The European and the U.S. Art Market

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The European and the U.S. Art Market (2005, The Netherlands) by Blerina Berberi

Introduction

1. The US and EU art market

1.1. Taxes: VAT and Dds

1.2 Evaluation of VAT and Dds

1.3.The role of TEFAF

2. Other factors contributing to the European art market

3.1 Trends development

3.2 Politics, History, and Technology

3.3 The art hunters

4. Conclusion

Bibliography

 

Introduction

Remember Renaissance, Golden Age, Romanticism, Impressionism, and other great art times and movements? Reading through art history books or taking a short trip in some European countries, everyone can immediately come up with the same conclusion that Europe has a long and vibrant history of paintings, sculpture, architecture, etc. Most of the times when we refer to great masters and great times of art, we come back to such places like Italy, Netherlands, France, United Kingdom, and other European countries. Yet the question remains: How much have these countries profited from these great artists?

Great European art masters have inspired the world’s artists; they have made art history and attracted many visitors. Still in monetary terms, the financial profit of Europe, at the present, from these artworks is considered by some analysts to be shaken. The market mechanisms and factors that change the monetary value of the artworks are many. In economic terms, prices depend on the demand and the supply. The demanders have their taste and many reasons that influence their choices and buying, while the suppliers’ aim is to satisfy the needs of the demanders according to their taste and of course to provide some financial profits. But it is not as simple as that. For example, Michelangelo and other great artists did make great artworks that the church commissioned, and the state or the aristocracy commissioned other artists’ works. At the present there is not only church, state, and aristocracy that commission the great artworks, but most frequently the artworks are property of everyone who has a preference for them and can afford to buy them. Furthermore, the art market of the present is not similar to that of Golden Age in Netherlands, where the paintings were even won in lotteries. Since the art market has expanded and its art buyers have become more in numbers, the state now with a different organization has a changed attitude toward the art market.

One of the greatest changes in the organization of the European countries is the formation of the European Union. On May 9, 1950, Robert Schuman, in order to create peaceful relations between European countries, proposed the organization of Europe whose result is the present European Union with 25 countries as its members. In the beginning the EU countries focused on economy and trade co-operation while at the present it deals with other issues regarding justice, security, freedom, etc. All decisions of the member states are based on the Treaties signed by all EU countries. So some European institutions ought to provide somehow similar laws for the EU member states. Thus the European Commission, which is the executive body of EU, has imposed tax laws and regulations for all European countries. Some analysts declare that the decline in the European art market share is attributed to the tax laws and regulations, which are implemented by the European Commission. Yet the European Commission denies such claims that the real causes affecting the market are the taxes and regulations of the art market. Moreover, Anthony Thorncroft, in a study of VAT and the European Art Market (2003), states that the complexities of taxes and regulations in Europe have lead dealers and collectors to consider it as a “minefield”.

This paper discusses the different factors that influence the art market share in the European Union. The first sections are mainly a representation of facts and data gathered by The European Fine Art Fair surveys. The main emphasis is put toward taxes and regulations, Value Added Tax (VAT) and Droit de Suite (DdS) which according to TEFAF surveys have caused the European art market share to lose around 7.2% global share of market since 1998 and will continue to decline if taxes and regulatory environment are not changed (TEFAF, 2002, p.5-8). While some attribute this decline to the taxes and regulations, other factors such as trends development, history, politics, buyers’ attitude, etc., during the year of the last 3 years, are discussed in relation to their level of influence they have in the art market compared to the influence of the taxes.

1. The US and the EU art market share

The US contains the greatest number of important collectors, rich museums and the largest stock of valuable antiques, while the European dealers dominate traditionally the Old Master painting and drawings (TEFAF, 2003, p.8.). More interestingly, on of the main differences between these art markets regarding legislative environment, is that US has not implemented neither Valued Added Tax nor Droit de Suite taxes, where the former is already implemented in EU and the latter will be implemented in January 1, 2006.

Nevertheless, the art market is everywhere basically divided between dealers and auction houses. Every country might have different trade practices but still the way the business is done tends not to change over years, therefore the distribution channels are still the dealers and auction houses. Yet the development of Internet has not been any vital alternative to the traditional way of selling and buying art (TEFAF, 2002, p.11).

According to the survey conducted by The European Fine Art Fair in 2002, the European art market is really a very large industry and the total sales in 2001 were 12 billion euros, which means 45% of the 26,7 billion global marketplace. Furthermore, it has around 28,600 businesses, which employ approximately 73,600 people. Also, the art trade is more conducted across national borders and the imports from outside EU in 1999, were 1,53 billion euros while the exports to non EU countries has been 1,81 billion euros. Moreover, from 1998 to 2001 the average price of a sold artwork in the EU auction declined 39%, which means that its value was $7,662 so the European sales did run counter to the worldwide trend. However, US sales with the highest prices take place in New York and the US is the major country for trade in paintings rather EU (TEFAF, 2002, p.8-15). As already mentioned earlier, the art sales are divided between sales by dealers and auction houses. Since early 1990 dealers have generated 48% of global market while auction houses retained the rest, thus 52 %. But in Europe the dealers have generated around 54% of total sales and the auction houses 46%. In 2001 there was an increase of concentration, and still is, of high value auction sales in New York and the US art market share surpassed that of Europe. Yet Europe counts for approximately 60% of global dealer sales.

