Scientific Game

Taking on the Jet Set

Macau’s leaders may be motivated more by anxiety than malice in their attitudes toward casino operators

Friday, 01 October 2010 16:25
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Is the Macau government being deliberately difficult with its casino operator guests? The question arises because everywhere one looks in the realm of public policy, the government seems to be placing obstacles in the path of the operators rather than smoothing the way for them.

The two obvious examples are Macau’s restrictive policy on labour importation for the new Cotai resorts being built by Galaxy Entertainment Group and Sands China, and the cap on the number of live tables allowed in the market between now and the end of 2012.

All kinds of elaborate theories have been advanced regarding the attitude of Beijing and Macau to development of the gaming sector in Macau, and where the labour and table cap policies might fit in that scenario. Could a simpler explanation be that Macau’s leaders are motivated by fear of losing control of their community to foreign commercial interests? It happened in China on a grand scale in the 19th century, and modern Chinese are well aware of that bitter lesson.

Consider the following proposition in relation to the modern situation. The leaders of several of the major public gaming companies based in Las Vegas probably have more leadership experience and access to more legal brainpower than their counterparts on the Macau government side. To the best of Inside Asian Gaming’s knowledge, the current Macau Chief Executive Chui Sai On doesn’t regularly fly around in a private jet. Even in sovereign nations such as the United States and the countries of the European Union, powerful business leaders can give national governments the runaround. So why would Macau, with its new, relatively inexperienced civil administration, want to compete with big business on its own terms?

Decrees decried

Macau has legally regulated aspects of its gaming industry, such as the control of junkets. But in terms of administrative policy on broader policy issues, the Macau market is controlled by decrees issued by the territory’s Chief Executive, with policy advice provided the Executive Council, made up of the main departmental secretaries. The Legislative Assembly does have some lively debates widely reported by an active local media. But with a hybrid electoral system based partly on direct suffrage, but mostly by election of lawmakers via so-called functional constituencies (a sort of ‘butcher, baker, candlestick maker’ approach to representative government), the lawmaking body tends to rubber stamp decisions coming from the CE’s office.

If loss of control to international commercial interests is what Macau’s current community leaders fear most, then what incentive is there for those leaders to set up a Western-style system for policy formulation and regulation of the gaming industry? Setting up such a transparent system based on Western norms would arguably play to the very strengths of Western corporate business. Any operator wishing to challenge a government policy or ruling made under such a Western-style system would be able to bring to bear all the firepower of their best lawyers to blast away at the local system in the manner of the 19th and 20th century foreign gunboats that pounded rebellious settlements along China’s rivers.

By that reading, it’s better for Macau to keep things loose and fluid in policy terms, and keep its foreign guest companies guessing. Not having a predictable policy and running things in a seemingly ad hoc manner might actually be a policy in its own right.

Table cap

Take the Macau government’s decision to cap at 5,500 the number of live gaming tables in the market between now and the end of 2012. Gaming industry analysts have amused themselves by pointing to apparent inconsistencies in the government’s position. An example is that Galaxy, the developer of the US$1.8 billion Galaxy Macau, and Sands China, the company behind the S$4.2 billion Cotai 5 and 6 project, when questioned separately on the table cap issue by the media and analysts, swear blind they’ve each been promised 400 live tables by the government for the first phases of their respective projects. Given that both projects are due to be completed well before the end of 2012, and that honouring such reported promises would mean the government breaking its own cap almost before the policy kicks in, some Westerners have developed the view that the local government is frustratingly ad hoc, and even amateurish. One senior gaming executive, in a moment of frustration, reportedly even referred to being “sick of village politics” in relation to apparent twists and turns in Macau public policy.

That may be missing the point. It’s possible the Macau government doesn’t want to clone Western bureaucratic ways of forming public policy. It may prefer instead to keep the casino operators under personal obligation to the government, rather than having a merely contractual relationship with them. Under an informal system of obligation, good behaviour by the operator over a particular issue (say hiring locals) may get a reward from the government in the form say of flexibility over the table cap. Such an approach has echoes of the personalised patronage system used by China’s emperors.

