Scientific Game

Backwards Into the Future

Casinos could do wonders for Japan’s ailing economy, but getting to a consensus on how to take that forward is proving difficult among a political leadership that cannot agree on what has gone before

Wednesday, 16 January 2013 14:39
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Casino advocates in Japan have been waiting 10 years for a law to bring resort-scale gambling to the world’s third-largest economy. Analysts can barely contain their enthusiasm when they ponder the reception that thousands of slot machines and roulette wheels and baccarat tables are likely to get from what is arguably, for its considerable size, still the wealthiest country per person in the East.

They’re still waiting.

But there’s a word for this in the Land of the Rising Sun—nemawashi—whose literal rendering suggests a “going around the roots,” as in preparing a tree for transplanting. The equivalent in English would be along the lines of “laying the groundwork” or “building consensus”. It describes a largely informal but critical element of the process of legislating major social or economic change in Japan. Usually conducted behind the scenes, nemawashi can be a long and painstaking affair, as anyone even remotely familiar with the inherent conservatism of Japanese culture and its famously fractious politics might expect, and as the casino camp, which has numbered some fairly powerful individuals over the years, knows only too well.

Not that anyone’s bolting from the table in frustration. Estimates of the industry’s money-making potential are too enticing.

Going back to 2002 and the birth of the casino lobby in Japan, there was a study commissioned by Tokyo’s government that said a casino with a hotel and other attractions, one capable of attracting2.25 million people a year, would generate US$642.6 million and employ 4,000 people. Within a few years the movement had signed on a bona fide player, Takeshi Iwaya, a high-profile lawmaker of the dominant Liberal Democratic Party who had served in the  government of Yoshiro Mori in 2000-2001 and under Shinzo Abeduring the current LDP leader’s ill-fated first crack at power in 2006- 07. The discussion soon coalesced around a full-blown “integrated resort” model—10 or more of them strategically located in major cities and places that stood to benefit from the perceived boost in tourism. “The idea isn’t just to build casinos,” an aide to Mr Iwaya said at the time, “but to develop huge entertainment complexes that include shops, restaurants and theaters to give tourists and business people something to do, apart from seeing all of the usual historical and cultural sites of course.”

Considered in this light, casinos were held out as part of the solution to the country’s protracted economic malaise—a “must have element for Japan to shine as a global tourist destination,” said Shigeki Sato, a lawmaker with the conservative, LDP-aligned New Komeito Party.

By 2006 or so, dozens of local government leaders were reported to be on board, among them Tokyo’s nationalist firebrand Shintaro Ishihara, and the projections for a 1,000-room resort casino in the capital city had swelled to US$2 billion-plus in annual revenues and 10,000 jobs. Nationally, the industry could be worth $44 billion a year, said a study conducted by the Osaka University of Commerce.

shintaro ishihara
Shintaro Ishihara—casino supporter, hero of the radical Right

By 2010, a cross-party coalition was at work on a legalization bill for introduction in the National Diet. Led by Mr Iwaya and Issei Koga, an apparatchik of the then-ruling Democratic Party of Japan, they called themselves the “Diet Member Alliance for Promotion of Integrated Resorts with Casinos” and at times the “General Assembly of International Sightseeing Industry Development Diet Member Association”. Another hero of the new nationalism, Osaka Mayor Toru Hashimoto, who would go on to found the far-Right. Japan Restoration Party, threw his support behind the effort, proclaiming, “Building casinos before taxation is my belief. Japan needs casinos and Osaka welcomes casino operators with open arms.”

Every year since, leaders of the coalition have predicted the bill’s imminent introduction in the House of Representatives, the Diet’s more powerful lower chamber. But with eight prime ministers having come and gone since that first Tokyo study—six in the last five years—nemawashi has proven rather more elusive than the casino lobby thought. Economist and academic Kazuaki Sasaki made note of the problem back in 2010: “It all depends on political stability,” he said. “Things have been too rocky to pass significant laws like this.”

