Cazinouri Usa

Evolution of Macao's Casino Industry from Monopoly to Oligopoly: Social and Economic
Reconsideration
Author(s): Ricardo C. S. Siu
Source: Journal of Economic Issues, Vol. 40, No. 4 (Dec., 2006), pp. 967-990
Published by: Association for Evolutionary Economics
Stable URL: http://www.jstor.org/stable/4228319 .
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J JOURNAL OF ECONOMIC ISSUES
Vol. XL No. 4 December 2006
Evolution of Macao's Casino Industry from Monopoly to
Oligopoly: Social and Economic Reconsideration
Ricardo C.S. Siu
Interdependence is the occasion for both cooperation and conflict.
- Allan Schmid
If one would understand the corporation problem,
he must learn the peculiar feature of this form of business, . . .
- Walton Hamilton
The evolution of an industry is a dynamic and cumulative process. It is dynamic
because "competition, property, the price structure, and wage system, and like
institutions refuse to retain a definite content. Not only are things happening to
them, but changes are going on within them" (Hamilton 1919, 315). It is cumulative
because in a human society, "the situation of today shapes the institutions of
tomorrow through a selective, coercive process, by acting upon men's habitual view of
things, and so altering or fortifying a point of view or a mental attitude handed down
from the past" (Veblen 1959, 132-133). In any successive period, the changing
structure and performance of an industry, and its interrelationship with the economy
in which it evolves are the products of interactions of a set of interdependent social,
economic, and political variables of the preceding periods (Schmid 1987).
To understand the insight of the evolution of an industry, an economy, and
a society as a whole, institutionalism has played an important role in economic
literature since the dawn of the twentieth century (Veblen 1899; W. Hamilton 1919;
Ayres 1962; Bush 1987; Hodgson 1988; North 1990; D. Hamilton 2004). Extensive
interests of the institutionalists have been devoted to studies of the evolution of
industrialized economies in North America and Europe, institutions and institutional
changes in the rest of the world, present valuable case studies to enhance our
understanding about the evolution of various industries and their relationship to the
performance of an economy. Among the emerging economies in Asia, the evolution
The first draft of this paper, titled Behind the Opening of Macao's Gaming Industry: Social and Economic Reconsidera-
tion, was presented at the 12
h
International Conference of Gambling and Risk-Taking, organized by The Institute for
the Study of Gambling and Commercial Gaming, University of Nevada-Reno, May 2 7, 2003, in Vancouver, Canada.
Most revisions were done while the author was a Visiting Professor at the University of Nevada-Reno. The author is
currently an Assistant Professor of Economics at the University of Macau, China.
967
?2006, Journal of Economic Issues
968 Ricardo C.S. Siu
of Macao's casino industry from monopoly to oligopoly provides a valuable case,
which illustrates the dynamic and cumulative process of institutional change.
Before getting to the details of this study, it is worthwhile to first clarify some
important concepts. Given the scope of the study, "institutions" are defined as "rules
of the game in a society" (North 1990, 3), or "a set of socially prescribed patterns of
correlated behavior" (Bush 1987, 1076), whereas "institutional change" refers to
"changes in rules, in informal constraints, and in kinds and effectiveness of
enforcement" (North 1990, 6), or "a change in the value structure" (Bush 1987,
1099). Because of the particular attributes associated with the practice of the service-
based casino industry, the concept of efficiency primarily refers to transaction costs of
economic activities in the discussion on the impact of institutions and institutional
change to economic efficiency. Generally speaking, the heuristic nature of transaction
costs is emphasized when analyzing the changing efficiency of the casino industry over
time. The heuristic nature of transaction costs "means that the exact quantity cannot
be determined, but their order of magnitude can be approximated, especially when
different sums of transaction costs of different property rights regimes are compared
with each other" (Buitelaar 2002, 17). In the context of a modernized casino industry
like Las Vegas, for example, although the exact quantity of transaction costs associated
with different levels of service quality could hardly be determined, as service quality
improves, business turnover in terms of the volume of customer visits or customer
spending per visit would generally increase, ceteris panbus. Consequently, it is
reasonable to conclude that when service quality is improved, transaction costs to
customers on average would decrease; hence more efficient is the industry.
Macao was established as a Special Administrative Region of China with its
sovereignty officially returned to the Chinese
{i
A-
Government from the Portuguese Government on
(:CHINA i
0
December 20, 1999. It is composed of the Macao
Peninsula, two islands (Taipa and Coloane) and a
piece of reclaimed land (Cotai) between the two
*
~WANb
islands. With a
tiny geographical
area of 26.8
ACAO 4A CIFIC square kilometers, and a population of 460,000 in
2004, Macao catches the world's eye on the unique
THAILAND
UTH
situation, structure and performance of its casino
SEA
industry,
as well as the recent
change
in the
industrial structure of this
industry.
In
2004,
the
YSIA
total gaming revenue recorded by Macao's casino
industry hit a record of MOP40.187 billion1 (or
US$5.02 billion)
- MOP (Pataca) is the domestic currency of Macao, 8 MOP is about
the equivalent of $1.00 in the United States. This performance surpassed Atlantic
City's US$4.8 billion2 and placed Macao as the second largest casino jurisdiction in
the world market, lagging only behind the Las Vegas Strip which reported a total
gaming revenue of US$5.3 billion3 in 2004.
On February 8, 2002, the Gaming Tender Commission of the Macao
Special Administrative Regional (MSAR) Government officially announced three
Evolution of Macao's Casino Industry 969
winners out of eighteen candidates bidding for new gaming licenses. The winners
were Sociedade de Jogoes de Macau (SJM - a wholly-owned subsidiary of the former
monopolist); Wynn Resorts from the United States; and, Galaxy JV (a joint venture of
a Hong Kong firm, Galaxy, and the Venetian from the United States). As a result, the
monopolistic structure of the industry, in existence for more than sixty years4 formally
terminated. This change not only excited the local community, but also turned the
world's attention to the changing performance of this famous Asian gaming
jurisdiction. In this study, the specific forces pushing this institutional change will be
unveiled. One force includes the social costs accumulated from the poorly regulated
private-VIP-room business since the middle of the 1980s. This is an informal
arrangement between the gaming monopoly and the individual junket operators - also
called contractors of the private VIP rooms - who agree to underwrite a certain amount
of non-redeemable chips from the monopoly. They are allowed to organize their own
gaming business on the properties - the "private VIP rooms" - of the monopoly and
then share the total winnings from their business with the monopoly. The complex
practice of this business is discussed separately in a later section. Another force
includes the diminishing economic efficiency after decades' of control over the
market by the monopoly, and a third force pushing institutional change is the ever
rising public inclination towards reorganizing the rights of the gaming industry
following Macao's handover to China.
Given the unique situation and economic role of the casino business in
Macao, concluding its monopolistic structure and altering the existing institutions
(both the formal rules and the customs) of its management, elevates the economy's
overall performance. Throughout this process casino customers and operators, the
local workforce employed by the casinos, and the public sector, are all winners.
Nevertheless, while the community is fascinated by the magnificent profit likely to
result from this change, and intoxicated with the foreseeable success of this industry,
the interests of potential losers should never be overlooked. In practice, it is quite
likely that the local small and medium enterprises (SMEs) in the non-gaming related
sectors would be worse-off. Although local businesses such as retail and
entertainment could enjoy short-term benefits from the growing market size of the
casino industry, their long-term performance is exposed to various degrees of
uncertainty. To sustain the performance of the casino industry, and secure its level of
contribution to Macao's overall economy, improvement in the business environment
for the casino operators and enhancement of the overall structure of the casino
industry by pairing its development with tourism and recreation become necessary.
