Gordon Campbell on the government’s war with itself

All hands in the crew steering the good ship NZ Inc are supposed to be (a) pulling their own weight and (b) pulling in the same direction. Clearly, this wasn’t the case here in a decision making process that initially sailed straight past what few checks and balances exist in the New Zealand system when a high ranking Minister like Bill English seems intent on having his way. Note how Georgina Te Heu Heu wanted all the relevant facts about the Pacific Economic Development Agency (who had been given $4.8 million in the Budget in mysterious circumstances) on the one A3 sheet. Anecdotally, such demands for single page or very limited briefings have been one of the defining features of decision making by the current government.

Similarly, the OIA release of background documents earlier this week on The Hobbit saga contains evidence of dubious decision making processes in government. By my reckoning, there are four main areas of concern.

1. Paying for Peter. As indicated below, even the most successful, cutting edge entrepreneurs in the private sector seem to be still dependent on government handouts to pay for their research and development.

That’s the only conclusion to be drawn for instance, from the MED’s 30 October 2009 memo to MED Minister Gerry Brownlee, briefing him for his visit to Park Road Post and Weta Digital. For example :

The government has provided support to several aspects of Weta Digital’s development, including the recently announced $5.8 million of Tech NZ funding to help establish a dedicated r&d unit, strengthen connections with local and international research groups, and develop a long term r& d programme.

The investment will support Weta Digital to :

• achieve higher photorealism in synthetic images;


• provide more creative control over the appearance of effects


• create higher overall production efficiency;


• compete through innovation rather than price; and


• diversify their product/service mix.

Weta Digital also indirectly benefits from the Government’s Large Budget Screen Production Grant…..[in addition] The 24,500 square foot ‘Kong’ sound stage, New Zealand’s biggest purpose built sound stage, was built in 2004 with the assistance of a $2 million grant under the Major Regional Initiatives programme.

It is somewhat mind boggling that this late in his career, Peter Jackson would even apply – let alone be given – a government subsidy to develop a ‘dedicated r& d unit’ at Weta Digital, and thereby ‘develop a long term r&d programme.’ You mean if taxpayers hadn’t paid for it, Weta wouldn’t have an r&d programme ?

Arguably, government subsidies should not be means tested, but that additional $NZ2 million to help build the Kong sound stage in 2004 was handed over at roughly the same time Jackson was reportedly pulling down a $US20 million fee for his work on the movie. Little wonder that the New Zealand private sector has one of the lowest r&d investment rates in the entire OECD. Are such gifts a hand-up or a handout? You be the judge, because you’re paying for it.

2. Alien vs Predator ? No, its Treasury vs MED. Just as disturbingly, the relevant government departments can’t seem to get their act together. Judging by the OIA papers, Treasury and MED remain totally at odds over whether taxpayer support for the film industry is justified, does contribute to jobs and upskilling in the film industry, or adds value to the wider New Zealand economy.

Frankly, it seems incredible that such smart people can analyse the same processes, and reach such wildly different conclusions about them. Treasury for instance (11 February 2010) remains deeply hostile to the Large Budget Screen Production Grants Scheme (LBSPGS) and repeats its disputed 2005 evaluation. The Treasury document states :

• the baseline net economic impact of the scheme was a loss of $9m [ in parenthesis, Treasury says its impact estimates varied between a $38m loss, and a $33m gain. [In a footnote Treasury concedes that MED thinks the 2005 sample was too small…and is thus, presumably unreliable. So, why does Treasury keep peddling this dubious and outdated evaluation? Answer: because it backs up Treasury’s prejudices.]
• very large budget films that come to New Zealand usually did so for quality and creative reasons rather than economic reasons; [Treasury provides no evidence for this assertion, which was rejected this year by Peter Jackson in his review of the Film Commission.]
• there was limited quantitative evidence of spillovers within the film industry or wider economy.

That last assertion is particularly weird. By the same yardstick, the Rugby World Cup would probably struggle to meet Treasury’s standards as well. (Maybe we should cut our RWC losses right now, and call the whole thing off.) Read the MED on the virtues of the LBSPGS though,and it is like we are living on a different planet. It sees everything that is invisible to Treasury.

On 22 April 2009 for instance, MED told Brownlee that : “ The scheme aims to increase economic growth by providing a financial incentive to attract large scale screen productions to New Zealand, which would be unlikely to come in the abscence of such incentives.” Soooo…. who should the Cabinet be listening to - Treasury, which thinks major film projects would come here without any subsidies, or the MED (now backed up by Peter Jackson) which thinks they wouldn’t come here at all without them?

While Treasury sniffs at the alleged lack of any evidence of benefits to the film industry or to the wider economy, MED begs to differ. Yes, it says, (see its memo 10 February 2010) Avatar received an estimated $52.1m under the scheme, but this was based on qualifying expenditure of $357.878 million. Presumably, Treasury thinks James Cameron and his Avatar project came here purely because it likes working with Kiwis and loves the scenery, and spent over $350 million without any benefits or taxable revenues to the New Zealand economy. In its backgrounder to Brownlee, MED was very forthright about the spillover benefits of the LBSPGS :

..Many of the films produced in the Miramar facilities access the Large Budget Screen Production Grant. Large budget films such as those produced in Miramar have a significant effect on the capability of New Zealand production crews and our technological abilities. They offer wider benefits to the economy in the form of spinoff technology companies (such as games company Sidhe Interactrive, and Massive Software’s digital crowd-simulation programme) and driving the development f innovative technology in areas such as digital effects.”

