Gambling has been falsely demonised for centuries


By REUVEN BRENNER and IRA TERK: Financial Times of London


The philosopher Blaise Pascal wrote: "No wine, no wisdom. Too much wine - the same." Forgetting this adage, the US Senate has passed a bill making it illegal for banks and credit card companies to make payments to online gambling sites (horseracing and state lotteries being exempt), in effect prohibiting playing. It will turn out a costly mistake politically and economically.

From biblical times, many groups invented self-serving accusations against gambling. For a few legitimate concerns, such as those about young people or potential "addiction", there are software solutions that companies will adopt voluntarily or regulations will be imposed upon them. Other concerns are opinions with no basis in fact.

For centuries, opposition to gambling was linked to deeply held beliefs that allowing "probability" and "chance" to play significant roles in society and let industries develop around them would have serious detrimental consequences. At one time, banking and insurance were condemned. The beliefs come from ancient times, when they made sense. When populations are small and immobile, the only insurance against fire, illness, floods or other misfortunes is the family, the tribe, religion. Over time, such beliefs become associated with virtue and moral behaviour.

What is happening now in Washington has little to do with beliefs, but more with false arguments circulated by parties threatened by this new industry. Self-interested lobbying against gambling, under various disguises, has a long history.

In 1388, King Richard II of England secured a statute requiring people to buy items necessary for the martial arts and stop spending money on "football, casting stone, and other such importune games". Henry VIII passed a law condemning gambling on the grounds that it diminished military ability, since people used their spare time for gaming rather than archery.

Both laws were enacted in response to petitions from the bowyers, fletchers, stringers and arrowhead makers - threatened by the reallocation of people's leisure time. Later, churches were censorious of new leisure activities that might distract their flocks, though by the 20th century some came full circle, sponsoring bingo games and lobbying governments to give them exclusivity on this pastime.

In the 1920s, New Jersey Chamber of Commerce opposed gambling because retailers and cinemas lost business during the racing season. In Florida, opponents of the liberalization of gambling laws included Disney World.

Opposition to legalized pari-mutual (or pooled) gambling in Texas came from religious groups and neighboring states that already allowed such betting. These states' opposition was due not to concern about the adverse effects of betting, but to fear that a new Texas lottery would provide competition to their own. Since 1964 most states have had a monopoly on selling lotteries, creating new interest groups: the bureaucrats who run the lottery operations and the politicians who spend the money they raise.

Gambling's association with crime occurred only in places where it was prohibited, just as happened with alcohol in the 1930s. Prohibitionists hoped that lack of legal alcohol would eliminate corruption. The opposite happened. Prohibitionists also thought outlawing alcohol would prevent the young from drinking. Yet between 1916 and 1923, the average age of people dying from alcoholism fell by six months.

True, there is a minuscule percentage of people addicted to gambling, just as there are alcoholics, anorexics, sex addicts and workaholics. The question is: whereas the drink, food and diet industries are all legal but subject to regulation, why has gambling been singled out over centuries for special condemnation?

Worrying about young people has merit, but it has solutions too. Software is available for identification, verification and to warn a player to stay within his limits - and even bar gambling if necessary. Controlling compulsive behavior online, using these tools, may be better than offline.

Another issue concerns lost revenues by the states. A simple solution would be to require online gaming companies to incorporate and operate their businesses in the US. Software exists to identify the players.

Legalizing online gambling and regulating it would help establish an already thriving, high-tech global industry in the US, attracting investment, retaining entrepreneurs and increasing employment and tax revenues. It would allow legislators to enforce laws against gambling businesses that do not comply on US soil.

History has shown time and again that prohibitions, rather than solving problems, cause more. Prohibition drives brains and capital underground or out of the country. Eventually, after incurring significant costs and harmful long-term consequences, societies abolish prohibition and regulate the industries. But they may never attract back the cluster of skills that left.

The writers are partners in Match Strategic Partners. Mr Brenner also holds the Repap chair at McGill's Desautels Faculty of Management. The article draws on Gambling and Speculation (Cambridge, 1991) by Reuven

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Originally published October 6, 2006 11:29 am ET