Call a spade a spade: Yes, it’s online gambling that’s banned

When a phenomenon turns into a mass menace, the state must intervene, regardless of what elites say. There’s poetic justice in calling out real money online gaming for what it is and acting against it.

Okay, first off, I am not a fan of the big state in general. If anything, quite the opposite. But then, I am not a fan of universalizing theories in social sciences either. Theories are seductive, empowering. But they’re also like a hammer: if you grip them too tightly, suddenly everything looks like a nail. That is why it intrigues me that ‘experts’ have criticized India’s ban on real money gaming, or gambling. Surely, these arguments spring from theory-the state shouldn’t tell individuals what to do; we could lose dynamic efficiency, harm the entrepreneurial spirit and destroy value. These are familiar tropes.
So here’s the truth. The state will always rule on morality. Seeds of all public policies germinate on one ethical ground or another. In fact, we vote governments to help reflect the preferences or will of society. Sympathy is central there. Those who rely on Adam Smith’s Wealth of Nations will find it worthwhile to read his Theory of Moral Sentiments.

Also, policies are always works-in-progress. Societies and governments are complex adaptive systems, organizing through trial-and-error and learning by doing. Some years ago, a twist of law interpretation enabled online gambling as “games of skill." It grew, but then reality set in. The Indian state was learning fast: online games had become gigantic cash machines, most of which extracted idle money from low-income households. It snowballed into a mess that could not be overlooked.

Absent data, governments have to routinely rely on feedback from lawmakers. Across party lines, it was becoming clear that these games were ruining rural India. It was like a monster uncaged, with GST collections from gaming revealing the enormity of the phenomenon. They were draining generational savings, deepening debt, destroying families and trapping youth in years of anxiety. Gaming-related suicides grew. The stories were heartbreaking. No state, nanny or not, could ignore it.

The state tried many remedies: higher taxes, compulsory customer harm disclosures and attempts at clean fund transfers to prevent laundering and terror financing. It even released policies asking the industry to regulate itself, which the latter failed to do. Instead, all kinds of betting websites with dubious ownership mushroomed. No one was being held accountable.

Externalities justify state intervention. And the scale of one is contextual. Gambling in India has large spillover effects, stretching to parents, extended family members, friends and children. Even countries with high levels of individuality have strict laws and rules against gambling.

In countries like India with weak state capacity and remedies, prohibition is used more often than regulation. This may be hard to digest, but it needs to be understood. Without a strong regulatory apparatus, gains made by some cannot be used to override losses made by many more, and if the numbers are not evident, policy will tilt in favour of preventing the harm done (theory lovers could look up ‘prospect theory’ and the ‘precautionary principle’). Prohibition tends to push the undesirable activity underground, no doubt. But it reduces the scale considerably. No prohibition can be 100% successful; in fact, enforcement costs rise exponentially as we approach the last obsessed violators. But enough people are dissuaded.

There’s another reason for prohibition here. The law has an expressive function (Cass Sunstein and Richard McAdams show this), which means that it signals what is socially acceptable or not. When something is allowed or disallowed by law, people interpret it as collective moral approval or disapproval. This can induce norm cascades: mass shifts in perceptions or practices in line with what the state wants. That’s why banning gambling (whose harm is not clear to every user) is arguably more consequential than banning tobacco (whose harm is obvious to every smoker).

Lack of clarity on what amounted to gambling, especially in the case of games pretending to be tests of skill, had let the activity proliferate. Users didn’t think they were doing anything illegal, reassured by omnipresent ads and celebrity endorsements. Perceptions of safety began to be internalized. Why would a security guard, say, feel nervous placing online bets? Ads showcased auto drivers, maids and street vendors at it-the target audience, presumably. Who bears responsibility for choices that drive families into debt? For public health, we accept state regulation of food; likewise, to ensure the financial safety of the poor, the state must have a say in gambling.

Those who idolize entrepreneurship and see it as a goal in itself must read William Baumol, a foundational figure in the economics of entrepreneurship. His highly cited 1996 paper, ‘Entrepreneurship: Productive, unproductive, and destructive’ uses evidence from ancient Rome, early China, the Middle Ages and Renaissance Europe to show why policy should be designed to influence the type of entrepreneurship we want: startups that thrive on driving innovation, productivity and social welfare, rather than those that seek rents, monopolistic privileges or profits from activities that damage trust. Gambling startups are anything but productive.

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Elites that want the ban lifted will not be happy if they found their children addicted to online games. That’s the ultimate test. Let’s call a spade a spade-in an irony of poetic justice.

Author: Prof Yugank Goyal, Faculty of Public Policy, FLAME University.