Levmore: Don't Sell State Lotteries

Don't privatize future by selling state lottery
Saul Levmore
Chicago Tribune
February 5, 2007

As Indiana and Illinois prepare to sell their lotteries, it is worth thinking about privatization and the selling of a long-term activity. Illinois Gov. Rod Blagojevich says the state might take an estimated $10 billion in return for the right to run and profit from a monopoly-lottery for many years in the future. Some politicians and voters want the money now, rather than over time, and some voters simply believe the private sector is more efficient and less inclined to corruption.

Who is opposed to these sales? Not future citizens who can't complain about their "missing" revenue stream. The most popular objections will come from those who dislike lotteries or governments. There is, after all, something amusing about a state's ability to give itself a monopoly in a type of gambling--and then to sell it off to the private sector.

There are some good arguments for a state-sponsored lottery, and indeed for one that does not have a thin profit margin. Even a good libertarian could say that inasmuch as the government is not coercing people to play the lottery, and there are many private alternatives for gamblers, a state lottery is not the worst of all evils. Some people might actually like playing it, and that must count for something.

Another objection to the sale of state lotteries carries over to other privatizations. The sale almost certainly locks in public policy in a way that binds future electorates and leaders. That seems ill-advised when there is little to gain over time. It is not like building a bridge, where we might say that we commit future generations to pay for it. It is much more efficient to build a bridge that lasts 50 years than to build one that lasts but four so the next administration can decide whether it wants a bridge.

We know that lotteries are controversial and that it is plausible that our successors may wish they could do away with them. A government that sells the future income stream from a lottery will likely maximize the current sales price or revenue by promising not to devalue the asset it sells after the privatization takes place. It's likely Illinois will look for more upfront cash, and therefore it will promise not to make the lottery illegal (or to compensate the buyers if it does so). It can be counted on to keep these promises for reputation or legal reasons. In this way, a sale of the lottery limits the ability of future governments to do away with the lottery. The objection, then, is that revenue-maximizing privatization locks in policies more than necessary.

The lock-in would be modest if Illinois could be as reliable in leaving the appropriate share of the sale proceeds for future governments. This is not because of intergenerational equity (don't spend it all on those lucky enough to be around when the sale takes place). It is because the saving of proceeds leaves money to compensate the private buyer in the event that future electorates decide they would prefer to do away with the lottery, or at least its monopoly position.

Even if we have no single rule to go by in order to know when the government should own something, create a monopoly or compete in an industry, it seems unlikely that we want a government to lock in future governments. Strange as it may sound, privatization should probably be reversible, especially when there is grave doubt as to whether the government should have been in the business in the first place.

Saul Levmore is dean of the University of Chicago Law School.

Copyright © 2007, Chicago Tribune

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