U.S. NATIONAL SECURITY AND THE STRATEGIC ECONOMIC BASE: THE BUSINESS/ECONOMIC IMPACTS OF THE LEGALIZATION OF GAMBLING ACTIVITIES

ACCORDING to Nobel Prize winning economist Paul Samuelson,' it is

basic economics that:

[Gambling] involves simply sterile transfers of money or goods between individuals, creating no new money or goods. Although it creates no output, gambling does nevertheless absorb time and resources. When pursued beyond the limits of recreation, where the main purpose after all is to "kill" time, gambling subtracts from the national income.2

Similarly, from a political science/economic viewpoint, Professor Jack Van Der Slik has summarized these basic principles echoing much of the academic community: "[State-sponsored gambling] produces no product, no new wealth, and so it makes no genuine contribution to economic development.""}

Government leaders of the United States are also beginning to raise some concerns. For example, in 1992, U.S. Senator Paul Simon of Illinois- a state which has rapidly legalized various gambling activities-read into the Congressional Record an article written by an authoritative economics professor. According to Senator Simon, the article confirmed his own instinct that "Communities and States and the Nation should be careful when

* Professor, University of Illinois; A.B. 1972, William & Mary; J.D. 1976, MBA 1977, University of Georgia; LL.M. 1978, SJD 1981, University of Virginia; Associate, Program in Arms Control, Disarmament, and International Security, University of Illinois.

1. Paul Samuelson won the Nobel Prize in Economic Science in 1970.

2. PAUL A. Samuelson, ECONOMICS 425 (10th ed. 1976).

3. Jack R. Van Der Slik, Legalized Gambling: Predatory Policy, Illinois Issues, Mar. 1990, at 30, 30. This particular article was printed in a publication directed toward employees of the state of Illinois. Illinois is a developing gambling state.

4. 138 CONG. REC. S187 (daily ed. Jan. 22, 1992) (reprinted article by Economies Professor Earl Grinols, Gambling Doesn't Pay; It Costs... Betting Parlors Siphon Off More Money From Communities than They Generate, ST. LOUIS POST-Dispatch, Nov. 12, 1991, at C3).

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they look for easy revenue cures that may do more damage than they realize." Based upon these concerns, in 1993, Senator Simon introduced to the Senate the Gambling Impact Study Commission Act which was designed to "conduct a thorough study of all matters relating to the impact of gambling on States, political subdivisions of States, and Native American tribes," and to explore "possible alternative sources of revenue."

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Similarly, on September 21, 1994, Congressman John J. LaFalce, the Chair of the House Committee on Small Business, held a hearing on the socioeconomic impacts of the trend toward legalized gambling activities." At the hearing, the committee received testimony from various experts, all of whom criticized the impacts legalized gambling activities inflict upon social-welfare budgets, the criminal justice system," small businesses12 and the United States economic base."3 Among other conclusions presented, legalized gambling as a strategy for economic development-was thoroughly discredited.' Indeed, at the start of the hearing, Congressman LaFalce expressed his own concerns for the issue," and expressed a need for a national policy. However, despite these expressed concerns, legalized gambling activities continue to spread across the nation."

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5. Id. (statement of Sen. Paul Simon).

6. S. 1720, 103d Cong., 1st Sess. (1993).

7. Id. § 4(a)(1).

8. Id. § 4(a)(2)(B).

9. See generally The National Impact of Casino Gambling Proliferation: Hearings Before the House Comm. on Small Business, 103d Cong., 2d Sess. 1-32 (1994) (hereinafter Cong. Hearing].

10. See, e.g., Cong. Hearing, supra note 9, at 82-86 (statement of Valerie C. Lorenz, Ph.D., Compulsive Gambling Ctr). The only generally positive testimony was by a local administrator from Tunica, Mississippi who focused on the initial economic flash in the local economy and not on the regional economy. Id. at 50-55 (testimony of Webster C. Franklin, Tunica County, Mississippi). In contrast, the “expert testimony" was quite negative. E.g., id. at 42-49, 56-70, 71-76, 82-88.

11. See Cong. Hearing, supra note 9, at 14-18 (testimony of Jeffry L. Bloomberg, State's Atty, Lawrence County, S.D.).

12. See Cong. Hearing, supra note 9, at 33-35 (statement of Congressman Richard H. Baker).

13. See Cong. Hearing, supra note 9, at 4-8 (testimony of Professor Robert Goodman, University of Massachusetts).

14. See Cong. Hearing, supra note 9, at 57, 76, 81, 86, 88, 100-01, 105-06.

15. Cong. Hearing, supra note 9, at 1-2 (introductory statement of Congressman John J. LaFalce).

16. Cong. Hearing, supra note 9, at 13 (statement of Congressman John J. LaFalce). 17. See, e.g., Terry Ganey & Mark Schlinkmann, Hancock II Out: Slot Games In, ST. LOUIS POST-DISPATCH, Nov. 9, 1994, at A6. [hereinafter Slot Games In] (“After three tries, full-blown riverboat gambling in Missouri became a reality as voters approved the 'games of chance' amendment 54 to 46 percent."). Multiple re-votes are commonly utilized as a strategy by

