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.
