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Jim Roumassett |
Tourism Promotion, Public Finance and Baywatch
The recent controversy about using public funds to subsidize Baywatch and other Hawaii productions raises the more general question of what should be the role of the State in the promotion of tourism. Already the State gives 37.9% of the transient accomodation tax (TAT) revenue to the Hawaii Tourism Authority (estimated at $60 million for the current fiscal year) for promoting tourism. One of the arguments in favor of such a subsidy is that the airlines, hotels, restaurants and others who benefit from more tourist spending have inadequate incentives to invest in advertising because their advertising dollars will benefit many beneficiaries besides themselves. (In economics, this is known as the "public good" argument.) But there is a long history in Hawaii of cooperative advertising, whereby various enterprises contribute to advertisements of a particular destination. When beneficiaries can thusly function as an effective club, the public good argument loses much of its force.
Another argument in favor of State subsidies is that government spending increases the size of the economy. This involves a misapplication of a defunct economic theory known as Keynesian economics. Even in its heyday, Keynes' theory was meant for an economy with massive unemployment and excess capacity and one that is isolated from the world economy by natural or artificial trade barriers. In the Hawaii context, the primary effect of increased State spending is to divert resources from their highest and best use into lower productivity employment as directed by government officials. Moreover, the Hawaii economy is not isolated and self-suffient, but somewhat integrated with the economies of U.S. and Asia. To the extent that the State's economy is less integrated with other economies than the welfare of its citizens would warrant, that is due as much to misguided government policies (including Federal policies such as the Jones Act) as to natural barriers.
If the idea of subsidizing tourism is accepted, however, the question becomes whether a subsidy to Baywatch is as cost-effective as alternative ways of spending the advertising dollars. On the one hand, the show provides neither the focused message or the focused demographic of advertising. On the other hand, a subsidy would represent only a relatively small percent of the total production cost. It is certainly possible that a subsidy that results in an additional 22 shows would stimulate tourism demand as much or more than the same expenditure spent on focused advertising. If that is the case, however, why not take the subsidy from the existing budget for tourism advertising? That would provide a mechanism that would bring more accountability to the politics of setting spending priorities.
Perhaps a more legitimate rationale for government support for Hawaii-based TV productions is that said support can enhance the infrastructure needed for such ventures and training of local production personnel. But an underwater filming tank, for example, does not serve the general public in way that convention forms of public infrastructure do (e.g. roads). If the tank has commercial value, then why not allow the private sector to build it? The State could help by facilitating the appropriate zoning and permit-granting; it is not clear why public finance is appropriate. Finally, training personnel may indeed help to stimulate the growth of particular industries, but subsidizing production may not be the most cost-effective mechanism of increasing skill levels. Moreover, choosing which kinds of personnel development to subsidize is much like the discretited "picking the winners" strategy in industrial development whereby government officials displace the bottom-up mechanism of individual priorities coordinated through markets.