By revealing the peculiar attributes of the casino business in Macao
-
the
internal and external forces which ultimately lead to the changing structure and
performance of the industry, and the interdependence of the various parties whose
interests are counted in these changes
-
this study typifies "a logical connection
between alternative property rights and the performance results of who gets what."
This is done by referring to the three components
-
situation, structure, and
performance (SSP)
-
of Schmid's institutional-impact theory (1987, 3941). On top
of the SSP paradigm, which assumes that "for the period of the analysis, situation is
inherent" while "rights structure is a matter of human choice," this study further
reveals the dynamic interrelationship between situational variables and structural
variables, and their influences over industrial performance. Evidence collected for
this study indicates that attributes of situational variables would normally be reshaped
by the market following a change in public choice on a set of structural variables. The
changing attributes of situational variables after a certain period of time, on the other
hand, may generate new forces that urge decision makers to revise the choice and
composition of the structural variables. The interaction between the changes of
situational variables and structural variables drives the changing performance of an
industry, and it is this dynamic that demonstrates the interrelationship between
"increasing returns to institutions" and "the path of institutional change" in a society
(North 1990, 95-96). In addition, Clarence Ayres' view of "past-biding" characteristics
of institutional change (1967, 30, 137), and Paul Bush's discussion of "ceremonial
encapsulation" and "progressive institutional change" (1987, 1092-1095, 1101-1103)
will also be illustrated in this study.
Impulses Behind the Changing Structure of the Casino Industry
To economists, the term monopoly usually relates to inefficiency. In the case of Macao,
although the community had become accustomed to a gaming monopoly, and to a
large extent, many people were even obsessed with the direct and indirect profit bred
by its practice, the outrageous organized crime and economic unrest that took place in
the second half of the 1990s undermined the community's ceremonial belief. It was
generally understood that organized crime was highly connected with the unregulated
private-VIP-room business introduced by the monopolist since the mid-1980s. Even
though the private-VIP-room business contributed huge profits to the monopolist, the
public sector, and a host of low-educated individuals, the interdependence between
the beneficiaries and the junket reps -who ran the private-VIP-room business-
hampered the development of the regulatory system needed for controlling social
costs like organized crime associated with the unique custom of the casino business.
From an economic point of view, the privateVIP-room business served as
an essential element to sustain the rent-seeking behavior of the monopolist. Direct
output from the casino industry accounted for more than 30 percent of the
economy's real gross domestic product (GDP), and over 60 percent of the industry's
income was generated from the private-VIP-room business in the 1990s.5 The
disorder resulting from the private-VIP-room business not only affected the
performance of the casino industry, but also produced a domino effect to all other
related service sectors (e.g., hotels and restaurants). In addition, constrained by the
thinness of the Macao economy, the expansion of casino and non-casino businesses
by the monopolist gave rise to an upshot of market concentration, which further
weakened the economy's ability to recover from the disarray of the casino industry.
Ultimately, the combination of social and economic pressure called for a change in
the structure of the industry.
Social Pressures
The overwhelming impression of gaming under a monopoly, to the Macao
community, has been its primary contribution to society6 in the form of gambling
taxes paid to the public sector, social welfare programs for the poor, business
opportunities for tourism-related local service sectors, and infrastructure investments.
For example, Gao Ke-ning (1878-1955), one of the two partners of the Tai Xing
Company who won the first single-license formally granted by the Macao-Portuguese
Government in 1937 to monopolize the operation of all forms of gambling business,
was a well-known philanthropist in Macao.7 Then, Stanley Ho (1921- ), the key
successor of the monopoly - the Sociedade de Turismo e Diversoes de Macau
(STDM) - from 1962 to the beginning of 2002, also made sizable contributions to the
social and economic development of Macao.
Despite the fact the casino industry in Macao produced an enormous
amount of external benefits to the various segments of society, the allure of the fringe
benefits from the casino businesses and an ineffective regulatory framework posed an
uncontrollable threat to the social order. Among the interwoven components,
disadvantages brought about by the practice of special private-VIP-room business
further increased social unrest in the latter half of the 1990s. In practice, operation of
the private VIP rooms involved special types of junket reps. Contrary to the general
understanding about the role of a junket rep (i.e., an organizer of trips funded by
casinos for privileged players), the practice of junket reps in Macao was quite distinctive
and far more complex. To understand the peculiar situation of the private-VIP-room
business, it is necessary to pose three questions. First, how and why did the
monopolist outsource its business to a third party
- a VIP room contractor? Second,
why was a third party interested in contracting a private VIP room? Third, why did
the government allow the operation, and not regulate the practice of the private-VIP-
room business?
To the monopolist, sharing its economic rent with various domestic parties
had long been an effective means to preserve its monopolistic position. Once its
position was secured, profit maximization became its ultimate business goal.
Constrained by the tiny geographical area of Macao and the lack of comprehensive
tourism and entertainment facilities, maximization of gambling expenditures per head
per visit to its casinos became the primary goal pursued by the monopolist. To put
this alternative into practice and to ensure a steady flow of revenue, the monopolist
introduced the so-called private VIP room in 1985 by informally contracting casino
facilities to parties who were interested in running their own gambling business.
As depicted in the upper portion of Figure 1, to enter this business, a
"Contractor of the Private VIP Rooms" must underwrite a certain amount of non-
redeemable chips from the monopolist on a continuous basis, say, US$1 million per
month. As the name of these chips suggests, regardless of whether or not a contractor
could sell all of his chips to his own players, the chips are non-redeemable for cash
from the monopolist. Certainly, if a contractor could sell more than the agreed
amount, the monopolist would be more than willing to increase the supply of chips.
To provide a positive incentive to the contractors, a certain percentage of the total
amount of chips sold would be rebated to them in the form of "commission." On the
other hand, since the contractors were running businesses on the
premises of the
monopolist, they had to agree to share a pre-determined portion of the total win from
their businesses with the monopolist.
Figure 1. The Practice of Private-VIP-Room Business and the Role of junket Reps
in Macao's Casino Industry
The Monopolist of Gaming
Commission from Tota e
Non-redeemable Chips
of Non-redeemable Chips Share of
Contracted/Extra
Total Win Amount from Sale of
Non-edeemnable Chips
Contractors of the Private VIP Rooms
'-a14,?Of
-Distribution
so
Cit5bl,,
in
of Commission
7
b l,
^^, ^ss., Amount from Sale of
Payments for Non-redeemable Chips
Gambling Tour
]VP Players
Under this arrangement, three major favorable conditions for the
monopolist were easily identified. First, a stable and sizable amount of
gaming
revenue was secured with the least amount of effort required from the
monopolist
to
reach out for the "VIP players." Second, although casino
credit,
which had been
treated as an essential means to attract
high rollers or VIP
players
in the world's
casino market, was prohibited by law in
Macao,8
the
monopolist
could reach those
players by leaving the deals to the contractors and their own "VIP
players" (this
was a
grey area of Macao law). Third, the private-VIP-room business allowed the
monopolist to obtain a huge amount of
gaming
revenue with no need to make
provisions for possible bad debt.
