Dizaina Studija. Telpa Forma Laiks

Economic Crisis and the Art Market

In one of the so called “tough-talk” meetings, the well-known mega-dealer Larry Gagosian announced to his staff: “The general economy and also the art economy are clearly headed for some choppy waters…”(1) Even though the last indicators(2) of the art and design market activity are inconsistent, there are certain signs signalling that the world art market is slowly starting to face important structural and financial changes. I am going to concentrate on the financial aspects. While all around the world other sectors of the global economy were experiencing contractions, the art market was still valiantly resisting the pressures of the crisis. The first signs of anxiety in this sector, however, started to appear over the summer of 2008, indicating that the bubble is finally ripening for the burst in order to make corrections in its very inflated prices. Comparatively, it is certain to claim that the art and design market does not look as healthy as it did a year ago, suggesting that it is seriously affected by overall economic cycles. The speculative bubble into which the market had been drawn during the mid 1980s was stopped by the First Gulf War. The sudden absence of price records in the market was a clear signal to investors that it was running out of steam and they steered clear. The year 1991 did not see an outright crash but marked the start of a period of slow agony lasting close to 5 years. Between 1990 and 1993 sale prices halved. However, for nearly a decade, the prices have experienced a steady growth. Stabilized during the twilight of the 20th century, prices kept pace with the recovery of the world economic growth, seeing a surge of +152% between 2001 and 2007. Within this environment, the contemporary art sector proved the most speculative and volatile. Its price index rose by +233% during this growth period, reaching unprecedented price records for art works and design objects. Many experts in the field agree that the corrections of the art market had been needed already for a long time and the current crisis will initiate and introduce them. “When a forest burns down, nature comes back very fast and much stronger”, comments Volker Diehl, the German owner of Moscow’s Diehl Gallery. “This is the case because the art market gets cleaned out by over-rated and overpriced art as well as by not-so-serious collectors.”(3) Nevertheless, what is the correlation between art market and the world of design? The connection is very direct and, I should admit, an intimate one. Today the boundary defining art and design is not very distinct. Because of this reason, when analyzing the main factors and mechanisms of pricing, I will mostly rely on the prevailing tendencies of the art market in which the design sector assumes a very strong position.

Designart: the Art of Design or the Design of Art?    

In one of his essays, the renowned American designer Charles Eames had asked himself, as well as himself had answered the following question: “Is design an expression of art (an art form)? The design is an expression of purpose. It may (if it is good enough) later be judged as art.”(4) In the recent decades artists have progressively expanded the boundaries of art as they have sought to engage with an increasingly pluralistic environment. It is also possible to observe similar tendencies in design: since the late 1990s, the logic behind contemporary design has been increasingly that of art. Much of the contemporary debate on the relations between design and art has focused on the specific term designart.  The term came into being in the late 1990s as a way of describing the work of contemporary practitioners whose artefacts, installations and projects engage both art and design simultaneously. These tendencies have been widely welcomed. Certain rich collectors, who can bid hundreds of thousands of dollars, or even several million dollars, on art works want to have furniture which is in tune with their times; especially as furniture has moved into art’s space. Alike artists, now also designers are supported by galleries, exhibited in International Fairs (FIAC(5), Design Art London, International Art and Design Fair New-York, Design Miami Basel, etc.); they have been admitted to the permanent collections of the most prestigious museums (MoMA in New York NY, Beaubourg in Paris) and sometimes honoured with a monographic exhibition during their lifetime. The FIAC in Paris was, in fact, the first contemporary art fair to have a design section. That was in 2004. Since then, sales dedicated to design have established themselves as major occasions with their fair share of spectacular bids.

There is a legitimate question in this regard: is a Louis Vuitton handbag a work of design or art? “One of the first exhibits in the Espace Culturel Louis Vuitton involved large photographs of naked black women and white women forming the LV of Louis Vuitton. Another exhibit was a video of women poising as handbags on the shelves of the shop. The idea was to use art to rejuvenate Vuitton designs and to relate the LV brand to art.”(6) It is interesting that both the Victoria and Albert Museum in London and the Guggenheim Museum in New York have shown Vuitton handbags – the V&A displayed then as design objects, the Guggenheim – as art objects.

