It appears GMS and I are not the only persons raising the view that
casino is a bad idea economically. The following article from a Mr
Yeoh raised some of the same issues we raised here. A note is that
the writer is Director of Economics and Strategy at the Government
of Singapore Investment Corporation (GIC) and Vice-President of the
Economic Society of Singapore (ESS).
I hope the public will review this article carefully and rethink
the economic benefit of having a casino.
Note: This is an information post only, not a discussion
thread.
=============================================
Dec 17, 2004
Casinos: Economic costs as big as any benefits
By Yeoh Lam Keong
For The Straits Times
THE integrated casino resort project (ICR) has been proposed
principally to re-energise Singapore's flagging tourism
industry.
On its surface, the model looks seductive. Only 30 to 50 per cent
of
the project is supposed to be centred on gaming. The bulk of
the
revenues from the $2 billion investment, we are told, should, as
in
Atlantis or Las Vegas, come from an alluring infrastructure
of
high-end hotels, world-class entertainment, restaurants and
convention
facilities that would also synergistically benefit tourism as a
whole.
Surely, the argument goes, if through ingenious regulation we
can
contain the worst excesses of the ICR's acknowledged social ills,
we
should be willing to step outside the box of our traditional
caution
and give it a spin?
The fact that Thailand, Korea and Macau are all planning to
deregulate
and/or further attract investment in this area gives added urgency
to
the project. Do we want to be left behind? Should we not, as
Associate
Professor Winston Koh of SMU, and others, have argued, also
establish
ourselves as serious players in the mega gaming/tourism
sector?
Tempting
LIKE its high rolling namesake, the ICR project looks tempting. A
much
darker picture, however, emerges if one looks at its economic
costs.
First, while the benefits are potentially large (Prof Koh
estimates
the ICR can add 0.3 to 1 per cent of GDP), the costs are equally
big.
Cost benefit studies of Australia's experience in gaming estimate
a
sum of between A$1.8 billion (S$2.3 billion) and A$5.6 billion on
both
the benefits and costs sides of the ledger.
Australian Productivity Commission (APC) listed the following
among
the main costs: Bankruptcy, loss of work productivity, job
losses,
police incidents, court cases, divorce and violence. The impact
on
family dysfunction and breakdown is obvious.
The APC found that 96 per cent of problem gamblers suffered
from
depression, 58 per cent have considered suicide and 14 per cent
had
attempted it. Half spent over 50 per cent of their income on their
vice.
Problem gamblers may constitute only a tiny minority - typically,
1
per cent to 2 per cent of any population, according to Australian
and
American studies. But the multiplier effects of their pathology can
be
large. In Singapore, potentially 40,000 to 60,000 people may
become
problem gamblers. But between 120,000 and 180,000 family members
may
be indirectly harmed by their vice.
Economist call such impact 'negative externality'. The market
is
ill-suited in valuing 'non-price goods' or in regulating the
negative
social effects of certain kinds of economic activity. We know,
for
example, that it cannot satisfactorily price the benefits of
'clean
air' or a 'green environment' or prevent pollution reaching
excessive
levels without regulation.
Similarly, the market cannot adequately price or limit the impact
of
gambling-related depression, poverty or suicide on a family. What
is
the true cost of family dysfunction and breakdown? The
counselling
charges paid by pathological gamblers hardly captures the full
cost.
For this reason, economists who have done cost-benefit analyses
of
gaming have argued that its costs have been badly understated.
Most
analyses, using conservative estimates, have found the costs
outweigh
the benefits.
Can regulation reduce these costs? Can limiting access to casinos
to
high-rolling tourists or to rich citizens, for example, reduce
the
number of problem gamblers? Can't Singapore have its cake and eat
it too?
Unfortunately, the economics of the gaming industry work against
this.
To begin with, the bulk of most casinos' clientele tend to be
local
residents - usually 70 per cent to 80 per cent even in
tourist-intensive locations like Australia or Genting, in
Malaysia.
Atlantis and Las Vegas, which rely principally on non-residents
or
foreign tourists, are not at all typical examples.
In Singapore's case, the greater the regulation of locals, the
greater
will be the implicit 'tax' on its ICR as compared to less
regulated
regional gaming establishments. Over time, the more intense
the
regional competition gets, the more financially unviable will
local
regulation become. After sinking more than $2 billion into such
a
project, there is likely to be increasing pressure to relax or
dilute
restrictions on local clientele so the ICR can be competitive
with
other casinos in the region, subject to fewer restrictions.
The
financial viability of the local casino may require the acceptance
of
high levels of local misery.
Unseen threat
IN ADDITION, the ICR, by its very nature, will pose an unseen
threat
to the very tourism infrastructure it is designed to energise. This
is
because ICR-type operations typically subsidise the hotel,
entertainment and other facilities attached to the casino. Often,
such
facilities barely break even or may even lose money, but the
project
as a whole is supported by the gaming profits from the clientele
that
such facilities draw.
If the ICR is extremely successful, there may be a positive
spillover
into nearby hotels, restaurants, pubs or entertainment venues.
But
this would be the rare and lucky case. Statistically, 30 to 40
per
cent of gaming facilities fail, with a large proportion surviving,
but
not very well.
