Some studies....
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.
