gober Robert and Levine Sherrie), three Chinese (Cai Zhisong, Ai Weiwei and Sui Jianguo), one Brazilian (Milhazes Beatriz), one Japanese (Nara Yoshitomo) and one European (Gormley Antony) with new records ranging from €499,070 for Ai

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Table 3.15 Contemporary artists: top 10 by auction turnover 2011/2012 1 2 3 4 5 6 7 8 9 10

Auction turnover €79,938,836 €33,296,116 €22,186,487 €21,370,107 €19,379,919 €16,035,305 €16,000,452 €15,480,396 €15,238,565 €12,914,638

Artist BASQUIAT Jean-Michel (1960–1988) ZENG Fanzhi (1964) WOOL Christopher (1955) HIRST Damien (1965) ZHANG Xiaogang (1958) ZHOU Chunya (1955) PRINCE Richard (1949) CHEN Yifei (1946–2005) KOONS Jeff (1955) HE Jiaying (1957)

Source: Artprice (2012)

Weiwei to over €4.2 million for a work by Cady Noland, Oozewald (on 9 November 2011 at Sotheby’s New York).

3.11.5.3 Video Art The prehistory of video as an expressive medium in contemporary art was written in the mid-1960s and early 1970s by artists such as Nam June Paik, Dan Graham, Vito Acconci, John Baldessari, Gordon Matta-Clark and Chris Burden. But only since the 1990s have many artists like Bill Viola, Pipilotti Rist, Sam Taylor-Wood, Diana Thater, Tony Oursler, Fiona Tan and Candice Breitz begun to express themselves through video, which has taken on, like photography, the dignity of an autonomous expressive language. Despite this, however, video is not yet widely collected, perhaps due to the technical difficulties standing in the way of it being easily enjoyed, with the requirement for increasingly advanced technological equipment (Pratesi 2010). This medium is still rare in museums, galleries and especially at auctions. In fact, apart from some works of the ‘founding fathers’ of the genre as Nam June Paik and Bill Viola, video art has not yet succeeded in imposing itself in the secondary market. For this reason, many artists like Matthew Barney, Vanessa Beecroft, Francesco Vezzoli or Candice Breitz have created photographic images taken from their videos, called stills, which have a circulation that is similar to works stemming from photography. Videos are generally sold in editions, and have a rather high price. However, video art by Pipilotti Rist and Pierrick Sorin can be purchased at affordable prices (€3,000–20,000) and installations by Tony Oursler are auctioned off for an average of between €15,000 and €25,000 (for example, ‘Flower power’ was knocked down for €14,000 on November 13th, 2009 at Phillips in New York).11 The collectors that instead prefer to buy work by Bill Viola will have difficulty in finding pieces at less than €40,000.

11

Artprice (2010b)

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European Trade in Works of Art and Fiscal Asymmetries for Import and Export

77

3.11.5.4 Photography The rise of the artistic photograph in the auction market has been particularly rapid in recent years. Before the 1990s this mode of artistic expression was considered somehow inferior. In 1995, the auction market in the field of contemporary photographs sold 350 pieces for a total of €1.4 million. Since then, prices have quadrupled in this segment and between 3,000 and 6,000 contemporary photographs are sold each year. In just 10 years (1998–2008) annual revenue in this segment grew by 1,270 %, and photography currently represents 7 % of the total auction revenue produced by contemporary art (€31.1 million from July 2009 to June 2010). The best results in the segment of contemporary photography no longer exclusively concern the most famous American and German artists. In 2010 the Brazilian Vik Muniz, and Hiroshi Sugimoto, born in Tokyo, are fourth and fifth in the Artprice ranking of the top 10 contemporary photographers by auction revenue. However, German contemporary photography continues to dominate the auction world; half of the authors in the top 10 of the main photographers by auction revenue are German: Andreas Gursky (1st), Thomas Ruff (6th), Thomas Struth (7th), Florian Maier-Aichen (9th) and Bernd and Hilla Becher (10th). The three Americans in the top 10 are Cindy Sherman (2nd), Richard Prince (8th) and Robert Mapplethorpe (3rd). Below the high-end market (which represents less than 5 % of all transactions), contemporary photography offers thousands of smaller pieces that are given large print runs, usually purchased at less than €10,000. In this price range it is possible to purchase works by the great names of photographic art such as pornographic scenes by Thomas Ruff, intimate shots by Nan Goldin, architectural photos by Thomas Struth, portraits by Rineke Dijkstra, mortuary pictures by Andres Serrano, portraits and nudes by Robert Mapplethorpe or representations of women in Islamic societies by Shirin Neshat. Some artists, best known for their installations, use photography as a means to expand and promote their work.

Remaining more or less in the same price range, collectors can purchase photos

by Marc Quinn, Maurizio Cattelan or Spencer Tunick that fall into this category.12

3.12

European Trade in Works of Art and Fiscal Asymmetries for Import and Export

The art trade has become increasingly globalized in recent years. However the bulk of the global cross-border exchange of art, by value, takes place in the key international hubs of New York and London. More recently Hong Kong has become an important trading hub, providing a significant access point for the Chinese art market. In 2010 the trade balance of the 27 EU countries regarding import/export of works of art reached a total of €1,206 million, with more than €6 billion in exports and €5 billion in imports. The United Kingdom is the largest trade centre in

12

Artprice (2010b).

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the EU with about €3.3 billion in imports and €4 billion in exports. France follows with approximately €441 million in imports and exports of about €753 million. The variety of tax rates levied on art in Europe inevitably affect market competitiveness.

In particular, import VAT has a direct impact on the primary market because if a collector buys art in the U.S., he must pay 10 % to import it to Italy, but if an American buys a work of art in Europe, he pays neither for export nor to import to his own country. In an art market where exchanges between intermediaries, auction houses and private individuals do not always prove to be transparent, Malta could become the most convenient place to position oneself in order to import works by Chinese or American artists to Europe. On the island the tax burden for collectors is half that required in Italy (where it is 10 % on imports and 20 % on the purchase from the dealer), in France (5.5 % on imports and 19.6 % on resale by the gallery), or in the United Kingdom (5.5 % on imports and 20 % on purchase in the gallery).

The private resident in Europe who directly imports from a country outside the EU pays the VAT rate of the EU country that the work of art enters, i.e. where he has an address to which it is delivered. But those who buy in galleries pay the ordinary VAT rate of the country where the gallery is housed. Europe, especially London, is more than ever less competitive than the U.S., Switzerland and Asia, where Hong Kong offers a tax-free regime. European VAT can oscillate from the absolute highest rate of 25 %, in Denmark and Hungary, to the German one of 7 % which applies only to single works (photographs and videos being excluded) and 15 % in Luxembourg, almost all the other countries placing their VAT rate between 18 % and 23 %. For art that is permanently imported to the EU from countries outside Europe, each country applies its own rate, with a minimum set by the European Community at 5 %. Export outside the European Community is tax free, except for private individuals exporting from France, who pay 5 % (Table 3.16).13 Within the European Community, purchase in the secondary market is subject to fewer tax asymmetries: 15–20 % must be added to the hammer price for auction fees (both from the buyer and from the seller), the resale right and 2–3 % as a percentage of the transportation costs. Needless to say, if there were the same VAT rate across Europe exchanges would be easier, more stable and transparent.

3.13

Impact of Resale Rights on the Art Market

The European Community directive entitled ‘Resale right for the benefit of the author of an original work of art’ aims to guarantee an appropriate and uniform level of protection to the creators of an original work of art, and to eliminate distortions of competition in the contemporary art market. In this respect, Member States shall provide, for the benefit of the author of an original work of art, a right of resale, defined as an inalienable right to receive a percentage on each sale

13

Pirrelli (2011b).

3.13

Impact of Resale Rights on the Art Market

79

Table 3.16 The international trade in works of art, 2010 (€ million) Country Austria Belgium Denmark France Germany Ireland Italy Netherlands Spain Sweden UK EU China Singapore India Russia UAE Switzerland USA

Imports €142.9 €104.3 €38.2 €441.3 €392.2 €8.7 €99.4 €213.2 €53.6 €15 €3,336.5 €5,015.5 €636.2 €150.6 €23 €8.6 €44.2 €1,304.2 €4,868.4

Exports €93.6 €63.1 €29.1 €753.4 €743.9 €5.4 €215.3 €69.3 €62.4 €26.6 €4,117.4 €6,222.3 €354.8 €126.3 €172.4 €2.5 €12.6 €1,024.1 €4,980.2

Trade balance €49.3 €41.2 €9 €312.2 €351.7 €3.3 €115.9 €144 €8.8 €11.6 €780.9 €1,206.7 €281.4 €24.4 €149.4 €6.1 €31.7 €280.1 €111.8

Source: McAndrew (2012)

subsequent to the first transfer of the original work of art, starting from a certain price limit. In practice this is a percentage commission that the seller of an artwork must pay to the artist or his heirs as an acknowledgment of the work of art’s creation, every time the latter is resold. This rule does not apply to the first sale, nor to transfers of works of art between individuals. The resale right is intended to allow the author of works of fine arts to appropriately participate in the increase in value of his work. The ratio used by these norms means that generally the so-called first usage rights guarantee relatively small financial rights to artists. In addition, visual artists have so far proved to be disadvantaged compared to other artists. In fact, while a composer is paid for every performance of his song on the radio, a visual artist is remunerated for sale of a work of art by a single payment. The resale right applies to figurative and plastic works of art such as pictures, collages, paintings, drawings, etchings, prints, lithographs, sculptures, tapestries, ceramics and photographs, provided that such creations are entirely produced by the artist himself or are copies that are considered original works of art. Copies of artworks of fine arts, produced in limited numbers by the author himself or under his authority, are considered to be original if numbered, signed or otherwise duly authorized by the author. The resale right was introduced in France in the 1920s in order to compensate the families of artists who were killed during the First World War, and is currently implemented in all EU states, even if the quotas applied vary from country to country. The Directive on resale rights is mostly confined to

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Table 3.17 Economic discipline of the resale rights Artworks prices €3,000–50,000 €50,000–200,000 €200,000–350,000 €350,000–500,00 > €500,000

Resale rights (%) 4 3 1 0.5 0.25

Source: SIAE

contemporary art since the collection of royalties on a work of art is only valid during the author’s lifetime and for the 70 years following his death. In addition, the resale right applies only in cases where the work of art is sold by professionals, such as dealers of art objects, and provides compensation equal to 4 % for sales prices lower than €50,000, 3 % for prices ranging between €50,000 and €200,000, 1 % for amounts from €200,000 to €350,000, 0.5 % for prices between €350,000 and €500,000 and 0.25 % for sales proceeds of over €500,000. The resale right is applied to all objects with a minimum value of €3,000 and limits to a maximum of €12,500 the amount to which an artist is entitled for any resale (Table 3.17).

At international level there are substantial differences among countries both concerning the extent of the royalties and their very existence. The different legal systems, in fact, provide for very different ways of interpreting the economic royalties arising from works in the visual arts. For instance, in the U.S. there is no collection of royalties and in Europe the same right is recognized differently in economic terms in different countries, according to a variety of economic models.

This means legal monopoly in Italy, more or less open competition in Germany, Spain and France, and free activity in the British open market. For artists, the benchmark is undoubtedly Germany, where the VG Bild-Kunst retains 10 % of the royalties collected, less than half of the commission paid today by intermediaries to SIAE when in Italy they pay the resale right due to artists in proportion to the resale price of a work of art. In France, ADAGP, which operates in free competition conditions, applies a 12 % commission and the British case is even more emblematic: in the most liberalized European copyright market, the position of DACS was undermined by another collecting society, the Artists’ Collecting Society (ACS), which was capable of providing its services of royalties’ collection under better conditions, leading to the reduction of commissions from 25 % to 15 %, to the benefit of artists and art lovers. Precisely because of these asymmetries, international comparison based only on the absolute value of the royalties collected is neither indicative of different collection performances nor directly proportional to the dimensions of the art market. From a comparison between incidence rates of the intermediation charges applied in Italy and abroad it emerges that the commissions required by SIAE (22 %) are among the highest. According to research conducted by the Istituto Bruno Leoni, the sums collected for the payment of resale rights in Italy over three years, from the first year of application of the law in 2007–2009, amount to €14.7 million, with costs sustained by the art market to remunerate the

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Table 3.18 Proceeds of resale rights managers in the main European countries Country Germany France UK Ireland Belgium Italy

Collecting society VG Bild-Kunst ADAGP DACS, ACS IVARO SABEM SIAE

Commission (%) 10 12 15 15 15 22

Source: Istituto Bruno Leoni

SIAE intermediation services of about €3.2 million. If the commission paid to the Italian intermediary had been in line with those paid in France or Germany, artists and collectors would have saved about €1.7 million. The study also reveals how, up to 21 January 2011, 31,067 works of art had been sold with the resale right being paid by the operators (the latter numbering 534, of which 438 were galleries, 63 dealers and 33 auction houses) creating gross revenues of €19,970,104 (Table 3.18).14

3.14 1.

2.

3.

4.

Where Is It Worthwhile to Buy? Comparison of the Tax Rate in 20 Countries

National VAT on the purchase of works of art15 VAT on importation VAT on exports Right of resale

Austria 1. Purchases in the gallery at the ordinary rate of 20 %; purchases from the artist at a reduced rate of 10 %.

2. Imports from countries outside Europe at a reduced rate of 10 %.

3. Exports to countries outside Europe without the application of VAT. 4. Introduced in 2006, the resale right is progressively applied to prices superior to €2,500, up to the maximum rate of 4 %; the total amount cannot exceed €12,500.

Works sold within three years after purchase from the artist, for an amount not exceeding $10,000, are exempted.

Belgium 1. Purchases in the gallery at the ordinary rate of 21 %; purchases from the artist at a reduced rate of 6 %.

14 15

Pirrelli (2011a).

Source for all data Plus24, supplement to Il Sole 24 Ore, 29 January 2011.

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2. Imports from countries outside Europe at a reduced rate of 6 %.

3. Exports to countries outside Europe without the application of VAT. 4. Introduced in 2006, the resale right is progressively applied to prices superior to €2,000, up to the maximum rate of 4 %; the total amount may not exceed €12,500. Optional choice to exempt the works of art sold within three years after purchase from the artist, for an amount not exceeding €10,000.

Denmark 1. Purchases in the gallery at the ordinary rate of 25 %; purchases from the artist at a reduced rate of 5 %.

2. Imports from countries outside Europe at a reduced rate of 5 % if the work of art is recognized by the authority as an art object, otherwise 25 %.

3. Exports to countries outside Europe without the application of VAT. If the work of art is more than 100 years old and is considered part of the national heritage, the export can be blocked.

4. Introduced in 2001, the resale right is applied, at a rate of 5 %, on sales starting from €300.

France 1. Purchases in the gallery at the ordinary rate of 19.6 %; purchases from the artist at a reduced rate of 5.5 %.

2. Imports from countries outside Europe at a reduced rate of 5.5 %.

3. Exports to countries outside Europe without the application of VAT. Flat-rate tax of 5 % for sales by private individuals. A licence is required for exporting various categories of items listed in a specific register of cultural goods.

4. First country to introduce copyright in 1920. It applies, with a rate of 4 %, on sales from €750.

Germany 1. Purchases in the gallery and from the artist at the ordinary rate of 7 % for single works of art, which rises to 19 % on photography, video and serigraphy because they are considered multiples.

2. Imports from countries outside Europe at a rate of 7 % for unique works of art and of 19 % on multiples.

3. Exports to countries outside Europe without the application of VAT. 4. Introduced in 1965, the resale right is progressively applied, on prices superior to €400, with a rate on the first bracket of 4 %.

Greece 1. Purchases in the gallery at the ordinary rate of 23 %; purchases from the artist at a reduced rate of 13 %.

2. Imports from countries outside Europe at a reduced rate of 13 %.

3. Exports to countries outside Europe without the application of VAT.

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4. Introduced in 1993, the resale right was adjusted in order to conform to European directives in 2000. There is no minimum threshold on selling prices; the percentage taken from the first bracket of sales is 5 %.

Italy 1. Purchases in the gallery at the ordinary rate of 20 %; purchases from the artist at a reduced rate of 10 %.

2. Imports from countries outside Europe at a reduced rate of 10 %.

3. Exports to countries outside Europe without the application of VAT. For works of art declared by notification to be of national interest, whose producers are dead and that are more than 50 years old, the Superintendent limits transfers outside of Italy, and reserves the right of pre-emption in case of sale.

4. Introduced in 2006 and completed in 2008, the resale right is progressively applied to prices superior to €3,000, up to the maximum rate of 4 %; the total amount may not exceed €12,500. Works of art sold within three years after purchase from the artist, for an amount not exceeding €10,000, are exempted.

Malta 1. Purchases in the gallery and from the artist at a reduced rate of 5 %.

2. Imports from countries outside Europe at a reduced rate of 5 %.

3. Exports to countries outside Europe without the application of VAT. 4. The resale right is progressively applied on prices superior to €1,500, with 4 % being taken in first price range; the total amount may not exceed €12,500. Works of art sold within three years after purchase from the artist, for an amount not exceeding €10,000, are exempted.

Netherlands 1. Purchases in the gallery at the ordinary rate of 19 %; purchases from the artist at a reduced rate of 6 %.

2. Imports from countries outside Europe at a reduced rate of 6 %.

3. Exports to countries outside Europe without the application of VAT. 4. Introduced in 2006, the resale right is progressively applied to prices superior to €3,000, with a percentage of 4 % on the first bracket; the total amount may not exceed €12,500. Works of art sold within three years after purchase from the artist, for an amount not exceeding €10,000, are exempted.

Portugal 1. Purchases in the gallery at the ordinary rate of 23 %; purchases from the artist at a reduced rate of 6 %.

2. Imports from countries outside Europe at a reduced rate of 6 %.

3. Exports to countries outside Europe without the application of VAT. 4. Introduced in 2006, the resale right is progressively applied on prices above €3,000, with a percentage of 4 % on the first bracket.

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Spain 1. Purchases in the gallery at the ordinary rate of 18 %; purchases from the artist at a reduced rate of 8 %.

2. Imports from countries outside Europe at a reduced rate of 8 %.

3. Exports to countries outside Europe without the application of VAT. 4. In force since 2009, the resale right applies for works costing more than €1,200 and exemption is provided for works sold below €10,000 within three years after acquisition from the artist.

United Kingdom 1. Purchases in the gallery and from the artist at the ordinary rate of 20 %.

2. Imports from countries outside Europe at a reduced rate of 5 %.

3. Exports to countries outside Europe without application of VAT. 4. Introduced in 2006, the resale right is progressively applied on prices superior to €3,000, up to the maximum rate of 4 %; the total amount may not exceed €12,500. Works of art sold within three years after purchase from the artist, for an amount not exceeding €10,000, are exempted.

Australia 1. Purchases in the gallery at a rate of 10 %.

2. With import goods valued at more than 1,000 Australian dollars, VAT of 10 % is applied.

3. Exports without application of VAT, however they require permission.

4. Introduced in 2010, a royalty levy equal to 5 % is applied, on works from 1,000 Australian dollars up, for living artists and their heirs for 70 years after the death of the artist.

Canada 1. The sales tax varies in each province, with rates from 5 % to 15 %.

2. Import tax varies in each province, with rates from 5 % to 15 %.

3. Exports without application of VAT. There are limitations for the artworks of living artists or art works less than 50 years old.

4. Resale right is not applied, however you must pay a royalty for the exhibition of works by artists who are members of the Canadian Artists’ Representation.

China 1. Purchases at a rate of 17 % if the gallery has exceeded an annual turnover higher than 800 thousand Yuan (large companies); the rate is 3 % for small companies.

2. Import tax at a rate of 17 %, plus a customs duty of 12–14 % on paintings and sculptures, and 7.5 % on prints. Since 2009 the importation of any work of art is subject to authorization by the Chinese Ministry of Culture, which restricts the entry of works of art with international popularity that violate the principles of the Chinese constitution.

3. Export is limited: certifications by authorities certifying the date of the work are required, blocking the export in some cases.

4. Not applied.

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Dubai 1. Not applied.

2. Importation rate of 5 % for customs duty, exemption in free trade areas.

3. Not applied.

4. Not applied.

India 1. VAT varies locally, for example in Delhi the rate of 12.5 % is applied, whereas in Kolkata it is not applied.

2. The importation of art and antiquities is limited and taxed at 35 %.

3. VAT on exports is not applied, but the export of antiquities (objects of historical interest, at least 100 years old) is subject to governmental authorization which is usually not granted to individuals.

4. Royalties of 10 % on sales of more than 10,000 INR (about €150) to the artist’s benefit and lasting 60 years after his death; even if application of the rule is not widespread.

Russia 1. Purchases in the gallery at the ordinary rate of 18 %.

2. Museums are exempt from import duties; individuals are exempt if the works of art are imported for ‘personal use’, in all the other cases a rate of 18 % is paid; if a private individual temporarily imports for exhibition purposes the rate of 0.01 % of the value is applied.

3. To export a work of art requires authorization with documentation relating to the work of art and a state duty of 5 % on value for works of art less 50 years old and of 10 % for works of art more than 50 years old; for temporary export 0.01 % of the insurance value of the work of art is applied. The permanent export of works of art more than 100 years old is prohibited.

4. Introduced in 1993 with a rate of 5 %, in practice it is not widely applied.

Switzerland 1. Purchases in the gallery at a rate of 8 %. Purchases by the artist are not subject to VAT. 2. Imports at a rate of 8 %.

3. Not applied.

4. Not applied.

U.S. 1. VAT does not exist at the federal level but is present at the local level. For example, New York City 8.375 %; Los Angeles 8.25 %; Palm Springs, 7.75 %; Chicago 9 %; Miami Beach 7 %.

2. VAT on imports is not applied. There is a customs duty of 0.21 % of the value on a minimum of $ 25 up to a maximum of $ 485.

3. Not applied.

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4. Not applied; only California provides a 5 % royalty to the artist or his heirs until 20 years after his death.

References Adler, M. (1985). Stardom and talent. American Economic Review, 75(1), 208–212.

Artprice. (2010a). Art market trends 2010. Saint Romain au mont D’or: Artprice.

Artprice. (2010b). Contemporary art market 2009/2010. The artprice annual report. Saint Romain au mont D’or: Artprice.

Artprice. (2011). Art market trends 2011. Saint Romain au mont D’or: Artprice.

Artprice. (2012). Contemporary art market 2011/2012. The artprice annual report. Saint Romain au mont D’or: Artprice.

Ashenfelter, O. (1989). How auctions work for wine and art. Journal of Economic Perspectives, 3 (3), 23–36.

Baumol, W. (1986). Unnatural value: Or art investment as floating crap game. American Economic Review, 76(2), 10–14.

Besana, A. (2002). Economia della cultura. Milan: Led Edizioni.

Candela, G., & Scorcu, A. (1997). A price index for art market auctions. An application to the Italian market of modern and contemporary oil paintings. Journal of Cultural Economics, 21 (3), 175–196.

Candela, G., & Scorcu, A. (2004). Economia delle arti. Bologna: Zanichelli.

Carlton, D., & Perlof, J. (2000). Modern industrial organization. Boston: Addison Wesley.

Caves, R. (2000). Creative industries. Cambridge, MA: Harvard University Press.

Corgnati, M., & Poli, F. (2001). Dizionario dell’arte del Novecento. Milan: Bruno Mondadori.

Czujack, C. (1997). Picasso paintings at auction, 1963–1994. Journal of Cultural Economics, 21 (3), 229–247.

Diez R (2009) Arte contemporanea. Arte, 432 (August).

Dimichino, E. (2009). Art banking: investimento ad alto rischio? Considerazioni sul mercato dell’arte in Italia. Milan: Banca Europa.

Frey, B., & Pommerehne, W. (1989). Muses and markets: Explorations in the economics of the arts. Oxford: Blackwell.

Kotler, P. (1976). Marketing management. London: Prentice-Hall.

McAndrew, C. (2011a). The global art market in 2010: Crisis and recovery. Helvoirt: Tefaf.

McAndrew, C. (2011b). The role of art and antique dealers: An added value. Brussels: CINOA. McAndrew, C. (2012). The international art market in 2011. Observations on the art trade over 25 years. Helvoirt: Tefaf.

Milgrom, P., & Weber, R. (1982). A theory of auction and competitive bidding. Econometrica, 50 (5), 1089–1122.

Pirrelli, M. (2011a). Dds, costa troppo il monopolio. Plus24, supplement to Il Sole 24 Ore, 29 Jan 2011.

Pirrelli, M. (2011b). Malta cavallo di Troia per importare nella Ue opere da tutto il mondo. Plus24, supplement to Il Sole 24 Ore, 29 Jan 2011.

Pratesi, L. (2010). L’arte di collezionare arte contemporanea. Orientarsi nel mercato, conoscere le strategie, guadagnare in valore e prestigio. Rome: Castelvecchi.

Ricciardi, C. A. (1997). Informazione imperfetta, agenti e mercati. In C. A. Ricciardi & M. Gambaro (Eds.), Economia dell’informazione e della comunicazione. Rome: Laterza.

Ricciardi, C. A., & Gambaro, M. (1997). Economia dell’informazione e della comunicazione.

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Stiglitz, J. (1987). The causes and consequences of the dependence of quality on price. Journal of Economic Literature, 25(1), 1–48.

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4

Art Appraisal and Value Creation Strategies

In pure theoretical terms there should be a close correlation between the historical/ cultural value of an artist and his market value. The higher the price, the more significant the role played by the artist in the history of art. In reality, however, things are not like that and there are endless examples of great artists who have struggled to be appreciated by the market. If the most famous is that of Vincent Van Gogh, we can also recall that in the 1960s, the two great Surrealist artists Rene´ Magritte and Max Ernst were less expensive than young debutants (Fiz 1995).

Today, their best pieces command prices of at least $500,000. From these examples it is easy to understand how prices are subject to continuous distortions. It is not surprising that Baumol (1986) describes the determining the prices of works of art as a â&#x20AC;&#x2DC;floating crap gameâ&#x20AC;&#x2122;. This is due to the fact that prices are not anchored to any objective element and therefore can fluctuate unpredictably based on unobservable changes in consumer tastes. But, even supposing that there is no causality in the determination of prices, how do certain discrepancies between price and quality emerge? The only plausible answer is that the market for an artist takes off when the cultural value finds confirmation within the art system.

4.1

Variables That Influence Prices

There are no established rules underpinning the evaluation of works of art.

Fluctuations in prices are continuous and unpredictable, because they are conditioned by a series of variables that are able to contradict all the possible proposed scenarios. However, they can constitute a point of reference as we attempt to reflect on the trends at play. The criteria governing the determination of value may relate to the artist and his work. With reference to the first criterion, an important element is constituted by the reputation of the artist, which regards the persona he adopts, the wider movement of which he is the expression, and his nation of origin. Personal reputation is extremely important, so as to generate a very high value for works of art by artists considered stars and a trash market, for those of doubtful authenticity, which however are similar in appearance to authentic works.

