Gaming industry: Giving a dog a bad name and hanging him

The Minister of Finance has made a most disconcerting statement in Parliament last week which seems to have escaped the attention of most commentators. In fact this is so strange that one would rather think that the Minister must have been so depressed by the prevailing conditions in the industry that his better judgement has been affected. Indeed in answer to a parliamentary question regarding the deplorable state of the finances of the casinos, presently under government control, the Minister stated that in view of the terrible situation prevailing in those enterprises he has come to regret having “fought” for the take-over of majority control by government in that industry nearly thirty years ago. He went on to state that every successive government has since been indiscriminately using the casinos as a destination for “sinecures” for their political agents.

It is undeniable that one of the contributors to the present truly unacceptable situation is politically motivated over-staffing. We argue here that this is not reason enough for the Minister to give up on what has been the right approach adopted years ago. Furthermore the risk is that this may turn out into a dangerous precedent which if not refuted will contribute to the prevalent dominant ideology that government has no business being involved in commercially oriented enterprises.

There are basically two arguments which can be opposed to this kind of reasoning.

First, what about all those private companies which go bankrupt? If the same logic were to be applied in those cases, then one would have to conclude that what happened in the US and UK during the recent Great Financial Crisis militates for government take-over of all “systemically critical” companies. Indeed the governments of these two countries had to intervene with massive injection of capital to save major banks from otherwise inevitable bankruptcy – the notorious ‘bail-outs’.

Second, one can also ask what about those government-owned commercial enterprises which have done so well for themselves over the past decades and more? To give two examples which are nearer home: the State Insurance Company and the State Bank of Mauritius, among others, have been hugely successful enterprises in spite of the fact that they have been in open competition with the private sector.

Furthermore Mr Lutchmeenaraidoo should not forget that there has also been a glorious past when the government-controlled gaming industry was flourishing and consistently contributing to government finances through the “gaming tax” as well as through hefty annual dividends. This should therefore make him justifiably proud of that groundbreaking decision. It is therefore not totally justifiable to conclude that taking over control of the operations of the casinos was a “mistake” which has today led to this admittedly unsavoury situation.

In fact the dramatic irony could be that this deterioration of the finances of the industry can actually be traced back to what can be arguably qualified as that “moronic” decision to “liberalize” the industry by giving private casino licences to operators who were allowed to literally overrun the territory with their often difficult to regulate operations. Talk of giving a dog a bad name and hanging it.

There is no contesting the fact that gaming ought to be a highly regulated industry, not only because of the moral problems and threats to the fabric of family life which may crop up without strict control but primarily because it is a liquid cash driven industry. And there was no better structure than the one which was devised by the same Minister in his previous avatar to ensure that such control could be optimally exercised.

The Gaming Tax, for example, which represented 50% of gross revenue was collected and paid to the Treasury on a daily basis. This represented a form of “voluntary” tax on those who could afford to gamble. But then even the performance of the best designed industry structures are ultimately subject to the quality and integrity of the men and women who populate them, starting with the high executives through board members to the operator down the line.

This truism applies equally to both the private and the public sectors, as we have been witnessing over the recent weeks albeit less frequently in the former. On that count, it must be conceded that it would indeed be very hard to find such an aggregation of incompetence and irresponsibility, especially at the board and executive levels, in any other sector of economic activity in the country over the past decade or so.

Another contributory factor which determines the extent to which a well-designed structure will deliver on the objectives which it has been assigned is the general environment in which it is called to operate. In the case of the gaming industry in Mauritius, it must be said that over the past fifteen years or so insurmountable odds were stacked against it in the prevailing “ambiance” of lack of accountability and the failure of those who were in charge of its destiny to measure up to the challenges which the industry had to face.

To come back to the essence of our argument, we need to ask the question whether this kind of rot in management and supervision of an organization is the exclusive preserve and inevitable fate of government-run commercial operations. The Minister of Finance seems to be in a state of mind which will lead to that kind of conclusion. It is true that the necessary condition of a government fully committed to open and transparent governance structures in State controlled enterprises is easier said than done. Yet, as we have consistently been arguing in this column, an efficient public sector, including profitable Public Sector Enterprises involved in commercial operations, is an integral part of the historical Private-Public partnership and an essential component of the architecture which ensures a dynamic, meaningful and positive equilibrium among socio-economic partners.

Another lesson which can be drawn from this whole experience is how a precipitous and not-well-thought through decision can have disastrous consequences not only for a whole industry but also for the social and moral fabric of a society.

For all its weaknesses, the pre-liberalization organizational structure of the gaming industry (under majority government control) had been designed to “contain” the potential contagion of widespread gambling and to ensure some restraint on its eventual negative effects on society. It is difficult to understand what motivated the decision to “privatize and liberalize” this industry. The consequences are there for all to see.

The industry which could be a major revenue earner, a fantastic employer of skilled and trained people and a major niche tourist attraction (for a country struggling to attract Chinese tourists) is now in shambles and has turned into a socio-political nuisance with a terrible reputation. Since many of our policy-makers are fascinated by the Singapore model, it may be appropriate to mention that the island State has over the past decade raised the ban over the introduction of gaming, and developed a highly regulated and prosperous industry under strict State control.

• Published in print edition on 9 October 2015