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With the legalization of various types of gambling activities sweeping the United States and much of the international community, the issue is whether this trend constitutes an economic boom, a harmless recreational pastime, or an actual threat to the strategic economic base of the industrialized world, and in particular, of the United States." Business-economic history indicates that the legalization of gambling activities precipitates a classic "boom and bust" economic cycle." Accordingly, this Article concludes that because widespread legalized gambling activities represent such a threat to the strategic U.S. economic base and to stability of expectations,20 Congress should seriously consider federal legislation to re-criminalize or severely limit practically all types of legalized gambling activity. As an interim measure, Congress should consider withholding federal funds from those states intent on experimenting with legalized gambling activities, for individual states should not be allowed to engage in a type of economic secession" which threatens the nation's

legalized gambling proponents to wear-down and out-spend their opponents. See id; see also infra note 24 (giving examples of multiple re-votes in different states, as recorded in the congressional hearing on Sept. 21, 1994).

18. See generally, John W. Kindt, The Economic Impacts of Legalized Gambling Activities, 43 DRAKE L. REV. 53 (1994) (hereinafter Economic Impacts].

19. See Cong. Hearing, supra note 9, at 77 (statement of Professor John W. Kindt, University of Illinois).

20. This particular Article is summary in scope, but it was conceived within the penumbra of the McDougal/Lasswell model for decision-making. In the areas of legal and government policy, which subsume strategic socio-economic and business concerns, the classic decisionmaking models were formulated by the post legal realists, in particular, Professor Myres McDougal and Professor Harold Lasswell who postulated a conceptual framework for legal decision-making in a landmark article directed toward legal educators and law professors. Harold D. Lasswell & Myres S. McDougal, Legal Education and Public Policy: Professional Training in the Public Interest, 52 YALE L.J. 203 (1943); see also Harold D. Lasswell & Myres S. McDougal, Criteria for a Theory about Law, 44 S. CALIF. L. REV. 362 (1971); Myres S. McDougal, Jurisprudence for a Free Society, 1 GA. L. REV. 1 (1966); John W. Kindt, An Analysis Of Legal Education And Business Education Within The Context Of A J.D./MBA Program, 31 J. LEGAL EDUC. 512, 517-18 (1981); John W. Kindt, An Analysis Of Legal Education And Business Education Within The Context Of A J.D./MBA Programme, 13 Law TEACHER 12, 14-16 (1979). The decision-making concepts which McDougal and Lasswell introduced were later expanded to include international law and U.S. domestic law, as these areas interfaced with "policy-oriented jurisprudence." See John N. Moore, Prolegomenon to the Jurisprudence of Myres McDougal and Harold Lasswell, 54 VA. REV. 662 (1968); The Lasswell-McDougal Enterprise: Toward a World Public Order of Human Dignity, 14 VA. J. INT'L L. 535 (1974).

21. See ROBERT GOODMAN, LEGALIZED GAMBLING AS A STRATEGY FOR ECONOMIC DEVELOPMENT (Ctr. Econ. Development, U. Mass.-Amherst (1994)) [hereinafter CED REPORT). This U.S. gambling study provides an authoritative analysis of the strategic economic costs of utilizing legalized gambling activities as a strategy for economic development:

Gambling has grown in an ad hoc "copy cat" manner as states follow each others' leads, responding to revenue shortfalls and the fear that neighboring states or Indian tribes will

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The strategic economic threat to the United States is immediate and should be addressed quickly before newly developing constituencies in the legalized gambling industry become widespread enough to dictate economic policy.23 For example, the legalized gambling industry drafted a state constitutional referendum in Florida which aimed to "mandate" the introduction of casinostyle gambling activities-even into communities which voted unanimously against such activities." It is thereby not surprising that testimony presented

siphon off their gambling dollars. ... Once gambling ventures are legalized and governments become dependent on their revenues, the future form and spread of gambling within a state becomes extremely difficult to control.

Id. at 16.

22. Cong. Hearing, supra note 9, at 10 (oral testimony of Economics Professor Earl L. Grinols, University of Illinois). According to Professor Grinols, the threat exists because of the fact that:

Id.

State representatives have no incentive to view gambling in terms of its overall effect on the country. To [states] it is a way to raise tax money-hopefully from people of neighboring States who will take their problems back home--even though the social costs for an additional dollar of tax raised through gambling is in the range of $3.50 per dollar raised, compared to only $1.45 for raising taxes the old fashioned way, by raising taxes.

