Tuesday, November 11, 2014
Baumol’s Cost Disease Is Killing Me!
The Clyde Fitch Report: I first read Baumol and Bowen’s The Economic Dilemma of the Performing Arts some 20 years ago, almost 30 years after it was first published in 1965. The theory was fairly straightforward: the problem in our sector is that because there are no productivity gains associated with the creation of the work (it takes the same time and energy to rehearse and perform a Brahm’s Requiem today as it did when first performed in 1868), and because costs always increase over time and earned revenue growth is limited by a range of market forces, we are doomed to fall further and further behind, essentially forcing the more aggressive pursuit of contributed income just to balance the budget. And the problem is progressive, meaning that every year we fall a little bit further behind. This phenomenon has come to be known as Baumol’s Cost Disease.
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First of all: the reason that these arts organizations don't fall and people don't leave is because there are still people out there that enjoy it. As long as there is an audience, then it will continue. I think that it is sad that the author didn't know that. There is a reason the term "starving artist" was coined. Artists make art for the love of it, not for the money (well maybe a little for the money).
It is true that funding for many things are going down, but if an owner were to drop a company just because there was a decline in profits, what would they do afterwards? Start up a new company, that's what. Many people stay with what they know and like to do so. Sometimes it is their skill set that dictates what kind of company they manage. You wouldn't necessarily want the owner of the Met dropping that and suddenly starting up a computer company. It might not get the best results. Again, people like to stay with that they know and are comfortable with.
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