Colin Miller, a law professor at John Marshall (Chicago), and a friend of (and occasional visitor to) the Lounge, asked me to make this post on his behalf:
It was recently announced that Vince Vaughn and Owen Wilson will reunite for Shawn Levy’s “The Interns,” about friends who lose their sales jobs and decide to intern at a tech company to get back in the game. Although the comedy likely won’t be timeless, it should be timely given everything from Ross Perlin’s"Intern Nation" to the New York Times discussing how unpaid internships are becoming the de facto gateway to paid positions for today’s college grads.
The announcement of “The Interns” inevitably brought to mind the stillborn “Outsourced” project to which Wilson and Vaughn were attached in the 2005 afterglow of "Wedding Crashers" becoming the top grossing R-rated comedy of all time. That project would have seen the two funnymen starring as downsized workers going south of the border to get back their outsourced jobs. The “Outsourced” project would have been prescient, but not for the reason that you might think.
It’s even less surprising to claim today that movies are America’s top export than it was in 1998. The United States and Canada accounted for a shade under 50% of worldwide box office at the turn of the century; by 2011, their piece of the pie had shrunken to 31%. When "The Hangover" supplanted “Wedding Crashers” as the top grossing R-rated comedy, it did so by a mere 32.5% domestically. But overseas, “Hangover” outgrossed “Crashers” by an astonishing 150.5%. 2 years’ later, Todd Phillips’ carbon copy sequel left its predecessor in its dust, more than doubling its foreign receipts.
That sequel was filmed in Thailand, which makes sense, given that the film was about one night in Bangkok. But since 1997, the percentage of films that take place in the States and yet are shot elsewhere has multiplied. From 1980-1997, motion picture and “service activities in Los Angeles County grew at a rate of 194% for employment and 248% for businesses." But from 1997-2007, the number of shooting days in Los Angeles decreased nearly 40%. So, why did 1997 represent the turning point and the start of a literal tectonic shift that has seen studios outsource the production of countless movies just as companies have done with their production of innumerable other commodities?
Blame Canada. 1997 was the year in which our neighbors to the north began offering generous incentives for studios to film their movies there. This explains why tourists to the Great White North can be forgiven if they think that they somehow stumbled upon the Great White Way. This “crane drain” soon extended across the pond as the U.K. and Eastern European countries began extending credit to entice American productions.
In 2005, when the “Outsourced” project was announced, the United States had not really responded. New Mexico and Louisiana became the first two states to dangle the lure of tax incentives before studios in 2002, but, as of 2005, they weren’t looking like bellwethers as few states had followed suit. But fast forward to 2010, when 43 states subsidized film and TV production to the tune of $1.5 billion a year.
These subsidies promised to funnel money into these states’ coffers, but so far it appears that they have buttered the other side of the bread. As reported on Sunday, from 2002-2010, New Mexico shelled out $239 million in interest-free loans to 22 movies and TV shows, and that’s not counting the $22 million doled out to Marvel for "The Avengers" (which did outsource its score, prompting protests yesterday).
But to date, each of these productions has left the Land of Enchantment disenchanted, save one. 22 of those 23 productions resulted in New Mexico not sharing in any of the profits, with the one exception being "The Book of Eli," starring Denzel Washington, the most reliable box office star of the last few decades.Similar claims have been made about Louisiana, the other early adopter, whose fortunes are unlikely to change after it doubled for Oahu in the dead-in-the water"Battleship." The song seems to be the same wherever you look, with stories about states hemorrhaging money from their film tax incentives running along side stories about filmmakers abusing them.
In a new article, Down the Rabbit Hole: The Madness of State Film Incentives as a 'Solution' to Runaway Production, 14 U. Pa. J. Bus. L. 85 (2011), Adrian H. McDonald argues that the outsourcing of American film productions created an (arms) race to the bottom, in which state after state bent over backwards to studios by offering more and more generous incentives for movies to be filmed within their borders. Only now, “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."
So, what’s the solution? According to McDonald, it is again following Europe’s lead and calling a sort of détente. In 2011, the European Commission launched a study that concluded that the “use of public subsidies” by European Union member states “in effect leads to competition with other Member States [that] is detrimental both to the sector and to European taxpayers." And while this study has not yet resulted in action, McDonald argues that the United States should be proactive and use its Commerce Clause power to preempt state incentives and enact a national film incentive. According to McDonald, if the U.S. enacted a national film incentive, "it could bring a swift end to the costly race among not only the other states, but also across the planet."
I agree and think that this debate in many ways mirrors the debate between Democrats, who (kind of) wanted to nationalize health insurance, and Republicans, who wanted to allow consumers to purchase insurance across state lines, pitting states against each other. And, unlike with the individual mandate, I don’t think that there’s an argument that a national film incentive would be unconstitutional because making movies clearly implicates interstate commerce.