How Vegas Got Blackjacked At its Own Game
You may not believe it, but it’s actually true! Macau has long overtaken Vegas as the premier gambling destination of the world. And the lead it enjoys over its American sister is not thin. According to Macau’s Gaming Inspection and Coordination Bureau, the gaming revenues generated by Macau casinos were a staggering $33.5 billion in 2011; that’s Vegas’ revenues rolled five times over! Gambling was always associated with Nevada. Macau wasn’t even in the scene till the turn of this millennium. How did Macau do it then?
I have a real simple logical explanation to the above question. America, with its population of 300 million, has more than 700 casinos. China, under whose jurisdiction Macau falls, has a population in excess of 1.3 billion. And since Macau is the only legitimate gambling destination in the vicinity, with still a relatively miniscule 33 casinos, the daily footfall in “The Vegas of the Orient” is more than 30 million. You can do the rest of the math now!
The journey of Macau to be the top gambling destination of the world is as vivid as the city itself. Being a Portuguese colony, gambling was legalized in Macau as early as 1847. However, it was only in 1937 that casino licenses were given. The gambling industry in the city got the real breakthrough when an association of businessmen from Macau and Hong Kong, led by Chinese businessman Stanley Ho, was granted a monopoly of setup and operation. Stanley Ho is to Macau what Steve Wynn, Kirk Kerkorian and Sheldon Adelson, all combined, are to Vegas. The monopoly was extended in 1986 for 15 more years till 2001. This is when Macau struck gold. The government opened the city to outside players and invited bids from American casino moguls like Wynn, Adelson and Kerkorian. With the advent of big players, the whole industry saw a major turnaround as the three went on to open their own casinos; Wynn Macau by Steve Wynn, The Venetian Macau by Sheldon Adelson and the MGM Macau by Kirk Kerkorian. However, Stanley Ho’s Sociedade de Jogos de Macau, enjoying a head-start, today owns 16 out of Macau’s 33 casinos.
There are three major developments that defined Macau’s landscape and attributed to the phenomenon it is today. The first is the expansion of Casino Lisboa, Stanley Ho’s flagship 1000-room tower shaped in the form of a lotus. The second is the launch of Wynn Macau, the 600-room toned down version of the bronze Wynn Resort in Vegas. The third and the last was the opening of the MGM Grand Macau, with 583 rooms and an architecture that would make its Nevada sibling look modest. By the latter part of the first decade of the second millennium, Macau looked just like Vegas did in its prime in the late 1990s.
Casino moguls such as Wynn and Kerkorian play down the difference between Las Vegas and Macau. Grant Bowie, Wynn Macau President says, “The notion that Macau becomes Las Vegas seriously undermines the value of both destinations. Vegas is very American. Macau can become a must-see destination in Asia, but with its own unique identity.”
A fact that cannot be ignored is that Vegas has a lot to do with Macau’s meteoric rise. A little more than ten years ago, Macau was still not ready to take center-stage as the biggest gambling destination of the world. Las Vegas companies, today, run more than 5,000 suites and 7,000 slot machines in Macau. The Wynn Macau, according to Steve Wynn, is “A Chinese company with the Las Vegas flair”. What’s interesting is that, taking inspiration from their American counterparts, almost all Macau hotels have started catering to a wider market by providing avenues for corporate meetings, entertainment and shopping, a move that has expanded their revenue streams. Besides the revenues generated from the gaming area, the incomes from hotel tariffs, spas, local tourist attractions, food and beverages have made an equal, if not a great, contribution to the overall profitability of these hotels. The idea is to provide a complete holiday experience to one and all. What works out for hotels in Macau is the lower cost of operation when compared to the same for Las Vegas hotels. This has invariably led to greater affordability of rooms, food and drinks and other relevant amenities. It is not without reason that Bill Eadington, an economics professor and director of the Institute for the Study of Gambling and Commercial Gaming at UNR, says, “It’s going to be harder and harder to persuade customers to come to Las Vegas as we see similar investments elsewhere,” he said. “At some point players are just going to opt not to travel so far to gamble.”
So as long as Macau keeps it cost effective; Vegas will keep losing out on a major chunk of gambling revenues in times to come.
What are the lessons for us here in India? Let us also encourage above word and legal gaming. At this time, gaming in India particularly on sports especially cricket is huge but almost all of it happens illegally. Legitimize it.
Casinos are legal in Sri Lanka, Nepal, Singapore and Mauritius besides Macau. All these destinations are just a direct non-stop flight away from India. Is it not time for India to benefit from legal gaming instead of all our neighbor benefitting?
