Articles

Art Market Report, 2010

The “Great Recession” has officially ended, and auctions are again breaking records, but the excesses of the past decade continue to cast a shadow over the future. Those excesses, which we now know relied largely on fraud, obfuscation and debt, concealed underlying economic weaknesses that will not easily be healed. As income disparities grew to historic levels in the 1990s and 2000s, the illusion of an American middle class was sustained only by a combination of easy credit and comparatively affordable consumer goods. Yet the same factors—automation and production in low-wage countries—that made consumer goods affordable, gradually robbed much of the middle class of its livelihood. The art world had been living off the trickle-down from liquidity generated by the cost discrepancies between developed and developing countries, but when that liquidity dried up, so did the trickle.

 

More and more, it seems, we live in an era of winner-take-all, both within the art world and without. For a number of years now, our annual “state-of-the-market” reports have commented on the bifurcation of art values: the tendency of money to pool at the top, creating enormous gaps between the prices of works that are perceived to be extraordinary and everything else. Mirroring the income stratification seen in the economy at large, bifurcation was typical of the bubble years (roughly 2004 through 2007), and it remains a factor in the current downturn. For some dealers, this recession has been a breeze compared to the protracted slowdown of the early 1990s, or even the short-lived pall that followed 9/11. Others have sold almost nothing in over a year. The more successful dealers play musical chairs with Chelsea gallery spaces vacated by bankrupt former competitors. At art fairs, it is feast or famine: only the better fairs and the better dealers with the better material do well. We have experienced a true, visceral contraction, and the market is simply no longer large enough to sustain its former sales volume. But the buyers who remain, who have money, still want the best. To succeed, a dealer must aim to be in the 95th percentile or higher. There is little margin for error in pricing, choice of art sold or art fairs participated in. Below the cut-off point, business evaporates.

 

More than ever, buyers today want major, recognizable works by internationally established masters. In an increasingly globalized environment, it is important that an artist be as renowned in Moscow or Abu Dhabi as he (or, far less frequently, she) is in New York or London. Works by artists with global reputations can more readily be used to hedge against currency fluctuations and volatile investments like stocks; such art, figuratively and perhaps literally, is as good as gold. Within this context, “masterpieces” with “wall power” can command prices comparable to those of the bubble period. Nonetheless, the much-touted return of record-busting auctions has been achieved in a climate of drastically reduced presale estimates. Auctioneers have long been skilled at driving up bids by steering their wealthiest clients to the same handful of lots and employing estimates to manipulate public expectations. The terms used to judge the success of a given sale are set largely by the auction house itself, rather than by any objective measure. Blockbusters aside, the latest Impressionist/Modern evening sales reflected a welcome stabilization of the market, but at significantly lower values than might have been realized three years ago. A shrunken market has compelled auctioneers and dealers alike to reduce prices.

 

For some observers, the semi-annual auction sales are the closest thing the art world has to a stock exchange; the only way to publicly gauge the art market’s strength. However, during an economic contraction, auction is not necessarily the best way to value or sell art. The top lots on offer in a given season quickly suck up all the available resources, while lots that, for whatever reason, fail to generate the necessary salesroom buzz languish. In the less glamorous Impressionist/Modern day sales, the unsold rate has lately hovered around 50%. Even at the nighttime sales, the critical mass of potential buyers necessary to spark competitive bidding is often missing. Unless or until prices start to rise across the board, auction will present a risky bet for sellers. A given auction result, far from reflecting the market as a whole, merely provides a snapshot of a single moment in time, very much dependent on such vagaries as other simultaneously available lots and the presence or absence of key bidders.

 

There was a time, beyond the memory and experience of many art-world players today, when auctions were chiefly wholesale operations. The majority of buyers then were dealers, who provided essential liquidity by holding their purchases until such time as the art could be absorbed into a comparatively small market. Dealers also provided value-added in the form of knowledge that was generally superior to that of auction-house personnel. A. Alfred Taubman, the shopping-mall magnate who bought Sotheby’s in 1983, is usually credited with transforming auctioneering into a retail business, though Christie’s quickly followed suit. However, the transformation was never entirely complete; there were always sales categories (prints, for example) where auction results remained closer to wholesale than retail. In some respects, auctions are now reverting to their wholesale function. This is due not only to market shrinkage, but to the auctioneers themselves, whose neglect of lower-priced lots can leave potential retail buyers floundering.

 

These days, it is often dealers who make the market: picking up the slack at auction and providing sellers with more reliable returns on their art. Competent dealers are able to thread their way through the schizophrenic atmosphere created by record prices and high buy-in rates at auction and to accurately value works of art based on aesthetic quality, the potential supply of comparable material and collector demand. In this way, dealers can provide a necessary corrective to the excesses of the bubble years, suggesting a rational alternate pricing paradigm. It remains to be seen whether an eventual economic recovery will produce a resurgence of top-heavy aggressive bidding. For now, most speculators have been driven from the field by declining prices, and committed collectors are reaping the benefits. If there is a silver lining to the art market’s grey cloud, it is that periods of retrenchment encourage a return to the fundamentals of connoisseurship.

 

On the other hand, the ongoing stock-market gyrations, European debt problems and concomitant drop in the euro indicate that the financial crisis has not yet run its course. Beyond subprime mortgages and deceptive derivatives, the crisis had its roots in a massive economic shift that has dispersed corporate interests across the world, eroding the authority of traditional nation-states and leaving many individual citizens caught in the undertow. The tea-party movement in the United States, the street protests in Athens, the schoolroom murders in China and the riots in Bangkok all involve people who feel displaced by the new global economic order. Within the art world, too, many people—artists, collectors, dealers—are being left behind. Certain segments of the art market simply will not be coming back, just as portions of the American economy will not recover from the “Great Recession.” Economists blithely call it “creative destruction,” but it is destruction nonetheless.