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Edition 36

Contents
Some Provocations

Beyond the 'smell of an oily rag'


THERE IS A need for a significant paradigm shift in how we support and grow the cultural sector. If the potential economic output of this sector is to be realised this change is urgent and provides an opportunity for Australia to provide global leadership.

The shift needs to foster a system based on a new approach to the use of funding (grants and donations), financing (loans) and investment (equity). It needs to lead to financial inclusion for artists, cultural enterprises and organisations. If we are to achieve the innovation and excellence called for from the sector, we need to design innovation and excellence into the systems, business models and resourcing used to get there.

All those in the cultural economy experience some form of financial exclusion. As an artist you are likely to have been supported by family or friends throughout your career, have had one small grant at some point if you’re one of the 29 per cent of Australian artists a year who do; and luckier still to get through the doors or an interview at your local bank, let alone secure a loan appropriate and affordable to your circumstances.

If you operate as a non-profit entity, because that is appropriate to your purpose, you will be unable to access a loan from a bank, let alone service one, given your limited assets and the short-term nature of any grant funding you may have.

If you are a creative business, you are likely be too small or have not been trading long enough for government business support programs, and as a commercial enterprise, you will be ineligible for arts funding programs. You’ll also be too risky for angel investors if you are a start up because of the perception that you are more concerned about your creative practice rather than creating a commercial venture and building profit.

You may not be able to demonstrate the level of return on investment or exit strategy even as an established creative business when compared to other traditional sectors, which will rank your investment opportunity below technology, health, biotech and resource based opportunities. For venture capital level investment, you will probably have to go overseas to secure investment for games, entertainment, screen or design based companies with boutique firms that understand the risk/reward profile of creative businesses that don’t exist in Australia currently.

In its present form, the public funding system is not changing this picture. The need to maintain investment in existing infrastructure and institutions, the capacity of rising costs to absorb new money, and the focus on outcomes tied to the life of grants, all tend to preserve the status quo. Although there are calls for an ‘investment mindset’ by government from the sector, the system we have for building capacity and financing is not geared to respond.

 

YET AUSTRALIA IS in a unique position to make the changes needed. While Europe and North America grapple with these issues in a time of crisis, Australia has the ability to invest in the future and build the resilience into the cultural economy to prepare for the structural changes ahead.

The answer is not just in increasing government program grants nor simply diversifying the funding base of our organisations through following the US tradition of philanthropy, but in creating a model that blends different forms of funding, financing and capital to build the tangible and intangible assets of the sector and hence its future resilience.

We need to take lessons from the emerging capital market for the social economy canvassed at length by the Senate Economics Committee in its November 2011 report Investing for Good: The development of a capital market for the not-for-profit sector in Australia.). There is a need to model an appropriate structure for the cultural economy. We need to recognise that the sector is, to use an American term ‘mis-capitalised’ to undertake the work expected of it.

There are two contexts in which the changes need to occur. The first concerns the sector itself, with organisations and enterprises taking a good hard look at their own operations, whether they are ‘fit for purpose’ in the changing and challenging environment we all face; across their programs, operations, and financial structure; their preparedness for digital and online engagement; why they do what they do and how; as well as clearly articulating the value they are creating along the way, as both storytellers and statisticians. And most important of all how they will take control of their own destinies, creating those ‘untied’ income streams and an asset base that this will require. The leadership of some organisations, including executive management and boards, will need assistance and mentoring to exploit the opportunities that lie ahead.

More often than not cultural organisations are forced into a position where they simply adapt to change, trying to do more with less, driven by passion for their mission and a desire to achieve.

 

THE SECOND IS how government engages with this sector, which must include three elements.

First, a new accord between government and key institutions and organisations (both large and small) is needed. This needs to focus on long-term individual contracts rather than annual and triennial standardised funding agreements, including clearly identified funds to build capacity and assets as well as grants for programs to pay for the cultural outcomes required. There is a need to retreat from the fear that these organisations represent a high level of risk. They don’t – they are part of the core infrastructure and institutions within the ecology of the cultural sector. Many have been funded for twenty years or more continue to deliver great art and relevant programs but are or no more resilient as organisations than they were when they started. A new approach is needed to create stability and income generating opportunities that in turn will attract new funders, financers and investors. It will also generate increased value for money for the government dollar and stop the unnecessary waste of time and energy of endless grant rounds on both sides – a key distraction from engaging with other partners and paying customers for the work itself.

There is an urgent need for a new Culture Fund, to sit alongside the reformed Australia Council which builds on the innovation seen in the technology sector for ‘proof of concept’, and the social sector for social investment; blending government, philanthropic and capital investment, accessible and affordable for individuals, new cultural and creative enterprises (non profit and commercial), and delivered in a mix of grants, loans and investment models. An endowment is one structure that would offer the government a mechanism to create an enduring and more flexible pool of funds.

There is also a need to develop new partnerships to deliver this. It will require foundations and high net worth individuals who seek new ways to invest alongside financial intermediaries with the capacity to model funds for investors seeking a social and cultural return on their capital. This must also include a new form of accord between federal and state governments to respond to the different community and sectoral ecologies across the country, and finally changes to the legislative and taxation environment to stimulate investment from other sources, building on the success of tax offsets for film and responding to the key recurring recommendations from recent government reviews are required. Legislative change is a big ask. But in some other countries this has been a valuable contributor to the changes in income generation. Community Interest Companies in Britain, and limited-dividend entities in the United States, are examples of new ways in which the framework could be altered, without reducing government tax revenues.. Australia does not need to emulate others. It can evolve its own legal structures that encourage enterprise within the non-profit sector without damage to the public purse.  

 

THE CULTURAL ECONOMY, with its mix of entrepreneurs, commercial and non-profit organisations, generating ideas products and services from the creative expression of our culture, is at the heart of the digital economy, and a key resource to grow, diversify and strengthen Australia for the future.

To date the Mitchell Review into Private Sector Support and the Review of the Australia Council for the Arts have touched upon but failed to grasp the breadth and depth of change required to build resilience into the sector and to take advantage of these assets for the future.

Culture and creativity cannot be one of the drivers for the future of Australian society and economic well being from a position of marginalisation.  If the cultural sector is to be ‘mainstreamed’ as Minister Crean envisions, those working in it need to be able to access to mainstream finance. This needs a sectoral reform package, not a few dollars to fix the holes here and there.. There is plenty of underpinning research including the work undertaken through the New Models New Money initiative and examples from overseas. In the United States the Non Profit Finance Fund is providing sector-specific financial consulting services and access to capital through grants and loans.

In Europe the creative sector is one of the few areas of the economy that has not undergone a significant decline in the last few years. The European Commission is now giving consideration to a significant new funding program ‘Creative Europe’ to deliver finance to small creative businesses in the film and media sectors to guarantee loans from local mainstream banks utilising the European Investment Bank and Investment Fund as an intermediary.

In the UK, this shift in thinking is happening largely through the pioneering work of the cultural think tank Mission Models Money. Arts organisations have begun to access new forms of loan investment for cash flow and asset building including purchasing and refurbishing their own buildings for cultural and commercial purposes and developing new streams of business and enterprise activity.

Mindset is a critical issue. Both governments and arts organisations have to unshackle themselves from the constraint of thinking that the current system (and the unhealthy dependency culture that comes with it) is the only system possible. This just becomes a self-limiting prophecy.

We don’t need more research – we just need some action – starting with the National Cultural Policy.

This is one area in which Australia could be a world leader: isn’t that what Australia is for?


From Griffith Review Edition 36: What Is Australia For? © Copyright Griffith University & the author.

Griffith Review