Why Do Some Museums Fail While Other Thrive? Here's One Theory

Author and professor Jared Diamond famously cited three unique factors that led to the rise and dominance of Eurasian civilizations: Guns, Germs, and Steel.

So why do some museums thrive and others fail during this age of eye-popping philanthropy? Auburn University Professor of Economics Robert Ekelund, whose forthcoming book is entitled The Economics of American Art: Art, Artists and Market Institutions, cites a similar trifecta: fashion, demographics, and billionaires.

Ekelund recently expounded on his research in a piece in The Conversation, which was subsequently republished in the Washington Post. Needless to say, it should be required reading for any museum director or fundraiser. But before we attempt to synthesize his findings, a bit of context is in order.

As loyal IP readers know, private funding for museums is off the charts—and that may not be a good thing.

Huge capital projects generate record donations, but can also lead to unforeseen downstream costs. Throw in Ekelund's three-headed hydra and you'll see how museums' fortunes can wildly diverge. Take the following Dickensian contrast between two esteemed New York City institutions.

On one hand, we have the Met, which is laying off more than 100 employees as it tries to erase a $10 million budget deficit. On the other, the MoMA, so flush with cash that it isn't in much of a hurry to deposit a recent $100 million check from David Geffen.

See? It's a Tale of Two Museums.

And so Ekelund aims to determine why some museums flounder while others enjoy the good life.

Let's address the fashion piece first—with the caveat that we don't mean "fashion" in the Ralph Lauren sense, but rather in terms of what's hip and en vogue (if we may evoke a sense of French chic) in art circles nowadays.

As previously noted, contemporary art is all the rage. The MoMA astutely added to their collection while the Met is now playing catch up. And so Ekelund, not surprisingly, notes that if Met isn't able to keep up as its customers' tastes change, "revenue will likely fall. And by the time it might recognize this, it's already too late to do much about it because the costs to acquire the in-demand art is sky-high."

Chalk that one up to—and we're paraphrasing George H. W. Bush here—a lack of a "vision thing."

Now let's turn to demographics. Thanks to unemployment, an aging population, and early retirements, museums are breaking attendance records. That's a good thing, right? Sometimes. But higher attendance also leads to higher costs, and when those additional visitors don't result in more revenue, profitability goes down.

Which brings us to the last leg in the boom-or-bust museum tripod: the billionaires. One would think they'd be our knights in shining armor, arriving just in time, check in hand, Geffen-like, to save the day. But reality's a bit more complicated. (Isn't it always?)

For starters, as previously mentioned, mega-donations can lead to a rather unpleasant and unending fundraising vortex. What's more, many billionaires would rather buy art than cut a check, thereby contributing to a huge contemporary art bubble that's driving prices out of reach for most museums:

In a world with about 1,800 billionaires, it only takes a relative few to drive high-end art prices to astronomical levels. Recessions, stock market declines and turmoil in international affairs rarely subdue the fight among these collectors for the best of the best, especially in contemporary art.  

What's more, as we've recently seen with news that billionaire J. Tomilson Hill started his own foundation and gallery, some billionaire are deciding to go it alone, "further distancing the ability of public museums to get the good stuff" (to quote Ekelund).

And so a strange dynamic emerges. For every benevolent donor like Geffen, there's someone like Hill whose decisions may, over time, inflate prices, thereby compelling benevolent billionaires like Geffen to write even more benevolent checks in the future to cover exploding costs.

Good times.

As you can imagine, given the complex forces at play here, Ekelund doesn't propose any sort of magic bullet. Instead he advises museums to be aware of these powerful market forces, noting "it'd be wise for their stewards to consider the economics in their calculations."

For more commentary around the cash-induced "cognitive dissonance" affecting the philanthropy-soaked museum world, click here.