Third lottery licence goes to one lucky winner

Posted 23 July 2013 Written by Ivo Vegter
Category Business

A third lottery licence is on the table, and it exposes in fine-grained detail how the government outlaws efficiency, innovation and competition, while encouraging stagnation, inefficiency and cronyism. This approach is not unique to gaming. It applies to banks, telecoms operators, casinos, and a great many other sectors in which the state picks lucky winners to grant the privilege of being permitted to do business, writes Ivo Vegter at The Daily Maverick.

“Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by law.”
Thus declares our Bill of Rights, as contained in Chapter 2 of the Constitution of the Republic of South Africa.
Like many rights, this one is only for show. Reality is far more dismal. In practice, the government excludes the vast majority from a host of trades, occupations or professions, and you may freely choose only those trades, occupations or professions that government bureaucrats permit you to pursue.
For example, you do not have the right to choose to be a bank, a telco, a casino operator or to run a lottery for a living. Not even if you comply with all the requirements that other operators are required to meet in order to obtain their licences.
Only very special people, who are not equal before the law, get to pursue these trades, occupations or professions. The government chooses them by establishing a limited number of licences, issuing “invitations to apply” with supreme arrogance. It then requires those parties to pay hefty non-refundable fees in advance, just for doing a job they shouldn’t be doing in the first place, namely reviewing their business plans to second-guess their feasibility, and even imposing contracts to force them to do business in the manner of which government approves.
After having outlawed successful charities such as Operation Hunger, as well as the wonderful, welcoming little small casinos that flowered in the mid-1990s, there are now only 40 mega-casino licences and three lottery licences available.
Licence applications are now open for the third lottery licence, and it epitomises the heavy-handed, regressive and greedy approach of government to businesses.
Just to get a look at the tender document, you’ll have to fork out a non-refundable fee of R50,000. Now there’s an email sending fee the banking cartel can only drool at.
To submit an application will cost a further R2.5-million. And if you want your application to succeed, you have to post a whopping R125-million as a performance guarantee. Ergo, only if you are already a large corporation will you get the government’s permission to make billions more.
In addition, you won’t get to test your business case against the actual market. You’ll have to convince government bureaucrats in advance that your business plan is fail-safe. The government gnomes will scrutinise your technical operations, your risk management, your procurement planning, and your financial projections. They will second-guess you at every turn, and pretend that they are capable of predicting the market better than ordinary mortals can.
Imagine if Steve Jobs, Michael O’Leary, Bill Gates or Richard Branson had been required to  submit their business plans to government for approval? Even they had no idea their businesses would succeed, until they tried. If they had been able to raise the massive bribes required for the right to do business, they would have been laughed out of the room by the arrogant government twits who think they are more capable than private risk-takers at running a business.
To adapt Henry Ford’s famous line, if government had issued licences for the provision of transport services, they would have specified faster horses, and fined the inventor of the motorcar for damaging a stable (get it?) market.
Because you’ll have had to commit to delivering on a fixed slate of specific targets, on pain of losing your R125 million bond, you will be unable to “pivot”, to use modern business jargon, should the market, the economy, technology, the customers’ wants, or the competitive landscape change.
So, limited licensing effectively outlaws innovation.
The applicants will have to commit to a host of contracts, including not only non-discriminatory BEE requirements, but also protectionist nonsense about using local suppliers, choosing the Post Office and Telkom over competitors, and even using the Government Printer. Frankly, if the Government Printer needs a law to force companies to use its services, it sucks at what it does, and is stealing money from citizens.
These contracts also guarantee that the licensees will be less efficient than they could be.
So, limited licensing outlaws innovation and efficiency.
Besides imposing a heavy burden of requirements on would-be licensees, the government also gets to decide who is lucky enough to be permitted to compete.
Competitors will be illegal, which means the lucky winners of the incumbent cartels need to fear no new upstarts. This means they can get away with shabby service, high prices, inefficient processes, and unfavourable odds, instead of competing for business by making their products and services as attractive as possible. Ergo, the consumer gets screwed by such cartels. The cartels have no incentive, nor any competitive pressure, to meet the changing needs or desires of customers.
So, limited licensing outlaws innovation, efficiency and quality.
