What the heck is “capital”?
The Grantmakers in the Arts conference in Chicago is swirling around the question of capital and capitalization in the arts. They’ve released the summary report from their extended conversation on the subject, called the National Capitalization Project. And they plan a series of talking sessions on what that report recommends.
It’s an absolutely essential conversation for any industry, and particularly for arts and culture, where ‘capital’ is both a necessary and harsh companion to creative work. It’s also a relatively impossible conversation to have, since the word casts a sleepy spell whenever it is invoked. It’s like the word “policy,” which we all grant as important but would rather talk about anything else.
So, what’s capital? And why do we need to talk about it? The best definition I’ve heard to date is that capital is “wealth that’s used to make more wealth.” It is money, or machinery, or buildings that are necessary to the production of goods and services, but aren’t consumed substantially in that production.
A factory is capital, as it enables stuff to get built in a warm, dry place. But the factory doesn’t get consumed in the production line. A large machine is capital, because it increases the productivity of workers to get work done. But the large machine doesn’t need to be replenished as often as raw materials. A large wad of money is capital when it is used to buy the factory or machine, or when it sits in a pile to generate return — like an investment or a long-term loan. The principal isn’t consumed or spent, it’s just there to generate interest or future equity.
Yes, I know. Your eyes are glazing over and you feel like drifting off to sleep. That’s the other thing capital does. It ruins a perfectly good dinner party.
But here’s the thing: arts, culture, and heritage endeavors often require capital — buildings, equipment, endowment, cash reserves — to make art work. A theater company that has visions of flyspace and air conditioned audience chambers; the museum that has lots of stuff to keep clean, cool, and secure; the edgy performance ensemble that wants to pay its musicians even though the audience might never come. These all require capital.
In the commercial world, capital is generated from positive cash flow, or invested by folks who see an economic value in the operations, or loaned by banks who’d like a return plus interest. In the nonprofit world, capital can emerge from many of the above (cash flow and banks, particularly) or from this magical other marketplace of contributed income. If you’re passionate and persistent enough, it turns out that people will give you capital and never ask for it back — at least not in money (they’ll want it converted to theater, music, artworks, exhibitions, happy children, healthy communities, and the like).
There’s lots more to talk about. But it was important to get the boring stuff out of the way. Capital is important. Capitalization is a longer word and a bigger subject. That comes next.