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The art world’s elephant in the room

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It is one of the most celebrated graphs ever produced by economists.

[LONDON] It is one of the most celebrated graphs ever produced by economists.

The chart, first published in 2013 by Branko Milanovic and Christoph Lakner using data from the World Bank, shows global income gains from 1988 to 2008. The graph climbs sharply on the left, indicating how outcomes improved in the developing world from the fall of the Berlin Wall to the Great Recession. Farther to the right, it shows how equivalent outcomes declined dramatically for the working and middle classes in the developed world, but soared for the planet's wealthiest 1 per cent. This arrestingly unequal pattern of global income distribution has become known, famously (at least to economists), as the elephant graph.

What does this have to do with the art market? Well, pretty much everything. A decade after the fall of Lehman Bros and Damien Hirst's era-defining Beautiful Inside My Head Forever auction at Sotheby's, the art market remains one of the most glaringly visible symptoms of global income inequality.

"High-value celebrity art is completely disconnected from the everyday world," said Stephen Bayley, a cultural commentator based in London. "It only exists for the very, very, very rich. Art is a new financial asset class, and this has altered the perspective of the more modest buyer."

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The elephant trunk of "ultra high net worth individuals" continues to push the prices of art trophies to unprecedented highs, while the West's beleaguered middle class, for a variety of financial and cultural reasons, is spending less on art and collectibles. The closure last year of the Christie's auction rooms in the South Kensington district of London, which catered to those more modest buyers, was a sign of these changing times.

Decorative arts such as antique furniture and ceramics — the traditional bread and butter of an auction house — raised US$118.2 million at Christie's sales in 2017, according to a company spokesman. This represented less than 2 per cent of the company's annual sales.

"People of a certain generation have done their collecting. We're waiting for the next generation to come through. But the disposable income just isn't there," said Adam Fileman, a director of Fileman Antiques, one of 114 exhibitors this month at the 10th edition of the LAPADA art and antiques fair in Berkeley Square, half a mile from where, a decade earlier, Hirst's two-day Beautiful sale raised US$200 million.

Fileman is a 120-year-old family dealership specialising in antique glass and chandeliers, based in Sussex, in southern England. Nowadays, with domestic demand reduced, virtually all purchases of more than £10,000 (S$18,000) are made by foreign buyers, usually for chandeliers and usually via the internet, Fileman said.

Prices on his booth ranged from £320 for an engraved 18th-century drinking glass, to £120,000 for a George III chandelier. "It's a weird atmosphere," Mr Fileman said on the Sunday of the fair. "People are walking round, but they're not really buying."

It is no secret that the antiques, a once-ubiquitous element of comfortable middle-class homes, have fallen out of favour, and this latest iteration of the London fair was not helped by the lingering uncertainty that Brexit negotiations are casting over the British economy.

Yet the lower end of the market also remains a cause for concern in more fashionable areas.

In June, an international team of economists published the World Inequality Report, which revised the Milanovic and Lakner graph, extending the period to 2016. These calculations, using different data, found the global 1 per cent even more dominant, capturing more than double the income growth of the bottom 50 per cent from 1980 to 2016. The elephant had turned into the Loch Ness monster.

Much of that high net worth has been generated by "liquidity events" — such as a company buyout or cashed-in shares — rather than salaries. These windfalls allow today's wealthy to buy bigger-ticket art by established names from the outset, bypassing lower value entry-level sales. This is one reason smaller contemporary galleries have been struggling.

Jarvis Dooney, for example, is a five-year-old gallery in Berlin that specialises in contemporary photography and video by artists from Australia and New Zealand. Gallery co-founder Michael Dooney said his typical client was a "standard middle-class earner" buying editioned works priced between 1,000 euros (S$1,600) and 5,000 euros. After an encouraging 2013, Mr Dooney said, sales at his gallery and others in Berlin have become progressively "fewer and farther between". He acknowledged that his inventory falls below the price range of "investment" pieces.

"But if you're middle class, 5,000 euros is a lot," Mr Dooney said. "You want to know if it's going to hold its value."

This lower-value segment of the market is under pressure.

Would-be collectors in the "squeezed middle" have become as concerned about investment as everyone else, and art and antiques in the US$500 to US$5,000 range offer uncertain returns.

Then why not simply enjoy owning art that you like? Well, even the concept of ownership has become problematic.

"People, particularly younger people, have much less desire to own stuff," said Mr Bayley, the cultural critic. "There's consumer fatigue. And if you're never going to be able to afford to buy a house, what's the point of buying the stuff that goes in a house?"

And yet dealers and auction houses keep plugging away, coming up with new initiatives and strategies to keep the grass roots of the market alive, if not verdantly green.

"I show a lot of emerging artists, and under US$20,000 is definitely the harder market," said Andrew McClintock, director of Ever Gold (Projects) in San Francisco. "It's always been a struggle."

But the San Francisco Bay Area is awash with tech wealth, some of which is trickling to California's contemporary art dealers.

Enigmatic drawings of tech-inspired tarot cards by Mieke Marple (who also formerly co-owned Los Angeles' trendy Night Gallery) are currently among McClintock's best sellers in the US$3,000 to US$10,000 range, he said, adding that younger collectors were encouraged by flexible payment plans and invoices payable in cryptocurrency.

"Gallerists need to start thinking of themselves as entrepreneurs, not sit around waiting for a client to walk in the door," Mr McClintock said.

And then there is Bonhams, a London-based international auction house whose business model has (so far) relied on traditional lower and middle range art and antiques, plus classic cars, rather than the celebrity end of the contemporary market. Last year, Bonhams took about US$600 million in sales, according to a spokesman. Christie's raised US$6.6 billion.

This month, Bonhams was bought for an undisclosed sum by the British private equity company Epiris. The Financial Times questioned how the auction house could achieve significant growth, given its reliance on a stagnant middle market and lack of an online sales strategy.

Owen Wilson, a partner at Epiris, was more upbeat. "Bonhams is a global business operating in a market with long-term structural growth and high barriers to entry," Mr Wilson said in a statement. "It is a platform with extensive scope for transformation through investment."

A spokesman for Epiris declined to comment further.

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