Art Economics Advisory

However, the rest of the world has changed, and profoundly. During the past quarter century, all other economic marketplaces—for stocks and bonds, for real estate, for commodities and the many other markets for capital—have begun to use vast amounts of knowledge broken down into its tiniest particles—data—in order to buy and sell much more quickly and accurately. The caliber and scale of available knowledge, virtually on demand, is unprecedented. The cost of data has plummeted. Even the meaning of “marketplace” has been transformed.

The harnessing of robust technologies, applied mathematics and vast amounts of pricing records—both archival and available in real time from many sources—has made this possible. The ability to measure the correlations of price changes among all markets for capital heightens the value of comparative analysis even further. The breadth and depth of knowledge now available has opened new routes to de-risk assets, transactions and markets. As a result, the cost of trading activity has gone down while speed and precision have gone up. Unfair or illegal transactions have become easier to spot and prosecute.

While this major evolution has been unfolding on a comprehensive, global scale, the submarkets for art are little changed. Many are stagnant, operating as if not much has budged since the reign of George III. Most of the largest auction houses are marginally profitable but unable to meet a sustainable level of reinvestment. Rather than make decisions based on empirical evidence, many leaders of the art sector rely on untested suppositions and are routinely flummoxed by disappointing results and complexity they can’t explain. A host of symptoms define the consequences of the art sector’s inability to use the many financial tools and intellectual assets that the 21st century has provided. Among them are

30-35% of all attempts to sell art at public auction fail, a definition of systemic inefficiency if ever there was one the commissions and fees built into buying and selling art are five to six times those levied on real estate transactions the costs attached to the sale of contemporary art are even higher, reflecting additional inefficiencies that harm market sustainability art dealers are unable routinely to borrow from banks to finance their inventories, considerably driving up costs and hobbling their ability to respond rapidly to fast-emerging opportunities certified art appraisers prepare reports that fail to portray the financial reality of prices and values or to provide usable guidance in the real world

These symptoms, and others, produced the environment that Kusin found at its inception. There were no available economic, financial or statistical frameworks in existence that could have been applied to understanding the buying and selling of art in a global environment. Relevant data were non-existent, highly biased or virtually inaccessible.

In this analytic vacuum, it was necessary literally to invent a comprehensive, articulated knowledge infrastructure for art from the most raw beginnings imaginable. Equally important, it was essential to account for all the peculiarities and distinctions of art itself versus more nearly “normal” assets such as stocks and bonds, real estate and commodities. Finally, it was a requirement for success not to disrupt existing aspects of the art trade that continued to make good sense in the 21st century even though some remain quirky in the extreme.

Fortunately, the first Kusin client was a national government with an art sector that produced significant contributions to the generation of its wealth. The country was a member of the European Union and needed—at both the ministerial and agency levels of government—to weigh the costs and benefits of establishing uniform tariffs on the import and export of fine art and decorative art, a proposal at odds with then-existing norms of international trade. Further, because of other evidence-free legislation originating in Brussels, the same nation was pressed to assess additional harm to its global entrepôt trading center by the introduction of special transfer taxes on modern and contemporary art that its leading competitors—chiefly Switzerland and the United States—did not levy or even contemplate.

To deal with the needs of this and other clients, a proprietary, comprehensive analytic infrastructure equivalent to the kinds already in existence—and taken for granted—in all other marketplace economies had to be built de novo. Classic macro- and micro-economic frameworks were constructed to guide massive supporting data flows. Applied mathematics, financial statistics and data science were shaped, also de novo, to account for the distinct physical realities of art and its specialized trading mechanisms.

The resulting elements of intellectual property and know-how were developed and tested sequentially as more clients’ needs arose. Today, the portfolio of IP and inventions comprise a broad, deep pool of usable knowledge to drive analytic frameworks and financial tools crafted specifically for fine art, decorative art and antiquities. They are constantly evolving. Adjacent financial intermediaries that provide banking, wealth management and fiduciary services for individual collectors, institutions and the art trade benefit equally.