For the private-VIP-room contractors, the incentives to
engage
in this kind of
informal contract were straightforward
-
seeking gaming profits,
or
simultaneously
non-gaming profits. Indeed, their personal connections with
specific groups
of "VIP
players" were the key trigger. As casino gambling was
largely
banned in
many
of the
East Asian countries such as Japan, Thailand,
and Mainland
China,
and was
prohibited for domestic residents in various other countries (e.g., South Korea and
Malaysia), connections established from business networks allowed the contractors to
bring in a considerable number of "VIP players." Throughout this process, the
practice of the underground society in East Asia (e.g., drugs, money laundering, and
various forms of organized crime) had significant influences over the style, as well as
operation of these private VIP rooms. For example, of the 40 to 50 private VIP
rooms outsourced by the monopolist in the 1990s, a noted portion of them run or
controlled by individuals who had direct or indirect relationships with the triad
gangsters (Liu 2002, 406415; Pina-Cabral 2002, 205-221).
To the Macao-Portuguese Government, even though social problems
associated with the practice of the private VIP rooms were evident, no regulation was
legislated to monitor the practice and progress of the business. In fact, the reason
behind this policy's shortcoming is apparent with the disclosure of the public policy
objectives, which in turn molded the structure of Macao's casino industry throughout
the twentieth century. Taking into consideration the transfer of Macao back to China
in 1999, it was understandable since the primary interest of existing ruling parties was
to extract as much profit as possible from Macao's society with the least amount of
effort. With the introduction of the private VIP rooms, the immediate returns noted
to the public sector included a sharp increase in tax payments. For example, after
adjusting for the effect of increasing tax rates between 1987 and 1992, the gross tax
payment made by the monopolist to the government recorded a 30 percent to 40
percent annual growth.9 Therefore, the short-term monetary benefits derived from
leaving the monopolist to manage its own VIP-room business overshadowed the
interests of the Macao-Portuguese Government to regulate the content and structure
of this business.
Although these private-VIP-room contractors were running their own
businesses under certain circumstances, according to the agreements they reached
with the monopolist, they were functioning as the junket reps at the highest level in
Macao's casino industry. As a means to guarantee fulfillment of the amount of
contracted non-redeemable chips, or to even surpass the quota, the contractors would
assign the quota to various groups of front-line agents (i.e., "Junket Reps at the lower
hierarchy" as depicted in Figure 1). The agents would then organize gambling tours
for groups of privileged players or individual gambling packages in the form of selling
non-redeemable chips to individual players (transactions as depicted in the lower part
of Figure 1).
In accordance with an estimate made by the Macao Gaming Inspection and
Coordination Bureau in 1998, the total amount of commission settled between the
monopolist and the private-VIP-room contractors was approximately MOP400 million
per month,'0 which in relative terms, represented an enormous amount of money to
the Macao society. For example, the MOP4.8 billion annual commission at its
current value was equivalent to 9.25 percent of Macao's GDP, or 12.08 percent of the
total value added to the tertiary sector, or 93.8 percent of the total gaming tax the
monopolist was liable for to the government.1" Should this amount be apportioned
among the 260,000 workers in 1998? Each of them could share about MOP1,500 per
month, while the average monthly income for a laborer working 8 to 10 hours a day
in the manufacturing sector was only around MOP3,080; and MOP7,756 for workers
in the financial sector."2 Since the practice of the privateVIP-room business was
molded by the combination of huge fringe profits, absence of regulation, and the fact
that most junket reps were members of or controlled by members of the underworld;
fights for sharing profits among different parties of the underworld not only seriously
disturbed social order, but also challenged the faith and ability of the local police to
enforce rules and regulations. Finally, years of accumulating conflicts among
contractors of various gambling clubs and among junket reps of various parties of the
underworld, coupled with their respective desire to gain more control over and share
more profits from the casino business before Macao's return to Chinese control, gave
rise to a series of murders, bombings, automobile-burnings, kidnappings, etc., which
hit the entire region in the second half of the 1990s hard.13 Following the social
unrest, a strong desire was generated in the community to revolutionize the
underlying structure of the industry.
Economic Motives
Behind the social impetus, there were also economic drivers calling for the
restructuring of the casino industry. In practice, unfavorable conditions associated
with monopolist's rent-seeking behavior, and the concerns over the industry's long-
term competitiveness paved the way for the termination of the industry's
monopolistic structure.14 While the former arose from the anxiety about the
economy's overall industrial efficiency, the latter primarily evolved from the threat
posed by governments of some East-Asian countries who had embarked on re-
instituting or formulating their own gaming jurisdictions. Consequently, termination
of the monopolistic structure became an appealing measure to the community, not
only to safeguard the industry's long-term efficiency, but also to sustain its
contribution to the economy's overall growth and development.
In principle, to capture the portion of economic rent under the monopoly, it
has been a common practice for the incumbent to pay any expenditure as long as the
amount was less than the sum of economic rent. This simple equation explains the
rent-seeking behavior of the monopolist in Macao's casino industry.'5 For instance,
on top of fulfilling the assigned gaming tax obligation, the monopolist took the
initiative to dredge the inner and outer canals of the Macao-Hong Kong ferry harbor,
provided top-quality and high-speed passenger sea transportation systems to link
Macao and Hong Kong, as well as invested in various forms of tourism-related
facilities and infrastructure.'6 All of these would hardly be justifiable if profit was the
sole consideration. Though rent-seeking behavior of the monopolist led to positive
externalities to the economy, welfare loss to some minority groups should never be
neglected.
In an economy as small as Macao, the extensive direct and indirect
investment made by the monopolist to the local economy naturally led to market
concentration in other sectors. One example was the sea transportation market. As
mentioned, in return for winning the monopolistic license, the monopolist was held
accountable for providing sea transportation between Macao and Hong Kong. In
fact, no one would disagree that this arrangement was critical to the overall
development of the Macao economy from the 1960s through the 1980s when the
number of non-gambling passengers traveling between Macao and Hong Kong was
still low. Such an arrangement, however, hampered any advancement of long-term
competition allowed in the market, as well as restricted choices available to non-
gamblers whose demand for sea transportation between Macao and Hong Kong was
rising.
Being the owner of the majority of high-speed vessels and passenger
transportation terminals at both Macao and Hong Kong, Shun Tak Holdings Limited,
which was owned by STDM with more than 50 percent of the shares, gave absolute
privileges to its own vessels (i.e., the Far East Jetfoils) in using the terminal facilities.
The facilities were made available to vessels operated by other companies through
leasing arrangements, but less favorable business terms such as leasing costs, made it
impossible for these companies to compete fairly with the Far East Jetfoils. Prior to
July 1999, there was a fringe firm providing alternative vessel services - TurboCat -
between Macao and Hong Kong. Passengers who were less concerned about the
vessel schedule and could afford less frequent departure intervals, were given an
alternative by traveling with TurboCat. In addition, during some peak periods,
TurboCat provided passengers with complementary services. However, because of
unsatisfactory business performance for several years of operation, the owners of
TurboCat agreed to merge with Far East Jetfoils under a new name
-
TurboJet, where
Shun Tak owned 71 percent of the shares. With the merger, although the number of
vessels owned by Turbojet increased, daily trip schedules offered by the company were
less frequent than in the old days when the two operators ran independently. To
Shun Tak, the merger definitely provided the company with benefits of economies of
scale; it signified however, the end of competition in this market. In the long-term
absence of competition, one could hardly tell if the quality and price of sea
transportation service between Macao and Hong Kong could be maintained at a level
that represented the best alternatives to passengers, as well as the best interests to the
overall development of Macao's economy.