A. Zorloni, The Economics of Contemporary Art, DOI 10.1007/978-3-642-32405-5_4, # Springer-Verlag Berlin Heidelberg 2013

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The reputation built by an artist combined with the attention paid to him by critics and the press are important factors in determining prices. Reputation is built from the information that art historians, critics, curators and art dealers provide; this information results in the creation of the artist’s brand (Zorloni 2005b). Branding, in particular, indicates in marketing terms the techniques used to create, manage and develop a brand and make it stronger and more attractive, adding value to products. In the world of contemporary art, as pointed out by Thompson (2008), it has led to the creation of brands ranging from art dealers (Larry Gagosian, Jay Jopling, Victoria Miro, Sadie Coles) to museum-brands (the Tate in London, MoMA, the Metropolitan, the Guggenheim and the Whitney in New York, MOCA in Los Angeles, the Pompidou in Paris), and from auction house-brands (Christie’s, Sotheby’s and Phillips), to collector-brands (Franc¸ois Pinault, Charles Saatchi, Eli Broad, Steve Cohen, Dakis Joannou), not to mention of course artistbrands (Jeff Koons, Damien Hirst, Maurizio Cattelan). In the artists’ case branded identity is defined in relation to two elements: historical identity and stylistic identity (Zorloni 2005a).

• Historical identity represents one of an artist’s most important assets. An artist begins to become a brand when he obtains legitimation within the art system via critics, prizes, awards and important exhibitions in public institutions. The number of exhibitions in major public institutions and the quantity and quality of critical reviews are the starting point and often the basis for building an artist’s brand.

• Stylistic identity is determined by the set of stylistic codes that characterize an artist’s production on an ongoing basis, albeit in the evolution of his creative research. These codes may include forms (e.g. Fontana’s cuts, Burri’s sacks, Capogrossi’s forks, Dine’s hearts, Christo’s packs, Beecroft’s naked women, Hirst’s cabinets) materials used, colours, details, or concepts (the concept of death for Boltansky, a playful attitude for Cattelan). An artist begins to become a brand when his name evokes the characteristics of his work in the collective imagination. At this stage, the artist has a distinct stylistic identity, he is clearly differentiated from the competition and his dealer enjoys a certain power of monopoly (Zorloni 2005a).

With reference to work by the artist one must consider content, technique and size. Oil painting is considered the technique par excellence, the one that characterizes major works. In terms of materials, acrylics or mixed techniques have equal status to oil, and in terms of supports, wood, masonite, and cardboard have equal status to canvas. Works on paper in tempera, watercolour or pastel, are considered products of lower quality and therefore of lesser value. Intended for broader collecting, drawings in pen and serial graphics (etchings, lithographs, serigraphs) then follow in order of importance. In the latter case, the entire print run is worth more or less the same as one original artwork by the artist. In the paintings market, then, the value of a work of art is generally given by size of the painting (its width times its height) which is then multiplied by a coefficient, between 1 and 10, established on the basis of the artist’s importance. The sculpture market represents a market segment that is much narrower than the one for painting

4.2

The Media System and the Spectacularization of Art

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and photography. Also in this segment it is necessary to pay attention to the enormous price difference between multiples and original artworks. Works of art with a run of up to nine copies are considered original. It is clear that in order to make a purchase destined to appreciate over time it is necessary to buy an original, while multiples, circulating in dozens of copies, have a value eight to ten times lower than the original (Fiz 1995). Another determining factor for the purposes of valuing a work of art is the date of execution. Much more sought after and indeed the most popular are those works of art executed during an artist’s most creative phase, both with respect to his individual development, and in relation to the emergence of significant trends.

There is always a moment in an artist’s life in which his research leads to results of particular creative value. Frequently, however, a mannerist phase follows the initial phase of pure creativity; during this second period the artist ends up endlessly imitating himself, repeating the execution of the subjects that have made him popular. The commercial value of these works of art is much lower compared to the prototypes. Identifying the right work of art is fundamental, because the same artist can have a nearly unlimited spectrum of prices.

It is also necessary to privilege those works of art that are suitable for domestic spaces, leaving aside those that are too large and are therefore much more difficult to resell, because of limited demand. In fact, beyond a certain threshold (typically 150 cm width) size adversely affects price. Besides size, another factor that must be taken into account is the subject. In this case it is advisable to move towards easily recognizable works of art, which are emblematic of an artist’s production and preferably have been published. The author’s backstory is important, but that of the artwork itself counts even more. Those that have been exhibited in relevant exhibitions, that have aroused critical interest, that have appeared in monographs and prominent journals (preferably international ones) or that have been part of important private collections or have been exhibited in museums, are considered to be the most prestigious ones.

4.2

The Media System and the Spectacularization of Art

Along with objective data, there are further aspects that significantly affect prices in contemporary art. Among these, it is necessary to mention the influence of critics and the media, but especially the degree of development of the commercial and museum-sector structures standing behind each artist. The theoretical work of some critic-sponsors is a key factor in building the brand of an artist, upon which market value is increasingly based. It is certainly not a new factor, if you think of the role played by some intellectuals in the success of twentieth-century avant-garde groups (Breton and Surrealism, Marinetti and Futurism, Tapie` and the Informal), but the work of critic-sponsors has become increasingly more important since the second half of the century, because the critic has assumed a more marked promotion and management role. In broader terms, the critic can provide the determining boost in affirming and disseminating new languages, genres or art forms. In the 1970s,

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Germano Celant imposed Italian art on the attention of the world, aggregating a number of artists under the name of Arte Povera. With an even more disruptive mass-media impact, the critic Achille Bonito Oliva invented Transavanguardia which, in a dead-end moment in conceptual art, skilfully exploited the widespread desire to return to colours, dexterity in execution, and figuration. In this case, the monopoly niche occupied by the critic regarding the production and exchange of information can be transformed into a monopoly niche occupied by a school or a group of artists, whose aesthetic and therefore commercial value is guaranteed and fed by the critic himself. In addition to the verdicts of the critics, artistic quality is also certified through the mass media or specialized magazines, television, and press, which are essential to the visibility of so-called events, the great international exhibitions (Venice Biennale, Documenta in Kassel, Manifesta) and awards, which have now become fashion phenomena. Without the media, the system of international awards such as the Turner Prize, the Hugo Boss or the Marcel Duchamp Prize, and others of lesser importance, would not have become one of the great protagonists in the phenomenon of the spectacularization of art. The proliferation of awards and recognitions in the visual arts market suggests that the sponsors willing to invest and communicate through art are numerous and are typically represented by companies active in the financial sector (e.g. Baloise Art Prize), in the information sector (Cairo with the Cairo prize, Bloomberg with the New Contemporaries), in fashion (Premio Furla for contemporary art, MaxMara Art Prize for Women, Hugo Boss Prize), in design (Premio Moroso for contemporary art), and in general by companies belonging to the luxury goods sector (e.g. Cartier Award). Through the awards system, the artist becomes a public figure and guarantees himself access to prestigious private collections and international exhibitions, with the result of increasing in notoriety and therefore raising the economic value of his production.

This is the case with English artist Tracey Emin, who in 1999 participated in the Turner Prize, (the prestigious award that since 1984 Tate Modern organizes every year) with an installation of an unmade bed, around which her clothes and personal effects lied scattered; the work did not win the prize, but the scandal it produced attracted widespread press coverage, leading to purchase for the sum of £150,000 by the advertising executive and collector Charles Saatchi. With the media already having a key role in the evaluation of works of contemporary art, art is more and more becoming an entertainment good. This trend is confirmed by the recent program entitled ‘Work of Art: The Next Great Artist’, launched in June 2010, with Sarah Jessica Parker in the role of presenter and producer, and Simon de Pury in the role of mentor. The first edition of the TV contest chose Abdi Farah, 23 years old, as the winner of $100,000 and the chance to exhibit his artworks in a solo show at the Brooklyn Museum, besides – of course – the chance for his works to be auctioned at Phillips. In fact, as Banksy with his satirical works and Obey Giant with the prints for Barack Obama’s presidential campaign both found, media coverage pays. Before Barack Obama was elected president in 2008, Obey Giant’s

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The Media System and the Spectacularization of Art

93

prints were sold at €70–100. Today, they are worth €1,500–4,000.1 Museums of contemporary art are another player that has exerted an increasing influence on the market since the late twentieth century; some of them, supported by public and private funds, play a fundamental role in consecrating emerging artists, even in determining their economic success at the same time. The phenomenon has increased since the 1980s with the proliferation of new sites dedicated to contemporary art: former power stations converted into exhibition spaces (Tate Modern), and museum-monuments often without permanent collections. These museums have offered their spaces to young artists, institutionalized them at an early stage.

In 1987 the Whitney Museum of American Art in New York dedicated a retrospective exhibition to the 30-year old artist Cindy Sherman, whose ‘Untitled Film Stills’ were purchased by MoMA in New York for more than $1 million in 1997. Although provenance from an illustrious collection has always been an important factor in the economic evaluation of a work of art, in the contemporary art market, an artist’s brand is also created simply by temporarily being exhibited in one of these places.

In fact, if the artist, as well as being supported by a prestigious critic and backed by a good gallery, is featured in the exhibitions that count and manages to establish himself in the international arena, his price increases. The large ‘Sensation’ exhibition of 1997, organized in London by the advertising tycoon Charles Saatchi, launched onto the market the phenomenon of the Young British Artists, who were totally ignored until then, emphasizing artists like Gary Hume, Chris Ofili and Damien Hirst and creating ex novo a collecting genre, which has boosted valuations. Exhibitions, then, although they are promoted as an exclusively cultural fact, have a strong influence on the market, distorting valuations in some cases. A retrospective at Kunsthalle in Vienna, as well as a solo show at Palais de Tokyo in Paris, or even more, at the Guggenheim in Bilbao or at the Tate Modern in London, can lead to notable swings in price. In fact, every exhibition of some importance, organized in public spaces, behind which there are substantial investments made by funders, collectors or the same art dealers, has an indirect relationship with the market: if for no other reason than because it allows attention to be focused, for a certain period of time, on the artist being promoted. One example is ‘Nude Portrait’ of 2002, an oil painting by Lucian Freud (one of the most respected British painters), which depicts the supermodel Kate Moss naked and pregnant. The work was sold at Christie’s (London), on 9 February 2005, for slightly less than €5.1 million, only 3 years after the very large retrospective that Tate Modern had dedicated to the grandson of the founder of psychoanalysis. Pommerehne and Feld’s empirical investigation of 1997 confirms the importance of public certifications in increasing the value of works of art, noting that, while general sales in the period 1820–1970 show an increase in real value of 1.1 %, during the same period artworks sold to public museums record an 4.1 % increase in real value. From this analysis we can deduce that the degree of development of a

1

Artprice (2010).

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country’s cultural institutions is a significant indicator of its cultural power, and those countries that are not well equipped to compete in the international museum network are likely to see their artists being losing value and being marginalized.

Currently, Cina, the United States of America, Germany, France, the United Kingdom and Switzerland are the main countries that control the market for contemporary art (Baia Curioni et al. 2011); it does not have to be surprising that artists like Peter Doig, Jeff Koons, Chen Yifei and Jean-Michel Basquiat, who are promoted and supported by large, powerful galleries such as Gagosian, Marlborough, Victoria Miro Gallery, Sonnabend, and internationally appreciated by the most important cultural institutions, are also the most highly-rated (Table 4.1). All other things being equal, it seems that works of art traded on U.S. markets have a higher price, because here the intense marketing practiced by the operators is able to grow the economic value of the artists and artworks that are lucky enough to be located there (Maurizio Cattelan, Vanessa Beecroft and Francesco Vezzoli who work in America, and whose artworks have been circulating in this market, are among the most highly-rated Italian artists). Those who exist in more decentralized cultural contexts (the so-called alternative markets), such as Italy for example, objectively do not have the possibility of reaching the highest levels of fame.

4.3

Art Market and Economics of the Star System

With the decline of the traditional judgment criteria which are based on technical quality and are therefore verifiable on parameters dictated by the academies, the assessment of artistic production, particularly contemporary production, has begun to depend on more and more refined market strategies, by making the added value deriving from the brand of the creator progressively more important than the intrinsic value of his work. The valuations of painters such as the Afro-American Jean-Michel Basquiat, who died from an overdose, of the graffiti artist Keith Haring, who died from AIDS, or of Jeff Koons, a former partner of a porn star whom he elected as his muse, has risen proportionally to the provocations or myths that artists have created around themselves, as theorized by Koons himself, according to whom, in a world where everything is based on money, price is what makes an artwork. Artists’ income with regard to its sources has been addressed by Rosen (1981) from a theoretical point of view and by Adler (1985) from an empirical point of view. Rosen’s model explains artists’ income as a function of their talent and it is also referred to as the Superstar model. The purpose of the model is to explain why the relatively few artists who earn enormous sums of money dominate the market through the activities they undertake. This model has been utilized by Adler (1985) to explain why the art consumer is not prone to a varied consumption, but prefers to focus on a few great artists. According to Adler, the existence of celebrities does not derive from the differentiation of talent, but from consumers’ need to have a common culture and symbols to share. According to this author the creation of a star, that is the transformation of an artist into a symbol, begins when each consumer randomly selects a new artist to add to his

4.3

Art Market and Economics of the Star System

95

Table 4.1 The world’s most highly-rated ten artists born after 1945 (sales from July 1st, 2010 to June 30th, 2011) 1

Artist KOONS Jeff

Price (€) 10,804,500

2 3

KOONS Jeff CHEN Yifei

10,441,500 7,781,600

4

ZHANG Xiaogang DOIG Peter

6,337,800

7

BASQUIAT Jean-Michel WU Bin

8

5

Sale 11/10/10 Christie’s NEW YORK 05/10/11 Sotheby’s NEW YORK 05/24/11 China Guardian Auctions Co., Ltd. BEIJING 04/03/11 Sotheby’s HONG KONG 06/28/11 Christie’s LONDON

5,359,680

Red boat (Imaginary boys) (03/04) Untitled (1981)

4,783,500

Landscape

JIN Shunkui

4,678,100

War

ZHANG Xiaogang 10 BASQUIAT Jean-Michel

4,530,500

Bloodline-big family (1995) Dos Cabezas (1982)

06/04/11 Poly International Auction Co., Ltd BEIJING 12/21/10 Beijing Jiuge International Auctions Co., Ltd BEIJING 04/04/11 Sotheby’s HONG KONG

6

9

6,184,200

Artwork Balloon flower (Blue) (1995–2000) Pink panther (1988) Wind of mountain village (1994) Forever lasting love

4,501,875

06/29/11 Sotheby’s LONDON

11/10/10 Christie’s NEW YORK

Source: Artprice (2011)

basket from a group of equally talented artists. The initial advantage allows the selected artist to become popular, and because consumers need a culture and symbols to share, other consumers in turn will start to become interested and to purchase the artist’s works of art. Edgar Morin (2005) has traced the source of the star system to the beginning of the last century when in Hollywood the first group of film companies was formed, competing to conquer the domestic market and to affirm themselves on the international one. This is a system that today prevails also in the visual arts industry, especially in the avant-garde segment (Zorloni 2005a). In the era of marketing, entertainment and seduction, the economic exploitation of notoriety, in the context of mass production and ubiquity of the mass media, has given rise to a sort of celebrity economy, characterized by three specific aspects.

For artists, creators and personalities who are part of the star system, the difference in their compensation is often vastly greater than the difference of talent that sets them apart from others; the exploitation of glory extends beyond their original field of competence; the results, sometimes obtained more by chance than due to talent or specific training, are subject to self-strengthening (Benhamou 2002). To confirm this, a study of 78 contemporary artists seems to empirically confirm Rosen’s Superstar model and the hypothesis according to which the positive feedback present in the contemporary art market leads to the most important international cultural sites being dominated by a few artists, thus creating barriers to entry for new entrants (Zorloni 2011).

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4.3.1

4

Art Appraisal and Value Creation Strategies

The Effects of Network Externalities in the Contemporary Art Market

It is possible to assume that demand for contemporary works of art is characterized by indirect network externalities2 on the demand side: this means that the collectors’ utility – and thus the willingness to pay – depends on the number of prestigious and influential collections the artist is already part of. A product (or technology) is said to exhibit network externalities when, for the individual buyer, the value of the product depends on the number of users who consume the same product (Varian 2003). For instance, if being the only collector of a particular artist can increase private utility (the pleasure derived from admiring a painting), social utility on the other hand grows as more famous collectors appreciate and share interest in that particular artist, with whom one can therefore believe that one forms a restricted cultural elite. The influence of network externalities on demand can be defined and represented using Leibenstein’s model (1948). This model allows us to estimate that the demand function for a contemporary artist is: Qd;i ¼ f ðPi ; na Þ; con

@Qdi @Qdi < 0; > 0: @Pi @na

(4.1)

where na represents the total number of collectors.

If na ¼ n0, Qdi ¼ f(Pi)⟹corresponds to D0, na ¼ n1, Qdi ¼ f1(Pi) ⟹D1 (Fig. 4.1).

For, na ¼ n1, with, n1 > n0, the demand curve shifts from D0 to D1 and so on, until the increase of collectors causes the devaluation of the image of the artist and thus the emergence of a snob-effect, i.e. negative externalities. The demand curve for collectors – namely the relationship that connects to each hypothetical level of price the quantity that buyers are willing to buy – is obtained considering, for each price, the worth effect and the externalities effect. For example, if the price falls from P0 to P1, the quantity of works of art demanded by collectors increases from Q0 to Q0 (worth effect): the appreciation of the artist by new collectors (n1 n0) causes a further increase of quantity demanded from Q0 to Q1 (externalities effect).

This occurs for the appearance of positive feedback due to which, as the circulation of works of art in the network of renowned public and private collections increases, an increasing number of individuals will be encouraged to adopt the product, making the artist even more attractive to additional collectors and triggering the

2 There are two types of network effects: direct and indirect. Direct network effects are produced when the number of users adopting the good affects the utility of the individual because he can interact with more people. Fax, telephone, e-mail, software applications grow in value with an increasing network of users. These effects are also called economies of scale on the demand side.

Indirect network effects are instead produced when the user’s utility depends not so much from being able to interact with a large number of other users, but rather from the increased attention their product receives, if it is extensively disseminated, by the manufacturers (in this case the artists).

4.3

Art Market and Economics of the Star System

Fig. 4.1 Network externalities in the contemporary art market (Source: Personal elaboration)

97

P’

P0

P1

Ao’

A

1

D0(na=no) Q0

Q’

Worth effect

Dm D1(na=n1)

Q1 Network externalities effect

self-reinforcing effect (celebrity-effect) defined above. This celebrity-effect is the result of the new collectors’ common practice of reducing search and information costs by only purchasing recognized works or those by famous artists. By doing so new buyers can rely on preferences established by previous successful buyers, hence reducing the risk and insecurity inherent in relying on their own taste.

These risk-reducing techniques tend to reinforce the celebrity-effect in the art market, whereby the works of the most famous artists are demanded the most and achieve the highest prices in the market, while emerging artists face high barriers to entry.

The relevance of social interactions and aesthetic conventions in creating and strengthening decisive information poles has been highlighted by Sagot-Duvaroux et al. (1992), according to whom the hierarchies of artists may only represent the tastes of the most efficient networks of operators equipped with information into the art world. It is possible to hypothesize that the effect of network externalities manifests positively only with respect to a minimum critical mass (n0) of collectors (elite-effect) and turns negative when the number of collectors becomes so high (n1) as to cause the emergence of a snob-effect (Leibenstein 1948), that is, negative externalities from the consumption side. In this hypothesis, demand assumes an angle configuration (Fig. 4.2).

4.3.2

Positive Feedback and Valorisation Strategies

Markets characterized by positive feedback follow a common expansion process which is characterized by three phases: flat performance during the launch, sustained growth during the period in which the product is affirmed as a result of the positive feedback, and a period of slower growth once the market is saturated.

This typical pattern is applicable to an artist’s celebrity, to his creative period, to his valuations and more generally to artistic movements (Fig. 4.3).

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P

Dâ&#x20AC;&#x2122;(n1) D (n0) Q

Fig. 4.2 The emergence of the snob-effect in the contemporary art market (Source: Personal elaboration) Visibility Demand cycle

Creativity cycle

89

Time Introduction

Growth

Maturity

Decline

Fig. 4.3 Dynamics of the adoption process of an artist (Source: Personal elaboration)

In the first phase the good has not yet acquired the status of work of art and the symbolic value that the asset potentially bears must be identified and externally communicated through exchange. In this phase the number of exchanges is growing and the new product (the artist) is â&#x20AC;&#x2DC;adoptedâ&#x20AC;&#x2122; only by a few people who have a nose for novelty, love unusual things, have a high propensity to risk and competence in the field. These are the innovators, the trend-setters, many of whom, if they are endowed with credibility or charisma, become opinion formers. Examples are Giuseppe Panza di Biumo, Gianni Mattioli, Karl Nierendorf, Katherine Dreier, Salomon Guggenheim and his granddaughter Peggy who have enriched the extraordinary artistic heritage of the Guggenheim with their works; but also cultural institutions of the calibre of MoMA or Tate Modern. If the artist is well received by them, he begins to conquer new institutions and collectors, and accelerates the process of mainstream adhesion (Vettese 1998). In the second phase the object reaches the highest artistic merit and is allocated to whoever pays the largest reserve price. The consumption of the artistic product reaches an equilibrium and stabilizes itself. If artistic merit is sufficiently high, the stock of artistic capital embedded in the asset itself does not reduce, even with a diminution of demand. If, instead, the case history of exchanges did not allow the accumulation of sufficient artistic merit,

4.3

Art Market and Economics of the Star System

99

Table 4.2 The most influential artists included among the ArtReview Power 100 Position 1 5 7 11 21 23 28 32 36 41 47 50 54 59 64 66 75 83

Artist Ai Weiwei Anton Vidokle, Julieta Aranda and Brian Kuan Wood Cindy Sherman Gerhard Richter Mike Kelley Marina Abramovic Peter Fischli and David Weiss Liam Gillick Franz West Rosemarie Trockel Takashi Murakami Anish Kapoor Artur Zmijewski Steve McQueen Damien Hirst Jeff Koons Walid Raad David Hammons

Source: Personal elaboration on art review power 100, 2011

the work of art loses liquidity and the asset loses its symbolic value and exits the art market. In markets with network externalities, like the contemporary art market, competition appears to be particularly fierce at the initial stage because, with the achievement of critical mass, triggering positive feedback can lead to almost monopolistic positions with the inevitable consequence of informally creating reputational barriers to entry. The data for 2012, concerning artistsâ&#x20AC;&#x2122; turnover, visibility and power, clearly show that the contemporary art economy increasingly tends to focus on a few brands, artists who have now assumed the role of superstars within the art system (Tables 4.2, 4.3, and 4.4).

In markets with network externalities, such as the avant-garde art market and the classical contemporary one, of great importance is not only the artistâ&#x20AC;&#x2122;s talent and ability to innovate, but also the speed at which he grows, since the first artists who reach critical mass will conquer the entire market. In these competitive dynamics expectations play an important role: the simple belief that a given artist will become the star of the market may cause an increasing number of critics to talk about him, media to cover him and collectors to buy him, making him indeed become the market celebrity. In this case, in fact, it is not necessarily the most valuable artist that achieves success: a minor artist can also succeed if there are wide expectations that this may occur. So, for an artist willing to conquer a market with network effects, the most critical challenge lays in triggering positive feedback. To achieve this, the artist must make some basic choices that can lead to very different results depending on the competitive environment in which he operates. First of all, he will have to find a compromise between artistic research and relational capital, i.e. he

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Table 4.3 Ranking of living contemporary artists in relation to turnover, 2011/2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Artist ZENG Fanzhi (1964) WOOL Christopher (1955) HIRST Damien (1965) ZHANG Xiaogang (1958) ZHOU Chunya (1955) PRINCE Richard (1949) KOONS Jeff (1955) HE Jiaying (1957) SHERMAN Cindy (1954) KIEFER Anselm (1945) MURAKAMI Takashi (1962) FANG Lijun (1963) WANG Yidong (1955) YANG Feiyun (1954) GURSKY Andreas (1955) LUO Zhongli (1948) YUE Minjun (1962) BROWN Glenn (1966) CATTELAN Maurizio (1960) LIU Ye (1964)

Auction sales turnover €33,296,116 €22,186,487 €21,370,107 €19,379,919 €16,035,305 €16,000,452 €15,238,565 €12,914,638 €12,273,737 €10,963,327 €10,531,360 €10,479,539 €10,229,465 €9,844,781 €9,739,646 €9,333,250 €8,157,098 €8,038,722 €7,881,310 €7,615,259

Max hammer price €3,594,500 €5,189,550 €1,182,370 €5,576,700 €3,074,000 €4,353,600 €3,996,300 €1,044,680 €1,920,500 €1,152,300 €1,743,840 €2,413,000 €1,657,500 €3,825,000 €2,761,080 €677,440 €2,753,385 €5,725,160 €1,696,420 €1,459,200

Source: Artprice (2012)

will have to choose whether to follow the artistic investigations compatible with those already existing on the market which, however, are unlikely to lead the artist to monopolistic power, and will therefore cause him to invest more in selfpromotion activities, or to favour experimentation and spend less time in public relations. In general, as observed by Vettese (1991), it is possible to establish at least four behavior strategies that are also quite common stereotypes among artists.

1. Occultation strategy: aims to build an aura of mystery. Burri concealed himself, constantly remaining absent from public events, but also personalities like Louise Bourgeois, Georg Baselitz and Katharina Fritch like to mingle sparingly with their audiences, thereby creating mysterious personae.

2. Scandal strategy: focuses on irreverent, quirky, sometimes even obscene behavior to attract attention. Artists like Andre`s Serrano, Paul McCharty, Damien Hirst, Tracey Emin or the Chapman brothers have heavily relied on their ability to generate public bewilderment through highly-criticized acts that have increased their notoriety. Think of Cattelan’s provocative behaviour, the necrophiliac images of Cindy Sherman or, lastly of Ilona Staller’s presence during the Venice Biennale in 1990, together with the artist Jeff Koons, who made her his muse and the mother of his son.

