Costly bans

What does a biscuit advertisement have in common with a mobile game? Based on the government’s recent bans on each of them, they are considered detrimental to the preservation of the moral fabric of society. Considering that there is no legal interpretation of this phrase, it is at best, an arbitrary action that reflects regulators have assumed a higher moral ground from which they may define a baseline morality for the entire nation.

Besides the moral arguments, the economic ruin caused by such bans is a dilemma in itself. Restrictions that are arbitrary and not backed by a verifiable set of rules create regulatory uncertainty. That’s a red flag for investors and it tacks on a higher risk premium to affected sectors.

In other words, private capital is deterred away from investing in similar businesses for fear of more unexplained and sudden restrictive policy changes. A ban restricts all business activity, nullifying returns and even wiping out investments. The much-awaited, never-materialized revival of the domestic film industry is a classic example.

The critical factor for the economic success of a film industry is the number of screens. Setting up and running cinemas entails high fixed and recurring costs. Thus, they can only be feasible if there is a sufficient pipeline of content which can keep bringing audiences to cinemas. In absence of such a pipeline, there is no incentive for private capital to invest in the brick-and-mortar intensive model of cinemas. The highest-ever box-office receipts (a function of screens) for a local production is just $5.75 million – which is lower than the value of most commercial property in Karachi. Given the dismal state of box office receipts, there is little incentive for non-entertainment private capital to invest in movies, or screens. Cinema has one of the highest job multipliers, with each screen, and a production employing hundreds of people, given the creative, and human-intensive nature of the industry. Many jurisdictions globally even provide tax credits to incentivize production of movies, given the spillover economic impact that is created. Through arbitrary bans, and patriotic signaling, Pakistan has not been able to revive its ailing film industry despite multiple efforts during the last two decades – because the economics just do not make sense.

Cinema halls can be regarded old school, but the government’s actions are also detrimental to the domestic industry’s prospects of capitalising on the rapid growth of online streaming services. While the likes of Netflix, and Amazon Prime are investing heavily in developing localized content across various jurisdictions, content creators in Pakistan, who can represent and produce local stories are being left out., It is estimated that Pakistan has around roughly sixty thousand plus subscribers of streaming services – a fairly small number, which can be significantly increased, given availability of localized content. Like cinema, media production also has a high job multiplier, and has the potential to generate foreign currency through export revenue.

It is difficult to assign a number to potential jobs lost, or jobs not created because of such arbitrary bans. However, it is clear that regulatory overreach restricts creativity, innovation, and market expansion. Policy makers need to weigh the importance of an abstract concept of moral fabric, against the tactile concept of jobs for the populace, and economic growth.