New startups that have revolutionised so many industries in the last century are illegal, so don’t expect much innovation or change in the old-fashioned gambling business. It is no surprise that while today’s young adults have probably never seen a Wurlitzer jukebox, everyone still recognises a lottery machine or one-arm-bandit for essentially the same clunky device it was when your grandfather was young.
Limited licensing outlaws innovation, efficiency, quality because it outlaws comptition, the engine that provides the motive force for these three things. It allows only profiteering by hand-picked government cronies.
I could say that this surely cannot be what government wants, but that would be naïve. It is exactly what government wants. It surely cannot be what citizens want, however. The idea that government is acting in the best interests of citizens is utterly laughable.
Unsurprisingly, online gambling has also been outlawed in South Africa. Like in Nevada, which has a big base of land-based casinos to protect, online casinos were harming the handful of brick-and-mortar casino licence holders. Protecting crony-capitalists, rather than the interests of citizens, is the big issue for government.
Not that the ban has worked, except in one high-profile court case against Piggs Peak Casino. There are still dozens of casinos that offer South African punters rand-denominated games. I’d offer a link to prove my case, but I don’t want to rat on them.
The online gambling industry in SA will soon be regulated, and a limited number of licences will be issued to those operators whom the government deems deserving of running a profitable business. Anyone else will have their right to choose their profession violated. Because of the high barriers to entry, those licences will likely be snapped up by the very incumbents against which online casinos used to compete, which is exactly the sort of protectionism that was intended. It is an anti-consumer measure, removing the protection that vigorous competition offers against profiteering incumbents.
That ban won’t work either, of course. For example, local online casino operators will be burdened with stupidly complex and restrictive limits on what they can or can’t do. A punter who wins more than a certain small amount, for example, will be in violation of the regulation that disallows large balances in their gaming account. So, we’ll have a decrepit, unattractive, limited, heavily-taxed, inefficient, uncompetitive and non-innovating bunch of licence holders. Why on earth would South Africans not continue to choose supposedly “illegal” competitors who offer a better deal?
The idea of limited licences is fatally flawed on almost every level. It encourages cronyism and corruption. It discourages – and even outlaws – innovation, efficiency and competition. It creates the worst of all possible worlds, because the only thing it permits is profiteering, unbridled by the choices of customers and pressure of competitors. It is the perfect bureaucratic tool to enable mafia-style casino operators.
This principle, of issuing only a limited number of licences, has always been the cornerstone of South African business regulation. It applies in the telecommunications sector, the gaming industry, the banking sector, and a host of other industries.
If government wishes to impose regulatory conditions on the pursuit of certain professions, it can. The Bill of Rights does permit it to do so. However, it ought to do so by issuing licences to anyone who meets a set of regulatory requirements. Everyone ought to be equal before the law.
Whether or not they have a good business plan, or whether or not the market can support additional competitors, are not questions that government bureaucrats are capable of answering. Not because they are incompetent, but because the question cannot be answered. It can only be discovered, given time, by risk-taking investors seeking the business of willing customers, in competition with other capitalists who think, rightly or wrongly, that they have a better idea.
Publish (for less than extortionate fees) regulatory requirements for being a casino owner, a lottery operator, a telco, a banker, a motorcar driver, a publican, a teacher, a restaurateur or a doctor, and then write laws to declare that everyone who meets those requirements shall receive a licence, and shall retain it until and unless they commit an offence that merits forfeiting the right.
Placing a limit on the number of licences in issue is economically stupid and bureaucratically onerous. Though I am not a lawyer, it strikes me as unconstitutional.
After all, it is a constitutional right to work in whatever trade, profession or occupation you choose, not a privilege conditionally granted by bureaucrats with greased palms.
I hear you applaud. But allow me to finish. If you thought there was any chance of such a change of thinking in government, I should probably point out that the recent Lotteries Act Amendment Bill now permits an organ of state to run a national lottery. Remember when the government outlawed private couriers to carry packages under 1kg, in order to protect the inefficient, dysfunctional Post Office that has yet to deliver the postcard I sent to my parents exactly a month ago? The state will want no more competition from innovative gaming startups than the private lucky winners of lottery or casino licences will want it.
The corrupt ship of state-controlled crony-capitalist stagnation is not only slow to turn, it is turning the wrong way.
May it strike the rocks and sink, quickly. 

View original article here.

Relevant legislation:

Lotteries Act 1997
Lotteries Act Amendment Bill 2013
Constitution of the Republic of South Africa


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