Most importantly, according to Thorncroft, while the market gets liberalized and free trade between nations is dominating, the European Commission disregarding the characteristics of the art market takes decisions to tax and regulate the market (TEFAF, 2003, p.11). But US has no such equivalent taxation as EU does. Due to taxation and regulation many market makers and customers in Europe shift transaction nexus in order to have lower costs. Therefore it is stated that: “Europe’s loss of global market share can be largely attributed to taxation and regulations” (TEFAF, 2002, p. 8). While US market in contrast to the European one, does not have regulatory complications and taxations and no equivalent taxes, it allows for wealth accumulation. This means that art dealers do have more money to circulate artworks, and makes possible to art collectors the opportunity of accumulating the necessary income to add the next painting to their collection.

Before going into further details and weighting the influence of the taxation and regulation, let’s first describe the two types of taxes of the EU art market to which most of the “complains” emphasized in the surveys refer to.

1.1. Taxes: VAT and Dds

Two of the most crucial and “popular” taxes that are frequently referred to as having, or will have, an impact in the EU art market share, as the TEFAF surveys in 2002 and 2003 suggest, are Value Added Tax and Droit de Suite.

The Value Added Tax (“Import VAT”) has been introduced in EU in 1995 by the European Commission. It is a tax, which is levied on artworks, and antiques that is paid on the entry of goods in EU. VAT is also paid for other products when they cross the border in EU, thus it is not a special tax paid only for artworks. When the object enter in EU as a “temporary import” then the VAT is possible to be delayed till the moment the artwork is sold, but the artwork should be sold within the two years after the importation date.

The other tax is Droit de Suite (Dds). This tax has not been implemented yet but it will be in equally all EU member states by January 1, 2006. This tax is a “royalty” that is paid to the artist or to his heirs for around 70 years after the death of the artist. Furthermore, the seller upon each re-sale pays this tax. The maximum this tax can be paid for any work is 12,500 euros (TEFAF, 2003, p.16).

– The increase of regulation and taxation in EU

One of the effects of DdS is that the primary dealers will shift their business practice in order not to go into complication of buying stock from artists. Therefore they will sell on agency basis, by commission, and not from inventory. Yet the introduction of DdS has caused that the more valuable DdS eligible works be removed to sales venues where the tax is not payable. The DdS causes a potential loss of sales and that is the case in UK where in 1998 the DdS eligible artworks were sold in auctions for around $291,468 that is higher than the price of flight. Therefore it is reasonable to think that lots, and especially those for Contemporary art will be sold in New York instead of Europe (TEFAF, 2002, p.16-17).

Another effect of both taxes is that they require additional costs for the paper work which is around 60 euros per transaction. More specifically, all these tax regulations require that the: “…. dealers must secure substantial liens of credit at banks to enable themselves to import works of art for sale on a regular basis” (TEFAF, 2002, p.17). This “freezes” the resources of the dealer that can be used more profitably, such as buying stock. This loss of financial opportunity has still more effect on the trade rather than in just working agreements. Therefore, European art market, according to the TEFAF survey, generates an image of itself as being a complicated and expensive place for business and it encourages dealers and collectors to consider alternative venues. And this is considered, in TEFAF surveys, to be the greatest danger for the European art market.

Furthermore, such an image of Europe, the critics believe has lead the US dealers not in cooperating about sharing data, news, etc., with the Europeans since they prefer to do business somewhere else where it is less complicated. Also a lot of European dealers have established office in New York for a more favorable taxation nexus. Again decisions between auctioneers, dealers, and collectors have emerged a “regulatory arbitrage” by which they try to achieve high efficiency for their capital and efforts. Thus an auctioneer and a collector could select transaction venues where the taxes are lower and the regulatory restrictions are not a big fuss.

The role of taxes is also related to that of the level of service regarding the accessibility of information and policy makers. In some EU states, it is very difficult to get the required information of tax rates and a lot of hierarchy and bureaucracy are thought to exist (TEFAF, 2003, p.15). Let us now take a look at the different opinions on the effect of these taxes, also US ones, and try to evaluate the importance of each of them.

1.2. Evaluation of VAT and Dds

As mentioned earlier, VAT is a tax imposed by the EU directives and it is paid for all imported goods and services into EU. Yet different countries have different rates of the VAT tax. Furthermore, upon registration the tax is deductible but the registration for such a tax is thought as being a complex procedure. However, what is more important is that since VAT is paid for any goods and services being imported in EU there is no reason why to consider VAT as not to be paid when artworks are imported in EU. Yet the difference between imported artworks and other goods is that artworks are also cultural goods. Furthermore, Thorncroft states that VAT “…hampers the repatriation of art from outside the EU, which as well as supporting the business of dealers, enhances cultural patrimony” (TEFAF, 2003, p.15). This means that great European master works will not be returned home, Europe, but will remain as part of the other non-European cultures. Still, Thorncroft also suggests that the registration scheme for VAT and the information regarding taxes and regulation should become very accessible to dealers. We can think that if this accessibility of information will become easier, than VAT might not necessarily will lead to a decline to the EU art market share. But the outcome is not that easy to predict if the causes are not that clear.