Estimates of the size and strength of the coalition are hard to come by, perhaps no more than 20 or 25 committed House members. Legalization is nowhere mentioned in the policy platforms of the major parties, and given the social and political sensitivities, it’s probably far down on what is a very busy legislative agenda. Their landslide victory in the December elections now a matter of history, Mr Abe and the LDP basically have until this summer’s elections in the upper House of Councillors, which is still controlled by the DPJ, to show how they intend to cure the economy of chronic stagnation, deflation, declining exports, a population that’s shrinking as fast as it’s aging, and crippling public debt. The northeast must be rebuilt in the aftermath of the earthquake and tsunami that took 15,800 lives and destroyed 125,000 buildings. China has roared past as the world’s second-largest economy. Voters are confused, skeptical, fearful of the future, their vaunted Nipponese pride increasingly susceptible to extremists promising solutions in the form of national assertiveness and a return to “traditional values”.

The ‘Biggest IR Nation’

There is an ancient expression to describe a samurai who has fallen from virtue—nomu, utsu, kau, it goes—“liquor, gambling, womanizing”. Yet, it’s not as if no one places a bet in Japan. The country is awash with it: legal horseracing, bicycle and boat races, a national lottery, a US$320 billion-plus industry when you throw in some 4.6 million pachinko and pachi slot machines—which are defined as a “speculative pastime” in government guidelines, amusement rather than gambling games because technically they’re played for prizes, not cash.

The annual tax haul from all this exceeds US$80 billion.

Investment bankers CLSA Asia-Pacific Markets calculates the country’s per capita spend on games of chance at US$200 a year, less than Singapore (which has a population 25 times smaller) but greater than either the United States or Macau. Some 18 million people regularly play pachinko, according to the non-profit Japan Productivity Center, an economic development think-tank. That’s 28% of the population over 15 years of age. There are more than 12,000 arcades, which CLSA estimates generate $25 billion a year in revenue, implying a total spend on the popular pinball-like devices in the realm of $250 billion. “Japan spends as much on pachinkos as others spend on full-scale IRs with both slots and tables,” the firm enthused in a report last year.

It’s not only Japan’s fondness for pouring money into electronic gadgets to see what comes out that has the world’s casino operators so enthralled with the market’s potential. The country is home to five of the 25 most-visited theme parks in the world. Two of them, Tokyo’s Disneyland and Disney Sea, are in the top five. The ticket prices they command are the highest in Asia, and still the Japanese, when they’re there, spend more on average, even more than Americans, relative to what they spend to get inside. CLSA also notes that Tokyo, the largest municipal market for conventions on the continent, remains attractively undersupplied for space compared with Hong Kong and Macau.

“In light of Macau and Singapore’s success,” the firm said, “we believe the Japanese market offers huge potential to become the biggest IR nation globally.”

So what’s the problem? Well, take your pick. Start with 1.5 million problem and pathological gamblers. That was the estimate back in 2006, the year a couple was arrested when their 2-month-old son died of heatstroke and dehydration after being locked inside a car for five hours while mommy and daddy played pachinko. Then again, no one’s really counting. And very little by way of treatment is available for those who have been identified. As one social worker told The Guardian, “Japan already has a huge gambling problem.”

Concerns about social corrosion extend to the political establishment, periodically rocked as it seems to be by one high profile scandal or another. In 2011, a former chairman of Daio, a leading paper manufacturer, a scion of the country’s revered corporate hierarchy, was accused of “borrowing” more than 5.5 billion yen from subsidiaries to fund jaunts to casinos around the world. The hallowed sport of sumo, one of those reliquaries of “traditional values,” has been shaken by revelations that wrestlers were gambling illegally on baseball in cahoots with members of the yakuza, the feared Japanese mafia. Some ascribe officialdom’s aversion to casinos to clashes dating back to the 18th century between authorities and organized gambling gangs known as bakuto, forerunners of the yakuza. In 2000, Mr Abe’s home and political headquarters were firebombed by men later identified as members of a crime syndicate. The instigator, a real estate broker, reportedly was angry over an expected political payoff that failed to materialize. It wasn’t until Mr Abe became prime minister seven years later that the attackers were brought to justice.

