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Celebration Capitalism: Olympics Economics

Hosting the Olympics on the world stage provides host governments with the incentive to bail out fiscal mishaps so as to avoid embarrassment under the global media spotlight. Knowing this allows private firms to relinquish responsibility when the going gets rough.

Jules Boykoff 8 August 2016

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In Power GamesJules Boykoff offers a political history of the Olympic Games from their nineteenth-century origins through the present.

2012 Summer Olympics Opening Ceremony. Via WikimediaCommons

Below we present an excerpt from Boykoff's 2014 
Celebration Capitalism and the Olympic Gameswhich theorizes the political economy of the contemporary games. "Some have argued recent Olympic history points to a “neoliberalisation of the Games,” Boykoff writes:

I argue that the Olympics are less about neoliberalism and more about the dynamics of capitalism in general. The tenets of neoliberalism, as relevant as they are in some respects, do not take us the entire way in illuminating the five-ring juggernaut. Instead, a specific formation of capitalism I call “celebration capitalism” helps us better understand the economics behind the Olympics, and, more broadly, the economic system’s nimbleness in the modern era. The Olympics, I argue in this book, are the quintessential expression of celebration capitalism, although other examples abound, from royal weddings in the United Kingdom to stadium building in the United States ... Celebration capitalism is disaster capitalism’s affable cousin. 

Celebration capitalism does not “fight for the advancement of pure capitalism” as with disaster capitalism; rather, it proffers the public-private-partnership approach, whereby the state isn’t abolished or eviscerated, but leveraged as a font of private profit. Celebration capitalism is qualitatively different from Naomi Klein’s “disaster capitalism,” not merely its inverse. While “disaster capitalism” shoves us toward neoliberalism, celebration capitalism encourages capitalism reliant on public-private partnerships.

In the 1980s public-private partnerships, or PPPs, became a go-to move in the UK under Thatcher and in the US under Reagan. PPPs were a politically convenient entry wedge for a new brand of capitalism that appealed to tactically minded conservatives with a scriptural belief in the primacy of the private sector. In the UK, conservative Prime Minister John Major took the PPP torch, eventually passing it to the New Labour government, while in the US, Democrats have adopted PPPs with as much alacrity as their Republican adversaries. The term PPP shares key ideas with neoliberal capitalism: the private sector is more efficient and the public sector’s responsibilities should dwindle. In recent years public-private partnerships have “enjoyed a global resurgence,” wrote Graeme Hodge and Carsten Greve, emerging as “icons of public administration.” PPPs have unquestionably contributed to a new style of governing — a style that enjoys currency across the political spectrum. Like other aspects of political economy — such as the financialization of the global economy — PPPs have become more and more complex over time, lending themselves to the abstruse purview of experts, specialists, and a legion of lawyers.

But the term “public-private partnership” suffers from definitional promiscuity. The concept is operationalized in wildly divergent fashion. In the most general sense PPPs are agreements between public and private sector participants. The National Council for Public-Private Partnerships — a nonprofit, nonpartisan group based in Arlington, Virginia — add some conceptual specificity, heralding public-private partnerships as scenarios where:

a contractual arrangement is formed between public and private sector partners. These arrangements typically involve a government agency contracting with a private partner to renovate, construct, operate, maintain, and/or manage a facility or system, in whole or in part, that provides a public service. Under these arrangements, the agency may retain ownership of the public facility or system, but the private party generally invests its own capital to design and develop the properties. Typically, each partner shares in income resulting from the partnership. Such a venture, although a contractual arrangement, differs from typical service contracting in that the private-sector partner usually makes a substantial cash, at-risk, equity investment in the project, and the public sector gains access to new revenue or service delivery capacity without having to pay the private-sector partner.