A society constructed around carefully ordered hierarchies, where each layer has responsibilities to the other, is a much more Chinese concept than the irreverent, meritocratic Western system of thought, which tends to value innovation in ideas and the questioning of received wisdom—even on occasion condoning challenges upon the most revered community leaders. Sheldon Adelson specifically said in the presence of this correspondent, that his goal was to challenge existing business models in his chosen industry. It was, he said, “the surest way” to make money. Contrast that with Stanley Ho’s approach, which is to create a system of patronage within the SJM sphere of influence where Dr Ho gives junket operators and smaller casino developers something—namely access to his gaming licence and on occasion his gaming management system and people. In return, the junkets and smaller casinos give him something—access to high roller players and support where necessary to the SJM ‘family.’

Singapore’s approach

Singapore, by contrast, although also influenced by Confucian social ideas via its Chinese majority population, can also use a Western-style system of corporate governance and administrative regulation for its casino industry; tested, if necessary, via the courts. That’s because Singapore has world-class government in terms of the skills held by its public servants and lawmakers. Singapore can match any clever Las Vegas lawyer contract for contract and clause for clause. Macau doesn’t have government with that level of sophistication. A boxer fighting at flyweight doesn’t move up to light middleweight after a handful of bouts—unless that boxer is called Manny Pacquiao. And Macau is never going to set up an administrative system for its gaming industry that could end up, from the government’s perspective, out of its control.

As an example of the government’s desire to keep ‘in control,’ let’s look at the issue of the labour squeeze that is delaying the construction of two major casino projects on Cotai—Galaxy Macau and Sands China’s Cotai 5 and 6 plots. The Macau government has been accused in many quarters of not being supportive enough of the gaming industry, considering the investment the industry is making and the jobs it is creating.

The government is currently insisting that one local person should be employed in the building work for every migrant hired. The projects between them need thousands of people on site at any one time and the unemployment rate in Macau in the June to August period was only 2.9% according to Macau’s Statistics and Census Service. Viewed from the perspective of a public gaming company committed to massive capital investment, and under commercial  pressure to pay off debt, Macau’s insistence on the one-for-one policy looks at best arbitrary and at worse irrational. Viewed, however, from the perspective of local politics and local culture, it makes considerable sense.

Confucian contract

When Macau’s low skilled, middle-aged unemployed protest on the streets about Macau allowing too many migrant workers in on the casino projects, they are being somewhat bloody-minded, but not inconsistently so. They are arguably calling on the community leadership to honour its side of a Confucian social contract most Westerners may not even be aware of.

Confucianism, with its emphasis on social harmony, isn’t just about hierarchy and knowing one’s place. Rather like feudalism in mediaeval Europe, the system depends on mutuality and a personal relationship between social classes. By that reading, the rulers of Macau must exercise their Confucian responsibilities and listen to the grievances of the people at the bottom of the system, not simply refer those complaints over things like labour hiring policies to a civil servant or a court.

Nationalism, or at least assertion of Chinese national identity, might also play a role in this situation. China has seen just what a negative effect unrestrained activity by multinational companies has had in parts of Africa and South America. On those continents businesses have on occasion become either more powerful than the state, or at least a serious rival to it.

Lessons learned

There are also historical precedents closer to home regarding the dangers of allowing foreign commercial interests to gain too much control over Chinese society—and not just in Macau and Hong Kong, former possessions of  western powers. Prior to the final collapse of the Qing dynasty in 1917, China had been nibbled away at its edges by repeated foreign encroachment. This encroachment became so pervasive that from the mid-19th century to the early 20th century, just about every major Western power had a trading outpost in China that was in effect a mini-colony immune from Chinese laws. The British set the trend for this with the Treaty of Nanking (modern-day Nanjing) in 1842. While the most famous provision of this document was the ceding by the Chinese emperor of the island of Hong Kong, an equally important provision was the introduction of the concept of ‘extraterritoriality’. This long word describes a fairly straight forward concept, namely that British nationals in China would be immune from Chinese law. The psychological impact of this and subsequent national humiliations on China from the so-called ‘Unequal Treaties’ should not be underestimated when Westerners seek to understand modern Chinese attitudes to international investment.

As a Chinese acquaintance close to one of the most prominent community leaders in Macau recently told this correspondent: “We Chinese are very respectful toward foreigners and a little bit scared of them too. So when a foreigner starts lecturing us on how to do things, it hurts.”

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