Two stories in the Toronto Star this week have left me wondering if there is a new grand strategy at work for transforming Ontario’s economy in the wake of its manufacturing decline.
Second, there was a story that funding lawsuits is growing as an investment activity and a more formal practice is emerging whereby plaintiffs with strong cases but a lack of resources can approach investment firms to pay their legal bills in return for a share of the settlement. They provide an example of the U.S. Burford Group, which invested 6 million dollars in legal fees in a case last year and then earned 10.5 million dollars as part of the payout. However, there are risks to such a strategy and as Burford Group apparently says in a report on its website, “the very best trial lawyers will acknowledge that luck and circumstance play a role here.” Of course if luck and circumstance play a role then even plaintiffs with weak cases have a fair shot. This seems to me to be another form of legalized gambling. Given the concentration of legal and investment firms in Ontario and particularly Toronto, this may also seem like another new economic growth frontier.
What is my point? If these kinds of activities are what the sovereign consumer wants to pay for, then they are forms of economic activity and will create jobs. We can go back to Mandeville’s Fable of the Bees for instruction on how vice and misery can become engines of economy. At the same time, I find all this disquieting. The Ontario government has come to derive greater amounts of revenue from gambling and lotteries and it represents a form of voluntary taxation. More serious are the lessons that are being passed on to younger generations with the creation and propagation of a “gambling culture” that is sanctioned by the state. The ethos of society seems to have changed from one where skills, hard work and entrepreneurship generate success to one where luck and chance are the road to wealth. While much of the hand we are dealt in life is luck, skills and hard work are also necessary to deal with opportunities as they come and those activities must be invested in also. Reliance on chance alone is not a stable foundation to build the future. With gambling, wealth and income are transferred from gambling losers to winners and once the tax revenues accrue to government and are spent, there is also some transfer from gamblers to non-gamblers. The question. Does this type of activity actually increase the net wealth, income and welfare of a society or is it merely a transfer from winners to losers? Is the gambling economy a zero-sum economy?
(This post was written by Livio Di Matteo.)