Gambling and the Economy

From Sunday 04/05/2014 Island Newspaper

by R.M.B Senanayake

But life itself is a gamble and investments in the economy are also a gamble characterized by risk.  Economists say greater the risk greater the reward. Of course if the gamble fails then the money is lost. But surely we should have the right to lose money just as we must have the right to make money. Should we not have a choice to spend OUR money any way we choose? Can a person be saved from himself if he wants to engage in an activity which is harmful but he opts to do it anyway? Yes, some people are addicted to gambling. Some are also addicted to drugs, alcohol or sex. These human vices cannot be stamped out by the law. The most that can be done is to regulate them.

Have we developed a heightened moral sense suddenly or is the opposition to the casinos being used as a vehicle to mobilize opposition to the government?  Buddhist monks are vociferous in their opposition to the opening of casinos although no ordinary citizen could afford to enter their portals for the admission fee is in dollars.  The new casinos popping up across Asia, from Tokyo to Manila, are seeking to lure the growing hordes of Chinese gamblers who can afford foreign trips. There is certainly plenty of new money around, but also plenty of competition to attract it. So why is everybody opposing the opening of casinos when everybody agrees to tourism and the need to earn foreign exchange for our over-indebted economy.

I remember in the 1960s when J.R (not yet the President) encouraged the opening of tourist resorts some villagers met the Grama Sevaka of Beruwala and opposed the opening of tourist resorts in their area because they objected to half naked foreign women who it was alleged would corrupt their youth. But the country has since accepted tourists and welcomes them. Casinos have functioned for the last several decades and nobody objected. Why then this sudden outrage against casinos? Don’t we have gambling in the villages during the festival days where it is considered innocent fun? Don’t we have cockfights traditionally? According to an Indian writer gambling has been a part of the ethos of the Indian sub-continent since ancient times. During the Mahabharata period, he says there is reference to the Pandavas playing the game of dice with Kauravas. Similarly during Diwali, Indians in many parts of the country indulge in some sort of ‘gambling’ activities, sometimes unaware that most of this is illegal.

Currently, gambling through lottery tickets and horseracing are legal in India. However, illegal betting on cricket and other sports like football and Formula 1 racing in India where the big money lie, is illegal in India as well as here. But quite a huge, clandestine, business seems to take place. Is it that the monks are opposed to big time gambling? But what is the difference? If gambling is morally wrong then all gambling must be wrong.

But life itself is a gamble and investments in the economy are also a gamble characterized by risk.  Economists say greater the risk greater the reward. Of course if the gamble fails then the money is lost. But surely we should have the right to lose money just as we must have the right to make money. Should we not have a choice to spend OUR money any way we choose? Can a person be saved from himself if he wants to engage in an activity which is harmful but he opts to do it anyway? Yes, some people are addicted to gambling. Some are also addicted to drugs, alcohol or sex. These human vices cannot be stamped out by the law. The most that can be done is to regulate them.

There has been a debate among economists over whether or not gambling can be good for an economy. Those who say that gambling is harmful quote of Nobel Laureate Paul Samuelson.

"(Gambling) involves simply sterile transfers of money or goods between individuals, creating no new money or goods. Although it creates no output, gambling does nevertheless absorb time and resources. When pursued beyond the limits of recreation, where the main purpose after all is to kill time, gambling subtracts from the national income."

Other economists point out that this criticism could be applied to movies or Disneyland or many other things which are also products that don’t add to the ability of the economy to produce more. But they still have value because they provide satisfaction, (or utility in the economist’s jargon), to consumers. These economists are more concerned about the costs of banning gambling, the enforcement costs and the incentives to lobby and bribe public officials to allow illegal gambling to occur. They say that betting should be legalized. Banning it only pushes it underground, making it lucrative for criminal elements. That creates a dangerous situation in which money can flow between gambling, drugs and even terror, all of which the underworld dabbles in. So they argue that it is better to legalize and regulate to minimize criminal involvement in gambling.

Legalizing gambling would also provide an additional source of revenue for the state which is why Dr. N.M Perera legalized betting shops.  The government could collect revenue which would lessen the burden of tax on the people. This would make it more expensive for people to gamble and be a disincentive to some inclined to gamble.

Of course in the case of the proposed casinos the government is not getting revenue but providing tax benefits. But that is because prospective investors need such benefits if they are to locate their businesses here. But there will be other flows of money to the economy as the gambling tourists spend money here during their stay. Any industry that draws money from outside is helpful particularly for an over-indebted economy like ours which must earn extra foreign exchange to pay back the foreign loans and the interest thereon particularly as the foreign funded investments themselves are not yielding or saving foreign exchange to service these foreign loans.

Further, casinos are an activity that appeals to a class of rich tourists who consider gambling in casinos a form of entertainment. Other countries that have allowed casinos have seen an influx of foreign money and many new jobs have been created.

What is in dispute are the social costs and the extent to which the original residents of these communities were helped. There are people who get addicted to gambling whether in casinos or other forms and they may ruin themselves economically. But people can ruin themselves in a variety of ways and no amount of laws will stamp out such evils. Gambling is a commodity in our society, such as food, alcohol, drugs, sex, money, work and exercise are. Any one of these commodities can turn into an addiction. One day we are using them in a responsible way (we are in control) and then we cross an invisible line into addiction where (we are no longer in control). I knew a lady doctor who was addicted to credit card purchases. She just could not resist the temptation to buy whatever she fancied in a supermarket or store.

The majority of people who gamble do not experience problems. Gambling is seen like a low-risk social activity for participants of all ages. In the case of gambling in casinos only those who are better-off can afford to engage in it. People can control their gambling unlike drugs, cigarettes, and alcohol.

 Gamblers are risk takers - just like businessmen. Without risk, there can be no gain. Even investing in the stock market for short term gains from trading is no different from gambling. During the boom in our stock market in 2010 and 2011 many small investors bought and sold shares to make speculative gains. When the market crashed many of them lost their capital in whole or in part.

 During the earlier phase of capitalism the view was that money must be earned by hard work and the Protestant ethic frowned on any speculative activity. But since then economists realize that investment is also a form of speculation tantamount to gambling. Should speculation be banned? Some will point to the excesses of the investment bankers which produced the financial crisis of 2007-2009. But the answer is that if you do not wish to gamble, that is your choice. But it doesn’t give you the right to ruin someone else’s experience. Liberal thinkers (many economists are liberals), believe gambling should not be banned because the choice to gamble is made by the individual and individual freedom is necessary for a free market economy to flourish. People use critical thinking and strategies when gambling in casinos. When you are gambling it is healthy for your brain because you’re using critical thinking skills and strategies. The majority of people who gamble in casinos do not experience problems. The gambler finds relaxation in gambling which causes some good effects to his health.

Are we being genuinely moralistic when we ban casinos but not other forms of gambling? Don’t we allow betting, lotteries etc. Won’t the same evils touted by do-gooders apply even more with regard to betting on horse races and gambling in smaller outfits like clubs which are even more patronized by our own people whereas the majority patronizing casinos will be foreigners? Why are we objecting only to casinos which can provide the economy with benefits and increase tourism while tolerating betting shops which are patronized by local people much more than they would ever do with gambling in casinos?

Are there costs involved that exceed the obvious economic development benefits?

Who actually gains and who loses? What are the answers to these two questions that those who oppose casinos have?
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Very interesting and debatable article.