The $1.5 Trillion That Could Have Been Ours
From being an economic powerhouse of the Middle Ages to a third world country in the 21st century, India has surely come a long way… BACK, that is. And it is not without reason that corruption is regarded as the harbinger of poverty in the country. Sample this: In 2006, a Swiss Banking Association Report said that “India has more black money than the rest of the world combined.” Unofficial reports estimate the total sum to be more that a whopping $1,456 billion in black money in Swiss banks. The question to ask is why Indian money goes to the Swiss and not the other way round.
I know enough has been said already about the entire WikiLeaks fiasco and the government has, for now, defused the ticking bomb. Despite making high stake promises, the Government has still not delivered on its commitment. So what did the government do to counter international money laundering by our fraud politicians? Let me introduce you to the Tax Information Exchange Agreement, abbreviated as TIEA.
TIEA is a mutual agreement between two countries which, according to Wikipedia, “provide for exchange of information on request relating to a specific criminal or civil tax investigation or civil tax matters under investigation”. Devised by the OECD (Organization for Economic Co-Operation and Development), the objective of this tax treaty is to establish an official system that facilitates information exchange on matters pertaining to taxes and money laundering, regardless of either country’s definition or consideration of money laundering or tax evasion as a crime. The Agreement was initially strategized to avoid conflicts in case a country needed to access tax information that might be protected by the legal system of another country. In simple terms, if India signs the TIEA with the US, India may request all information pertaining to the investments/deposits made by Indians anywhere in the US. A smart move apparently. But, the results will be insignificant. People will find smarter ways to hide their money.
Now, here’s the catch. The following is the list of countries, ten in total, which India has actually signed TIEAs with:
1. Bahamas
2. Bermuda
3. British Virgin Islands
4. The Isle of Man
5. Cayman Island
6. The British Island of Jersey
7. Monaco
8. St. Kitts
9. Nevis, Argentina
10. Marshal Islands
Among the above, Monaco has the highest GDP and is a tax haven with minimal business taxes and no income taxes whatsoever. The rest are, with due respect to each, not major players in the international money laundering scene. Most tax evaders still take the Mauritius route when laundering their black money offshore. Now the Government really does take us, the taxpayers, for a ride. The common man is expected to smile and pay up. And pay up, he does, though he is not smiling most of the time. The government could stop the Mauritius route. But is it the intention of government to stop money coming in or to increase it for benefit of all of us? Whatever the government does, it is unlikely that this money ever flows into the government coffers.
The best possible action by the government would be to follow the practices of countries like Switzerland, UAE, Monaco, Singapore, Hong Kong and other countries where foreigners like to park their money. Why constantly try to get money by force? Why, not just reduce taxes, make the rupee fully convertible, allow foreigners to open accounts no questions asked and see investment flow into India for benefit of all us.
Can India Ever Progress?
“Dinesh Trivedi’s budget has caused a political storm, after…Trinamool Congress asked him to withdraw the hike or quit…The Trinamool Congress, termed across-the-board passenger fare hikes as a ‘hostile act’.”- Economic Times, March 15, 2012
News: Dinesh Trivedi has been asked to resign.
Reason: He was ambitious and progressive!
Isn’t it ironic that a minister who wishes to bring about positive changes in the interest of the railways should be punished for fulfilling his duty? The entire railway machinery needs to be modernized. So, why was Trivedi asked to resign? Let’s take a look at what he had envisioned for the country.
Trivedi’s Vision: A New Face for the Indian Railways
Passenger trains running at a speed of 350kmph
Goods train running at 100kmph
State-of-the-art signaling systems which would not jeopardize lives on a daily basis
Clean and hygienic stations equipped with escalators and lounges
321 escalators at important stations across India, out of which 50 were to be built between 2012 and 2013
India would have bullet trains had the new initiative of the ex-Railway Minister been implemented.
India would see high-speed corridors, allowing carries to race at 350kmph, connecting New Delhi to some of the major tourist hotspots. The National High Speed Rail Authority would be established to oversee the grand endeavor. This project would also give a massive boost to freight operations of the railways (a section that has been incessantly losing out on customers to road transport). Stations would have been upgraded to equal the high-class trains being planned.
None of this would be possible now.
Trivedi simply wanted to enhance passenger experience and ensure their safety. The fastest trains we have now are Shatabdi and Rajdhani, which run at less than 175kmph. To modernize outdated machinery, Trivedi required resources that would obviously have to come from the travelers’ pocket, as the government did not offer any support. By increasing travel fares, he would be ensuring that “railways become a safe and robust organization”. Isn’t this what comes under the roles and responsibilities of a Union Railway Minister?