In addition to the sea transportation market, the monopolist's influence over
some other sectors of the Macao economy also led to the emergence of market
concentration. For example, a large portion of the local tourism-related businesses
(e.g., 4- and 5-star hotels, and entertainment facilities) were dominated directly
through the holdings of STDM or indirectly through Shun Tak Holding Limited.
Apart from the issue of market concentration, declining long-term efficiency
is another common consequence of a monopoly due to the absence of competition.
Following decades of operation, and the rapid expansion of the private-VIP-room
business, evidence shows that the quality of customer service has declined
significantly, or even turned sour in the 1990s. Transaction costs charged to
customers for gaming services increased constantly from the middle of the 1980s to
the end of the 1990s. For example, some dealers were impolite to players for not
paying tips; and it was common practice for a portion of chips (usually 5 percent to 10
percent) won by players from a single game on a table to be kept by dealers as "tea
money" regardless of a players' resistance due to losses in preceding games.'7 Thanks
to the particular settings of Macao's casino industry (i.e., a pure gambling venue to
most players) the monopolist was inclined toward keeping down operating costs by
offering low wages to dealers while permitting them to take "tea money" to
supplement their income (a practice that is strictly prohibited by law in most well-
developed gaming jurisdictions such as North America and Australia). Although the
monopolist did formulate some simple and informal guidelines for dealers to follow
in taking "tea money," the rules were seldom followed because of loose monitoring.
Besides, the monopolist had little incentive to upgrade casino facilities so as to
provide value-added gaming services to its customers.
In principle, cost advantage alongside the economies of scale hinges largely
on the condition of a competitive market. As long as a firm acquires dominating
power and turns the market into a kind of monopoly, long-term inefficiency would
very likely result, which may even erode part of any short-term efficiency gain, as well
as impose external costs to other related sectors. In the case of Macao, even the
domestic economy gained in one way or another under the gaming monopoly. The
competitiveness of the industry and some other related sectors on the regional level
(not to mention the global level) have been weakened over time as a result of ever
increasing transaction costs. Entering into the new millennium, the world market
was getting increasingly open and liberal, and anticipated levels of competition from
neighboring regions was also increasing. Accordingly, to safeguard the long-term and
external competitiveness, as well as its sustainable contribution to the Macao
economy, the redistribution of rights to the casino industry became necessary.
Before concluding this section, it is worthwhile to highlight from an
institutionalist point of view, that the aforementioned evidence suggests the
institution of Macao's casino industry was largely dominated by a form of "past-
binding" ceremonial encapsulation value system (Bush 1987, 1079-1080). In this
system, the "resistance of the traditions of the community to the absorption and
diffusion of technological innovations" (1094)18 seriously restrained the progress of
institutional change in the last two decades of the twentieth century. Consequently,
instrumental efficiency that referred to the "problem-solving processes of the
community," deteriorated over time (1080). For example, the ceremonial values of
the local community toward the monopolistic structure of the casino industry along
with the practice of the private-VIP-room business clearly kept society from
introducing any instrumentally feasible change, which could have helped relieve the
worsening social and economic conditions during that period. Fortunately, the
handover of Macao to China and the establishment of the MSAR Government under
the "One Country, Two Systems" policy on December 20, 1999, reinstated the
necessary instrumental values to society, which integrated the social and economic
impulses to call for an immediate institutional change to Macao's casino industry. In
principle, this change demonstrated the result of a form of administrative transaction
(Schmid 1987, 12-15).
Changing the Structure and Efficiency of the Casino Industry
Structural change "requires persistent external attractors and responsive internal
actors over time to mold the new 'instituted process' born of a combination of old
and new institutions" (Parto 2005, 41). As explained' in the previous section, the
unique situation involving Macao's casino industry in the last two decades of the
twentieth century generated a great force in the local community to call for positive
changes that could be encapsulated by a strong and credible ruling authority. Backed
by the total support of the Chinese Government and the primary interests in
reformulating the long-term structure of the Macao economy, the MSAR
Government's commitment to alter the existing structure of the casino industry
obtained immediate consensus from the community. Accordingly, a progressive
institutional change, which "broke down those ceremonial barriers" and altered
"habitual patterns of thought and behavior in order to achieve a higher level of
instrumental efficiency" (Bush 1987, 1101-1102), ultimately became possible. Indeed,
as the decision was made in a changing period, the shift to the new industrial
structure appeared as "a matter of human choice" (Schmid 1987, 40), and revealed
that a new optimum was "selected out of many possible optima" (4) where the
benefits of the various related parties were reassessed simultaneously. In this section,
the public decision to terminate the monopolistic structure of the casino industry by
re-delegating the rights of this business to a few, instead of many firms is examined. In
addition, changes and anticipated changes in the industry's efficiency and its
competitiveness following the changing rights are evaluated.
Arguments in Favor of Adopting an Oligopolistic Market Structure
In practice, the idea of replacing the monopolistic structure of the casino industry by
a special licensing system that allows more than one firm to run casino businesses in
Macao can be traced back to 1982 when the Portuguese administration of Macao
revised certain articles of the old Gaming Law and promulgated Law n? 6/82/M. In
Article 5 of the 1982 Gaming Law, the Macao-Portuguese Government stated
explicitly, "Operations of gaming businesses are to be implemented under the
institutions of concession of the exclusiveness, or special licenses.... The maximum
number of special licenses to be issued is four." 19
Indeed, this attempt to issue more
than one license was never executed in the 1990s. Nevertheless, following the
promulgation of this new Gaming Law, significant changes took place in the internal
organization of the monopolist, as well as to the attributes of its business
-
a typical
example was the introduction and rapid expansion of the private-VIP-room business.
In addition to the amount of tax payment made by the monopolist to the
government, social and economic investment in the Macao society also increased
remarkably.
Facing uncontrollable social unrest in the second half of the 1990s, and
considering long-term industrial inefficiency, the MSAR Government announced the
replacement of the monopolist structure of the casino industry by granting three new
licenses. Although the government never explained how they decided on the number
of licenses, social and economic desires for a form of competition between a
few played
an important role in this decision process. After decades of monopolization in the
casino industry, one remarkable benefit enjoyed by the community and the public
sector was its contributions to the prosperity and social welfare of the domestic
economy. However, it is a clear fact that with no provision for existence of economic
rent, the incumbent(s) would hardly be willing or able to contribute to public
projects. Consequently, even it is hard for us to quantify the effects,20 the situation in
Macao reveals that the social benefit is always of greater concern than the direct
monetary return to investors or contributors. Though one might suggest opening the
market fully by getting the government to carry out social projects and programs
funded by taxes collected from the operators, this alternative seems less desirable due
to two verities.
First, even the introduction of competition is a reasonable option for the
MSAR Government to crack down on the community's rigid tradition or the "past-
binding" character, which has hampered real economic progress for centuries.
Economies of scale and social stability are equally important elements in considering
how to revise the structure of the casino industry. In the case of Macao, owing to the
limited internal demand, if only normal profits can be generated by the industry, it is
very likely that long-term progress of this tiny economy would be restricted due to
inadequate capital and social investment.
