I was so busy last week that I missed the cost-disease Internetically rearing its head yet again. Greg Sandow brought it up as Exhibit no. 74-D (or so) in the ongoing hand-wringing over orchestral finances (see Louisville, Honolulu, Detroit, Syracuse, Philadelphia). Alex over at Wellsung took exception, on the eminently reasonable grounds that reports of the impending death of orchestras have been around for an awfully long time, and have invariably proved to be exaggerated.
I love the cost-disease—I love thinking about it, I love doing thought-experiments to test it, I love reading the academic respiration of confirmation and refutation it has inspired for the past 50 years. It’s catnip for ruminators: a simple idea that gets less and less simple the more you poke at it. The idea is this: you can divide industries into those in which technology enables a lowering of labor costs over time, and those in which it doesn’t. The performing arts tend to fall into the latter category, the standard illustration being that you can’t use technology to get the required performers for a string quartet below four. Over time, the argument goes, industries afflicted with the cost-disease are increasingly disadvantaged in comparison with those that aren’t.
I wrote a thing about the cost-disease back in 2007—good Lord, that’s four years ago now. There are probably orchestras who have formed, had their Golden Age, and run aground on the shoals of a dithering board in that time! I was kind of afraid to read it again, but I think it holds up reasonably well; for all my customary dystopian glee, I did approach both the severity of the cost-disease and its rebuttals with some degree of skepticism.
For example, I still think I was right to draw a line between the performance industry and the recording industry—as much as people like to point to recordings as a technological innovation that increases per-worker productivity for musicians, it struck me then as a fundamentally different business, as it strikes me now. Which is not to say that an organization can’t aid its own bottom line by selling recordings on the side, which has been an increasing trend—Boston, Chicago, San Francisco, London, BMOP: all those orchestras have started their own labels. Having spent two days at that Rethink Music conference hearing everybody say that recordings are the promotional giveaways of the future, I’ll be curious to see how long it lasts, but, like ticket prices, if you can get people to pay, good on ya. But it’s a parallel business, a complementary business, not the performance business itself. Now, streaming concerts, that’s more interesting—although, so far, most organizations who are streaming concerts online are doing so for free; whether that can be successfully monetized, to use everyone’s favorite vulgar term, is still something of an open question. I, for one, am skeptical that the success of the Met Opera high-def simulcasts is something that can be widely imitated, for instance. But if there’s a market there, I think, in a way, that does change the calculus of the cost-disease. (It doesn’t cure it, but it resets its progression to a more manageable level.)
But there’s some things I wish I had highlighted more—I just didn’t see them clearly enough at the time. And they all revolve around how easily the idea can slip into a pejorative, market-centric mindset. I mean, we’re calling it a disease, for gosh sakes. We could just as accurately say: there are prominent labor efficiencies in the performing arts that are non-scalable. That it makes it sound like what it is: a value-neutral structural trait of such organizations. The cost-disease is not a crisis—not “the killer part of the long-term rise in expenses,” as Sandow puts it—but a given feature of running an orchestra or similar institution. The fact that some orchestras have done a notably poor job at managing that feature should not disguise the fact that many other orchestras have managed it fairly well.
I think that pro-market bent is revealed in the persistent insinuation that the cost-disease has only really been an issue since orchestras went to full-year schedules in the 1960s—a time period apparently chosen to conveniently provide a union scapegoat. Here’s Tony Woodcock, the president of NEC, hmm-hmming that one on his blog:
Subsequent contract negotiations transformed the musicians’ jobs into positions governed by Collective Bargaining Agreements that converted compensation packages from a variable to a fixed cost. (The financial model of any orchestra in the country today will show the musicians as the biggest single cost.)
I am having a hard time imagining any orchestra anywhere at any time in history where the musicians weren’t the single biggest cost. (Then again, Woodcock was relying on the pro-management bias of the Flanagan report.) Sandow, too, got into this, relating that he “first heard about structural deficits years ago, at a private meeting, from people who ran major orchestras that weren’t Philadelphia.” Really? Because I could have first heard about structural deficits in, say, 1881, when the Boston Symphony Orchestra ran a structural deficit in its first season of existence, ran a deficit every season after that, and nevertheless still is around. Here’s Henry Lee Higginson’s original prospectus for the orchestra:
Such was the idea, and the cost presented itself thus: Sixty men at $1500 = $90,000 + $3,000 for conductor and + $7,000 for other men (solo players of orchestra, concert-master, i.e., first violin, etc., etc.) = $100,000. Of this sum, it seemed possible that one half should be earned, leaving a deficit of $50,000, for which $1,000,000 is needed as principal. (M. A. DeWolfe Howe, The Boston Symphony Orchestra 1881-1931, p. 16)
That’s still the model: pay the musicians, take in what you can from ticket sales, build up an endowment to cover the deficit. The BSO was lucky enough to have Higginson to make up those deficits himself, but just because the BSO, in its early days, had a development pool that made up for in robustness what it lacked in diversification should not take away from the realization that, even in that good old Gilded Age, the orchestra was relying on a development pool. This has been part of management’s job from the get-go: shake the trees to make up the difference. That’s not a challenge to the business model, it is the business model.
It’s the intuitive resistance to viewing that model as “viable” that’s at the heart of what I’ve learned about the cost-disease since that 2007 primer. Alex rightly notes that “the cost disease idea and its predictions of inescapable economic annihilation for the performing arts seem just a bit too convenient for those who indulge in classical music pessimism.” I would also add that, in my experience and reading, an eagerness to rebut and dismiss the cost-disease is awfully prevalent among those who indulge in a libertarian or free-market-based worldview. I have a fondness for any idea that bothers triumphalists and pessimists alike, which gets at what I now think about the cost-disease: that it is, in a way, the boundary at which the postulates of capitalist society—all those free-market assumptions that, no matter how reasonable or widely held, are still assumptions—derail. The cost-disease is hardly fatal, not necessarily a source of crisis, but just a fact of life for certain types of endeavors; that we view it as something to be diagnosed and possibly cured just shows how big the disconnect is between the value of performance and the price the market puts on it. The two other industries cited as textbook examples of the cost-disease—education and health care—show the same disconnect, in terms of both underpricing and overpricing. Behind the cost-disease is a set of assumptions about efficiency and progress; but the cost-disease shows up right where those assumptions begin to fray.