3. Poe`te maudit strategy: a pattern of conduct aimed at self-destruction, where the artist’s life is short and ends in burn-out. It first happened to Van Gogh, who even before his suicide, was driven to self-mutilation; see also Pollock’s

4.3

Art Market and Economics of the Star System

101

Table 4.4 Ranking of the most visible living contemporary artists in 2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43

Name Bruce Nauman Gerhard Richter John Baldessari Cindy Sherman Ed Ruscha Lawrence Weiner Thomas Ruff Georg Baselitz William Kentridge Dan Graham Olafur Eliasson Douglas Gordon Fischli and Weiss Francis Alys Paul McCarthy Wolfgang Tillmans Rosemarie Trockel Damien Hirst Andreas Gursky Erwin Wurm Richard Serra Jasper Johns Marina Abramovic Mona Hatoum Thomas Struth Rodney Graham Valie Export Nan Goldin Anselm Kiefer Arnulf Rainer Jonathan Monk Jenny Holzer Yayoi Kusama Carl Andre Gilbert and George Tacita Dean Pipilotti Rist Christian Marclay Raymond Pettibon Vito Acconci Alex Katz Hans-Peter Feldmann Anri Sala

Born 1941 1932 1931 1954 1937 1942 1958 1938 1955 1942 1967 1966 1952–1946 1959 1945 1968 1952 1965 1955 1954 1939 1930 1946 1952 1954 1949 1940 1953 1945 1929 1969 1950 1929 1935 1943–1942 1965 1962 1955 1957 1940 1927 1941 1974

Country US DE US US US US DE DE ZA US DK UK CH BE US DE DE UK DE AT US US RS LB DE CA AT US DE AT UK US JP US UK UK CH CH US US US DE AL

Price in € 900–1,000 1,000–1,500 110–190 75–190 75–190 100–140 40–90 400–500 40–60 140–180 125–350 125–300 50–100 35–70 130–210 13–20 80–200 450–650 150–400 80–160 900–1,500 800–4,000 40–50 60–100 80–100 40–110 15–25 60–100 350–600 80–100 40–60 50–100 60–200 300–400 100–150 25–40 90–130 35–70 30–50 15–30 40–170 15–25 15–20 (continued)

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Table 4.4 (continued) 44 45 46 47 48 49 50

Name Christian Boltanski Jeff Koons Tony Oursler Claes Oldenburg Richard Prince Vik Muniz Tony Cragg

Born 1944 1955 1957 1929 1949 1961 1949

Country FR US US US US BR UK

Price in € 40–60 500–800 60–120 300–500 160–410 50–100 200–350

Source: Personal elaboration on Artfacts and Kunstkompass 2012 data

alcoholism, Basquiat’s slow death due to heroine, and even Mapplethorpe and Haring’s deaths from AIDS. 4. Jet set strategy: involves an insistence on relational capital, without addressing one’s own energies just to the art world. Consider the ubiquity of Andy Warhol, in his desperate urge to be present, but also Jeff Koons, Maurizio Cattelan and Mark Kostabi who, following in Warhol’s footsteps, have succeeded in featuring not only on the cover of many popular weeklies, but also in hosting a television quiz show on contemporary art entitled The Kostabi Show that is aired every Wednesday night on Channel 56.

4.4

The Birth of a Star: the Case of Maurizio Cattelan

He is an artist, a journalist, an art dealer, and a curator. Maurizio Cattelan has played every possible role in the contemporary art world, except that of museum director. Maurizio Cattelan was born in Padua in 1960 and began working in Milan; his exhibiting debut was in 1991, at the Galleria d’Arte Moderna in Bologna, where he presented ‘Stadium 1991’, a very long table-football table, with 11 Senegalese players and an equal number selected from the reserves of Cesena, who were white.

The performance in Milan several years ago is now famous, when Cattelan sellotaped his dealer Massimo De Carlo to the wall, an act stemming from the Paduan artist’s vision, which often parrots the themes of criticism back to the art system. Even when being awarded an honorary degree in 2004 by the Faculty of Sociology, University of Trento, Cattelan did not spare his unsettling remarks: by identifying himself with a donkey, a symbol of ignorance, he signalled his disdain for the university. The title of the installation was ‘Un asino tra i dottori’ (a donkey among the doctors). Having been based in New York since 1993, Maurizio Cattelan is also responsible for the creation of the Permanent Food magazine, the opening of New York’s The Wrong Gallery with Ali Subotnick and Massimiliano Gioni, and the direction of Charley, a contemporary art magazine, in addition to having curated the fourth Berlin Biennale in 2006. In 2009 the auction revenue of all Maurizio Cattelan’s works totalled €1,496,864 million (considering all forms of artistic expression together). Between 2009 and 2010 his auction revenues were

4.5

Competitiveness of Countries in the Valorization of Contemporary Art

103

€7.4 million, of which €1.7 million were obtained with six sculptures. This amount is mostly due to a single untitled piece from 2001 (an installation rather than a sculpture) hyper-realistically representing the artist’s head breaking through a gaping hole in a museum floor. After paying $7 million (€5.5 million) at Sotheby’s, the new owner of the work of art had to sacrifice his own floor to be able to display it. In addition to this new record, the work of art ‘Frank and Jamie’ (representing two policemen who walk upside down with their head on the floor) was sold for £880,000 (over €1 million) on 30 June 2010 at Christie’s, while the sculpture depicting three small stuffed mice comfortably seated on a deckchair exceeded $70,000, the estimated pre-auction, reaching £270,000 (€292,000).3 Currently Maurizio Cattelan is one of the few contemporary artists able to command sevendigit figures not to have suffered from the economic crisis. His turnover in 2010 grew by 636 % and his valuations, already considered to be astronomical, grew by 46 % in 2010, bringing Italian contemporary art into vogue on the international markets (Table 4.5).

4.5

Competitiveness of Countries in the Valorization of Contemporary Art

4.5.1

U.S.

If Italy and Europe represent the cradle of public culture, the U.S. entrusts the management of the visual arts to private individuals. In the U.S. there are about 6,000 museums, at least a quarter of which are devoted to modern and contemporary art: as the U.S. does not have an artistic tradition covering many centuries, the greatest attention has been reserved for the art of the last century and in particular to those movements and those artists that represented America’s entry in the context of high culture, allowing the country to reach a position of predominance even in this field. The driving institution in the sector is the MoMA in New York, whose guidelines are often copied by other smaller museums scattered across the country.

Founded in 1929 as a non-profit institution with the intention of promoting and developing the study of modern art, the MoMA has an annual budget of approximately $136 million and is pursuing a clear strategy of fragmenting and multisourcing of grants, trying to diversify the provenance of its resources. Fifty-five percent are provided by its own revenues (ticket sales, the cafeteria, cloakroom, restaurant, guided tours, rental of the exhibition space, etc.), 17 % from its endowment, and 28 % resources from private contributions, be they individuals, companies or individual enterprises, associations, foundations or banks. The successful MoMA model, which has inspired most museums, has always been oriented towards alternating between several different activities in the same building: great

3

Source: Artprice (2010).

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Table 4.5 The evolution of Maurizio Cattelan’s turnover 2000–2010 (€) Date 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Value (€) 632,952 3,937,243 1,048,391 1,182,970 8,015,436 4,186,973 2,833,631 1,721,580 1,152,581 1,496,864 11,026,626

Growth rate (%) 0 +522 73 +12 +577 47 32 39 33 +29 +636

Source: Artprice

solo exhibitions, projects dedicated to emerging artists, collective exhibitions, screenings, performances, and new acquisitions exhibited in order to demonstrate the museum’s most recent direction. This extremely dynamic management is favoured by flexible administration, which is able to absorb a large amount of volunteer work, funds, and bequests from private individuals and citizens, as well as joint ventures with banks and corporations. This is also due to favourable legislation, as the contributions that private companies pay to museums are exempt from any federal tax and deductible for tax purposes. This means that the economic strength of American museums is far superior to that of European ones, which are usually dependent only on public funds, and that the bulk of American institutions’ purchases of works of art is significant and strongly influences the market (Figs. 4.4 and 4.5).

Besides the great New York pillars, the Guggenheim and the Whitney, in addition to the New Museum, the PS1, and the Dia Center (the latter having been created to implement projects of environmental dimensions), the other museums of contemporary art of a certain prestige, whose activity must be closely followed, are mainly the Museum of Contemporary Art in Chicago, the Museum of Contemporary Art in San Diego, the San Francisco Museum of Modern Art, the Institute of Contemporary Art (ICA) in Boston and the recently opened Museum of Contemporary Art in Los Angeles, and the MASS MoCA in Massachusetts.

4.5.2

Germany

The German Republic is probably the European country in which, during this postwar period, the expansion of museums dedicated to contemporary art has been strongest. Precisely in order to overcome the long cultural isolation that the Nazis desired, as well as the censorship operated by that regime on the visual arts, museums of great prestige and extension have sprung up in Germany even in

4.5

Competitiveness of Countries in the Valorization of Contemporary Art Revenues

Endowments

Private contributions

9%

105

Public funding

1%

1% 10%

28% 39%

39%

25%

30%

60% 17%

3%

18% 25%

10%

23%

11% 47%

58%

55% 37%

17% 25% 8% National Gallery

LACMA

Metropolitan

MoMA

Art Institute

Guggenheim

Fig. 4.4 Sources of income of American museums (2007) (Source: BCG analysis on Internal Revenue Service’s data) 300

250

200

150

282

100 145

136

50

76

70

Art Institute

Guggenheim

48 0 National Gallery

LACMA

Metropolitan

MoMA

Fig. 4.5 Budget of American museums in 2007 ($m) (Source: BCG analysis on Internal Revenue Service’s data)

relatively small towns: think about the beautiful centre for contemporary art in Mo¨nchengladbach, the Sprengel Museum in Hanover, or the ZKM, Center for Art and Media in Karlsruhe. Institutions have often risen up around a private donation, such as the Ludwig collection in Cologne, or the Sprengel collection in Hanover; German museums acquire more cautiously than American institutions, but proved equally effective in promoting and enhancing the local artists. The 1980s also witnessed the expression of a real race between the country’s major cities: after the inauguration of the Ludwig Museum in Cologne, the Staatsgalerie in Stuttgart, the state gallery in Dusseldorf, the numerous institutions dedicated to contemporary art in Frankfurt, in 1992 a huge complex in Bonn opened, the important museums of Dresden and Leipzig were restructured, and Berlin is trying to match the still undisputed fame of Paris in this field (Vettese 1991).

106

4.5.3

4

Art Appraisal and Value Creation Strategies

France

The French model is basically opposed to the polycentric one: just as the whole political system in France depends only on its metropolis, Paris, in the same way one would have expected the Centre Pompidou to be alone in presenting the fermenting strains of contemporary art. But the tangible and practical shortcomings of the Beaubourg were soon joined by ideological criticisms opposed to this centralized model, leading the Ministry of Culture to launch a dense network of local centres for contemporary art, the FRACs (Regional Foundations for Contemporary Art). Promoted in 1983 by the then Minister of Culture Jack Lang, a supporter of the dissemination of artistic and cultural education amongst the population, the FRACs are today, alongside the national museum institutions, present in every regional capital. The FRACs represent the first stage in the administrative decentralization that is under way and a successful example of collaboration between State and Regional Councils. Their mission is to acquire and build appreciation of contemporary art. The FRACs are attentive to emerging artistsâ&#x20AC;&#x2122; activity, i.e. those who are particularly dynamic even though they have limited budgets. The FRACs present such artists in temporary exhibitions, even though they do not possess permanent exhibition spaces. The foundations are public collections that differ from the usual, managerial conception of a museum because they are kept in depositaries and can only be admired during exhibitions or on specific request.

4.5.4

Italy

Within this landscape, Italy is an exception, since it is one of the few European nations that had never developed a policy specifically dedicated to the contemporary scene. Despite the active role played by private collectors, this country preferred, until very recently, to bask in its vocation of guarding of ancient materials, assigned to it by the presence of an artistic heritage spread throughout the country (Pratesi 2010). The field of contemporary art in Italy appears weak and fragmented: in addition to the Castello of Rivoli, to the Papesse of Siena and the Centro Pecci in Prato, which were set up in the 1980s and are partly managed by private capital, contemporary art galleries, whose programs are rather discontinuous, are dispersed: the GAM in Turin, the Mart in Rovereto, the MACRO and MAXXI in Rome, the Padiglione dâ&#x20AC;&#x2122;Arte Contemporanea (PAC) in Milan, the Museion in Bolzano or the MADRE in Naples (Table 4.6). Apart from the Trussardi Foundation and the Fondazione Sandretto Re Rebaudengo, none of these institutions has succeeded in gaining true credit internationally. The most serious and obvious result is that major exhibitions co-organized by centres like the Pompidou in Paris, the MoMA in New York, the Stedelijk in Amsterdam, and the Tate Modern in London generally tour Europe without coming to Italy. And because these large exhibitions usually have a strong influence on the prices of the artists who participate in them, it follows that Italian artistsâ&#x20AC;&#x2122; prices are much

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Competitiveness of Countries in the Valorization of Contemporary Art

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Table 4.6 Collections of the main Italian museums of contemporary art Approx. no. of pieces in Museum collection Period MUSEION 1,700 Twentieth century, Museo d’Arte particular reference to the Moderna e Italian-German artistic Contemporanea di movements Bolzano MART 7,000 Museo d’Arte Moderna e Contemporanea di Trento e Rovereto GAMeC 60 Galleria d’Arte Moderna e Contemporanea di Bergamo Castello di Rivoli 300 Museo d’Arte Contemporanea di Rivoli (Turin)

Fondazione Torino 15,000 Musei GAM, Galleria d’Arte Moderna e Contemporanea di Torino

Galleria Civica di Modena

9,000

GAM Galleria d’Arte Moderna di Bologna

4,000

Centro per l’Arte Contemporanea Luigi Pecci Prato

500

Type of collection, main artists Accardi, Afro, Beuys, Cage, Capogrossi, Fontana, Hofer, Lawler, Lewitt, Locher, Kosuth, Kounellis, Kowarz, Manzoni, Nauman, Novelli, Paik, Paolini, Rudolf, Stolz, Zimmermann The whole twentieth Balla, Boetti, Burri, Carra`, century Depero, de Chirico, Fontana, Long, Kiefer, Kounellis, Martinetti, Merz, Moranti, Nauman, Prampolini, Sironi Twentieth century Balla, Baj, Basilico, Boccioni, Casorati, Cattelan, de Chirico, De Pisis, Fontana, Hartung, Kandinskij, Manzu`, Moranti, Pirandello, Richter, Tesi From 1950 to present Bonvicini, Cattelan, Cragg, Flavin, Fontana, Goldin, Halley, Kiefer, Kounellis, Long, Marisaldi, Merz, Nauman, Oursler, Paladino, Penone, Pistoletto, Richter, Tesi From the end of eighteenth D’Azeglio, Fattori, Mancini, century to present Pellizza da Volpedo, Medardo Rosso, Anselmo, Balla, Boccioni, Boetti, Burri, de Chirico, De Pisis, Dix, Ernst, Fontana, Hartung, Klee, Kounellis, Martini, Manzu`, Melotti, Merz, Modigliani, Morandi, Picabia, Picasso, Paolini, Pistoletto, Severini, Warhol From 1900 to present Carra`, Evans, Fontana, Ghirri, Goldin, Lorca di Corcia, Morandi, Penone, Sironi, Zorio From 1800 to present Angeli, Beecroft, Burri, Cattelan, Cesar, Cucchi, Gilbert and George, Gilardi, Merz, Ontani, Pane, Paladino, Paolini, Penone, Schifano, Schnabel, Zorio From 1950 to present Bagnoli, Boetti, Cucchi, Fabre, Gilardi, Kapoor, Kounellis, Lewitt, Merz, Paolini, Pistoletto, Schnabel, Zorio (continued)

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Table 4.6 (continued)

Museum GNAM Galleria Nazionale d’Arte Moderna Roma

Approx. no. of pieces in collection Period 1,900 From 1800 to present

MAXXI 60 Museo Nazionale delle Arti del XXI secolo

Twenty-first century

MACRO 1,000 Museo d’Arte Contemporanea di Roma MAN 100 Museo d’Arte della Provincia di Nuoro

From 1960 to present

Type of collection, main artists Canova, Ce´zanne, Courbet, De Nittis, Fattori, Lega, Michetti, Monet, Pellizza da Volpedo, Previati, Medardo Rosso, Van Gogh Airo`, Alys, Anselmo, Arienti, Avery, Bartolini, Basilico, Beecroft, Beninati, Boetti, Cattelan, De Dominicis, Esposito, Galegati, Gilbert and George, Kentridge, Khebrenzades, Linke, Manzelli, Manzoni, Marisaldi, Merz, Moro, Oursler, Pessoli, Pivi, Richter, Ruscha, Schutte, Tesi, Trickell, Tuttofuoco, Vezzoli, Walker Accardi, Castellani, Perilli, Pivi, Pizzi Cannella, Rotella, Tesi

Art of the twentieth century Balleru, Canu, Collu, Floris, Lai, in Sardinia Mura, Nivola, Spada, Sini

Source: Sacco and Vettese (2009)

lower than those of artists working in other countries. Italian museums’ and contemporary art galleries’ typical cost conditions and non-profit organization have stimulated and justified the interventions of public support (grants) and private support (patronage and sponsorship) that have always, to varying degrees, characterized Italian artistic production; these interventions come either from the various levels of Public Administration (State, Regions, and Local Authorities) and from large and small private companies. Historically, the policy of funding for visual arts and culture more generally is grounded in some more or less economic motivation on the part of the State authorities.

First, the State bears the burden of satisfying future generations’ cultural demand, ensuring the country’s cultural heritage passes down from generation to generation. Moreover, the State invests national resources in the preservation of cultural heritage for national prestige and because it considers the conservation and education in the various artistic forms a worthwhile good, leading to the formation and transformation of consumer tastes. Finally, the State acts on behalf of all to ensure the fruition of externalities such as prestige or tourism, which the exploitation of cultural resources favours. We must analyze sponsorship at this point in the

4.6

Investment in Culture by Private Individuals and Foundations

109

discussion because the Italian framework of the promotion of visual arts has always been strongly characterized by private individuals.

4.6

Investment in Culture by Private Individuals and Foundations

Sponsorship of art and culture is moving away from events or projects driven by third parties and addressing wider publics, instead favouring initiatives that have been conceived with employees, particular communities, and business stakeholders in mind. The role of artistic and cultural activities as an efficient tool for marketing and internal communication motivates courses in art education, series of talks by creatives, intellectuals, and artists, and retraining programs: this means that external visibility becomes less of a priority. According to a three-year study completed in 2010 by the Business Committee for the Arts, the sums dedicated to arts and culture

by American businesses dropped by 14 % between 2006 and 2009. In the UK, an Arts and Business study reveals that in 2011 private investment in culture stood at £686 million, a 4 % increase from the previous year. Since Arts and Business first started capturing this data in 1976, private investment in the arts has been following a general upward trend, which has been interrupted in recent years with decreases in various sources of investment (Figs. 4.6 and 4.7).

The overall 4 % increase in private investment (not allowing for inflation) includes a 10 % increase in funding by trusts and foundations, a 6 % increase in individual philanthropy, and a 7 % decrease in business investment. The rise in individual philanthropy follows a decline in the previous two years, and is in line with its relatively fast-paced growth since 2001. The 6 % increase brings the levels of arts philanthropy to £382.2 million, which is higher than at any point in the past. Funding from trusts and foundations increased in 2011 by 10 %, and is higher than business investment for the second year in a row, thereby helping the overall moderate private investment increase. Funding from this source now accounts for 25 % of the total private investment received in the sector and now stands at £170.2 million. Business investment has fallen 7 % to £134.2 million. Although businesses are still committed to working with the arts, they are not hardwired to do so. Corporate money is a discretionary spend, particularly so in hard times. As a result, business investment in 2011 is now lower than it was in 2004/05. In Italy too the economic crisis and cuts in public expenditure have had a notable dampening effect on business and private support for cultural activities. The value of all private sponsorship in 2010 was €1.454 million, 9.6 % less than in 2009. €181 million were invested in culture, around 30 % less than 2008 when the figure was €258 million. Even the data on 2009 investment in cultural heritage by foundations in the banking sector (€408 million in total) show a drop of 20.5 % from the previous year (Fig. 4.8, Tables 4.7 and 4.8).4

4

Source: Grossi (2010).

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Art Appraisal and Value Creation Strategies

800 700 141,1

600

134,5 154,6 170,2

129,4 500 104,5 400

116,2

Trusts and foundations Individual giving

113 382,1

52,9

298,4

69,8

300

76,3

200

145,8 166,3

363,1 359,3 382,2

Business investments

250,6 269,4 202,7 228,7

100 114,4

111

120,2 112,3

158,4 155,7 171,5 163,4 157,3 144,1 134,2

2001

2002

2003

2005

0 2004

2006

2007

2008

2009

2010

2011

Fig. 4.6 Private investment in culture in the United Kingdom, 2001–2011 (Source: Spedding 2012) 800 686,6

700

658

654,9

599,3 600

686

513,5

500

541,3

375,8 400 336,5 300

454 347,1

200 100 0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Private investments in culture

Fig. 4.7 Private investment in culture (£ m) (Source: Spedding 2012) 35.000.000

32.283.024

30.000.000 25.000.000 20.000.000

31.757.692

31.646.293

30.137.336

29.439.453

16.933.693

16.053.602

15.000.000

18.852.582 14.044.602

10.000.000 5.000.000 0 2001

2002

2003

2004

2005

2006

2007

Donations

Fig. 4.8 Donation trends in Italy, 2001–2009 (€) (Source: Grossi 2010)

2008

2009

4.6

Investment in Culture by Private Individuals and Foundations

111

Table 4.7 Distribution of bank disbursements for the aided sector (absolute values in €m) Arts, cultural activities and goods Research Education, training and formation Volunteering, philanthropy and charity Local development Welfare Public health Environmental protection and quality Sport and leisure Family and related values Civil rights Religion and spiritual development Crime prevention and public safety Environmental safety and quality agriculture Total

2006 487.8 171.1 184.9 267.5 98.9 146.5 157.7 25.2 33.7 10.7 1.2 2.6 0.3 – 1,588.1

2007 524.2 247 206.6 178.7 177.6 167.9 133.9 32.4 23.2 14.8 3.9 3.2 1.7 – 1,715.1

2008 513.1 251.6 216.9 170.4 161.1 151.1 122.2 41.3 28.4 15.3 3.2 1.4 0.1 – 1,676.1

2009 408 196.7 162 140.7 175.6 140.5 100.6 23.1 19.9 14.6 2.2 2.1 0.3 0.1 1,386.5

Source: Grossi (2010) Table 4.8 Companies in Italy that claim to have invested in culture in the last 3 years

Companies that claim to invest % of total % compared to the field

Real estate, information Manufacturing Construction Commerce and research 17,534 9,915 16,864 3,882

7,3 47,8

4,1 48,8

7 41,7

1,6 80,3

Health Financial and social brokerage services 5,185 4,615

2,1 36,3

1,9 75,2

Source: Grossi (2010)

If we look at which areas were chosen by many international sponsors, we discover a strong level of support for contemporary production, as well as for twentieth and twenty-first-century work, giving rise to museums of design, fashion, and marketing communications, as well as to sponsored events on photography, art, music, and cinema, and lastly ambitious training programs in these sectors (Table 4.9).

On the other hand, if we examine the areas in which Italian companies intervene and the way in which they do so, we notice that they prefer structural initiatives (restorations, architectural interventions). We can also note their support for more traditional institutions and genres (museums and heritage, classical music and opera, major exhibitions of well-known artists), and the small number of staff that they assign exclusively to the drafting and evaluation of projects relating to art policy. These phenomena can partly be put down to Italy’s particular structure with the large number of SME, enterprises that work in decentralized,

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Art Appraisal and Value Creation Strategies

Table 4.9 Field of intervention of private investment dedicated to culture in the UK Field Heritage Museum Visual arts Theatre Music Festival Opera Dance Art services Community arts Film and video Art centre Library Literature/poetry Craft Other Total

Private investments £245,672,701 £109,364,109 £72,786,751 £48,281,403 £37,994,523 £24,742,743 £23,163,730 £21,974,859 £17,584,344 £15,202,581 £15,015,642 £14,660,354 £8,654,762 £3,393,679 £1,027,483 £26,111,820 £686,579,437

Source: Spedding (2012)

straightforward ways, and are not always interested in more experimental or innovative production. Despite this, in recent years a professional approach to contemporaneity has managed to take hold and carve out a niche in an area that is generally dominated by art-loving entrepreneurs’ and managers’ individual initiatives.

One company that has managed to make investment in art a cardinal point of its communications strategy is Targetti Sankey of Florence, a specialist in lighting architecture of more than 75 years’ standing. In 2009 Targetti created the Fondazione la Sfacciata where a real-life gallery of contemporary art is located: the Targetti Light Art Collection is composed of light installations. Works in the collection are regularly presented at the Bologna contemporary art fair, and since 1998 the collection has been hosted by museums and art galleries across the world, raising the company’s profile for new audiences, and diffusing its company values (a culture of light, research, and innovation) in an original and dramatic way (Osservatorio Impresa e Cultura 2004). UniCredit is also active in disseminating culture, promoting numerous initiatives linked to contemporary art in each country in which it operates. The group works together with museums and centres able to host cultural projects, not only from a technical and financial point of view, but also from a creative and organizational one. The main partnerships in visual arts in Italy include leading institutions such as the Castello di Rivoli museum of contemporary art in Turin, the Museo d’arte moderna in Bologna, the Museo di arte contemporanea in Rome, the Museo d’arte contemporanea e moderna di Trento e Rovereto and the Museo nazionale delle arti del XXI secolo.

4.6

Investment in Culture by Private Individuals and Foundations

113

Illy is an example of a company that has chosen to communicate its values through the creative potential of art. Since 1992 it has involved in the ambitious project concerning the coffee it produces some of the most significant contemporary figures, of the calibre of James Rosenquist, Mimmo Paladino, Sandro Chia, Jeff Koons and Robert Rauschemberg. In this way the product has been rendered recognizable, presented as expressing an idea of taste and refinedness. The Illy collection of cups and saucers, which are only on sale for short periods, and in limited series, have become true collectors’ items, with the capacity to immediately identify the product with the image projected by the company. Thanks to its advertising policy sponsoring events and initiatives (for instance the Venice Biennial and the Faenza festival of contemporary art), over 10 years Illy has been able to dominate the exclusive spaces of major art exhibitions. Nowadays contemporary art provides a creative resource with the capacity to transmit energy and to give impetus to new ideas. This is the direction in which Terna has been moving, a leading business in the energy grid sector which since 2008 has sponsored a contemporary art prize. The prize, a collaboration with the Ministero per i Beni e le Attivita` Culturali with which Terna has developed a protocol for the promotion of contemporary art in Italy, has three categories with total prize money of €150,000 (the categories are: Terawatt, recognized artists at national and international level, Gigawatt for emerging artists over 35 years of age, and Megawatt for younger emerging artists). The project has also given rise to qualitative and quantitative surveys organized in collaboration with public and private partners.

