Olympic Gains? The Economic Controversy of the Olympics

The International Olympic Committee (IOC) is a universal, non-governmental institution that both reflects and shapes the current political landscape. It is the authority of the Olympic Games, which are an apolitical confluence of the international community where participants celebrate the values of humanity, and peace through sport. However, at their core, the Olympics are an inherently political institution through which countries push their agendas to achieve soft power in the global arena as well as to realize short-term economic gains and long-term legacies. To win the bid to host the Olympics is a cause for celebration that will garner much recognition for the political elite and allow a state, region and/or a city to showcase a staged version of their society and culture. For these reasons, it proves invaluable for scholars to observe the Olympics as a microcosm of the international system.

The Olympics enjoy an immense level of support throughout the world that defies cultural and political boundaries. Over the past decade the level of popular support for hosting the Olympic Games has dwindled among liberal democratic and developed polities as the total cost incurred from holding the Olympics has crept up into the tens of billions. The costliest Olympic Games to date were the 2014 Sochi Winter Olympics and the 2008 Beijing Summer Olympics where the total cost was estimated to be around $50 billion and $43 billion respectively. Before these two Olympic Games were held, the costliest Olympic Games was the 2004 Athens Summer Olympics. It was reported that the country of Greece spent between $15 billion and $19 billion. The majority of the total cost arises from non-OCOG (Organizing Committee for the Olympic Games) indirect costs, which are incurred from the infrastructure and the investment necessary to prepare the city or region for hosting the Games. One of the most notorious and criticized non-OCOG costs in the history of the Olympics was the construction of an estimated $9 billion dollar railway and road that transported patrons 31 miles from Sochi to the ski resort of Krasnaya Polyana.  

In the Empty Air
The expensive Bird’s Nest Olympic Stadium in Beijing, China. In the Empty Air by Shawn Clover, Flickr Creative Commons

Many citizens of these polities perceive hosting the Olympics as a wasteful endeavor that bears a high opportunity cost. Public funds are diverted away from more beneficial public projects and into sports infrastructure that too often become white elephants. Polities become fiscally strained as cost overruns decrease the likelihood of the Olympic Games becoming profitable. Flyvberg and Stewart noted that every Olympic Games in history has acquired significant cost overruns for OCOG costs and non-OCOG direct costs. OCOG costs are expenses required for staging the Olympic Games, such as administrative cost, security cost and the cost of the opening and closing ceremonies. Non-OCOG direct costs are defined as construction costs of the Olympic facilities and sports infrastructure. Flyvberg and Stewart found that the average cost overrun from both the Winter and Summer Olympics was 179% of the initial budget and concluded that “the Games’ budget is more like a fictitious minimum that is consistently overspent”.

During the bidding process for the 2022 Winter Olympics, three of the six applicant cities dropped their bids due to popular opposition, all of which were applicants from developed, democratic polities. The fourth applicant city of Lviv, Ukraine was forced to drop its bid in response to the ongoing civil war in the country. The two remaining applicants that maintained their bids were the semi-peripheral countries of China and Kazakhstan. Both China and Kazakhstan are authoritarian and possess upper-middle-income economies.

The international media quickly took notice of the political systems of the two remaining applicants remarking that both countries were authoritarian. Many media outlets asserted that developed liberal democracies are not willing to host the Olympics as a result of their democratic political system. Authoritarian polities demonstrate a suppressed civil society and minimal fiscal transparency. A lack of fiscal transparency creates a principal-agent problem between the citizens and their government. Also, the suppression of civil society results in fewer opportunities for citizens to be exposed to opposing viewpoints. Both limit a citizen’s ability to produce a well-informed attitude towards hosting the Olympics. This is currently the prevalent, yet unproven argument in Western media.

The relatively low level of popular support does not hold true for the populace of economically developing polities that are refer to as semi-peripheral polities. Semi-peripheral polities are the middle rung in a three-level world hierarchy that consists of core, semi-peripheral and peripheral polities. The core polities are the major powers that wield economic influence in order to set the global agenda. The semi-peripheral and peripheral polities are dependent upon the core polities. Semi-peripheral polities represent economies in the “middle range of global development”, and “socially marginalized” polities that don’t conform to the expectations of the modernization theory. For the research semi-peripheral polities will include lower-middle-income economies and upper-middle-income economies

Demonstrated by tables A1 and A2, there was a greater correlation between economic development and popular support than political system and popular support. The data for the percentage of popular support in Tables A1 and A2 was compiled from the IOC’s Working Group Reports for all of the Winter and Summer Olympics between 2012 and 2022. The level of popular support for each applicant city was measured through a poll conducted by the IOC in each candidate city.

