BANDING TOGETHER: NEW COOPERATIVE SOLUTIONS TO PERENNIAL ECONOMIC PROBLEMS

By Amy Whitaker and Amber He

Arts organizations can access economies of scope, overcoming some of the key challenges in managing costs, sharing risk, and accessing capital. These advantages of resource sharing across activities—including by gathering people—can support the specificity and individuality of artistic practice. The benefits go well beyond the artists to support lively, vibrant, heterogeneous cities.

Some of the greatest economic challenges presented to the arts are often experienced individually but solved collectively. That is to say, new cooperative strategies can support sustainability for artists and organizations. These strategies come from the concept of economies of scope. Economies of scale are those advantages that come from producing something in bulk, which are well studied. Less well studied are economies of scope, or the advantages that come about from applying the same resources across many areas—what economists call “joint production”. As Baumol and Bowen famously studied in 1966—coining the term “cost disease”—arts organizations have a particularly difficult time accessing economies of scale due to their focus, by definition on unique, or original objects; economies of scale generally depend on standardized production.

We begin with the stories of the case study organizations—the U.S.-based organizations ArtBuilt and REC—and then show how they have embodied and experimented with these strategies—building networks, critical mass, and resource sharing, and then pooling resources to manage risk in the financial sense.

ArtBuilt

In 2019, Esther Robinson and Guy Buckles founded ArtBuilt, a 50,000-square-foot co-working space for artists in Brooklyn, New York, U.S. They were motivated by seeing their friends get priced out of studios or, even worse, never be able to quite settle into their lives because of precarious lease terms and deep uncertainty. Would they have to move? Could they afford to have children?

Robinson and Buckles set out to develop a space in the Brooklyn Army Terminal (BAT), a four-million square foot building in Sunset Park, Brooklyn, designed by Cass Gilbert, the architect of Manhattan’s Woolworth Building, and completed in 1919. In its most famous use as the supply depot for troops heading to Europe during World War II, it was the departure point for Elvis Presley (and three million other troops) as well as for 37 million tons of supplies. Because BAT is owned by the New York City Economic Development Corporation, Robinson and Buckles  were able to secure a ten-year lease at below-market rent with a five-year extension. 

REC (Resources for Every Creator)

REC (Resources for Every Creator) is a music and arts incubator started by Will Toms and David Silver in Philadelphia, Pennsylvania, U.S.. In 2019, REC moved from an old window factory in north Philadelphia to a 10,000-square-foot space in Fashion District mall in Center City, Philadelphia. Using the economic structure of a gym membership, REC receives dues from creative workers who can then access a range of shared maker spaces including recording studios—for music and podcasts—and editing equipment. The REC team measures their success by the number of members who can quit their day jobs. They see this measure as contributing to the larger community. As Toms says, “We’ve always believed that the role of the artist is to push society forward” (REC Philly, n.d.).

Strategy 1: Resource-Sharing Networks

REC engages in economies of scope to create resources that can be shared across members. The recording studio can be used for a wide variety of purposes. In turn, REC as an overall organization can expand to operate as a federation of multiple locations. Other existing U.S. organizations—including Springboard for the Arts in St. Paul, Minnesota, U.S., and Gener8tor in Milwaukee, Wisconsin, U.S.—have focused on sharing resources out to a network of other organizations in such a way that those other organizations can customize them for their own purposes.

Without economies of scale, organizations are limited by what they can afford to do, forcing them to do less or face pressures toward the kind of standardization that allows benefits of scale. Instead, REC creates critical mass that allows creative freelancers to benefit from “joint production” using shared resources. In addition, REC creates a brand umbrella—a network externality or positive association that comes about from REC’s collective work—so that members of REC benefit individually from—and contribute to—the reputational capital of the overall organization. As discussed in more detail, these strategies can take the form of franchise, federation, or resource-sharing network (see Figure 1).

Figure 1. Diagram of Franchise, Federation, and Resource-Sharing Network.

Strategy 2: Risk Pooling

A key challenge for ArtBuilt was access to capital. Organizations like ArtBuilt can face higher lending rates because it is difficult for banks to model the risk of the loan and because of the organization’s relatively small scale compared to large, commercial real estate investments in urban areas. A larger organization might receive a mortgage rate more than a percentage point lower. To make the case for ArtBuilt’s investment worthiness and risk profile,  they worked with Anisha Steephen to structure their risk metrics. They used occupancy instead of jobs for square foot, because their below-market rent and long-term leases would make their vacancy risk low. The founders raised money and also took out a loan at 3.5%. This rate was much higher than the rate for similarly timed commercial developments of a larger square footage.

