Push and Pull: Symbolic vs. Economic Values of The Southeast Asian Art Market

By Phil Whittaker / C-Arts

The key purpose of this article is to examine how long term value can be generated within the emerging Southeast Asian (SEA) art markets. This is both an important and opportune time to address this issue, because the SEA art market seems to be at the start of this speculative journey, which could be both a good and a bad thing. It is good because there may yet be time to make adjustments that would endure the long term sustainability of the market, and bad because this could be seen as the start of another “gold rush” for potential investors. This could encourage much earlier and more aggressive speculative pressures in the SEA art market, which could well prove damaging to its long term future.

In recent years the contemporary art market throughout Asia has undergone a major period of growth. This growth has been particularly reflected in the popularity and price rises in Chinese and Indian contemporary art. For example at auction in Hong Kong in April 2008 new auction records were set for Chinese artists Zhang Xiaogang, Xu Bing, Liu Xiaodong and Gup Bochuan, while in New York M.F. Husain set a new world record for a painting by a living Indian artist in March 2008, when the painting Battle of Ganga and Jamuna: Mahabharata 12 (1971-72) sold for US$1,609,000; Ram Kumar also established a personal record when Vagabond (1956) sold for US$1,161,000.

While in SEA, The Sale of Modern and Contemporary Southeast Asian Paintings, in Hong Kong in April 2008, featuring works of Indo-European, Singaporean, Malaysian, Filipino and Thai Paintings, and Contemporary works, realized almost double the high estimate. Indeed one work by Indonesian Nyoman Masriadi was sold for 12 times the auction house estimate. A record was also set by the artwork of late Vietnamese artist Le Pho as one of his paintings was sold for more than US$550,000.

It is these quickly rising prices that are a worrying factor in an emerging art market like SEA, because it is these same price rises which may eventually prove to be a key destabilizing factor in the longer term sustainability of this and other nascent art markets. The argument underlining this position is that a major cause of these significant increases in price is nothing more than financial speculation; rather than any rise in the symbolic value of the art itself.

In this article the fundamentals of how value is created and sustained in the art market will be addressed, with particular reference to the emerging SEA market. To do this it will be necessary to look at how value is created and sustained in the established markets, and what if anything can the historic development of these markets tell us. It seems clear at the moment that what we are seeing in the emerging art markets in SEA is large amounts of speculative pressure. In the financial sector this would be described as a strong “bull” run, and as such at some point there is always a readjustment of prices.

The situation at the moment is being described by numerous sources as an art price “bubble”, which is simply not sustainable. The price rises seem to be driven almost wholly by speculative pressure and as such at some point someone will be left “holding the baby”. However, despite repeated dire predictions of this art “bubble” bursting this has yet to happen. In reality, given the nature of art as an asset class which will be discussed below, it is more likely to be a “readjustment” rather than the catastrophic price collapse predicted by some commentators. However, even this re-adjustment has failed to materialize. Therefore it seems likely that the speculative pressure on prices will continue until such time as events dictate a re-adjustment. While some would argue that this is the natural way of things; “a survival of the fittest” philosophy; perhaps with some foresight we need not always be at the mercy of Adam Smith’s “invisible hand of the market”. Perhaps with some forethought ways could be found which could both promote, and to assist the development and long term sustainability of these nascent art markets.

Much of the argument in this article is predicated on the foundation that art is, and can be, treated as an asset class. This means that art has value; that this value can grow over time and that art can be bought and sold in order to realize this increase in value; in much the same way as any other asset classes such as property, equities etc. However, there are some important differences between art and other asset classes.

The key characteristics of art as an asset class are; low liquidity, high transaction costs, unique and highly differentiated products and high asymmetry of information, however, unlike some asset classes art generally has high residual value. These class distinctions really just mean that art is difficult to buy and sell as quickly as say stocks and shares. It is not like cash, which can be readily used to purchase other goods. Art takes time to buy and sell and is therefore less “liquid” as an asset than many other assets. Also, buying and selling Art can be expensive, not just the price paid, but the commissions involved, for example the major auction houses charge up to 25% buyer’s premium on lots sold, and up to 10% seller’s commission. What this means is that for a piece sold at a hammer price of US$100,000, (the bid price in the room when the hammer goes down), the buyer would have to pay up to US$125,000 including buyer’s premium, while the seller could receive as little as US$90,000 once the seller’s commission is paid.