So, where did he go wrong? He went against Mamta Banerjee’s party image of Maa, Mati, Manush (Motherland, Earth, People). Does that mean we need to be pushed into the ground and never dream of progress? India needs modernization at all levels of the government machinery. We had a minister who dreamt of making a positive difference to our country. The Trinamool Congress has not left any stone unturned to bring him down! With this state of affairs, PROGRESS is a far-fetched word.
And yet we cannot fault Mamta too much – she has to win elections and has to pander to her electorate.
So, what is the answer?
The answer is to take railways out of the political process. Indian Rail must be run as a business – a private business. Privatize it.
In USA, railroads are run as a business by companies. The legendary investor Warren Buffet has invested heavily in two of them. Rail roads in the US transformed America; let privatized railways in India do the same. Government will not need funds for modernizing, private companies would invest. Raising fares would be a business decision, not a political one with the need of a parliament approval.
Democracy after Capitalism or Capitalism after Democracy?
Democracy after Capitalism or Capitalism after Democracy? Does the order really matter? This is a question I have always wondered about. Democracy and capitalism have always been thought in the same light. Irrespective of the order, the very coexistence of these concepts has been a vital cog in the wheel of development of the West. However, to consider their order irrelevant will be a bit of ignorance. Why do I think so? Read what’s next…
So, in case of Democracy and Capitalism, is there a favorable order? To explain my body of thought, I’ve explained an example each from the two possible scenarios.
CASE STUDY-1: Democracy after Capitalism
I’ll cite the example of the birth of capitalism in USA. Being a British colony prior to its independence, America was an obvious witness to feudalism. As many economists believe, feudalism was somewhat of a precursor to Capitalism in its rawest nascent form. Capitalism found its roots in the US as early as the late 1600s. All was well till the implementation of The Stamp Act in 1763, which forced Americans to pay hefty taxes on all legal and financial transactions. The growing influence of independent industrialists meant that the Act was to be met with stiff opposition. The Boston Tea Party followed in 1773 and three years later, in 1776, after the successful American Revolution, the United States of America was declared an independent democratic country with the unison of 13 states.
To surmise, the birth and growth of Capitalism led to the independence and, subsequently, democratization of America (as it was then called).
CASE STUDY – 2: Capitalism after Democracy
I can think of no better example than India to elaborate on. Being one of the richest economies in the Middle Ages, India was the cynosure of all colonial powers for the resources she provided. In fact, it isn’t a surprise that ours is a country that was under foreign rule for decades. More than 70 years since we were declared a sovereign, secular, democratic, republic nation, we are yet to establish a capitalist, free-market driven economy that is independent and not answerable to the government. What we have seen is Crony Capitalism that has hindered economic growth; the prime reason we are still stuck in the third world. Crony Capitalism refers to what we have seen in Indonesia, Thailand, Nepal, Egypt, Iraq and now in India. Government through its regulations, licenses and approval processes decides the winners and losers. In a free market, it is how well you serve your customers that form the basis of Capitalism. In India, it is how well you serve your political masters, which decides the fate of your business.
My point here is in stark contrast to the one in the previous case. We experienced Capitalism (not in its true forms) long after we had democracy.
Coming back to the initial question, how does it matter if Capitalism precedes Democracy or vice-versa? Well, it does. In the former case, it was the rise of capitalists that brought about the American Revolution. By the time America got independent (read turned democratic), the economy was already in fast forward mode, thanks in no small part to the capitalist nature of it.
India’s primary problem is that even though it was, and still is, a democratic country; the government interfered, and still does, with running the economy. I’d even say that ours is a rather Confused Economy; as has been evident in our growth since we have turned a Democracy. At the risk of sounding repetitive, I’d still reiterate that a free market is what our economy needs to run on its own feet again. Till then, its Democracy -1; Capitalism-0.
Can India Become the Gambling Bowl of the World?
To be able to answer this question, let’s conduct a small tour across the only two states in India which boasts of casinos.
The State of Affairs in Goa
Political powers have shifted from the INC to the BJP; as a result, the casino industry in Goa is expected to witness massive changes. The changes might have a debilitating influence on the gaming sector. Ironically, BJP issued Goa’s first casino license. This 1999 incident is a far cry from today’s reality, where, the party contested the elections on the lines of being ‘anti casinos’.
