Can Economic Impact Make a Case for Arts Nonprofits?

Nonprofit arts is to commercial arts what food banks are to supermarkets. Or maybe not.

Wait, what? What?

Arts nonprofits provide huge positive cash flow to their communities. So do casinos, malls, stadiums and any other establishments that offer ample opportunity for secondary expenditures from a patron. Parking, babysitting, meals, shopping opportunities — these are not insignificant to the power of the arts to help a region succeed. According to a series of studies from Americans for the Arts, the economic impact of US arts organizations is formidable:

…the nonprofit arts and culture industry generated $166.3 billion of economic activity during 2015 — $63.8 billion in spending by arts and cultural organizations and an additional $102.5 billion in event-related expenditures by their audiences. This activity supported 4.6 million jobs and generated $27.5 billion in revenue to local, state, and federal governments…

Averaged out, each of the 330,000,000 residents of the US receives about $5 of positive economic impact from the arts. Contrast that with 46 cents, averaged out, paid by each American for the arts in 2016 — the return on investment is an astonishing 1,087%! The arts are a magnificent economic driver for every community.

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But so are other industries. One study indicates that when we patronize small businesses, we generate a positive economic impact of $326 per 1,000 square feet. When we shop at a big-box store, we generate a negative economic impact of $468 per 1,000 square feet.

And whole cities and regions, of course, are also magnificent economic drivers. Las Vegas, for example, points to $2.2 billion of positive economic impact, allowing Nevada to be one of just seven states that is currently foregoing income tax revenue on its citizens.

Economic impact studies are therefore a remarkable tool to promote the arts, right? Well, yes, but if so many industries can use them, does that dilute the special nature of their results? Do these studies stand up as good tools for individual nonprofit arts organizations? And, finally, is economic prosperity an unintentional byproduct of arts organizations? If so, does that make them impeachable as a metric? Or is intent immaterial?

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There are lines to be drawn in raising funds for the arts — or anything else. Promising that your arts nonprofit will cure cancer might be effective, but it would be unethical, immoral and untrue as well. Promising that your arts organization will produce art might be ethical, moral and true, but it also might be ineffective. Can your specific arts nonprofit point to its specific contribution to the equally-specific economic impact of the arts in your region? If so, which research actually points to that specific conclusion? The answers to that would make your arguments, your case for funding support, ethical, moral, true and effective. In fact, I am inviting you to please share that research in the section for comments below. We would all love to be able to pull “economic impact” from my list of Fraught, Flinch-Worthy Phrases in the Arts, where it currently resides at number six.

Nell Edgington. Photo: Social Velocity.

Social Velocity is a management consulting firm founded in 2008 by Nell Edgington. It works with nonprofits to help them become more effective and sustainable at creating social change. Nell is not merely an expert on nonprofits’ inner workings — including, but not limited to, arts organizations. She’s one of the leading voices on advocacy, strategy and purpose.

And, to me, she’s an inspiring leader. As you’ll see from my recent conversation with her, she’s also an amazingly talented debater. While we may not see eye-to-eye on every topic, I would trust her without reservation to grow my nonprofit.

Alan Harrison: Do you think it’s wise for individual arts organizations to use economic impact as a metric for success — or do things become muddy because sports teams, restaurants, shopping malls, etc., can use the same argument?

Nell Edgington: I don’t have a problem with arts organizations demonstrating the tremendous positives they bring to a local economy. Why can’t the arts demonstrate their contribution to a city’s quality of life?

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AH: But how does one single arts nonprofit demonstrate its specific positive economic impact when the restaurant next door can do the same thing?

NE: First of all, you have hit on the key challenge that any nonprofit organization has — in demonstrating what their particular organization has contributed to the social good, versus any other organization, trend or influence. Second, as a for-profit organization and a small business, the restaurant next door is probably not too concerned with their contribution to the larger good of the city, or at the very least they are not being asked to calculate it, as a nonprofit is.

AH: But the for-profit stadium next door is.

NE: The stadium is very likely taking tax dollars or benefiting from tax incentives in a very big way, so they should be held to account for the contribution they make to the city and to quality of life in return.

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AH: “Contributed to the social good” — can we talk about this in terms of economic impact? What separates an individual nonprofit arts organization from an individual commercial arts organization, like a movie theater or a Broadway touring show or an arena concert?

NE: Tax status. And thus how they hold themselves accountable, internally and externally.

AH: But economic impact surely isn’t measured by tax status — or is it? Aren’t for-profit businesses equally accountable to investors? Certainly there’s an advantage to becoming a nonprofit arts organization from a tax standpoint, but what about the social-impact standpoint? If tax status is the measure that separates us, can we say that nonprofit arts is to commercial arts what food banks are to supermarkets?

NE: I may have misunderstood your earlier question. I was saying that, in my mind, the only thing that separates a nonprofit arts organization from a for-profit arts organization is tax status. Because a nonprofit has a distinct tax status, it is accountable to do certain things. In terms of economic impact, I don’t think tax status matters. So a for-profit arts organization could very well have an economic impact, just as a nonprofit arts organization could. Or neither could.

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AH: So if there’s no difference in the importance of economic impact between a nonprofit and a for-profit arts organization, could the liberal use of economic impact studies as an existential justification — and here I’m talking about one individual nonprofit arts group, not the whole field — be something less than a meaningful metric of success? Meaning: If I promote the economic impact of my arts nonprofit, does it dilute my social impact results? Which is presumably my organization’s duty under 501(c)3.

NE: You’re asking: Is there a difference between economic impact and social impact? I think that economic impact is a kind of social impact. An arts organization might have a positive, quantifiable economic impact and it might have other positive social impacts as well. If they can articulate those, measure them and make a compelling argument for one or both, then more power to them.

AH: Let me come at this from another direction. Can impact be affected when the universe of people served by a nonprofit arts organization is comprised of those people who make the donations? I think it can said that government, through tax deductions, effectively pays a person to give to a nonprofit arts organization — which then allows them, say, to buy a ticket. Is that different from government paying a person to make a donation to a food bank?

NE: What about artists who created paintings and sculptures for the benefit or desire of their benefactors? Most, if not all, of our greatest artists did that. Does that mean that their art didn’t have social value or didn’t provide some intangible social benefit simply because they were trying to make a living and bent to their benefactor’s purse? If a theater creates their season of shows based on what they think they can sell tickets for, is that wrong? And if the local economy benefits from that in lots of different tangible and intangible ways, isn’t that a good thing?

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AH: Yes — all good things. The patron-artist relationship is analogous to the donor-nonprofit relationship. In the past, however, patron-supported art may have had social value — or not. Meaning that the social benefit was intangible, tangible or non-existent. The intent was to do what the patron wanted, period. For me, intent is key: the intent to help people is different from the intent to do art; but the former is charitable, while the latter is self-actualization. The local economy benefit is not intended, but a byproduct.

NE: When you create an added value to society that you didn’t intend — but is still a value — why can’t you point to it as a success? Do we hold for-profit companies to the same high standard? My view is that nonprofit arts organizations, just like all nonprofit organizations, could get better at articulating what they hope to accomplish and measure and what they actually accomplish. If an arts organization can claim to positively impact local artists, local art-goers, the local economy and society overall, then good for them and good for all of us!