Art market regulation? Here’s why not

Ivan Macquisten addresses delegates as mediator of the regulation debate at the Art Business Conference in Westminster on September 3. Photo: Bogdan Maran

Ivan Macquisten addresses delegates as mediator of the regulation debate at the Art Business Conference in Westminster on September 3. Photo: Bogdan Maran

Law makers, politicians and critics want to bring the art market to heel.

But they are not helping us or themselves in their misguided demands

Art has developed as such a strong alternative asset class in recent years that the debate over direct market regulation has become increasingly heated.

Where money looms large, ethics can play an important part in providing a practical solution in the marketplace for avoiding trouble, building confidence and ensuring stability. Clear standards and the adoption of best practice are essential building blocks towards this goal.

They are particularly important in the international art market because however much the authorities or vested interests might want to legislate, history tells us that comprehensive direct regulation is largely unworkable and serves only to damage markets while failing to prevent crime.

As art market lawyer Pierre Valentin argued at September’s Art Business Conference in Westminster, the establishment of the Conseil des Ventes in 2000 as a regulatory body to oversee the French auction market did nothing to prevent the emergence of the huge corruption scandal among the ‘cols rouges’ porters of the Hôtel Drouot, Paris’s centre for auctions, in 2009.

In the UK, attempts to get to grips with stolen and looted art via the establishment of a centralised Home Office database 15 years ago fell apart because, having backed the plan after much deliberation, the Government refused to finance it, Scotland Yard soon faced other priorities after 9/11 and international co-operation proved more difficult than anticipated.

At a more prosaic level, anti-corruption policy meant that officers across the UK’s police forces assigned to dealing with art theft were reassigned after 18 months in the role – just as they were beginning to establish contacts and develop an understanding of the issues.

 

History tells us that the political will and financial commitment are just not there

Where was the political will then? And, in reality, where is it now?

Britain is among the top three most successful art markets in the world. Politicians wanting to tinker with that will have to face a number of home truths Valentin also highlighted in the regulation debate:

  • Regulators tend to be bureaucrats who lack market knowledge;
  • Those in charge of enforcing compliance tend to be poorly paid and resourced, with the result that monitoring standards often reflect this;
  • Regulators cannot keep up with the pace of change; and
  • The myriad of variations across international borders make it all but impossible for global market regulation to work effectively at a national level.

Much of the unpopularity of the European Commission stems from its image as an all-powerful regulator, answerable to nobody, that inflicts unsuitable business-busting rules on member states in the interests of political expediency and so-called ‘harmonisation’.

Perhaps the most detailed proposal for regulation in recent months has come from Dr Thomas Christ and Claudia von Selle of the Basel Institute of Governance. Their intermediary report of a self-regulation initiative for the art market, entitled Basel Art Trade Guidelines, argued that the current level of regulation and compliance was “insufficient”.

“With some competitors engaged in unethical or illegal behaviour, operating profitably while acting with integrity and ethics is increasingly difficult,” they concluded.

The detailed proposals correctly identified many of the issues that trouble the market, but, as is so often in such reports, set out a structure for governance that was simply impractical in a global market where the vast majority of businesses are fairly small operations.

As with EU bodies, the report’s proposed governing secretariat (run at Basel by, presumably, those compiling the report) carries all the hallmarks of being yet another self-important and costly institution handing down diktats to a world from which it is entirely detached, and all paid for by business whose trade risks grinding to a halt under its aegis.

Where is the understanding of the needs of small businesses? Of the need to act quickly in a fluid marketplace? Of how to oversee effective sanctions? Of realistic appraisal of art market processes and what regulatory interference buyers and sellers would stand for?

The Basel report does have merits, but it appears to take a rather Panglossian approach to the mechanics of its establishment; just how co-operative would business and government be in funding its requirements?

In fact, taken to its conclusion, one wonders how the work of such a governing body would really differ from direct regulation?

 

What about the ethical dimension?

Dr David Bellingham, Programme Director for the Masters Degree in Art Business at Sotheby’s Institute of Art, launched the Art Business Conference debate on how the art trade can best protect its clients’ interests by looking at ethics.

Firstly, you must decide which ethical philosophy you are concerned with, he argued: Pragmatism, Relativism or Utilitarianism.