The interface between art and design is by no means a novel subject. “Within modernism it has its roots in the late nineteenth century in the writings of the British critic John Ruskin and the artist and designer William Morris, and in the twentieth century, early avant-garde movements such as Soviet Constructivism, De Stilj in the Netherlands, and the Bauhaus at Dessau. In different ways, they responded to the technological and political implications of industrialization by fostering new relationships between the autonomous sphere of art and the mass-produced culture of industrial design.”(7) The result was a new form of practice wherein traditional boundaries between disciplines were negotiated.(8)

Within this context, the importance of the 1960’s should be specially emphasized. During this time, home interiors were influenced by two different but complementary design trends: the emergence of design for home interiors as mass production and the development of a decidedly more luxury-oriented market, which was characterized by the production of expensive limited series. Zealous dealers, private collectors, as well as museums were after these works. A good example of the trait is the French husband-and-wife artists and designers, Claude and Francois-Xavier Lalanne, whose artistic credo was: “The supreme art is the art of living.”(9) The last auction results show that today their design objects and artefacts are more appreciated and demanded than ever.

Contemporary Design Market: What, Where and for What Price?
Design has never been so popular and demanded. Over the last five years in particular, prices have soared, records have increasingly been broken, and bids above $100.000 have surged. 20th century creations sometimes breach the million dollar mark. Until recently, the record for a 20th century design piece sold at auction was $3 824 000 – the price paid for a unique table on a sculptured oak base (A Unique Oak and Glass Table for the Casa Orengo, 1949) by Italian designer Carlo Mollino at Christie’s June 2005 auction. In this regard, I should mention the landmark sale of Yves Saint Laurent – Pierre Berge collection that took place from 23 to 25 February 2009 at Christie’s in Paris, breaching 12 new world records in decorative art and design. The three-day sale realized a total of €373.9 million, making it the most valuable private art and design collection ever sold at auction. During this sale, three Eileen Gray lots crushed the world record for the most expensive work of 20th century design, previously held by already mentioned Carlo Mollino. The Dragon Chair, 1917 - 1919 sold for $28.3 million, the sideboard, Enfilade, 1915 - 1917, for $5.25 million, and the suspension lamp, Satellite, 1925, sold for $3.85 million. Another notable feat was accomplished by works of the already mentioned Lalannes. A custom made bar, YSL, 1965, by Francois-Xavier was sold for $3.56 million (originally estimated at $255 536 - $383 304), but a set of 15 bronze mirrors with branches, Ensemble de quinze miroirs aux branchages, 1974 - 1985, by Claude for $2 393 905. Buyers at this sale included the Louvre, Orsay and Centre Pompidou museums in Paris, as well as private and trade purchasers from Europe and the United States.

Following the most recent auction trends, it looks like the world of contemporary design or designart is illuminated by a small number of bright stars whose popularity has an industrial production base, whose reputations have been confirmed by museums and whose prices are driven by galleries and auction rooms. Among others, Ron Arad, Zaha Hadid and Marc Newson should be mentioned as the three contemporary designers most appreciated at auction sales. It looks like the best scores have been notched up by their prototypes or very limited editions of the works which have blurred divides between contemporary art and design. Australian Marc Newson became the most expensive contemporary designer in October 2007 when his prototype of a fibreglass lounge chair covered with nailed-on aluminium squares, Lockheed Lounge LC-1, 1986 (this work is number seven from an edition of ten), sold for $1 515 713 at Christie’s in London. This work by a comparatively very small margin surpassed his previous record sale of Pod of Drawers, 1987, which was auctioned off for $1 048 000 at Christie’s in New York in May 2007.

