About six months ago, Thai Prime Minister Abhisit Vejjajiva spent time with the film crew of The Hangover 2 while shooting in Bangkok.
About two days ago, President Barack Obama spent time with workers at a lighting plant in Durham, N.C. He said that his focus was on job creation, proclaiming that the “sky is not falling,” despite the fact that recent college graduates are facing the highest unemployment rate in history.
What is the connection between these leaders and their respective meetings? The answer is “runaway” film production; a trade-distorting practice that the Hollywood industry already knows as a damaging influence on American jobs, especially those for young people.
Vejjajiva and the Thai government have been hard at work, legislatively speaking, to secure jobs for their workers. The industry is carefully cultivated by the government, which sees movies set in Thailand as free international advertising for a lucrative tourism industry (and since The Hangover 2 mentions drugs and young prostitutes as some of the big attractions, you can draw your own conclusions about what the Thai government thinks is its big draw).
The Thai government uses generous tax incentives to lure in film production outfits looking to shoot on the cheap. For example, various film fees were waived when the crews agreed to shoot in special designated locations like national parks. Since Thailand is already a film production paradise because of its relatively weak currency (although it is strengthening) and its simple laws compared to other Asian countries, the incentives are formidable.
This is good for Thailand, but bad for the United States which has seen its film industry whittled away in the past decade, due to economics and aggressive subsidization from foreign governments. It is one thing if another country has an advantage in producing film to local expertise or low labor costs, but quite another if they are “juicing” their film industry at the cost of optimal production at some other location.
The result is a possible violation of free trade principles. If the U.S. produces a movie without subsidies and then another country subsidizes that movie, the same product is made, but more social welfare is expended to create it. Society's total costs are higher, accounting for the movie’s original cost plus the incentives a host government has to pay.
In other words, without subsidies, movies would be supplied in proportion to how much people all over the world wanted to watch them. We would get the most movies for our collective (world) dollars. With subsidies, however, the global community must pay more for our movies because we are now spending parts of government budgets to create them as well as the standard costs of labor and film.
I have been speaking in terms of welfare economics, but there may even be artistic costs to cinema protectionism. If movie producers are designing scripts in order adjust to economically favorable locales, then artistic choice is constrained. Of course, The Hangover 2 was a bad movie for all sorts of reasons, but it and movies like it could be slightly improved if the artistic decisions were more independent from economic concerns. For a vivid example of this fact, look at the Batman series of films, the latest installment of which has been moved from Chicago to Pittsburgh in an effort to take advantage of the city's incentives. I cannot help thinking that Gotham will suffer when played by the City of Bridges rather than the Windy City.
Obama would be wise to look into possible diplomatic or regulatory solutions to runaway production for all the reasons I have listed, the economic ones being more pressing. On numerous occasions, Obama has aligned himself with free trade; this is an opportunity to make good on that rhetoric, especially given that there are roughly 350,000 jobs in the film industry, with a disproportionate number of those being held by people under the age of 30.
The Hangover 2 is just one summer-blockbuster example of a problem and opportunity. The problem is higher movie costs and reduced American jobs; the opportunity is for Obama to lead the way to freer trade, not just in goods like steel and textiles, but in film.
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