What the art market tells us about the world

June 8, 2019
What the art market tells us about the world

The 10 most expensive works of art ever sold have all been sold in the last 10 years.  They  have sold for an aggregate of nearly $2.5 billion, and in order to make that top 10 now, you would have to spend nearly $200m.


At the same time, most Galleries and artists struggle to get by. The very top of the art market is booming, the rest of it much less so. According to arts economist Clare McAndrew in 2016, the art market is segmenting: “Over the past 10 years, the market for works over €1 million grew more than 400 per cent. The market for works over €10 million grew more than 1,000 per cent. The increase for everything else is in double digits”.


The reasons for this are part economic theory, part geopolitics and part psychology, but it essentially goes like this. There are more rich people, these rich people are getting ever richer and they like to buy expensive things to show off, and the more expensive the better. There is a Russian joke whcih illustrates the point perfectly. It describes how one wealthy businessman tells a friend of buying a tie for $100. “You fool,” the other responds. “You can get the same tie for $200 just across the street.”


Globalisation -  the free flow of capital, people and ideas - has led to enormous increases in wealth around the world, and increasing concentrations of that wealth in a small number of hands.  In 2009, it was estimated that there were 793 dollar billionaires in the world, with a combined wealth of $2.4 trillion.  In 2018, the number of billionaires had grown to 2,754, their combined worth to $9.2 trillion. If the richest of all of them, Jeff Bezos from Amazon, were a country, his wealth would make him the 56th richest, richer on his own than the combined GDP of the poorest 48 countries.


You can see this trend in the identities of the buyers of the top 10 most expensive paintings. Four have been bought by Middle-East countries (or their ruling families), two each by a Russian oligarch and a US Hedge Fund Manager, and one by a Chinese entrepreneur.  Only one has been acquired by a Museum - the Rijksmuseum in Amsterdam - and this purchase was funded in most part by the Dutch Government.


When you are enormously rich, what do you do with your money? As Ted Turner, the American media mogul once famously said: "Life is a game, money is how we keep score". Strange as it may seem, paying more money for a scarce and prized object than anyone else is willing to is the whole point of the exercise.


The $450m purchase of Salvator Mundi, by the Saudi Royal Family on behalf of Abu Dhabi, is the ultimate example of this "keeping score".  There are only around 15 authenticated Da Vinci paintings in existence, and almost none in private hands. To own one, and to acquire it so publicly and for so much money, is the ultimate statement of arrival on the world stage.


But it would be a mistake to think that this rising tide is floating all boats.  The market for art demonstrates the Pareto distribution, or what is better known at the 80/20 rule - the general observation that 80% of the output of a given thing is created by 20% of the input, and within that 20% the 80/20 rule continues to apply - such that around two-thirds of the total output is created by 4% of the input. 


You see this in music or professional sport, where a very small proportion of performers take the lion's share of the rewards. It is the same in art - a small number of very rich people are chasing a small number of works by a small number of artists, and pushing prices up. Just as in the overall economy, everything else is left behind.


This global 80/20 principle also operates locally, just with fewer zeros. In the world of Northern Art, think of the number of living artists who can command prices of more than a few thousand pounds. The list is very short, and ever changing as collectors search for "the next big thing".  Of the dead artists, Lowry of course stands out from the crowd, but even he is a local phenomenon,  his appeal largely limited to the UK.


Despite being long recognised as one of the most important British artists, even having a Number One pop single dedicated to him shortly after his death, the record for a Lowry painting at auction stands at "only" £5.6m, and this was set in 2011. The top end of the art market has surged ahead in the last 8 years, Lowry prices have not. The reason for this is purely and simply that owning a Lowry is not a means of "keeping score" for the global super-rich - Lowry remains largely a peculiarly British, perhaps English, phenomenon.  


The lesson to be learned is that things can change very quickly, both up and down. We've seen that when prices rise, they can rise spectacularly, and quickly. But the 80/20 principle also works in reverse. When Ireland was enjoying its Celtic Tiger boom, prices for Irish Art soared. When the Irish economy collapsed in 2008, so did prices for Irish Art, down by an estimated 70%. It emerged that there were literally only a handful of collectors who were bidding the prices up - keeping score with eachother - and when their wealth disappeared in the Irish property crash, so did the value of their art.  Even a master such as Van Gogh can be left behind - in relative terms of course.  


The record price at auction for a Van Gogh was set as long ago as 1990. Portrait du Dr. Gachet was acquired for just over $80m by a Japanese businessman at the peak of Japan's global economic power. While it's not right to say that Van Gogh prices have suffered - his record was very nearly broken in 2017 - his push into the stratosphere happened a generation earlier than the works of today.


All of this reminds us that Fine Art and High Finance are inextricably linked. As Oscar Wilde once said: “When bankers get together for dinner, they discuss art. When artists get together for dinner, they discuss money.”

About the author

Richard Pulford

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