Chain of Value: Creating the Price
“The art trade is the least transparent and least regulated major commercial activity in the world.”(10)  When discussing the subject, it is hard to be even more precise. The attempt to define the concept of “value” and “worth” has occupied economists and thinkers for millennia. In the first century B.C.E., Publius Syrus coined the proverb: “Everything is worth what its purchaser will pay for it.”(11) Yet in the art market, the situation is not so simple and straightforward. When thinking about the very rapid development of contemporary art market, I have long been puzzled by what makes a particular work of art valuable, and by what alchemy it is seen as worth $12 million or $100 million rather than say, $250 000? Works sometimes sell for a hundred times what seems a reasonable sum, but why?

In order to answer the question, I should probably start with the theoretical and practical problem set that determines the peculiarities of contemporary art and design market. Even though it is possible to argue that the art market is functioning according the principles of classical market economy, namely: “capital goes where it's wanted, and stays where it's well treated,"(12) art market analyst Olav Velthuis claims that supply and demand, however, are not clear cut forces for the players of the art market, especially when it comes to the dealers’ pricing policy. From the standpoint of various economic theories(13), there is an interesting agreement that “no systematic explanation exists for the prices of rare and irreproducible goods like art.”(14) Art market simply does not function in accordance with the economic theories of value, and it is beyond systematic economic analysis: shared standards of value are lacking, while the willingness of collectors to pay is almost impossible to estimate. “The cost of producing them [artefacts] could not account for their selling price. Because of their limited, fixed supply, fancy and means of buyers would drive wedge between costs [...] and price,”(15) so it is possible to summarize Adam Smith’s analysis of paintings in classical theory. It appears that in their everyday economic life, dealers not only need to match supply and demand, they also have to mediate two clashing logics. “[..] the art market is a site where human action is informed by two contradictory or conflicting logics: a logic of art and a logic of capitalist markets. The logic of the first is understood to be qualitative logic; it centres on the creation of symbolic, imaginative, or meaningful goods, whose value cannot me measured... the logic of capitalist markets, by contrast, would be quantitative logic that centres on commoditization and commensuration of human activity.”(16) In this regard, artist Joseph Beuys has made a very succinct observation “…the work of art is the largest mystery, but humans are the answer.”

Each transaction is concluded with a price, but how is that number chosen? As I have already mentioned, clearly it has nothing to do with the production cost, nor is it based on the artist’s time. Then what are the determining factors of prices in contemporary art and design? Economist and art market analyst Don Thompson argues that “the value of art often has more to do with the brand of the artist, dealer, or auction-house, and with the ego of the collector, than it does with art.”(17) In order to solve the labyrinth of the art market, it is necessary to distinguish two different segments of the market where each of them is having different pricing strategies. The contemporary art market consists of two major markets: the primary and the secondary. The primary market deals with newly produced works of art. Representing galleries promote their artists and try to brand their name and aesthetic style on the primary art market. They actively stimulate the critical acclaim of their artists “by inserting their work into the art world’s taste-making machinery: they induce critics to write about the shows, they try to interest museum curators in exhibiting the artist’s work, and they ask influential collectors to recommend the artist’s work to others.”(18) The secondary market is the marketplace for “used” works of art where particular works are resold through auction houses or art dealers. Galleries work in both the primary and the secondary art market: they build up artists’ careers and as art dealers they buy or sell works of art. As Thompson indicates, the starting point in setting a price for the work of a new artist is the dealer’s reputation. The rest of the components are the reputation of the artist, the size and the style of the art work. When determining prices for the work made by an artist who has not sold any work before, the dealer should make an “intuitive” judgment “comparing new art to art works similar in style and size, made by artists of comparable age, with comparable resume, credentials of background.”(19) If for a mainstream gallery an oil painting on canvas by an artist with no gallery history, $ 5 000 - 10 000 would be about right, then for an artist’s first show in Larry Gagosian’s gallery prices for work of comparable size and quality would definitely double. “Gagosian’s reputation for showing promising artists makes work from that gallery more valuable.”(20) Also on resale in the secondary market the Gagosian provenance will bring a higher price. 

