New Music Economics (Part 2): The Malady Lingers On

New Music Economics (Part 2): The Malady Lingers On

[Ed. Note: This article is the second in a three-part series exploring economic issues faced by the new music community. The final installment will appear next Wednesday.]

In 1918, Igor Stravinsky composed The Soldier’s Tale, a new-music/theatre piece designed for a performance tour; it was initially unsuccessful and lost money. In 1976, Philip Glass premiered his own theatrical production, Einstein on the Beach; it was quite successful, playing to capacity audiences on both sides of the Atlantic. Nevertheless, it also lost money. (Glass wrote that during Einstein‘s brief, sold-out run at the Metropolitan Opera House in New York, the deficit was $10,000 a night.)

What happened? Stravinsky had the misfortune of seeing his planned tour cancelled due to a worldwide influenza outbreak. Glass fell victim to a subtler ailment: Baumol’s cost-disease.

Baumol’s cost-disease (sometimes more prosaically referred to as the Baumol-Bowen effect) is well-known among economists and arts administrators, but not many working musicians have even heard of it. First described by economists William J. Baumol and William G. Bowen in 1966, the main symptom of the disease is this: labor costs in the performing arts will always inexorably rise, and at a faster rate than other industries. That’s because in most industries, technological advances allow for increased productivity without an increase in labor. This doesn’t happen in the performing arts, though. As Baumol and Bowen famously describe it in their book Performing Arts: the Economic Dilemma:

Whereas the amount of labor necessary to produce a typical manufactured product has constantly declined since the beginning of the industrial revolution, it requires about as many minutes for Richard II to tell his “sad stories of the death of kings” as it did on the stage of the Globe Theatre. Human ingenuity has devised ways to reduce the labor necessary to produce an automobile, but no one has yet succeeded in decreasing the human effort expended at a live performance of a 45-minute Schubert quartet much below a total of three man-hours.

From the beginning, Baumol’s cost-disease has, rightly or wrongly, been one of the main rationales behind government subsidization of the arts—without outside funding to make up the deficits, goes the argument, labor costs in the arts will eventually increase to the point that artistic activity becomes economically unsustainable. As such, other economists (who get suspicious whenever the government funds anything) have, from the beginning, tried to—well, not so much disprove it, as it’s logically sound on the surface, but find loopholes or other mitigating factors that Baumol and Bowen may have missed.

A typical objection is to point out that many popular music groups still make money—a lot of money—from live performance, and that if classical or new music groups are running deficits, it’s their own fault. But Baumol and Bowen don’t say that live performance can’t ever be profitable—if you can convince people to fork over a high enough admission fee to pay the performers, good for you. As time goes by, though, that admission fee is going to have to get more and more expensive compared to the economy as a whole. People may still pay to see the Rolling Stones, but, adjusted for inflation, they’re paying a lot more for the privilege than they did thirty years ago. Eventually, that expense becomes more than the market will bear, and you either go bankrupt or need additional funding to make up the loss. (Just recently, the Baltimore Symphony Orchestra dramatically boosted subscriptions for next season by lowering ticket prices across the board, but the program will require an annual subsidization of $1 million to continue.)

Baumol himself later suggested one of the most ingenious escapes: if you extend the cost-disease to its logical conclusion, it actually benefits the arts. The imaginary scenario works like this: pretend that all non-artistic industrial activity becomes so efficient that all yearly worldwide demand for non-artistic products can be met with a week’s worth of labor, and at the cost of one dollar. That leaves 51 weeks of labor and the entire wealth of the world, minus a dollar, to be expended on artistic pursuits. There’s something to this; when the economy as a whole is humming, the arts indirectly benefit (look at the boom/bubble of the 1990s), and, historically, the arts have thrived best in large cities, which are also centers of financial and industrial activity. But the imaginary scenario is an unattainable ideal; whether an actual economy could ever reach the point where performers are fully inoculated against the cost-disease remains a mystery.

Laissez-faire types might insist that if labor costs are too high, it just means that performers are being paid too much, and either salaries should be lowered or ticket prices should be raised. Lowering pay, though, is pretty much a death knell for professional performance: musicians, actors, and dancers are skilled workers, and in order to make sure enough people stay in those careers, wages have to at least somewhat keep up with what skilled workers earn in other industries. (The fact that they hardly do is testament to the dedication of artists.) More importantly, performers have to be able to earn a living wage, and the cost of living is not going to be determined by how much artists take home, as they’re in a significant minority; rather, the spending power of workers in more common industries will set the pace.

As for ticket prices, there’s another complaint about Baumol and Bowen figuring into that. The most common riposte to the cost-disease has been to point to the rise of recordings and mass media—those technological advances, it’s argued, have greatly increased productivity: one performance can now reach thousands more people than it did in the past, at no extra labor cost. But it’s a mistake to so completely conflate the recording and performing arts industries; record companies don’t perform, they buy a performance, which they then reproduce and sell for a profit. There’s a one-time payment to the performers, and the possibility of royalties, but the ability to reproduce performances ad infinitum correspondingly increases market competition. (You’re up against not just your local contemporaries, but everyone in world history who’s ever gone into a studio.)

What’s more, since the mass reproduction of recordings makes them relatively cheap (even free, in the case of advertising-supported media), their very availability drives down the price that audiences will pay for live concerts. And, oddly enough, as technological advances make recording cheaper, the cost-disease becomes more of a factor, not less. It’s the difference between capital costs and labor costs: when the initial investment in recording equipment and space was prohibitively expensive, the difference between paying a four-piece rock group and an 80-piece orchestra was comparatively unimportant, but as the up-front payout goes down, the players’ paychecks make up a higher percentage of the financial risk, and the cost-disease once again rears its ugly head. (This, incidentally, is why giving recordings away outright as a means of promoting live performance doesn’t solve the conundrum; while it might be viable in a given situation, in the long run, it just puts your financial health back into the fickle hands of Baumol and Bowen.)

On the other hand, record companies are far less susceptible to the cost-disease. Musicians rarely make money off of recordings, because the record companies’ overhead and profit take precedence; some performers have tried to keep more revenue for themselves by starting their own recording ventures. Success isn’t automatic—the risks remain high, even as the costs of creating and manufacturing recordings have declined. Internet technology, however, has lowered the barrier-to-entry even further, cutting the distribution costs involved in selling recordings to almost nothing. The demise of Tower Records is lamentable, but the economic forces that shut their doors are creating opportunity: for a historically miniscule start-up investment, performers can control content, manufacturing, and distribution in a vertically-integrated way. In this model, live performance becomes not just an end in itself, but also a marketing tool that funnels money into your record business.

And composers may have a built-in immunity—in economic terms, the creation of new repertoire is, at least technically, an increase in productivity, so somewhere, there’s a cost benefit in new music. It’s perhaps more of a factor in popular music, though even there, the premium that audiences are willing to pay for novelty doesn’t seem to be keeping up with the cost of living—rock and roll may be coming down with a cost-disease of its own. But, like bloodletting in the Middle Ages, the cutting-edge might at least temporarily stave off the plague.

In the end, such stratagems can only slow the spread of the cost-disease, not cure it. A pessimist would say that market forces eventually will do away with live concerts, making the excitement and power of the shared experience a thing of the past. But I’m an optimist: the fact that live performance persists in the face of market pressures speaks to a basic human need that even Adam Smith’s invisible hand can’t slap away. Performers may have to learn to live with the cost-disease, but it’ll take more than that to kill us.


Matthew Guerrieri

Composer, conductor, pianist, and writer Matthew Guerrieri is far less productive than he seems.

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