The BJP government might not outlaw casinos, but news has it that they might prohibit Goans below the age of 21 to enter casinos. Manohar Parrikar, the Chief Ministerial candidate, has already indicated that the BJP government is not keen on renewing licenses of offshore gambling hubs. Although the government might not scrap the licenses issued by the INC government, it will definitely not issue new ones.
Parrikar’s contention was that a lot of activities happening in offshore casinos increased the rate of abortion in the city! For this reason, the offshore casinos would be banished five nautical miles into the Arabian Sea. Prior to this incident, liquor sale was banned post 11pm in casinos. This had already had an adverse impact on the nightlife of Goa.
Now that the state with the largest number of casinos in India is going to witness more regulations, I have serious doubts whether India can ever compete with the gambling hubs worldwide. However, I am curious to know how BJP would reconcile between the need to have casinos to boost tourism and fund the exchequer and their weird ideologies.
To understand the contributions of the Goan casino industry to the exchequer, let’s take a look at a report on Delta Corp Ltd, the predominant casino player in Goa, assimilated by Alchemy, a stock-broking firm. Delta Corp’s hospitality and gambling business in the state is poised to generate a gain of Rs. 135 crore on revenue of Rs. 575 crore! Alchemy estimated that this figure would be achieved by March 2013.
How would the state benefit with all the profit that the gaming sector was making?
- Alchemy reported that Delta Corp’s four offshore casinos have 75 machines and 106 tables. Every visitor has to make a payment of Rs. 3,500; out of this sum, Rs. 2,000 enters the government exchequer.
- At an average, 250 – 300 people visit a Delta Corp casino every day. Data shows that the Goa government can easily make Rs. 23 crore from only three Delta Corp casinos!
- The local government also levies a license fee which is Rs. 5 crore/offshore operator.
- The March 2010 yearend might have seen the Government of Goa make revenues up to Rs 16 crore, claims Alchemy!
This is just a Delta Corp report. The other powerful offshore casino players include the Goa Coastal Resorts and the Salgaonkar Group and onshore operators are the Majestic Hotel and the Goa Marriott Resort and Spa.
Is Sikkim Doing Any Better?
Let’s take a quick peek into the state of affairs in Sikkim, which is the only other state that has casinos. Sikkim has two casinos – Casino Mahjong, which is in the Mayfair Resort, and Casino Sikkim in Royal Plaza. The state saw its first casino only in 2009. Seven more casino licenses are yet to be approved by the Sikkim government.
Tango Wangyal, Partner, Casino Sikkim, had said in an interview on December 5 that the government had taken a step towards promoting Sikkim as a gaming hub by giving licenses to several casinos. However, there was no proactive endeavor in that regard since the government has offered no help directly or in terms of incentives for the same.
Tango also remarked that, although several companies have applied for sports betting and casino license, only three lottery operators have managed provisional licenses to establish shops. However, the petitions are pending with the Sikkim government even after two years. Tango expressed his confidence in the fact that the operations would start; however, he agreed that it could take anything between three months to three years! Despite the scenario, Tango is bullish about the gambling sector in the state and in India as a whole.
Many other states in India – Gujarat, Punjab, Rajasthan and Uttarakhand – were supposed to have casinos. However, there has been minimal or no effort on those fronts. I do not share Tango’s positive outlook. I cannot ignore the fact that the Government of India (irrespective of the parties involved) has always shared the common viewpoint about gambling and casinos being a taboo. They have always failed to see the positive impact that the gaming industry could have on the country’s GDP.
Will BJP’s entry into Goa spell doom for the flourishing casino industry in the state?
Other countries
Sri Lanka has casinos, so does our other neighbor Nepal. Casinos provide revenue to government and employment to thousands of staff. Indirect employment by the gaming industry includes suppliers, entertainers, hotels and airline staff – opportunities expand in entire range of related businesses all profiting from casinos.
Singapore saw its GDP boosted by 15% in 2010 largely due to the opening of Marina Bay Sands and Resorts World casinos.
India must understand that a sensible policy in gaming does not make people into gamblers. It just brings the underground business activity overground. Do we need the underworld accepting bets of avid gamblers? We al know what that leads to – attempts at fixing matches. Let legitimize sports betting companies run proper betting operations as in done in the UK, the US. Why not India?
An Unusual Timeline of Gambling History (3000 BC –1900 AD)
Are you surprised to know that gambling existed even in 3000 BC Mesopotamia? In fact, the oldest six-sided dice was invented in Northern Iraq (erstwhile Mesopotamia).
