Malta has become a popular place for film productions. Even some very large Hollywood blockbuster are being filmed here. The most prestigious movie currently being shot on this Island is the sequel of the very successful movie Gladiator, directed by Ridley Scott. Personally, I loved the original and will certainly watch the sequel.
One can imagine good reasons to film in Malta. While small, it has a very stunning scenery and over 300 days of sunshine a year. In that, it is similar to California. But there is another, more compelling reason, why movies are being shot here. The government is simply paying film makers to do so.
And they are not getting a small token. The subsidies are quite generous. The production companies can claim back up to 40% of their Malta related costs from the government. This turns out to be one of the most generous film subsidies anywhere ever.
To put it into numbers, as the Times of Malta reports, within five years, €143 million have found their way from the Maltese taxpayer into the pockets of film production companies. €47 million alone are being spend to support the new Gladiator movie.
These are quite large numbers for any country. But they are truly astronomical for a small country like Malta. Given that there are about 300 000 tax payers in Malta, each and every one of them subsidises Ridley Scott’s new film involuntarily with over €150. And they will then again have to pay for a ticket later if they want to see the film.
These numbers have cause some outcry by the public, and rightfully so. The excuse by the government is that this is not lost money, but an investment that will pay off. How exactly it is going to pay off, however, is not clear?
It is certainly true that the real cost to the taxpayer is going to be less than these numbers. The crew is going to spend some money in Malta with local companies, who will then pay some of that money back in taxes. But obviously that way, Malta will not get all of the “invested money” back, as taxes are not 100% in Malta. Therefore, most of that money will indeed be lost for the tax payer.
What else could generate a return on this investment? Not much, really. Malta does not get a cut on the box office profits. If it did, the government would have at least a chance to get taxpayer money back, as the film might do very well. However, investing in films is highly speculative.
Maybe some tourists will come to Malta, just to visit the place where one of their most favourite movies were shot. Maybe! Malta has no shortage of tourists though. Chances are high that most tourists will come anyway, with these film production just being the icing on the cake. It is very difficult to imaging that extra tourists will come in large enough numbers to make this investment work, not even close.
Will we ever know, whether this film made a profit for Malta? No we won’t, we cannot. That is the big problem with governments “investing” into the economy. There simply is no profit and loss calculation for these investments.
A private company can see at any point if what it is doing is worth doing. It earns money and has expenditures. If the money earned is higher than the expenses, the company makes a profit. That way, it knows that what it is doing is worth doing. Similarly, a loss will signal that the current business model is destroying more wealth than it produces. Therefore, if there is no change in sight, the company will have to change its operations or go out of business altogether.
There is no such calculation for government investments. When governments are spending money they are simply guessing that the activity is going to return a profit. But since this can never been calculated, there is no feedback mechanism that signals to the government to stop doing what it is doing. As a consequence, wealth destroying activities will be continued for a long time.
In fact, there are many things the government is doing that destroys (consumes) wealth that will nevertheless never be abolished. Only if a government activity becomes so wasteful that even an idiot can see the mistake in continuing it, maybe enough public pressure arises to abolish this government program. It looks like, the Gladiator sequel might be this inflection point for film subsidies. One can only hope so.
It has to be said that Maltese taxpayer is likely going to be the only one making a loss. With or without subsidies, Ridley Scott’s sequel will probably be very profitable for the production companies. The subsidies will simply end up being a wealth transfer from the poor Maltese workers to the already rich Hollywood studio owners and actors.
How much more wasteful activities does the government engage in? We cannot know for sure. However, a good estimate is that almost every government economic activity ends up destroying wealth. It is not easy to run a profitable enterprise. Few entrepreneurs succeed at all in building profitable businesses. Those who do, usually need many attempts before they find something that is profitable.
If even talented entrepreneurs, who have the feedback mechanism of the market to judge their activities, have trouble building profitable companies, what are the chances that a politician can immediately find a profitable activity simply by guessing? Even worse, what are the chances that a politician can find such an activity and then run the activity efficiently enough to make it produce more wealth than it consumes?
We do know the answer to that from a long history of government involvement in the economy. We also have good economic theory that explains what we see in history. The answer is crystal clear, the chance of the government running anything, and I mean anything, in a way that will actually be beneficial for the population is pretty much non existent.
It basically cannot possibly be done, except for a few idiot proof businesses like extracting and selling natural resources. And even here, governments are often not terrible efficient in running these operations. In addition, for those governments who engage in such activities, the profits rarely benefit the average Joe. Instead, it more often than not finances the power of a corrupt oligarchy.
Governments cannot run profitable, wealth producing businesses. But it is even worth than that. All the funds the government is investing has to be taxed out of the productive economy. That means that the government will first have to take the money away from already profitable activities to then give it to unprofitable activities. This puts a lot of profitable activities out of business, a double loss for everyone.
Can you imagine how rich we would all be if people understood this? Our standard of living would be truly spectacular if we did not have the government dragging us all down into the mud.
Unfortunately, very few understand this. Worst, from my experience it is very difficult to explain it to people. Instead, time and time again, they fall for the sweet poison of socialism, promising them something for nothing and a more just world. It is a lie, but one that most people are willing to believe. The result is a society in which many people are struggling to make ends meet. The government should not be involved in the economy, period.
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