These factors differentiate art from more traditional asset classes, and present particular challenges to the speculator. It must also be remembered that the art market is unregulated, and as such the high asymmetry of information plays a crucial role for speculators. This asymmetry of information simply means that some people know and have access to much more information than others, and in a world where value is as much about perception than tangible wares this is a major issue. Indeed this asymmetry also gives undue power to the few, and can very easily present opportunities for the distortion of value. This can be a major pitfall for the unwary art lover or even speculator. In emerging markets like SEA the asymmetry is even higher, because even fewer individuals are in a position of knowledge, with the vast majority outside of this privileged group, and so the risks of value distortion are even higher.

To make a case for changes in the emerging art markets like SEA an initial examination of the established art markets in Europe and the US will be useful. There may be lessons to be learned that could be successfully transferred to the emerging markets. It is acknowledged and accepted that this may seem like Western colonial arrogance, but in the unregulated world of art the West does seem to offer more robust and efficient valuation models than the current emerging markets. It is argued that emerging markets tend to rely on too narrow a focus for the establishment of overall value, and give pre-eminence to the short term economic, rather than longer term symbolic value of works.

There is a saying in the art world that “a good Canaletto is a good Canaletto”; by this we mean that the work of an important and established artist will always be valued. This tenet is not only limited to the old masters but includes contemporary artists, and while fashions may ebb and flow the works of established artists are always likely to hold a high residual value. Therefore the important and established artists of the SEA market are more likely to hold value than less established artists. This then raises the obvious question of how do artists become important and established.

At this point we need to conceptually divide the term value into two different aspects : symbolic value and economic value. The symbolic value of art centers primarily on recognition. Recognition means that the artist achieves and is positively acknowledged and legitimized by recognized and accepted institutions; such as academies, museums or learned societies, and that the artist is accepted as one who contributes to the field in a meaningful and important way. Indeed when researching artists’ various web sites, among them ARTFACTS. NET have specific tools for presenting the status of an artist in this type of way. It can be seen here that by its nature symbolic value also includes elements of cultural value. This is because the very authorities that validate the art are themselves situated within a wider cultural context. In its turn this implies an element of both global and regional/national concepts of symbolic value. This issue will be raised again below.

The second aspect of art value is its economic value. Economic value is, in the final analysis, whatever price the market will bear, and serves to further highlight the asymmetry issue between buyer and seller. In most cases the buyer may have no meaningful information by which to judge the economic value of a piece.

This is particularly problematic for contemporary art from emerging markets such as SEA, which by its nature may have little or no track record against which its economic value can be judged. However, in setting prices dealers and auction houses would normally use a heuristic in the form of a pricing script. This is a set of largely self generated pricing rules, which function as a set of guidelines. These scripts can be supplemented with reference values of similar works or artists, which in turn can provide numerical values for pricing decisions. Scripts can contain many hedonic dimensions such as, size, color, subject matter, previous sales history etc. A piece would be “scored” against these various categories and thereby given an overall “value”. Although scripts and reference values are widely used, they are not shared throughout the art market, and further illustrate the information asymmetry and the complexity of identifying any sense of “true” value to a piece.

The true value of a piece is then an interaction and combination of symbolic value and economic value. The overall value of a piece is driven by these 2 factors in correlation with each other. That is to say that as one value increases so does the other value. In the established markets the symbolic value acts as the independent variable driving economic value, i.e. as symbolic value increases so economic value tends to increase. This symbolic value is conferred by the institutions in fig. 1, with the highest symbolic value being legitimized by the museums, and the lowest by commercial galleries. Therefore the driver of overall value is the symbolic value that is gained by national level legitimizing organizations; pieces judged to have high symbolic value, will also be judged to have high economic value.

By contrast, in emerging markets like SEA the dominant driver appears to be economic value, which in turn seems to drive an “apparent” symbolic value. In this case either the absence of legitimizing authorities or the dominance of the economic players in the market causes a distorted view of the market dynamics. However, it must be remembered that economic value cannot create sustainable changes in real symbolic value. To put it another way, just because something is expensive does not make it “good”. However, good things are always likely to be expensive. In the case of art the long term economic value must be dependent on the legitimized symbolic value of the art, rather than the apparent symbolic values created in emerging markets.

Historically in the established markets the role of symbolic value driving economic value secures the position of “a good Canaletto is a good Canaletto”, tenet complete with high residual value for the work. However, the danger in the emerging markets such as SEA is that because economic value cannot drive symbolic value; the long term viability and development of this art market is threatened. If economic value appears to be driving symbolic value then perhaps what is really being observed is the development of Giffen goods. (In “economic theory,” a Giffen good is an “item” for which a rise in its price makes people buy even more of the product. For most products, “price elasticity of demand” is negative. In other words, price and “demand” pull in opposite directions; if price goes up, then quantity demanded goes down, or vice versa. Giffen goods are an exception to this. Their price elasticity of demand is positive. When price goes up, the quantity demanded also goes up, and vice versa.)