Second, a review on the progress of the gaming industry in the United States
demonstrates the desirability of oligopoly. This is a structure either enforced by the
public sector or evolved from the market in the past decades. For example, when
New Jersey legalized casino gaming in Atlantic City in 1976, the State government
restricted the number of firms by imposing minimum requirements on the scale of
business. Accordingly, an oligopolistic structure was formed by building up barriers
to entry. Similarly, though it was in accordance with the Corporate Gaming Act of
Nevada in 1969, the State government set up "few barriers to entry into its industry,
economies of scale and scope pushed the major Nevada casino markets in Las Vegas
and Reno toward oligopolistic status as well" (Eadington 1999, 175).
Based on the above grounds, competition among a few became a much more
appealing choice than competition among many to the decision-making authority of the
Macao SAR. Under the former rights structure, benefits along with the economies of
scale can be retained, while competition can also be introduced.
Changing Efficiency and Competitiveness
Theoretically, efficiency loss caused by rent-seeking behavior of a monopoly would
increase the transaction costs of business, hence undermining the industry's real and
long-term competitiveness. This situation would turn sour if the government
manipulates public policy to reap rent from the monopoly. After years of interactions
between the monopolist and the government to preserve their respective interests,
extensive evidence from the late 1990s revealed that if there is direct competition
from the neighboring countries/regions, the monopolist would then be incapable of
maintaining its market power within the region.
Looking back at the period of the post-implementation of Law n? 6/82/M,
one would note that whenever there were crucial policy changes introduced by either
Hong Kong or the Mainland government, Macao's casino industry would always
simply react passively by either taking advantage or shouldering part of the costs
brought about by the changes. For example, following the Hong Kong government's
policy of simplifying the departure procedure for its residents that went into effect
May 1, 1987, gross gaming revenue of the STDM increased progressively from 1988 to
1993, contributed to by the reduction in transaction costs for Hong Kong residents to
visit Macao. This fact was reflected in the rising amount of gaming tax, liable by the
STDM, for the same period.21 However, the internal efficiency of the gaming
monopoly did not show any corresponding improvement. For example, in
conjunction with the launch of the macroeconomic control policy by the Chinese
government in the middle of the 1990s, and the occurrence of the Asian Financial
crisis in the late 1990s, the only strategy taken by the monopolist was wait, little effort
was ever made to strengthen its business efficiency, especially the non-private-VIP-
room business.
Another incident revealing the shakiness of Macao's casino industry took
place when the Hong Kong community proposed to the Hong Kong SAR government
in 1999 to explore the possibility of legalizing casino gaming as a way to cope with
structural changes and the downturn of the Hong Kong economy since 1997.22 Even
armed with the affirmative from the Chinese government that Macao would be the
only territory having jurisdiction over casino gaming, the entire Macao community
was shaken when the Financial Secretary of the Hong Kong SAR took a trip to Las
Vegas in September 1999. The sense of anxiety flourished because Hong Kong had
long been the prime source of customers of Macao's casino industry. As an
authoritative figure in Macao, Dr. Stanley Ho also instantly asserted in public that "[al
ny form of gaming in neighboring Hong Kong will seriously affect the economic
development of Macau, hence the well-being of the people."23 In principle, if Macao's
casino industry were efficient and possessed a real competitive edge (i.e., rendering
services not easily replicated by potential entrants; or have, to a certain extent, won
customers' loyalty), then the start of casino gaming in Hong Kong or any other
neighboring countries that may reduce the number of visitors to Macao, should not
"seriously affect the economic development of Macau, hence the well-being of the
people."
On the contrary, when the schedule of opening the market was confirmed,
though it was probable that the wholly-owned subsidiary of the monopolist, the SJM,
would be granted one of the new licenses (in fact, it did), conventional tax and social
contributions were no longer used by the firm as the major weapon to solidify its
position. Instead, emphasis was directed toward strengthening the internal corporate
governance structure, as well as business strategies to confront the foreseeable
competition. This outright change in behavior was reflected in the monopolist's
serious review of such business practices as "tea money" and service quality. In light
of the possible threat from competition, though the market was still operated solely by
SJM before May 2004, when the Venetian opened its Sands Casino, the firm reported
an increase in net profits after taxes in 2002 and 2003 even with the gaming tax rate
rising from 31.8 percent to 35 percent under the new licensing requirement. This
was partly attributable to increases in the number of visitors to casinos resulting from
improvements in the social order following Macao's transfer to China and partly due
to an improvement in the firm's cost management as acknowledged by the
management board of the firm.24 Symptoms of real improvement in the industry's
efficiency emerged.
Seeing new casinos and resorts established by Galaxy, Venetian and Wynn,
the SJM steels itself by initiating aggressive business strategies rather than traditional
rent-seeking behavior. For example, a new SJM casino - Pharaoh's Palace Casino -
was first opened in the beginning of 2003; three new slot venues - Mocha Slot
Lounge - and a couple of new casinos were also opened between the middle of 2003
and the end of 2004. In contrast to the old casinos that are simply "casinos"
equipped with simple gaming devices, these new casinos emphasized theme
architecture and value-added services to players. Just before Christmas Eve 2004, the
SJM also completed the interior and exterior renovation of an existing casino
renaming it "Greek Mythology,"25 with more changes to be launched in the coming
years. In addition, following the opening of the Sands Casino by the Venetian in May
and Galaxy Waldo by Galaxy in July 2004, the Galaxy JV embarked on a project to
construct a "Cotai Strip" in Cotai, which was somewhat a "miniature of the Las Vegas
Strip." Moreover, Wynn is also going to open its business in the second half of 2006,
by providing its well-known highquality casino resort services to visitors of Macao.
Furthermore, Las Vegas' MGM Mirage, also entered into a sub-concession with the
SJM, it is scheduled to open for business in late 2007.
Although comprehensive empirical studies are impossible due to data
insufficiency, simple statistics as presented in Table 1 reveal another side of
improvement in efficiency of the Macao casino industry, which shows coherence with
the evidence mentioned earlier.
In practice, it is reasonable to conclude that all of the above and anticipated
changes could hardly be realized if the monopolistic structure of Macao's casino
industry had remained as it was in the last two decades of the twentieth century.
These changes imply that the average transaction costs of business to both Macao's
casino industry and its customers would be lowered, and consequently improve the
efficiency and competitiveness of Macao's casino industry not limited to the East
Asian market, but the global market; as well as lift the overall performance of the
Macao economy up to a new optimum stage.
Table 1. Changes in the number of visitor arrivals to Macao and the average gross
gaming revenue (GGR) derived by Macao's casinos per vlisitor
Number of visitor arrivalst GGR per visitort
Year (in thousand) (in US$)
1997 7,000.4 318
1998 6,948.5 262
1999 7,443.9 219
2000 9,162.2 217
2001 10,279.0 220
2002 11,350.8 237
2003 11,887.9 293
2004 16,672.6 301
tMacao Statistics and Census Service
(DSEC) http://www.dsec.gov.mo/index.asp?src=/english/indicator/
e_tur_indicator.html (accessed June 11, 2005).
