The high-low split of gambling cities

Macau was named the world’s second fastest growing economy for 2013, a title owed almost entirely to its casinos. 

Propositions to legalise or expand commercial gambling are never without controversy, yet they never stop surfacing.

This month in the Bahamas, residents will vote on a referendum to expand legalised gambling – a proposal which faces fervent opposition from local church groups. In the US, politicians in Kentucky have been trying to legalize casino gambling since 2008, so far to no avail. Also in the US, efforts to expand casino gambling in Maryland recently concluded with voters approving the construction of a billion-dollar casino at theNational Harbor, a 350-acre waterfront development near Washington DC.

The argument for commercial gambling says that it stimulates the economy by promoting tourism, increasing tax revenue and creating jobs. The argument against says that commercial gaming harms both the economy and people by increasing rates of bankruptcy, addiction, violent crime, theft and substance abuse, in addition to taking business away from surrounding attractions. Both sides are right. But the gaming industry’s economic impacts don’t look the same everywhere in the world.

Macau was just named the world’s second fastest growing economy, a title owed almost entirely to its casinos. This Special Administrative Region of China rakes in more than five times the amount of gambling revenue that Las Vegas does each year; in 2012 alone, its casino revenue rose 13.5% to 303 billion Macau patacas. Macau’s casino boom has created a lot of jobs, too. About 45,000 casino-related jobs have opened up in the last seven years, causing the unemployment rate to drop to a mere 2%, according to the Associated Press (AP). These jobs don’t require a high level of education, but they do pay well, offering salaries often 30% to 40% higher than comparable non-casino jobs in Macau, the AP reports. That’s not necessarily the case everywhere though; in the US, for instance, gaming dealers can make as little asminimum wage. (The Boston Globe provides this glimpse into the kinds of jobs US casinos create and their associated salaries.)

The situation in Macau has a lot to do with geography. It is the only place in China where casino gambling is legal, so the vast majority of gamblers are tourists from mainland China. If casino gambling was to become legal elsewhere in the country, there’s a strong chance that Macau’s economic growth could start to slow.

This is what happened to New Jersey’s gambling destination, Atlantic City. Since 2006, surrounding areas in Pennsylvania, Delaware, West Virginia, New York and Maryland have built casinos; and each year since 2006, Atlantic City’s gambling revenue has steadily dropped, reports the Atlanticmagazine.  

Even in Macau, there have been social costs. According to the AP, the country’s income gap has grown, property prices have risen and there’s been an increase in problem gambling. One study on gambling addictionfinds that living within 80km of a casino makes someone twice as likely to become a problem gambler. In tiny Macau (with a land area of just 29sqkm), all residents live within a short driving distance from the casinos.

The potential ill-effects of commercial gambling on a community’s own citizens cannot be ignored. It was for this reason that in Monaco, home to the infamous Monte Carlo Casino, gambling has always been illegal for its own residents. When Princess Caroline developed Monte Carlo Casino in the mid-1800s, she was adamant that Monegasques should not be allowed inside, and that gambling revenue should come only from foreigners. In exchange, citizens of Monaco do not have to pay income taxes.

Monaco’s successes, with its citizens enjoying a high standard of living, can also be contributed to the fact that the city does not rely solely on its casinos for economic development. Its efforts to be a well-rounded tourism destination have resulted in 11% of its revenue coming from tourism, compared to just 4% coming from gambling. Finance and banking account for a large chunk of its economy as well.

Another tourism-driven economy – that of the Bahamas – is currently dealing with the question of whether its own citizens should be allowed to gamble. The referendum on 28 January concerns exactly that. Currently Bahamians are banned from gambling inside the beach resort casinos, meant for tourists only. However, underground gaming locales, called “web shops”, have emerged where locals can place illegal bets on US lotteries that are broadcast on television. This month, citizens will decide whether these web shops should be made legal and whether they would support the creation of a national lottery. They would still not be allowed to gamble in the casinos aimed at tourists.

Plenty of economists argue that casinos do not only create social woes, but economic burdens as well. According to a paper from the University of Illinois at Urbana-Champaign, multiple studies in the US have found that casino gambling costs taxpayers three times the amount that it generates in state taxes – because it tends to cause an increase in social welfare costs, regulatory costs, criminal justice costs and infrastructure costs.

Multiple studies also show that certain forms of gambling amount to a “regressive tax” on the poor. Numbers lotteries in particular (the same ones in question in the Bahamas right now) have been shown to take money away from the people who can afford it the least. A strong case can also be made for slots machines in casinos creating a regressive tax, since these operate much like lotteries, producing the worst odds for players and the best odds for the house. For this reason, some governments tax slots games at a higher rate than other casino activities, such as table games.

University of Illinois business professor John Warren Kindt argued that although casinos initially create jobs, in the long-term, legalised gambling can cause job loss as well. For one thing, gambling addiction has been linked to job loss, with problem gamblers twice as likely to lose their jobs as nongamblers. For another, casinos often take profits away from surrounding businesses. Casinos work to keep customers inside their establishments (and out of nearby businesses) by providing them with drinks, food, shopping and accommodation, and by implementingstrategic interior design techniques. Local businesses also have a hard time competing, writes Kindt, because casinos have addiction on their side. If, as a result, surrounding businesses are forced to close, non-casino jobs are lost.

At the end of the day, the net impact of legalised gambling on a community is difficult to assess. What seems clear, though, is that making casinos a silver bullet for the economy is a risky bet. If gaming inhabits a space within a diversified tourism industry and within a diversified economy, though, communities may benefit – if they can successfully measure and manage gambling’s social and economic costs.