This is a situation that can be observed during periods of high speculation when it seems that prices are going crazy and almost anything from a particular region or artist will sell for unpredictable and increasingly higher prices. Items selling at many times their estimate at auction are an indicator of this speculative pressure. It is this situation which helps to create the art “bubble” fear, and the subsequent fear of a sudden loss of economic value. And it is these situations, which in emerging markets like SEA, should be avoided if at all possible.

This situation should be avoided and is considered an undesirable and unsustainable model for three key reasons. First, the asymmetry of the market gives further advantage to sellers in this type of market, who can continue to realize ever increasing income from ever increasing supply, without ever worrying about the symbolic value of the work. This is considered undesirable because it can only serve to encourage ever greater speculation until such time as the inevitable value corrections.

Second, as the markets become more efficient the symbolic value of the art will start to exert pressure on the overall value of the works.

At some point an efficient system of determining symbolic value will develop, and as such the correlation between symbolic and economic values will reassert its dominance. (See fig. 2) In this case those works considered of low symbolic value will inevitably lose value, which in an extreme case could unduly reduce overall confidence in the market to the detriment of all concerned.

Finally, the artists themselves are encouraged to continue producing tried and tested repeatable products/styles in order to fulfil the ever increasing demand. In the longer term the growth and development of these artists are in jeopardy. This “get rich quick” philosophy may benefit the first wave of artists who are successful, but at the expense of subsequent artists, who may find themselves without backers or buyers in a market that has lost confidence.

Having laid out the current situation in emerging markets like SEA, and contrasted this with the established markets the challenge now is to examine if there is anything that can be offered by way of advice to mitigate this situation and these circumstances. The answer as ever is yes and no. In truth there is little one can achieve against macro market forces, and the art markets throughout Asia are worth simply too much in financial terms to make any radical changes. So if for the moment we accept that this type of situation may be inevitable the need is to examine how different levels of the art market can react to at least mitigate the situation.

For clarity and ease of discussion the levels of analysis are divided into three; first the level of the individual, either artist or speculator; second, the level of the company, including auction houses and galleries, and finally the national level, including national institutions and establishments.

We can see that at the level of the individual the major challenge is information asymmetry; the fact that most individuals, both artists and investors will not have sufficient information to make informed choices. These choices for the artist may be in terms of contracts, links with galleries or even access to markets. For the investor the situation is similar; a lack of reliable information on which to base sound financial investment decisions. The way forward for an individual caught in this situation is simply to do more research. This may seem like paradoxical advice given the lack of formal information, but time and effort spent getting to know both the market and other players in the market is invaluable in these circumstances.

At the group level there is also information asymmetry, but the key challenge is really one of strategic choice. This means making a conscious effort to view the market with either a short term or long term focus. This will assist in giving the company direction and decision making capability. It must be noted that for the sake of analysis any moral dimension in this decision is being ignored. This moral dimension would be a decision made by a company, and the assumption is that each will have their own moral compass to guide them regardless of the views of others. Whatever the choice of strategic direction the distinction between “grab the money and run” or “nurture a growing market” must be made earlier to prevent the company from being stuck between these 2 polar positions.

Finally at the national level the challenges are further compounded, and complicated by issues of national identity and culture. It was mentioned above that the symbolic value of art has by its nature a cultural component. That is the authenticating bodies which legitimize art are situated within a wider cultural setting. This then presents the national level with the key challenges of sustainability of the very culture and heritage of the art. The focus moves firmly away from economic imperatives and into a more complex set of national values. However, this is in the face of major macro market influences, which even at a national level are difficult to resist. The only choice open at the national level is really gaining a sense of control through either regulations or investment.

If we examine these choices in a different light we could conclude that they are just governmental levels of that old favorite approach to getting things done, the “carrot and stick”, with regulation being the stick. While it is beyond the scope of this paper to discuss in depth the macro economic situation of individual countries throughout SEA, and we all know that fiscal policies are tight, the fact remains that historically in a carrot and stick situation it is the use of the carrot that works most often.

In other words if the purpose is to sustain the culture and heritage of art at the national level then perhaps the way forward is investment in the structures and bodies which legitimize and lend symbolic value to art, rather than an attempt to regulate the art markets themselves.

The focus of this work was how can emerging art markets like SEA become sustainable. To address this question the concept of value was discussed in the light of established markets and emerging markets. It was acknowledged that art is an asset class; all be it one with unique qualities. The inevitable dominance of symbolic value was argued, and how this could lead to inevitable price adjustments in emerging markets, which could damage their long term sustainability. It was argued that this could be addressed at three levels, but that in reality the sustainability of an emerging art market like SEA should rest at the national level, because it is at this level that symbolic value is ultimately legitimized.