The research in Chart A1 defines a country’s political system according to the Economist Intelligence Unit’s 2013 Democracy Index. The Democracy Index grades each country on a scale of 1 to 10 in five categories: civil liberties, electoral process and pluralism, functioning of government, political culture and political participation. They then use a weighted average to categorize countries into the following four groups: full democracies (8.0 to 10), flawed democracies (6.0 to 7.9), hybrid regimes (4.0 to 5.9) and authoritarian regimes (0 to 3.9).

The level of economic development in Table A2 was determined by a country’s Gross National Income (GNI) per capita based upon the World Bank’s Atlas Method. The World Bank divides countries into four groups: low-income economies (GNI < $1,045), lower-middle-income economies ($1,046 to $4,125), upper-middle-income economies ($4,126 to $12,745) and high-income economies (GNI >$12,746). It should be noted that no low-income economies bid for the Olympics in the data. It can be assumed that these countries do not possess the financial resources to host the Olympics.

One could hypothesize that citizens of semi-peripheral polities find value in the economic benefits derived from the Olympics that are not as beneficial for the citizens of core polities. The proponents assert that citizens primarily seek to gain intangible symbolic capital from signaling and tangible economic benefits, such as tourism, employment, modern infrastructure and urban regeneration.

Globalization has increased the importance of brand image in the international arena. Oftentimes, the Hosting the Olympic Games allows a polity to redefine their brand image and therefore increase their symbolic capital. Symbolic capital is the value an actor gains through prestige and respectability. Hosting the Olympics provides an opportunity for semi-peripheral polities to demonstrate stability, competence and modernization. This signals to investors their economic maturity. A polities symbolic capital can be converted into economic capital through induced tourism and a greater inflow of foreign investment.

The research done on the monetary value of the symbolic capital accumulated from hosting the Olympics is incomplete. The economic value is hard to quantify because the economic impact lasts an indeterminate length of time and can manifest itself into many different forms. However, the research done by Li and McCabe indicates that economic legacies such as induced tourism, economic growth, employment and Olympic facilities- decrease in strength as time passes and are nearly nonexistent in the long-run. The economic legacies that do remain include infrastructure, – like highways, rail lines and parks – and Olympic facilities. These leftover legacies do not benefit the core polities as much as the semi-peripheral polities because they usually already enjoy quality public infrastructure and venues.

Overall, the greater levels of popular support among semi-peripheral economies signifies the rise of the Global South and increasing globalization. A decade ago, many of these polities could not afford to host the Olympics. Today, their growth has unlocked the economic benefits that can be derived from hosting these sport mega-events and globalization. The results demonstrate the importance of economic value to the relevance of mega-projects, like the Olympics. Applicant cities around the world could use these findings in order to enhance the value of the Olympic Games for their own citizens. Instead of leaving legacies of white elephants, a polity could propose a plan to repurpose those facilities into something more beneficial. The International Olympic Committee should consider excluding the non-essential requirements for hosting the Olympics. If not, it risks alienating itself from many of its biggest and wealthiest markets.

Table A1

Political System Classification and Popular Support for the Olympics

The Economist Intelligence Unit’s Democracy Index Country Classification

 

Full Democracies

Flawed Democracies

Hybrid Regimes

Authoritarian Regimes

Popular Support

67%

83%

81%

80%

Economic Development and Popular Support for the Olympics Table A2

World Bank’s Atlas Method Economic Classification 

High-income Economy Upper-middle-income Economy Lower-middle-income Economy
Popular Support

70%

78%

86%

 

stephen-bodineStephen Bodine is a master’s candidate at the Patterson School, concentrating in international commerce and agricultural economics. Stephen attended Murray State University for undergraduate where he majored in international relations with a minor in marketing. His interests include international economics, economic statecraft, and international marketing. He currently is an intern with the International Trade Administration and Commerce Lexington.

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