So Treasury and MED remain at total loggerheads over the worth of the LBSPGS – and yet this scheme is to be evaluated by them next year. Who will be in charge of this evaluation? Would it be asking too much for the relevant Ministers to sort out Treasury’s ideological objections to this scheme, sometime before the review gets under way?

3. Don’t Do It, Maurice. You and I elect governments to make decisions on our behalf. We do so assuming that they will have at their fingertips the best possible basis for making those decisions. The OIA papers are really disturbing on this point. What they reveal is the impact of the government’s public service funding cutbacks on its ability to plan, rationally.

Go back to say, April /May this year. Peter Jackson is about to deliver his review of the Film Commission, and in its wake, government will face some tough decisions about the sector. The Hobbit is just visible over the horizon. The government knows that in 2011, it will be conducting a major review of the LBSPGS, the prime magnet for bringing Hollywood productions to this country. Also, MED Minister Gerry Brownlee is preparing to assess the value of the film sector’s returns to the New Zealand economy – in upskilling and jobs, generating taxable revenue etc.

So faced with all that, what does Statistics Minister Maurice Williamson plan to do ? As a cost saving exercise, he decides to scrap the department’s film industry survey, the only reliable source of statistical information about the film industry. Poor Gerry. Just as he’s trying to establish a rational basis for his film industry support initiatives – and give Treasury the kind of evidence that even it cannot dispute – along comes Maurice, to abolish the only reliable means of collecting the relevant evidence. On 10 May, Brownlee had to write to Williamson and urge him NOT to scrap the Statistics Department’s survey. Eg. “ Given the priority this government has assigned to screen sector initiatives I would be very reluctant to see this survey discontinued.”

Oh and by the way, could Williamson also back off his plans to scrap other crucial data sources as well? Like, there is a recession going on. Informed decisions have to be made. Did anyone tell Williamson ? “ I would also be concerned if the proposal to rationalize the monthly Retail Trade Survey with the Electronic Transactions series reduced the availability of data to track the economy, and for regional analysis.” Great work, Maurice.

4. Hey, Lets Build Them More Sound Stages Too. While a fair degree of public outrage has been expended on the extra money handed out to Warners to sweeten their Hobbit pie, the OIA papers indicate a possible realm of future largesse. There is a lack of sound studio space here, the papers suggest (see MED paper, 17 July 2009) that is creating a bottleneck in New Zealand’s ability to attract major film products here. (True, the MED concern about this was written before Disney pulled out of the Waitakere studios – but also before The Hobbit began to tie up the Miramar sound stages, and before the arrival of the next two Avatar projects, all of which will soak up existing capacity.)

So what does government see as the solution ? The MED cites a report it commissioned in 2006 to the effect that:

International film-makers perceive there to be a lack of high end, international quality studio infrastructure in New Zealand,. And again suggest that productions are choosing not to film in New Zealand due to a lack of international standards studio space available.

Would the private sector be willing to take the risk involved and build such facilities, allegedly so necessary? Are you out of your mind?

The report states the unpredictability of demand in the industry and need for capacity to allow growth to occur, means that the private sector does not fund all of the necessary infrastructure As such, private-public partnerships, and to a lesser extent, wholly government funded studios, are common.

You could hardly get a clearer example of how the public are being expected to shoulder the risks under public – private partnerships, and enable the private sector to cherry pick the profits. The recommendations conclude :

MED and Investment NZ recommend that the issue of studio infrastructure demand needs to be considered at a national level, taking economic development priorities into account….At this stage, it is likely that any recommended government support would be for a large, international class facility capable of attracting large budget productions (and therefore more economic benefit) close to existing facilities – eg in Auckland, or in Wellington..

Finally, the memo urges that such potential gains from investing in sound stages be weighed against the competing advantages of targeted assistance to post production digital and visual effects. Either way, Peter Jackson seems a likely contender for further government assistance – whether it be for government help to expand his Stone Street Studios, or via further targeted assistance to Weta Digital.

This is not necessarily wrong in itself. As I’ve argued before, the film sector has (almost by accident) become New Zealand’s prime cutting edge knowledge industry. Elsewhere, countries identify such strategic strengths and pour money into them to build up their comparative advantage. That will be a far more difficult political path to follow here now, in the light of recent events. The unfortunate thing about the Hobbit fiasco has not been any damage done to our international reputation – quite the reverse, studios will be lining up to come here to exploit a government that is clearly a soft touch – but the damage done domestically, to any public support for further investment in the film sector. That’s mainly because the government has shown it is out of its depth in any negotiations with overseas studios.

Can these chumps be trusted to be any more savvy with public money when it comes to public-private partnerships in say…education, or in transport infrastructure? That’s the worry, as we head into 2011.

ENDS

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