PROHIBITION destroyed America's once-robust brewing industry, made smugglers rich and did nothing to curb drinking. Outlawing drugs has been a similarly spectacular failure. There is little reason to suppose that the latest line in American prohibition—an effort to ban online gambling—will fare any better.
In 2006 Congress passed the Unlawful Internet Gaming Enforcement Act, which made it illegal for financial institutions to transfer funds between punters and online-gambling sites. Some companies promptly pulled out of the American market. But others stepped in, and the opportunities to bet online have expanded elsewhere in the world. So, after a brief dip, Americans are now betting online about as much as they did four years ago. The Justice Department still maintains that online gambling is illegal, yet large numbers of Americans carry on regardless. The reason is simple: anyone who wants to gamble and has an internet connection can do so.
And plainly many people do want to gamble. In 2009 the legal gambling market totalled $335 billion globally. Nearly two-thirds of that came from lotteries and casinos. Gambling in casinos is growing fast in East Asia, particularly Macau, the world's biggest market. As our special report explains, online gambling remains relatively small (just over $25 billion in 2009), but, as with so many online industries, it is hugely disruptive to both business and policy. Horseracing is one likely casualty. It will not disappear entirely—it still accounts for over 7% of the global gambling market, and attendance at marquee events like the Grand National and the Kentucky Derby remains strong—but it boomed when it was virtually the only legal form of gambling available, and a cut of the bets went to sustain the industry. Now that other forms of betting abound, racing inevitably suffers.
A desire to protect existing businesses from such disruption is one motive for banning online betting: Vegas knows how to protect its turf. Another motive is more high-minded: the urge, as with drink and drugs, to protect humans from their own nature, by outlawing a potentially addictive activity. But is regulated gambling really worse than forcing it underground?
Online gambling is legal, taxed and regulated in Britain. Whereas American punters must rely on arcane payment systems and companies located offshore, British punters are safer. Companies have an incentive to keep minors from betting and to operate transparently. Elsewhere in Europe there are signs of market-opening—even in France, which has long protected its national racing and lottery monopolies.
As for the disruption from online gambling, it can prove highly creative. Since online poker debuted in the late 1990s, poker has grown from a niche game with a rather louche reputation to a booming one, rightfully respected for the mental agility and improvisation it requires. Businesses such as Playtech create gambling software that other firms can then brand and operate. Betting exchanges operate somewhat like an eBay for betting, allowing punters to offer odds and then matching them with takers. Even slot machines, the least clever form of gambling, increasingly rely on new software.
Many still dislike the idea of governments encouraging citizens to gamble. Yet regulating something is not the same as encouraging it. Better to treat gambling in the same way as smoking: legalise it but make the casinos display the often-dismal odds of success (one in 176m, if you hope to win America's richest lottery) in the same way that cigarette packets warn you about cancer. That would favour games of skill over the mindlessness of slot machines. People always will bet. Better that they do so in a legal market—and know the form.