Economic Growth
From Gambling to Economic Growth: how a Greek goddess inspired a new model for Italy’s local development
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Is it possible to reinvigorate under-developed regions by turning the public’s penchant for gambling into a force for economic growth? That is one of the questions asked by labor policy economist Luigino Giliberto in his debut book, Athena’s Reasons (currently offered in Italian). The book details a model of regional economic growth that aims to reinvigorate Italy’s less developed areas, inspired by the ancient Greek goddess Athena.
In the author’s own words, “Strange, perhaps, for a book that intends to deal with economic issues to bring Greek mythology into question.” He continues:
“Certainly, it was not my intention to disturb the Gods of Olympus except that, absentmindedly reopening a booklet on Greek mythology, I once again came across the myth of Athena after about thirty years…The rereading of this myth and this very original Goddess made me reflect on the qualities and characteristics that every healthy society should possess to guarantee balanced and constant progress over time.”
According to Giliberto, for some years now there has been debate in Italy about the need to undertake new models of territorial development. To that end, the book hypothesizes a desirable “cultural conversion”.
By encouraging local citizens to invest even small sums of their money into local development rather than gambling with it, economic growth could be stimulated. Further, citizens would become more aware of the businesses and economic details of their region, increasing civic involvement.
Image credit: Pixabay.
The Athena Model: regional development via local stock exchanges
Giliberto notes that research has shown that at a certain point, increasing wealth no longer increases happiness. But that doesn’t mean that development isn’t a worthy goal, particularly in areas where the local economy has declined.
And, Giliberto asserts that this model of development could serve two purposes: not only economic development, but also fostering cultural growth by better serving under-developed areas. He writes:
“On the one hand, new theoretical approaches to well-being tend to demonstrate that it is necessary to review traditional models of development.
In the case of my book, the intention is to reverse a cultural trend...Often, parts of the local population are abandoned to intellectual isolation, which also leads to forms of addiction [such as] gambling, alcohol and drugs...Perhaps the time has come to involve citizens in participating in the development and progress of local communities…not only from an economic point of view.”
To facilitate such a transformation, the author proposes creating “a circuit of small local investment exchanges governed as ‘game firm’ systems…managed online”. This would involve the creation of small stock exchanges that local residents could invest in. But these wouldn’t be typical stock exchanges, nor would they be tied into existing larger-scale exchanges.
Instead, these exchanges would be set up by regional government bodies and open to participation by local companies and residents. Local firms would release details of specific investment projects they’d like to undertake, rather than simply releasing ownership shares of their company. Local investors would then be choosing not only a company, but also betting on whichever investment projects seemed most promising.
Image credit: DC Studio on Freepik.
The author envisions providing key details about businesses’ operations, including classic financial report cards, to help local citizens place their “bets” into specific investment project details. The author also mentions creating simple information sheets with details about the businesses, their products created, the amount of workers they employ and their average turnover, and details on the planned investments that the companies would actually use the money for.
“This information should be able to guide citizens in their virtuous bets…In fact, every local company that intends to make its own investment puts it up for auction for a share it deems appropriate, and on the basis of the information prepared on it by a local online rating, every citizen can decide to invest their money...The repayment plans would be on a quarterly, half-yearly or annual basis, depending on the size of the investment…[this] could generate a widespread system of territorial investments and an increase in business support infrastructure. Part of the shares invested in incentives will, in fact, flow into a dedicated fund for territorial infrastructure.”
There’s some consumer behavior logic in this proposal; investing in stocks is quite similar to gambling in some respects. The investor puts in money to back a certain individual or event that they expect will perform well, accepting some risk. However, in this case, both the “gambler” and the business being “gambled” upon stand to directly benefit. That is, rather than a winner-take-all approach as with traditional gambling, investing in local firms instead can generate income that benefits both parties. Perhaps, then, there’s ample room to turn a penchant for traditional gambling into a healthier form, putting money towards productive uses.
Giliberto dubs this the “Athena Model”, inspired by his reconnection with the goddess of wisdom’s philosophies.
The author suggests that taxes would likely be needed to help set up and run the infrastructure, which don’t have to be large but nevertheless may impose some deadweight loss. Giliberto suggests, however, that citizens who partake in the system could even be incentivized through tax credits – which may help get around that particular issue:
“Local administrations would also take care of increasing this local financial circuit by dedicating small percentages of local taxes to the financing of functional infrastructure works, which in turn may serve local businesses. This also guarantees small amounts of return from investments made through tax microcredits to citizens.”
If such a system were to succeed in helping regions develop economically, the initial tax burden could even pay for itself in the medium-to-long run. As the region develops, and businesses thrive, more income would be generated – leading to higher future tax revenues for the local and national government.
Challenges to success
Of course, there are a number of challenges that could hinder such a system from paying off. Incentives and the information provided to local residents must be carefully chosen such that productivity is incentivized and rewarded, while “cooking the books” is heavily discouraged. Businesses must be held accountable; investment projects they receive funding for must be attempted, for example.
Giliberto’s model also presumes that there is enough income (and businesses with ambition) in a given region to support this type of system in the first place.
And, local residents must be willing to invest more time into this “quasi-gambling” than they normally would. After all, many gamblers simply rely on the knowledge they’ve gained through personal experience to place their bets.
In a theoretical online stock exchange system, these same residents likely would at least need to learn about the other investment options before betting on their favorite local winery. And, if the primary draw of gambling for individuals is entertainment, not the chance to make money, the local exchanges may fail to draw enough interest in the first place – the harsh reality is that betting on a game of football is probably more entertaining to gamblers than betting on a cafe’s future success.
However, even ignoring the possible side effect of shifting gambling tendencies from “wasteful” private operations into productive public investments, this Athena Model has potential.
Overall, the effect of the citizen's investment behavior would support local businesses, hopefully increasing economic development and eventually creating new job opportunities and generating an increase in income and consumer spending.
Giliberto concludes:
“Is all this utopia?...the word utopia…literally means "no-place", a place that does not exist...it is necessary for our country to draw lessons from the past, establishing, as other European countries have done, mission task forces to ensure that the [Recovery] funds are used promptly and fully.”
Such a model, well-constructed, could very well prove to be up to the task. What do you think? Feel free to discourse with us in the comments!
References
1: https://www.statista.com/topics/4032/gambling-industry-in-italy/
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