Art Market Report, 2003

As was the case last year, our annual “state-of-the-market report” is being written at a moment defined by unaccustomed historical challenges. If the spring of 2002 was colored by a giddy attempt to regain a semblance of normalcy after the shock of the prior year’s terrorist attacks, the spring of 2003 forced a sobering confrontation with the grim realities first revealed to many of us by those attacks. Regardless of one’s attitude toward the recent American invasion of Iraq, it is clear that this war carried a potential for domestic repercussions far more profound than the military escapades launched by the U.S. under Presidents Reagan, Bush I and Clinton. Of course, like all wars, those prior conflicts had a devastating impact on many of the people who directly experienced them, but to most Americans, foreign policy has remained a remote and arcane subject. For the first time in decades, we are being forced to recognize that the wars in which our government engages may have an impact on us. Not surprisingly, responses tend to draw from templates based on the two most serious American wars in living memory: World War II (good triumphing over evil, the liberation of an oppressed people) and Vietnam (brutal and inept empire building). These templates, neither of which is entirely pertinent, offer quick, sound-bite solutions to a historical dilemma that will likely play out over a great many years.


In the interim, we are left with a lot of uncertainty, which gives an extra edge to America’s current economic problems. Not since the 1970s has our nation endured a protracted period of economic malaise, and we have grown used to seeing recessions as momentary dips in a generally upward tending business cycle. So the questions linger: what sort of recession is this, and how much longer will it last? The present downturn has affected the art market in ways as varied and capricious as the concurrent swings in the stock market. On the one hand, seesawing stock prices and low interest rates make art seem a comparatively sound investment. On the other hand, financial worries have caused some collectors, especially those active in the middle market, to curtail their spending.


These tendencies exacerbate the bifurcation of the art market, a trend we have been chronicling for several years in our annual summer reports. While the middle of the market stagnates, extraordinary prices can still be achieved for stellar objects. For some time now, “greatness” has been the byword of dealers and collectors alike, many of whom lost money following the indiscriminate run-up in prices that typified the boom of the late 1980s. Focusing on premium artworks also made financial sense for dealers and auctioneers, whose commissions on such sales were naturally higher. Furthermore, the redistribution of large amounts of wealth to America’s upper income bracket in the 1980s and ‘90s created an expanding class of collectors eager to compete for the best artworks. Textbook-caliber objects consequently began to command sums that had no rationally quantifiable relationship to the prices of average works by the same artist.


It can be argued that these price increases were justifiable, for masterpieces are, by definition, rare in any artist’s oeuvre. Rarity is only increased by the fact that many masterpieces ultimately enter museum collections. And the buying frenzy of the last decade has at least temporarily removed additional works from circulation. More recently, general economic uncertainty may have further diminished the number of available works by dissuading some collectors from selling altogether. Nevertheless, it is debatable whether truly great art is all that much rarer than it ever was, or whether the preoccupation with masterpieces has simply made the collecting public more acutely aware of their intrinsic rarity. Regardless, scarcity, as both reality and myth, has increasingly become a factor in the art market.


One response to this perceived scarcity is the attempt to elevate average-quality art works to the masterpiece level. Auctioneers and dealers, often pushed by sellers who overvalue their property, sometimes place unreasonably high prices on second-tier material under the premise that this is all that’s left. Particularly in today’s more restrained market, such tactics generally do not work. Unrealistic reserves and estimates have caused the failure rate at auction to rise significantly. With fewer players presently in the arena, there often simply are not enough bidders to push through a high percentage of lots at reserves that equal or exceed retail. Lower reserves, on the other hand, allow lots to sell more easily, but at prices that may well net the seller less than wholesale. Auction results, always to some extent a mish-mash of wholesale and retail, have become exceptionally erratic. The art market is contracting, but because the decrease in demand has to some extent been offset by a decrease in supply, there has been no overall collapse in prices.


Aggravating an already difficult business climate, the focus on corporate malfeasance that seems to be a concomitant of recessions has recently penetrated more deeply into the art world. In the wake of the protracted legal actions against Sotheby’s and Christie’s for price fixing, several collectors and dealers have been investigated for tax evasion, and various criminal and civil cases are pending. It is, of course, not altogether surprising to learn that some members of the art community engage in the same sorts of illegal activities that surface occasionally in every field of business. However, the art world makes a particularly juicy target for investigators, because it is the perfect scapegoat upon which Americans can vent their subliminal class resentments. Moreover, the art world is a politically safe target, because while it may contain a number of extremely wealthy individuals, it is not an organized entity with appreciable lobbying clout. Art-related scandals are generally reported in the press with a moral vindictiveness out of all proportion to the magnitude of the crimes in question.


For the art world, the long-term issue is not that a small number of collectors evaded sales tax on their art purchases. Penalties will be meted out here, as in the wider corporate world, in the hope of creating a more ethical business environment for all. However, it is debatable whether the climate of aggressive greed and narcissistic materialism, which is responsible for the recent abuses within the art community and beyond, will change substantially in the near future. Systemic shifts in wealth and consumption patterns were largely responsible for the expansion of the art market over the past two decades. The question is, how will a relatively new collecting class behave now that times have grown more difficult? How will these people assimilate the inherent demands and responsibilities of collecting?


The truth is, collecting isn’t easy. Selections cannot be made according to a prescribed rulebook, and collecting as an investment strategy per se usually fails. However, people who buy art with passion and intelligence often do coincidentally end up forming collections that appreciate in value. But this requires hard work. It takes concentrated looking, and that takes time. It takes sustained immersion in the market: frequent visits to galleries and art fairs, and informed observation of auction proceedings. One cannot simply look up past auction prices to assess value, because those prices often reflect factors not evident in a printed result list. Dealers with a sustained commitment to a particular specialty are often the most reliable guides to the subtext underlying many art-world happenings. It is also essential to have an understanding of the art historical background of the objects one is collecting. Eventually, collectors who make the effort can acquire a knowledge of quality and value rivaling that of the top experts.


And that brings us back to the subject of “greatness.” Collections of masterpieces are as rare as masterpieces themselves. Many such collections were formed years ago, before the importance of the works in question was generally recognized. In other words, they were formed by collectors who followed the advice above, rather than buying by rote. Buying text-book certified masterpieces, now or at any time, requires a degree of wealth beyond the reach of all but a few. However, this leaves a vast amount of perfectly good art for everyone else. Indeed, today’s stagnant middle market is rife with opportunities for astute collectors, because a lot of material is relatively underpriced. Just as collectors learned, after the downturn of the early 1990s, that not all art by famous names is equally desirable, they must now learn to make more subtle judgments of quality at all levels of the market. They must learn to put a personal stamp on their collecting, rather than following one another like sheep down the same well-trod path.