session 1 art-market-regulation

Art market regulation

(or the lack thereof?)

Transparency for the Global Market Since 2004 – www.skatepress.com

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Agenda

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Surveying the current conversation

Conceptualizing regulation

Historicizing art market regulation

Looking ahead


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Surveying the contemporary conversation

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What to make of all the fuss?

• Relationship to industry growth and current

sociopolitical climate

• Focus on dealers and auction houses

• Concerns about market power and fair pricing

• Emphasis on ethics and business

• Popular conceptions of the art market


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―Apart from drugs, art is the biggest unregulated

market in the world.‖

— Robert Hughes, art critic, in Mona Lisa’s Curse (2008)


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….Really?

• Demands for and attempts at regulation are

actually nothing new

• Definitions of ―regulation‖—in terms of both form

and content—are manifold

• Any constructive dialogue, then, will require

greater context and specificity

• As well as attentiveness to where these

demands are coming from, towards whom

they are directed, and what forms of regulation

are expected


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―Regulation creates, limits, or constrains a

right, creates or limits a duty, or allocates a

responsibility.

Regulation can take many forms: legal restrictions

promulgated by a government authority, contractual

obligations that bind many parties… self-regulation

by an industry such as through a trade

association, social regulation (e.g. norms), co-

regulation, third-party

regulation, certification, accreditation or market

regulation...‖

— Wikipedia


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We have always been regulated

• Regulation in its most conventional sense

(i.e., government constraints) has arguably existed

in some form since the earliest civilizations

• E.g., standard weights and measures, permits

for productive activity

• Regulation through specialized agencies staffed

by experts emerged in the US through the 18th and

19th centuries

• Their forms and scopes have varied over time

in response to economic and political changes

• But, regulation in its broader sense (i.e., social

norms) is constitutive of society itself


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―Vibrant capitalism is dependent upon, and even

constituted by, sensible regulation. There is no

market without regulation that defines property

rights, sets standards for business practices and

creates a widespread confidence in the fairness of

the economic rules of the game. To imagine the

world in terms of preexisting markets and

intrusive government is to conjure up an

unhelpful fiction.‖

— Edward Balleisen (Duke Law) and David Moss

(Harvard Business School), Government and

Markets: Toward a New Theory of Regulation (2009)


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Commercial regulation is based on an ideal model of

economic activity (itself a reflection of collective

belief and social norms)

• Predominantly (neo)classical economic models of

efficient markets

• Thus, primarily concerned with market failures:

• Constrain market power in cases (e.g., monopoly)

• Prevent asymmetric information (e.g., insider

trading)

• Provide public goods

• Address externalities, both positive and negative

• Other concerns involve professional standards and

conduct (often addressed through self-regulation)


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But regulatory failure is also a problem:

―The primary reason for the government failure

[leading to the financial crisis] was the belief that

markets do not fail, that unfettered markets would

lead to efficient outcomes, and that government

intervention would simply gum up the works…

Too often, the regulatory system gets captured by

those who are supposed to be regulated… The risk

is especially severe in a political system such as

ours, which is highly dependent on campaign

contributions.

— Joseph Stiglitz, ―Regulation and Failure‖ in

Government and Markets: Toward a New Theory of

Regulation (2009)


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Potential sources of art market regulation

• Financial Industry Regulatory Authority (FINRA)

• Securities and Exchange Commission

• Department of Justice

• Federal Bureau of Investigation

• Internal Revenue Service

• and many, many more…


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Uniform Commercial Code (UCC)

• ―A general and inclusive group of laws adopted, at

least partially, by all the states to further uniformity

and fair dealing in business and commercial

transactions.‖ (Legal Dictionary)

• Origins date back to the 1892 National Conference

of Commissioners on Uniform State Law

• First full version published in 1952 and adapted in

whole or in part by all states (except LA) by 1967

• Of primary importance for the art market are

Articles 1 (General Provisions), which sets general

terms and principles, and 2 (Sales), which covers

the sale of goods.


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New York regulatory framework

• New York General Business Law

• Includes some consideration of art market

activities, e.g., auction and auctioneers (Article

3), appraisers of fine art (Article 13-B)

• New York Arts and Cultural Affairs Law (Chapter

11-C of the Consolidated Laws)

• Specifically addresses the following:

definitions (e.g., ―artist,‖ ―art merchant‖); artist-

art merchant relationships; express warranties;

works of fine art; sculpture and multiples

generally; and sale of visual art objects and

sculptures produced in multiples

http://allanmccollum.net/allanmcnyc/art_laws.html





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Historical precedents

• Early modern Europe provided a transition from

patronage to market

• First open art market in 15th century Antwerp

• Institutional regulation (of a sort) through guilds and

academies until late 19th century

• Refuted by artists, especially the Impressionists

• Roles of dealers, galleries, and museums evolved

throughout the 20th century

• Growing disjuncture between commercial and art

historical value due to further market evolution?


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1966 reforms to New York General Business Law

• Novel attempt to regulate the art market directly

through state legislature

• Distinguishes art from other forms of personal

property

• Primarily concerned with protecting (1) artists

in relationships with dealers (trust vs.

agency), museums, and purchases and (2)

consumers from forgery and other deceptive

practices

• Published legal assessment in 1978 argues that

the artist protections are unproductively stringent

(and conflict with the UCC) while the consumer

protections are an effective complement to general

UCC provisions


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The legal perspective from 1988:

―The preceding analysis concluded that because an agency

and fiduciary relationship exists between the auctioneer

and the original owner or consignor of a work of art, the

interests of the owner receives adequate legal

protection. The purchaser of a work of art through such

an intermediary, however, does not receive equivalent

protection…

According to [the prevailing legal view], any individual who

undertakes to enter into the arcane world of the art

market—where prices are high and information scant—

must assume the risks inherent in such a transaction.‖

— Patty Gerstenblith, ―Picture Imperfect: Attempted

Regulation of the Art Market‖ (1988)


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The legal perspective from 2011:

―Yet their disparate legal holdings raise the question of how

to structure art merchant liability in the absence of fraud

given the unique nature of the artwork…

There are three leading scholarly theories for imposing

additional regulations upon the art market to protect

unsophisticated purchasers…

[S]cholars [also] propose the application of securities

regulations by requiring auction houses to owe duties of due

diligence and disclosure to consignors of artworks… [and] to

impose these requirements on sellers and consignees to

protect art purchasers.‖

– Brian D. Tobin, ―The Virtues of Common Law Theories and

Disclosure Requirements in the Market for Fine Art‖ (2011)


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Lessons from history?

• Perennial concerns

• Disclosure and transparency

• Authenticity and liability

• Exceptionalism

• Based on size of market and status of art

• Enforcement

• Generally takes place through litigation

Looking ahead

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Looking ahead

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Regulation through litigation

• In the absence of any consolidated

oversight, whether external or internal, litigation

will increasingly be an regulatory force the art

market

• Effects are already palpable (e.g., press

coverage in The Spectator and The

Economist, closure of authentication

boards, rise in insurance policies)

• Long-term effects are uncertain, both on the art

market and the art world

Looking ahead

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The problem(s) of museums

• Despite their decreased purchasing

power, museums still occupy a critical position as

arbiters of value and promoters of self-regulation

• Restrictions on asset-use of collections is of

particular significance

• Museum deaccessioning policies index cultural

attitudes towards the ontological status of fine art

• Recent controversies, such as the Detroit

Institute of Arts, are good bellwethers as to how

art (and its markets) are perceived

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session 1 art-market-regulation

Education