There is also Furla, a market-leading Italian producer of accessories, which in recent years has conceived a widely-noted initiative linked to contemporary art, which has increased the prestige of this brand from Bologna. Having been created by the company together with the Fondazione Querini Stampalia di Venezia and now in its ninth year, the Furla prize for art was the brainchild of Giovanna Furlanetto, the chairman and managing director of Furla: it aims to support and disseminate Italian contemporary art, bringing it to new audiences. Furla’s original and sustained initiative has brought it closer to contemporary art, allowing it to gain approval across the world of art, as well as to increase the brand’s prestige and the visibility, not to mention its aesthetic and artistic tenor. The project has widened the symbolism of the Furla brand, which traditionally lay in attributes such as class, sobriety, and elegance: contemporary art has added an experimental and more open dimension. Staging even a temporary exhibition within a business context can provide team-building and training opportunities for staff, animating the workplace with artistic spirit and stimulating staff creativity. For the Teseco group, a Pisan company in the sector of environmental engineering, commitment to contemporary art has provided a concrete opportunity to improve its internal communication processes, as well as how it motivates its staff. The Fondazione Teseco per l’Arte aims to bring art and creativity into close proximity with employees in the workplace, whether by exhibiting works by contemporary artists, or by organizing learning activities and encounters with internationally-recognized artists, critics, and art dealers. The idea of bringing together more than 150 artworks within the working environment draws deeply on the passion of Gualtiero Masini, the

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president of Gruppo Teseco, and on that of his wife, who have both collected contemporary art since the early 1990s (Osservatorio Impresa e Cultura 2004).5 Another example is provided by Ranger group, a Lombardy corporation specializing in moulding plastic materials and which, going back many years, has found contemporary art (particularly sculpture) to be a useful way of improving its internal communications. In recent years the passion for contemporary art and sculpture of Ranger group’s director, Alberto Rossini, has given him cause to favour many different collaborations with renowned artists and architects, for instance asking them to carry out the process of conceiving and creating works in full view of the company’s staff. During one collaboration, the French sculptor Ce´sar used Ranger’s technical competencies and machinery to crush and shape 15 written-off cars, which in 1998 went on to form an exhibition at the Fondazione Mudima di Milano. By setting up a kind of Renaissance workshop inside the business itself, Ranger carved out for itself in the field of innovative and sensorial production, and as such was able to convincingly link its brand to leading figures in art and culture (Osservatorio Impresa e Cultura 2004). Many other companies’ commitment to contemporary art can be seen in their short-term sponsorship of exhibition spaces, as BMW has chosen to do with Guggenheim Lab, an itinerant project which after beginning in New York, will move between three different cities around the world over two years. This commitment can also be seen in purchases which are then hosted by partner museums, such as those made by UniCredit and by the Fondazione per l’arte moderna e contemporanea CRT. An additional example of an initiative based around the success of contemporary art when placed in the everyday workplace is the one that the Fondazione Ermanno Casoli is promoting, which has the aim of strengthening the dialogue between the world of art and that of industry by bringing contemporary art into the workplace.

4.7

Use of Culture as a Marketing Lever

Why associate one’s brand with art? Because in the new scenarios created by the immaterial economy, competition is played out over ideas and the ability to associate the product with worlds of meaning that communicate the firm’s values.

Moreover, the concept of art carries with it a universe of values that speak of creativity, culture, style, taste for beauty, prestige, and ability to anticipate trends, that may reflect on the company and set up the investment in art as a strategic resource. In fact, the quality of the cultural offer is now becoming a fundamental element for firms whose business is based in knowledge and creativity i.e. for professionals in information technology, consultancy, but also fashion, design, and

5 The collection includes among others the works of art by Stefano Arienti, Vanessa Beecroft, Simone Berti, Bruno and Botto, Luca Pancrazi, Eva Marisaldi, Tracey Moffatt, Sol LeWitt, Shirin Neshat, Andres Serrano, Juan Munoz, Cindy Sherman, Cornelia Parker, Nan Goldin, Wolfgang Tillmans, Chen Zen.

4.7

Use of Culture as a Marketing Lever

115

the ‘made in Italy’ sectors. Finally, the imaginative and creative capabilities of art are increasingly critical as a way of giving life to innovative and enterprising companies.

According to Chin-Tao Wu (2002) a peculiar form of collaboration between art and business occurs when companies make their spaces available to host public exhibitions and cultural events, or even when companies give life to exhibition spaces that they manage themselves within their own working environments, being thus included in the list of artistic events to visit compiled by the specialized press, like any art gallery or museum space. In this way, art can become a communication strategy strongly characterizing corporate image, able to enrich the company’s products and brand with spiritual values. On the communication front, the realization of an artistic promotion project may have different purposes: 1. It can set the firm apart from the competition and position it uniquely; think for example of Absolut Vodka, whose product personality has become inseparable from contemporary art, through more than 10 years’ partnership with some of the most creative and well-known contemporary artists, who one by one are asked to work on the now famous Absolut bottle, which is transformed into a real object of experimentation; 2. Assisting with launching new products through the direct collaboration of artists in studying and creating new product lines (e.g. collaboration between Louis Vuitton and the artist Takashi Murakami); 3. To open new businesses and gain the interest and attention of new targets. For example, a company that at a branch opening decides to promote an exhibition of young artists and to finance the publication of a catalogue.

The execution of a cultural project should always begin with an analysis of the corporate mission and values in order to identify the most suitable form of expression. Within the visual arts scene it is possible to identify three macro categories to which specific values correspond; the latter needing to be consistent with the identity, mission, objectives and target of the sponsoring company (Osservatorio Impresa e Cultura 2004). These categories are: Ancient Art: includes artistic expressions related to ancient painting and traditional plastic arts. A company that chooses to invest in this area transmits values that speak of universality and tradition and focuses on a mode of communication allowing the company to reflect the prestige of works of art by great masters, or the authority of the cultural institution supported. In terms of investment, the company must have a medium-high budget, which can be translated into sponsorship, partnership or corporate collections initiatives.

Contemporary Art: a language including artistic expressions of contemporary culture is attractive to companies that have a limited budget and wish to communicate values that speak of modernity, openness, courage, and tolerance of diversity. A company that chooses to invest in this area demonstrates attentiveness to young emerging artists and more generally to the evolution of trends in the expressive and therefore social field, testifying its ability to look ahead.

Photography: more and more considered a form of contemporary art, photography is able to communicate with a larger and more diversified audience. In fact, unlike contemporary art, it is a form of expression that can be appreciated

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Table 4.10 Art and characteristics of the offer system Values expressed Personality Opportunity

Contemporary art Openness, dynamism, innovation Advanced, dynamic, trendy Launch of new products

Photography Sophistication, style, class Modern Positioning on new markets

Ancient art Durability, reliability, stability Classic, traditional Corporate campaign

Source: Personal elaboration

without sophisticated knowledge of the field. A company that chooses to invest in this area conveys values that speak both of realism and poetry. Projects can range from the simple sponsorship of an exhibition, to the promotion of a contest, to editorial production, to the realization of multimedia installations (Table 4.10).

In the past three decades, organizations promoting arts and business ideas began to emerge in European countries. The most important to mention are The Austrian Business Committee for the Arts, The Danish Forum for Art and Business, Arts and Business in the UK, the Carrefour du Me´ce´nat d’Entreprise in France, Business2Arts in Ireland and the Commitment to Europe Arts and Business in Poland. In 1991 the existing national arts and business associations of Europe, with the support of the European Commission established CEREC (European Committee for Business, Arts and Culture or Comite´ Europe´en pour le Rapprochement de l’E´conomie et de la Culture). The aim of these organizations is to operate as facilitators and advocate co-partnership between business and artists and/or cultural organisations. Their main activities focus on promoting partnerships and providing platforms for companies and/or entrepreneurs who are interested in providing long-term support for culture and spreading knowledge about cultural sponsorship and corporate philanthropy through web resources, newsletters, publications and events.

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Artprice. (2010). Contemporary art market 2009/2010. The artprice annual report. Saint Romain au mont D’or: Artprice.

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Baia Curioni, S., Forti, L., & Pietrabissa, C. (2011). National platforms and the global art market: Art basel 2005–2010. Paper presented to the 11th International conference on arts and cultural management (AIMAC 2011), Antwerp, 3–6 July 2011.

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5

Collecting: Motivations and Patterns of Consumption

5.1

Characteristics of Collector-Demand

Artworks are bought and used not only for their intrinsic value or ability to fulfil a material need, but also for the many connotations that they take on in a given cultural environment. The need to collect works of art, which has emerged ever more clearly as Western standards of living have improved, stems from the desire to affirm one’s own personality, via a process whereby artistic values adopt material form (Molfino and Mottola Molfino 1997). What’s more, as a luxury good, i.e. something that correlates closely with income and with the availability of one’s wealth, art serves to express mature capitalism and post-industrial society (Vettese 1991). Works of art, as luxury goods, are characterized not by satisfying a direct or material need, but a desire, which can be assuaged only by a given work that demonstrates something unique to the client that cannot be reproduced by another work. In principle, collector-demand originates with four types of socio-economic group: private collectors, businesses, public institutions and cultural institutions. By pausing to look at some distinguishing marks of the demand for works of art it is possible to define four models of consumption which are linked to the needs and demands of each category.

1. The first model is linked to cultural-interest motivations and stems from a completely inner, aesthetic need, in which the consumer’s emotive side predominates.

2. Secondly there is the model which proceeds from a decorative need, connected to the necessity of establishing a pleasant working environment: the functional aspect takes the upper hand here.

3. A third model is based in speculation, bringing together passion for artworks and the need to invest savings beyond the reach of currency fluctuations and fiscal risks: here economic criteria are the most important ones.

4. Lastly, societal motivations are those that consider the collector’s activity not as an end in itself, but as a source of social prestige able to respond to need in the symbolic domain.

A. Zorloni, The Economics of Contemporary Art, DOI 10.1007/978-3-642-32405-5_5, # Springer-Verlag Berlin Heidelberg 2013

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Art can therefore be seen as having the capacity to satisfy a cultural and aesthetic need, but also businesses’ and institutions’ increasing desire to preserve contemporary creativity for future generations, to convey an image of prestige to their interlocutors and to invest a portion of their savings in alternative markets. This trend is supported by recent findings from Capgemini and Merrill Lynch (2011) which reported that 22 % of investment of passion is allocated to art, with the share being higher among European HNWIs (27 %) and highest among Latin American HNWIs (28 %) (Fig. 5.1). Moreover a survey conducted by Deloitte Luxembourg and ArtTactic among 140 art advisors, which include art consultants, auction houses, dealers, and galleries, reported that 84 % of advisors say that the emotional value of art was the primary driver for investment, followed by 61 % citing the social value (status, prestige, social network), and 60 % the sense of rarity (exclusivity). 57 % of the art advisors surveyed viewed art as an investment and a viable asset class. Almost half of art advisors (49 %) said their clients were driven by the potential investment returns, 39 % mentioned portfolio diversification, and 29 % art as a hedge against inflation. A quarter (25 %) of art advisors considers the primary motivation to be art as a ‘safe haven’ or ‘store of value’ in times of economic uncertainty.

5.2

Assessing the Demand Function

The demand for a good is the relation explaining what underpins the consumption of that good. The demand for works of art is conditioned by a series of variables that differently affect the order of the collector’s preferences. First comes a disposable income constraint (amount of money wholly budgeted for the consumption of luxury goods, which works of art are) and the prices of substitute goods (other works of art, but also jewellery, watches, cars); in particular works of art, as luxury goods, have an elasticity of quantity demanded in comparison to income superior to the unit. This means that the propensity to purchase works of art can increase in a more than proportional way as income increases, on condition that knowledge of art and culture simultaneously increases. The level of education in addition to disposable income, is therefore crucial given that the higher an individual’s cultural level is, and the more frequent his visits to exhibitions, biennials and fairs are, the greater the benefit that he derives from purchasing a work of art. Lastly, demand for works of art is closely correlated to financial market trends. Studies by Francesco Forte and Michela Mantovani confirm that the stock market affects demand for works of art, influencing the price trend of paintings. In fact, if artistic investment yields more than financial investment, a work of art ends up constituting a valid substitute for a financial instrument. In contrast, the higher the rate of return on alternative investments, the lower the demand for and therefore the prices of artworks will be.

The demand for cultural products was the subject of specific theoretical elaboration in the work of Stigler and Becker (1977), who assumed an essential relevance of the learning mechanisms and formation of taste that define cultural products as

5.3

Theories on the Consumption of Artistic Goods and on Rational Addiction

100% 7%

3% 8%

90%

7%

80%

12%

14%

5% 8%

Sport Investments (sports teams, sailing, race horses, etc) 22%

23%

25%

22%

22%

50% 40%

Miscellaneous (travel, guns, musical instruments, etc)

15%

70% 60%

121

Other Collectibles (wine, coins, antiques)

Jewellery, Watches 22% Art

30% 20% 27%

30%

29%

2008

2009

2010

Luxury Collectibles (automobiles, boats, jets)

10% 0%

Fig. 5.1 ‘Passion investment’ by HNWIs, 2008–2010 (Source: Capgemini and Merrill Lynch 2011)

‘addictive goods’. Below I will try to describe the viewpoint of the two economists and to apply it to the fruition of visual arts.

5.3

Theories on the Consumption of Artistic Goods and on Rational Addiction

According to economic theory, the rational consumer maximizes utility according to stable preferences, attempting to predict the future consequences of his choices.

Dependent behaviour seems to form a contrast to rational behavior; nevertheless Becker and Murphy (1988) argue that even addictive behaviors, including the most extreme ones, can be considered rational, in the sense that they plan to maximize the opportunities afforded for certain unchanging habits. Individuals develop addictions not only to substances such as alcohol, cocaine, or tobacco, but also to activities and realities such as work, food, art, a certain standard of living, one’s partner, etc. The fact of smoking cigarettes, drinking alcohol, eating certain foods or seeing certain people for a certain period of time can cause an increased desire for such goods or people, resulting in an increase in consumption over time.

Economically speaking, the marginal utility of those goods or people is said to be increasing with time. This hypothesis is clearly expressed by Alfred Marshall when he speaks of the taste for quality music, claiming that exposure to quality music (and in general to any form of art) causes over time an increase in demand, since the more good music a person listens to, the stronger his taste for that art will become.

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The understanding and thus appreciation of contemporary art depends on the time devoted to art and hence implicitly on taste (including how it is formed), and on human capital. The formation of taste in the visual arts increases with exposure because exposure reduces its price (the effort required to understand and appreciate works of art), as it provides the critical skills and experience required to appreciate art. In other words the marginal utility of the time devoted to the enjoyment of art (e.g. through visiting exhibitions and fairs) increases due to the stock of art capital. The addiction to art that is created reduces the price of artistic understanding, and consequently increases the productivity of time dedicated to the consumption of art. Time spent on artistic understanding will tend to produce addiction (i.e. to increase with exposure) the more elastic the demand curve of artistic understanding is.

As is explained clearly by Gruber and Koszegi (2000), individuals that are rationally addicted know that current consumption implies a trade-off: on the one hand, the marginal utility of current consumption increases with the increase of the stock (i.e. of past consumption); on the other hand the marginal utility of the stock is negative due to the familiarity effect. Reinforcement occurs when a larger stock of past consumption increases the marginal utility of current consumption more than it reduces it (familiarity), and this increases current consumption. The increase in current consumption, in turn, increases the stock and therefore the marginal utility of future consumption.

The concept of habit correlates closely to that of addiction. It is possible to define as normal a behaviour in which the correlation between past consumption and future consumption is positive or, in economic terms, where these consumptions are complementary. Known examples are smoking, cocaine, consumption of ice cream, but also cultural consumption, or the tendency to lie. Habits can be harmful (bad habits) if an increase in present consumption corresponds to a reduction in future utility, as happens with the damage that smoking or bulimia inflict on health.

Similarly, habits are beneficial if an increase in present consumption corresponds to an increase in future utility, as occurs for cultural consumption or sporting activity. In this perspective, addiction is defined as a very strong habit, in which the effects of past consumption on present consumption are so strong as to prove destabilizing. An interesting step towards explaining habit-formation is the recognition that the utility of many goods depends on the relation between present consumption and the quantity consumed in the past. For example, a given standard of living will produce less utility in the individuals accustomed to a higher standard of living. Similarly, the emotion aroused by the sight of a beautiful painting by Klimt that one has recently acquired may become boring, banal or obvious after a few years.

5.4

5.4

Income and Potential Demand

123

Income and Potential Demand

The profile of the potential collector of works of contemporary art is an individual who usually belongs to the world of high finance or entrepreneurship, with very high income and wealth, and often with a medium-high level of education, a strong inclination to hedonism and with attitudes and interests turned towards cultural consumption. On a mental level and especially in terms of desires it is interesting to analyze the other products that works of art come into competition with, especially at the level of desires. In this light we can mention for instance luxury cars, private jets, luxury yachts, and to a lesser extent a certain class of fine watches. The market for works of art is at the apex of this pyramid of luxury, occupying a distinct position within the so-called hard luxury cluster (extreme luxury class). These luxury products with a high unit value cater to a very wealthy clientele, with a particularly high spending capacity. This class includes the so-called â&#x20AC;&#x2DC;high net worth individualsâ&#x20AC;&#x2122; (HNWIs), i.e. those individuals with financial assets exceeding $1 million.

The number and the financial holdings of HNWIs have increased in recent years despite some negative fluctuations in the economy. This is a positive sign that suggests that the global economic recovery is underway, although it may be uneven.

In particular, the family of HNWIs, representing the potential target of the classical contemporary and avant-garde art market, can be divided, according to bands of wealth, into three main categories: HNWIs, very HNWIs, and ultra HNWIs (see Fig. 5.2). What is particularly interesting to note is that the higher up the pyramid one moves, the lesser any impact of adverse macroeconomic fluctuation becomes.

Therefore demand for works of art is affected to a lesser extent by the general economic trend and we even witness, for some segments, anti-cyclical demand. To evaluate and assess the potentialities of the art market, it is important to analyze the evolution of HNWIs in terms of number and overall wealth. More specifically the market for works of art, within a specific geographic area, essentially depends on the number and wealth of individuals. It is obvious that the higher the number and the higher the average wealth of this segment, the greater the market possibilities in a given country will be. The study conducted by RBC Wealth Management together with Capgemini in their investigation of the potential market for luxury goods, which was published in the 2012 World Wealth Report, provided extremely interesting results. According to the report, now in its 16th edition, the number of individuals with financial holdings of at least $1 million in the world changed little in terms of population and wealth in 2011, though it did exceed the maximum levels of 2010. In particular, their number rose by 0.8 % to 11 million people, but their wealth slid 1.7 % to $42 trillion (Figs. 5.3 and 5.4).

At geographical level, the rich population remains concentrated in the U.S., Japan and Germany, which together represent 53 % of this category. But this concentration is bound to decrease if emerging countries continue to grow so rapidly. The Asia region in fact recorded the highest regional share of wealth in 2010, definitively overtaking Europe and becoming the second richest region, only second to North America. As for the number of HNWIs, in 2011 Asia-Pacific

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Fig. 5.2 The segmentation of the HNWI family North America

Asia-Pacific

0,1 0,4 0,4

0,1 0,4 0,4

3,1

Europe

Latin America

0,1 0,4 0,5 3

Middle East

Africa

0,1 0,4 0,5

0,1 0,5 0,5

3,1

3,2

3,3

3,4

2,6 2,8

3 2,4

3,3

2,7

3,1

3,4

3,4

2007

2008

2009

2010

2011

Fig. 5.3 Number of HNWIs by geographical area, 2007â&#x20AC;&#x201C;2011 (m) (Source: Capgemini and RBC Wealth Management 2012) North America

Asia-Pacific

1 1,7

1 1,5

6,2 0,8 1,4 10,7

Europe

Latin America

Middle East 1,2 1,7

Africa 1,1 1,7

7,3

7,1

10,2

10,1

10,8

10,7

6,7

5,8 9,5 8,3

9,5

9,7 7,4

11,7

2007

9,1

10,7

11,6

11,4

2008

2009

2010

2011

Fig. 5.4 Distribution of wealth by geographical area, 2007â&#x20AC;&#x201C;2011 (in $ trillion) (Source: Capgemini and RBC Wealth Management 2012)

surpassed North America for the first time, rising 1.6 % to 3.37 million individuals.

China leads the Asia region and occupies fourth place in the world wealth ranking, which explains why the Chinese market is now the leading art market in the world

5.5

Audience for Contemporary Art in Italy

125

3.500 3.104 3.064 3.000 2.500 2.000

1.822 1.739

1.500 1.000

951 924 535 562

500

454441 396404

280 252 282 144 193180 170168 155 165 243 147

0

2010

2011

Fig. 5.5 Number of HNWI by country, 2011 (m) (Source: Capgemini and RBC Wealth Management 2012)

in terms of turnover. Figure 5.5 allows us to represent the growth rate of the number of HNWIs, ranked in terms of major geographical areas. From 2010 to 2011, the total number of HNWIs grew most in countries like Brazil (6.2 %), China (5.2 %), Japan (4.8 %) and Switzerland (3.6 %), but at a lower rate overall (0.8 %) compared to 2010 (8.3 %) and 2009 (17.1 %).

Among the many countries witnessing a decline in their position regarding HNWIs, India and Hong Kong were the worst hit. Specifically, India was pushed out of the top 12 by South Korea, losing 18 % of its HNWIs population due to the economic turmoil suffered in 2011 and the consequent decline of its asset values.

Also the growth of GDP per capita is an important indicator to understand the direction the art market will take in the future. Table 5.1 shows that Brazil, China, Russia and United Arab Emirates had the fastest growth in average income over the last ten years. Although the gap among these countries and other Western economies remains significant, the growth of China and Russia is expected to continue at rates greater than 30 % over the next 5 years, which lets one assume interesting development perspectives for the art market in these countries.

5.5

Audience for Contemporary Art in Italy

13.5 million Italians, i.e. 27 % of the population, declare themselves to be interested in art in general and 4.5 million are interested in contemporary art (9 %). The sector mainly attracts very young people and the growth potential is enormous. This audience is made up especially of the youngest citizens (25â&#x20AC;&#x201C;34 years old) and those with a medium-to-high level of education. This is what emerges from the study conducted by Ispo on behalf of Terna, which looked at the Italian populationâ&#x20AC;&#x2122;s

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Table 5.1 GDP per capita of major economies, 2000–2010 Country Brazil China (M) China (HK) France Germany India Italy Japan Netherlands Russia Singapore Switzerland UAE United Kingdom U.S.

2000 ($) 3,751 946 3,751 25,199 22,574 460 19,293 36,800 24,250 1,794 22,791 34,786 23,446 25,142 35,252

2005 ($) 4,832 1,726 25,998 35,105 33,922 716 30,663 35,633 39,190 5,322 28,498 50,084 33,608 37,898 42,681

2008 ($) 8,626 3,404 30,696 45,991 44,525 1,066 38,887 38,271 53,355 11, 739 39,266 65,699 53,388 43,652 47,155

2010 ($) 10,471 4,283 31,799 40,591 40,512 1,176 33,829 42,325 46,418 10,522 42,653 67,074 47,407 36,298 47,132

Growth 2000–2010 (%) 179 353 26 80 74 156 75 15 91 487 87 93 102 44 34

Expected growth 2010–2015 (%) 34 69 34 13 14 58 9 22 10 72 18 7 29 24 18

Source: McAndrew (2011)

perception of art and in particular of the contemporary art. This datum confirms a fact well known to operators in the field, that is that the audience for contemporary art has, at least on paper, an impressive level of cultural education (Figs. 5.6 and 5.7).

But the comparison with other surveys is interesting: specifically with that on the audience for contemporary art museums led by the Centro Studi e Ricerche of the Associazione Civita (Civita 2007), that on the Lombard museums’ audience (Regione Lombardia 2004), and that commissioned by the Ministry of Cultural Heritage and Activities (Solima 2000). It emerges, in fact, that the contemporary art audience contains more than 47 % graduates compared to 39.5 % and 37.2 % of the audiences examined in the other two surveys, and in any case an amount well above the percentage of graduates in the Italian population taken as a whole (9 %).1 From a socio-demographic perspective the audience for contemporary art is very young and predominantly female: 38.7 % are between 25 and 44 years old and 18.24 % are between 15 and 24 years old; therefore, over 56 % of this audience is aged below 44 years old, against just over 30 % of the Italian population as a whole. Finally, 30.78 % are aged between 45 and 64 years old. Regarding employment status 27 % are composed of senior staff and employees, 19 % of top and middle managers and freelancers, 21 % of students, 12 % of retirees and 8 % of people looking for their first job. The remaining 13 % is distributed evenly between workers, self-employed workers, housewives or people seeking new employment. This figure becomes especially interesting if we consider the field of work: 24 % of the audience pursue

1

Source: OECD (2010).

5.5

Audience for Contemporary Art in Italy

127

Fig. 5.6 Interest in art in general (Source: Ispo 2010)

4% 31%

23%

High Moderate Don't know

7%

Little None at all

35%

Fig. 5.7 Interest in contemporary art (Source: Ispo 2010)

1% 8% 10%

High Moderate

47%

Don't know Little 34%

None at all

an activity related to contemporary arts and 14 % are teachers. The remaining 62 % are employed in other activities not related to contemporary art. Thus, the contemporary art audience is not motivated only by a professional interest, as it is sometimes easy to think, although the presence among respondents of people involved in artistic production (7 %), architecture (6 %), graphics and design (5 %), photography (1 %), cinema (1 %), television (1 %), art criticism (1 %), journalism and publishing (3 %) does add up to a significant figure. The audience for contemporary art is quite likely to visit museums and exhibitions throughout the year. As many as 58 % declare that they have visited museums at least once and 46 % have visited contemporary art galleries. Only a smaller amount, 31 %, states that they have visited to contemporary art fairs. From the research commissioned by Terna it also emerges that 45 % of Italians still consider that contemporary art is only accessible to connoisseurs. For various reasons, no fewer than 13.5 million Italians have difficulty in approaching contemporary art (Figs. 5.8 and 5.9) (Table 5.2).

