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.
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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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