However, art dealers, auction houses and collectors have the right to complain IF it is really the taxes that influence their transactions, thus brings to the decline of the EU art market share. The TEFAF surveys show that the whole problem in the art market lays in taxes a regulatory environment, as though as everything else in the art market and its mechanisms that influence it are under control. Therefore, in order to evaluate the role of VAT, an overview of the last decade events, will be discussed in the following sections, while for now, we can discuss the role of DdS.

The most “problematic” tax seems to be DdS, since somehow the abrupt answer to VAT can be that it is a tax paid by all goods and there should be no exception for artworks. In the United States the DdS it is said that it “…does not assimilate well with the domestic economic and legal systems” (Alderman, 2005). In more details Alderman states about DdS: “ …is a foreign concept born of different social and legal systems, and is anti-ethical to the Anglo-American tradition of free alienability of property” (Alderman, 2005.). Furthermore, Alderman advocates that the copyright model in US is “market driven and rewards only successful creations”. Therefore, the allocation of wealth to the contemporary artists is inappropriate. But EU considers DdS as the right tax for different reasons.

One of the reasons for EU to implement DdS, might be that DdS will provide wealth to contemporary artists and might also stimulate the creation of artworks which as a result will contribute to the art market a variety of artworks. Also DdS will increase the value of the eligible DdS artworks and also provide financial income for the living artists, who might have difficulties in competing with the non- DdS eligible artworks, which most of the times have a higher average price.

Furthermore, if DdS is to promote the new EU Contemporary artists, it means that a great variety of artworks might be found in the art market not as a result of “good quality”, if we believe that there is such a thing, but as an easy way of securing some financial income. However, even if there would be a lot of artworks that are eligible for DdS, still many dealers and collectors, either would tend to make transactions across borders of EU, since the investment of the investors in contemporary artworks will “freeze” their capital (TEFAF, 2002, p.16). Yet for dealers and auction houses, which might be interested in generating financial profit, the DdS will just mean a lot of money invested on an artwork, which if they would like to re-sell, would have to pay the royalty and thus their capital not flexible in generating any incomes. So, DdS even though is said that it will be implemented in order to provide some financial profit for the living artists, its effect can be the contrary, thus that no one would like to invest in DdS eligible artworks which as a result would make the business less attractive for buying other artworks since the money will be additionally spent on these artworks.

1.3. The role of TEFAF

The European Fine Art Fair, which is also known as the Maastricht Fair, is an event that takes place every year, during the month of March. Anthony Thorncroft, in the introduction to the VAT and the European Art market (2003), states that the fair attracts around 75, 000 visitors, and the major collectors and museum curators. An article in the Herald Tribune about TEFAF starts as follows: “Even more than commerce, passion drives art market” (Melikian, 2005). The exquisite exhibition of rare masterworks at TEFAF calls the attention of everyone one not just in Europe but also from other continents. Just the possibility of seeing from close all those artworks gathered and collected from different places and times of the world creates a pleasant atmosphere at the MECC. Furthermore, Bennett in his article says that the atmosphere, decoration, richness of paintings, the glamour and the rightness of the atmosphere make TEFAF “a beautifully packaged dream” (Bennett, 2005). Of course not everyone can buy a piece from that dream, yet everyone can enjoy its exciting atmosphere.

Nevertheless, Thorncroft states that a guide produced in 1999 to help dealers in TEFAF, did produce a negative effect on the attitude of the dealers. The guide was about 56 pages, consisting with information on the taxes and transactions, depending on the domicile status of the buyer and seller, caused exhibitors to finish the deal in other places and not in Maastricht (TEFAF, 2002, p.12). As we can see, the image of TEFAF has not diminished but procedures’ complications seem not attractive to the buyers, as Thorncroft states.

-Is there a threat to The European Fine Art Fair role: Exhibit or Sale?