The paper proposes that ArtBuilt could access lower rates by risk-pooling. They could accomplish risk-pooling in two different ways. First, they could form a consortium with other similar spaces in other cities. With slightly idiosyncratic risks, these venues would together form a more diversified portfolio. or Secondly, the paper proposes a new model of philanthropy, one imagined and explored conceptually by Robinson and Steephen, in which foundations could lend organizations like ArtBuilt their balance sheet, guaranteeing a loan as a form of philanthropy that is realized in lower lending rates. Foundations and even investment firms would be able to provide this service, especially if there were a tax benefit for doing so. We would need to develop ways of reflecting in-kind donation—forms of insurance and what I might call benevolent credit wrappers—in the tax code, but these now speculative systems could create real change in support for artists.

These initiatives can orient us to value in artistic and civic, as well as economic terms. Robinson says, “As an individual I feel like most of the ills of my society are about strip-mining people and value and culture and place, and placing it in the hands of a group of a few set oligarchs and a system that does not return that value to a community more broadly.” Robinson’s collaborator Steephen echoes these sentiments when she says, “The purpose of my work is to…, in the absence of a revolution, drive money and resources to the place that doesn’t typically get it and to the people who don’t typically get it.”

The key outcome of economies of scope in the economic sense is capacity building, in terms of program and capital. The measure of these projects goes beyond their direct and indirect financial impact. Because their ultimate measure is in opportunity cost to culture of real-estate-driven homogenization, their outcomes may best be measured in stories. In the immortal words of the Kickstarter mantra, “F*ck the monoculture.”

Summary of Key Takeaways from “Economies of Scope in Artists’ Incubator Projects”

  • Economies of scale & economies of scope: Different from economies of scale, which refers to the lowering of per unit cost as production volume increases, economies of scope describes “the efficiency gains and/or cost savings obtained through simultaneous production of many different products by one diversified firm instead of several smaller, more specialized firms” (Baumol & Braunstein, 1977). While economies of scale require “the production of a uniform good at scale,” economies of scope which allow for diversity or heterogeneity of the production are more applicable to art organizations.
  • Because it is so difficult to achieve economies of scale in the arts, REC, ArtBuilt, and other similar organizations can benefit strongly from economies of scope both economically via joint production and financially via pooling risk with other actors. Cooperative and collaborative models allow each organization to use shared resources in producing customized products, and risk pooling improves arts organizations’ access to capital through the diversification across partner organizations. Relatedly, new forms of philanthropy could emerge in which a foundation “lent” an organization its balance sheet, essentially vouching for, and guaranteeing, the creditworthiness of the organization, allowing them to achieve lower lending rates.
  • REC & ArtBuilt: REC, a for-profit music and art incubator, provides its freelancing members with shared recording studios for individual production. ArtBuilt, a 50,000 -square-foot nonprofit affordable arts and design studio space located in the Brooklyn Army Terminal, provides long-term studio leases below the market rate.
  • Managerial implications: The challenge to these new cooperative models may be performance evaluation. Since ArtBuilt aims to create transformational rather than incremental change, it’s difficult to model the metrics of performance. Their achievements  may best be measured in stories, not number of jobs but changes in people’s lives and in the vibrancy of the community. For now, these organizations have people-centric metrics, whether REC’s count of the number of creative workers who can quit their day jobs, or ArtBuilt’s impact on individual artists and other creators whose long-term studio stability allows them to plan in other areas of their lives, whether to get a mortgage or to start a family.

Acknowledgments: We thank Esther Robinson, Guy Buckles, Will Toms, David Silver, and the organizations ArtBuilt and REC, as well as Fernanda Zanbrano, Elizabeth Marcus, Sandra Lang, and the editors of Economists Talk Art.

About the article

Whitaker, A. Economies of Scope in Artists’ Incubator Projects. J Cult Econ 45, 613–631 (2021). https://doi-org.eur.idm.oclc.org/10.1007/s10824-021-09417-4

About the authors

Amy Whitaker is an assistant professor of Visual Arts Administration at New York University.

Amber He is a candidate for a master’s degree in the MA in Visual Arts Administration program at New York University. She adapted graduate classwork presenting this paper (with Fernanda Zambrano) to contribute to this article as a co-author

About the images

Image 1: Drum Set in Recording Studio, REC Philly. Image courtesy of REC.
Image 2: Public Grand Opening, REC Philly. Image courtesy of REC.

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