23. For an authoritative analysis supporting this recommendation, see CED REPORT, supra note 21, at 18. Many policymakers are concerned that legalized gambling interests have large budgets to support efforts to legalize various forms of gambling throughout the United States. For example, New Jersey has restrictions prohibiting political contributions from casinos. Id. By comparison, in 1990 Illinois lifted its ban on contributions from racetracks and had no limitations on political contributions by interests promoting legalized gambling. All such contributions were legal. Between January 1, 1993 and April 10, 1994, the Chicago Sun-Times reported that Illinois Governor James "Edgar and state legislators... [had] received at least $674,772 from gambling interests," not including “tens of thousands of dollars in donations from lawyers, lobbyists and consultants who are representing gambling clients." Mark Brown & Ray Long, Gambling: A Political Jackpot: New Funding Powerhouse Aids 2 in 3 Legislators, CHI. SUN TIMES, Apr. 10, 1994, at 1A, 16A.

24. See Martin Dyckman, Misleading the Public, ST. PETERSBURG TIMES, Nov. 1, 1994, at A13. Proposition 8 on the Florida ballot for November 8, 1994, would have initially allowed 47 casinos in Florida. The public relations tactics of the proponents for legalized casinos were criticized in the press for misrepresenting the effect and impact of Proposition 8. Id. For example, during the week of November 1, 1994, a commercial supporting legalized casinos in Florida ran with the identifier of a former "Chief Justice, Florida State Supreme Court (Ret.)" and read as follows:

This is the State Constitution. As a chief justice of the Florida Supreme Court, I worked to uphold it.... When I wrote Proposition 8, Limited Casinos, I made sure that strict limits on the number of casinos were put right here. That means politicians won't have the authority to change or weaken the limits. Only you can put the limits in the Constitution by voting yes on limited casinos. And only a vote by you can change those limits. With Limited Casinos, you have the final say.

Dyckman, supra, at A13. According to one critical account in the press, "[t]he effect of the

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at the 1994 congressional hearing indicated that in the future franchised legalized gambling parlors may be as widespread as the fast-food hamburger chains are today.2

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Thus, the gravamen of the 1994 hearing was that U.S. policymakers should heed the wake-up call to develop a national policy on increased legalized

commercial-whether intended or not-[was]... to wrap... [the former chief justice's] sleazy new clients in his old judicial robes." Id. The account further noted that voters could easily take the justice's statement to mean that there could be slot machines on every street corner unless they voted for Proposition 8:

Id.

The fact is that casino gambling is not only against existing Florida law but, in the opinion of Attorney General Bob Butterworth, against the present Constitution as well. The present limit on casinos is zero, 0, none. If voters fall for . [the former chief justice's] line, the new limit will be 47. That is a far cry from 0.

What's more, 30 of those casinos are reserved, forever, for the existing horse tracks, dog tracks and jai alai plants. Another, on Miami Beach, as well described by my colleague Jeanny Deam last weekend, is reserved for a millionaire German carpetbagger who maneuvered Roberts into a corner. These people would have a perpetual monopoly on 31 of the 47 licenses, and for... [the former chief justice] to cast that as a virtue in his scheme is for him to take the voters as blubbering fools. Finally, local voters who might not want casinos in their neighborhoods will have NO SAY if... [the former chief justice's] ingenious proposition is approved statewide.

Legalized gambling proponents reportedly hired firms to get this referendum question on the ballot at a cost of $2 to $3 per signature. See, e.g., Casinos Group to Ante Up $5-Million for TV Ads, ST. PETERSBURG TIMES, Jun. 28, 1994, at B4. The chairman of the casino drive reportedly said that "the proliferation of ballot initiatives has inflated the cost of professional petition peddlers to $2.25 a signature." Id. Placing Proposition 8 on the ballot required 429,428 certified signatures at a cost of approximately $3 million. Id.

The public relations budget for convincing the voters to approve this referendum question on November 8, 1994, was apparently $16.5 million-significantly more than the combined budgets of the two gubernatorial candidates, Jeb Bush and Governor Lawton Chiles. Louis Lavelle, Voters Deal Loss to Casinos: Gambling Backers Lose Despite $16.5 Million Campaign, Tampa TRIBUNE, Nov. 9, 1994, at 1, 5 [hereinafter $16.5 Million Campaign]; Casinos Gamble, and Lose, Again, FLORIDA SUN, at Al, A6 ($16.7 million raised by casino proponents and $1.6 million raised by opponents).

Similar scenarios and multiple re-votes have occurred in other states:

The proposal for casino gambling in Chicago has been defeated three times in Illinois, but the prognosis is that it will be brought up again and again until the gambling promoters succeed. . . . In spite of millions of dollars in gambling advertising, Missourians voted down a change to their constitution in April [1994] to allow games of chance, but the question is being put back on the ballot this fall, 6 months later. The phenomenon of staging multiple revotes [if gambling is defeated] is a scenario being played out in Detroit, Iowa and other places. . . . Is this good Government?

Cong. Hearing, supra note 9, at 10 (oral testimony of Economics Professor Earl L. Grinols, University of Illinois).

25. See Cong. Hearing, supra note 9, at 9-10 (oral testimony of Economics Professor Earl L. Grinols, University of Illinois).