The glamour of TEFAF can always get better, and the impressions of such a great event can even grow stronger, but is TEFAF actually conducting a lot of transactions as it used to be? Thorncroft, as stated earlier, said that even just the guide information, which is not practical, might push buyers into a kind of annoyance just by the large extent of information and requirement. However, Melikian states:

“Together, the discoveries give the fair its unique whiff of novelty. The miracle is that Maastricht has been keeping it up year after year” (Melikian, 2005)

In this case Melikian refers to the great variety of well-known old and new artworks. Therefore in the art market is not the fuss of papers that direct collectors to buy their favorite artworks, they are just instructions, but it the passion for art that counts above all. But in the fair there are not only collectors interested in the artworks, there are also dealers, who are interested in selecting to buy some artworks of which they may in the future provide some financial profit. Still in both cases, there are two different motives, which even though can create frustrations, cannot affect the behavior and decision of all the buyers in being involved in transactions. Therefore, the “unfriendly” taxes and regulation environment might not be the preoccupation of just the art lovers, but that of businessmen, whose business is of course depended on the persistency and passion of the demanders. Nevertheless, in this case TEFAF is between two “fires”. On one side, EU Commission imposing the taxes and regulations leads to a decline of transactions and the vanishing “passion” of art dealers and collectors. Therefore it is normal that TEFAF complains about such taxes, since it has to have an appropriate service to its demanders by supplying them the best under better conditions. Since the art market is highly competitive, TEFAF cannot “survive” without its collectors and dealers, and thus in order not to cease to exist the detachment from such taxes seems to be only solution.

But the art market is not only regulated by taxes. There are many other factors that influence trends, price development, shares, etc., that need to be considered in order to find, if possible, a way out of dealing with the decline of the EU art market share. Thus instead of just jumping to conclusions about the role of VAT and DdS, let’s take a look at other factors that influence the art market shares and too, the role of TEFAF.

3. Other factors influencing to the EU art market

So far, the two major taxes, DdS and VAT, considered to be by TEFAF surveys as the major influence for the decline of the EU market share have been roughly presented to show the effects of their implementation. Yet the art market is a complex place where a lot of mechanisms are involved, both on macro and micro level. The following sections deal with the other factors that influence the art market, and special interest will be shown in the macro level to the historical, economical, political, etc., factors and in micro level to the attitude of the collector, investor in artworks. Later on these factors will be weighed in comparison to the effects of DdS and VAT. Interestingly enough, an analysis of the art market trends for the last three years, will present the development of trends, at first sight, as being maybe not highly influenced by the taxes and regulations but by other important and sporadic events. Furthermore, the next question will be: Can art dealers, auction houses, collectors, TEFAF, etc., have a control over these events?

3.1. Trends Development

The tendencies of shares in the art market are analyzed by a focus on the different values of pricing, transactions, sales, etc. The trends development in the last 3 years seems to be somehow stable but not completely. The US is considered to be the market leader in terms of fine art prices and shares. Thus we can rush and say that both DdS and VAT are considered to influence this trend. That means, according to TEFAF surveys, that if the taxes and regulation had not been implemented, or will be for DdS, it would have been possible that the art market trends would have been different. But is that really so? Let us take a look at the trend development in the last 3 years, thus 2002, 2003, and 2004.

First of all, in 2002, the average price of an artwork in the European auction houses was low, compared to the US average price for an artwork, and more clearly it is stated:

“…low price marketplace for fine art where pricing, in economic terms, behaves more like a demand driven retail marketplace and less like the supply driven nature of the global art economy as a whole” (TEFAF, 2002, p.15)

Here it is stated that European art market is not mainly controlled and influenced by art dealers or auction houses, but it is the demanders who are deciding the pricing of the artworks. If the buyer thus decides the value of an artwork, it means that the unmanageable price by the supplier affects the whole market share and the profit. That means that the whole responsibility for taking actions in changing the mechanisms and more specifically in these case, taxes and regulations, is left up to the art dealers and auctions houses that need to survive in order to generate profit and continue to supply artworks that fit to the taste of the demanders.

Now, let’s see how the art market trends have been for the last two years. The surveys conducted by TEFAF somehow predicted a low market share for EU, due to VAT. While for the effect of DdS, if it will be implemented, we would have to wait for some years to see how it will go.

In 2002, the major looser of shares in the art market has been US with a shrunk of 6%, to 42%. But Europe has strengthened its position and is the leader in the art market with a 53% art market share by the end of 2002 (Artprice, 2003, p. 7). At first this might imply that VAT has not had any effect in the EU art market share.

For the year 2003, US art market share did not change, and it remained stable with around 42% of art market share, and Europe was leading the market in the main places in Paris, London and Rome (Artprice, 2004, p. 3). But in 2004, US and especially New York City have made a lot of changes and due to the auction sales in NY, the US market share increased to 45 %. Sotheby’s dominates the art market, while London is number one in European art market (Artprice, 2005, p.7). As we can see, taxes and regulations seem to be not stable or the only predictors of the market. Recently, the US market has changed due to the quality of works sold by auctions houses. Yet the decline of the US market share in 2002 and 2003 can also be attributed to the devaluation of the dollar, the war in Iraq that is also one of the factors that influenced the stock market, etc. This means that in order to understand the effect of taxes in the art market is not an easy task and needs careful consideration of many factors. Therefore, it is reasonable to take a look at the events and changes that took place in EU and US during the last years.