This optimistic depiction sounds innocuous, at least in theory, but Hodge and Greve assert that in practice PPPs may have more rhetorical use value as “a favourite expression” than material use-value in terms of effectiveness and value-for-money. They examine the economic literature on one type of PPP common to the Olympics — long-term infrastructure contracts, or LTICs — and unearth contradictory results. Despite the rosy claims of PPP backers, they find statistically reliable evidence wanting and the evaluation results over-dependent on the calculus of risk transfers and the selected discount rate. Also, preliminary cost measurement estimates often turn out to be much less than the actual costs that materialize later. Methodological legerdemain can shepherd us toward pre-determined, politically driven inferences. Hodge and Greve conclude in understated fashion that “the most optimistic reading of the evidence thus far is that it is mixed.”

Public-private partnerships work best when there is transparency, a robust regulatory regime, and vibrant social movements and NGOs with resources at their disposal. Greve and Hodge, in a separate study, make the crucial point that without such vigilance, PPPs can undercut democratic practices. Operating under the sway of PPPs, governments may disconnect from the political pulse and policy preferences of their grassroots constituencies “because the PPP deals appear so complex and inaccessible that PPPs have become an elitist game.” Yet it is “an elitist game” with significant repercussions for non-elites.

Other scholars have come to even sharper conclusions. Urban and Regional Planning Professor Faranak Miraftab — who explores equity issues stemming from PPPs between disadvantaged communities, governments, and private companies —contends that PPPs are plagued by conceptual slippage that can lead to misleading predictions and contrary outcomes. PPPs can, she argues, be a “market-enabling strategy” rooted in deceptively fuzzy terminology. For instance, the term “private sector” can mean many things, from local small businesses to multi-national behemoths. And all too often the failure to distinguish “dodges the question of vested interests by large private sector industries.” Promoters of PPPs promise small-business success but more often play their corporate trump cards. Miraftab argues, “All such loose terminology is not innocent, because it permits the interests of the strongest partners to be served under the guise of serving the weak.” This can lead to nefarious ends: “Like the Trojan Horse, these partnerships might arrive with the promise of a gift but only to further dispossess the poor from their locally mobilized resources.” 

Sports economists have concluded that the Olympics — marked by a profusion of public-private partnerships — can lead to such dispossession. Olympics-induced gentrification disproportionately helps the rich and hurts the poor, thereby exacerbating class polarization. During both the bidding process and while preparing to stage the Games, host cities routinely overstate the economic benefits the Olympics will supposedly stimulate, while downplaying the costs. The IOC and its allies often make the argument that the Games are an economic winner by focusing only on the operating costs of the Olympics while ignoring other necessary costs like venue-building, infrastructure construction, and security. This fiscal sleight-of-hand ignores a strong preponderance of Olympic funding.

Such miscalculation derives, in part, from the fact that, under the influence of celebration capitalism, supporters rely on rose-tinted economic impact studies that only predict economic success. These prospective economic impact studies are usually carried out by a friendly phalanx of economic consultants who know their patrons expect to get what they pay for. John L. Crompton, a prominent scholar of finance and tourism, concluded, “Most economic impact studies are commissioned to legitimize a political position rather than to search for economic truth. Often, this results in the use of mischievous procedures that produce large numbers that study sponsors seek to support a predetermined position.” In other words, economic impact studies are political documents as much as they are economic documents. Crompton points to ten “mischievous procedures” that lead to overly optimistic, and sometimes grossly misleading, conclusions: “including local residents; inappropriate aggregation; inclusion of time-switchers and casuals; abuse of multipliers; ignoring costs borne by the local community; ignoring opportunity costs; ignoring displacement costs; expanding the project scope; exaggerating visitation numbers; and inclusion of consumer surplus.”

