Diversification was a critical topic in the inauguration of the new Chief Executive. It was a central subject in the build-up to the visit of the President. Diversification has been on the political agenda, one way or the other, for about four decades. The matter featured prominently in most discussions concerning the future of the economy, both before and after the handover.
Opinion | by José I. Duarte
In other words, the economic debate has focused for decades on gambling and how we can survive without it. The common understanding, then as now, was that the economy relied too much on a single sector. Should, God forbid, the sector be affected by external factors beyond the control of local businesses and authorities, an economic and social disaster might ensue.
There the shared consensus breaks down. The problem starts with determining how we measure diversification with some degree of confidence and meaningfulness. Well aware of the problem and its various dimensions, the Statistical Department produces an annual report analysing the changes of several economic variables. It is helpful to anchor the discussion on hard facts but does not answer the main question, as the department is well aware and underlines clearly.
Official documents usually point out the need for “adequate” diversification. Yet, they never state what is, or what we should understand as adequate. The concept still lacks a definition. Which criteria should be met by an “adequate” diversification? We don’t know.
Let us say that we define it as a reduction in the size of the gambling sector, as measured by its contribution to the region’s gross added value. Measurement issues aside, that would provide an objective metric. The point is that measure is a somewhat poor one.
The first reason is pure arithmetic. That share will vary as a result of changes in both the size of the economy and the size of the sector. Decreases in the share of gambling have been noticed over the years. They were more often than not mostly associated with oscillations in the level of casino activity, bearing no relation to substantial changes in the structure of the economy.
To be meaningful, such share should decline sustainably over the years and would be confirmed by faster growth and increasing independence of the sectors driving the diversification process.
In principle, all kinds of diversification would be desirable. But where those new driving sectors in the economy would be ‘located’ is also relevant. If diversification means ‘localization’ of the specialized supply chain to the casinos, their ‘protection’ in case of a casino crisis would be virtually none. They would also be severely hit.
If it means stronger ‘satellite’ sectors, such as hotels, restaurants, or commerce, the outlook would be better. These activities rely on both domestic and tourist demand. They might prove more resilient but would still be likely to take a serious hit.
If we mean unrelated activities, wholly independent of the fortunes of the casinos, then we face other problems. Macau does not have the people, in numbers or qualifications, for most of the activities one might consider here. It has a shortage of space and possibly regulatory and administrative abilities. Furthermore, it displays highly distorted real estate and labor markets.
Unless there is political will and savvy to address these issues, it isn’t very easy to see how private entrepreneurship may thrive in these circumstances. Of course, the new activities may survive on subsidies and other forms of public support. They will be as sustainable as the public purse will be, which brings us back to square one — the public purse benevolence hinges on high taxes from, you guessed, gambling.