3.2. Politics, History, and Technology

Some of the biggest events that have occurred in the recent, years are for example, September 11, 2001, the war in Iraq in March, 2003, the expansion of the European Union, the implementation of one single currency, euro in 2002, in all, except 3, the EU member states, etc. September 11, affected all US stock markets, which were closed down for the first time after so many years for a long period. The threat from terrorism influenced both the investments and the stock market. The war in Iraq is one of the factors which lead to a decline of the US currency value, the dollar, can be said also to have influenced the art market transactions for sales both for US and EU. Furthermore, the implementation of the Euro in the January 1, 2002 was followed by a recession of the economy of most of the EU most dominant members. Further expansion of EU also had its effects on the economy, including the job employment rates. Yet not to forget the occurrence of events in a different part of the world increases the attention of the collectors, dealers, etc., toward specific regions and genres of artworks.

– The influence of Politics, and Technology in the art market trends

According to Artprice (2001) the decline in New York and Paris stock market leads to more favorable prices and the possibility of selecting finer artworks is much greater. The option of selecting finer artworks leads to higher prices in the future, therefore more profit, especially for auction houses. That might not always be the case because for artworks that are rare, there is a less chance of making profit on resale.

Furthermore, such events as wars do have a great influence in the art market. For example, in the post-Gulf War period in 1991 there was an absence of records. Also in 1991 the market went in agonizing that last for 5 years (Artprice, 2002, p.1). Also the September 11 event broke the upward trend in the Artprice Index. Moreover, the economic crisis in US and the beginning of the war in Iraq caused the art market to continue with a grave character. Since September 2001, the percentage of lots sold fell to 47% and the prices went back to 1999 levels. And it was New York that was mostly affected by these events. Also, the economic situation, led the auctions houses such as Christie’s and Sotheby’s to make big catalogues to meet the demands of the collectors. Again, the decrease of the value of the dollar in US, led to a boost of exports and the limit of imports. On the other side since the Euro got stronger the artworks sold in US had higher prices for the investors in NY. Most interestingly: “A weaker dollar should drive up prices in the US, but this inflationary trend cannot be expected to spread to Europe” (Artprice, 2002, p.3). Anyway, from the turmoil of the art market prices in US, the EU did consolidate its position as a leader in the market. Therefore, we can state that despite the question whether EU taxes have any affect on the art market share, changes in the art market were caused by historical events encouraged by political policies. This seems to imply that only the turmoil of the art market prices in US, caused by the foreign policy and other governmental decisions, might be at the advantage of the EU art market share.

Nonetheless, at the present the development of technology has made possible the increase of speed of transactions and made possible the increase of speed in reaction. All these have resulted in greater price volatility. Getting back to the taxes in EU, one of the criticisms about the EU market is the low investment in technology. Regarding the VAT, tax suggestions are made for an electronic register, which would create the possibility to the to the dealers to easy register for the import VAT and not deal with the “bureaucracy” of the EU countries, where the information accessibility is one of the main elements in forming a negative image of the EU market place. Furthermore, European art dealers spend on technology 2.5 times the average reported in dealer survey (TEFAF, 2002, p.19). Thus as at the present where information is important in knowing how to and what to buy and sell, EU art dealers should invest more on technology which helps in communication and transactions.

As it has been described, the role of historical and political events is of importance in the art market since they influence the shares of the US and EU art markets. Yet these are some of the factors that influence trends and price development and do not clearly suggest that EU taxes and regulations do not have an effect on the art market. The turbulences in stock markets, politics, in US repositioned the EU as an art market leader but then EU could not keep its position and one of the reasons might be the implementation of taxes by the European Commission. Nevertheless, other factors such as the behavior of the buyers in the art market have to be taken into consideration before drawing conclusions about VAT and DdS.

3.3. The art hunters

It is common to assume that the privilege of owning artworks is based on the incomes and the predecessors of a person. As for every good and service, in order to posses something someone needs to have high financial income or it might be the case that these can be just part of heritage

A recent article about New York states that apart from the Wall Street titans: “ …a new influx of young, little-known billionaires who manage hedge funds are roiling the art market, using their vast capital pools of capital to snatch up some of the world’s most recognizable images” (Thomas& Vogel, March 03, 2005, p.1). Steven A. Cohen, age 48, is the collector whom the article is about. His investment in art is stated to have an influence in art market and it stimulates discourse in the value of other artists. Yet some others see his collection of art works more as being bought “through ears than through the eyes” (Thomas& Vogel, March 03, 2005, p. 2). This article shows how billionaires are interested in collecting art and how their decisions on what to buy influence the value of other artists’ artworks. Moreover, it also states that there are different opinions on how a buyers’ choice is influenced by personal taste or just well known artists’ names.

Different from the EU, the US capitalistic system makes possible that young not well known billionaires are interested in owning well-known artworks. Furthermore, while in Europe most of the people in order to get rich need to spend first money on receiving an educational degree, in US employment in different jobs is based on what you can practically without always too much stress on the degree you have. Of course, job qualifications differ form many positions, yet it is more possible that in US the young generation can become rich. This means that if in US the new generation have more opportunities to earn more money quickly compared to EU students then more transactions in the art market will take place. Yet this depends on the interest of this new rich generation on the artworks. What is always needed to become a good collector is a good taste and money.

