Basic freedom issue: ending state monopoly and opening games and lotteries market

For some decades, Brazil has been living in the dilemma of the so-called legalization of the gaming sector. A few dozen bills have already been tabled and some are still under discussion in Congress.

Before the approach, some premises need to be clarified.

1. Gaming in Brazil is not prohibited

The ban on gambling in the country is directed only at private initiative. The Criminal Offenses Act prohibits gambling managed by private initiative.

Lottery games are allowed, provided that under the monopoly of both the federal government (via Caixa Econômica Federal) and state governments (the Loterj is the most famous). As the old liberal broadside says, "the state hates competition."

The reality, however, is that almost all lottery games (badly) operated by Caixa Econômica Federal are games of chance, under the terms in which the Contraventions Law defines: games in which the outcome depends solely or predominantly on luck.

That is, in practice, there is no ban on gambling in Brazil, but rather a state monopoly of gambling. Perhaps here we have a part of the explanation of the reason for not opening the legislation of the activity in the country: the state hates the competition.

2. The existence of state lotteries has been repeatedly restricted since Decree Law 204/67 to the - legally questionable - Binding Summary 2 of the Federal Supreme Court.

In practice, therefore, also in the gaming sector, the federative model provided in the Federal Constitution does not apply. Only the Union legislates on "consortia and draws" - which, for the STF, are synonymous with games and lotteries.

Today, there are only four state lotteries in operation: LOTERJ, LEMG, LOTEP and LOTECE. The other state lotteries abolished were occupied by capitalization, escrow or insurance winnings with draws backed by the Federal Lottery.

That is to say, our "federative" system considers licit a federal game of chance and illegal the same game exploited by the lotteries of the States. Our federation is definitely a "facade".

3. By a definition of the legislation of the 1930s of the last century (Decree No. 21,143, dated March 10, 1932), lottery activity is a "public service" (Article 20).

Although research into the canons of public service theory does not give us any succor to this definition, the fact is that it is so defined. However, it is a typical economic activity and should be subject to the constitutional principles of market economy, free competition, freedom of initiative and private property. Being repetitive, the government hates competition.

What can be done

That said, let us return to attempts to expand the right to exploit gaming in Brazil. Already characterized the federal monopoly of games and lotteries, some many misunderstandings within government agencies (here used the term broadly) have been permanent. The lesson of sociologist Max Weber is useful: bureaucratic strata tend to set their standards, regardless of state and government.

Stable bureaucracy tends to become autonomous from the state that created it and from other "competing" agencies. They assume their own interests, aimed at their survival as a state caste. Here, should be mentioned Caixa (state monopoly bank), the Federal Revenue Service, the Ministry of Finance, the Public Prosecutor's Office, and other agencies that exist that already existed.

In this institutional context, it is no wonder that the projects of "legalization" of the activity are contaminated by these evils of origin: the state dirigisme is a confrontation between public agencies by the regulatory protagonism.

Here's how it happens

Discussions regarding details that relate to the logic of the market are brought to the National Congress. There, one looks for extremely detailed legislation to order the private gaming, in a continental country with a formal federative structure. To give an example: we discuss the regulation of a casino-resort model to be adopted throughout Brazil, specifying the minimum of rooms and places for entertainment and leisure.

How does this have a chance to work in this immense country? It would be reasonable if each state of the federation opted for its formula of regulation.

The old and good market logic must be applied to an industry that naturally has competition and will not - and should not even - have access to public money financing. We are talking about private money managed and operated by private entities.

Thus, a proposal of "regulation" for private gambling in Brazil must be minimal: impose the minimum and let private agents take care of generating income, employment and taxes. After all, how could a "capitalist shock" be applied to this regulated, monopoly and state market?

A regulation aimed at liberating the productive forces to work would require only four norms:

a) the repeal of Decree-Law no. 9.215 of April 30, 1946, which supposed to abolish gaming in Brazil for being "degrading" for the human being;

b) the repeal of articles 50 to 58 of Decree-Law No. 3688 of October 3, 1941 (Criminal Offenses Act);

c) recognition of the economic activity status of the gaming activity, overcoming the extravagant classification of "public service"; and

d) delegation to the states to regulate the activity within their territories. That is genuine federalism.

This formula can overcome the excess of preciosity suffered by the bills presented so far and will certainly begin to bear immediate fruits in terms of income creation and jobs (is not that what the government wants?), allowing companies, submitted to the principles of economic activity, adapt much more easily to the socio-cultural specificities of each region of the country.

Conclusion

The gaming sector is an economic activity like any other: they involve risks and there are both chances of gain and loss. Are they no more risky than opening a bakery, a beauty salon (is there any guarantee of success in these ventures?) or applying short-term money on the stock exchange?

Above all, absolutely no one is obliged to participate. Only play who wants. Prohibiting people from gambling (which means prohibiting them from making money), apart from being a paternalism, is a violation of the most basic freedom of the individual.

Source: GMB/ Mises Brasil