In November, Ohioans will be asked if they wish to amend the Ohio Constitution to allow 4 casinos, owned and operated by out-of-state entities, to do business on Ohio soil.
As one can determine upon reading my correspondence with spokespersons for the casino proponents, the major thrust of their marketing efforts is to portray casinos as an economic booster. I will have much to say about this portrayal beyond what is contained in this blog entry, so stay tuned . . .
Last year, in the days preceding the vote on another casino issue, Issue 6, I made a fuss over who gets the privilege of owning and operating a casino in at least a couple of posts (like this one, and this one). With this latest casino proposal, I’ve already made this same fuss over special Constitutional rights to own and operate a casino granted to out-of-state tycoons that won’t be extended to the 11 million residents of Ohio.
Why is it that I concern myself so much with the right to own a casino and not so much with the right to gamble at a casino? One obvious reason would be that adults already have the mobility to get to a casino, and if they can get there, they have the right to gamble there. Therefore, the rights to gamble are not, in reality, curtailed. However, the rights to own and operate a casino are very much curtailed. If a casino happens to be publicly traded (and not all of them are) the average person might be able to own a few shares of stock, but a controlling interest in the corporation would clearly be out of reach. Meanwhile, the average person, if they felt entrepreneurial enough, might manage to open a restaurant, a fitness center, a retail shop, a trucking service, a dry cleaners, a laundromat, an automotive repair shop, a mortgage brokerage, a realty, a manufacturing facility, a marina, a hotel, a software company, and so on and so forth . . . except a casino.
The clear economic advantage of having a casino in your city would accrue to the casino’s owners, not the casino’s gamblers . . . and since the casino’s owners aren’t even from your city, or even your state . . .
So, can you name an example of a casino that actually boosted an economy? How about the famous Monte Carlo casino in the Mediterranean principality of Monaco?
OK, let’s look into the history of the Monte Carlo casino. We can then compare it with what’s being proposed now.
The land area of Monaco amounts to less than a square mile. It has a population of between 30 and 35 thousand people. It lies on the shores of the Mediterranean, and beyond its land boundaries lies the nation of France.
The terrain of Monaco is sharply sloping, and it’s soil is relatively rocky. Nevertheless, through much of Monaco’s early history, much of it’s economic lifeblood came from agriculture. Lemons, oranges, olives, and grapes were cultivated in Monaco, once upon a time.
There was a sudden drastic change that left Monaco bereft of its agriculture. Suddenly, Monaco was the poorest state in Europe. What happened?
Monaco’s territory used to be bigger. The Grimaldi dynasty that ruled Monaco imposed high taxes. Grumblings over taxes led to a separatist movement. The royal family didn’t have the power to hold Monaco together intact, especially with the behemoth of France breathing down its neck. So, in order to remain a family of privilege with at least a tiny parcel of territory to rule, the Prince of Monaco arranged a treaty with France that recognized the Grimaldi family’s self-rule over the tiny parcel of land that constitutes present-day Monaco, but the Grimaldi family was forced to relinquish claims on the agricultural lands inhabited by the separatists. In the year 1861, Monaco lost 90% of its territory, including all of its arable land.
What’s a Prince to do? If the Prince allows Monaco to wallow in poverty, all its remaining residents will also revolt, and there will be no territory or people left to rule over.
In 1863, the first phase of the Monte Carlo casino was built. Prince Charles III had been to a luxurious combo spa and gambling resort in Germany, and decided to give it a try in Monaco. His resort would cater to the very wealthy, and he’d use the balmy Mediterranean seaside climate as an additional marketing tool to attract the upper crust.
The Prince knew that the casino would fail to enrich Monaco if its residents gambled there. Therefore, from its inception, the Monte Carlo casino was off-limits to Monaco’s citizens, including the royal family, itself. Monaco’s citizens were not even to enter the casino. To make sure that the casino was catering to an upscale clientele, guests had to dress up in order to gain entry. No shorts or blue jeans or t-shirts. Tuxedos and evening gowns, however, were quite acceptable attire.
In less than a decade, Monaco’s income tax was scrapped. The royal family had managed to solidify its rule within its principality.
But that’s not the end of the story . . .
During the Great Depression, revenues at the casino dropped substantially. The royal family realized they had to diversify Monaco’s economy. From that time to this, Monaco has been working toward minimizing its dependence on casino revenue. Nowadays, there’s competition from casinos in France, so there’s even more reason to diversify the economy. When casino revenues fell, instead of pouring larger investments into casino expansion, the Grimaldi family invested in other diverse ventures. The tourism industry is the largest economic sector of Monaco, even today, constituting roughly 50% of GDP. The casino’s share of today’s economy? Less than 5%. The famous casino, while it endures, is not an economic necessity for Monaco. The economy of Monaco today could survive quite well without it. Many of the biggest investments the Grimaldi family made weren’t even in the tourism sector of the economy. A chunk of land was filled in and reclaimed from the sea, and light, non-polluting, industry was attracted to the new stretch of land by the siren call of low taxes.
At one point, Monaco had to modify its stance on taxes. The neighboring behemoth of France noticed too much of its tax revenue was being drained by wealthy people taking up residence and setting up business in tiny little Monaco. Therefore, French citizens must reside in Monaco for at least 5 years before they become exempt from French taxes. With its scarce land, Monaco is a pricey location when it comes to renting an apartment, but, depending on a person’s tax bracket elsewhere, moving to Monaco could make your net income grow by 50%. Wouldn’t that be worth something to you? As a result, only 16% of Monaco’s population is comprised of native citizens. The rest have been lured there from elsewhere, and they have a very high standard of living. The Grimaldi family doesn’t have to worry about separatist movements any more. Wouldn’t it be nice if Ohio aspired to be a tax haven?
OK, so let’s compare the Ohio casino proposals with the Monte Carlo model. The royal family of Monaco has a controlling interest in the casino, and they, in fact, reside in Monaco. Ohio’s casino moguls would not be based in Ohio. Monaco’s citizens have not been permitted to gamble at Monte Carlo. Ohio’s citizens would be be incessantly entreated to gamble at the casinos. Monte Carlo’s marketing targeted only wealthy clientele. Casinos in the USA, including the current casino proponents, have no such qualms over who they entice to gamble. Monte Carlo pumps money into Monaco from elsewhere. Ohio casinos would pump money in the outward direction. During an economic downturn, Monaco did not ramp up its investment in casino expansion to shore up lagging revenues, while the casino tycoons seeking entry into Ohio are doing exactly the opposite. Instead, Monaco sought to diversify it’s economy, while Ohio is seeking to put all its eggs in one basket: gambling. Monaco realized that a casino is not an economic cure-all, but Ohio hasn’t caught on to that yet. Monaco learned that high taxation will only cause power to slip through your fingers, and that low taxes can spur economic growth and diversification. Ohio’s government? They don’t seem to know squat about that.
To sum it all up, Monte Carlo was an economic boost for Monaco in the short run when they were in dire straits, but the proposal in front of Ohio voters is not at all like the Monte Carlo model. The Ohio proposal, as structured, cannot possibly duplicate the results that Monte Carlo achieved. In the end, the real lesson that Monaco learned was that tax policy is among the fundamental building blocks to obtaining and maintaining economic and political power.