However, the settings of art trade and the people involved in it, are related to each other by different interests. Museums can be the promoter of good artworks but also the exhibitor of a private collector’s collection, whom the collector would like to sale for a higher price in the future. In some cases artworks in museum are said not to represent just the cultural and individual values and perspectives but also those of businessmen who want to promote parts of their private business. One example, is the collector and businessman Peter Ludwig who has his fathers chocolate company Leonard Monheim AG, in Aachen (Nairne, 1990, p.179). Even though Ludwig claims that business and art are separate, yet his expansion of art collection from Russia and Eastern Bloc countries have showed that he has an influence in the public art institution where in some exhibitions artworks consisted with commercials of his chocolate company.

– Who buys art? Collectors, Museums, Auctions and Fairs.

There are different places public or private, where different artworks are exhibited and/or sold. The most common public places are museums. Museums represent values and ideas of different cultures, and individuals. The effect of museums is high as to attract visitors under the ideas that going in a museum is educational and enlightening (Wilson, 1994). Furthermore, museums are also recognized as a sort of temples where the “liminiality” is an effect of loosing track of timing that the visitors have when they enter museums (Duncan, 1995). Furthermore, Duncan refers to museums as a sort of temples due to their quality of time and space that generate in the mind of the visitor. Therefore the role of the museums in forming such exceptional psychological effects is also used in the interest of the art collectors who allow museums to present works of their private collection, which as a result will increase the value of the artwork when the collector would like to sell it. This is also the case of Ludwig, the businessmen and the art collector, who has an influence in some museums, where the “artworks” are advertisements of his own business. Additionally, as Nairne states: “A museum influences value judgments as much as it accepts the value judgments established by others” (Nairne, 1990, p.76). But how far the museum influences value judgments is not just depended on the artworks but also on the number of visitors. In US there seem to be more Americans visiting museums compared to the European visitors. For example: “More Americans go to museums than go to football games. Last year almost 4.5 million people went to the Metropolitan Museum of Art in NY” (Nairne, 1990, p.75). Also in Paris there are a lot of visitors at the Louver, but in the Netherlands for example an article states that the Den Haag City Hall museum and Rijksmuseum have not attracted many people and Ravensteijn hopes that the Rijksmuseum will not get closed and reopen after many advertisements (Ravensteijn, March 2005, p.38). Furthermore, different events such as the restoration of the buildings, theft, organization of private parties etc., have led to such a decrease in the number of visitors. This shows that managerial skills are not that good and if an interest in the arts needs to be arouse among the new coming generations, youngsters should frequent museums more often.

Apart from museums private galleries and auctions houses are also the places where “inspiration” about valued judgments and collecting are to be found. Also private collections have an important role to the success of the artist and “private collections are the best influential place for an artist’s work to be” (Nairne, 1990, p.68). This means that while an influential individual has a collection that is showed to his friends that mostly belong to his status will also be interested in buying similar artworks, or at least will be influenced to spend money on a certain movement in art. The difference between museums and private galleries, auctions is that museums are open to the public while private galleries and auctions still do have some limitations regarding of who buys and sells. For example, as Nairne states, selling in private galleries and sometimes in auction houses is not just a simple transaction made to everyone. This means that whenever artworks are sold the history of provenance is important to the value of the work. Thus the history of the provenance of an artwork shows that famous people have been in possession of such objects, its value will increase. In the same time, special attention to the provenance makes the dealer think twice before selling an artwork. Another interesting case are the art magazines. According to Nairne, most of private collectors do not even take a look on art magazines since they are the ones who sponsor such editions in order to increase the value before selling part of their collection.

Nonetheless, in fairs and auction houses, the preference for the next owner of an artwork might be a bit more limiting. That of course depends on the expenses and marketing of the artwork. In some of the cases is not worthy of waiting for many years to sell an artwork since the art market is sometimes unpredictable and the value of the artwork might decline rather than increase. Still in auction houses, such a Christie’s, some different conditions are offered to the well known private collectors, and in some cases the auction house can make agreements to sell an artwork to one person rather to another one. Yet in any case the auction house needs to provide profit in order to maintain its business running, so that different rules might be applicable, of course in a rough sense, to different times and collectors. In summary: “…participation of the gallery in art fairs, the promotion of exhibitions through art magazines and reviews by critics, are important in supporting each artist’s and the gallery’s general reputation” (Nairne, 1990, p.64.)

On the other hand, different art markets of different artwork qualities exist all over the world. But in some cases such markets do have high quality works, comparable to those of auction houses. A recent article about the art market in Paris writes that the flea market Marche aux Puces at Porte de Clignancourt has become one of the largest art markets where a lot of art dealers go at the present. The market place is becoming very popular for different celebrities, while its past wasn’t, and even Jacques Chirac used to go there before he became president (CNN, June 2, 2005).

