Direct and Indirect Government Subsidies, 1:45-3:15pm
by admin | November 14, 2009 | Uncategorized | Comments Off
Howdy everyone. This is Betsy Cooper, your humble rapporteur for the government subsidies panel. Our illustrious speakers for this panel, moderated by the ISP’s Nic Marais, include:
- Edwin Baker, University of Pennsylvania Law School
- Bruce Ackerman, Yale Law School. His paper is available here
- Stephen Nevas, Yale Information Society Project & Knight Law and Media Program
- Susan DeSanti, Federal Trade Commission
Steve Nevas introduced the panel, and handed it over to Nic, who is listing some of the amazing ways you can keep in touch with our conference, including here and on Twitter. He received the New York Times this morning on his doorstep, even though he doesn’t subscribe. Is that a good sign? Hope so!
Nic notes there have been 230 million ipods sold in the past 5 years. We had no youtube, iphones, and many did not have facebook. It will be amazing to see how things change in the next five years.
Here we’re discussing federal subsidies; Nic is doubtful about the pay models discussed yesterday. He then introduces the panel, and hands it over to Edwin.
Edwin Baker
Edwin first claims that the market cannot provide the professional journalism that people want and need. The claim is not that business models will not provide us some journalism – they do – but will it be as much and as good as we want? His claim is also not related to the current digital age. It relates to the structure of media products. We’re always been dependent on subsidies.
There are a variety of ways in which markets fails. When value goes other than to the consumers, and there’s no relationship between the benefitters and the firm, there is no incentive to provide such a value. If customers are only a small portion of people who benefit, there are inadequate incentives for production. Probably the most obvious way to see this is journalism’s impact on reducing corruption. The benefit goes to all members of the community, not just those who bought the newspaper. News production and consumption result in less corruption, which is a benefit to everyone. But this can even hurt the newspapers; there will be less stories. These are externalities that don’t produce revenue for the journalistic unit.
Similarly, to the extent that journalism produces intelligent voting, it is a benefit which no one pays for. From the beginning of the country, as a result of these pressures there was huge subsidies of newspapers through the postal system. In Morgan v. Lewis, the subsidy cited there today would be worth $6 billion (!) dollars.
This is not due to a lack of interest of the public in news. Most of the decline has not been an evaporation of audience – these have been replaced by online readers. (Though we do not yet have good data on these points). In the last 10 years, the amount of the public that doesn’t pay any attention to news has gone from 14-19 percent, as we hear yesterday. This is a relatively small decline compared to newspaper circulation.
There could be a partial explanation due to a degradation of the product. We might not have an incentive to keep newspapers when the quality decreases. If you fire your reporters and sell for the same or higher price, you should be expected to lost audiences. Costs of keeping audiences may no longer be worth revenue. Those papers which add journalists and keep prices have increased circulation (though not enough to keep at speed of costs). So the key is that it’s not economical to keep up producing newspapers, not that there is no audience for this.
What are the results?
1) Bankruptcy; 2) Closures; and 3) Layoffs.
1) Bankruptcies are irrelevant. This is mostly because of bad debt which the papers can’t pay. They will go through reorganizations.
2) Closures. Rocky Mountain News, etc., are closing, but these are mainly two newspaper towns. That model hasn’t been viable in the past 100 years.
3) Reduction of journalists. We should be concerned about how this affects quality.
There is also the reduction of advertising, unsurprisingly in this recession. This is a short term problem. But there’s also a long-term problem-that there’s a fixed amount of advertising money. If it doesn’t go to media, but onto other sources like Google, then you have a crisis in the media. Google is not creating new media. Similarly, classified ads which do better independently take money away from the media.
What should be done? A tax credit for 1/2 the salary of their journalist. This would decrease the cost to papers of keeping journalists. Assuming a subsidy of $25,000, that would be 1.5 billion. This is much smaller than the 6 billion subsidy by postal service cited earlier. Note that at that time, the problem was more about distribution. Today, it’s more about content.
Bruce Ackerman
He and Ian Ayres suggest putting together an optional box where they can affirmatively click to say the article increased their understanding of public interests. This will then translate to a government endowment. The more clicks, the more payment.
This has only a few exceptions. Government should not support libel. Assets will be on the line, so will require serious factchecking.
To avoid scams, the reader must be a real person. Reader will have to spend exercise answering simple questions or type in random words. Only those which are truly enlightening articles will compel people to do this work.
This will create incentives to publish articles with serious contents. A significant share will go to the political core of articles with serious concern. The point is to modify the market system, take full advantage of the new technology to get decentralized, individual votes.
