Over the summer, James was asked to speak at the International Council of Museums meeting about the current economic turmoil and the impact on American museums. Primed by our work on AAM’s Center on the Future of Museums white paper on the future landscape and its impact on museums, and our ongoing analysis of a number of external indicators for various clients, we dug into this topic with gusto. For this post, we excerpt some thoughts from the presentation on what this time of turmoil likely means for museums, big and small, over the long haul.
The Economic Downturn
So first, how is the U.S. economy affecting U.S. museums? The gyrating equity markets have shrunk endowment income . . . as well as contributions from individuals, corporations, and foundations. On top of that, municipal and state government deficits are yielding funding cutbacks that affect museums. We simply don’t see governmental budgets bouncing back any time soon—all our indicators show that the drop in sales tax, property tax, and income tax receipts is shaping up to be more than a short-term aberration.
But there is a bright spot. For many museums, admissions and membership revenue are holding up. Why? While tourism may be down, local and regional visitation is stable or increasing as consumers look for high-value options for themselves and their families.Skip over related stories to continue reading article
Different types of museums are feeling the pain in different ways. Generally, this is what we are hearing from the field.
- Larger art and history museums are struggling with a decline in tourism and gifts. Those with historically larger endowments are suffering the most economic strain and budget-cutting pressure.
- Children’s museums and science centers are holding up, with relatively stable visitation. Their earned income may actually be up and this is ameliorating, to some extent, decreases in gifts. As relatively young institutions, they tend to have smaller (or no) endowments, so they are less affected by the stock market downturn than their older, larger brethren in other disciplines.
- Hyper-local museums, such as small museums that are thoroughly embedded in their community, are surviving through their personal connections with their base of support. It is harder to cut back on your gift to the local historical society when its director eats at your restaurant regularly. Like children’s museums, these organizations tend to have smaller (or no) endowments, so they too are also less affected by endowment losses. The bubble collapsing wasn’t much of an issue since the bubble was never there for them.
Challenge One: The State of the Financial Services Industry
In some parts of the U.S., there has been a heavy reliance on individual and corporate philanthropy from the financial services industry. What museum doesn’t look to a local bank (or two, or three) to help pay for an exhibit, program, or for general support? How many new construction projects of this decade have been funded by wealth from the financial services industry? But the financial sector has been hit extremely hard in this downturn . . . and their profits are declining sharply beyond just the short term since they are no longer allowed to take on as much debt as they used to do in order to amplify their profits.
Let’s pick this issue apart. At the peak of the economic boom, the top 10% of U.S. households accounted for nearly ½ of the earned income in the U.S. Breaking it down further, the top 1% of households accounted for almost ¼ of the earned income in the U.S. Meanwhile, the median income dropped slightly during this decade. The rich did indeed get richer. Much richer. Almost half of American income growth this decade was fueled by the growth of the financial services and real estate industries. Those days of extraordinary windfall, and charitable giving at that level, are over for the foreseeable future.
Challenge Two: The Economic Effects of Changing Demographics
First topic, the education of women. Twenty-five years ago, adult men were about 50% more likely than women to have a college degree. Among adults today, overall there is roughly gender parity. But when you examine young adults, a startling shift has taken place. Young women under 30 are now almost 50% more likely to earn a college degree than their male counterparts. And in many U.S. cities that draw an educated workforce, young women are now out-earning young men. Why? Primarily, it’s the education gender gap. Also, young men’s income stayed close only due to their heavier concentration in finance, real estate, and construction – the industries that have been hardest hit by the financial downturn. While men’s income has been disproportionately dependent on those industries, income growth of young women has come from greater education levels. The rising economic power of these young women will be a key economic driver reshaping consumer markets through the next decade. And just as they will reshape consumer markets, their expectations will almost certainly reshape U.S. museums as they move through new life stages, including parenthood.
Second topic, the aging of America. Right now in the U.S. about 1 in 8 residents are over the age of 65. In 25 years it will be 1 in 5. This will almost certainly create an increased strain on government to cover unfunded retirement and healthcare obligations. Which raises the question, what is the future of museum funding if economies don’t grow fast enough to support these increasing obligations? Some commentators are already explicitly casting the debate on tax policy as museums versus health insurance.
Challenge Three: The Jump-Ball Economy
Here we find a possible silver lining in the grim economic news. The global economic situation impacts more than just funding for museums, it also impacts the behavior of museums audiences in ways that can turn out to be positive. There simply hasn’t been a time in the recent past where discretionary spending and time allocation habits have been up for grabs to this extent—we’re calling it the ‘jump-ball economy.’ While consumers are spending less, they are rethinking many of their decisions, embracing value as a virtue. It’s almost as if some consumers are breathing a sigh of relief that the era of conspicuous consumption died along with AIG and Lehman Brothers. Instead, the pursuit of luxury is being replaced by a pursuit of meaning. Value and meaning—two things that museums do extraordinarily well.
Museums could come out of this economic downturn stronger, with our publics more clearly seeing the value that museums bring to our communities. This will take thoughtful positioning, signaling, and advocacy for external constituencies to see how museums are more relevant than ever. But it’s an effort well worth taking since this may be far more than just a cyclical correction with a return to the way things used to be. The future may well look like this period as the ‘new normal,’ and that’s not necessarily a bad thing for museums.