Sunday, July 19, 2015

Canada, Subsidies, The Free Market and Intractible Reality

NOTE: I am reproducing this essay from my old blog "Random Notes" as it is cited in an upcoming post.

Since most Americans seem to know as little about Canada as they do about, say, Laos1, most Americans don't realize the degree to which our northern neighbor abhors the free market, even though they pay lip service to it.Americans are well aware of the drug subsidies and socialized medicine, but that is not so unusual, America is rather unique, or was until the current administration, in avoiding the stupidities of socialized medicine2. However, Canada goes much, much farther. For example, Canada maintains a massive subsidy for children's programming produced in Canada, using Canadian talent, which explains why so much of children's programming has a Canadian pedigree3,4. And then there are movies and television, which form the basis of my essay today.

Canada tries very hard to maintain a domestic film and television industry. To a degree, this is just part and parcel of their European-style state socialism, which demands the state own and run broadcast television. Canada is not quite as successful at this as most European nations, as Canada's neighbor tot he south has many non-state networks which often reach well north of the border. But Canada still tries. And, to provide content for this state television network, as in Europe, Canada must have domestically produced content.

However, most of Canada's efforts, especially in the realm of film subsidies, is the outcome of Canada's envy of her southern neighbor's domination of the entertainment market, not just in North America, but in the world. Of course, much of the world envies the success the United States has enjoyed in selling entertainment worldwide, but Canada seems to suffer a particularly strong case of envy, perhaps because of a general feeling of jealousy for her neighbor. Whatever the reason, Canada has shown a determination to maintain a domestic film industry unmatched in much of the world5.

Canada has, so far, avoided the periodic calls to require domestic cinemas to display a quota of Canadian content, but that such a call could be made at all, and taken seriously, shows how strongly Canadians believe in their efforts to subsidize a failed entertainment industry6. And it is that particular failure, and the reasons behind it, which interest us, and about which this essay shall concern itself.

Economic theory tells us that subsidies will always result in producing more of a good than is desired, leaving the market filled with good no one is consuming. Obviously, that is not a model which fits entertainment precisely, as entertainment is not used up in the way bread or shoes are, but there is still no doubt that subsidies result in the production of unwanted goods. In this case, movies that few people want to watch.

Of course, subsidies change the dynamics of film making as well. In a free market, film makers tend to be concerned first and foremost with viewers, and so they produce films they think will enjoy popularity, and once they have made them tend to market them heavily to ensure success. Subsidies change both dynamics, resulting in content which is divorced from public interest7, and in films which are weakly marketed, if that. Not only does the system of subsidies allow films with little prospect for success to be made, but they create an atmosphere where there is little incentive to try to improve the marketability of the film through advertising as the like8. The system is designed in such a way that it creates an environment where the participants are content to make middling failures which are mildly profitable thanks to subsidies.(As well as the sale of television rights to channels mandated to buy a certain percentage of Canadian made films.)

And then there is the problem of how to select which films to make. In a commercial environment, the answer is easy, the investors fund films they expect to make a profit. If they succeed, they make more money and can make more decisions, if they are wrong, they lose their money and gradually lose their voice. (The exceptions being in those lands with strong government involvement, such as the tale -- true or not -- that Uwe Boll continued to find German backing because German tax laws allowed a 100% write off of funds lost on an unprofitable film, making his record of non-stop flops a magnet for tax shelter money.)

But government funding is not interested in success, it is there to create "culture", or "develop a domestic industry" or some other mandate which is open to an infinitely subjective interpretation. And the investors are not held accountable for losses either, so there is no need to worry about the returns. All of which means that such funding ventures end up becoming the private domain of one clique or another, which can hand out money based upon their own vision, whatever that may be. In short, the money of the people is taken to fund the pet ventures of a small group with political connections.

And that is where the subsidies end up creating unconsumed content. Obviously, it is not the same as foodstuffs, or cars, but it has the same result. In terms of subsidies, what we have are, first, films being made which would not be made in a competitive market, and, second, films receiving funds all out of proportion to their anticipated audience size. In other words, money that would have funded a film reaching tens of millions in a competitive market would be spent on a film reaching hundreds of thousands, if that. Or, to make it more economic, the dollars paid per amount of satisfaction received is many times higher in a subsidized system than a competitive market.

Of course, those who favor subsidies claim they are preserving art, but one must ask how. Who is defining what is art worth preserving and what is not? And how did they gain that status? In the end, the truth is, the subsidies are forcing one particular vision of art on the market, just as the commercial model does, the subsidy model differs only in being based on political connections rather than broad appeal.