This is part of a more general project about encouraging citizenship. Another example is patriot dollars; put credit card in and sign up for patriot dollars which allow you to send funds to candidates. We’re creating a context for citizenship. This is especially important in the context of Tocqueville and the notion that citizenship is declining. The citizen army is no more, public education is changing, etc. Other than voting, there are very few contexts where you understand yourself as a citizen.
One might compare this to more familiar models of public subsidy. One is the NPR-BBC model which is vastly inferior to this one. NPR/BBC is under the thumb, in principle, of a tyrannical government. We have to be designing an institutional structure, if we have government subsidy, which is tyranny-resistant. Under those models, the government can control the output of the public press.
How can you pitch to funders that this is more important than helping the poor, the environment, etc.? The answer is that we’ll be more effective advocates for your cause, as stated in the last panel? This is an affront to the history of journalism. Journalists are supposed to investigate, not advocate. The problem would be that you would not be able to report on the positive nature of the immigration system if sponsored by an immigration reform group.
The market-like mechanism he suggests is very flexible. It has no monopolistic intentions. It is significantly different and better, and should be seriously considered.
What about political feasibility? There are two forms of liberalism: laissez-faire and activist. He believes in markets but he is an activist liberal, like President Obama and Cass Sunstein. This would not be a fair description of Reagan, who is laissez-faire; serious people can disagree about this. The case for activist liberalism is strengthened if you can avoid government pressure, as in this case.
So the political feasibility problem here means we should move to a model which is more market-like but recognizes that the invisible hand is flawed at protecting professional journalism.
Stephen Nevas
Who pays for what you consume on the web? Advertisers in part, but not you or your neighbors. The picture yesterday was the implosion of local news. Thousands of journalists have been sent packing, and the institutional history is disappearing. The “emaciated flesh and bone” of the institutions that protected our democracy have been sent to “the slaughterhouse.”
This can be considered mailure in journalism. This is a market that by definition no one can be excluded. The costs are higher than those who pay for the goods. When the market fails and has an interest in protecting an industry (like finances and the auto industry), government may step in. Here, there are public interests, and the 1st amendment protects against government intervention.
This is not new for government. In the earliest days, postal rate privileges facilitated the movement of media and information. Government has not stood back. Player-piano technology led to new licenses so that those who created piano rolls would be protected. Similarly, copyright laws protects creators, and compulsory licences have been enacted for internet radio.
The problem goes back to paying the messengers. Government can and should act when the market failures. We have substantial precedent to do this.
One option is to enact a compulsotry licence and to register work at the copyright office, and to then distribute compensation like the copyright board. But this is clumsy and inefficient. He instead proposes a hybrid.
This would encourage groups to create copyright rights offices (CROs). This will require Congressional legislation to protect against anti-trust. He suggests that participating content owners should log downloads of sites, which would be cross-checked by sampling. This should involve both national and regional officers. Then distributions would be made to CROs. Content providers will not get full cost, and should supplement income with advertising and additional funding. One can also opt out if can go it alone.
This doesn’t pick favorites. And because money comes from homogeneous source, it will encourage new production. We need to be willing to think outside the box.
Susan DeSanti
Her views are her own and do not represent the Federal Trade Commission (FTC).
The FTC has announced it will hold workshops on these issues. Why are they interested in this topic, and what is the FTC’s approach?
Why is the FTC interested?
On the first question, Federal Communications Commission, Justice, and Anti-Trust all may have jurisdiction here. BUt the FTC has unique jurisdiction over issues of the US economy. The FTC was legislated in 1914. One of its important early functions was to gather facts and write reports, keeping an eye on the economy and publishing materials. In the 20th Century, FTC contributed to Radio Act of 1927 and the eventual establishment of the Securities and Exchange Commission. Since the mid-1990s, her policy shop has been involved in a number of activities. including patent law and brandname/generic drug debates.
The immediate impulse stems from the stories about journalist layoffs and bankruptcies. This phase of creative destruction would not normally produce FTC interest alone, because we ordinary would wait for a new equilibrium in the market. Here, there are market failures. So there might be a need for government policy to help in this area.
This past spring, there were requests for anti-trust protections for news organizations. Given market imperfections, could either respond in usual way (to say no) or to try to understand these markets. The Commissioners decided the latter, given the value of journalism to a functioning democracy.
How is the FTC approaching this?
1) This is not about saving newspapers but about the future of journalists.
2) The FTC is not a regulatory agency – they don’t impose regulations. Their job is to ensure that anti-competitive practices do not occur. Consumer should know what their options are, but they will not say what should or should not be sold to consumers. This is a free market approach with serious skepticism of government regulation. The FTC is not looking for an excuse to regulate in this area.
The first question is whether there is anything to do here. The data can be read in two ways; many newspapers in bankruptcy are still profitable. But there are long-term ad revenue questions as well. Do they need to do anything now?
