Olymponomics: politics and the measurement of Olympic economic impacts

By Will Jennings, Politics & International Relations

Blog cross-posted at The Conversation.

Since the financial blowout experienced at the Montreal 1976 Olympics, economic impact assessment has been an increasingly popular tool for host governments and organizers to justify the vast expense of major events of this sort. These methodologies are not value-free, however, and are often reliant on problematic assumptions or are used to particular political and economic ends. The recent report into the legacy of London 2012 by the government and the Mayor of London exhibits some of the typical hallmarks of political use of economic impact assessments – and their tendency to put a positive spin on the economic benefits of major events despite the uncertainties involved. Indeed, some of the claims seem quite unnecessarily outlandish: for example that “so far £9.9 billion in international trade and inward investment has been won because of the Games and Games-time promotional activity.” There must be a small dose of caution about the causal relationship between the event and subsequent flows of investment – even if these were facilitated at Olympic-badged events. To put it in context, this figure is larger than any previous official/sponsored assessment of Olympic economic impacts — by a substantial margin – while the estimated £11.5 billion gross value added of the public sector funding package is also an outlier compared to other events (see Chapter 5 of Olympic Risks, Palgrave Macmillan, 2012).*

The key problems of evaluating the economic benefits of the Olympics is that it is difficult to provide counterfactuals about what would have transpired if the event had not taken place. Indeed, the background document to the report acknowledges that “…there is no counterfactual assumption related to spending the public money on anything else.” Nor is it possible to determine whether the trade and investment deals linked to Olympic-related promotions would have been secured through other channels if the Games had not taken place. London was already an iconic global city ahead of 2012, unlike many other hosts, who use the Olympics to promote themselves as a global destination – e.g. Barcelona, Sydney, Beijing. On top of this, the magnitude of the estimated gross value added to economic activity reflects the dire under-employment that existed in the aftermath of the global financial crisis – meaning that the economic modelling assumed a low level of displacement, as the Olympics absorbed spare economic capacity. The details of the report hardly makes good reading for the government, as it notes “a legacy of higher unemployment” despite the economic legacy left by the Olympics. Further, the headline figures only tell a partial story, as economic benefits – especially in terms of employment – are concentrated in London and the South East. In this respect, the impact of London 2012 has simply been to reinforce existing imbalances in the British economy – and in the economic experience of its citizens.

Even if we accept that the Olympics created long-term economic capacity, it is possible to question whether this was the optimal use of resources. Popular “input-output” methods of economic impact analysis do not differentiate between different types of economic activity, however, yet the long-term economic benefits of constructing a school or a hospital, or a train link, are quite different from those involved in building a car park or a sports venue (especially if assets are later transferred to private developers at discounted rates, removing any potential for long-term public amortization of the assets). Methods of economic impact assessment surprisingly make little meaningful distinction between gains or losses that accrue to the public and private sectors.

A final aspect of the economic impact that might be called into question is the degree to which the UK economy will see a return from its businesses positioning themselves in the market for major global event contracts as a result of their 2012 experience. Certainly since Sydney 2000 there has emerged an Olympic ‘consultocracy’ that wanders nomadically from Games to Games – selling their expertise to the highest bidder. However, most of the major firms involved in the mega-event industry are multinationals, while the individual consultocrats and trouble-shooters who are now positioned to reap the rewards of their London experience are by no means guaranteed to divert their private economic gains directly back into the UK economy (this is without venturing into the debate over global tax regimes!).

While there can be little doubt that London 2012 has had substantial economic benefits for the UK, and successful delivery of the event served to promote its reputation on the world stage, the methods of economic impact assessment are ill-equipped to deal with some of the ambiguities and uncertainties associated with mega-events and their consequences. These methodologies rarely challenge their underlying assumptions and tend to emphasise best case scenarios and headline figures, without digging deeper into the regional imbalances of the event, the flawed or exaggerated nature of some causal claims, and extraction of private economic gain from public investment – at the expense of taxpayers already battered by austerity.

*Note that there is no official estimate of the economic impact of Beijing 2008.

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