The Role of Ethics in Regulatory Discourse: Can Market Failure Justify the Regulation of Casino Gaming?

• Publication year: 2021
• Citation: Vol. 78

78 Nebraska L. Rev. 37. The Role of Ethics in Regulatory Discourse: Can Market Failure Justify the Regulation of Casino Gaming?

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M. Neil Browne* Virginia Morrison Kara Jo Jennings

The Role of Ethics in Regulatory Discourse: Can Market Failure Justify the Regulation of Casino Gaming?

TABLE OF CONTENTS

I. Introduction .......................................... 38
II. Public Policy and Casino Gaming ....................... 39
III. Market Failure: Why Does It Prompt Regulation? ........ 44
IV. Common Arguments Used in Support of the Regulation
of Gaming ............................................. 46
A. Populations Affected: The Addict and the Family;
Populations at Risk: Teens and the Elderly ......... 47
B. Increased Crime Rates .............................. 50
C. Economic Hazards of Casino Gaming .................. 52
D. Environmental Costs of Casinos: Concern for the
Environment ........................................ 56
E. Political Contributions and Lobbying on Behalf of
the Gambling Industry .............................. 57
V. Arguments Offered by Proponents of a Market
Approach to Gaming .................................... 58
VI. Why Aren't We Arguing For the Similar Regulation of
Shopping? ............................................. 59
A. Social Benefits of Gambling and Shopping: The
Promise of Economic Prosperity...................... 63
B. Social Ills of Gambling and Shopping: Benefits Have
Their Price ........................................ 66
VII. Conclusion ............................................ 74
A. Ethical Dimensions of Casino Gaming ................ 74

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I. INTRODUCTION

Casino gaming, like any other exchange activity, is in the midst of a conflict among ideas that shapes the extent to which casino owners can design, market, and profit from their personal choices, free from any interference (fn1) from external voices that represent the various constituencies in the community who are affected by those choices. Our very representation of who we see ourselves to be either strengthens or weakens the arguments for casino gaming as just an ordinary set of transactions between willing sellers and equally willing, maybe even eager, buyers. If we view the self as solitary and atomistic, it follows that markets provide the superior process to effectuate the freedom and personal responsibility consistent with that view of the person.

However, other views of the self as embodied or interwoven (fn2) suggest a more communitarian approach to the provision of any good or service. Market transactions that focus on the benefit-cost calculations of prospective buyers and sellers are seen from this perspective as disappointingly narrow. Many people affected by whether a particular exchange occurs are ignored because the eventual price, output, and product quality decisions are presumed to be a private affair. The communitarian self, once it is accepted as descriptive, points to the market as an ethical step-child for some purposes, but antagonistic to ethics with respect to the buying and selling of other phenomena.(fn3)

Debates about public policy, however, rarely focus on ethical arguments. The prevalence of Enlightenment thinking in contemporary discourse all too often relegates ethical reasoning to the realm of the irrational. Economic arguments, on the other hand, are seen as calculating and definitive. As a result, those who advocate and resist additional regulation of gaming tend to word their claims in the rhetoric of commercial activity. Job creation, externalities,(fn4) and local economic

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growth or deprivation constitute the language and thus the boundaries of the discussion.

This paper attempts to argue on behalf of greater attention to the ethical nature of markets and regulation. The strategy is to demonstrate the intellectual poverty of the economistic approach (fn5) to regulatory discourse, at least as it applies to casino gaming. The excitement of regulatory forces, who wish to restrict the market activities of casinos at the recent victories of those wishing greater regulation of the tobacco industry are shown to be inappropriately extended to casino gaming. To make this point, we demonstrate that casino gaming is no more a justifiable regulatory target on economic grounds than would be shopping, an activity whose market legitimacy is taken for granted.