Before you dismiss his thoughts as highfalutin’, his point is that one cannot presume to solve a global problem from a narrow Western perspective. It was an original point, and well made.

I would largely call myself a pragmatist, in favour of practical solutions that follow the rule of law. I’m not without a moral compass, but if an uncompromising moral standpoint does not produce a workable proposal, then what is its purpose?

Emerging markets often focus on relativism, setting aside universal and absolute ethical standards in favour of dealing with things as they are in the specific cultural context. It’s a risky approach, though, as oil companies and others have found when falling foul of bribery scandals as they negotiate contracts with officials in Africa and the Far East.

As far as I am concerned, Utilitarianism should play no greater place in the art market than it already does, for instance in blocking the export of cultural objects of outstanding national importance. (Note my use of the word ‘outstanding’.) It’s no good cherrypicking your favourite clauses from the UNESCO Convention. Follow one and follow all or forget it.

You just have to look at what is happening in Germany at the moment to understand the problem. If passed, its Cultural Property Protection Act will force anyone wishing to export a cultural artefact valued at €150,000 or more and that is older than 50 years to secure an export licence.

 

The folly of Germany’s Cultural Property Protection Act

How does this support the nation’s art market? How do you define a cultural artefact? Who decides on the valuation? Who now will export artworks to Germany for sale? Who, in Germany, will have the incentive to become/remain serious collectors? How will Germany retain the cream of its cultural expertise when lucrative careers in New York, Hong Kong, the Middle East and London beckon that do not tie them up in knots?

If this isn’t the way to kill legitimate commerce, I don’t know what is.

Dr Bellingham concluded his introduction at the Art Business Conference by distinguishing between codes of ethics and codes of conduct/practice. The first are aspirational, the second enforceable.

And here’s the rub. Professions tend to foster professional bodies. They help them burnish their credentials, provide a mediating force for clients and, where effective, separate the wheat from the chaff among the professionals.

The art market is no different and it is clear from the conference debate that most see the various trade and industry associations as being central to any form of self-regulation in both established and emerging markets.

However, as we debated on the day, trade associations have inbuilt weaknesses. They tend to rely on their membership for funding and unless they have impressive cash reserves are understandably loath to diminish their numbers, even in the interests of quality control, except in extremis.

Chucking out a powerful member who might turn on them legally would give anyone pause for thought, but expulsions do, on occasion, take place. Publicising the expulsion is all but unheard of for the same reasons noted above, despite the potential benefit of boosting public confidence in the association by showing that it has teeth.

Likewise, the confidential nature of milder complaints, in which the association plays a successfully mediating role, usually means that it cannot publicise that success.

In short, those who run associations are often caught between a rock and a hard place. They must be seen to be acting in the interests of their members, but also in the interests of the public against their members when necessary. They are expected to demonstrate this publicly while being constrained by confidentiality agreements and the risk of actions for defamation.

An OfArt, like OfCom, might get round these weaknesses, but then you are back with the problems of cost, red tape, interference with legitimate interest and so on.

Nevertheless, I suspect that properly developed, the answer does largely lie with associations and trade bodies. They can filter out the undesirables, they do encourage best practice, set out codes of conduct, support members and their clients in resolving disputes and help boost confidence in the professionalism of those members.

 

The answer is to create incentives for businesses to behave better

This public service ‘branding’ can be invaluable in helping develop new markets, just as, in China for example, bidders at auction tend to chase classic brand names when buying wine, jewellery and other collectables.

Specific professional qualifications should, in my view, attract preferential treatment when crossing international boundaries, especially into emerging markets that do not yet have the infrastructure for policing their own, as yet undeveloped, set of industry guidelines. Internationally recognised standards in security, packing and shipping should help companies win reduced insurance premiums as well as fast-track processing across borders.

In short, I would like to see more carrot than stick in promoting best practice. There has been far too much of the latter in recent times and, as another speaker at the conference, Robert Hiscox, pointed out, insurers are effective at back-door regulation by refusing cover to the dodgy.

Establish your kitemarks and then show business how it can use them to promote its brands and save money.

Competition in the market is primarily about client service these days. The best way of making ethics work on a global basis in this context – notably in emerging markets – is to make them pay.

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