Thread: Caught under a mountain of Olympic debt

Caught under a mountain of Olympic debt


By Victor Matheson
August 22, 2008



FOR THE past two weeks, the world's attention has been focused on China, and the country has used the Olympic Games as an opportunity to announce its arrival as a major political and economic power. At a cost of $40 billion, however, the Beijing Olympics represent the most expensive coming-out party in history, and the question remains whether China will earn a decent return on its investment.

Despite their success on the playing fields, the event has been an economic disaster for the Chinese. The anticipated influx of tourists has not materialized, and despite "selling every ticket" many venues are half full. Indeed, Beijing's tourism bureau predicts that the total number of visitors to the city this month will be virtually unchanged from the figures from the previous August. Sports fans have crowded out regular visitors during what is normally a busy tourist season, and strict security measures have scared away other potential guests.

Compounding the dismal tourism figures is the fact that heavy industry in and around Beijing has been brought to a virtual standstill in order to reduce air pollution in the city to manageable levels to accommodate the athletes. While the Olympics may be bringing publicity to Beijing, the Games are not making the city rich, at least in the short run.

Clearly, China is hosting these Games with an eye toward the potential long-run benefits. Here, too, however, the outlook is not necessarily rosy. Previous hosts have generally been disappointed with the long-term benefits of hosting the Games.

Many hosts tout the Olympic Games as an opportunity to put their city on the map as a potential tourist destination. Both the Summer and Winter Games certainly lead to huge increases in name recognition for the host cities, but the fame is fleeting. Travel researchers have documented that Calgary's image as the host of the 1988 Winter Games had begun to fade from memory as early as 1991.

And, while tourists may flock to host cities after the Games, the surge in visitors also tends to be short-lived. For example, in Sydney, the host of the 2000 Summer Olympics, foreign tourism grew at a slower rate than in the rest of the Australia in the three years after the Games. Lillehammer, Norway, site of the 1994 Winter Olympics, experienced a wave of bankruptcies in the years after its moment in the spotlight, as 40 percent of the full-service hotels in the town went under.

Expensive infrastructure projects undertaken for the Olympics also generally contribute little to long-run economic growth. While the construction of modern airports, highways, and transit systems are vital for economic development, the specialized sports infrastructure required to host an Olympic Games cannot easily be converted to other uses. The so-called Water Cube, the site of Michael Phelps's golden achievements, is an architectural and technological wonder. But after the closing ceremony, Beijing will have little use for a state-of-the-art swimming facility that seats 17,000.

Beijing will join good company in wondering what to do with its beautiful but empty venues. Most of the 10 gleaming new stadiums built in South Korea for the 2002 World Cup sit unused today, and Australian economists at Monash University suggest that the "redirection of public money into relatively unproductive infrastructure such as equestrian centers and man-made rapids" has since reduced public consumption by $1.8 billion (in US currency).

Unfortunately, while the facilities may sit unused, the debt accumulated to build these monuments still must be paid. Montreal finally paid off the last of its debts from the 1976 Summer Games just two years ago.

In one sense, however, these Games have been an unqualified success. The Olympics have instilled a sense of pride in the Chinese people, over 80 percent of whom report that they believe the country "is on the right track." An astounding 93 percent of Chinese surveyed by the Pew Research Center thought that the Games would improve the country's image. Certainly the feel-good effect of the Olympics should not be dismissed lightly, but will the positive feeling remain as the Chinese people dig themselves out from under the $40 billion price tag?

Victor Matheson is associate professor of economics at Holy Cross.
© Copyright 2008 Globe Newspaper Company.

This article does carry the home truths of organising world sports events.

These events do bring cheer to the whole world and it gives great pride to the host country in organising the event, but the costs and the returns are but for the moment.

It does put the area on the tourist circuit.

Thereafter, the venues and hotels built at enormous costs remain partially used and the returns diminish!

Interestingly, Delhi which hosted the Asiad, built stadiums etc at great cost and now they are showpieces and used for political conventions once in a while!

And, yet, as they say - the Games must go on!