II. PUBLIC POLICY AND CASINO GAMING

If we were to create a list of words that describe gaming, we would surely include excitement, anticipation, entertainment, and chance. However, some would argue that we should add the following words to our list: moral hazard, crime, waste, and detrimental. Controversy surrounding gaming has existed for hundreds of years.(fn6) In the early 1960s gambling was illegal in all but a few states.(fn7) Today, three decades later, however, some form of gambling is legal in most states;

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only Hawaii and Utah continue to outlaw all types of gaming.(fn8) Casino gambling, in particular, has expanded from Las Vegas and Atlantic City to riverboats in the Midwest and Indian reservations throughout the country.(fn9) Now present in twenty-nine states, casino profits and attendance continue to climb.(fn10)

Gambling (fn11) is now the number one entertainment attraction in the United States, far surpassing the movie and music industries in profits and cash flows.(fn12) An estimated sixty-one percent of the adult pop-

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ulation participates in some form of gambling each year.(fn13) The renewed prevalence of casino gambling in the past few decades is a result of a greater acceptance of the activity by the public (fn14) and an interest by policy makers who liken it to a pain-free tax.(fn15) Despite its popularity and burgeoning public acceptance, regulatory efforts to restrain the industry's growth remain zealous.

The National Gambling Impact Study Commission is the most recent example of such regulatory efforts. The purpose of the commission, established by Congress in 1996, is to examine the economic and societal impacts of gambling.(fn16) The commission had three years to prepare a comprehensive and unbiased report (fn17) and is scheduled to

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report its findings this summer. While regulation comes in many forms, the most likely adverse outcome for the industry will be the imposition of federal taxes.(fn18)

Advocates of federal regulation argue that legalized gambling creates moral decay and destroys the lives of gamblers along with the gambler's families and loved ones. Many opponents cite gambling as a magnet that attracts corruption (fn19) and organized crime and encourages compulsive gambling and its accompanying social woes such as street crime, domestic violence, and bankruptcy.(fn20) Additionally,

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many claim that casinos, which account for a large portion of the $550 billion wagered in 1996, (fn21) drain local economies rather than invest in them. Furthermore, opponents argue that gambling within a community causes crime to increase and leads to traffic congestion, results in skyrocketing of property values, and cannibalizes small businesses.(fn22)

These complaints are not exclusive to gaming. Indeed, some groups use similar arguments to support regulation of a variety of "questionable" activities, such as smoking. How good are these arguments for regulation? Should we be persuaded by these claims of moral decay or crime?

Why do we regulate any private market activity at all? This question can be answered by a review of market logic, which serves as the foundation for capitalism. Thus, in the first section of this paper, we consider the role of market failures in prompting regulatory efforts. Consequently, we can compare this set of reasons with the reasons offered for the regulation of gaming. We compare the reasons that should be used to convince us that gambling should be regulated to the

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reasons that are used. Then, in the next section, we examine the arguments typically offered in support of regulating gaming.

We extend this examination of reason for regulation by arguing that typical reasons offered for regulating gambling could also be used to support the regulation of shopping. We make this analogy to demonstrate the problematic nature of the typical reasons given for the regulation of gambling. If gaming adversaries are convinced by their reasons supporting the regulation of gaming, they should be convinced by the same reasons that consumer consumption should be regulated. We conclude this paper by reviewing the burden of proof that must be met to regulate casino gambling.

III. MARKET FAILURE: WHY DOES IT

PROMPT REGULATION?

Society faces the daunting task of answering three questions. How will resources be allocated? How will resources be distributed? Who has the power to make these decisions? Society may answer these questions through two methods: markets or the political process. We have chosen the market mechanism. Specifically, we look to capitalism, the economic system that relies on markets for resolving conflicts caused by scarcity.

Several assumptions about markets are characteristic of capitalism. Most importantly, the market is viewed as perfect, in the sense that consumers hold the power while the invisible hand guides market transactions.(fn23) As long as this perfect market functions, there is no need for government regulation. We can consequently enjoy the variety of benefits associated with the market.(fn24) This is so because consumers, rather than producers or the government, define the quality and value of products and services.(fn25) Furthermore, if producers want to be successful, they must be responsive to consumers.(fn26)

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However, if market failure occurs, the assumption of a perfect market is violated. Consumers no longer have the power assumed in the perfect...