In modern economies, three mechanisms exist to set prices, that is: private negotiations, auctions, where equilibrium of price is determined by the rule of supply and demand, and fixed or posted price. On the art market, especially in the sector of secondary market, all three price-setting mechanisms can be found. The primary market is mostly represented by fixed prices set by the dealer, as well as there are exceptions when prices are set during private negotiations. The increase of the price is mostly regulated by the dealer, applying only one of the three existing rules: a rule based on growing demand, on time or on developing reputation. For all three rules, the amount of an increase varies, but usually equals 10 to 20 percent of the most recent price level. Exception here is the auction houses. During the auction, the power of setting the price is whipped away from the dealers; here also the ultimate prices are reached, and galleries need to adjust their “price lists” accordingly. In designart, the greatest value adding component comes from the branded auction houses, Christie’s and Sotheby’s, respectively. There is a love-hate relationship between the two institutions. Even though the auction houses undoubtedly function as an important price barometer of an artist’s work, the dealers nevertheless insist that they are the major factor behind unreasonable price inflation that is not supported by a systematic and steady career growth of an artist.  

When analyzing the secondary market and the major price factors, as fitting examples I have chosen currently the hottest designart representatives Ron Arad and Marc Newson. The instrumental price factors in this market segment are style and its popularity, the artist’s reputation, rarity (the role of the limited editions and prototypes in design market), condition and provenance of the artefacts. Particular emphasis here should probably be put on the factors of reputation and provenance. As I have mentioned, development of the designer’s reputation is very much in the hands of a representing gallery dealer who is responsible for building up the designer’s exhibition history and critical acclaim, as well as facilitation of publications and inclusion of the works in the most renowned public and private collections. Association with certain brands is critical during this process and true in this context will probably be the allegation that you are nobody in contemporary art and design until you have been branded. It is like a chain of value: “collectors patronize branded dealers, bid at branded auction houses, visit branded art fairs, and seek out branded artists.”(21) The value chain of currently the most expensive designart designer, Marc Newson, is close to ideal. Larry Gagosian’s name is of great importance here. Newson is represented by this “century dealer” and the brand of the gallery alone, when compared with his colleagues in the field, is likely to double his prices. The rest of the reputation components in his value chain are compatible with the requirements of the highest branding league. In his collection and exhibition history, among others, the names of Centre Pompidou museums in Paris, MoMA, Vitra, Victoria and Albert Museum in London are not accidental. For comparison, I should mention that coming from MoMA’s collection or similar branded museum adds as much as 50 percent to the price. Recent or pending major museum shows add further value to a designer. The inclusion of the artist in a group show in a major museum may raise a piece’s estimate by 10 – 20 percent. A group show in a secondary museum may make a 10 percent difference. A single-artist show at a major museum increases the value by 50 – 100 percent. Here one should only get acquainted with designer’s career history and start making the calculations, taking into account the regular appearances of his works in the biggest auction houses that raises the price level even more.  

Ron Arad’s name also fits in the given context very well. His retrospective exhibition entitled No Discipline has just concluded at the Centre Georges Pompidou in Paris and will be next transferred to the MoMA in New York and then to the Stedelijk Museum in Amsterdam. His entry into the world of design was very "Duchamp-esque". His first piece of furniture, The Rover Chair, 1981, was an old Rover car seat with two metal tubes in semi-circular arcs acting as feet and arm-rests. At the time the work had the effect of a catalyst on the fusion of art and design. Today the Rover Chair has become so emblematic that Vitra provides an art market for producing limited series of two versions of the work. In 2008, the price of one of the rarer models like the 1984 Rover Chair in red leather offered in November auction at Damien Leclere in Marseille reached $ 21 000. After 2000, Arad's works increasingly generated six figure auction results. In 2007, the price rise accelerated with the Christie’s October sale of Two Legs and a Table, which generated a price of $244 013. Two months later Phillips de Pury & Company hit the jackpot when they presented D-Sofa, a sculptural sofa in polished stainless steel (produced in 20 copies), which quadrupled its high estimate and reached $409 000.

