VFX Industry Worker Rights (The Real World Comes To Creative Workers)

This morning on my way into university I listened to a very interesting piece about VFX industry worker rights. There wasn’t much discussion of why Hollywood needs to squeeze margins of contractors whenever it can, and why it constantly looks for government handouts around the world. If there is one industry that displays the very worst behaviour in terms of rent seeking in the form of subsidy / tax credit shopping it is the film industry.

But why do big Hollywood studios have to make a dollar any which way they can? Well, it’s because contrary to popular opinion they lose money hand over fist. Hollywood studios are enormous money losers. They are playing a numbers game where they incur substantial upfront costs on a chance that a movie becomes a hit and not only pays for itself, but pays for the studio’s other losers that season.

The success of Disney has been in realising that movies are loss leaders for massive merchandising and alternative revenue streams. Think about the Pirates of the Caribbean and how they will milk that franchise just from the merchandising alone. In the real world, when your business model depends on your winning hit movies paying for all the losers and the administration costs of running a studio and all of the interest on the short-term financing you use to rollover your monthly cash flow requirements while waiting for a hit, squeezing the lowest person on the totem pole is not surprising behaviour.

Apparently every other part of Hollywood has a guild operating on its behalf – directors, writers, cameramen, makeup artists – they all have an organisation lobbying on their behalf and hooking them up with pension and health care support in exchange for their dues. This also means that it is hard to squeeze labour costs here, so of course studios will squeeze labour costs elsewhere which means outsourced VFX workers.

This isn’t good or bad – it’s simply the real world, moving up the socioeconomic ladder from the working class to the creative class. And Radio New Zealand workers would have been absolutely furious listening to how big bad studios don’t offer any job security to VFX industry workers. They might even be awarded contract extensions as late as 1 week before a contract expiring. Quelle horreur!

All I have to say to VFX workers trying to soften up people for supporting your industry is welcome to the real world. Because of globalisation and the ease of outsourcing, your labour is interchangeable with lower labour cost countries. There is no such thing as rights when there’s a temporary contract involved.

This has been the situation in the construction sector for the past few decades. Risk is shifted down the totem pole to those least able to bear it. High volatility in wages and difficulty obtaining prompt payment lead to enormous strife and second-order effects. Sadly, you won’t find Kathryn Ryan getting so worked up about the inability of a builder in Petone to put food on the table after getting screwed over by a contractor even after protecting himself as best as he could under the Construction Contracts Act and prudent practice in the construction sector.

It is things like this that make me laugh. The creative class are being brought down to the level of insecurity that the working class have had foisted upon them over the past few decades, and they don’t like it one bit. But sadly, because they are essentially a branch of the government, they are more likely to hear their pleas heard and get something done whether it be subsidies, tax credits or other forms of government support.

The guys on the interview talk about how studios send the easy shots to India and the hard shots to places like New Zealand, and then whittle down the VFX margins because they can’t put much markup on a time intensive VFX process. It sucks if you are a VFX worker, but please, complaining about a few months delayed payment from a corporate is a whole different kettle of fish compared to a few months delayed payment from a developer or local construction firm – the studio is several orders of magnitude more reliable, they’re just managing their cash flow extremely well because their business model loses money most of the time.

Now, I’m not unionist, but as an economist it would be remiss of me to ignore the role that unions play in exercising collective bargaining rights and other sorts of behaviour some on the right would call blackmail. In a way, the myth of the independent bargaining agent is that some people actually think that, by themselves, they will be able to achieve a bargain better than they would under a union arrangement.

In theory, contracting is a fantastic way of doing things. But in the real world, it sucks. It is a winner take all competition, not an auction for skills. Many contractors have essentially bought themselves a job – think of the Chorus linesmen made to buy their vans and gear who are now making a pittance on what they used to.

The trend in the labour market over the past few decades has been away from stable employment relationships towards unstable employment relationships. Yes, it makes sense for an industry that works on a project-by-project basis to use contractors. It saves the cost of paying someone to do nothing while there is no work to be had. But it also incurs other costs, as VFX industry workers are finding out.

The creative class used to think that they were above the costs of competitive markets. They thought that they were special, that they deserved privileges and that their role as the anointed ones set them in such a position in society that they are somehow worthy of government assistance if their privileges are attacked or whittled away through maximising behaviour of those they enter into contracts with freely.

The working class have been pushed towards contracting arrangements for a long time now. They got no support. They’re internalising the costs of their situation, and for VFX industry workers, who earn more when they actually are working than many working class contractors, to have the chutzpah to have a moan and ask for mummy & daddy taxpayer to make things better for them is hypocritical in the extreme.

Mainzeal In Receivership

New Zealand’s 3rd largest construction firm has been placed into receivership. Mainzeal is interesting because it is part of Richard Yan’s Richina Group.

Over at the NBR, the comments state the obvious : sub-contractors and employees will bear the brunt of the collapse. The secured creditors are likely to recover most of their loans and the executives at Mainzeal are unlikely to face any civil or criminal sanctions.

Putting aside the role poor management and leaky buildings played in the Mainzeal collapse, we should be concerned when large construction firms go under.

That’s because the construction sector is one of the best industries for creating flow-on work for low marginal product workers. The ~20% contraction of the construction sector since 2008 has been responsible for a whole world of hurt. It has driven a lot of skilled workers to Australia and others into insecure contract work on a project-by-project basis.

Another reason why we should be concerned with the way the construction sector operates is because it best represents the “contractor-sub contractor” model of doing business. Risk is transferred downwards while profits are concentrated amongst firms at the top of the pyramid with the most leverage.

Although Mainzeal didn’t have a major share of the market in Christchurch rebuild work, a lower number of firms operating in that market is clearly not good for homeowners.

I look forward to reading the receiver’s reports. How long until the construction sector gets the regulation it needs when it comes to payment of sub-contractors? The Construction Credit Contracts Act doesn’t help you when a company is placed into receivership.