Places where buyers are interested in looking for any valuable items are many and where you go depends whether someone’s the taste you have can be satisfied by the supplied artworks. Therefore some auction houses, museums, private collections, galleries and flea markets do have rare artworks but not all of them. Moreover, it is the taste and the interest of the buyer that also somehow influences the prices, prestige, etc., of the artworks and the artist. In the following section there is an analysis of the different motivations of dealers and collectors, which are the agents of the art market.

– Why buy art? Different motives.

As already stated above, the psychological effects of artworks are great. Yet in some cases the preference for buying an artwork is not a prerequisite for owning it. This is the case with most of the dealers, and it is understandable that in order to do business there should be not too much emotional attachment to the artworks. If that affects the whole dealing, sometimes it might be for good while in other cases not.

According to Klamer, the value of artworks is not economical but more cultural. He states that art works are symbols of culture and values from which we even draw inspiration. The possession of such goods and the destruction of them have a great effect on particular individuals and for the whole humanity and its history (Klamer, 2002). Klamer states: “Cultural goods are goods for more than their economical value” (Klamer, 2002.). On the other side Bourdieu referring to taste states: “…scientific observation shows that cultural needs are the product of upbringing and education, and preferences in literature, painting or music, are closely linked to educational level” (Bourdieu, 1973). Furthermore, social origin strongly influences taste, thus individuals of a social class are predisposed by such taste and interest in arts. Cultural nobility derives from the environment an individual was raised and by the education since in order to understand an artworks meaning and decode it, knowledge needs to be acquired beforehand. But Klamer states that also those with no education have cultural capital and refers to the aboriginals in Australia who have their rites, cultural ceremonies, etc. The problem here seem to arise when an artwork of cultural value is displaced of its context, that is why both agree that when visiting a museum some background knowledge on the artwork helps in understanding and getting inspired by the artwork. Likewise, Klamer argues that cultural products have inspirational value and not economical power of influence. Klamer states: “Cultural capital is the ability to deal with cultural values without regard to possible economical returns” (Klamer, 2002).

But not everyone can be in possession of such valuable objects, and the contemplation for such things does not help in owning any of them. There is an interesting relation between the cultural and monetary value of an artwork. Most of the people, let’s say who do not know much about art, place the value and the attachment to it not because the artwork is primarily beautiful in itself but because it is expensive or just made by a very popular artist. So if an artwork does not strike someone as really special at first sight, still it might change the “taste” of the person by making him or her aware of the value of the artwork. On the contrary, a lot of artworks whose monetary value is lower compared to the average price of an artwork are more appreciated in themselves as being more beautiful. This is not always the case, but it just shows that the attitude of the buyer is dependent on the relationship between the cultural and artistic knowledge on the artwork and its price, thus economical, monetary value.

Klamer and Bourdieu state wonderful ideas but the reality of the art market is different. In the art market it is not possible to say to an individual who can afford to buy the artwork that he cannot buy it because he does not show proof that the artwork has a cultural inspiration for him or that he needs to show a degree of education and birth certificate. Nevertheless, acknowledging different values and necessary conditions in appreciating an artwork, leads to thinking about the future and the question arises:

What would it happen if the most valuable cultural artworks of a community become part of the private collection of rich individuals, whose appreciation and cultural inspiration is less than that of the community? The problem is measuring Bourdieu’s “educational capacity and taste” and Klamer’s “cultural inspiration”. However these are matters that should not be neglected, but be taken into consideration in order to improve the appreciation of cultural products of different cultures. As it is stated earlier on, frequent visits to a museum do not just have the effect of “liminiality”, mode of consciousness outside that of normality (Duncan, 1995), but also that of inspiration and education. Therefore in order to have a “healthy” art market in the future, all generations should be more visit more frequently artworks wherever they may be. But if the case is that all great EU artworks will remain in US, as TEFAF states, and then there is no chance for Europeans to visit their great master’s works. This seems really far-fetched, but is worthy of consideration.

– The ‘interaction’ between trends, buyers, market and historical events.

The special attention of the media information on different issues and events in the world leads to the demand and taste of the collector. In some of the cases we can say that if the political standing of a country is pleasant than also the evaluation of the artworks of that country would be lesser compared to those political systems that a person prefers. For example, it can be the case that since many Europeans do not like capitalist societies and the US foreign policy, there will be a tendency to devalue certain American artworks. This might seem not a really good reason for the appreciation of artworks but it can still be the case. In other cases and events, the attention of the media and other informative mediums, affects taste and appreciation of a collector in many different ways. In general it can be said that all the events occurring in reality do have a psychological effect on the collector attitude and appreciation toward an artwork. Recently, Discovery Channel showed a program on “Jesus’ shroud” and analyzed the possibility that it was a fake shroud, which furthermore was a “joke” made by Leonardo Da Vinci since the image of the face in the shroud bared similarities with Da Vinci’s self portrait, and that of Mona Lisa, which is also thought of being Da Vinci’s female version of his portrait. Such sensational programs arise the interest of the viewers in the painter and as a result it can be expected that many visitors will go to Louver to see the Mona Lisa. Also, the book “Da Vinci’s code” by Dan Brown might have inspired many people to visit Da Vinci’s “Last Supper” in Milan, Italy. In other cases, a movie fan goes to the video store and just out of curiosity rents “The Girl with the Pearl Earring” and as a result that person might get interested in Jan Vermeer’s artworks.

