Adding to its woes, California is constrained in how much it can compete with other states when it comes to bribing filmmakers to do business there. The production incentives offered by other states can offset as much as a third of a production’s budget, which make the prospect of a project there much more attractive to investors. There is a diseconomy of scale at work: Places without big film and television industries can offer more generous, more or less open-ended, tax incentives to production companies. (If you’re wondering why Iron Man 3 was made in glamorous Wilmington, N.C. . . . ) They can do so because they are not reliant on tax revenue from the film industry and are therefore willing to forgo potential revenue in exchange for the economic activity generated by the project. But California cannot afford to do that. Sacramento expects to be subsidized by Hollywood, not the other way around.
In many cases, competing states are not really giving up any revenue at all — they are simply attracting economic activity in exchange for forgoing tax revenue that they were never going to realize in the first place. Refundable tax credits take things a bit further, in essence repaying producers a percentage of every dollar they spend in the state on a project. In the case of Iron Man 3, North Carolina spent $20 million (its legal cap) subsidizing the project, in exchange for (if we take the Motion Picture Association of America at its word) some $179 million in economic activity related to the film. This rubbed some locals the wrong way: While Iron Man 3 was being subsidized, Continental Tire was considering building a new factory in North Carolina. Iron Man 3 created a few hundred local jobs, most of them temporary. The tire factory would have created some 1,600 long-term jobs. But tires aren’t as sexy as movies, and the tire company wanted a larger incentive package, which North Carolina declined to offer, thereby losing the factory to South Carolina.
(All of the above will of course offend free-market purists; I share your dismay and offer this as an account of how the world works, not of how it should work.)
We should not turn up our noses at tire factories, even if they do not smell as nice as the Frito-Lay factory where I grew up. We should not turn up our noses at any sort of productive enterprise. But we probably should start to account for the fact that the factory town is going to be more and more a thing of the past, and that the tradeoff for the creativity and efficiency of modern business practices is instability and unpredictability. That is really the source of a great deal of modern American economic angst. Even if the men of my generation are in real economic terms better off than our fathers, which is not universally the case, the possibility of going to work for a good company after high school or college and working our way up to a comfortable middle-class life and decent retirement after a lifetime at the same company never was really open to most of us. My father had two employers over the course of his real working life; I’ve had about eleven, and I’m not even halfway through my working years. If that causes anxiety for individuals, it causes even more anxiety for cities and states. California already knows it cannot depend on Hollywood for much of its economic future, and the smart people in Sacramento must surely appreciate that they probably cannot count on Silicon Valley in the long term, either. The most important enterprises increasingly are not geographically fixed. That’s a very hard thing for workers who are geographically fixed and for governments, which are by definition geographically fixed.
If politicians could simply create a set of policies that would bring desired businesses to their jurisdictions, they would do so. Everybody wants movies and high-tech companies, and everybody with good sense wants factories, warehouses, and energy producers, too. But politicians cannot do that. As California has shown, they cannot even design policies to preserve what they already have. From the Reagan years to the present, there has been no progress on that front, even when there was a Hollywood man in the governor’s office.
Economic conditions and markets will always change more quickly than public policy can account for. The question for Mr. Garcetti and for the ladies and gentlemen in Sacramento is not how to keep the movies and television shows in California but how to make California an attractive place to do business of any sort. That begins with admitting to themselves that if Silicon Valley and Hollywood weren’t already in California, nobody in their right mind would move them there. California’s fiscal instability, its rapacious unions, its enterprise-deadening public sector, and its recent experiments with ex post facto taxation all must give pause to investors, as must the plainly unsustainable finances of the state as a whole and the city of Los Angeles in particular. A film czar isn’t going to turn that around, and California doesn’t have enough money to bribe its marquee industry into staying put. Saving California means deep and wide top-to-bottom reform, which means dispatching a whole herd of sacred cows to the slaughterhouse. If Eric Garcetti is the man for that job, he has never given any indication of the fact. The fact that he’s still thinking in terms of czars and chickenfeed incentives suggests that he is miles away from understanding the nature of the problem.