Let’s explore the era when the kernels of betting were sown across cultures worldwide and get a deeper insight into the development of gambling.
3000 – 1500 BC
A pyramid near Cairo had a tablet explaining the additional five days in the 360-day Egyptian calendar. The tablet elucidated that the God of Night, Thoth, had won a bet with Moon, claiming five more days, which was beyond the jurisdiction of the God of Creation, Ra.
During this time, the Chinese Emperor Yao invented a game with more than a hundred pieces. The game was to be played between two people and spectators were invited to bet on the potential winner.
India, too, witnessed the rise of dice games, chariot racing and cattle betting around this period.
500 – 1000 AD
Emperor Justinian of the Roman Empire and Orthodox Church Head issued two laws – one for the common man and the other for the clerics. The former banned people from gambling, whether private or public. The latter decreed that clerics caught betting would be punished or even suspended.
As opposed to this, Caliph Abdul-Malik of Arabia followed the pattern of tossing coins to decide the fate of the conquered territory’s wealth. He is known to have lined up his military officers in the courtyard and asked them to toss coins to come to a decision regarding their individual share in Syrian wealth.
1100 – 1200
The game of cards was invented during the reign of the Chinese Emperor S’eun-ho. The cards were designed by the members of the Emperor’s harem and were called Teen Tsze Pae.
At the time of the Third Crusade, the rulers of France and England, King Philip II and King Richard I passed a law forbidding the ranks below that of knights to gamble for money. The law, while allowing the rulers to gamble, limited a common man’s loss to 20 shillings per day.
1300 – 1400
France revised its anti-gambling laws to include cards among the list of prohibited games. Bavaria banned card games at around the same time.
In 1377, Johannes von Rheinfelden, a Dominican monk, wrote about a newly invented game of 52 cards.
In 1394, the then Dukes of Saxony and Letzburg played a card game to win the forest of Ardennes.
In 1399, the provost of France, Guillaume de Tignonville, introduced a law forbidding the working class from playing a game of chance on business days.
1400 – 1500
The Italian Duke of Savoy, Amadeus VII, issued a law forbidding gambling. However, women were allowed to bet on ‘pins’ and other small accessories.
Around the same time, the English King Edward IV prohibited games of dice. These games could be played only during the Christmas holidays which lasted for 12 days. This verdict was reinforced by King Henry VII in 1496.
L’Éduce in France conducted a lottery in order to raise funds to improve fortification. This was the earliest lottery recorded in history in which people paid to win. The prize was 300 florins.
In 1444, Belgium organized a lottery to collect money for the town poor. This lottery resembled modern betting in many ways since tickets were introduced and winners received prize money.
1500 – 1600
French King, Francis I, legalized lotteries in five cities – Bordeaux, Lille, Lyons, Paris and Strasbourg. Europe’s first public lottery took place in 1530 with the intention of gathering funds for social work.
In 1566, Queen Elizabeth I held the first public lottery of England to repair the harbors. Approximately 400,000 tickets are purchased. The prize money was a sum equivalent to today’s 17,500 USD!
In 1576, Italian Duke Andrea Doria designed a lottery pattern for selecting five members for the major colleges in Genoa. In this lottery, each candidate was given a number instead of using their own names.
1600 – 1700
England (1600 – 1620)
King James I sanctioned a lottery in 1612 for raising funds for a Virginian colony in America (then, the New World). The Virginia Company conducted this lottery. However, in 1621, James I introduced a law preventing the Virginia Company from hosting lotteries in the future.
Again, in 1631, King Charles I sanctioned a lottery to gather funds for building the first aqueduct of England.
The Republic of Venice (1638)
The Great Council opened a wing in the Palace of San Moisè called Ridotto, which also became the first government-owned casino in Europe.
The New World (1660s – 1680s)
Massachusetts passed a law prohibiting public gambling. The British colony witnessed its first anti-gambling law.
North America saw its first horserace track built in 1665 on Long Island and the first horserace event took place in 1668.
In 1682, William Penn enacted The Great Law to prohibit gambling/betting in Pennsylvania.
Britain in the 1690s
The British Parliament conducted a lottery to gather money for war against France. Later in the decade, the Parliament banned non-governmental lotteries/games of chance.
1700 – 1800
France in the 1730s
French finance minister Le Pellefier-Desforts issued a royal decree for a two-year lottery to popularize Parisian civic bonds. Only the bondholders could buy the tickets. The celebrated writer Voltaire and the renowned explorer Charles-Marie de La Condamine won the lottery. Voltaire won more than one million francs!
