Last Thing We Need Are More Training Schemes - A Simple Economics Lesson

Most people who know me – even those who just follow me on Twitter – know that I am a running nerd. I have run over 15 marathons and run at least one marathon on every continent on earth (except Antarctica).

What most people do not know however is I am also an economics geek.

I studied economics at university and I am married to one of the leading economists in China Africa relations.

Just the other day I was talking to her about Neo-paleo-Keynesian Phillips Curves. And bedroom pillow talk can sometimes stray into subjects such as Friedrich List’s theories on infant industry protection.

So it should not surprise anyone that when I look at the issue of diversity in the film and television industry, I often do so through the lens of economic theory.

With all that said I am now going to write what is my most wonkish blog post to date but possibly the most important.

And it is all about “Monopsony theory”

WHAT IS A MONOPOLY

I firmly believe that if we do not understand the market and economic models that cause low diversity representation, no number of diversity schemes will solve the problem of low numbers of BAME, disabled people and women in the industry. 

Most people have heard of a monopoly. A monopoly is when you have a large number of buyers of a certain product or service but only one seller of the product or service.

The examples that most people come across are railway companies or electricity companies. A few companies can dictate how much people pay for the product, provide a bad service and have other negative effects for the consumer, but still increase their profits. The negatives of monopolies are well know and governments often have to intervene to try and either break them up or legislate against their worst actions.

MONOPOLY VERSUS MONOPSONY

A monopsony has similarly negative consequences but it is like a monopoly in reverse.

A monopsony is when you have lots of sellers of a product but only one or two buyers.

In these circumstances it is the buyers who can dictate the price and how the market works.

It is classic case of market failure.

And increasingly that is precisely what many economists think we have in the television industry.

Most freelancers and independent companies might not have heard of monopsony theory but whenever I talk to friends in the industry they quickly recognize the situation of competing with hundreds of other companies (sellers) but only having a handful of broadcasters (buyers) they can pitch their ideas to or sell their programmes to.

Increasingly monopsony theory is being used by economists to explain why diversity problems exists in various industries – it is no coincidence that both the tech and television industries seem to suffer from a lack of diversity and both have the problem of a few large companies dominating their industries.

MONOPSONY THEORY EXPLAINS PAY GAPS

Now concentrate here comes the science bit (as L’Oreal used to say):

All companies, in every market, want to increase their profits and a major way of doing this is to minimize their wage bill.

The simple theory is that the first person they can employ is willing to come into work for a low amount – say  £8.00 per hour. However the next person they can attract to their company requires a bit more money so they have to pay him £8.50 an hour. And then the third person requires a little bit more still to get them out of bed, say £9.00.

Now here is the problem for the company. Instead of being able to pay everybody the least money that they are willing to come into work, the company has to set a wage that is high enough to attract the third worker (if they are only employing three people). Which means the first worker will actually get paid £9.00 per hour, even though they are willing to come into work for £8.00.

The company would like to be able to pay everybody the least they can – so what some companies do (consciously or subconsciously) is divide people into sub-groups, as they know those sub-groups will have different thresholds as to how much money they are willing to work for. This is called “price differentiation”.

Therefore imagine a company employing 20 people - ten men and ten women. The wages required to attract the 10th male worker might be £12 dollars an hour but the amount required to attract the 10th woman might only be £10. That means it is in the interests of the company to split the payments to men and women so all the men get roughly £12 and all the women get only about £10.

(If they don’t do this then they would pay all the men and women $12 and their wage bill would go up. They may consciously or subconsciously do this for other groups including BAME and disabled people).

In a perfect world however the gender pay gap should not exist because a woman would see that their male colleagues are getting paid more, and even if they are willing to work for less she could just leave the company that is paying her less and go to another company that would pay her more equitably.

But this is where monopsony theory kicks in. The woman being underpaid can’t do that if there are just a few buyers she can sell her labour to. Those companies can keep paying her low wages safe in the knowledge that there are few options of where she can go. This might explain why the tech sector, a classic example of a monopsony, is thought to have the worst gender pay gap in the US. And why the BBC and other British media organisations have been embroiled in pay gap controversies recently.

MONOPSONY THEORY EXPLAINS OTHER FORMS OF DISCRIMINATION

So if monopsony theory can explain pay gaps can they explain some of the entrenched diversity problems in the UK TV and film industry, such as only 3 percent of people working behind the camera in the film industry being from a BAME background or that number falling to 0.3 percent when it comes to disabled people?

While there will always be competition for the very best talent, say the top 1 percent, the vast majority of us are in somewhere in the middle. What monopsony theory tells us is that while the companies might fight over a very few people (actually inflating their wages) there is less competition by companies to battle it out for the other workers. 

The market failures associated with monopsonies mean that companies will more likely hire their friends, promote people that look like them and retain people that they like rather than people who might be the best person for the job. 

In a free market if you did this you would quickly be punished.

In a monopsony you will hardly feel the consequences of your actions - at least in the short to medium term.

DIVERSITY NEEDS MARKET SOLUTIONS NOT TRAINING SCHEMES

So what does mean for those of us who want to increase diversity in the film and television industry? Should we all just give up because we are working in a monopsony?

We definitely should not give up.

But monopsony theory does teach us that we need to look at different types of solutions as opposed to the usual ones people in the industry often try.

Market failures, like monopolies and monopsonies, require market interventions. This is precisely what regulators like Ofcom exist to do. Market failures mean television broadcasters left to their own devices will not produce enough quality news and current affairs programmes, they will not produce enough quality children’s programmes and will definitely not produce enough programmes outside of London. To solve these types of market failures the regulators have to step in and actually shape the market setting quotas and issuing license requirements. For example Ofcom insists that broadcasters produce a set number of news and current affairs programmes, children’s programmes and programmes outside of London.

Importantly what Ofcom does not do is insist that producers of children’s programmes receive more training in the hope that they will be able to compete with cheaper light entertainment programmes. Ofcom does not insist there are more entry level schemes for people working outside of London to get them into the industry. Ofcom does not ask broadcasters to implement “unconscious bias training” for senior managers to commission more news programmes. They realise that they needed to focus on the market failures inherent in how the industry operates, not on the individuals working in the market.

MARKET INTERVENTIONS THAT WILL WORK FOR DIVERSITY

Similarly monopsony theory teaches us that market failures can be addressed. These include solutions such as tax breaks for diversity, as advocated by Lenny Henry and the Film Diversity Action Group. And it would also include ring-fenced funding for diversity programmes, as argued for in an open letter to broadcasters by influential industry figures in 2014.

So next time someone advocates another training scheme to solve the problem of diversity in the film and television industry just ask them, “how do you think this will solve the monopsony problem?”. Although take it from me, a self-confessed economics geek, it might mean you get invited to fewer dinner parties.