Considering interest in and access to contemporary art there are four profiles emerging. The relevant groups who are involved (6 %) are interested in contemporary art and consider it to be accessible to everyone, not only to connoisseurs; those involved at a distance (4 %) are interested in contemporary art, but consider it a

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12% 19%

11% 33%

25% Strongly agree

Moderately agree

Don't Know

Strongly disagree

Disagree

Fig. 5.8 The contemporary art sector is only for connoisseurs (Source: Ispo 2010) Don't know

9%

Other

1%

It is not true art / everyone can be an artist

2%

Lack of opportunities

3%

Little time

6%

Classical art is better

6%

Does not provoke emotions

8%

Lack of preparation

10%

Don't like

10%

Incomprehensible

11%

Not interested in art in general

17%

Not interested in contemporary art

17% 0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Fig. 5.9 Reasons why contemporary art is not considered interesting (Among those who are not interested) (Source: Ispo 2010)

field reserved for connoisseurs; those who reject contemporary art (44 %) say they are not interested in it and that it is a field for connoisseurs only. This lack of interest could originate precisely from the perceived difficulties in understanding this form of art, which as we have seen, for many of those questioned, is incomprehensible; finally there are those who are distant from contemporary art (46 %), who are not interested, and prove to be the most distant ones as they do not necessarily see it as a field for connoisseurs only. By analyzing purchasing behaviour, the data show that among the 4.5 million Italians interested in the sector, 10 % have bought a work of art in the last two years and 37 %, about 1.6 million people, plan to buy in the future.

Finally, 9.5 million (19 %) people see contemporary art as a good form of investment (Fig. 5.10).

The studies carried out by Civita and Terna, whose results we have summarized here, indicate the existence of a cultured audience that is interested and willing to spend to meet its own cultural needs. An audience that is very different from the one traditionally seen in the great museums of the cities of artistic interest: this latter audience is smaller, but is careful and demanding, eager to learn and know. This

5.5

Audience for Contemporary Art in Italy

129

Table 5.2 Some spontaneous statements on why contemporary art is not appreciated Not interested in ! ‘It does not fall within my interests; contemporary art is not contemporary art (17 %) attractive to me’ Not interested in art in general ! ‘I am not very interested in art in general; I have little (17 %) sensitivity towards art’ Incomprehensible (11 % ) ! ‘I do not understand it, I see nothing artistic nor beautiful in it; the difficulty of understanding the artists’ point of view; sometimes it is too conceptual; I do often consider it insignificant, incomprehensible, hermetic’ Don’t like (10 %) ! ‘it is not to my liking, I simply do not like it’ Lack of preparation (10 %) ! ‘I know little about it; I am not so versed in it’ Does not provide emotions ! ‘It does not provoke any emotions in me; just because it (8 % ) doesn’t arouse in me anything different; I cannot find it stimulating; It does not stimulate me’ Classic art is better (6 %) ! ‘I like the classical period more; it’s not that great, I prefer traditional works of art; I really rate ancient art’ Little time (6 % ) ! ‘I have no time to dedicate myself to art; mainly due to lack of time’ Lack of opportunities (3 %) ! ‘I do not have opportunities to see exhibitions etc.; I live far from large centres, thus relatively far away from exhibitions in general’ It is not true art/everyone can ! ‘They seem to be things without value or beauty for me, I do be an artist (3 %) not consider it a form of art; even artists of little value make their way because they have the right acquaintances and financial resources and this is not what makes art with a capital A’ Source: Ispo (2010) 2% 17% 38% Don't Know Strongly disagree 24%

Disagree Moderately agree 19%

Strongly agree

Fig. 5.10 Can purchasing a work of contemporary art be a good form of investment? (Source: Ispo 2010)

probably leads the sector operators to raise the quality of their own services and offer in an area that is, moreover, a recent development in our country. This is a

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major challenge capable of giving the right value to this field of art, which is definitely a niche, but with a highly qualified audience.

5.6

Private Demand

The art collector is a private individual engaged in collecting works of art for several reasons: passion, personal prestige, cultural interest, aesthetic enjoyment, economic investment, and other deep psychological motivations. There are figures like Ryoei Saito, the Japanese entrepreneur who in 1990 bought at auction the most expensive work of art at the time in the world, the most popular version of Doctor Gachet by Vincent Van Gogh, paying $82.5 million for it, and declared that he would burn it at his death (the canvas really did disappear in 1996 when the tycoon passed away, it was however found in a Japanese bank 2 years later). There are also philanthropist collectors, such as Patrizia Sandretto and Dakis Joannou, who opened foundations to spread knowledge of art, or Eli Broad who has promised his collection to LACMA and funded the creation of a new wing with $60 million, where his private collection, one of the largest in the world, is on display.2 Not to mention the Miami real estate magnates, like the Rubells, the Cisneros, the Margulies or the De la Cruzes, who converted a series of storerooms and warehouses of goods in real private museums, which are now open to the public and set up specifically to welcome visitors in early December, during Miami Art Basel, the most prestigious contemporary art fair in the U.S. (Pratesi 2010). Many new museums are being built by multi-millionaire individuals in order to celebrate their own tastes and artistic choices, or to give their names to history: Jose´ Berardo founded in Lisbon a museum that bears his name, Victor Pinchuk set up the PinchukArtCentre in Kiev, Bulent and Oya Eczcibasi have provided funding for the Istanbul Modern, Lee Kun-Hee for the Leeum Samsung Museum in Seoul, and Mr. and Mrs. Ullens in 2006 conceived the Ullens Center for Contemporary art to host their 1,500 pieces, which make up the largest collection of Chinese contemporary art.

Collectors can usually be divided, according to their impact on the art market, into two categories, that of small and medium collectors and that of large collectors.

The first group includes those collectors purchasing works of art for quite limited amounts; they can be divided in turn, depending on the choices they make, into conservative collectors on the one hand and avant-garde collectors on the other.

Conservative collectors are averse to risk and normally purchase works by artists with quite stable prices and whose names are already known. Alongside these are those collectors more attracted by the charm of novelty and who are more willing to risk betting on young, emerging or even unknown artists. The interest in art in these cases is the expression of a dynamic lifestyle also characterized by fashionable

2

Source: Cobolli Gigli (2009).

5.6

Private Demand

131

cultural ambitions. The second major category is that of the large collectors. They are very wealthy people who have decided to create their own collection out of love for art or in order to enhance their image. In 2012, the American magazine ARTnews, in collaboration with numerous field professionals, selected the 200 most prestigious collectors, publishing a list of the top ten most active on the international market. Nine out of ten are also present in the list of billionaires published by Forbes.

1. He´le`ne and Bernard Arnault (Paris) Field: luxury goods (LVMH) Interests: contemporary art 2. Debra and Leon Black (New York) Field: finance Interests: Old Masters; Impressionists; modern art; Chinese sculpture; contemporary art 3. Edythe L. and Eli Broad (Los Angeles) Field: real estate and finance Interests: contemporary art 4. Pierre Chen (Taipei) Field: electronics Interests: Modern and contemporary art 5. Alexandra and Steven A. Cohen (Greenwich) Field: finance Interests: Impressionists, modern and contemporary art 6. Jo Carole and Ronald S. Lauder (New York and Wainscott; Washington; Palm Beach; Paris) Field: cosmetics Interests: Late-nineteenth- and early-twentieth century art, especially German and Austrian; decorative art; medieval art; arms and armor 7. Dimitri Mavromatis (Paris) Field: investment banking and asset management Interests: Postwar and modern art 8. Philip S. Niarchos (Saint Moritz) Field: shipping and finance Interests: Old Masters; Impressionism; Modern and contemporary art 9. Franc¸ois Pinault (Paris) Field: luxury goods (PPR) and auction houses (Christieâ&#x20AC;&#x2122;s) Interests: contemporary art 10. Sheikha Al Mayassa bint Hamad bin Khalifa Al Thani (Doha) Field: inheritance Interests: Modern and contemporary art (Table 5.3) The most powerful collectors manage to influence the market by favouring, with considerable purchases at low prices, the success of some emerging young artists; often they become advisors of museum managers, points of reference for other collectors and curators when organizing exhibitions of works of art of their collections in public spaces, and merchants, when they sell pieces from their

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Table 5.3 Some important contemporary art collectors Collector name Roman Abramovich Paul Allen He´le`ne and Bernard Arnault Edythe L. and Eli Broad Ella Fontanals Cisneros Gustavo A. Cisneros Steven A. Cohen Rosae Carlos de la Cruz Dimitris Daskalopoulos Agnes and Karlheinz Essl Harald Falckenberg Ingvild Goetz Carol and Arthur Goldberg Giuliano Gori Noam Gottesman Laurence Graff Agnes Gund Francesca von Habsburg Damien Hirst Dakis Joannou Jo Carole and Ronald S. Lauder Adam Lindemann Martin Z. Margulies Dinos Martinos Franc¸ois Pinault

City Moscow Seattle Paris Los Angeles Miami Caracas Greenwich Key Biscayne Athens Vienna Hamburg Monaco New York Pistoia New York Gstaad New York Vienna London Athens New York; Paris New York Key Biscayne Athens Paris

Victor Pinchuk Miuccia Prada and Patrizio Bertelli Patrizia Sandretto Re Rebaudengo Mera e Donald Rubell Charles Saatchi David Sainsbury Marianne and Alan Schwartz Benedikt Taschen David Thomson Myriam and Guy Ullens Alain Wertheimer

Kiev Milan

Source of income Finance Computer Luxury goods (LVMH) Finance Finance and real estate Media Finance Entrepreneur Finance Retail Legal Inheritance Finance Textile Finance Jewellery Inheritance Inheritance Creative Constructions Cosmetic (Estee Lauder) Finance Real estate Transportation Luxury goods (PPR) and auction houses (Christie’s) Finance Fashion

Turin

Manufacturing industry

Miami; New York London London Bloomfield Hills Colonia Toronto Verbier; Ohain Paris; New York

Real estate Advertising Food industry Legal Publishing Media Industrial Luxury goods (Chanel)

Source: ARTnews. Summer 2012

5.7

Segmentation of Demand

133

collections. In America we can recall great magnates such as Andrew Mellon who contributed to the construction of the National Gallery in Washington, also donating his collection; the Rockefellers, the Metropolitan donors and co-founders of the Museum of Modern Art, and Gertrude Vanderbilt Whitney and Solomon Guggenheim, who founded the two famous New York museums of contemporary art that bear their names; but roles are also played by rock stars such as David Bowie, Elton John and Madonna. In Italy we have very important personalities such as Panza di Biumo, Gori, Rivetti, Brion who are part of a tradition already drawn by the Gualino, Jesi, Jucker, Mattioli and Magnani families, but also important entrepreneurs like Gianni Agnelli, Pietro Barilla, Miuccia Prada, Patrizia Sandretto and Giuliana Setari Carusi.

5.7

Segmentation of Demand

Collectors differ depending on the reasons of consumption and can be segmented into two types. The first ones are focused on one or very few sectors of the market and are driven purely by the desire to collect art for its own sake, with a high level of knowledge and connoisseurship. They tend to buy and hold pieces and are averse to selling them. For these collectors, the reduced profitability of investing in art is more than offset by the aesthetic pleasure they derive from the possession of the artwork, the so-called ‘aesthetic dividend’.

The second type includes those who buy as status symbol and/or as a commercial investment, with financial expectations. These collectors, often younger with considerable wealth and disposable income, are those that, on the one hand make the market active, but on the other hand make the prices go up or down in an unpredictable way. These buyers often had less knowledge and experience of the art market, were driven by a combination of aesthetic and investment concerns and often made more diversified purchases across a range of categories. While many collectors are still driven by the desire to collect art for its own sake, the last decade has seen a growing interest in the investment benefits of art and collectors have become increasingly concerned about art as an asset. This second category includes all those collectors who consider works of art as positional goods,3 or as commodities, whose characteristic feature is to confer utility for the status they create and for the relative position in the social scale that their consumption allows one to occupy. According to a recent study conducted by Deloitte Luxembourg and ArtTactic (2011), the emotional aspect of buying art still ranks as the most important motivation for

3 Frank’s theory (1997) is based on the relational nature of many acts of consumption: group belonging, status, position relative to the social hierarchy, are crucial factors to understand the nature of consumption. This idea was already present in the Economic Possibilities for our Grandchildren by J.M. Keynes (1930), in its distinction between ‘absolute’ needs (the basic needs) and ‘relative’ needs (those arising from social interactions), but above all is found in the category of ‘ostentatious consumption’ by T. Veblen (1899).

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collecting art, with 97 % of the collectors surveyed mentioning this as one of their primary motivations. However it is not possible to ignore the fact that 49 % of art collectors are also strongly driven by investment returns and a further 39 % see art as a key component in their portfolio diversification strategy.

Demand can also be segmented according to consumption behavior. On the one hand there are collectors who buy large quantities of works of art by artists who are not so young anymore, but are still not highly-rated, contributing to their definitive launch. The Italian Marco Rivetti, who began buying works of art by the Arte Povera movement before its international launch, not only made a very good investment, but became so involved in this affirmation that from 1988 he headed the Castello di Rivoli, the Italian museum that has most contributed to supporting the Arte Povera artists (Vettese 1991). Then there are collectors who experience collecting as a reflection of their own way of interpreting the history of art.

Giuseppe Panza di Biumo, the most famous collector of contemporary art in Italy, got into a heated argument with the Museum of Contemporary Art in Los Angeles when the latter, which bought part of his collection as the basis for its own collections, in turn sold a portion of it to the Massachusetts Museum of Contemporary Art. During the 1980s, a type of collecting emerged that was not so much motivated by the desire to build an all-encompassing vision of the world through works of art, but rather by the pleasure taken in challenging and conditioning the art system. Demand in these cases stems from collectors who buy an artistâ&#x20AC;&#x2122;s works even before he has enjoyed a review in a magazine, a solo show, or a financial reward, and who even put themselves as opinion leaders in the place of critics, art dealers and museum curators. A couple of emblematic examples are the New Yorker Gene Schwartz and the Englishman Charles Saatchi. The former began collecting works of art in the early 1980s and has contributed to launching trends like Minimalism, Conceptualism, and Land Art. The latter bought works by classic artists like Andy Warhol and Cy Twombly in the 1970s and 1980s, but he owes his fame mainly to having contributed to the commercial success first of NeoExpressionism, buying artists like David Salle, Georg Baselitz, Anselm Kiefer, and Sigmar Polke, and later the success of the Young British Artists (YBAs), with works of art by Damien Hirst, Tracey Emin and the Chapman brothers. In order to launch this second group of artists he published catalogues of the works of art in his possession and contributed actively to the organization of exhibitions, coming to establish a museum in London, which bears his name, the Saatchi Gallery in Duke of York Square.

5.8

Corporate Art Collecting

Beyond private collecting, an ever-growing number of companies and banking establishments are investing considerable sums in works of art. The Directory of Corporate Art Collections, an annual listing corporate art collections edited by the International Art Alliance in Largo, Florida, studied the situation in the mid-1980s (the high point of corporate art collecting). It found that around 500 companies in

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Corporate Art Collecting

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the U.S. began collections of contemporary art before this date. These companies were evenly distributed across the country and all sectors of the economy, ranging from those traditionally close to art, such as publishing or communications, to those further afield, such as in aviation, railways, and industrial chemistry. The entry of corporate art collections into the art world contributed to a growing interest in contemporary art, legitimizing the functional crossover between the symbolic values of art and the more concrete financial and economic structures of production.

In this sense art fulfils a prestige role not only for individual entrepreneurs and financiers, but also for their corporations, in line with precise image strategies that are run on managerial principles. Amongst the largest corporate collections are those of Chase Manhattan Bank, the Chemical Bank, AT&T, Ciba-Ceigy, Phillip Morris, Microsoft Art Collection, Daimler Chrysler Collection, the company that publishes Playboy and an incredible number of banks. In France the company that is by far the most committed to contemporary art is Cartier, whose foundation possesses a collection of more than 1,000 works. Founded in 1984 by Dominique Perrin with the aim of promoting contemporary art in all its variety, the Cartier foundation is completely financed by the company of the same name, with an annual budget of around €4.6 million. On average it organizes around five exhibitions and purchases 15 new artworks per year. The collection attracts around 100,000 visitors yearly and contains works by Arman, Ce´sar, Barcelo´, Barney, Orozco, and Sugimoto. Beyond their collecting activities, these companies often provide considerable sums towards the sponsorship of artistic events. In this area considerable activity is undertaken by Phillip Morris, Deutsche Bank, and Beck’s, all of whom sponsor cultural exhibitions and events. UBS patronizes the historic fair Art Basel; Champagne Laurent-Perrier supports prominent international exhibitions in the field of contemporary art around the world (from the Frieze Art Fair in London to Arte Fiera in Bologna, and even the inauguration of the Museo di Punta della Dogana in Venice); and lastly Hugo Boss lends its name to the wellknown Hugo Boss Prize. One of the companies with the most affinity for the world of art is the producer of writing implements Montblanc which in 1992 created the Montblanc Cultural Foundation, in order to support patrons of the arts and to recognize how their work underpins cultural life. Every two years since 1997 the Montblanc Foundation, in collaboration with the Hamburg Kunsthalle, has acquired a new contemporary artwork that reflects Montblanc’s philosophy and which is then donated to the gallery. In recent years Bloomberg has also demonstrated real affinity and attentiveness with regard to contemporary art. In addition to sponsoring large-scale events such as the Venice Biennial, and supporting young artists via the Bloomberg New Contemporaries prize, in 2002 the corporation opened a gallery in London for its employees as well as for the local community, the Bloomberg Space, in which it organizes exhibitions and commissions site-specific works of art.

Shiseido too boasts a large collection of art and a gallery in Tokyo, which opened in 1928, and which the Japanese organization makes available to celebrated, emerging, and often even completely unknown artists. Since its origin in 1872 Shiseido has always distinguished itself by its bold attitude with regard to artistic patronage, and in 2011 it confirmed this ‘vocation’ by sponsoring the ‘Memory of

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Books’ exhibition by Chiharu Shiota at the 54th Venice Biennial. Even though it is often linked to the entrepreneur’s personal interests, corporate collecting represents a powerful element in the image of itself that the business wishes to convey. And the heritage element should not be neglected insofar as a collection that is built up competently and without merely following critical fashion can also represent a financial investment.

This aspect can be married to the promotion of one’s own business in the case of entities such as banks, and particularly those dedicated to private banking, for whom putting together a valuable collection is the most straightforward proof of competency in serving the interests of its clients, given the difficulty and specialization of a sector such as the visual arts. Large American banks such as Chase Manhattan were amongst those who were quick to understand this point: in the early 1960s it took expert advice and invested heavily in works by the then emerging New York school of painting and by other avant-garde artists (Bondardo Comunicazione 2002). Another notable example is the Deutsche Bank collection, whose 56,000 works of art exhibited in 911 locations across 48 different countries represent the largest corporate collection in the world. In Italy the first institution to move in this direction was the Banco di Napoli which since its founding has adopted an active acquisitions policy: for its New York base it bought works by Pistoletto, Boetti, Pisani, Paolini, whilst its Neapolitan headquarters houses works

by Warhol, Schifano, Paladino and others. Banco di Napoli’s example has been followed by other banks such as the Banca Commerciale Italiana, which has amassed a fine collection of artists with particular attention to the Informal movement and to Arte Povera (Vettese 1991). In addition to this there are banks which not only hold collections, but promote nationally-important cultural initiatives. An example of this is the Intesa Sanpaolo group’s decision to open a large museum in its historical headquarters in Milan. The museum with which Intesa Sanpaolo will enrich the Milanese cultural scene will be called ‘Gallerie di Piazza Scala’, a part of the Cultural Project which also sees activity in Naples and Vicenza. An interest in contemporary art has also taken root in the field of insurance: Assitalia, for instance, has brought together a notable heritage collection of Italian works from the early twentieth century (Boccioni, Carra`, De Chirico). As for industry, the sector that has had an involvement with contemporary art running through its blood stream is the textile sector, since its sphere of production causes it to have links with avant-garde designers. Marco Rivetti, managing director of the GFT group, drawing on the consultancy of the critic Germano Celant, has created a corporate collection uniting works by Calzolari, Merz, Paolini, Melotti and others, which is hosted by the company headquarters (themselves designed by Aldo Rossi). What’s more, for many years the company stand at Florence’s Palazzo Pitti was put together by a contemporary artist who had been specially commissioned for the occasion (for example Penone or Paolini). The companies that financed the launch and in part the ongoing activities of the Centro Luigi Pecci in Prato also largely belong to the textiles sector. This centre boasts works by Cucchi, Kapoor, Merz, Plessi, Schnabel, Opie and others (Vettese 1991). As for the fashion world, in which many stylists have set up their own private collections, an interest for contemporary art has

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recently emerged with Fendi, Trussardi, Prada and Biagiotti who have created foundations expressly purposed to manage artistic projects; this can also be seen with Furla and their contemporary arts prize of the same name, as well as with Max Mara, which for several years has sponsored the Max Mara Art Prize for Women.

5.9

Motivations Driving the Creation of a Corporate Collection

Since the 1980s, financial institutions have been viewed as the most active corporate buyers of art (Martorella 1990). The reasons for bankers to create and enhance corporate art collections have mostly been analyzed in Anglo-Saxon countries (Martorella 1990; Wu 2003; Appleyard and Salzmann 2012). Martorella’s work may however be viewed as pioneering. Indeed, as stated by Kottasz et al (2007) academic research dedicated to the reasons for expanding and promoting corporate collections has been sparse. More recently, the approach devised by the Belgian financial sector has been investigated by Lindenberg and Oosterlinck (2011), who reports five main motives for collecting art: procuring a sense of well-being, conveying company values, facilitating internal training programs, presenting oneself as corporately responsible, and lastly diversifying investment. The study conducted by Lindenberg and Oosterlinck (2011) showed that eight out of ten corporate art collections aimed at improving workplace infrastructures, procuring a sense of well-being and stimulating the senses. Exhibiting pieces of art in the building is supposed to contribute to the cultural and intellectual education of the collaborators, promoting at the same time open-mindedness and creativity. Buying art also serves as a relevant communication vector of the brand image the company wants to transmit in eight cases out of ten. In addition, art collections are used as a corporate philanthropy tool in seven institutions out of ten. Finally, investment was mentioned by only one actor, AXA Belgium, confirming that its collection is also an investment enabling risk diversification. 2007 saw the creation of the IACCCA (International Association of Corporate Collections of Contemporary Art), which is based in Paris and comprises 30 members. It grew out of the desire to build networks between the curators of collections in multinational companies, in order to address problems concerning the management and conservation of artworks, but also to reinforce a common commitment to corporate collecting. In order to join this association one must be proposed by an existing member and pay an annual subscription of €1,000. Most member companies are European, although one of the founder members was Shiseido, where corporate collecting began over a century ago. The Turkish holding Burusan, whose corporate collection was begun in the early 1980s, is a particularly dynamic member, as is the Moroccan Attijariwafa Bank which possesses over 2,000 works: but there are also Abn Amro Bank, Axa Art Versicherung AG, Banco Espirito Santo, Deutsche Bank AG, Socie´te´ Ge´ne´rale, and many others. In order to better understand the role of corporate collecting, in what follows we shall look both at the collections held by financial institutions (who are seen as the first to have promoted the idea), and at

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those held by companies in other sectors but who are deserving of attention, such as Unilever and Akzo Nobel.

5.9.1

JP Morgan

The JP Morgan Chase Art Collection began in 1959, thanks to the important executive David Rockefeller (who would subsequently be chairman from 1969 to 1980), who took the lead in implementing the company’s acquisition program. This choice was made due to Rockefeller’s strong business acumen and deep passion for art. Currently, the JP Morgan Collection is certainly one of the oldest, prestigious and most established collections in the world, boasting modern and contemporary paintings, sculptures, works on paper and photographs. The works of art to date number more than 30,000, and are distributed among the bank’s 450 places of business. The large, eclectic and heterogeneous collection aims to convey the values and objectives of the bank, which purchased the goods in every part of the world where it does business. The purchase of works of art for the collection is mainly geared towards displaying them at company headquarters, as a cultural investment able to create a human and dynamic environment for employees and visitors. The intrinsic values that the group aims to communicate through the collection are: individuality, originality, diversity and innovation. Secondly, the purchase of works of art for the collection is aimed at temporary loans to museums and creating partnerships with cultural and artistic institutions that can contribute to the understanding of contemporary art.

5.9.2

UBS

The UBS Art Collection began in 1945 and unites works of art collected by UBS (Union Bank of Switzerland) and those bought by Swiss Bank Corporation, plus the purchase of a very stimulating series of artworks brought together by the financial firm PaineWebber. In fact, in 2000, with the merger of PaineWebber, UBS group inherited the collection that had been formed by the then director, Donald B. Marron, a board member of the MoMA in New York, which brought together almost all the great names of contemporary American art. The works of art to date number 35,000, which UBS valorises through targeted initiatives, such as lending its artworks to museums, organizing exhibitions around the world, sponsoring cultural activities, etc. Since 1994, UBS is the main sponsor of Art Basel and in 2002 the partnership was extended to the sister fair Art Basel Miami Beach. In addition, since 2000 UBS has sponsored the Fondation Beyeler, the Tate, the MoMA and an exhibition per year at the Fotomuseum Winterthur (the latter since 2001).

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Motivations Driving the Creation of a Corporate Collection

5.9.3

139

UniCredit

UniCredit is among the leading European groups in banking and financial services, thanks to an extensive presence in Western Europe (Italy, Austria and Germany) and in Central and Eastern Europe. In 2004, beginning with Italy, UniCredit launched a strategic cultural investment project, focusing on the promotion of emerging talents in visual arts, music, theatre and literature. Since then it has been developed via a system of partnerships with long-term projects in all the countries where the group is present. The commitment is also visible through the collection of art by young emerging artists that updates historical heritage: this commitment consists in acquisitions, participation in the commissioning and financing of projects, residencies for young artists, mostly in collaboration with partner museums. UniCredit supports the growth of young talents by acquiring works of art that it then loans for free to partner museums (e.g. MAXXI, Castello di Rivoli, MAMbo). The project specifications express the group’s identity and can be seen in various foundation stones: • An approach that ensures maximum attention to local expressions and cultural context without ever losing sight of international perspectives. Close collaboration with local artists helps them gain visibility at international level; • A long-term action based on social responsibility and on sustainability, which excludes short-term market perspectives and the search for the ‘star’ of the moment; • Particular focus on young contemporary creativity that involves experimentation, risk taking with regard to purchasing decisions and interest in little-known, but promising, talents who already boast a sound body of artworks and exhibitions; • Focus on the innovative processes of learning with training courses through contemporary art (art-based learning), involving both employees and stakeholders; • Interest in the development of the art scene, but especially in that of the art system, by initiating partnerships with key social actors.

The artistic heritage of UniCredit stands out for its diversity, its richness and its historical importance. The collection presents over 60,000 artworks, ranging from prehistoric Mesopotamian material to the masterpieces by past masters, as well as by modern ones and the leading contemporary artists. The collection includes artworks by modern artists such as Yves Klein, Fernand Le´ger, Giorgio Morandi, Kurt Schwitters, Oskar Kokoschka and prominent contemporary artists such as Christo, Georg Baselitz, Gerhard Richter and Andreas Gursky. Historical and contemporary photographs feature prominently, with more than 4,000 examples.