Britain (1735 – 1775)
In 1739, the British Parliament banned several gambling games – ace of hearts, basset, faro, hazard and roly-poly.
In 1772, King George III did away with the groom porter’s office, which was established 250 years ago to arrange royal gambling sports. He also initiated a law prohibiting servants from playing cards.
America (1775 – 1795)
In 1776, an order by George Washington read, “All officers, non-commissioned officers, and soldiers are positively forbid playing at cards, or other games of chance.” Washington believed that “gaming of every kind is…the foundation of evil.”
However, in 1793, the government ran Federal Lottery No. 1 to build the Federal City in Columbia. Washington was the first citizen to buy a ticket.
1800 – 1900
America
In 1805, the biggest horse race of the world took place in Huntsville, Tennessee. The game saw a bet of $5,000.
Louisiana outlawed gambling in 1820.
In 1827, John Davis opened a casino in New Orleans and decorated it like one of the plush West End London clubhouses.
The El Dorado casino in San Francisco opened in 1848 and made monthly gains of $100,000 to $200,000.
In 1861, Nevada introduced a law against playing games of chance. However, 1869 saw Nevada legalizing gambling for those aged 17 and above. The age bar was raised to 21 in 1875.
The Louisiana Lottery Company (1868 – 1895), which made $300 million in it lifetime, was abolished.
France
Napoléon Bonaparte legalized gambling houses in 1806.
In 1857, public gaming was declared illegal.
Britain
Crockford’s Gaming Club was launched by William Crockford in 1828 in London. The club featured hazard, whist and cock fighting.In 1835, the British Parliament prohibited cockfighting.
In 1845, the Parliament tightened sanctions against established casinos through the Gambling Act.
These were some of the major events from 3000 BC to 1900 AD. These prove that governments across cultures and centuries have banned gaming several times. However, almost all of them had to turn to gambling (and legalize it) in order to fill the public coffers.
Keep a look out for the next post on the development of gambling from 1900 to 2011.
What Happens Today Under the Pretext of Free Market
Free markets caused the 2008-2009 global meltdown. I hear people say this a lot. How can “freedom” make people work against themselves? President Obama said in a speech that the recession resulted from the fact that “everybody was left to fend for themselves and play by their own rules.” Was it the failure of capitalism or a deviation from market economics that led to the crisis? Something in the system was terribly broken and the Western governments added fuel to the fire.
The first thing that started cracking as early as 2000 and finally broke down was the set of rules that are necessary for capitalism and free markets to thrive. Yes, even free markets need to be “governed”. The role of the government should have been to fix the broken rules. Instead, the government panicked and went against market economics. It was not just the US government, but officials across Europe, took market matters in their own hands, with the belief that they could make decisions regarding resource allocation much better than the market. The Western government stopped taking into consideration feedback from the market, which comes in the form of various signals and indicators. The result was inevitable… TOTAL CHAOS.
A case in point is what happened in Greece. There were strong market signals. The government choose to ignore these and look the other way. Greece collapsed financially and the euro was in crisis. The euro was introduced to increase efficiencies among the Eurozone nations. (Trade between nations involves currency risks. This is because currencies fluctuate, altering the price of an import in your home country. For instance, an Indian automobile manufacturer imports spare parts from Germany. If the Indian rupee suddenly declines against the euro, the manufacturer would have to pay much more for the German spare parts).
While the rationale behind introducing the euro was a sound one, there were inherent problems. Some nations in the Eurozone had stronger and more stable economies. It was in the interest of these nations (mainly Germany and France) to prevent weaker economies in the Eurozone from defaulting on their obligations, as this would work against a political union of Europe.
With this assumption, countries began borrowing money at very low interest rates. Over the course of the decade since the introduction of a common currency, nations like Greece, Portugal and Spain had just borrowed TOO MUCH.
There was widespread panic about whether Greece would be able to repay its debts. A huge bailout seemed to be the only solution. In response to this risk, investors began demanding higher and higher interest rates on Greek bonds. During the turn of the millennium, the interest rates on Greece bonds were not very different from German interest rates. By mid-2010, the interest rates on Greece bonds more than doubled, while what Germany paid actually declined.
What did the government officials do in response to these signals… they just turned their heads and looked in the other direction. The market raised alarms that Greece was living beyond its means. Instead of government cutting its deficits, it just fudged its books, trusting that a bailout would be the next government headache. In fact, Greece’s officials insisted that the country did not need support. But of course it did… and it got a bailout of $15 billion from other European nations. This was a case of too little, too late. Greek interest rates kept rising.
