The Art Market's Blue Period

On August 27 last year, Delhi's posh art set crowded a spacious room at the Oberoi hotel to hear Sotheby's representative Oliver Barker speak about Damien Hirst, and to view a selection of paintings and sculptures from the auction house's sale titled Beautiful Inside My Head Forever. It was part of an effort to stimulate international buyer interest in the event, which offered 223 new works by Hirst directly to bidders without any dealer intercession.
At one point, Barker quoted Hirst as saying, "After the success of the Pharmacy auction, I always felt I would like to do another auction. It’s a very democratic way to sell art and it feels like a natural evolution for contemporary art." A few audience members snorted at the use of the word 'democratic' to describe the vending of works estimated at a million rupees each for small sketches and many millions of pounds for large sculptures. But I could only chuckle. It was just Hirst being his usual self. I'm sure he knew exactly how outrageous the statement sounded.
The Hirst auction's first session was held in London on September 15, even as Lehman Brothers' bankruptcy filing triggered a global sell-off in equity markets. By the close of the second session the next day, over 111 million pounds had been bid, well above the auction's high estimate.
Beautiful Inside My Head Forever turns out to have been an apt title for an unforeseen reason: the phrase encapsulates how the early 21st century will be viewed by dealers, artists and curators who benefited from the unprecedented market expansion of that period, which is now decisively behind us.
Sotheby's obviously realised long before September 2008 that the world's largest economies were in trouble, and that sustaining prices in the future would involve getting Russians, Chinese, Indians and Arabs interested in buying outside their immediate cultural sphere. The Hirst display in Delhi was a step in that direction. Unfortunately, the rot in the global financial industry were so serious that it set off a domino effect. Consumers in Europe and the US cut back on spending, driving down demand for manufactured imports as well as commodities like oil and steel, hurting China, Russia and the Middle East. No country, cartel or corporation was left with the financial strength to boost support for art.
In late 2006, I had predicted the art market would see a downturn. I wrote in my Time Out column, "if the market keeps its present course, it’s heading for a crash sometime in the next two years", and outlined the reasoning behind the prediction. "[Speculators] are pricing genuine collectors out of the market. The turnover of paintings is frighteningly high: it’s not unheard of for a single canvas to be sold half a dozen times within a year. Auction houses have turned advocates rather than neutral sellers. Even Christie’s and Sotheby’s are featuring raw artists and accepting fresh-minted works consigned by galleries, in contravention of normal international practice. The boom that began with established masters has spread to artists with no proven track record or historical merit. Gallery owners, who should be turning off the tap of speculation by carefully vetting clients, have little power to set conditions. They have to suck up to popular artists in order to get a few works out of them. The artists, meanwhile, many of whom have known privation in the not-too-distant past, are keen to make their pile as quickly as possible by selling to the highest bidder.
Despite these unhealthy symptoms, the experts have convinced themselves the party will go on forever. They, like everybody else, are having too much fun to think hard about tomorrow."
I then suggested what would cause the slump: "The rise in art prices has been congruent with a global boom, and the crash is also likely to be triggered by global factors, as yet unknowable."

The point of quoting these lines is not to say I told you so (OK, maybe there's a teeny-weeny bit of that involved). Pretty much everybody in the industry knew prices were absurdly high and would fall sometime. The more polemical point in my article was about how Indian art would react compared to art worldwide: "Once the tipping point arrives, developments intrinsic to India will take over and probably make the correction deep and painful. Since few buyers are purchasing for love, people holding stock will want to cut their losses immediately, feeding supply even as demand fades. There is the additional dimension of mushrooming art funds to consider. These funds usually operate for stipulated periods, and will have to unload their wares even in a declining market, exacerbating the slide."
Four months into a severe downturn, it is unclear if Indian art is doing better or worse than its emerging market peers. Everything has gone down so quickly that comparison at this point is useless. The question is how matters will play out over the next two or three years. The Indian economy is doing relatively well, so one might expect Indian art to outperform. But the art fund issue remains crucial. Nobody knows how many works these vehicles hold because their functioning is so opaque. It's certain that 2009 will see substantial liquidation of stock with very little counterbalance in the form of investments in new funds.
One important factor has emerged since I wrote the column: about half a dozen contemporary artists are now established globally, represented by well-known international galleries. A dozen more are on the verge of such recognition. The work of these artists might end up delinked from India-specific ups and downs, and move in tune with global prices.