Then there is the problem of what happens to the existing gambling establishment, namely the massive pachinko industry, should a level of legislative reform commensurate with the needs of a large-scale casino industry actually gain traction. Pachinko provides some 300,000 jobs in operations, services and manufacturing, according to the Japan Productivity Center. Its payoffs to police are legendary. The same for the politicians whose tacit support it has enjoyed for years. As Inside Asian Gaming reported in spring of 2011:“It all adds up to the fact there is a public perception in Japan that any campaign in support of casino gaming is actually an attack on the pachinko industry and therefore de facto a campaign in support of political reform and reform of political funding. That’s a much bigger issue and far hotter topic within Japan than even the social utility of gambling as a legally sanctioned activity.”

To move casinos closer to reality, then, the impetus will likely have to come from below, from influential local government leaders anxious to grab a share of Asia’s tourism boom and the economic spinoffs it promises. This is something that has eluded Japan in recent years relative to its neighbors, hampered in part by an expensive yen. Inbound tourism hit 8.3 million in 2010, a record, but it was only a 3% increase year on year and it left the country ranked only 30th in the world as a destination. And it was considerably below Macau’s 25 million and Singapore’s 11.6 million, where travelers from mainland China figure prominently. The PRC is the second-largest source of visitation to Singapore, where its numbers have been growing at annual rates of 30%, and it’s nudging steadily toward 60% of total visitation to Macau. Prior to March 2011, Japan was the fastest growing destination for Chinese travelers (after Taiwan and the United States). But that changed after the tsunami and the nuclear disaster at Fukushima. Visitation plunged across the board to 6.2 million, a 28% decline. In July 2011, the government began issuing multiple-entry visas to Chinese travelers good for up to 90 days, but these came with income requirements and other conditions, like a mandatory one-night stopover in Okinawa. In any event, the scheme did little to offset an erosion of sentiment between the two peoples over a number of issues, among them a heated territorial dispute over a chain of uninhabited islands in the East China Sea and the strident revisionism emanating from Japan in recent years relating to the atrocities committed by its armed forces in China in the last century. While Macau saw a 22% increase in visitation from the PRC in 2011 and Singapore 34%, the percentage drop in Chinese visits to Japan stood at 40% through most of the year, ending at a decline of 26%. Visitation from South Korea, the largest source of inbound tourism, was down 32% in 2011, also amid rising tensions between the two governments, fed by conflicting claims of sovereignty over islands that lie between the two countries and by inflammatory rhetoric from Japanese leaders on the issue of the “comfort women,” the thousands of Korean women forced to the front during the Second World War to serve the Japanese Imperial Army as sex slaves.

In light of which, there is a lot to be said for the belief that casino legalization would go a long way toward getting Japan to the ambitious goal the national government has set of 25 million  inbound tourists annually by 2020. CLSA believes a Tokyo IR will draw5 million foreign players contributing US$670 million, amounting to more than 13% of projected revenues of $5 billion. “Should IRs be introduced in Japan, the growth potential for the nation’s tourism industry is significant, especially as it relates to Chinese tourists,” the firm said in its 2012 report.

Where popular sentiment is leaning remains uncertain, however. A 2011 survey by two newspapers purported to show 60% support for legalization. Yet, a poll conducted in December of that year by business magazine Toyo Keizai found only 40% in favor and 47% opposed. CLSA said its own survey uncovered support from 43% of 600 respondents for a large IR, and only 20% opposed (but with a sizable contingent, 37%, professing to be undecided).

Fixing History

The talk of a legalization bill the last two years has drawn to Japan a procession of the industry’s high and mighty: MGM Resorts International, Wynn Resorts, Genting Singapore, Penn National Gaming, Caesars Entertainment boss Gary Loveman, who came to preach to the choir in September 2011, and Las Vegas Sands Chairman Sheldon Adelson, who journeyed to Tokyo last February to deliver a speech on “The Economic Benefits of Integrated Resort Development”.

