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Is Gambling a Good Economic Development Bet?


Some communities with desperate economic problems may see the legalization of gaming as a risk worth its potential costs because the cost of doing nothing is already high. Other communities may decide it is more important to avoid the cost associated with social pathologies linked to gambling than to take this path to economic development.

This article is an excerpt from Economic Development: Strategies for State and Local Practice, 2nd Edition, published by ICMA Press (August 2010).

Gambling is no longer an activity routinely condemned by government officials who wish to impose ethical standards on their communities. In some parts of the country, gambling has been embraced and promoted as a legitimate strategy of economic development. In theory, lotteries, racetracks, casinos, and electronic games can fill government coffers with funds to support worthy government programs. Supporters say gambling can provide jobs with good benefits to people who are unemployed or underemployed. To become legitimized, however, gambling must change from being perceived a social problem to an ethically neutral form of entertainment or even a positive force for economic development. Government has helped in this transformation by openly promoting various forms of state gambling, such as lotteries and numbers games. 

Economic benefits versus social costs of gambling

Confusion surrounds the question of how many new jobs and how much government revenue gaming has created. The Rockefeller Institute noted that state revenue from gaming has risen steadily from 1998 to 2007 and totaled $23.3 billion in fiscal 2007. In 2007, ten states collected more than $1 billion a year in gambling revenue, and another seven states collected more than $500 million a year. Gaming revenue represented 2.1 to 2.5 percent of states’ own source revenue each year from 1998 through 2007. However, revenue growth from gambling slowed in fiscal year 2008. 

The Rockefeller Institute concluded that from a fiscal perspective, state-sponsored gambling resembles a blue-chip stock—reliably generating large amounts of cash but no longer promising dramatic growth. Researchers at the institute speculated that softening of growth in gaming revenue may be partly explained by negative economic conditions. Concerns over the social costs from pathological gambling nevertheless were also seen as a continuing issue that dampened growth. 

Some analysts claim that estimates of the benefits of gambling are grossly overestimated. They argue that benefits can come about only if visitors from outside the area leave their money at the casinos and go home. Unless an area has the prospect of attracting a flow of national or international visitors, analysts argue, the only justification for licensing a casino is for the enjoyment value to local citizens, not for a net economic gain. 

Social costs of gambling

Critics of gambling contend that economic development studies do not adequately measure its social costs. The National Gambling Impact Study Commission states that analysis of the economic effects of gambling is “poorly developed and quite incomplete.” The commission notes that the social costs of expanding gambling must be considered in any assessment of gambling’s net benefit. Such an assessment is problematic because, according to the commission, the social costs of gambling are too ill-defined for firm conclusions to be reached. 

Negative life choices are linked to problem or pathological gambling. Behavior associated with this type of gambling includes suicide, divorce, homelessness, and family abuse or neglect. Behavior associated with adolescent problem or pathological gambling includes alcohol and drug use, truancy, low grades, and illegal activities to finance gambling. Surveys of Gamblers Anonymous members revealed that two-thirds of the respondents had contemplated suicide and 77 percent stated that they wanted to die. Nevada’s suicide rate is consistently among the highest in the country. In 2006, Nevada had the fourth-highest suicide rate, with 19.5 deaths per 100,000 people. 

Other negative outcomes are linked to gambling. Compulsive gambling has been associated with heightened tension in marriages and divorce. Spouses of compulsive gamblers suffered a greater incidence of emotional and physical problems. Studies have also linked gambling to domestic violence and homelessness. Social costs of gambling can be considered from both individual and societal perspectives. Individual financial problems related to problem or pathological gambling include crime, loss of employment, and bankruptcy. Relatives and friends are often sources of money for gamblers. Employers experience losses in the form of lowered productivity, embezzlement, and time missed from work. 

The National Gambling Impact Study Commission noted in a report in 1999 that social pathologies and addictions disable individuals and force others to pay for their dysfunctional behavior. The commission stated that in certain areas, the arrival of casino gambling produced benefits to the communities in the form of new and better jobs, increased purchasing power, and social support facilities, such as schools and hospitals. The commission recognized, however, that speaking of those benefits was not appropriate without acknowledging the unknown and unmeasured negative effects that arose from citizens who became problem or pathological gamblers. The central question therefore becomes whether the net increases in income and well-being from gambling are worth the acknowledged social costs. 

Gambling also is a regressive tax that falls disproportionately on those with less income. Data indicate that riverboats are often located in poor neighborhoods and attract local residents. State lotteries are also considered to be highly regressive. 

Gambling as a tool of economic development remains controversial, with strong advocates on both sides. Proponents of legalized gambling argue that, for most people, it is a harmless diversion and that individuals should be free to spend their money as they wish. Proponents of gambling focus on its economic benefits for communities that use gambling to attract investment and jobs. Cities and states can use legalized gambling to support specific public services, such as education. 

Supporters also argue that gambling can attract tourism and that restrictions simply divert the potential tax revenue to illegal gambling operations or to other regions where the practice is legal. Opponents of gambling counter that it attracts a variety of social ills that damage society. Gambling can become a compulsive habit, ruining the lives of people who run up huge debts or gamble away their personal or family income and savings. 

Studies suggest anywhere from 1 to 5 percent of the adult population can be considered problem gamblers, and society must pay at least a part of the resulting costs related to lost productivity, psychological counseling, and other services. 

Competing perspectives

Miles’ Law—where you stand depends upon where you sit—predicts correctly that those who stand to gain economically from gambling will support it. On the issue of gambling, numerous interests support or oppose one another, depending on their immediate self-interest. Elected government leaders often see gambling as a means of solidifying the city’s economic base by bringing suburbanites to a moribund downtown area. Bureaucrats in agencies that are promised gaming revenue often support gambling to pay for agency activities. Owners of large casinos tend to support gambling when they will benefit from the operation but oppose it if they view it as competition. 

In 1992, for example, Nevada casino owners joined forces with California’s anti-casino factions to attack a proposed expansion of casinos into California. The Nevada owners hypocritically portrayed casinos as financial losers likely to lead to “increased crime, prostitution, laundering of money” and portrayed gaming as “a regressive form of entertainment” that would be “most damaging to minority populations.” 

Gambling can be viewed as an individual social pathology, a societal menace, a viable tool for growth, a growing source of governmental revenue, and a specific means of assisting deprived groups. Each perspective possesses some credibility. The extent to which the gaming industry can operate as a legitimate tool of economic development will depend largely on the resolution of conflicts among competing perspectives.

From: Economic Development: Strategies for State and Local Practice, 2nd Edition, (August 2010), by Steven G. Koven and Thomas S. Lyons.

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