Where does economic growth come from?
I’m going to break it into four components
- Innovation. By “innovation”, I mean using more effective production techniques than before. The normal implication is using newly discovered techniques that are more effective than older ones, which is probably the most common, but I am going to stretch it, and, for instance, still count abandoning a newer technique for an older one as innovation too if it improves production.
- Capital accumulation. Making things to make things. It’s a bit unnatural, but for my purposes, this is a technique in itself, so really it’s just a variety of innovation. However, you still need to be able to afford to delay production, in order to produce more, so to that extent it is a separate element of growth.
- Scale. As a rule, you can produce more effectively at larger scale than at smaller scale. Further, scale can support innovation if there are different techniques that are more effective than old techniques at large scale but not at small scale.
- Mobilisation. You can produce more if you devote more of the available resources to production. This is a bit of a catch-all, it can include working more hours, eliminating unproductive activity, reducing unemployment.
Am I talking about economic growth for a company, for a society, for the world? At this point it doesn’t matter, you can always break it down into those four components.
Now, I’m going to go out on a limb here and say that economic growth is good. But growth by the three components is not the same. Innovation is the good stuff. Orders-of-magnitude increases in wellbeing haven’t been powered by improved mobilisation, and not by scale directly, except insofar as it has enabled innovation. They’ve been powered by innovations.
Mobilisation is a very mixed bag. Cutting out pure waste is good. But a lot of what appears as waste is actually production of something you’re not measuring: social capital, antifragility. On the other hand, relative to innovation, the goals of greater mobilisation are small. If you get waste down to 50% of effort, then a further doubling of output is the most you can achieve by reducing waste.
Scale is generally good up to a point, but again you reach a point the gains become small and the social effects can become large.
I’m not convinced that capital accumulation deserves as much attention. Even quite backward subjects of study usually have access to capital proportional to their production. The main point is that it causes growth to be exponential: your rate of growth is dependent on your level of growth. Innovation is also a cause of that phenomenon.
What drives growth is the market and competition. Where there is competition, competitors will seek additional growth in all its components. Where there isn’t, growth usually just doesn’t happen at all.
What I’m getting at is that there is a reasonable political case for restraining scale and mobilisation, but much less of one for restraining innovation. In practice, though, this is generally very hard to do. Once you take the authority to overrule the market and prevent competition, the incentives to interfere in innovation are every bit as strong as those to interfere with mobilisation and scale. This is the orthodox libertarian view that you will find throughout the early years of this blog.
There isn’t a conclusion. This is just a problem that hangs over every political view that isn’t pure market liberalism. It’s part of the context of everything I think about. For an example, see The Trichotomy Explained
One of the most critical features of the Modern Structure is the relationship between the media as a capitalist business and the media as a channel of the Cathedral.
There’s a ton of history here. I saw it suggested recently (by @clarkmicah ?) that the BBC was deliberately constructed as a counterbalance to the right-of-centre newspaper industry. Hearst newspapers in the US also had a right-of-centre bias.
(I’m using the term “right-of-centre” not to imply that some tendencies on the right are closer to an objectively determined “centre” than some others on the left, which I don’t think is even meaningful, but because subjectively from an #nrx point of view, things like Fox News are still leftist, just a little less so.)
Since the early 20th C, the Cathedral has increased its control over media industries, but not completed it. In both Britain and the USA, Rupert Murdoch has established media business with right-of-centre alignment and significant market share.
There are two forces pushing these businesses to the right: First, the owners of media businesses tend to be right of centre, particularly in the 20th C, because the left and the right largely lined up with interests of labour and capital respectively, and business owners are by definition capitalist. Secondly, because the cultural elite are always to the left of the population, there is market pressure pushing media businesses towards the right to attract audiences.
In the 21st Century, the first of those forces has declined to the point that it can be practically ignored. What is crucial is the tension between market forces impinging on media and Cathedral orthodoxy.
It has been suggested that key parts of the media industry, notably Hollywood, are effectively insulated from market pressures. @Stoner_68 said on twitter:
“It takes more than cocktail parties to convince studio execs to take multimillion-dollar losses, over and over again.
It’s as if risk isn’t even a factor. But that can’t be true. They know someone will reimburse their costs.”
I remember Spandrell claiming something similar a month or two ago.
The theory is that either the government or another source of funding (Soros is often mentioned) are subsidising the media; that the only goal of Hollywood etc. is propaganda, and they are only pretending to be profitable businesses.
This is not insane. Obviously, the BBC is, by design, almost totally resistant to commercial pressures. A rich guy can own a newspaper and run it at a loss as a propaganda organ. It would be possible to subsidise movies that pushed a favoured point of view.