Of the politicians who have appeared at these events or who have otherwise made their support known, at least eight currently are sitting members of the House of Representatives. Their number prominently includes Shintaro Ishihara, who resigned as governor of Tokyo to enter the Diet last month. A champion of Japanese racial and ethnic purity, he adheres to the line taken by many politicians in opposing immigration as a solution to the country’s population dilemma. More infamously, he is known for belittling the 1937 “Rape of Nanking” as fiction and for offering to end the dispute with China over the Senkaku Islands (the Diaoyus, as they’re known in China) by having Tokyo buy them. He has suggested that the 2011 earthquake and tsunami were punishment from heaven for Japanese “materialism” and “greed”. He has merged his happily named Sunrise Party (the literal translation is the more ominous “Rise Up, Japan!”) into Toru Hashimoto of Osaka’s Japan Restoration Party. Mr Hashimoto, a lawyer and former TV personality, an outspoken casino supporter, also denies the documented existence of the “comfort women” and advocates a national referendum on the clause in the Constitution renouncing war. Combined, their scary mix of nationalism, populism, social conservatism and disdain for democratic niceties picked up 43 seats in the December elections. They now hold 54 seats, only three fewer than the battered DPJ.

Two others in the pro-casino camp, the LDP’s Toshimitu Motegi and Hakubun Shimomura, were given key posts in Mr Abe’s new government. Mr Motegi is Economy, Trade and Industry secretary, Mr Shimomura secretary of Education, Culture, Sports, Science and Technology.

It’s a cabinet of “radical nationalists,” as The Economist describes it, 14 of its members belonging to the League for Going to Worship Together at Yasakuni, a controversial shrine commemorating executed war criminals. Thirteen support an influential group called Nihon Kaigi, which advocates a return to “traditional values” and rejects what it calls “apology diplomacy”.

Mr Shimomura is an apt choice for this government. An advocate of scrapping the 1995 “Murayama statement” expressing remorse for the country’s wartime misdeeds, he wants to annul the verdicts of the 1946-48 International Military Tribunal for the Far East against the honored dead at Yasakuni, and he is likely to continue a process already under way of rewriting the country’s militarist past as it is taught to schoolchildren. This is a movement also supported by Mr Abe, who has said that those sentenced to death by the ’46-’48 tribunal were not war criminals in the eyes of Japanese law. He is a former leader of the revisionist Japanese Society of History Textbook Reform. His maternal grandfather, who was prime minister from 1957-60, spent time in prison for his service in the Tojo government during World War II.

12

Arguments over the country’s problematic past were a recurring theme in the fiasco of Mr Abe’s 2006-07 stint as prime minister, which lasted all of 365 days. He cannot have forgotten the damage they caused. Certainly, ordinary Japanese have not. While he is described by the BBC as “far more right wing than most of his predecessors,” he knows the victory that delivered the LDP and its New Komeito partners a solid 325-seat majority in the House of Representatives last month has more to do with the ineptitude displayed by the DPJ the last three years than with any abiding faith in the LDP’s ability to fix the economy, which is laboring in the throes of its third recession in five years. But this is the task confronting him, and alienating the country’s largest trading partner and a critical source of inbound tourism is not going to get him there. Then again, maybe for the average Chinese a fun-filled holiday in Tokyo with a bit of baccarat on the side is more meaningful than redressing historical wrongs that are fast disappearing into antiquity, leaving fewer and fewer citizens of either country with any personal memory of them.

Mr Abe has not advanced an opinion on casino legalization one way or the other. That doesn’t mean he isn’t aware of the contribution the industry can make to an economic revival. Assuming he’s harboring no illusions about the enormity of the challenges he faces, he must know that mapping a successful future for the country will not be accomplished by dithering over how to reinvent its past.

As it stands, the political realities appear to have whittled the casino question down to two venues, one in Tokyo, one in Osaka. Investment analysts Union Gaming Research Macau speculate that licenses for smaller operations could be dangled before economically challenged areas like Okinawa or popular holiday destinations like Hokkaido in exchange for broader backing of an IR bill in the House of Representatives. But even confined to Tokyo and Osaka the revenue potential could amount to a combined US$10 billion, implying a tax windfall of upwards of $2.5 billion and a return on investment of 20%, sufficient in CLSA’s view to justify $7 billion-$8 billion in capital outlay per resort.

Should the economy show enough improvement in the first half to win the upper house for the LDP and present Mr Abe with an almost unassailable mandate, this could move a whole lot closer to reality, and sooner rather than later.

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