Because the arts industry is crucial to our self-image, we are naturally curious not only about its size, but also about its rate of growth. If it is growing rapidly, we are likely to think better of the state of our society than if it is growing slowly or not at all. We begin this chapter by tracing the growth of the live performing arts in the United States since 1929, with special attention to the impact of technological innovation. We then examine recent trends in Canada, Australia, and Western Europe. In this context, the principal forms of the live performing arts – theater, symphony, opera, and dance – can readily be analyzed in common. Growth of activity in the fine arts and the growth of art museums is taken up separately in Chapters 9 and 10.

Although we may all agree that the arts are more than “mere entertainment,” they are a form of entertainment, nevertheless, and must compete with its other forms in the budgets of interested consumers. The historical perspective adopted in this chapter allows us not only to measure the arts' long-run growth, but also to see how they have fared in competition with other kinds of recreation, and especially with other forms of spectator entertainment. In addition, it shows us how well the live arts have stood up against the endless flow of technological innovations, from talking pictures through television to the compact disc and the videocassette recorder, that have transformed the nonlive entertainment industry over the same span of years.

Artistic institutions earn income by selling tickets to performances or, in the case of museums, by charging for admission. But in every economically advanced country, they also receive substantial additional support (the unearned income referred to in Chapter 8) either from the government in the form of grants or from private individuals and businesses in the form of charitable donations. In Western Europe, Canada, and Australia, the additional funding comes largely from the government, whereas the private sector contributes very little. The situation in the United States is just the opposite: Additional support comes mainly from the private sector. There is a lot of history behind this last statement, and it is worthwhile sketching it briefly to explain how we got to where we are now.

TRADITIONAL OPPOSITION TO PUBLIC SUPPORT IN THE UNITED STATES

Until the early 1960s, the federal and state governments in the United States offered virtually no continuous, direct financial support either to artists or to arts institutions, not to the performing arts, not to the fine arts. Although government support for the arts was common-place in Europe, opinion in the United States was quite hostile to the idea. First, until the period of the New Deal in the 1930s, a majority of Americans accepted the philosophy of laissez-faire, according to which government intervention in economic matters should be kept to a minimum. A government that did not subsidize agriculture or housing, provide unemployment insurance to workers, or offer a subsistence income to the poorest of its poor was not going to be asked to subsidize operas, symphony concerts, or ballets.

In this chapter we investigate the economic choices – especially the price-output choices – made by performing arts firms. These choices are largely determined by the following factors:

1. The level and character of consumer demand for the firm's output

2. The method and cost of producing that output

3. The type of market in which the firm operates

4. The firm's artistic and financial objectives

5. The availability of government subsidies or of private donational support

Consumer demand was analyzed in Chapters 4 and 5 and production and cost in Chapter 6. We begin this chapter with a discussion of market types and how they influence the behavior of performing arts firms.

TYPES OF MARKETS

Conventional economic analysis recognizes four types of market structure, distinguished from one another by the size and number of suppliers and by whether the goods sold are homogeneous or differentiated. Homogeneous goods are products such as wheat, steel, or potatoes, which are graded and standardized so effectively that buyers do not care which supplier they deal with for any given grade. Products are said to be differentiated if the unique features of style, quality, design, or brand name are sufficient to convince buyers that sellers are not offering virtually identical goods. Examples of differentiated products are automobiles, magazines, toothpastes, and theatrical productions.

Perfect competition

Perfect competition exists when there is a large number of sellers of a homogeneous product, and no one seller is large enough in relation to the size of the market to influence the market price.

In this second edition of The Economics of Art and Culture the authors have retained the structure of the first edition while broadening its scope to cover arts activity in Western Europe, Canada, and Australia as well as in the United States. They have also incorporated the latest available information into the text, tables, and footnotes. Thus the book's contents are thoroughly up-to-date.

Although U.S. economists have been writing about the economics of art and culture since the mid-1960s, this is the first work to cover not only key segments of the fine arts and the performing arts, but also public policy toward the arts at the federal, state, and local levels. It is thus the first attempt at a comprehensive survey of the subject.

The authors have planned the level and scope of the book to meet the requirements of two groups of readers: first, an academic audience for whom the book can serve as the principal text in a course on the economics of the arts or on arts management, or as a supplementary text in a course dealing with the sociology or politics of the arts; second, those general readers who are ready for a systematic analysis of the economics and the political economy of the arts in the United States.

The book is divided into five parts. Part I, consisting of Chapters 1, 2, and 3, serves as a general introduction, suitable for both the academic and the general reader.

It has been a theme of this book that the arts with which it deals – and especially the live performing arts – must compete for the consumer's attention with a popular culture that is powerfully propagated by the mass media of radio, television, the movies, and the culture of advertising and promotion in which they are enmeshed. In the face of that competition, the arts have not fared badly.

We demonstrated in Chapter 2 that there was a measurable arts boom in the 1970s and that growth continued into the 1980s, but with increasing signs of weakness in some sectors, especially after the middle of that decade. In Chapter 13 we showed that the early 1990s brought sharp reductions by some states and localities in the level of government support for the arts. Federal support through the NEA was slashed from $162 million in 1995 to $99 million in 1996. These cutbacks, coupled with the apparent slowdown in the growth of arts audiences, put many arts institutions in financial jeopardy. Were these merely troubles of the moment, or was the long-run trend now running against the arts? Understandably, there was a great deal of anxiety in the art world about the answer to that question.

It is always risky simply to extrapolate into the future from recent experience. It may be worthwhile, nevertheless, to consider the situation of the arts sector by sector in order to reason out what we think the future may bring.