The governments neither resorted to guaranteeing sovereign debt nor allowed the nations reeling under debt to default. Instead, the government came up with the European Financial Stability Facility, under which some funds would flow in from stronger nations. However, Greek interest rates climbed even higher as the funds were clearly not enough. In 2011, Greece finally announced that its debts would not be paid in time and the interest rates would be revised from what had previously been agreed upon. Instead of accepting this as a default, government officials insisted that investors had agreed to a voluntary hit. Of course, investors had not anticipated this pretence from the government and the interest rates climbed even further.
By the end of last year, German and French officials were all over Greece, trying to impose a disciplinary model. Of course, there was resentment, as market signals and freedom were replaced by force.
The crisis in the US too resulted from the government’s attempts to block market signals. The US government pressurized and incentivised banks to keep lending until everyone (whether they could afford it or not) was a home owner. Government chartered Freddie Mac and Fannie Mae purchased dubious mortgages from banks. Moreover banks would not get the permission to expand if they did not lend to ‘weaker’ i.e., high risk sections of society. Bondholders and other lenders were put at great risk because the government worked against market discipline by taking over the decision regarding which investments were risky and which were not. The economic failure and the resultant crisis in the US and Greece cannot therefore be blamed on free markets, but on the faulty interference of the government in directing capital.
US Casino Industry Generates $125 Bn in 2010
The Unites States is still reeling under the pressure of a slowdown, they say. The casino industry seems to be telling us a different story altogether. Last year, the US casino industry and industries that depend on them generated $125 billion, according to a report published earlier this month by the American Gaming Association. Casino revenues in 2010 equalled 1% of the nation’s total gross domestic product.
“There is no doubt the commercial casino industry is a significant and vital part of our nation’s economy,” said Frank J. Fahrenkopf, Jr (president and CEO of the American Gaming Association). “The industry generates and supports economic activity that stretches far beyond the communities that host casinos,” he added.
The American Gaming Association study also revealed that the $125 billion in spending was generated by 566 casinos across 22 states. The industry was also responsible for nearly 820,000 jobs in the US last year.
Of the total $125 billion in spending generated, direct consumer casino spending accounted for $50 billion as well as approximately 350,000 jobs. The remaining 470,000 jobs and $76 billion in revenues were accounted for by indirect spending. About a third of the spending was generated by non-gambling sources, such as food sales, entertainment and hotels.
The casino industry employs people in various ways. For instance, people are employed for conducting table games like blackjack, roulette, baccarat and red dog. Others employed are gambling cashiers, machine technicians, managers, etc. Some people are employed to keep a tab on cheating and unruly behaviour. The casino industry also generates support jobs in the local hotel industry, employing people in food and beverage preparation, housekeeping, building and maintenance, sales and marketing, etc. There are people who work in industries that manufacture equipment for the casino industry.
Apart from creating employment in the country and of course contributing to the GDP, casinos and related industries also added $25 billion to the US government’s coffers via taxes. Direct spending generated taxes of almost $16 billion, the rest being contributed by indirect activity. This actually took the industry’s effective tax rate to 32%, which is more than the total tax burden economy-wide (which stood at 27%).
With these advantages to reap, shouldn’t the Indian government poise itself for economic growth and a surge in tourism by encouraging the casino industry?
For Years India has lost gaming revenue to casinos in Sri Lanka, Nepal, and Mauritius and more recently to newly opened mega casinos in Macau and Singapore. The Macau and Singapore gaming industry has overtaken Las Vegas as the biggest casino revenue generator in the US.
Will a Laissez-Faire System Boost Economic Growth?
Which kind of economy would you vote for – a laissez-faire market or a planned economy? My vote is for free markets.
The term ‘laissez-faire’ implies “leave it alone”. The essential traits of such as system usually are freedom to establish a business of one’s choice, no price controls and governmental function limited to that of a ‘watchman’. This entails respect for private property, the society is protected against internal lawbreakers, disputes are settled peacefully and people’s rights are upheld.
Compare Nepal with Switzerland and you will realize that though both are landlocked, one is controlled, repressed with no rule of law and poor the other is open, freer and has a rule of law. One starves the other fasts.
Laissez-Faire System and Economic Growth
A laissez-faire system gives individuals immense incentive to create wealth and this, in turn, works well for the economy. The working of this kind of a system is simple –understand the need or demand of the masses and produce the product. If you want to be richer or better off than your competition, you have to be a pioneer. Innovation, speedy implementation and affordability are held in high regard in a free market economy.