The Group collaborates with museums and exhibition centres for the production of cultural projects, not only in technical and financial terms but also from the conceptual and organizational standpoint. The main partnerships in the visual arts include those with leading institutions such as Castello di Rivoli, MAMbo, MACRO, MART, and MAXXI while four cultural centres in Europe are managed

by UniCredit:

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• Bank Austria Kunstforum, Vienna: each year the exhibition space sponsored by Bank Austria welcomes 300,000 visitors to its exhibitions of modern and contemporary art; • Kunsthalle der Hypo-Kulturstiftung, Munich: HypoVereinsbank (HVB) founded and supports this exhibition space in Munich, which boasts 350,000 visitors a year, with exhibitions of ancient art, modern art (from the Renaissance to the Romantic movement), and contemporary art; • Pavilion Unicredit, Bucharest: opened in January 2009 at a former branch of UniCredit Tiriac Bank, Pavilion Unicredit is an independent space for production and research in the field of visual and performing arts.

• Yapı Kredi Culture Center, Istanbul: the Turkish bank, an affiliate of UniCredit Group, supports this important exhibition centre in Istanbul. This represents an interesting window onto the Turkish art scene thanks to three galleries that exhibit artworks by the foremost Turkish artists as well as by international authors and famous photographers. The centre also features a publishing house and a busy calendar of events.4

5.9.4

ING Group

The ING Group Collection brings together seven collections from around the world: ING Collection Netherlands, Belgium, Mexico, Poland, Great Britain, ING Real Estate Photography and ING Group. Fifteen thousand works of art are managed by the curators from all the countries involved; they are displayed in 1,300 buildings and can be admired by ING’s 120,000 employees. The banking group, in addition to exhibiting its assets in offices and branches around the world, organizes exhibitions and collaborates with museums by loaning works of art. For ING, art is an essential part of corporate identity and each individual program follows a different style according to a specific theme, taking into account an artist’s approach or the importance of an artistic trend. Furthermore, in order to get its entire staff involved in artistic management, ING allows employees to choose a work of art from the collection to hang in their offices, sometimes inviting them to participate in creating the artworks themselves, in addition to organizing guided tours, exhibitions and conferences. The collections of ING Mexico and Poland are probably the most recent and innovative ones, reflecting the institution’s desire to believe in the most unusual art forms, while ING Great Britain has a more robust and longstanding collection that mainly concentrates on collecting watercolours and contemporary works of art.

4

Source: https://www.unicreditgroup.eu/en/culture—society/art/partnerships.html.

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Motivations Driving the Creation of a Corporate Collection

5.9.5

141

Deutsche Bank

The collection launched by Deutsche Bank in the late 1970s today consists of over 56,000 works of art housed in 911 agencies in 48 countries around the world and in five permanent exhibition centres: Frankfurt, London, New York, Tokyo and Milan.

The works of art collected are by the major international artists of the twentieth century, from Modernism to the most contemporary movements, and the collection is composed mainly of works on paper (drawings, photographs, collages, watercolours, prints and mixed media artworks), paintings, sculptures, video and installations.

One of the concepts on which the DB Collection is based is Art at Work; the philosophy of placing art in the workplaces was established with the aim of offering collaborators and customers the opportunity to come into daily contact with art in a non-traditional location, outside galleries and museums. In this way, each employee can personally go to the Artothek and choose works of art to bring to his office. A very important project for Italy recently took place when in March 2007 the DB Collection Italy was inaugurated at the bankâ&#x20AC;&#x2122;s head office in Milan Bicocca. The Italian exhibition centre introduced the concept of Art at Work for the first time in the country; over 300 artworks by contemporary artists (both Italian and foreign), including works coming from Frankfurt, new acquisitions and specifically commissioned artworks, are housed in the Milan office. Deutsche Bank is the main sponsor of the Frieze Art Fair in London and supports the Tefaf fair in Maastricht. It also promotes international awards for contemporary art, such as the Villa Romana Prize, Views, the first prize dedicated to young Polish art, and the Kandinsky Prize for emerging Russian art.

5.9.6

Unilever

Unilever is an Anglo-Dutch multinational owner of many of the most popular brands in the field of food, drinks, hygiene and household products. The company is a supporter of extremely important causes and values such as respect for the environment, science and technology, as well as its workersâ&#x20AC;&#x2122; nutrition, health and personal care and welfare. The company counts its commitment to art among its commitments towards the community, as it is one of its greatest supporters and has donated more than ÂŁ2.5 million in the last ten years. Since 1980 it has gathered a collection of about 800 works of art, favouring young emerging artists. Until 2003, management was entrusted to the Contemporary Art Society, in close relation with the Unilever Art Committee, which selects the works of art to be acquired.5 Unilever not only has a collection, but pursues complementary sponsorship activity with the Tate Modern within the Unilever Series, which each year invites an

5

Source: Santi (2009).

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internationally famous artist to create a work of art that will be exhibited in the Turbine Hall, the gallery’s huge exhibition space. This program is part of a global initiative for promoting creativity within and outside the company, with visits, conferences and training courses for its collaborators and staff. The partnership with Tate Modern is certainly one of Unilever’s most important and lasting collaborations: begun in 2000, the initiative was due to end in 2005 but was continued until 2012, given its great success. Unilever has created another very important project, the Unilever International Schools Art Project, which is aimed at promoting the expression of creativity through art of children around the world. The program was the first of its kind and being online has allowed the involvement of numerous schools and children around the world; started in 2001, it has been a great success, given that it has attracted more than 135,000 participants. In April 2009 this was concluded, to make room for a new arts education program called ‘The Unilever Series: turbinegeneration’. Produced by Tate and sponsored by Unilever, the project links schools to the most important international galleries. Students share thoughts and ideas inspired by the Turbine hall installation, which are some of the largest contemporary art commissions in the world, making it possible to explore the world of contemporary art thanks to a variety of technological supports, such as photography, audio, video, dance, theatre and storytelling.

5.9.7

The Akzo Nobel Foundation

Akzo Nobel is a Dutch multinational company, headquartered in Amsterdam, whose business is based on the supply of pharmaceuticals, paints, resins and plastic materials. The company operates in more than 80 countries and employs approximately 60,000 people.6 Innovation and quality are its values and, following this line, it has decided to establish a collection of experimental contemporary art in order to represent the company’s symbolic values and be a point of strength on the international stage. For a long time the collection was grown without any overarching direction, until it reached a critical size which made the creation of a foundation necessary. The first work of art that the foundation acquired in 1996, ‘Untitled’ (1995) by the British artist Alex Hartley, is now considered the symbol of the foundation. Created in 1996 with the sole purpose of managing a collection of over 900 artworks, of which 60 % are located in the Netherlands, the foundation’s mission is to transmit the company’s values and to involve employees in order to create a stimulating and creative environment.7

6 7

Source: www.akzonobel.com.

Source: http://artfoundation.akzonobel.com/.

5.9

Motivations Driving the Creation of a Corporate Collection

5.9.8

143

The Generali Foundation

Founded in 1988 with the stated aim of promoting contemporary art and in particular critical art, the Generali Foundation is entirely funded by the company of the same name; with an annual budget of about €1.5 million it organizes around three exhibitions per year, pursuing an ambitious intellectual program. The collection, estimated to be worth over €9 million, includes more than 2,000 works of art by 180 artists, mostly conceptual artists from the 1960s.8 The collection focuses mainly on photography, film, video and artistic installation. Many works of art included in it date back to the 1960s and 1970s, though they are juxtaposed with the more recent, 1990s artistic trends. The Generali Foundation’s activities mainly consist in enlarging this international and highly renowned collection, as well as in advancing the scientific work inherent in it and ensuring that it is documented.

The archive and library are important aspects of the collection, and are accessible in the Foundation’s study room. The Generali Foundation is so far the only institution throughout Austria in which works of video art, which are available for free in the specially designed media lounge, are collected and catalogued at a professional level. Among other things the Foundation is dedicated to preserving and sometimes even reconstructing given artistic phenomena: mostly conceptual art of the postavant-garde of the 1960s and 1970s and neo-conceptual trends in contemporary art; in this way, for example, films by Gordon Matta-Clark and VALIE EXPORT have been completely restored. There are also archives on the artists in the collection, especially about those whose work features substantially in the collection: Gottfried Bechtold, VALIE EXPORT, Harun Farocki, Andrea Fraser, Isa Genzken, Hans Haacke, Bruno Gironcoli, Dan Graham, Mary Kelly, Elke Krystufek, Dorit Margreiter, Gordon Matta-Clark, Walter Pichler, Martha Rosler, Franz West and Heimo Zobernig. The Generali Foundation undoubtedly represents a singular phenomenon on the international scene due to the orientation of its collection policy and exhibition activity. This niche positioning has contributed to make it look more like a real museum than a corporate collection, and to confer upon it a cultured, sophisticated and intellectual avant-garde image. Its artworks are regularly demanded by major exhibitions of contemporary art (e.g. the 2008 Sydney Biennial, Sa˜o Paulo Biennial 28, Documenta XII) and lent to the most prestigious institutions present in the international scene (MoMA, SFMOMA, Walker Art Center, SMAK, K21 Kunstsammlung, Kiasma, Centre Georges Pompidou, Stedelijk Museum, MACBA etc.).

8

Interview with Sabine Folie, Generali Foundation director, conducted on 28 August 2011.

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5.9.9

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Collecting: Motivations and Patterns of Consumption

The CRT Foundation for Modern and Contemporary Art

In 2000 the Fondazione Cassa di Risparmio di Torino founded the CRT Foundation for Modern and Contemporary Art with the aim of enriching and valorizing the cultural and artistic heritage of Turin and Piedmont. The foundation pursues its mission both through strengthening of its collection which is put at the service of the Galleria di Arte Moderna di Torino (GAM) and Castello di Rivoli, and by supporting the development of contemporary art in Turin and Piedmont. The collection includes 650 works of art (in which about €32 million has been invested) by more than 170 different artists who have been active in the past 70 years in Italy and abroad. Identification of the artworks to be acquired occurs from time to time via specific suggestions by the directors of GAM and Castello di Rivoli, supported by a prestigious international scientific committee composed of Nicholas Serota (director of the Tate in London), Manolo Borja – Villel (Director of the Museo Nacional de Arte Reina Sofia in Madrid) and Rudi Fuchs (former director of the Stedelijk Museum in Amsterdam). All the collection’s works of art are on free loan to GAM and Castello di Rivoli. Indeed, the Foundation intended to offer these two important institutions (which are present in the local area and recognized internationally) the chance to create a single large collection, complementing those already present in their respective museums, and to give sites in Turin and Piedmont the ability to dialogue and compete with the major Italian and foreign institutions in the sector. Alongside the traditional activity of enlarging the collection, for some years the Foundation has supported Turin and Piedmont’s contemporary art system via the Artissima fair, the Contemporary Art Torino Piemonte program and the Overture event, aiming to make Piedmont one of the areas of Europe with the highest concentration, supply and production of contemporary art.

5.10

Speculative Demand

The fact that the market has grown strongly over the past 20 years confirms that art has a remarkable ability to seduce collectors. The opening of galleries throughout the world, the proliferation of sales at auction, and the flourishing of fairs and biennials anywhere, could not have taken place without a strong commercial contribution. The artistic good on the other hand is completely different from all other forms of investment and it is often difficult to identify the factors that determine price variations. Using the concept of quality would be impossible, not only because the aesthetic values are often subjective and vary over time, but also because endless factors influence an artist’s prices, including trends, the prestige of the gallery that manages the artist, the amount of works of art produced, but also the visibility of the artist’s work on the auction circuit.

Art is an absolutely specific asset that does not necessarily have the same value for two different people. An informed reading of the situation, namely, in the case of an artist, the analysis of his role in the history of art, can help one to avoid buying flops, but does not guarantee profitable investments. The choice of artist and the

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Characteristics of Speculative Demand

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selection of the right work of art within his production, his pioneering role within the history of art, his ability to invent a new language that might influence other artists, his degree of originality and nonconformity, are all elements that in the long run contribute to determining price, rewarding those farsighted collectors who were able to risk unpopularity, to the detriment of those who followed the trends of the moment. Moreover the purchase period, and the channel used, can significantly affect price and radically change the nature of the investment. To make a good investment it is necessary to turn to innovative artists with a well-defined personality, and also to test not only the value of the artist, but also the seriousness and reputation of those who offer their opinions on him. Three variables to consider when deciding to invest in art, since they define an artist’s market, are: 1. The average price of equivalent works of art; 2. The breadth of his market i.e. the number of works of art offered at auction; 3. The liquidity of his works of art i.e. the share of sales as against the total number of works of art offered.9 It is evident that the most liquid artists are also those who are most in demand on the market. This means that all other things being equal the most popular artists, who have greater appeal (if they have not over-produced) are more easily tradable than others, who even if they have an important role in the history of art, are appreciated by only a few experts or sophisticated collectors.

5.11

Characteristics of Speculative Demand

Speculative demand stems from all those entities such as banks, pension funds and corporate art collections which in recent years have wanted to tie their image to that of art, but also with the intention of gain back the capital invested. Depending on the objectives pursued and the time-frame, it is possible to distinguish between investor and speculator.

• The investor acts within a medium-long term timeframe: his aim is to diversify his assets and thus he considers the work of art to be a store of value. He purchases when the market for an artist is already formed, i.e. when demand allows certain checks based on the results of national and international auctions.

He is a wealthy person who is conservative, traditionalist, and focuses on established names.

• The speculator on the other hand acts in the short term: he buys when the market of an artist is about to form. Speculators can determine an acceleration of prices when concomitant factors arise, such as the rarefaction of works of art by that artist, his internationalization, or his participation in major exhibitions. Since the

9 Liquidity represents the relation between demand and supply and indicates the ease of purchase/ sale due to the constant presence in the market of buyers and sellers. The liquidity of a market is closely correlated to the market’s ability to disseminate information and depends on the quality and quantity of information available on a particular artist.

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speculator does not want to keep big amounts immobilized, he usually tends to get rid of works of art if the trend they represent does not catch on. Speculative demand has the highest substitutability, since the speculator aims to find the highest-performing financial investment, i.e. those works of art with the fastest increase in prices over time.

The main determinants of speculative demand are functions of the trend of returns on financial markets, of the availability of liquidity for fortunes made elsewhere (e.g. in real estate or on the stock exchange), and of the presence of market structures aggregating supply and demand, such as auction houses.

The benefits deriving from this type of investment, from diversification of risk to the better performances that can be obtained up to the advantages in terms of taxation and enjoyment, can be mainly attributed to four motivations: 1. Diversification: the goal of every investor is to obtain a good return on his investments whilst bearing the least possible risk. However, the potentially more profitable investments are also the most risky ones and can give inadequate or even negative returns in the short-term. Thus the investor who wants to obtain a good return from his savings must diversify his investments and assess their profitability in the long term to avoid making hasty steps.

2. Profitability: the economic analysis carried out so far on the demand for contemporary art has primarily focused on the trend the work of art’s financial value, as detectable from auction adjudication lists. Analysis of changes in prices has prompted economists to suggest a parallel trend between the contemporary art market and the stock market, and even to attempt to assess and measure the degree of substitutability between investment in works of art and investment in equities (Trimarchi 2004). The results of these empirical investigations, however, are quite controversial: some economists show that the real annual rate of return (i.e. net of inflation) of an investment in works of art ranges from 0.6 % (Baumol), to 1.4 % (Frey-Pommerehne), to 3.9 % (Candela-Scorcu) up to 8.3 % (Czujack 1997). Renneboog and Van Houtte’s analysis (2002) confirms that investing in art underperforms the stock market. The two economists compare the average return on an investment in art in the period 1970–1997 as yielding 7.6 %, against 8.7 % for an equity investment, evaluated on a basket of securities sold in the markets of New York and major European cities.

3. Taxation: the investor in works of art has more tax advantages compared to those who invest in financial or real estate markets. Individuals, in fact, do not pay taxes on capital gains arising from trading works of art and the share of resources invested in works of art is not taxed in a regular way. Moreover, since 1996 freelancers have been able to deduct 1 % of the purchase as entertainment expenses; this means that a firm can deduct the amount spent on paintings as production costs if it places them in a boardroom. Ownership and possession of works of art need not be included in the income tax return. What’s more, investment in art can be considered as an inherited legacy and count towards the payment of inheritance tax and gift tax, as all artistic goods and antiques (along with money, jewellery, and furniture owned by natural persons) are

5.12

How to Evaluate Investment in Art

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counted as hereditary assets for an amount equal to 10 % of the net total taxable amount of the hereditament.

4. Enjoyment: art, more than any other form of traditional investment, offers aesthetic benefits to its owner. The pleasure of hanging a painting on the walls of the house and being able to contemplate it is certainly greater than the possession of a share or an investment fund certificate.

5.12

How to Evaluate Investment in Art

To understand what characterizes investment in visual arts compared to other capital activities on securities (stocks, bonds and government bonds) and real estate (houses and lands) or gold, it is necessary to distinguish between financial characteristics and real characteristics.

• Financial characteristics. In general, the income expected from an investment is given by capital gains and yields. Unlike the activities on securities and real estate, gold and paintings do not give rise to yields. The overall return on investment in art depends only on the market price at the time of sale: this is the technical cause of the greater volatility (riskiness) of investment in art compared to that in capital assets, which yield regular earnings. Moreover, in the calculation of the return it is necessary to take into account that this is usually net of tax burdens, but involves high costs that may end up crowding out the possible returns.

• Transaction costs: intermediation is paid both by the seller and by the buyer.

With reference to commissions, for a purchase of a work of art from auction, it is necessary to calculate an average 20 % buyer’s premium (a percentage 25 % for a value up to $50,000, 20 % for values between $50,001 and $1,000,000 and 12 % for higher prices). Imports from countries outside the European Union involve the import tax equal to 19 % which must be added to the final price of the work of art. Then VAT is added to the auction house commission, as well as 2–3 % cost for transport expenses.

• Resale rights: to the commission for brokerage is added the right to resale (droit de suite) which is paid to the artist or his heir if the painter died less than 70 years ago. This allows the artist or his descendants to receive certain tax benefits calculated in various percentages on capital gains earned by public sales (i.e. the difference between the selling and purchasing prices).

The resale right only applies to sales whose price exceeds €3,000, and the maximum amount that an artist can receive as resale right for a single sale is €12,500. The percentages that authors receive according to the sale price of works of art are as follows: up to €50,000, 4 %; from €50,000 to €200,000, 3 %; from €200,000 to €350,000, 1 %; from €350,000 to €500,000, 0.5 %; from €500,000, 0.25 %.

• Insurance premiums: premiums against theft and/or destruction can be up to 0.5 % of the artwork’s estimated price.

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• Time of resale: art can be a good deal in the medium-long term; this means that at a commercial level, the initial results are seen at a distance of 5–10 years from the time of purchase. However, it is important to remember that art, by its nature, does not allow an immediate disinvestment as for most bonds and shares on the stock market, and selling a painting can take up to several years, a period during which the return may completely decline because of the artist’s exit from fashionable circuits.

• Real characteristics. Works of art are unique by their nature, unlike securities and gold assets. Unlike what happens in the stock exchange, they are not traded in any one precise geographical collocation, and this trade opens up for short periods. As for houses or land, it is difficult to compare the artistic good to others of similar type, and its indivisibility value is greater than for stocks, bonds, government bonds or gold, cases in which it is possible to create very small ‘slices’ of a purchase.

5.13

Indices for Evaluating Investments in Art

The problem of evaluating returns in art has led in recent years to numerous indices addressing the need to constantly monitor the market, as well as to assess returns.

They allow one to evaluate average price fluctuations, to study long-term trends, and to compare this market with those for stocks, bonds, and real estate. However, as calculating a price index for works of art is not methodologically easy, many solutions have been proposed.

1. The double sale method which, based on the realization that each painting is unique, considers only the prices of the same work of art recorded in successive sales. One of the most important analyses performed with the double sale method is Frey and Pommerehne’s (1989), which examined works by ‘the most famous painters of the world’, according to a list drawn up by Reitlinger (1970).

2. The repeated sales method which takes into consideration for each work of art only the price changes incurred in multiple sales at auction during a given period of time.

3. The average painting method, which proposes the average price of paintings that match a certain criterion.

4. The representative painting method, a refinement of the previous method, which identifies a sample that is representative of the entire market, defined with respect to pricing structure and not artistic features.

5. The hedonic regression method, lastly, assumes that the dynamics of a painting’s price are defined by the overall market trend adjusted for the effect exerted by the numerous characteristics that identify the painting and make it unique: the artist, subject, material used, pictorial technique and so on. The hedonic regression method implicitly assumes that if it were possible to exactly assess and assign a price to each single characteristic, their sum should correspond to the actual transaction price.

5.13

Indices for Evaluating Investments in Art

149

Table 5.4 Studies on returns on investment in art Return % Nominal 3.3 3.7 10.5

Author Anderson (1974) Anderson (1974) Stein (1977)

Object Generic paintings Generic paintings

Period 1780–1960 1780–1970 1946–1968

Baumol (1986) Frey and Pommerehne (1989) Frey and Pommerehne (1989) Buelens and Ginsburgh (1993) Pesando (1993) Goetzman (1993) de la Barre et al. (1994) de la Barre et al. (1994) Chanel et al. (1996) Chanel et al. (1996) Goetzmann (1996) Pesando and Shum (1996) Czujack (1997) Mei and Moses (2002)

Generic paintings Generic paintings

1652–1961 1635–1949

Method Hedonic Double sale Average painting Double sale Double sale

Real 2.6 3

1950–1987

Double sale

1.7

Generic paintings

1700–1961

Hedonic

0.9

Prints Generic paintings Impressionists Impressionists Generic paintings Generic paintings Generic paintings Picasso prints

1977–1991 1716–1986 1962–1991 1962–1991 1855–1969 1855–1969 1907–1977 1977–1993

Double sale Double sale Hedonic Hedonic Hedonic Double sale Double sale Double sale

Picasso paintings Impressionists and old master

1966–1994 1875–2000

Hedonic Double sale

0.6 1.4

3.2 12 8

12

1.5 2 5 1 4.9 5 5 1.4 8.3 4.9

Source: Ashenfelter and Graddy (2003)

The indices considered can refer more generally to the market trend, as well as to a certain artistic movement or period, a particular type of artwork, or even an individual author. They seem to be a useful tool for assessing returns obtained by investing in works of art, as well as a valuable source of information in view of future investments. To demonstrate how the prices of works of art are formed, Baumol (1986) and Goetzman (1993) used the double sale method, comparing the award prices of works of art in at least two sales at auction. Stein (1977) preferred the average painting method (the estimated price of the average painting is obtained by aggregating the estimated valuations of the paintings offered in one or more auction sessions, divided by the number of artworks) (Table 5.4).

While Guido Candela and Scorcu (1997) chose the representative painting method, by developing a model for price forecasting called the Art Market Index, Jianping Mei and Michael Moses, professors of finance at the Stern School of Business of the New York University, developed the Mei Moses Art Index. It is capable of measuring the performance of the art market over time, just as the

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Standard & Poor’s index does for the American stock market.10 Collecting data on the transactions of paintings at Christie’s and Sotheby’s in New York starting from 1950, and trying to reconstruct – using the catalogues archived at the New York Library – each work of art’s previous sales at auction, the two professors constructed, after 15 years of work and thanks to the collaboration of 100 students, a database of 7,100 pairs of observations (equal to more than 14,200 transactions) covering a time span from 1875 to the present day. For each work of art only price changes incurred in multiple sales at auction during a given period of time (the socalled repeated sales method) are taken into account. Leveraging the amount of data collected, the two professors refined their analysis by constructing indices of the market sub-sections dedicated to Impressionists, to American artists and to painting’s great masters. Using solid econometric methodologies, the index is a useful tool for portfolio evaluation and for guidance regarding asset allocation choices. It becomes, for example, possible to estimate the fair price of a given work of art, taking into account the market trend (or even better the sector of the art market the work under consideration belongs to) over a given time-frame. At this point it is possible to compare returns on art with returns on more traditional forms of investment such as stocks and, depending on the time-frame considered, the comparison reveals different results and different market trends. In general, the researchers observe that from the perspective of an institutional investor it may prove to worthwhile to invest up to 10 % of the assets under management in art. But we must not forget that investments in art have low liquidity, present very high transaction costs and do not pay cash in the form of dividends or coupons. So investing in art is suitable for long term investments (as indeed occurs in the case of pension funds or insurance companies); in fact, the average period for which a work of art is held by a given owner, based on the frequency of sales at auction, is around 30 years. Only if the investment’s time-frame is long enough is it possible to cushion the high transaction costs that the auction sales involve.11

5.14

Art Investment Funds

There are several ways to invest in art. The most common is to purchase a work of art directly, but this requires thorough knowledge of the artist and his works. For investors who have no such knowledge, art investment funds prove to be more suitable. Art funds are generally privately offered investment funds dedicated to the generation of returns through the acquisition and disposition of works of art. They are managed by a professional art investment management or advisory firm who

10 The ‘Standard & Poor’s 500 Index’ measures the value trends of the top 500 stocks listed on the New York stock exchanges (New York Stock Exchange (NYSE), American Stock Exchange (Amex) and Nasdaq). Indices’ values are available in the main national business newspapers as well as on Reuters and Bloomberg circuits.

11 Source: Mojana (2005).

5.14

Art Investment Funds

151

receives a management fee and a portion of any returns delivered by the fund. The fees charged by art fund managers are primarily tied to performance, which serves to align the interests of such managers with those of the art fund’s investors.

