The Madness of State Film Incentives

The Madness of State Film Incentives


I received the copies of my brand new law review article from The University of Pennsylvania Journal of Business Law today and I am very happy to share the new article, in its entirety, now that it is officially published!

The following excerpt is the thesis from the 81-page article (which you can read here: Down the Rabbit Hole: The Madness of State Film Incentives as a ‘Solution” to Runaway Production) and it represents the official position of this site regarding the use of state film incentives as a weapon to stop runaway production:

At the close of 2010, almost every U.S. state offered some level of significant production incentives in the hopes of becoming the next Hollywood North, Hollywood South . . . the “Hollywood anywhere.”  Sadly, many of these cash-starved states are beginning to realize that the perceived economic benefits of film incentives are, essentially, Hollywood special effects; they may look real, but they are an illusion.

What should have been a national solution to runaway production, using a single film incentive to protect the potent concentration of the Hollywood industry cluster in Los Angeles (and, to a lesser extent, New York), was bastardized into a state level tool that serves self-interested short-term “benefits” to individual states.  In the short term, jobs remained in the U.S. as opposed to going to Canada, but this was achieved by selfish, outrageously expensive and unsustainable policies that served to hurt not only the cash-strapped states enacting them, but also the entire nation.  The race to the bottom of U.S. states enacting film incentives has been a costly distraction from the threat runaway production poses from other nations.  Film incentives are a weapon that the nation can use to defend itself.  But like any weapon, the nation needs to understand how to operate it.  With film incentives, the fundamentals are like that of a gun.  Instead of pointing the gun at the other nations causing runaway production, the U.S. has been shooting itself in the face.

In addition to the problem of states fighting each other rather than responding to threats on an international level, convincing critics that a national film incentive is needed will prove difficult.  While production incentives can be employed to combat the effects of runaway production, they also have the effect of causing runaway production in other locations.  One of the common arguments against the use of film incentives in the U.S., at least at the state level, is that taxpayers are subsidizing an economic activity that would have taken place anyways, even in the absence of film incentives.  Hollywood, after all, will continue to make movies.

While this argument has a logical appeal, it is fatally flawed for a number of reasons.  First, in places where there is no film industry or very little production activity the argument that activity would have taken place there anyways is simply not true.  For example, in 2002, the year before Louisiana enacted its first incentive, production spending was just $3.5 million.  In 2010, after nearly a decade with an increasingly generous film incentive, production spending in Louisiana soared to just over $674 million, representing an almost incomprehensibly enormous increase.  Thus, at the state level in Louisiana, the argument that the film incentive is rewarding economic activity that would have taken place anyways is patently false.

Indeed, the argument that film incentives reward economic activity that would have occurred anyways is only valid in hypothetical scenarios.  If the U.S. economy existed in a vacuum detached from the global economy and no states offered film incentives, the economic activity from film and television would still take place; it would occur almost exclusively in California and New York.  In such a vacuum, it would be a waste of money for the nation to reward economic activity already benefiting the nation—and even more wasteful for California or New York to do so alone.  Taking this logic to the global economy, but for significant film incentives designed specifically to decimate and relocate Hollywood abroad, most film and television production would occur in the U.S.

But this hypothetical argument rests on an assumption that has no basis in reality.  Film incentives exist.  They are a weapon being used to wage economic warfare against the U.S.  Film incentives, like any weapon of war, were designed to cause maximum damage to the intended target.  For example, Canadian-designed film incentives cause runaway production by attempting to erode the comparative advantages the U.S. has from its concentrated industry clusters in California and New York.  These clusters are the key to the U.S. film industry’s global dominance, and policymakers in the U.S. seem completely oblivious to this monumentally important fact.

If the United States has a national interest in preventing runaway production to foreign nations, then having all fifty states competing with each other is not only counterproductive, but it is financially devastating to numerous state governments unable to sustain the huge amount of funds needed to pay for production incentives.  Any hope that film and television production will remain in states with no history in the industry once the production incentives cease is wishful thinking.  If the industry cluster in Los Angeles remains viable in the short-term, ending incentives in U.S. states outside of California and New York should result in a return of some to those two traditional locations.

A more likely result is that productions will, in the absence of domestic film incentives, flock in alarming numbers to locations abroad.  Just dealing with Canada and its film incentives was damaging to the United States.  Now, however, the nation faces a new host of opponents who have imitated the Canadian model of attack at the same breakneck speed at which it was adopted in almost every U.S. state.  The race to the bottom, certainly in the United States, must end.  It should be a concern for other nations, not this one.  With a national incentive combined with the advantage we already have from the industry cluster in Los Angeles, the U.S. would not have to compete in a race to the bottom.  In waging economic warfare—and military warfare alike—it is much easier to defend than it is to attack.  For each dollar the U.S. spent on protecting the film industry, the competition would need to match it with thousands more.  The international race to the bottom may prove too costly and the gains, if any, insignificant enough to sustain an industry without the steady stream of productions that require government spending to attract.

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