There are many cases where different art movements and artists become popular and everyone seem to agree with the same idea. That is why some rich collectors such as Cohen, are sometimes criticized as collecting just what they have heard that is important and do not really have any personal appreciation for the artwork. Furthermore, some collectors just follow the trends and in order to always be sure and have a high reputation just buy the most expensive artworks in the market. Others prefer to stick to one source of buying art works, such as they are regular clients at Christie’s and do not buy a more valuable artwork somewhere else, unless it is sold by Christies. The reasons might be different, but one has to do with the service, price, and assurance of authenticity of the artwork. Nevertheless, different wars through the existence of humanity, have inspired especially states, to commission or buy artworks with subjects of battlefields as facts or symbols of pride and nobility, i.e. Napoleon.

The factors that affect the attitude and the taste of the collector or dealer are many. In many cases it is difficult to define which of the influences comes first, and what the motives are. These factors should always be carefully analyzed as they determine the circulation of artworks in a micro level, which is not always influenced, or at least not at first, by the taxes and regulations. The richness of such different motives at a personal and societal level show that the penetration of boundaries confined by taxes and regulations at the psychology of the buyer is not as dominant as it might appear. A distinction between a dealer and collector can be drawn, where the former is more interested in financial income, and that leaves the matter of taxes and regulation as more important for the dealer rather than the art lover, thus collector. In addition, other factors as mentioned earlier like politics, economics, education, management of museums etc., influence the art market like the taxes do at some extent, and in one case it is stated “At times when markets are bad, people like to invest in something they can touch” (Arnold, May 17, 2004). But dealers cannot wait and hope for bad market times in order to continue running their businesses. And for collectors, the final advice would be “Just be whatever you love!”.

4. Conclusion

In conclusion, VAT and DdS are part of the factors that influence the art market. But the question yet remains on measuring how much they have to do with the decline of the EU art market share. The different events that have occurred in the past few years in US, such as the war in Iraq and September 11, positioned EU as the world leading art marketer but not for a long time. At the present, New York is one of the most popular art market spots where the auction houses sell artworks at really high prices. Since after the turmoil in the US, US repositioned itself as leader in the art market, then it is left up to the taxes to take some “responsibility” for the decline in the EU art market share. The taxes do influence the art market but that does not mean that they are the only factors affecting it. Since there are many factors that influence the art market it is somehow difficult to define how much of importance the taxes and regulations play a role in the art market share. Therefore, a deeper serious analysis of the historical, political events, art marketplaces, collector and dealer’s motives is not to be neglected.

For VAT, if it will still continue to be implemented in EU it needs to have if possible lower percentages of taxation while DdS needs the right framework to be implemented. The effects of these taxes might not be as high as TEFAF surveys consider them to be, but yet they do influence the art market, and more specifically auctions houses, dealers, fairs but not definitely art collectors’ attitude in buying. This means that people interested in art will always buy artworks as long as they can afford them, but in extreme cases many auctions houses, dealers and other art distributing channels in EU might need to be closed down. Therefore, it is normal that TEFAF considers taxation as an important factor in influencing the EU art market share since it is one of the factors that it can control, while the other political, economical situation of other countries such as US, are issues on which dealers’ opinion or decision does not count. Thus if taxes and regulations in EU do not change, then EU dealers just have to wait and hope for turmoil in the market, politics, etc., in other countries such as US, in order to position itself as art market leader. But these are things not morally right to be wished for. Nevertheless, dealers should not pay attention just to the taxes and regulations, but should also take under consideration the factors that influence collectors at the micro level. Therefore, most of money should not be spend just in marketing artworks that are about to be sold to the ones who afford them, but information should be available also to the new generation and the future ones in order to get them encouraged and motivated to be involved in art dealing, collecting, managing, etc. Thus youngsters should be more frequently be sent to museums as school trips, more easy to read and comprehend books should be made available to educational institutions of different levels, and museums should have lower tariffs, if possible, to attract not just foreign tourists but the also the members of the society, community.

Meanwhile, since EU is enlarging its community, more new artists’ artworks from the new EU member countries should be made available in the EU art market in order to increase the variety of artworks that might fulfill the different tastes of the collectors. Even though DdS might aim to increase wealth to the contemporary artists, it will not for certain assure fame to the artist and more transactions for dealers. However, the contemporary artists should not be neglected. On April 11, 2005, an article published on CNN “Man smuggles art in MOMA”, tells the story of an artist hanging his artworks in different museums in the world, even at MOMA. It took MOMA three days to discover that the artwork did not belong to its collection. Such acts of desperation for fame and the disrespect of the museum by this intrusion are worthy of taken into consideration for the future of world art institutions and the proper motivation of the young artists.

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