A key fact is that the movie industry is extremely opaque financially. Much is written about “Movie A cost X dollars” or “Movie B lost Y dollars”, but these are always guesses by people writing without direct knowledge of the actual receipts and spending on the movie. It is therefore not impossible that the movie industry is running on hidden subsidies and would otherwise be losing money.
However, I do not believe that is what is happening. The general assumption is that the studios are secretive about money because they are ripping off minor investors, writers, actors and everybody else in the world. That seems to me the more likely explanation. The stories become public often enough: The Lord of the Rings went to court and was settled, also the TV series Bones (good detail here),
The main reason for believing that American movies and TV are profitable industries is that they behave like profitable industries do. They pay shitloads of money for top performers. They copy the most successful products until everyone gets sick to death of them. Several of the big studios are public companies with very large market capitalisation.
That is not to say that the movie industry is solely motivated by profit and uninfluenced by ideology. That is obviously untrue. The people in the industry are overwhelmingly left-wing, and their bias clearly influences their product.
There are films made which are not intended primarily, or necessarily at all, for commercial success, but to validate the film-makers view of themselves, and to impress their social and professional peers. “Oscar bait” and art house films both fall into that category. However, while not aimed at profit, these movies are made on limited budgets to at least limit the losses, and to make it possible for them to be profitable.
The big budget films are quite another matter. They are clearly made for profit, because they are managed in the same way as other profit-making enterprises. Actors are paid their market rate based on how likely they are to make the film successful. Huge amounts are spent on promotion and marketing. The studios push some of the financial risk onto top actors and directors by paying them percentages, and those actors and directors are willing to take the percentages because they expect them to be valuable, which they usually are.
Even these big movies carry political bias. They are made by the same people as the more indulgent films, but with the addition of big money and big investors. There is also the influence of the media culture, which also has a left-wing bias and therefore will reward bias in the films with favourable publicity. A film that is seen as having right-wing elements can cause social and professional problems for those involved.
But in spite of all that, nobody is putting hundreds of millions into movies that they don’t expect to make them a profit, and nobody is deliberately wrecking big-budget movies for political motives. Occasionally they accidentally wreck them, but not as often as some people seem to think.
The finances of movies are somewhat opaque, but there’s a lot of business interest and they’re not completely secret. There’s a rule of thumb that a film will break even if its worldwide box office gross is about two and a half times its production budget. That’s taking into account the cost of marketing and distribution, the payments that are made as percentages of the gross, and the other income from TV, DVD rights, spinoffs and so on.
This is a good site with estimates of movie financials.
It’s not possible to validate the truth of that rule of thumb, but the industry acts as if it’s true. Movies that appear to make profits are treated as successes, the people involved and the ideas involved are used again. Movies that appear to make losses by this rule are treated as failures; they aren’t repeated and the people involved will command lower payments for future projects. There are sometimes disputes about the shareout of the profits, these go to court with expensive lawyers and are generally settled quietly.
For this to be all an illusion would involve so many people that faking the moon landings would be easier. Most big-budget movies are profitable. The Last Jedi grossed 1.3 billion from a 220 million budget, so by the rule of thumb it made over half a billion in profit. 2016 Ghostbusters grossed 230 million from a 144 million budget, so it lost the studio money – one of those accidentally wrecked by political bias, in my view. Note that if The Last Jedi had lost money, that would also be put down to its social / political agenda, but the studios believed it was a good investment despite that agenda, and they were right.
Because of the big money going to the most successful, “tournament” style economics apply. Many of those involved in the industry outside of the blockbusters are doing badly; they are underpaid for their work, or losing money on their investments, but they accept that because they are trying to win their places in the top rank that makes the big money. Most fail, but the few who succeed make enough to make entering the tournament attractive. That is one part of the basis of the “art house” sector.
Could a less politically-correct Star Wars have made even more money? Quite possibly, but they would have needed actors, writers, and so on that would have been affected by media opposition to political incorrectness, and managing high-value, temperamental stars is difficult enough at the best of times.
As far as spending money on propaganda goes, blowing tens of millions of dollars on big-name actors who are already on your side anyway just isn’t a sensible use of funds. A few foundations like Soros’ are spending tens of millions a year on propaganda, but they’re making much better use of it than that.
The really interesting question is about the trends. Hollywood is making big money, but sometimes losing it too, and the business side can be held hostage by the demands of politically biased creatives. Audiences might get so irritated by the industry’s politically correct smugness that they lose interest. Ghostbusters is evidence that that is possible. Alternatively, someone might be able to compete with the whole Hollywood establishment by producing movies with the same attractive features but a political tone more in line with the audience. It’s easy to say that the iron grip of leftists is too strong to allow that, but don’t forget Rupert Murdoch managed to do it to the newspaper and cable TV industries. I think it’s significant that newspapers, even in the 1980s, were in decline, while cinema is strong and growing, but the precedent is there.