06/12/2010 05:12 am ET | Updated May 25, 2011

Revisiting Baumol and Bowen

I had the pleasure of visiting beautiful Princeton University on my 50 state tour. My Arts In Crisis session took place at the beautiful McCarter Theatre, one of the great university-affiliated theaters in the nation.

While preparing for my presentation, I could not help but reflect on the remarkable contributions two former Princeton professors, William Baumol and William Bowen, have made to the field of arts management.

It was Baumol and Bowen, writing in their seminal text, Performing Arts: The Economic Dilemma, who identified the central economic challenge of the arts, our inability to improve worker productivity. Published in 1966, this book could arguably be called the foundation for the field of modern arts management.

The two professors identified that costs rise so quickly in the arts because we cannot perform Hamlet with fewer players than when Shakespeare wrote it, nor do we play Beethoven's Ninth Symphony faster and faster every year. As a result of this productivity challenge, our costs rise more quickly than in other industries. Coupled with the lack of real earned income growth once we fill our theater, the performing arts face economic challenges unlike most other industries.

How to fill this gap between rising expenses and fixed earned income has been the challenge to every arts manager for centuries. Our solutions have not always been satisfactory or ultimately helpful to our organizations or our field.

The traditional approach to filling this gap was asking for government subsidy. The amounts given by government agencies in the United States were relatively modest; those given in Europe and other parts of the world often account for two-thirds of the budget of major arts organizations. This has proven to be an inconsistent fix at best in recent time, however. Not only are most state agencies cutting their arts support during this economically challenging time, but most international governments are doing so as well.

The approach to addressing our 'income gap' most in vogue for the past 30 years has been to raise ticket prices. Unfortunately, in doing so, we have priced so many people out of our performances that we are considered irrelevant by many. We are not irrelevant, we are simply too expensive. And with electronic substitutes increasing in number and decreasing in cost, we are also in danger of permanently losing attendance at live events as people become more and more addicted to their personal screens.

Many boards have encouraged not-for-profit arts organizations to explore the creation of new earned income businesses to cover rapidly increasing expenses. Unfortunately, virtually all of these endeavors are either too small or too risky to be long-term contributors in major ways.

The only fix that seems to have long-term potency is to continue to build on the level of contributed income. While this is an unpalatable solution to many, I have no doubt that thirty years from now, the level of contributed income as a percent of total income will grow substantially not just in the United States but also across the globe.

Don't blame me. Blame Baumol and Bowen!