On the regulation and mobility of markets


If you're interested in the structure of the art market I recommend this piece. And the specific little part that I want to talk about is this:

You can argue the toss on some of these, but the main thrust is clear: the value of a work of art is to a very large degree a function of the city where it’s being sold. New York’s at the top of the heap (or, to be precise, Manhattan); Berlin punches well above its weight; Paris, the erstwhile center of the art world, is conspicuous by its absence.

Something obviously happened to topple Paris from its place at the centre of the global art market. We could all argue about what that was but I would put forward the idea of the droit de suite. This was a tax, a charge, placed upon art of suitably recent manufacture when it was resold. This charge then went to the artist or their estates. Now it seemed fair when it was brought in, after WWI. For there were those who had bought art ten, twenty, years previously and were making vast profits while the artists' families were living in poverty. But what seems fair and how things play out don't all that often connect in the real world. Paris is no longer the centre of the art world and (well, until the EU imposed the droit across the EU, meaning that all of the EU is likely to have this problem in future) as little is sold there little is collected for the starving orphans.

The larger issue, the one we really want to take note of (not really being all that worried about what happens to Damien Hirst's heirs) is that small changes in regulation, small changes in taxation, can indeed move markets over time.

The Eurobond markets are in London simply because the US used to have a with holding tax on bonds issued "onshore" in the US.

There are two things that can happen, as above. A market might move geographically over time in response to regulation or taxation: or new markets might arise elsewhere, having the same end effect of draining activity from the original place.

No, I don't expect bonus limits of 50% taxation levels to denude the City of London of its activity (and, recall, the huge tax revenues to the Treasury) overnight. But changes, regulatory and tax, will lead to a reduction in the City that we might have had without them.