Tax of the day

The French government — surprise, surprise! — is considering introducing a new tax on smartphones and other internet activities, in order to finance the “cultural exception”. I can already hear Ayn Rand laugh out loud in her grave — she could not have made that up. This new proposal is, as always, based on a report, this time by Mr. Pierre Lescure, who happens to be a long time insider of the French media industry. Essentially Mr Lescure recommends taxing another industry in order to subsidize his own industry. This is what passes for expert opinion in nowadays France.

As always we are served the usual trick that the new tax is supposed to finance something good (how can anybody be against “culture”?), as if money were not fungible and the “cultural exception” did not have plenty of financing already from the general government budget. This rhetoric generates the false impression that “culture” would starve if the new tax were not implemented. This kind of device is very efficient in settings like TV debates where in order to make his point, an adversary would first have to deconstruct that fallacious link before arguing that no new tax is needed in a country which is the virtual world champion of taxation, at which point he would have run out of his 20 seconds allotment anyway.

According to this website, the country in 2002 spent 12 billion euros per year on state support for culture, which is about 200 Euros per person, as opposed to 9 billion in Germany, which is 112 Euros per person. This does not prevent Germany from having, for example, 7 times more opera performances per year than France. So it seems quite dubious that there is any need to impose another tax on a dynamic sector to support the entrenched French cultural industry.

In fact there is already a tax on phone operators, instated in 2007, whose proceeds are paid to the CNC, the main administration in charge of running the state-supported film industry. A recent report pointed out that, as a result the CNC sits on a pile of money. The report complains about the opacity in the accounting and the use of the funds (the CNC knows too well that a golden rule of public management is never to report having too much money). In 2007 the Right was in power, in 2013 the Left is in power, but the “cultural exception” is one of the many areas that are left out of the debate (and therefore out of the people’s choice)  thanks to cross-partisan manufactured consensus.

A lot of the financial support goes to the movie industry that has gradually emerged over the years as a powerful lobby. On the demand side, there are quotas that force TV channels to buy French productions. On the supply side, a system of advances insures film makers against loss making — the government lends you money to make a movie and you reimburse that money only if the revenues exceed the amount of the loan.

The system creates an incentive to produce a large number of mediocre movies where people use the advance to pay themselves fees, do not plan (or at least expect) to be able  to pay it back, and have zero incentives to invest in the movie and its promotion. That is, those movies lie in the zone where at the margin, any additional revenues would be eaten by repaying the advance.This is the economic reason behind the stereotype of the pretentious French movie being shot in a parisian apartment with two actors and one camera.

Also, the money is allocated by a commission of bureaucrats who inevitably pick projects according to their own personal tastes. Somebody said in an (English!) movie: “The whole point of being in government is that if you don’t like something, you make it illegal”. Similarly, the whole point of being in government is that if you like something, you make others pay for it.

As a result, the French movie industry is oversized. France produces 240 films per year, which is more than twice the UK or Germany, and as much as half the US output. (Interestingly, Spain produces 173 films per year. Can anyone outside Spain name 5 Spanish movies produced last year?). France organises 166 film festivals per year, far ahead of the next contender, Germany, which organizes only 20.

Usually such figures are celebrated as a sign of good health for the French film industry.  This could be the case if, for example, we had a comparative advantage in that industry. Are we good at exporting movies to our neighboring countries? Picking a culturally close country, the reader can look at the Spanish box-office for 2012. It’s actually not so bad (we’re much better at exporting movies to Spain than at being interested in Spanish cinema, despite all the talk about “Europe”), but presumably these successful French movies could have lived without subventions, and they remain a tiny part of the overall production. This is hardly evidence in favor of comparative advantage or the value of those subsidies.

It is also known that 60 % of the films get less than 50,000 viewers in theatres. According to some popular views, many films are in fact never shown in theatres; only some TV channel will fulfill its quota by airing them in the middle of the night. I do not have to go far  to check this hypothesis. Today, at 8:55 PM on prime time, the French pay TV canal+, one of the main defenders of the “cultural exception”, in which Mr. Lescure used to be a CEO, is airing Moonrise Kingdom, an American movie featuring Bruce Willis. And at 2:25 AM, it is broadcasting de l’huile sur le feu,  by  Nicolas Benamou, starring Nader Boussandel andTien Shue, a 2011 release which lasted one week in theatres, with a grand total of 22,000 spectators.

You got it: we need more tax money for the French cultural exception, so that Canal+ can continue to broadcast Bruce Willis movies at 9 pm and French movies that nobody wants to see in the middle of the night.

The more oversized the sector, the more we can expect it to be vocal in order to maintain and extend government protection. It can count on an army of foot soldiers who should be doing something else absent the subsidies and who do not want to face the hardship of the French labor market, which is as cruel for job seekers as it is favorable for job holders. Indeed a long time ago I wrote a paper that nobody was interested in publishing but that showed that under rigid labor market institutions, public policies were more persistent. The idea is that any change in policy entails labor reallocation, and those being reallocated expect to lose the rents associated with their initial jobs, thus having an incentive to organize against a reform. Those rents are larger, the more difficult it is to find another job, i.e. the more rigid the labor market. Thus the more rigid the  labor market, the more society is averse to change. Persistent overproduction in the French film industry is a case in point.

 

 

Advertisements