And that is the result of the Canadian film industry. They have produced endless films no one has seen, all so they can boast of a national film industry.

What is amusing is, if they truly wanted to have a thriving film industry, they could probably succeed on a smaller scale, by following the model of Vancouver. Vancouver has become a magnet for low budget television production because of the lack of union pay scales. If Canada in general were to create an environment friendly to lower budget films, they could probably do away with subsidies entirely and develop a thriving market in US-Canadian co-productions designed to keep costs to a minimum. Of course, it would not allow the strong nationalist boast of a purely Canadian film industry. Then again, economic nationalism is as disastrous as all nationalism, and so probably should be forgotten.

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1. It is odd, but most people I have met seem to know more about France, England, even Turkey, Egypt or South Africa, than they do about Canada. We in the US have a general impression of Canadians as mild-mannered, rules obsessed, and somewhat rustic individuals obsessed with printing everything in two languages, but beyond that general impression, we really don't know much about them. Nor do we seem very curious about them. Which probably explains the lack of knowledge.

2. For those who did not read them, my criticism of universal health care, or whatever the current term is, can be found in "Preexisting Conditions", "The Absurdity of Mandatory Insurance", " High Cost of Medical Care", "Medical Reform, An Overview", "Of Wheat and Doctors", "Redefining Insurance... To Actually BE Insurance", "The Insurance Sham" and "Cost Conscious Medicine".

3. See my article "Am I Getting This Right?".

4. Low budget television is similarly dominated by Canadian, specifically Vancouver-based, productions. However, this is not so much the product of subsidies as the ability to avoid paying the union (SAG, ACE, etc) wages demanded in the US.

5. Canada is not the only nation to subsidize domestic films -- some nations even control which films are allowed and which are not -- but Canada seems unique in continuing to subsidize those films even when there is little expression of public interest. Of course, other nations have enough linguistic and cultural differences that domestic film industries offer something Hollywood cannot, while Canada must compete with highly successful, popular films made in the same language from a roughly similar culture. 

6. I suppose I should differentiate between Canadian movies, Canadian domestic television and television productions made in Canada by foreign companies, or by private domestic firms for foreign consumption. The film industry is the most clear cut case of failed subsidies. Canadian domestic television was once the same, but the hunger of US cable networks for cheap programming has given that industry a boost. The final category, or pair of categories, really don't apply, as many receive no subsidies, and those that do receive them only incidentally, and their main focus is, as mentioned before, avoiding union costs in the US.

7. Some would argue this is the benefit of subsidies, they allow artists the freedom to follow their calling without worrying about how commercial their output is. However, that can be stated in the opposite direction as well. Subsidies force the public to pay for movies in which they have no interest. (Not to mention that subsidies do not grant artistic license, like grants they simply replace the ability to curry favor or impress bureaucrats and panels for pleasing the public at large. They are not a ticket to total artistic freedom as many claim.)

8. I won't go into this in great detail, but the basic reason is easy to understand. Film making is risky, and advertising is costly. If a film cost little enough that the subsidies allow it to break even, then any earnings are pure profit. On the other hand, if money is put into advertising, it is possible to suffer a loss. Since advertising does not guarantee success, and on average more films fail than succeed, the net result of advertising, barring an occasional blockbuster, would be to suffer a net loss. As Canadian films have a relatively bad reputation, mostly due to subsidies, the likelihood of a blockbuster is small, and thus advertising looks like a losing proposition.

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POSTSCRIPT

An interesting take on this topic, at least in terms of English language Canadian films can be found in the article "English Canadian Films: Why No One Sees Them". One quote from a film insider stands out: 
"It's a public service, paid for by the Canadian people. But we are not making movies that people want to see. If we made roads that nobody wanted to drive on, that would be hard to defend as a public service."
That is actually the best statement ever for ending arts subsidies. If arts enjoy popular support, then they will thrive on their own. And if they don't enjoy support, if no one wants them,. then why should we fund them? I have said it many times, but it bears repeating. Subsidies do not grant artistic freedom, they simply change the need for appealing to the public to a need to appeal to regulators, or boards of artists. In other words, it replaces the market with patronage by a select clique. How can anyone claim that is "artistic freedom"? It simply replaces pleasing a mass audience with pleasing a restricted one, but one with political pull.

On a final note, I do not agree with all the statements made in the article, as it seems much friendlier toward subsidies than I am, but it is interesting to read how even a subsidy booster finds Canada's system horribly broken.

Originally posted in Random Notes on 2012/04/30.

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