13 years ago, internationally renowned economist Richard Lipsey wrote a paper on gambling expansion with Lennart Henriksson, entitled Should Provinces Expand Gambling. As he is traveling on a schedule too tight to permit him to write on this topic today, Dr. Lipsey invited us to excerpt his paper in ways that are helpful to today’s debate. What follows could have been written yesterday:
By Richard Lipsey, PhD, Professor Emeritus, SFU, Order of Canada
We believe it is time for governments to adopt a more sober set of expectation about what new gambling ventures can achieve.
[T]here has been little clear thinking on the question of whether the benefits of expansion outweigh the costs. … Unfortunately, most cost benefit studies to date have been funded by groups with a vested interest in expansion, such as governments or would-be casino developers. In the typical study, the benefits of expansion are overstated, often by ignoring the diversion effect. In other cases, the social costs of expansion are understated or ignored altogether.
To be sure, the tax content of new gambling expenditures for the government is substantial. But for the economy as a whole, we conclude that while some new revenues and jobs are created, these are largely offset by the loss of jobs and revenue in other sectors.
The downside risks of gambling are significant, When the social costs are deducted, the incremental revenues may turn out to be negative. For the BC government, even a tiny increase in healthcare, social services or law enforcement costs would easily wipe out any incremental gain. Sadly, the government continues to overlook the need for objective and realistic analysis.
[T]he benefits from new gambling are limited, and easily overwhelmed by large downside risks.
It is easy to point to jobs created in gambling because they are localized and visible; it is difficult to track the jobs destroyed by the diversion of expenditures from other lines of expenditure because they are diffused. … Only careful studies of overall employment trends, not just those in gambling, have any chance of uncovering the true full effect –and, by and large, such studies find little effect.
[T]the losses from gambling are partly moneys transferred from expenditures that the losers would have otherwise made. For the same reason, most of the jobs created in gambling only substitute one for one (at best) for the jobs destroyed when expenditure switches from other activities. Although any new job is to be welcomed, these are not the sort of increments that justify accepting significant social costs to obtain.
On Problem Gambling and Crime:
Problem gamblers are an easy target for those in organized crime. They can be lent money which they lose, and then forced into such illegal activities as couriering drugs. The existence of a supply of problem gamblers may actually attract the criminals who would exploit them. And, when the consequences come home to roost, suicide may increasingly appear to be an easy out.
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A degree of corruption is a very likely product of expanded gambling. To be sure, some jurisdictions seek diligently to prevent corruption in the regulatory process through mechanisms such as conflict of interest rules, the appointment of persons who are above suspicion, or requirements for open procedures. But the effectiveness of these practices is limited. The licenses that a gaming commission awards are extremely valuable, and decisions it makes governing day-to-day operation of gaming facilities will often involve large amounts of cash. Suspicion of corruption and its occasional appearance are inherent in the process.
On Public Debate:
There has been a “bandwagon” atmosphere around gambling in Canada, and an unfortunate stifling of healthy public debate.
All in all, the best gambles are those in which one risks a relatively small sum in the hopes of winning a relatively large sum. The bet the public is being asked to make on extended gambling violates that basic principle. They risk a large economic and social loss that is uncertain and open-ended. No one knows how big it may be. All in all, this is neither an efficient nor effective way of funding public policy goals.
Richard Lipsey, PhD, Professor Emeritus, SFU, Order of Canada