:Derived by dividing
the GGR data from 1997 to
2003,
as
provided by
the Macau
Gaming Inspection
and
Coordination Bureau, by the number of visitor arrivals and converted into US$ (http://www.dicj.gov.mo/
EN/Estat/estat.htm#nl accessed December 24, 2004 this web page has since been removed). The 2004
GGR data is retrieved from http://www.dicj.gov.mo/EN/Estat/DadosEstat/2005/estat.htm#nl (accessed
May 23, 2005).
(Although GGR per visitor in 2004 was lower than in 1997, there was a dramatic increase in the total number of
visitor arrivals attributed to the Individual Visit Scheme of the Chinese Government. This largely simplified the visa
application process for people from the Mainland to visit Hong Kong and Macao since the last quarter of 2003. A
larger portion of the new Mainland visitors to Macao were for vacation purposes, thus, average spending on gaming was
comparatively lower than when the majority of people used to visit Macao for gambling.)
Composition of the Changing Performance and
Some Ongoing Concerns
In aggregate terms, terminating the monopolistic structure of the casino industry has
largely elevated its efficiency. With a contribution of over 40 percent to Macao's real
GDP in 2003, the impressive changing performance of the casino industry led to 15.6
percent real growth in the same period, with 70 percent of the growth coming directly
from the increased income of the casino industry.26 While the share of the casino
industry in the overall performance of the Macao economy is expected to expand in
the coming decade, the golden rule is that there must be winners and losers as a result
of structural changes. To Macao, though it is reasonable to foresee that the total gain
to the economic society would greatly surpass the total loss to such minority groups as
the low-educated workforce and local SMEs, the interests of the latter. should not be
overlooked. As the traditional monopolistic structure of Macao's casino industry was
ratified by public policy, and the recent change in structure is realized following the
revision of the public policy objectives, an effective and dynamic public policy system
should be maintained to balance the performance of the various local sectors, for
both the short and long run. In this particular context, "effective and dynamic" mean
development of an effective enforcement mechanism through a "neutral third-
party" (North 1990, 58-59) and "diffusion of the new instrumental values throughout
the community" (Bush 1987, 1102) so that progressive changes can be sustained.
Changing Performances in the Different Sectors
As reflected previously, customers, casino operators and the public sector are the three
winning groups from the changing structure of the casino industry. Given the
credible commitment to the "One Country, Two Systems" policy and the full-scale
support from the Chinese government, as well as the MSAR Government's
determination to overcome the social problems and the industrial inefficiency that
prevailed in the last two decades of the twentieth century, it is anticipated that the
potential market size (especially the non-private-VIP-room business) will expand over
time.
In addition, the local workforce would also benefit from the increased
employment opportunities and the improved working environment offered by the
new casinos. For example, between the first quarter of 2000 and the second quarter
of 2003, Macao's unemployment rate was sustained at a high level, above 6 percent
(with the highest rate of 7.1 percent recorded in the second quarter of 2000).
Following expansion of the existing casino business and the opening of new casinos
by SJM from the second half of 2003, and the opening of the Sands Casino and
Galaxy Waldo in the summer of 2004, the unemployment rate dropped significantly
to 4.1 percent in the last quarter of 2004.
Property owners and developers of the real estate market are another group
of beneficiaries in this process. With the restoration of public security following
Macao's handover to China, the increase in better-paying job opportunities open to
both the local workforce and expatriates and, the elevation of market expectation,
Macao's property market rebounded significantly since its slump in the second half of
the 1990s. In addition to the increase in real demand from end users, demand from
both investors and speculators pushed the market prices of both residential and
commercial properties up since 2001. On average, property prices in 2004 were
double those in 2000. "Observers say this upturn could presage a Las Vegas-style
home sale explosion, which saw a once dusty desert rest stop become one of the
hottest property markets in the US."27
Nevertheless, not every sector could taste the fruits of success from the
restructuring of the casino industry; some of them may even suffer in the long run. In
2003, for example, while expenditures of non-residents in the gambling sector
recorded a real growth rate of 31.06 percent, their spending in such local sectors as
accommodations and other non-gambling services recorded a drop of 3.53 percent
and 0.61 percent respectively.28 Though an external shock (i.e., SARS) was held
largely responsible for the declining income in non-gambling tourism-related sectors
in the first half of 2003, the rising turnover in the casino industry could not do much
to pull the local sectors out of the slump. In 2004 and 2005, aggregate spending of
non-residents on local accommodations and other non-gambling services had been
going up as a result of the Chinese government's permission to significantly increase
the quota for Mainland residents to visit Hong Kong and Macao under the Individual
Visit Scheme policy. Real growth in these sectors however, is still far behind the
performance of the casino industry. In the long run, it is even anticipated that as the
scale of the casino industry expands, business prospects of some local sectors may
shrink.
It is a known fact that the new entrants from the United States are world-
class casino practitioners. They provide comprehensive casino and hospitality services
that range from high-standard hotel and restaurant services, to family-type
entertainment facilities and modernized shopping centers, to convention and
exhibition arrangements. The local incumbent has taken aggressive steps to expand
the scale and variety of its business in order to secure its long-term market share and
competitiveness. In the long run, once all these facilities are available, visitors to
Macao will be given a wide selection of high-quality and convenient entertainment
services. Accordingly, local SMEs traditionally attached to Macao's casino industry
(i.e., hotels, restaurants and boutiques) will have to face the high risk of reducing
customer bases, hence turnovers.29 Business prospects of the many existing local SMEs
in the gaming- and tourism-related service sectors may not be very promising. This
expected trend is consistent with the findings obtained from a preliminary survey
conducted between April and May, 2004.30
While the real impact to the business prospects of gaming- and tourism-
related local SMEs is still blurred, rapid expansion of the casino industry has exerted
direct pressures on various local sectors in the form of higher labor costs and
shortages of qualified manpower. For example, when the Sands Casino openly
invited local applicants for its 1,000 to 2,000 job vacancies in the beginning of 2004,
more than 40,000 applications were submitted.3' This number represented around 9
percent of the Macao population, or 16 percent of its working population. Likewise,
when the SJM's Mocha Slot Lounge openly recruited for 300 positions in March
2004, over 2,000 applications were received.32 Generally speaking, a large portion of
the applicants were looking for higher pay and a better work environment. In fact,
the majority of those who successfully obtained offers in non-dealer positions such as
public relations, marketing, accounting, etc., possessed expertise and professional
experience in other local sectors such as hotel, recreation, restaurant, retailing,
banking and finance. Consequently, complaints were lodged by many local SMEs
about their profit margins being continuously exploited since the end of 2003.
Lastly, even though the local labor market is booming, minorities older than
40 to 45 years of age with a low educational level could hardly get their foot in the
door to share the increasing income emitted from the casino industry. Worse, a
significant number of them might even suffer due to the contraction of traditional
and low-value-added manufacturing industries, which in turn give rise to the issue of
structural unemployment.
Effective and Continuous Support from Public Policy are Needed
In light of the peculiar situation and structure associated with the Macao economy
and its casino industry and the interrelationship of this industry with other local
sectors, a laissez-faire policy seems less desirable if the government's objectives are: 1)
to ensure long-term efficiency and competitiveness of the industry; 2) to optimize its
contributions to sustain the overall performance of the local economy; and 3) to gain
a balance between macroeconomic growth and fair income distribution at the micro
level. Contrarily, a proactive public policy system that provides effective and
continuous coordination between the progress of the casino industry and the various
local sectors, as well as creates incentives for internal development of the casino
industry, appears much more appealing and appropriate.