Typically, art fund managers charge an annual management fee of between 1 % and 3 % and a performance fee equal to 20 % of any profits made from the disposition of the fund’s art portfolio.12 These funds may be closed, private or hedge and they contain a basket of work of arts, thus offering also a certain diversification. The funds are underwritten upon request of the investor and are often located in offshore countries. Most art investment funds are administered by a professional investment management firm (that is usually comprised of a mix of experienced art market professionals and professional investment advisors from more traditional hedge or private equity funds). This firm performs a number of tasks for the fund such as identifying potential acquisitions, raising capital for the fund, showcasing the investment portfolio of the fund through exhibitions and loans to museums and monitoring the art market. Art fund managers employ a diversified investment approach using more than one strategy simultaneously to realize gains for the fund’s investors. The major strategies typically utilized by art investment funds include ‘geographical arbitrage’ strategies, which aim to exploit differences in price realization for certain artists’ works in different geographic locations; ‘regional art’ strategies, which concentrate on investing in art from a particular geographic region (e.g. Chinese art); ‘period strategies’, which focus on investing in a particular period of art (modern, contemporary, impressionist, etc.); ‘emerging artists’ strategies, which center around investment in artists who are not yet established and therefore have the potential for rapid price appreciation; ‘distressed art’ strategies, which focus on the acquisition of artworks at deep discounts from collectors facing bankruptcy or insolvency; ‘showcasing’ strategies, which seek to increase the value of the fund’s art portfolio by arranging for the placement of such works in important museum shows; ‘bulk buying’ strategies, which involve buying large lots of art in order to attain better pricing and lower transaction costs; and ‘medium’ strategies, which center on investment in a single art medium (i.e. photography) in which the art fund manager has particular expertise.13 Two main types of funds are in circulation: long-term ones (ten years) with lock-up ranging from three to five years and diversification over the whole period of art history, and the short-term speculative ones (five years) that bet on contemporary art, which it is easier to trade. Andy Warhol, for example, is a very liquid artist and is exchanged very easily, as well as Roy Lichtenstein and Keith Haring, not to mention emerging Indian and Chinese artists.14 The positive side of these investments is precisely the ability to diversify risk, given that they are based on products whose nature is completely different from traditional financial instruments. Moreover the art market’s lack of regulation provides unique opportunities for arbitrage that can

12

Source: The Art Fund Association, www.artfundassociation.com.

Source: The Art Fund Association, www.artfundassociation.com.

14 Source: Pirrelli (2007).

13

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400 31

350 300 250 200

338

150 100

182

-

114

145 50

100

0 2000

2001

2002

2 2003

29

28

2004

2005

33

21 2011 (1st half) Actual Fund Raised (US$) in China

2006

Actual Funds Raised (US$) (excl.China)

32

2007

2008

2009

2010

Fig. 5.11 Art investment funds â&#x20AC;&#x201C; actual funds raised ($m) (Source: ArtTactic and Deloitte 2011)

be exploited for the benefit of art fund investors. The main problem of these funds is the risk of conflict of interest, as in the board are often sitting dealers, auction house operators, gallery owners and advisors which, in most cases, determine the market.

The last few years has seen a significant increase in the number of art investment funds that have launched or are in the process of being launched. According to Deloitte Luxembourg and ArtTactic, the Global Art Investment Fund market has reached an estimated $960 million in 2011, up from $760 million in 2010. In 2011 an estimated 44 art funds and art investment trusts were in operation, 21 of these having been set up in China since 2010 (Figs. 5.11 and 5.12).

The global art fund market has gone through a number of cycles in the last 10 years. The first cycle of art funds emerged between 2000 and 2005, which included the emergence of art funds such as Fernwood, The Fine Art Fund Group and a fund of funds structure spearheaded by ABN Amro.15 Few of these early attempts materialized with The Fine Art Fund being one of the few survivors. A second cycle of art funds emerged between 2005 and 2008, many of these in emerging markets such as India and South Korea. By 2007, India had become one of the markets with the largest density of art funds. However the collapse of the Osian Art Fund, the largest Indian art fund in 2009, raised a number of issues about the sustainability of the art investment fund market in India. During the same period a number of South Korean art funds also emerged, such as Star Art Fund, Seoul Art Special Asset Fund and two SH Luxury Art Funds. However the Korean art market was rocked by a number of internal scandals in 2007, which knocked the confidence

15 Art funds of funds are generally privately-offered investment funds dedicated to generating returns through investment in other art funds. Art funds of funds neither acquire nor dispose of works of art but rather construct portfolios of underlying art funds that meet the investment criteria of investors in funds of funds.

5.14

Art Investment Funds

153

30 25 2 20 15

1

14

21

21

10 14

16

3

14

5 0

0 2000

1 2001

0 2002

3 2003

2 2004

2005

2006

2007

2008

6

6

2009

2010

4 2011 (1st half)

Total Number of Art Funds coming to market in China Total Number of Art Funds coming to the market (excl.China)

Fig. 5.12 Total number of art funds coming to the market (Source: ArtTactic and Deloitte 2011)

out of the art market.16 Most art investment funds launched since 2006, during the boom years of the market, have failed with the global financial crisis. There is no lack of such examples of failure; the Trading Art Fund can be given a particular mention as, despite having an adviser of international fame in the renowned contemporary art collector Charles Saatchi, it was liquidated in late 2009. The third cycle of the art fund industry has taken place in the last 3 years and consists of the survivors of the previous two cycle including The Fine Art Fund Group, the Art Photography Fund, launched in 2008 in Austria, and the Texas-based Collectors Fund, launched in 2005. The last 3 years have seen a number of successful launches such as Artemundi, Dionysos Art Fund and the Brazilian Golden Art Fund. In 2011 the first big art investment fund in Russia was also launched, listed on the Moscow Stock Exchange for $467 million. Sobraine.Photoeffect, founded by the Asset Management Company Agana, is an investment fund that only collects photography. This segment was chosen due to the rapid growth of its market in recent years and because it is more accessible, presenting lower prices than painting. The business model upon which this fund is based is different from others: instead of collecting money from investors to buy works of art to be resold later, the fund has gathered works of art from a group of Russian collectors (about 300,000 original prints by 250 home-grown and foreign photographers), which will be annually auctioned in percentages varying from 5 % to 10 %.17 After only two years, the largest fund in the world investing in photography is about to be closed.

16 17

Source: ArtTactic and Deloitte (2011).

Source: Gambillara (2011).

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Table 5.5 Art and cultural exchange in China Launch Name Location date Tianjin cultural artwork Tianjin 2009 exchange Zhengzhou cultural art exchange Zhengzhou 2011 Shenzhen culture assets and equity exchange Chengdu culture equity exchange Shanghai culture assets and equity exchange South cultural equity exchange

Shenzhen

2010

Chengdu

2010

Shanghai

2010

Guangdong 2010

Type of assets Artwork

Art sector Ink painting, jewellery

Artwork

Sculpture, oil painting, Ink painting Equity and Ink painting, jewellery arts Equity and Equity, ink painting arts Equity and Contemporary art arts Equity and Equity, ink painting, jade arts

Source: ArtTactic and Deloitte (2011)

The biggest growth in term of art investment has been in China, coinciding with the rapid growth in the Chinese art market since 2008. According to Deloitte Luxembourg and ArtTactic, the art fund and art investment trust market in China grew to just over $320 million in 2011. The assimilation of art to a financial asset made by some individuals has also led to the birth of a new model: the exchange of art. China is a pioneer in this field with six exchanges already up and running and at least a further 30 being planned (Table 5.5). This model of stock exchange dedicated to art is already making inroads around the world. In particular, in France, where in January 2011 Pierre Naquin has launched the Art Exchange, with some thousands of artworks by Sol LeWitt and Francesco Vezzoli.

To conclude, we can state that art can be rightfully considered a form of investment. However, it should be remembered that it represents a ‘passion investment’, thus one focused on emotional value, and that its market is characterized by information asymmetry and by a total absence of regulation: such characteristics can constitute a breeding ground for insider trading.

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Appendix

The Prices of Leading Contemporary Artists1 Ackermann, Franz Born in: Neumarkt St. Veit, Germany, 1963 Defining exhibition: Kunstmuseum, Bonn, 2009 Where to buy: Gio` Marconi, Milan; Neugeriemschneider, Berlin; White Cube, London How much: 40,000/300,000 Euros Auction record: B2 Barbeque with the Duke (1999), 379,444 Euros, Christie’s London, 02/08/2006.

Best investment: canvas (60,000/150,000 Euros) and papers (20,000/50,000 Euros).

Almond, Darren Born in: Wigan, United Kingdom, 1971 Defining exhibition: Muse´e d’art contemporain, Montreal, 2007 Where to buy: Alfonso Artiaco, Naples; White Cube, London; Galerie Max Hetzler, Berlin; Matthew Marks Gallery, New York How much: 10,000/300,000 Euros Auction record: Six Months Later (1999), 62,479 Euros, Phillips de Pury & Company, London, 06/22/2007 Best investment: photographs (8,000/40,000 Euros) Althoff, Kai Born in: Cologne, Germany, 1966 Defining exhibition: Museum of Contemporary Art, Chicago, 2004 Where to buy: Barbara Gladstone, New York; Anton Kern Gallery, New York; Galerie Neu, Berlin How much: 30,000/200,000 Euros

1 Sources: Arte, n. 444. August 2010. Milan: Editoriale Giorgio Mondadori; Artprice; Artfacts.

Auction record as of October, 2012.

A. Zorloni, The Economics of Contemporary Art, DOI 10.1007/978-3-642-32405-5, # Springer-Verlag Berlin Heidelberg 2013

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Appendix

Auction record: Untitled (2000), 178,483 Euros, Phillips de Pury & Company, New York, 02/28/2008 Best investment: papers (30,000/80,000 Euros) Altmejd, David Born in: Montre´al, Canada, 1974 Defining exhibition: Canada Pavilion, Venice Biennial, 2007 Where to buy: Xavier Hufkens, Bruxelles; Andrea Ronsen, New York; Stuart Shave, London How much: 100,000/250,000 Euros Auction record: The New North (2007), 224.028 Euros, Christie’s, London, 27/06/ 2012 Amer, Ghada Born in: Cairo, Egypt, 1963 Defining exhibition: Brooklyn Museum, New York, 2008 Where to buy: Massimo Minini, Brescia; Cheim & Read, New York; Deitch Projects, New York; Gagosian Gallery, London How much: 30,000/300,000 Euros Auction record: The big blue Expression Painting BBEP (1999–2000), 148,420 Euros, Christie’s, London, 10/15/2006 Best investment: embroidered canvases (60,000/120,000 Euros) Araki, Nobuyoshi Born in: Tokyo, Japan, 1940 Where to buy: Galerie Almine Rech, Paris; Marco Noire, Turin Auction record: A Film #2 (2006), 95,115 Euros, Phillips de Pury & Company, London, 04/03/2008 2010 turnover: 277,865 Euros Arienti, Stefano Born in: Asola, Mantua, 1961 Defining exhibition: Fondazione Sandretto Re Rebaudengo, Turin, 2005 Where to buy: Guenzani, Milan; Massimo Minini, Brescia; Lehmann Maupin, New York How much: 13,000/40,000 Euros Auction record: Senza titolo (Van Gogh) (1990), 22,000 Euros, Sotheby’s, Milan, 04/08/2008 Best investment: retouched posters (13,000/25,000 Euros) Ataman, Kutlug Born in: Istanbul, Turkey, 1961 Defining exhibition: Maxxi, Rome, 2010

Appendix

159

Where to buy: Francesca Minini, Milan; Thomas Dane, London; Galerie Art & Public, Geneva How much: 15,000/150,000 Euros Auction record: Sans titre, 24,920 Euros, Antik AS, Istanbul, 11/15/2009 Best investment: photographs (15,000/40,000 Euros) Baldessari, John Born in: California, USA, 1931 Where to buy: Marian Goodman Gallery, New York Auction record: Quality Material (1967–1968), 2,877,420 Euros, Christie’s, New York, 05/16/2007 2010 turnover: 3,250,254 Euros Baker, Kristin Born in: Stanford, USA, 1975 Defining exhibition: Centre Pompidou, Paris, 2004 Where to buy: Deitch Projects, New York How much: 30,000/130,000 Euros Auction record: Disques of Newton in Daytona (2004), 67,753 Euros, Christie’s, New York, 11/13/2008 Best investment: paintings of medium format (30,000/45,000 Euros) Beecroft, Vanessa Born in: Genoa, Italy, 1969 Defining exhibition: Castello di Rivoli, Turin, 2003 Where to buy: Lia Rumma, Milan, Naples; Massimo Minini, Brescia; Deitch Projects, New York; Gagosian Gallery, London How much: 20,000/75,000 Euros Auction record: Vb 34, Royal Opening, Moderna Museet, S-Stockholm (1998), 89,450 Euros, Sotheby’s, New York, 05/18/2000 2010 Turnover: 225,893 Euros Best investment: any of her works Bleckner, Ross Born in: New York, USA, 1949 Defining exhibition: Guggenheim, New York, 1995 Where to buy: Mary Boone, New York; Lehmann Maupin, New York How much: 5,000/200,000 Euros Auction record: Modern Memory (1989), 144,731 Euros, Sotheby’s, New York, 05/09/1990 2010 turnover: 331,885 Euros Best investment: paintings of medium format (20,000/35,000 Euros)

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Boltanski, Christian Born in: Paris, France, 1944 Defining exhibition: MOCA, Los Angeles, 1988 Where to buy: Marian Goodman, Paris; Kewenig Galerie, Cologne; Galerie Bernd Klu¨ser, Munich; Galerie Yvon Lambert, Paris How much: 5,000/200,000 Euros Auction record: Monument Odessa (1989), 139,235 Euros, Christie’s, New York, 11/16/2000 2010 turnover: 286,870 Euros Best investment: medium/large installations (30,000/80,000 Euros) Bonalumi, Agostino Born in: Vimercate, Monza, Italy, 1935 Defining exhibition: Institut Mathildenho¨e, Darmstadt, 2004 Where to buy: Blu, Milan; Fumagalli, Bergamo How much: 20,000/250,000 Euros Auction record: Bianco, 210,678 Euros, Sotheby’s, London, 02/10/2010 2010 turnover: 2,064,302 Euros Best investment: 1960s work, medium format (80,000/140,000 Euros) Botto and Bruno Born in: Turin, Gianfranco Botto in 1963 and Roberta Bruno in 1966 Defining exhibition: Palazzo delle esposizioni, Rome, 2008 Where to buy: Alfonso Artiaco, Naples; Alberto Peola, Turin How much: 3,000/45,000 Euros Auction record: Small Town V (2004), 4,800 Euros, Farsetti, Prato, 05/30/2009 Best investment: wall artworks (15,000/25,000 Euros) Breitz, Candice Born in: Johannesburg, South Africa, 1972 Defining exhibition: Castello di Rivoli, Turin, 2005 Where to buy: Francesca Kaufmann, Milan; Yvon Lambert, Paris; Galerie Art & Public, Geneva Auction record: Yes/No (1999), 15,654 Euros, Phillips de Pury & Company, New York, 05/11/2006 How much: video 20,000/220,000 Euros; photographs 12,000/50,000 Euros Calle, Sophie Born in: Paris, France, 1953 Defining exhibition: Centre Pompidou, Paris, 2004 Where to buy: Paula Cooper, New York; Emmanuel Perrotin, Paris How much: 5,000/120,000 Euros Auction record: The Sleepers (Les dormeurs) (1979), 130,788 Euros, Christie’s, New York, 11/08/2011 Best investment: photographic installations (30,000/90,000 Euros); photographs (3,000/15,000 Euros)

Appendix

161

Cattelan, Maurizio Born in: Padua, Italy, 1960 Where to buy: Anthony d’Offay, London; Emmanuel Perrotin, Paris; Massimo De Carlo, Milan; Marian Goodman, New York Auction record: Untitled (2001), 5,507,600 Euros, Sotheby’s, New York, 05/12/ 2010 2010 turnover: 11,026,626 Euros Cragg, Tony Born in: Liverpool, United Kingdom, 1949 Defining exhibition: Museum der moderne, Salzburg, 2003 Where to buy: Tucci Russo, Turin; Chantal Crousel, Paris How much: 20,000/250,000 Euros Auction record: Divide (2005), 470,340 Euros, Sotheby’s, New York, 05/11/2011 Best investment: artworks of the 1980s and medium format sculptures (40,000/ 120,000 Euros) Crewdson, Gregory Born in: New York, USA, 1962 Defining exhibition: Palazzo delle esposizioni, Rome, 2007 Where to buy: Luhring Augustine, New York; Daniel Templon, Paris; White Cube, London How much: 4,000/120,000 Euros Auction record: The Dream House Portfolio (2002), 95,508 Euros, Sotheby’s, New York, 11/15/2007 2010 turnover: 405,997 Euros Best investment: large format photographs in ten copies (25,000/55,000 Euros) Demand, Thomas Born in: Munich, Germany, 1964 La great exhibition: MoMA, New York, 2005 Where to buy: Borch Jensen, Berlin; Spru¨th Magers, Berlin, Monica De Cardenas, Milan; Victoria Miro, London How much: 10,000/180,000 Euros Auction record: Collection (2002), 174,130 Euros, Christie’s, New York, 05/05/ 2006 Best investment: large format photographs (50,000/90,000 Euros) diCorcia, Philip-Lorca Born in: Hartford, USA, 1951 Defining exhibition: LACMA, Los Angeles, 2008 Where to buy: Monica de Cardenas, Milan; Spru¨th Magers, Berlin; David Zwirner, New York;

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Gagosian Gallery, London How much: 5,000/80,000 Euros Auction record: Mary and Babe (1982), 55,694 Euros, Christie’s, New York, 11/ 17/2000 2010 turnover: 187,234 Euros Best investment: large format photographs (35,000/70,000 Euros) Djurberg, Nathalie Born in: Lysekil, Sweden, 1978 Defining exhibition: Fondazione Prada, Milan, 2009 Where to buy: Gio` Marconi, Milan; Zach Feuer, New York How much: 19,000/100,000 Euros Best investment: videos, in four copies (19,000/25,000 Euros) Elmgreen and Dragset Born in: Michael Elmgreen, Copenhagen, 1961 and Ingar Dragset, Trondheim, 1969 Defining exhibition: Venice Biennial 2009, Nordic and Danish Pavilion Where to buy: Massimo De Carlo, Milan; Victoria Miro, London How much: 15,000/200,000 Euros Record d’asta: Untitled (2005), 96,620 Euros, United Asian Auctioneers, Hong Kong, 11/27/2010 Best investment: installations (25,000/100,000 Euros) Erlich, Leandro Born in: Buenos Aires, Argentina, 1973 Defining exhibition: Reina Sofı`a, Madrid, 2009 Where to buy: Continua, San Gimignano; Sean Kelly, New York Auction record: Window and Ladder- Too Late for Help (2008), 54,540 Euros, Phillips de Pury & Company, New York, 11/14/2011 Fudong, Yang Born in: Beijing, China, 1971 Defining exhibition: Venice Biennial, 2007 Where to buy: Marian Goodman, New York and Paris How much: 3,000/100,000 Euros Auction record: After all I didn’t force you (1998), 16,386 Euros, Phillips de Pury & Company, New York, 11/17/2006 Best investment: photographs (3,000/15,000 Euros) Gallagher, Ellen Born in: Providence, USA, 1965 Defining exhibition: Tate Liverpool, 2007 Where to buy: Gagosian Gallery, New York; Hauser & Wirth, London Auction record: DeLuxe (2004–2005), 362,320 Euros, Sotheby’s, New York, 05/ 15/2008

Appendix

163

Gilbert and George Born in: Gilbert Prousch in San Martino in Badia, 1943 and George Passmore in Plymouth, 1942 Defining exhibition: Tate Modern, London, 2007 Auction record: To her Majesty (1973), 2,085,600 Euros, Christie’s, London, 06/ 30/2008 Where to buy: White Cube, London; Sonnabend, New York; Gladstone Gallery, New York; Alfonso Artiaco, Naples 2010 turnover: 1,990,028 Euros Gordon, Douglas Born in: Glasgow, Scotland, 1966 Defining exhibition: MoMA, New York, 2006 Where to buy: Gagosian Gallery, New York; Yvon Lambert, Paris; David Zwirner, New York; Lisson, London How much: 10,000/250,000 Euros Auction: Self Portrait of You + Me Beatles (2007), 65,598 Euros, Christie’s, London, 02/10/2012 Best investment: photographs and small installations (10,000/50,000 Euros) Graham, Rodney Born in: Vancouver, Canada, 1949 Defining exhibition: Museum fu¨r Gegenwartskunst, Basel, 2010 Where to buy: Hauser & Wirth, Zurich; Lisson, London; Donald Young, Chicago How much: 5,000/800,000 Euros Auction record: Welsh Oaks (No. 6) (1998), 123,403 Euros, Christie’s, New York, 11/09/2011 Best investment: photographs and medium format light boxes (15,000/120,000 Euros) Hatoum, Mona Born in: Beirut, Lebanon, 1952 Defining exhibition: Centre Pompidou, Paris, 1994 Where to buy: Galleria Continua, San Gimignano; Chantal Crousel, Paris; White Cube, London How much: 7,000/220,000 Euros Auction record: Silence (1994), 283,374 Euros, Christie’s, New York, 11/08/2011 Best investment: small or medium format installations (30,000/80,000 Euros) Ho¨fer, Candida Born in: Eberswalde, Germany, 1944 Defining exhibition: Louvre, Paris, 2006 Where to buy: Marabini, Bologna; Johnen & Scho¨ttle, Cologne; Gabrielle Salomon, Paris

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How much: 10,000/90,000 Euros Auction record: Palazzo Pisani Moretta, Venice I (2003), 78,400 Euros, Phillips de Pury & Company, London, 11/20/2007 Best investment: recent photographs (48,000/72,000 Euros); little format artworks, of the 1980s (18,000/20,000 Euros) Ho¨ller, Carsten Born in: Bruxelles, Belgium, 1961 Defining exhibition: Tate Modern, London, 2006 Where to buy: Massimo De Carlo, Milan; Air de Paris, Paris; Ester Schipper, Berlin How much: 25,000/500,000 Euros Auction record: Hippopotamus (2007), 123,516 Euros, Sotheby’s, New York, 02/ 14/2008 Best investment: apartment installations (60,000/150,000 Euros) Horn, Rebecca Born in: Michelstadt, Germany, 1944 Defining exhibition: Tate Gallery and Serpentine Gallery, London, 1994 Where to buy: Studio Trisorio, Naples; Sean Kelly, New York How much: 3,000/120,000 Euros Auction record: Painting Machine (1988), 68,918 Euros, Christie’s, London, 10/ 16/2007 Best investment: installations (40,000/100,000 Euros); photographs (3,000/12,000 Euros) Hume, Gary Born in: Kent, United Kingdom, 1962 Defining exhibition: Venice Biennial, Great Britain Pavilion, 1999 Where to buy: Lorcan O’Neill, Rome; Matthew Marks, New York; White Cube, London How much: 3,000/200,000 Euros Auction record: Love Loves Unlovable (1994), 267,529 Euros, Christie’s, London, 02/08/2001 Best investment: medium format paintings (20,000/50,000 Euros) Katz, Alex Born in: New York, USA, 1927 Defining exhibition: Whitney Museum, New York, 2002 Where to buy: Monica de Cardenas, Milan; Peter Blum, New York; Jablonka, Cologne; Thaddaeus Ropac, Paris How much: 3,000/500,000 Euros Auction record: Blue Umbrella #2 (1972), 680,414 Euros, Christie’s, New York, 11/15/2001 2010 turnover: 1,394,600 Euros Best investment: small and medium format canvases (20,000/60,000 Euros)

Appendix

165

Kentridge, William Born in: Johannesburg, South Africa, 1955 Defining exhibition: MoMA, New York, 2010 Where to buy: Lia Rumma, Naples; Marian Goodman, New York How much: 10,000/200,000 Euros Auction record: Preparing the flute (2005), 348,400 Euros, Sotheby’s, New York, 05/11/2011 2010 turnover: 992,129 Euros Best investment: drawings and collages (15,000/120,000 Euros) Koons, Jeff Born in: Pennsylvania, USA, 1955 Defining exhibition: Guggenheim, New York, 2002 Where to buy: Gagosian Gallery, New York; Galerie Max Hetzler, Berlin; Sonnabend Gallery, New York Auction record: Balloon Flower (Magenta) (1995/2000), 14,536,000 Euros, Christie’s, London, 06/30/2008 2010 turnover: 27,187,403 Euros Kosuth, Joseph Born in: Toledo, USA, 1945 Defining exhibition: Castello di Rivoli, Turin, 2006 Where to buy: Sean Kelly, New York; Juana de Aizpuru, Madrid; Spru¨th Magers, Berlin; Gabrielle Salomon, Paris How much: 2,000/250,000 Euros Auction record: Five Words in Yellow Neon (1965), 181,160 Euros, Sotheby’s, New York, 05/15/2008 2010 turnover: 226,083 Euros Best investment: painted inscriptions, medium-large format (40,000/120,000 Euros); large neon (150,000/250,000 Euros) Kruger, Barbara Born in: Newark, USA, 1945 Defining exhibition: Deutsche Guggenheim, Berlin, 2007 Where to buy: Mary Boone, New York; Yvon Lambert, Paris; Spru¨th Magers, Berlin How much: 3,000/250,000 Euros Auction record: Untitled (When I hear the word culture I take out my checkbook) (1985), 544,950 Euros, Christie’s, New York 11/08/2011 Best investment: b/w artworks with slogan (80,000/140,000 Euros) Lucas, Sarah Born in: London, UK, 1962 Defining exhibition: Tate Liverpool, 2006

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Where to buy: Sadie Coles, London; Barbara Gladstone, New York How much: 4,000/200,000 Euros Auction record: Fighting Fire with Fire 6 Pack (1997), 188,844 Euros, Christie’s, London, 02/08/2001 Best investment: historical photographs and sculptures (7,000/60,000 Euros) Mueck, Ron Born in: Melbourne, Australia, 1958 Defining exhibition: Bornonal Gallery of Victoria, Melbourne, 2010 Where to buy: Anthony d’Offay, London How much: 100,000/1,1 million Euros Auction record: Bib Baby (1996), 787,080 Euros, Christie’s, London, 06/28/2011 Best investment: any of his works Muniz, Vik Born in: Sao Paulo, Brazil, 1961 Defining exhibition: Miami Art Museum, 2006 Where to buy: Cardi, Milan; Arndt & Partners, Berlin; Sikkema Jenkins, New York; Galerie Xippas, Paris How much: 10,000/150,000 Euros Record d’asta: Waterlilies, after Moner (From pictures of magazines) (2005), 152,565 Euros, Christie’s, New York, 11/11/2010 Best investment: images of paintings and iconic photographs (30,000/100,000 Euros) Neshat, Shirin Born in: Qazvin, Iran, 1957 Defining exhibition: Hamburger Banhoff, Berlin, 2005 Where to buy: Marco Noire, Turin; Barbara Gladstone, New York; Je´roˆme de Noirmont, Paris How much: 5,000/150,000 Euros Auction record: Whispers (1997), 140,954 Euros, Christie’s, Dubai, 04/30/2008 Best investment: any of her photographs (10,000/50,000 Euros) Ontani, Luigi Born in: Grizzana Morandi, Bologna, Italy, 1943 Defining exhibition: MAMbo, Bologna, 2008 Where to buy: Galleria dello Scudo, Verona; Locarn O’Neill, Rome; Studio la Citta`, Verona How much: 5,000/100,000 Euros Auction record: Ibridoli (1991), 100,261 Euros, Phillips de Pury & Company, London, 10/13/2007 Best investment: watercolours of any period (10,000/40,000 Euros)