When concluding this art market labyrinth, I should note that I have not mentioned quality as one of the factors of price. The fact that the quality is avoided explicitly as a direct determinant of price is a paradox of the art market. This pricing rule has historically been contested and is hardly understood by artists, experts or people who are not involved in the art market. Reality nevertheless is that quality indeed is not considered as a direct measure in pricing the art work. Dealers do not hesitate to emphasize that quality is too elusive to function as an understandable pricing principle. I should conclude, however, that quality as a social construction via institutional recognition indirectly does correlate with the price of the art work.

 

(1) Larry Gagosian quoted in: Georgina Adam, “The new reality – the state of the art market in 2009 is not easy to predict”, The Art Newspaper, Issue 198 (January 2009). Posted online on 19.01.2009. Accessed: February 15, 2009. Available at: http://www.theartnewspaper.com/article.asp?id=16777.
(2) Data are based on the auction results of the leading auction houses: Christie’s, Sotheby’s and Phillips de Pury and Company. Data reveal the tendencies taking place during the last quarter of 2008.
(3) Volker Diehl Quoted in: John Varoli, “No Market is Immune: Russia”, The Art Newspaper, Issue 198 (January 2009). Posted online on: 07.01.2009. Accessed: February 15, 2009. Available at: http://www.theartnewspaper.com/article.asp?id=16697.
(4) Charles Eames, “What is Design?” In Alex Coles, Design and Art (Whitechapel and The MIT Press, 2007), p. 154.
(5) FoireInternationale d’ArtContemporain.
(6) Thompson, Don. The $12 Million Stuffed Shark. The Curious Economics of Contemporary Art (Palgrave Macmillan, 2008), p. 11.
(7) Coles, Alex. Design and Art (Whitechapel Ventures Limited, 2007), p. 10.
(8) One of the best representatives of such practice is a Constructivist Aleksandr Rodchenko, who simultaneously produced posters, photographs, agitprop sculptures, utilitarian furniture and interiors.
(9) Pilar Viladas. “Living Treasures.” The New York Times, April 2, 2006. Accessed on 20 February 2009. Available:  http://www.nytimes.com/2006/04/02/style/tmagazine/t_d_p38_remix_turnpage_.html
(10) Thompson, Don. The $12 Million Stuffed Shark. The Curious Economics of Contemporary Art (Palgrave Macmillan, 2008), p. 29.
(11) Publius Syrus quoted in: McNulty, Tom. Art Market Research. A Guide to Methods and Sources (McFarland & Company, Inc., Publishers, 2006), p. 5.
(12) Walter Wriston (former CEO of Citibank) quoted in:  Martin Irvine “Contemporary Visual Art: Theory, Practice, Institutions”. Viewed in February 15, 2009. Available at:  https://www9.georgetown.edu/faculty/irvinem/CCTP738/CCTP738-syllabus.html.
(13) In the text I am referring to classical economists Adam Smith or David Ricardo, marginal economists W. Stanley Jevons, and the founder of modern economics Alfred Marshall. 
(14) Velthuis, Olav. Talking Prices. Symbolic Meaning of Prices on the Market for Contemporary Art (Princeton University Press, 2005), p. 97.
(15) Ibid, p. 97.
(16) Ibid, p. 24.
(17) Thompson, Don. The $12 Million Stuffed Shark. The Curious Economics of Contemporary Art (Palgrave Macmillan, 2008), p. 228.
(18) Velthuis, Olav. Talking Prices. Symbolic Meaning of Prices on the Market for Contemporary Art (Princeton University Press, 2005), p. 41.
(19) Velthuis, Olav. Talking Prices. Symbolic Meaning of Prices on the Market for Contemporary Art (Princeton University Press, 2005), p. 124.
(20) Thompson, Don. The $12 Million Stuffed Shark. The Curious Economics of Contemporary Art (Palgrave Macmillan, 2008), p. 191.
(21) Ibid, p. 12.

Translation: Dace Demir