Recently, although various tourism infrastructure projects like various theme
museums featuring the uniqueness of Macao have been started, few opportunities are
given to local firms. The major reason can be traced to their absence of a long-term
vision linking their facilities to build confidence for the prospects of the local market,
and thereby sustaining business dynamics. An imminent issue parallel to
restructuring the casino industry is a detailed revision of public policies for pairing the
development of a comprehensive local-based tourism industry with gaming. Taking
the interests of the various local parties into consideration, provisions of tax privileges
and even subsidies to local SMEs could be helpful to diffuse changes launched in the
casino industry. Additionally, the government might also consider establishing
comprehensive policies to enhance the development of recreational spots at various
locations of Macao, or in organizing strategic events such as "Macao must visit" or
"Macao must buy"33 to promote the local-based economy.
In fact, Macao's small size could constitute a constraint, but also an
advantage to the future development of the economy as an international
entertainment center. Though economies of scale may not be a feasible strategy for
individual local firms, organizing them to work toward a common business goal for
the benefit of the overall economy is possible. In view of Macao's particular
historical, social and economic settings, the co-existence of large-scale casino
operators providing world-class recreational services, and a large number of small-scale
local firms featuring the uniqueness of Macao's tourism, could realistically elevate the
local economy to an even better welfare state.
While the transaction volume of the casino industry and its share in the
total output of the Macao economy are going to expand over time, promoting a fair
competitive environment is a crucial measure to ensure effectiveness of competition.
In practice, a fair competitive environment is composed of two major elements: first,
an equally accessible (understandable) regulatory system; and second, an even split of
public responsibilities among the competing firms.
As far as the regulatory system of Macao is concerned, the local community
much less foreigners does not comprehend its contents and practices. Traditionally,
laws and regulations have for the most part been written in Portuguese, while most
people in Macao are Chinese and do not know Portuguese at all. Although a small
number of key documents were available in Chinese before Macao's handover, and
the MASR Government has put a great effort into translating existing legal
documents into Chinese, as well as drafting some key documents in English for
foreign investors, the translated documents are far from sufficient and precise from a
legal perspective. In the event of any dispute over rule interpretation, Portuguese
always prevails. Consequently, despite the fact hard copies of related legal documents
are equally available to each of the firms, the local incumbent would be better able
than foreign casino operators to grasp and have insight into the practice of these
rulings, hence dealing with legal matters relating to designing business strategies. In
other words, for new entrants to acquire the same level of knowledge of the relevant
regulations as the domestic firm does, they will have to inject additional resources
into their businesses (including time, as a kind of transaction costs).
In addition, as the new casino operators from the United States are used to
conducting business under the common law system, they have no prior experience of
living with Macao's casino regulations, which are laid down from the civil law system
of the former Macao-Portuguese Government. Furnishing and refining the contents
of the existing regulations should be at the top of the government's agenda in order to
facilitate the new entrants' competition with the local incumbent on the same
regulatory platform as quickly as possible.34 For example, though the regulation for
operations of the junket reps (Administrative Regulation no' 6/2002) and the law for
casino credits (Law no' 5/2004) have been promulgated in March 2002 and May
2004 respectively, the contents of these two important legal documents are still far
from complete from both the legal and practical points of view. With respect to
junket reps regulation, the government intends to standardize the qualifications of the
junket reps and their relationships with the concessionaire. The criteria applied for
assessing the qualifications of a junket rep, as well as the relationships between the
junket reps in the lower hierarchy (as demonstrated in Figure 1) are vaguely specified in
the regulation. In other words, "effectiveness of enforcement" of the new institution
remains the major obstacle to the long-term progress of Macao's casino industry.
. Lastly, social responsibilities in various forms, both formally and informally
assigned to casino operators, should be fairly distributed. Although such social
responsibilities would lower the net economic profit to a casino operator, they
simultaneously gather market power to the contributing firm, hence leading to the
issue of market concentration. For example, given the fact that a sister firm of SJM
monopolizes the major transportation system between Macao and the outside world,
the new casino operators may not be given an equal opportunity to compete with SJM
for prospective customers traveling to Macao from/via Hong Kong by sea. Even
STDM has declared its intention to discontinue some of its non-profitable business
lines such as television broadcasting,35 as well as terminating sponsorship of certain
social and cultural affairs; it is however, held liable by the STDM to continue
assuming these social responsibilities. Therefore, the likelihood that the local
incumbent may make use of its unique position in the community to manipulate the
level of competition from its rivals could not be overlooked. To ensure all casino
operators are able to compete with one another on equal footing, public policies
concerning such traditional welfare issues as social responsibilities and infrastructure
investment have to be reviewed by the government carefully.
Conclusion
The evolution of Macao's casino industry from monopoly to oligopoly explicitly
demonstrates the dynamic aspect of Schmid's SSP institutional-impact theory. In any
given period of time, it is true that such attributes as the interests of individual
participants, the number of decision makers, and the characteristics of the commodity
could be viewed as the "inherent situational variables." Attributes of the rights
structure; things such as the boundary and scope of the industry, legislation,
information rules, distribution of authority, and decision rights, "is a matter of
human choice" (Schmid 1987, 3940). Nevertheless, as the value structure of the
industry is altered due to any change in the rights structure, the attributes of the
situational variables would no longer remain unchanged. Taking into consideration
the changing attributes of the situational variables, new problems would arise and
provide reasons for the authority to revise the content of the existing structure or even
go to a new structure. In practice, as the "rights structure is a matter of human
choice," changing structure is not necessarily always predictable or efficient. For
example, when confronted with the same social and economic problems caused
directly and indirectly by the private-VIP-room business, the Macao-Portuguese
Government chose not to revise the rights structure, the MSAR Government
however, embarked on a new structure for its casino industry. Indeed, the interests of
the two authorities are clearly revealed in their different choices. With the situational
variables and structural variables interacting with each other over time, the industrial
performance and its impacts on the overall performance of the economy would
certainly be altered.
Although the overall industrial structure of Macao's casino industry was
categorized as a monopoly between 1962 and 2001, the content of the structure and
the attributes of the monopolist's business were modified side by side continuously.
In response to the major decision made by the Macao-Portuguese Government to alter
the "rules of the game" by revising the Gaming Law in 1982, significant changes in
the attributes of the monopolist's business and its internal structure were
implemented. With the success and rapid expansion of the private-VIP-room business
since the mid 1980s, the monopolist successfully secured its monopolistic position.
However, after years or even decades of dependence on the economic rent
contributed by the monopolist to fulfill primary pubic policy interests, institutional
progress became stagnant. Over time the problem-solving capability of the regulatory
system was weakened, resulting in the failure to monitor and control the widespread
social problems and economic inefficiencies resulting from the rapidly changing
situation of the casino business in the 1990s. In other words, given the weak nature
and ineffective enforcement of the changing rules, accompanied with the ideologies
persisting in society, Bush's "ceremonial dominance" (1987, 1085-1986) clearly took
effect, which highly undermined the instrumental efficiency and restricted the pace of
institutional change of Macao's casino industry in the last decade of the twentieth
century.