In a laissez-faire economy, you cannot produce substandard products, cheat your clients or even steal from your employees. Your competition will take over the market at the slightest hint of fraudulence on your part. Constant competition boosts efficiency and lowers costs. People work hard as rewards and penalties are meted out immediately and swiftly. In this way, the market promotes peaceful commerce and encourages excellence.
Take the example of cell phones. If you remember the first ones which came out – they were bulky, awkward and had faulty reception. I remember the first one costing almost USD 5000. Look what competition between Nokia, Samsung, Motorola and now Apple has given to us. Even as these companies made billions they enriched all of us constantly giving us a better product at great prices.
People endeavor to gain technical knowledge and industry skill as the market broadens. The forces of production undergo speedy development. New opportunities for making profits attract foreign investment. A huge variety of goods are made available. Laissez faire or capitalism feeds, clothes and facilitates bigger and better standards of living as compared to any other system.
Planned economies, where the government has the last say, are also the ones that are the poorest in terms of wealth. It is a fact that people work harder and better when they work for themselves than when they have to do it for the government. The sad part is that the adoption of a laissez-faire system is not widespread. Government power to boost the pace of growth has a kind of seductive lure and this dominates most economies. The endeavor to further growth through government intervention has more often than not electrocuted developing countries instead of electrifying them. However, did we learn lessons from this?
Was Laissez Faire Responsible for the Economic Crisis?
It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.
- Adam Smith (Wealth of Nations, 1776, Vol. I Chapter II.2, p27)
The recent economic crisis showed that we live in a global economy. Economies across the globe are connected so that ups and downs in exchange rates, stock prices and product prices impact every corner of the earth. But, was the recent global crisis caused by the breakdown of the free markets? Can markets be sustained only by the state? This sentence assumes Laissez Faire. No country is even close to it.
The laissez faire philosophy does not support government intervention on matters related to the economy. This obviously implies minimal regulations and taxes and private ownership of property. Laissez faire does not support wealth redistribution. Wealth redistribution involves taking capital from the productive sectors and injecting it into the less productive ones. This forced economic egalitarianism, kills innovation and the incentive to work hard, thereby destroying productivity. Take the former Soviet Union. Its people are brilliant – no other country has chess as a spectator sport. And yet when its rulers tried to make all of us its people they destroyed the country but equality was not achieved.
Even if wealth redistribution leads to the establishment of equality temporarily, this situation would soon collapse. Every individual has different motivation levels, skill sets and qualities. Therefore, their economic choices are bound to differ. Furthermore, economic inequality is essential for people to select their own actions, without any external influences.
Coming back to the crisis… Markets always go through the process of correction. Sometimes the correction is miniscule and at other times it is huge. What happened with the busting of the housing bubble in the US was a market correction. Who caused the bubble? The government rescued Fannie Mae and Freddie Mac and pumped in billions of dollars into the economy. But the US is still reeling under economic pressure. Fannie Mae and Freddie Mac were formed with a charter and special privileges and functioned as an arm of the US government to promote house ownership. They incentivized banks to lend by purchasing all mortgages from the lender banks with no regard as to the capacity of the borrower to repay. Banks merely did what the US government them to do.
The same happens in countries across Asia. Whether it is India, Nepal, Bangladesh, or the rest of SAARC countries, banks are used for political purposes. Government will instruct lending to privity sector – means that lending is directed to areas where the party in power can gain the most. In India it is farmers and businessmen who carry favor and patronage with the political establishment. Bankers are never free to make sound business decisions. In Nepal, political interference results in loans which otherwise never be given. So why blame the US alone.
When next time you think about what caused the monetary crises – remember banking and finance is by far one of the most regulated, centralized sectors of all governments. It is not lack of controls but the regulation and the interference which caused the crises.
Rakesh Wadhwa.
Ever since, I was a school boy, I knew India was on the wrong path. Socialism was just not what we needed to get ahead. Government controlled our travel; government controlled our ability to buy and sell; and government controlled our freedom to move our money. My life has focused on the inherent rights people have. When I was in college, I never understood, what the governments meant by their "socialistic attitude". If people are free to buy, sell and move their capital themselves without any restrictions by state, then the welfare of people is inevitable & hence the countries they live in will become wealthy. The government has no right whatsoever, to point a finger at me or my business. I am not a revolutionary. I just want to light up my cigarette and not get nagged about it. I believe in non-interfering attitude to attain more.
