Olympic 2012 – economy had sunk deeper into recession
Last time London hosted the Olympics, Britain was in deep economic trouble and up to its eyeballs in debt. It was 1948 and the country was reeling from six years of war that had drained the national coffers. No new stadiums were built for the original “austerity games”: Wembley doubled as an athletics stadium after organisers poured 800 tonnes of cinders over the greyhound track.
More than 60 years later, the shiny Olympic stadium in Stratford is new, but the economic conditions are similar. The country is creaking under the weight of debt; Europe is broke and the government is on an almighty austerity drive.
Last week official figures showed the economy had sunk deeper into recession. Perhaps, even more than a haul of gold medals, Britain needs its companies to start winning contracts again.
To that end, the Olympic flag has been hoisted over London’s historic Lancaster House. The grand building, a stone’s throw from Buckingham Palace, is the setting for a frantic round of meetings over the coming fortnight as the government uses the Games to bang the drum for British business.
With the official cost to the taxpayer around £9bn, the coalition want the London Olympics to provide more than world records. Alongside social legacy commitments such as igniting “a new passion for sport across all age groups”, organisers hope the spectacle will deliver a £3bn economic boost, with two-thirds of that to come from an increase in tourism and the remainder from attracting foreign investment.
David Cameron started the ball rolling on Thursday with what was billed as the biggest investment conference ever hosted in the UK. The event was a who’s who of the global financial system: International Monetary Fund chief Christine Lagarde rubbed shoulders with Mario Draghi, governor of the European Central Bank and Angel Gurría, secretary general of the OECD. There was also an impressive roll-call of business leaders, with Google chairman Eric Schmidt sharing a platform with Cisco’s John Chambers.
Over lunch on the sun-drenched lawn, 400 delegates tucked into a British-themed menu prepared by Michelin-starred chef Tom Aiken. As they savoured dishes such as crab salad and vanilla cream with Cox apple jelly, the Mayor of London, Boris Johnson, provided the soundtrack, extolling the virtues of the capital city.
In the hall, the talk was of the benefits of doing business in the UK. “We love Britain,” said Schmidt. “This government is very focused on unleashing the creativity of young entrepreneurs.” The praise was repeated time and again. Chambers said Britain came second only to Canada for ease of doing business, and that it understood innovation.
But, mixed in with the bonhomie, there were veiled threats from corporate leaders, who warned they would take their business elsewhere if the government put a foot wrong.
“Global companies are going to go where the growth is,” said Schmidt. “We will move from a place where the government is doing the wrong things to a place where the government is doing the right things.”
Chambers added ominously: “Jobs will move with tremendous speed. Countries or businesses that don’t get it will be left behind.”
The apparent fickleness of global corporations makes clear what a tightrope the government is walking as it tries to stabilise a tottering economy.
Last week’s GDP figures revealed a startling 0.7% contraction in the three months to June. Weak manufacturing and construction data, as well as the loss of output caused by the extra bank holiday to mark the Queen’s diamond jubilee, were blamed for the setback.
But few in the City think the Olympics will provide more than short-term relief. Citi’s Michael Saunders is frank in his assessment: “In our view, the Olympics are likely to be very entertaining. But the Games are not an economic policy.”
Saunders has examined the data from 10 Olympics held between 1964 and 2008 and found that although growth tends to rise in the runup to the tournament, the effect starts to fall away even before the Games begin – and afterwards, growth tends to be weaker.
The trend is explained by the fact that many of the positives that come from the Olympics (such as jobs created during the construction phase) are out of the way long before the opening ceremony, while negatives (such as lost productivity as Britons stay glued to their TVs) come during and after the Games. The anticipation of extra revenue from foreign visitors, economists say, also fails to take into account visitors who might have come to the UK anyway and just change the timing of their visit. Australia, for example, saw a 16% rise in short-term visitors in September 2000 when the Sydney games were held; visits then declined for three years afterwards.
Saunders’s view chimes with the analysis by ratings agency Moody’s. “Overall, we think the Olympics are unlikely to provide a substantial macroeconomic boost to the UK in 2012,” says Moody’s analyst Richard Morawetz. The impact of infrastructure projects has “already been felt”, he says, while the contribution of travel and tourism to the UK’s £1.5 trillion economy is predicted to remain flat at around £102bn.
The 1992 Barcelona Olympics is often held up as the gold standard of transformation that host nation status can bring, with the Games helping to recast a run-down industrial city as one of Europe’s top destinations for culture.
And Colin Stanbridge, who heads the London Chamber of Commerce, is optimistic: “The next stage after the Games is to be able to go around the world and make sure that we ride the crest of the wave and get more business out of it. The Australians probably did this better than anybody else when it came to the Sydney Olympics [in 2000]. They are still riding on the back of those Olympics.”
The influx of foreign sports fans as well as Britons stocking up on cold beer and souvenirs is expected to at least make the next set of GDP figures more palatable for George Osborne: Capital Economics predicts the economy will grow by 0.7% in the third quarter, cancelling out the dire second quarter.
But Professor Stefan Szymanski, a specialist in the economics of sport at the University of Michigan, says the body of academic evidence shows “pretty conclusively” there are negligible economic benefits to hosting a major sporting event although it can be fantastic for a country’s morale.
“Governments want to host these events because they are highly prestigious and hugely popular with the electorate,” says Szymanski. “If you tell me you’re going to have a party, that’s great – but if you tell me you’re going to have a party and get rich at the same time, then I’m not going to believe you.” – Guardian (UK)