If the Commissioners became convinced to act, this would follow a cost-benefit analysis for preventing market failures with as few transaction costs as possible. The proposals presented today do the same – looking at transaction costs, effectiveness of solution, difficulties of implementation, etc. The pharmaceutical drug debate was very similar. They are very aware of the complications of market failure.
Question and Answer
Bruce Ackerman suggests there are three models suggested here: tax law changes (Baker), public law model (Ackerman), and property rule model (Nevas). The question is what is the form of intervention that will best express the right values?
Edwin Baker suggests that Nevas’s proposal may not respond to the problems of market failures. There are merits to both his and Ackerman’s approach as well as disadvantages of each.
A commentator suggests that there is an icopyright program which embeds work with a tag. Nevas responds that this is before the Supreme Court.
Another commentator inquires how much of a ‘watchdog’ function is enough. We can never entirely prevent corruption. How do you decide?
- Ackerman responds that one should look at professional journalism. One benchmark is whether that practice is sufficiently sustained to sustain itself. This is not information, but about a professional journalist’s obligation and practice. If it sustains itself, that is the goal.
- Baker responds that one should look for responses to market failure. There will be disagreements about what level of corruption a greater marginal investment of journalism will prevent.
- Nevas suggests this is difficult for the government to do because we’re dealing with the market, so perhaps is best left to the the market.
- DeSanti suggests that while the FTC would normally be inclined to follow the market, the market failures make this problematic, not least because of existing monopolies. One should look at the product, revenues and costs. We’re not taking into account the positive externalities here. This is a conundrum. As a famous economist once said, there’s not enough evidence to get rid of the patent system, but there wouldn’t be enough evidence to create this system either.
A questioner from the FCC asks Ackerman, one funded out of general tax revenues, another from user fees. How would his be funded? Ackerman responds that he is moderately indifferent. If through the tax system, can be seen as a tax gimmick where actors can rip off the money. His program will be much more visible and represent the public commitment to citizenship public choice. On the revenue side, he would prefer taxing the internet connection in one way or another since that network is generating the revenue, but you could also sustain it with general revenues. The FCC questioner thinks financial feasibility is important, and that it seems like if everyone benefits based on the theory, everyone should pay. Ackerman clarifies that he is talking about the ideal professional journalist – which would be a force for reason in society. The language of citizenship is a distinctive language, and there is an interesting dialogue between these ways of talking.
The questioner says he has been raising money for public television from the government for most of his life. He is uncomfortable with the proposals. He thinks it’s fine to give tax breaks for journalists. But the other proposals have an odor of manipulation. by giving a reward for voting, as per Ackerman’s idea, you have to spend the reward in a specific way. He argues that if you want to give a present for voting, let the person spend it any way they want. Nevas’s proposal similarly makes everyone pay a hidden tax dedicated to serve a particular public interest. An appropriation would most explicitly point out how these are. Hiding taxes is problematic. Nevas and Ackerman respond by focusing on the development of the media industry and citizenship. Ackerman suggests that this is not manipulation, but creativity.
An audience member suggests the mechanism for funding in Ackerman’s proposal, clicking on publicly useful articles, is substituting consumer choice for public interest. Ackerman responds that you won’t do it unless you care because it has no value to you. Some have suggested to him that he should get funding for an experiment.
The final questioner suggests Baker’s proposal is a production subsidy to reduce the cost of journalism, when the externality is consumer-based. Would we be better subsizing consumers? For the panel at large, the questioner asks whether it is hard to identify who should be receiving the payments.
Baker responds he is not sure of the consequences of a production subsidy; because you can sell at a cheaper rate, it is essentially subsidizing consumption. Both he and Ackerman are trying to get more money into the production process. Baker’s is more confident in the professional editorial role. Under professional journalism, one characterization is that Ackerman’s proposal promotes pandering to the public rather than editorial decisions, even as it gets people more engaged. If you take into account benefits, Ackerman’s model benefits the consumers. Baker’s gives benefit to editorial staff. One would have to work out which one will best get at the problems, as well as which would be more politically viable. Ackerman’s public project and institutional requirement may be less viable administratively, even if it does engage the citizenry. Tax manipulations, made thoughtfully, can be more beneficial.
Ackerman responds that the advantage of his proposal is that it encourages non-traditional news organizations and collaborations. Clicks goes to news organization(s) that are creators of the content. It is easy to imagine collaborative transactions. The notion of the editor has the disadvantage of reifying the ‘newspaper’ which has organizational consequences.
We’re out of time, so thanks for reading. We’re now on a 15 minute break. Thanks to Nic and the panelists for a great session!