It is in these more common cases that the ICR could become a
Trojan
horse, with a potentially destructive impact on the local
hospitality
industry because of its massive non-gaming infrastructure.
Being
heavily subsidised, these facilities could damage surrounding
hotels,
entertainment venues or convention places. Around Sky City,
Auckland,
for example, hotel rates have fallen around 10 per cent due
to
competition from the casino's cheap subsidised hotels.
In a booming hospitality industry with already high occupancy
rates,
this negative impact might be small. But with significant
excess
capacity, flagging tourist arrivals and already thin profit
margins,
the effect could be a harmful diversion of trade, loss of
existing
jobs and bankruptcies. Unfortunately, this is likely to be
the
situation we face today.
More worryingly, the subsidised infrastructure of the ICR could act
as
a distorting barrier to entry and investment in the high-end
segment
of the hospitality and convention industry that Singapore is
seeking
to develop further.
Such potential negative impacts typically do not feature in
standard
cost-benefit analyses. They are, rather, hidden financial and
economic
risks that are inherent in the nature of the ICR project
itself.
Given these risks, to describe the ICR as an 'option' that
Singapore
might like to buy, as some of its defenders have described it, may
be
misleading. Instead, the project is perhaps more accurately
characterised, in financial market parlance, as the selling of
an
'uncovered option'. Besides the certain social costs and the
big
initial investment involved in purchasing this 'option', the
total
losses to the economy as a whole could be unexpectedly large,
open-ended and extend over an indefinite time horizon, as in the
case
of the sale of an 'uncovered option' gone wrong.
Considering these risks, the question of whether there are
alternative
projects that could fulfil the same tourism objectives as the
ICR
naturally arise.
Here, one cannot help but feel that Hong Kong has chosen a
better
direction with its West Kowloon Cultural District (WKCD)
development
project.
The proposed mega development will cost $5 billion and is designed
to
enhance Hong Kong's position as Asia's premiere centre for the
arts,
culture and entertainment. The WKCD is also expected to generate
8,500
permanent new jobs.
That is better than the 1,500 to 4,000 jobs that the Singapore ICR
is
estimated to provide, with positive rather than negative
social
effects and genuine benefit to related service industries.
Just as importantly, together with Disneyworld, the WKCD could
help
brand Hong Kong as the leading family-friendly, sophisticated
Asian
international tourist destination. By comparison, what impact
on
Singapore's branding would the ICR have?
Would we not be diluting our tourism branding by moving closer to
the
niches occupied by gaming cities like Las Vegas and Macau? Is
this
what we want as a key part of our tourism strategy, let alone
in
setting the tone for Singapore's social policy?
ICR proponents argue that gambling of all sorts is already rampant
in
Singapore. Professor Peter Collins, Director of the Centre for
the
Study of Commercial Gaming in Britain, estimates that gambling
per
capita in Singapore is already among the highest in the
world.
Establishing an ICR, its proponents argue, could capture some of
the
business now lost to cruises and foreign casinos, and raise
tax
revenues that can be used for social good as well as to
rehabilitate
the worst effects of problem gambling.
Regulation
FRANKLY, I find this argument rather weak. The existing scale
of
gambling is primarily determined by social policy and
regulation
rather than dictated by local consumer taste.
In regulated France, for example, spending on gaming forms only
1.3
per cent of GDP. Compare this to a similarly rich, but less
regulated
country like Japan, where 'pachinko' gaming turnover alone forms
a
whopping 6.7 per cent of GDP.
Unlike Japan, Singapore is not desperate for alternative fiscal
revenues.
To my mind, the admittedly high existing per capita spending
on
gambling in Singapore is not an argument for establishing yet
another
gaming venue in the form of a legal high-end casino.
Rather, it is a much stronger argument for a careful review
of
regulation of existing gaming facilities - including legal
4D,
'football clubs' with their gaming machines and illegal gambling -
as
well as of the adequacy of counselling, education and
community
support for existing problem gamblers.
Although superficially compelling, the ICR project, with its dark
and
hidden costs, is a Faustian bargain. And as with most such
bargains,
the devil lurks in the details.
The writer is Director of Economics and Strategy at the Government
of
Singapore Investment Corporation (GIC) and Vice-President of
the
Economic Society of Singapore (ESS). The views expressed here are
his
own and do not represent those of either the GIC or the ESS.
The integrated casino resort project: Weighing the scales
PROS:
# Only 30 to 50 per cent of the project is centred on gaming. The
bulk
of the revenues from the $2 billion investment should come from
the
supporting infrastructure of hotels, entertainment, restaurants
and
convention facilities.
# Since gambling of all sorts is already rampant in Singapore,
setting
up an ICR could capture some of the business now lost to cruises
and
foreign casinos, and raise tax revenues that can be used for
social
good as well as to rehabilitate the worst effects of problem
gambling.
CONS:
# While the benefits are potentially large, the costs are equally
big.
There could be bankruptcy, loss of work productivity, job
losses,
police incidents, court cases, divorce and violence.
# The subsidised infrastructure of the ICR could act as a
distorting
barrier to entry and investment in the very high-end segment of
the
hospitality and convention industry that Singapore is actively
seeking
to further develop.
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