Appendix

167

Orozco, Gabriel Born in: Jalapa, Mexico, 1962 Defining exhibition: MoMA, New York, 2009 Where to buy: Chantal Crousel, Paris; Marian Goodman, New York; White Cube, London; Anthony d’Offay, London How much: 5,000/350,000 Euros Auction record: Samurai Tree (Invariant Gold 2) (2005), 331,884 Euros, Sotheby’s, New York, 05/13/2010 Best investment: medium format sculptures (25,000/100,000 Euros); photographs (10,000/35,000 Euros) Oursler, Tony Born in: New York, USA, 1957 Defining exhibition: Macro, Rome, 2002 Where to buy: In arco, Turin; Lisson, London; Metro Picture, New York How much: 25,000/120,000 Euros Auction record: Good – Bad (1995), 68,873 Euros, Christie’s, New York, 05/16/ 2000 Best investment: medium format video-installations (25,000/70,000 Euros) Perry, Grayson Born in: Chelmsford, United Kingdom, 1960 Defining exhibition: Stedelijk Museum, Amsterdam, 2002 Where to buy: Victoria Miro, London How much: 5,000/100,000 Euros Auction record: Triumph of Innocence (2000), 87,514 Euros, Christie’s, London, 06/28/2012 Best investment: small ceramic pots (15,000/40,000 Euros) Pettibon, Raymond Born in: Tucson, USA, 1957 Defining exhibition: Whitney Museum, New York, 2005 Where to buy: Contemporary Fine Arts, Berlin; Sadie Coles, London; David Zwirner, New York How much: 5,000/300,000 Euros Auction record: Self Portrait as Goofy-Foot (2000), 508,755 Euros, Sotheby’s, New York, 05/11/2006 2010 turnover: 521,510 Euros Best investment: small papers (7,000/35,000 Euros) Quinn, Marc Born in: London, UK, 1964 Defining exhibition: Whitney Museum, New York, 2005 Where to buy: Mary Boone, New York; Thaddaeus Ropac, Paris; White Cube, London

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How much: 2,000/300,000 Euros Auction record: Myth Venus (2006), 696,800 Euros, Christie’s, New York, 05/12/2011 Best investment: flowers, painted on canvases (100,000/200,000 Euros) and photographs (10,000/25,000 Euros) Richter, Daniel Born in: Eutin, Germany, 1962 Defining exhibition: Essl Museum, Klosterneuburg, 2009 Where to buy: Contemporary Fine Arts, Berlin; David Zwirner, New York How much: 10,000/25,000 Euros Record d’asta: Those who are here again (2002), 516,950 Euros, Sotheby’s, New York, 05/15/2007 Best investment: small and medium format canvases (40,000/200,000 Euros); paintings on paper (10,000/25,000 Euros) Rist, Pipilotti Born in: Grabs, Svizzera, 1962 Defining exhibition: MoMA, New York, 2008 Where to buy: Luhring Augustine, New York; Hauser & Wirth, London How much: 2,000/250,000 Euros Auction record: Baro (1999), 112,281 Euros, Christie’s, London, 06/27/2000 Best investment: video-installations (35,000/150,000 Euros) Rondinone, Ugo Born in: Brunnen, Svizzera, 1964 Defining exhibition: Louisiana, Humlebaek, 2010 Where to buy: Raucci Santamaria, Naples; Sadie Coles, London; Eva Presenthuber, Zurich; Almine Rech, Paris; Hauser & Wirth, London; Matthew Marks Gallery, New York How much: 10,000/350,000 Euros Auction record: Get up girl a sun is running the world (2006), 506,385 Euros, Phillips de Pury & Company, London, 06/27/2011 2010 turnover: 1.009.905 Euros Best investment: paintings (50,000/150,000 Euros) Ruff, Thomas Born in: Zell am Harmersbach, Germany, 1958 Defining exhibition: Castello di Rivoli, Turin, 2009 Where to buy: Lia Rumma, Naples; Johnen, Berlin; Mai 36, Zurich; David Zwirner, New York How much: 10,000/180,000 Euros Auction record: “Sub10III”, Substrat 10 III (2003), 126,038 Euros, Christie’s, London, 06/21/2007 2010 turnover: 1,084,137 Euros Best investment: large format photographs: Star series (60,000/90,000 Euros), portraits and nudes (20,000/65,000 Euros)

Appendix

169

Sandison, Charles Born in: Northumberland, Scotland, 1969 Defining exhibition: Muse´e du Quai Branly, Paris, 2010 Where to buy: Arndt & Partners, Berlin; Yvon Lambert, Paris How much: 20,000/70,000 Euros Auction record: Origins (2004), 10,909 Euros, Sotheby’s, London 11/04/2010 Best investment: installations (six projections 50,000/70,000 Euros; mono-channel 25,000/35,000 Euros) Saraceno, Tomas Born in: San Miguel de Tucuma`n, Argentina, 1973 Defining exhibition: Walker Art Center, Minneapolis, 2008 Where to buy: Pinksummer, Genoa; Tanya Bonakdar, New York How much: 3,000/250,000 Euros Auction record: SE 60 Flying Garden (2006), 16,226 Euros, Phillips de Pury & Company, London, 06/29/2012 Shonibare, Yinka Born in: London, UK, 1962 Defining exhibition: Brooklyn Museum of Art, USA, 2010 Where to buy: James Cohan, New York; Stephen Friedman, London How much: 20,000/500,000 Euros Auction record: Hound (2000), 116,256 Euros, Christie’s, New York, 11/08/2011 Best investment: photographs and stills from videos (20,000/35,000 Euros); medium format sculptures (100,000/200,000 Euros) Taylor-Wood, Sam Born in: London, UK, 1967 Defining exhibition: Contemporary Art Museum, Houston, 2008 Where to buy: Locarn O’Neill, Rome; White Cube, London; Matthew Marks Gallery, New York How much: 3,000/120,000 Euros Auction record: Soliloquy VI (1999), 113,708 Euros, Phillips de Pury & Company, New York, 11/13/2000 2010 turnover: 23,593 Euros Best investment: large format photographs, in particular the series Soliloquy and Crying men (20,000/45,000 Euros) Tillmans, Wolfang Born in: Remscheid, Germany, 1968 Defining exhibition: Hirshhorn Museum, Washington e MCA, Chicago, 2006 Where to buy: Neugerriemschneider, Berlin; Andrea Rosen, New York; Sales, Rome How much: 3,000/80,000 Euros

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Auction record: Installation (1999), 63,808 Euros, Phillips de Pury & Company, New York 10/18/2006 2010 turnover: 227,777 Euros Best investment: large format photographs (40,000/80,000 Euros) Uklanski, Piotr Born in: Warsaw, Poland, 1968 Defining exhibition: Whitney Museum, New York, 2007 Where to buy: Massimo De Carlo, Milan; Gagosian Gallery, New York; Emmanuel Perrotin, Paris; Gavin Brown’s Enterprise, New York How much: 15,000/220,000 Euros Auction record: The Nazis (1998), 741,150 Euros, Phillips de Pury & Company, London, 10/14/2006 Best investment: medium format paintings (50,000/150,000 Euros) and format paintings (15,000/35,000 Euros) Vezzoli, Francesco Born in: Brescia, Italy, 1971 Defining exhibition: Tate Modern, London, 2006 Where to buy: Gio` Marconi, Milan; Franco Noero, Turin; Gagosian Gallery, New York; Yvon Lambert, Paris How much: 40,000/250,000 Euros Auction record: Colette Embroidered Gigi (2000), 204,768 Euros, Sotheby’s, London, 10/15/2010 Viola, Bill Born in: New York, USA, 1951 Defining exhibition: Getty Museum, Los Angeles, 2003 Where to buy: James Cohan, New York; Anthony d’Offay Gallery, London How much: 100,000/500,000 Euros Auction record: Eternal Return (2000), 489,159 Euros, Phillips de Pury & Company, London 10/14/2006 Best investment: videos of the other 10 years (100,000/400,000 Euros) Walker, Kara Born in: Stockton, USA, 1969 Defining exhibition: Whitney Museum, New York; Walker, Minneapolis; Muse´e d’Art Moderne de la Ville, Paris, 2007 Where to buy: Sikkema Jenkins, New York; Galerie Max Hetzler, Berlin How much: 15,000/350,000 Euros Auction record: The battle of Atlanta: Being the narrative of a negress in the flames of desire – A reconstruction (1995), 243,880 Euros, Sotheby’s, New York, 05/11/2011 Best investment: silhouettes of medium format (until about cm 130 180, 40,000/80,000 Euros)

Appendix

171

Wesley, John Born in: Los Angeles, USA, 1928 Defining exhibition: Fondazione Cini, Venice, 2009 Where to buy: Waddington, London How much: 20,000/400,000 Euros Auction record: Plague (1967), 309,552 Euros, Christieâ&#x20AC;&#x2122;s, New York, 05/14/2008 Best investment: small and medium format canvases (70,000/150,000 Euros); small and medium format papers (20,000/50,000 Euros) Wiley, Kehinde Born in: Los Angeles, USA, 1977 Defining exhibition: Studio Museum, Harlem, New York, 2008 Where to buy: Deitch Projects, New York; Roberts & Tilton, Los Angeles How much: from 6,000 Euros for photographs, up to 200,000 Euros for paintings.

Auction record: St. Sebastian II (Columbus) (2006), 74,020 Euros, Phillips de Pury & Company, New York, 09/23/2011 Wurm, Erwin Born in: Bruck an der Mur, Austria, 1954 Defining exhibition: Kunstmuseum, Bonn, 2010 Where to buy: Hufkens, Bruxelles; Lehmann Maupin, New York; Thaddaeus Ropac, Salzburg; Art Concept, Paris; Galerie Krinzinger, Vienna How much: 3,000/100,000 Euros Auction record: The Artist Who Swallowed the World (2006), 71,772 Euros, Sothebyâ&#x20AC;&#x2122;s, London, 02/16/2012 Best investment: photographs (Outdoor e Indoor sculptures, big format, 6,000/ 20,000 Euros); One minute sculptures, small format (3,000/6,000 Euros); small and medium format sculptures (25,000/70,000 Euros).

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The World’s Most Expensive Contemporary Art Works2 Artist Rothko Mark

Work of art Orange, red, yellow, 1961

Warhol Andy Green car crash (Green Burning Car I), 1963 Klein Yves “Le Rose du bleu (RE 22)”, 1960 Abstraktes bild, 1994

Richter Gerhard Johns Jasper

Flag, 1960–66

Freud Lucian

Benefits supervisor sleeping, 1995

Koons Jeff

Baloon flower (Magenta), 1995–2000

Basquiat Jean-Michel Hirst Damien

Untitled, 1981 Lullaby spring, 2002

Twombly Cy

Untitled (New York City), 1970

Nauman Bruce Murakami Takashi Chen Yifei

Henry Moore bound to fail, back view, 1967 My lonesome cowboy, 1998 Wind of mountain village, 1994

Doig Peter

White canoe, 1990–91

Marden Brice Cold mountain I (Path), 1988–89 Zhang Xiaogang Brown Glenn Cai GuoQiang Cattelan Maurizio

Forever lasting love, 1988 The tragic conversion of Salvador Dalı´ (After John Martin), 1998 Untitled, 2002 Untitled, 2001

Record (€) Auction house 59,535,500 Christie’s New York 05.08.2012 47,219,200 Christie’s New York, 05.16.2007 26,136,600 Christie’s London, 06.27.2012 23,617,000 Sotheby’s London, 10.12.2012 19,754,850 Christie’s New York, 05.11.2010 19,404,000 Christie’s New York, 05.13.2008 14,536,000 Christie’s London, 06.30.2008 14,312,900 Christie’s London, 06.27.2012 12,752,080 Sotheby’s London, 06.21.2007 11,900,900 Sotheby’s New York, 05.09.2012 10,080,660 Christie’s New York, 05.17.2001 8,706,150 Sotheby’s New York, 05.14.2008 7,781,600 China Guardian Auctions Hong Kong, 05.24.2011 7,741,800 Sotheby’s London, 02.07.2007 6,687,800 Sotheby’s New York, 05.12.2010 6,337,800 Sotheby’s Hong Kong, 04.03.2011 5,725,160 Sotheby’s London, 06.26.2012 5,721,540 Christie’s Hong Kong, 11.25.2007 5,507,600 Sotheby’s New York, 05.26.2010 (continued)

2

Auction records as of October, 2012.

Appendix

173

Artist Zeng Fanzhi

Work of art Mask series 1996 no. 6, 1996

Wool Christopher Hockney David Prince Richard Stella Frank

Untitled, 1990

Ruscha Ed

Beverly hills housewife, 1966–67 Overseas nurse, 2002 Tomlinson court park, second version, 1959 Burning gas station, 1965–66 No.2, 1959

Kusama Yayoi Yue Minjun

Gweong gweong, 1993

Currin John

Nice ‘n easy, 1999

Dumas Marlene Kippenberger Martin Shaw Raqib

The visitor, 1995 Untitled (from the series Hand-Painted Pictures), 1992 Garden of earthly delights III, 2003

Kabakov Ilya

Beetle, 1982

Gormley Antony Juan Mun˜oz

Angel of the north (Life-Size Maquette), 1996 Conversation piece III, 2001

Close Chuck

John, 1971–72

Baselitz Spekulatius, 1965 Georg Kelly Spectrum VI, 1969 Ellsworth Zhou Chunya Sheepshearing, 1981

Liu Ye

Baishi Knew Mandrian, 1996

Tansey Mark

On photography (Homage to Susan Sontag), 1982 Nutcracker, 1958

Chamberlain John

Record (€) Auction house 5,452,460 Christie’s Hong Kong, 05.24.2008 5,189,550 Christie’s London, 14.02.2012 5,139,400 Christie’s New York, 05.13.2009 4,763,395 Sotheby’s London, 07.01.2008 4,438,379 Sotheby’s New York, 11.08.1989 4,245,140 Christie’s New York, 11.13.2007 4,016,250 Christie’s New York, 11.12.2008 3,906,239 Christie’s Hong Kong, 05.24.2008 3,738,240 Sotheby’s New York, 11.11.2008 3,563,070 Sotheby’s London, 07.01.2008 3,480,400 Christie’s London, 10.11.2012 3,450,000 Sotheby’s London, 10.12.2007 3,437,460 Phillips London, 02.28.2008 3,428,700 Christie’s London, 10.14.2011 3,383,240 Sotheby’s New York, 05.12.2010 3,348,840 Sotheby’s New York, 05.10.2005 3,182,310 Sotheby’s London, 06.29.2011 3,155,140 Sotheby’s New York, 11.14.2007 3,074,000 China Guardian Auctions Co., Ltd., Beijing, 11.06.2011 2,990,000 Poly International Auction Beijing, 12.01.2010 2,953,230 Christie’s New York, 11.10.2010 2,934,120 Sotheby’s New York, 05.09.2011 (continued)

174

Artist McCarthy Paul Baldessari John Riley Bridget Gursky Andreas Indiana Robert Shu¨tte Thomas Fang Lijun Wall Jeff

Kiefer Anselm Sherman Cindy Ray Charles

Appendix

Work of art Tomato head (Green), 1994 Quality material, 1967–1968 Chant 2, 1967 Rhein II, 1999 Airmail stamps, 1962 Grosse geister no. 16, 2000 Series 2, no. 6, 1991–92

Record (€) Auction house 2,906,400 Christie’s New York, 11.08.2011 2,877,420 Christie’s New York, 05.16.2007 2,868,145 Sotheby’s London, 07.01.2008 2,761,080 Christie’s New York, 11.08.2011 2,675,120 Sotheby’s New York, 05.12.2010 2,566,440 Phillips New York, 11.08.2010 2,469,240 Sotheby’s New York, 11.14.2007 2,458,240 Christie’s New York, 05.08.2012

Dead troops talk (A Vision after an Ambush of a Red Army Patrol, near Moqor, Afghanistan, Winter 1986), 1992 Lasst tausend Blumen blu¨hen!, 1999 2,427,040 Untitled, 1981

2,369,120

Male Mannequin, 1990

2,320,579

Kapoor Anish Untitled, 2003

2,173,220

Gober Robert Prison window, 1992

2,143,470

To her majesty, 1973

2,085,600

“Deodorized central mass with satellites”, 1991–1999 Orgena, 1998

2,066,126 2,037,419

“F-111”, 1964–1965

2,027,566

“Peinture 130 162 cm”, 1956

2,000,000

Untitled, 1990

1,639,670

Branded, 1992

1,548,040

Gilbert and George Kelley Mike Ofili Chris Rosenquist James Soulages Pierre Stingel Rudolf Saville Jenny

Serra Richard Palms, 1985

1,451,200

Kawara On

Dec.1/2/3/4/5/6, 1974

1,437,870

Oldenburg Claes

Typewriter eraser, 1976

1,394,980

Christie’s London, 02.08.2007 Christie’s New York, 05.11.2011 Christie’s New York, 11.16.2000 Sotheby’s London, 07.01.2008 Christie’s New York 11.08.2011 Christie’s London, 06.30.2008 Phillips New York, 11.26.2006 Christie’s London, 06.30.2010 Sotheby’s New York, 11.11.1986 Sotheby’s Paris, 05.31.2011 Phillips New York, 11.08.2010 Christie’s London, 02.16.2011 Phillips New York, 11.07.2011 Christie’s New York, 11.13.2007 Christie’s New York, 05.13.2009 (continued)

Appendix

Artist Fischl Eric

175

Work of art Daddy’s girl, 1984

Sugimoto Black sea, Ozuluce/Yellow sea, Cheju/ Hiroshi Red sea, Safaga, 1991–1992 Tuttle Richard Silver picture, 1964 Ramos Mel

“ A.C. Annie ”

Yan Pei-Ming Pape, 2004 Brown Cecily “The Pyjama Game”, 1997–1998 Tomaselli “Untitled (Expulsion)”, 2000 Fred Tuymans Luc Sculpture, 2000 O Elefante Azul (The Blue Elephant), 2002 Untitled, 2007

Milhazes Beatriz Nara Yoshimoto Eliasson Olafur Yuskavage Lisa Artschwager Richard Rauch Neo

Stellwerk, 1999

Scully Sean

One yellow, 1985

Castellani Enrico Kounellis Jannis Pistoletto Michelangelo Irwin Robert

Superficie bianca n.32, 1966

Hamilton Richard Peyton Elizabeth Struth Thomas Morley Malcolm

Fivefold eye, 2000 Night, 1999–2000 Triptych V, 1972

Untitled, 1960 Metrocubo d’infinito (Cubic Meter of Infinity), 1996 Untitled, 1963–64 Fashion-plate (Cosmetic study X), 1969 Colin de Land, 1994 Pantheon, Rome, 1990 Cristoforo Colombo, 1965

Record (€) Auction house 1,326,000 Christie’s New York, 11.15.2006 1,217,370 Christie’s New York, 05.16.2007 1,180,200 Sotheby’s New York, 05.12.2010 1,138,776 Sotheby’s London 5.22.2012 1,112,320 Christie’s London, 06.30.2008 1,032,920 Christie’s New York, 05.16.2007 1,017,240 Christie’s New York 11.08.2011 1,010,100 Christie’s New York, 05.11.2005 995,680 Christie’s London, 06.27.2012 975,650 Christie’s Hong Kong, 05.26.2012 933,985 Christie’s London, 10.14.2007 885,360 Christie’s New York, 05.16.2007 868,383 Christie’s New York, 11.07.1989 822,244 Christie’s London, 10.16.2009 802,619 Christie’s London, 06.30.2010 800,000 Sotheby’s Milano, 05.26.2010 799,800 Christie’s London, 10.20.2008 720,940 Christie’s London, 10.11.2012 685,125 Christie’s New York, 11.12.2008 641,124 Sotheby’s London, 02.09.2006 635,175 Christie’s New York, 11.08.2005 616,230 Christie’s New York, 11.13.2007 570,438 Sotheby’s London, 02.27.2008 (continued)

176

Artist Hodgkin Howard Fischli and Weiss Holzer Jenny Whiteread Rachel Barney Matthew

Appendix

Work of art Interior with figures, 1977–1984 Der Lauf der Dinge, 1987 Untitled with selections from Truisms, 1987 Untitled (Colours), 2002 Cremaster 4, 1994–1995

Record (€) Auction house 565,799 Christie’s London, 06.30.1999 552,330 Christie’s Zurich, 12.01.2008 485,250 Sotheby’s New York, 05.15.2008 480,130 Sotheby’s London, 07.01.2008 328,499 Christie’s New York, 05.19.1999

Appendix

Web Resources Price Database Artnet http://www.artnet.com Artprice http://www.artprice.com Artfacts http://www.artfacts.net Artfact http://www.artfact.com Blouin Art Sales Index http://artsalesindex.artinfo.com The Mei Moses Art Index http://www.artasanasset.com Art Market Research http://www.artmarketresearch.com Artron http://www.artron.net

Research and Consulting Firms Art Market Monitor http://artmarketmonitor.com Art Economics http://www.artseconomics.com ArtTactic http://www.arttactic.com Tutela Capital http://www.tutelacapital.com Skateâ&#x20AC;&#x2122;s http://skatesartinvestment.com Artvest http://artvest.com Deloitte Luxembourg http://www.deloitte.com/view/en_LU/lu/industries/art-and-finance/index.htm Fine Art Wealth Management http://www.fineartwealthmgt.com Oblyon http://www.oblyon.com 1858 Ltd http://www.1858ltd.com

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Auction Houses Christie’s http://www.christies.com Sotheby’s http://www.sothebys.com Phillips http://www.phillips.com Poly International Auction http://www.polypm.com.cn China Guardian Auctions http://www.cguardian.com Hanhai Auction http://www.hanhai.net Ravenel Art Group http://ravenel.com/ Council Auction http://www.council.com.cn Xiling Yinshe Auction http://www.xlysauc.com Bonhams http://www.bonhams.com Dorotheum http://www.dorotheum.com Lempertz http://www.lempertz.com Artcurial http://www.artcurial.com Bloomsbury Auctions http://www.bloomsburyauctions.com Wannenes http://www.wannenesgroup.com Piasa http://www.piasa.fr

International Art Fairs ARCO http://www.arco.ifema.es Armory Show http://www.thearmoryshow.com Art Athina http://www.art-athina.gr

Appendix

Appendix

Art Basel http://www.artbasel.com Art Basel Hong Kong http://hongkong.artbasel.com Art Basel Miami http://miamibeach.artbasel.com Art Brussels http://www.artbrussels.be Art Cologne http://www.artcologne.de Art Dubai http://www.artdubai.ae Art Innsbruck http://www.art-innsbruck.at Art Madrid http://www.art-madrid.com Art Paris http://www.artparis.fr Vienna Art Fair http://www.viennafair.at Arte BA http://www.arteba.com Artissima http://www.artissima.it Artgene`ve http://artgeneve13.ch Art Los Angeles Contemporary http://artlosangelesfair.com The Art Show http://www.artdealers.org/artshow.html ArtRio http://www.artrio.art.br FIAC http://www.fiacparis.com Frieze Art Fair http://www.friezeartfair.com Frieze New York http://friezenewyork.com Loop Fair http://www.loop-barcelona.com Marrakech Art Fair http://www.marrakechartfair.com Melbourne http://www.artfair.com.au

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Appendix

Paris Photo http://www.parisphoto.fr Pinta http://www.pintaart.com PULSE Contemporary Art Fair http://www.pulse-art.com Art Toronto http://www.arttoronto.ca ShContemporary http://www.shcontemporary.info

Museum Associations Associazione dei Musei d’Arte Contemporanea Italiani http://www.amaci.org ICOM http://icom.museum CIMAM –International Committee of ICOM for Museums and Collections of Modern Art http://www.cimam.org IKT – International Association of Curators of Contemporary Art http://www.iktsite.org The Association of Art Museum Directors http://www.aamd.org American Alliance of Museums http://www.aam-us.org Museum Association http://www.museumsassociation.org National Museum Directors’ Council http://www.nationalmuseums.org.uk The Canadian Museums Association http://www.museums.ca Museums Australia http://www.museumsaustralia.org.au Museum Documentation Centre http://www.mdc.hr

Art Dealers/Advisors Associations The Art Dealers Association of America http://www.artdealers.org The Art Dealers Association of Canada http://www.ad-ac.ca

Appendix

The Association of International Photography Art Dealers http://www.aipad.com CINOA – Confe´de´ration Internationale des Ne´gociants en Oeuvre d’Art http://www.cinoa.org The Society of London Art Dealers http://www.slad.org.uk The Association of Art and Antique Dealers http://www.lapada.org The Visual Arts and Galleries Association http://www.vaga.co.uk Dansk Kunst & Antikvitetshandler Union http://www.dkau.dk Bundesverband Deutscher Galerien eV http://www.bvdg.de Association of Fine Art Dealers in the Netherlands http://www.vhok.nl Swiss Association of Art Galleries http://www.artgalleries.ch Associazione Nazionale Gallerie d’Arte Moderna e Contemporanea http://www.angamc.com Association of Hungarian Contemporary Art Galleries http://www.kortarsgaleriak.hu The Federation of European Art Galleries Association http://www.europeangalleries.org The Association of Professional Art Advisors http://www.artadvisors.org Professional Advisors to the International Art Market http://www.paiam.org Art Investment Council http://www.artinvestmentcouncil.com

Auctioneers Associations National Auctioneers Association http://www.auctioneers.org Swiss Fine Art Auctioneers Association http://www.auktionatorenverband.ch Associazione Nazionale delle Case d’Aste http://www.anca – aste.it The National Association of Valuers and Auctioneers http://www.nava.org.uk Auctioneers and Valuers Association of Australia http://www.avaa.com.au

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Appendix

The Auctioneers Association of New Zealand http://www.auctioneers.org.nz

Copyright and Droit de Suite SIAE – Societa` Italiana degli Autori ed Editori http://www.siae.it Design and Artists Copyright Society http://www.dacs.org.uk ADAGP-Socie´te´ des Auteurs dans les Arts Graphiques et Plastiques http://www.adagp.fr Verwertungsgesellschaft BILD-KUNST http://www.bildkunst.de SENA Stichting ter Exploitatie van Naburige Rechten http://www.sena.nl Artists Rights Society http://www.arsny.com Artists’ Collecting Society http://artistscollectingsociety.org IVARO – The Irish Visual Artists Rights Organisation http://www.ivaro.ie

Associations of Corporate Collections International Association of Corporate Collections of Contemporary Art (IACCCA) http://www.iaccca.com Dutch Association for Corporate Art Collections (VBCN) http://www.vbcn.nl

Art Funds Associations Art Fund Association http://www.artfundassociation.com