Following the handover of Macao to China, the "ceremonial patterns" of
behavior, which were commonly seen in the society for decades, were clearly
"displaced by the instrumental patterns of behavior" (Bush 1987, 1101) under the
new ruling authority - the MSAR Government. As a result, change in the "prevalent
habits of thought" (Bush 1987, 1087) in the society ultimately led to progressive
institutional change, which permitted new knowledge to be incorporated into the
problem-solving processes of the industry. For instance, when it was finally decided to
replace the rights structure of the monopoly by oligopoly, a crude estimation
suggested that the new entrants would have to spend at least several years to complete
construction before they were adequately armed to fully compete with the local
incumbent. The latter however, had instantly embarked on projects to dramatically
modify the attributes of its casino business to prepare for the potential competition in
the market. Different from the conventional rent-seeking behavior, efficiency of
internal business structure, high quality and value-added services apparently become
the strategies undertaken by the local incumbent. As the institutions of Macao's
casino industry progressively change, it becomes reasonable to infer that transaction
costs of business will decrease, hence improving efficiency and competitiveness.
In the long run, it is necessary to balance the macroeconomic performance
and distribution of income on the micro level, as well as to ensure a sustainable
performance of the casino industry and its long-term contributions to the local
economy. To achieve this, a credible and dynamic role of the public policy system for
pairing the development of local tourism with gaming, and promoting a fair
competitive environment to all casino operators must be formed, perfected and
constantly reviewed. In Bush's words, "the diffusion of the new instrumental values
throughout the community (that) erodes the ideological foundations of those
ceremonial practices that are dominant in the affected areas of activity" (1987, 1102)
is a necessary condition to accomplish progressive institutional change, hence long-
term success of Macao's casino industry.
Notes
1. Government of the Macao Special Administrative Region, Gaming Inspection and Coordination
Bureau (accessed May 23, 2005).
2. New Jersey Casino Control Commission Revenue Page.
3. Nevada Gaming Commission and State Gaming Control Board.
4. Although a single firm - the Hao Xing Company - successfully won all forms of gambling concessions
in 1930, the market was in principle dominated, instead of monopolized, by this firm because more
than one concession was granted by the MacaoTPortuguese Government, and small-scale individual
gambling dens/houses without the concession were still operating overtly. It was only when the Tai
Xing Company won the unique gambling concession (officially titled "the concession of the
exclusiveness of gambling") granted by the government to operate all forms of gambling businesses in
1937, that the monopolistic structure of Macao's casino industry formally took effect.
5. Government of the Macao Special Administrative Region, Gaming Inspection & Coordination
Bureau (accessed July 12, 2004).
6. Either autonomously or driven by the "the concession of the exclusiveness of gambling" - an official
term used in Macao to refer to the monopolistic license.
7. Before the establishment of a standardized institutional framework for monopolization in gaming in
1937, the two dominant gaming practitioners, Lu Jiu (1837-1906) and his eldest son, Lu Lianruo
(1989-1906), were also well-known philanthropists in the Macao society.
8. Casino credit was prohibited by law before July 1, 2004. In May 31, 2004, the MSAR Government
officially promulgated "The legal regime applicable to the granting of credit for gaming or for betting
on games of chance or other games in casino" (Law noo 5/2004), which allowed casino credit from
July 1, 2004.
9. Estimated based on statistics provided in Aomen Shuizhi (in Chinese), (Du 2000), Table VIII, p. 169.
10. Jornal "Va Kio" ( 1998).
11. GDP and GDP-related figures: (Macao) Estimates of Gross Domestic Product (2001), Part I - Table 1;
Part II - Table 2; and the tax figure was obtained from the (Macao) Yearbook of Statistics (2000), Table
16.1.5.
12. Macao Statistics and Census Service (DSEC).
13. According to various newsletters and a special summary released in the Macao Daily News on October
19, 1998, Al 1 (in Chinese), more than twenty serious shooting occurred, where all of the victims
were either directly or indirectly connected to the gaming business. Of the dead, two were active
casino participants, one was a minor shareholder of a gambling club, one was the driver of a key
officer of the police department, one was a first-class police officer, and one was the division head of
the Gaming Inspection Bureau.
14. Though the MSAR Government never directly commented on the rent-seeking behavior of the
monopolist, its act to introduce competition, and diversify the composition of the casino industry
reflected its determination to resolve the drawbacks associated with the rent-seeking behavior of
monopolist.
15. Details could be found in Liu (2002), Chapter 6 to 8.
16. Though certain investments were required by the gaming laws (e.g., Decree Law noo 1496
promulgated in 1961 and Law no' 6/82/M in 1982), the incumbent always exceeded the
requirements.
17. This problem had been reported in the local newspaper and on news channels in Hong Kong at the
end of the 1990s (in Chinese).
18. In Veblen's view, technological change is the change in "prevalent habits of thought" associated with
a given state of the arts and sciences (Bush 1987, 1087).
19. Translated from the Chinese version of the Law n0 6/82/M.
20. In the case of Macao, insufficient data is available to conduct a general cost-and-benefit analysis on the
public projects and social welfare programs funded by the casino industry.
21. On average, the tax rate increased by 1 percent in each subsequent year, from 25 percent in 1986 to
30 percent in 1991, the gaming tax paid by the STDM was over 30 percent higher year after year
during the period (and the rise was even up to 51.85 percent in 1989).
22. Relevant reports were found in various issues of the South China Morning Post (Hong Kong) in August
and September 1999.
23. "Stanley Ho hits out at casino plan," South China Morning Post. Hong Kong, PRC: September 15,
1999, 1.
24. Macao Daily News. April 1, 2003, B8 (in Chinese).
25. Press Release. December 22, 2004. "Greek Mythology (Macau) Entertainment Group Limited
HKD600-million Casino Opens Door to Become One of the Largest in Macau".
26. Estimates of Gross Domestic Product (2003), Table 2 and Table 18.
27. Macau set to become China's Las Vegas
-
Gambling sparks property boom. August 18, 2004.
28. Estimates of Gross Domestic Product (2003), Table 18.
29. According to some preliminary surveys (mainly interviews) conducted in the first quarter of 2003,
practitioners of connected businesses such as hotels, restaurants, and fabric stores in downtown
Macao commonly believed that opening the casino industry would not benefit their businesses. Many
of them even expressed pessimistic views on the future prospects of their businesses with the opening
of the comprehensive facilities by the new casinos from 2006.
30. This survey was supported in part, by a research grant funded by the University of Macau, and
conducted with the assistance of the Computer Assisted Telephone Interview (CATI) system, installed
at the University. The survey consisted of 2,775 numbers dialed resulting in 572 complete and valid
questionnaires. Of the 3 iquestions included in the survey, two were designed for obtaining the
respondents' views on the business prospects of SMEs and other local businesses following the
opening of the casino industry. Other questions were designed primarily to check the respondents'
expectations of social and economic conditions following the opening of the casino industry, as well
as the changing competitiveness of this industry.
31. Macao Daily News. January 28, 2004 (in Chinese).
32. Macao Daily News. March 22, 2004 (in Chinese).
33. Recently, the Hong Kong SAR Government Tourism Department has organized events with joining
hands from firms in the tourism sector to promote certain locally produced goods (souvenirs) - and
put on.the slogan "Hong Kong must buy."
34. Siu and Cheng (February 2004).
35. Macao's television company - TDM - had continuously recorded significant losses. Being the major
shareholder, though STDM had announced several times that it was not willing to live with the losses
any more, and had been calling for capital injection from other shareholders in the past, it was
unlikely that STDM could get out of this financial burden in the short run.
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