Arts Funding - A History

Measuring the arts has challenged economists for over a century. Initially excluded from classical economic theory, the arts have gradually been incorporated into economics, now recognized within the "orange” economy.

This evolution reflects 20th-century legal and economic changes, driven by two key developments: industrial-era foundations supporting the arts, and post-WWII government arts councils, beginning with Keynes's creation of what became the Arts Council of England.

The U.S. nonprofit model expanded in the 1960s following Baumol and Bowen's analysis of performing arts labor costs, while the NEA's establishment spurred competition among arts institutions for standardized funding.

The Rise of Market Orientation Among Nonprofits

Arts nonprofits operate across multiple funding streams, balancing earned and contributed income to ensure survival. In the 1980s and 90s, they increasingly adopted market-based strategies, expanding beyond traditional foundation and government support without diminishing these contributed revenue sources.

Commercial and market-based strategies for revenue enhancement grew among nonprofits in the 1980s and 90s, with organizations branching out from foundations and governments to tap the earned income as a greater source of revenue. Historic patterns demonstrate no correlated decline in contributed revenue over such time, indicating a broadening of income streams as opposed to substitution.

Reinforcing this notion that nonprofits perpetually satisfice between multiple market orientations, optimization of labor and capital within firms tend to reflect their relative strengths in fundraising. Nonprofits and social enterprises that primarily rely on commercial revenues tend to demonstrate greater efficiency in managing their overhead when compared to more philanthropically-dependent organizations. In contrast, grant-dependent organizations have shown to better optimize their efforts toward institutional fundraising and charity as a source of revenue, highlighting related investments in sustainable quasi-market positions.    

These patterns of heightened market orientation have proven to be influential in determining the success and sustainability of nonprofits. Organizations taking a positive and proactive approach to market activities, customer satisfaction, and positional strategy often demonstrate more successful long-run performance as measured by the amount of fundraising revenues and the frequency and stability of said revenues.

Arts and cultural nonprofits often operate in multiple markets and under many different funding regimes; from participating in the traditional market to sell tickets to the more nuanced but competitive quasi-markets for government and institutional grants. The arts perform a constant balancing act for funding. Success in marketing a performance or exhibition necessitates a different skill set and often different databases than when fundraising, so the arts are challenged to maintain harmony among multiple market orientations and cultures within their organization, often unsuccessfully.

The Value of Understanding Data Cultures

Published Instances of “data-driven” and “data culture” - Google Books Data: 1980-2022

Effective market orientation often depends on effective data use. Since the COVID-19 pandemic, an increased adoption of smart technologies has occurred among nonprofits. The adoption of such advanced technology, however, is not equivalent to the adoption of standardized data cultures and policies.

In an era when data is invaluable to decision making, “data-driven” has become a positive and desirable quality among successful organizations’ strategies and decisions. With all the attention on data-driven decision making, it is important to pay attention to how we are collecting this data and how capable we are of analyzing and interpreting the potential deluge of data available.

Technological adoption and digital transformation are important steps for nonprofits to take in order to create lasting value, but their successful adoption and deployment are reliant on a greater feedback loop within an organization's information technology and data infrastructure. This fundamental collection, transmission, use, and interpretation of data within an organization collectively contributes to what can be considered an organization’s data culture.

Read more about data cultures structures and how they are used within arts and cultural organizations in Part II.