While the cuts devastate community arts projects and cultural institutions, the art market, far from feeling the pain, is booming. The second part in this series looks at the transformation of art into a luxury commodity and the forces underlying the art market.

If the ideological attacks mounted on the arts have any purchase, the reason is probably two-thirds due to the assumption that the cuts are inevitable. But the other third is something different. It has to do with the growing visibility of commercial excess in the art world, and specifically the way that art as a form of luxury spending has become a symbol of the inequalities in our society.

One might expect the financial crisis to be reflected by a decline in luxury spending. But while Cameron, Clegg and their apologists imagine a new era of austerity, the luxury goods and services market, including the global art market, have proven fairly immune to the crisis. The luxury market in general, and the art market especially, while sustaining a few hits initially, have managed to ride over the occasional bumps, defying and even benefiting from the crisis in the longer term.

For example, at the onset of the crisis in late 2007, “Tiffany & Co. reported a 25 percent rise in third-quarter sales at its flagship store on fifth avenue”, the place where Wall Street goes to spend its bonuses. And in mid 2010 it was reported that “Louis Vuitton… is riding a wave of rising profits on the back of Europe’s economic crisis.”

There are several reasons for this resilience. As the crisis has developed over the last three years, the tendency for the luxury market to decline along with consumer spending has been counteracted at various points, as certain aspects of the crisis and the government-led response have produced fortuitous shifts in the economic landscape.

One such aspect was the weakness of the dollar, which drew wealthy tourists to the US looking for cut-price gold watches. Luxury goods also received a boost in 2008 from governments slashing interest rates, freeing up cheap credit to give an extra lease of life on spending. And in 2010, French and Italian fashion houses, the big designer names like Louis Vuitton, Gucci, Hermes etc., were able to take advantage of the Eurozone crisis; since their factories are in Europe but their outlets and retailers are world-wide, production costs fell while sales rose.

Then there are the ubiquitous bailouts, which have left working people paying for the crisis while the bankers can continue pouring their millions into “investments of passion”.

There is however a more universal factor at play, one that goes beyond the ups and downs of the world economy. Luxury sales “don’t rely on year-end payouts”. According to Tiffany & Co.’s CEO, “Wall Street bonuses have never been an issue.” Luxury demand comes from “high net-worth consumers”. In other words the target clients of the luxury sector are so rich that a dented salary is insignificant to their overall wealth and spending power.

The crisis has, however, affected the form of luxury spending. And this is where art comes in. After an initial shock art received a boost from the crisis because it is viewed as more of a long-term investment than a one-off purchase. Emmanuel Weintraub, Managing Director of money management firm Integre Advisors, summed up the prevailing attitude: “I’d say we’re thinking that we could spend ‘X’ dollars to rent in the Hamptons for August or spend the same amount and get a wonderful piece of art for our apartment.” Why spend it on caviar and diamonds when you could buy a nice Picasso or a Damien Hirst, with a near guarantee that it will go up in value in the long term?

According to the the World Wealth Report published by Capgemini and Merrill Lynch, “in 2007 there were over 10m people with investable assets of $1m or more. In 2008 that number dropped to 8.6m… But the proportion of all luxury spending that went on art increased as investors looked for assets that would hold their value in the longer term.”

The crisis that began in 2007 accentuated some of the ugliest aspects of the art market. But the character of decadence had been building up long before the crash. The second half of the 20th century has seen astronomical growth in the art market. Long-term data is not readily available (due to a lack of transparency that has only changed recently), but it’s worth giving a few indicators. Some figures show the art market as a whole to have grown by a factor of 50 or more since the end of WW2. In 1950, Picasso’s Gar√ßon à la pipe sold for $30,000 – adjusted for inflation, about $275,000 today; in 2004 it became the most expensive painting ever sold, fetching over a hundred million dollars. That’s an increase of over 360 percent.

Figures from from last two decades are more reliable: since the mid-1990s to today, art prices have more than doubled. The growth of the market in contemporary art has been even more pronounced. In the early 90s contemporary art typically accounted for less than 10 percent of sales in the major auction houses; now that figure is more like 30 percent. In the same period prices for contemporary art grew about five times quicker than other areas. The main reason for this is the growth of the market itself. Collectors have more money to spend but Old Masters and blue-chip moderns are rare; the only answer to this burgeoning of demand over supply is to look to living artists to produce new works.

Britain’s share of the global art market is disproportionately large, given the size of our economy. Britain comes in almost equal to the US, with just over a third of the market. The excesses of the art market have therefore been particularly pronounced and particularly visible in the UK. Saatchi and the YBAs (Young British Artists) have become emblems of the situation.

Two art world phenomena (both fostered in the UK) can serve as a final example of the contradictions, disparities and absurdities of the art market and its relationship with the crisis.

At Sotheby’s in London, on 15th September 2008, the hammer went down on 56 works by Hirst, for a total of £70 million. It was the largest ever sale of a single living artist. On the same day, Lehman Brothers filed for bankruptcy. Flashing forward to 2010, in the couple of days before the Comprehensive Spending Review was announced, the last of the international collectors were preparing to depart London with the fruits of their shopping spree at the Frieze Art Fair. “While one half of the art world waited in dread for the government’s axe to fall on the public sector, the other half lined up in their VIP cars in Regent’s Park and glided up to the entrance like the aliens in Tim Burton’s Mars Attacks!“