9 March 2016

Aside: Subsidy Vs Investment (ACE 2018+)


Part I

Excellent pieces have already been written by Stella Duffy and James Doeser regarding ACE's future funding plans. Both should be read before wading through what follows.

Let's start from James Doeser's suggestion that we once again find ourselves in 2009.

If you visited the ACE website for most of 2009, the strapline read "Arts Council England is the national development agency for the arts in England, distributing public money from Government and the National Lottery." If you visited it in the latter part of 2009 then you would have seen "Developing, promoting and investing in the arts in England." If you look today, you will see "Championing, developing and investing in the arts and culture in England."

The proposals for 2018+ may have a familiar scent but the ground has clearly shifted since the change of strapline seven years: ACE is now an investor rather than an agency. Also, there's no mention of 'public' or 'government' anywhere on the homepage (ignoring anything that pops up on the news/Twitter feeds). Semantics perhaps, but it matters because... well... you are what you say you are.

Subsidy is markedly different to investment. When we speak of investing, we are talking about allocating a specific resource in the hopes of gaining a specific outcome. Money flows to the best value propositions (based on risk, reward and time). The associations we have are things like long term thinking, due diligence and money management. Investing is about sniffing out potential, envisioning growth and reaping rewards. At the very core, investment is about identifying inefficiencies in the market and profiting (financially or culturally). It takes place in an environment where those seeking investment must clamour for the attention and approval of the investor. Due to resource scarcity, many will fail and those that succeed are typically those whose values are closely aligned to the investor.

Some of this also applies to subsidy: resource is scarce so competition ensues and the successful are closely aligned to the values of the distributor. Where it differs is that subsidy is used specifically to encourage activity that would otherwise not occur because of the efficiency of the free market. The activity that the subsidy is used to fund will likely not have direct benefits for the fund distributor but there will be several intended (and likely some unintended) fuzzy outcomes. Subsidy is about providing an incentive for the market to alter it's behaviour (which is why it's so difficult to remove once in place without major corrections in the market) and investment is about identifying market players with potential.

As a quick example, the US government push billions of dollars in Boeing's direction in order to preserve their manufacturing base in the US. EU governments have similarly provided high levels of subsidy to Airbus to allow them to remain competitive. The problem comes because subsidy in a competitive market cannot be removed by either government whilst the other continues to provide it. Subsidies escalate over time as a result and the underlying dollar auction structure becomes painfully clear.

On the other hand, the £45.5bn the government put into RBS in 2009 should be considered (a terribly managed) investment rather than the 'subsidy' it appears to have been written off as.

This is part of the problem: subsidy is seen as throwing money away (it's almost always written about in those terms) and in the face of austerity, ACE cannot be blamed for shifting their language. Focusing on creating value and specific outcomes makes sense and they have most likely done a lot of good making the economic case for arts and culture as a result.

Our quest might be 'Great art for everyone' or Stella Duffy's suggested 'Arts for, by and with everyone' or John Knell's 'ensure that more people get to make and experience culture'. Regardless of how we frame it, we should accept that we need subsidy because reliance on the free market cannot possibly deliver those goals. Money must be spent on things that have fuzzy outcomes and limited audiences and that's the case ACE should be starting to make with the new funding proposals.

Investing is a top down approach: money trickles down to those who best argue they create the most value.

Subsidy is a bottom up approach: money is used as an incentive to fuel specific, desirable outcomes and behaviours.

ACE must be clear about how, why and when they are doing both in 2018 and beyond.