A key factor is that economic impact studies often rely on the dubious use of “multipliers,” or secondary spending that — after entering from outside the economy — supposedly ricochets through an economy. One person’s spending becoming another person’s income, which in turn becomes spending, thus multiplying its impact in an economy. Crompton points to four fallacies related to multipliers. The first is a tendency to compound the inclusion of local residents’ errors. This means including into calculations spending by local residents that does not derive from visitor spending. Having the money enter the economy from outside is key for multipliers. Otherwise it’s not multiplication, but simply circulation. The second error is an emphasis on sales multipliers. Sales income is an indirect measure of the effect of visitor spending in a community whereas the personal-income factor is a more direct measure. Third, he points to the “mischievous use of employment multipliers.” These multipliers measure the increase in employment derived from visitor spending, but they often overstate the effect while failing to distinguish between full-time, part-time, and seasonal work. Employers are more likely to jack up the hours of existing employees to meet demand in the short term rather than create new jobs that last beyond the event. Lastly, he points to the commonplace failure to include capture rates, meaning “When visitors purchase retail goods, their total expenditures typically are considered to be new money injected into the economy, and thus, they are entered into a multiplier model. However, if the goods were manufactured outside the community, their cost immediately leaks out of the local economy.” This leakage is often ignored, as are leaks related to foreign ownership. 

Additionally, the level of unemployment matters. If there is very little unemployment, any potential multiplier effect on either income or employment is minimized — the newly employed are just being pulled away from other jobs and the new income is just replacing the income that would have been earned in those other activities. And in cases where significant unemployment abounds, if the jobs are filled by people who enter from outside the region, or if the jobs created demand skills that residents most in need of employment do not have, there is little beneficial effect for local residents. In sum, as economist Victor Matheson notes, multipliers “can easily be manipulated to yield inflated results.”

The optimistic ex ante predictions stemming from the misuse of multipliers collide with the post-facto work of academic economists who find little, if any tangible economic advantage. In part this is because of the tourism displacement effect and the stay-away factor. Tourists who would otherwise visit the Olympic host city avoid doing so to steer clear of crowds and inflated prices. Put in more economic terms, “as a large proportion of mega events such as the Olympics are held in popular tourist areas, the negative externalities caused by an event, such as congestion, may dissuade regular non-interested tourists from visiting the city during the event.” Therefore the host city doesn’t capture cash from non-Olympic tourists who otherwise would have visited and spent money. One study examined tourism from the Tokyo 1964 Games through to the Los Angeles Olympics in 1984 and found a trend that host cities expanded their tourism capacity only to find their expected demand unmet. The scholars concluded, “the Olympic Games should be recognized as an investment for the future and an image-building event rather than a profit generating opportunity.” Post-event studies that examined subsequent Olympics, such as Atlanta 1996 and beyond, have come to the similar conclusion that the Olympics have imposed a substantial crowding-out effect on the rest of the host city’s tourism industry. The European Tour Operators Association found that since the 1992 Games in Barcelona host cities have actually experienced a decrease in foreign guests during the Olympic Games.

The overstatement of economic benefits also emerges from ignoring or underestimating the role of “substitution effect” — when people spend money at the Olympics, they’re not spending it in their local communities, thereby substituting their expenditures from one geographical area to another. When a city hosts the Olympics or other large-scale celebratory events, locals’ incomes don’t magically increase. Instead, what we see is a reallocation of leisure spending. The local spending simply shifts from what they would have spent it on — often locally oriented economic transactions that would keep money in the community — to a grand celebratory event where leakage to outside-the-community actors is more possible. Additionally, if tourist facilities like restaurants and hotels already tend to operate at or close to capacity during the time of year when the sports event come to town, the event may simply substitute tourists rather than bring in new ones. Economic impact statements often assume zero economic activity in the absence of the event (e.g. the Olympics), which is clearly not the case. 

Local businesses not only get hammered by lower demand but also by new competitors on the supply side. When a city hosts the Olympics, it means the entry of numerous corporations — many officially sanctioned by the IOC — onto the business landscape. This can be especially tough on local businesses that, thanks to the IOC’s fierce brand protection, are boxed out of Olympic venues or prime locations to sell their goods or services. As economist Jeffrey Owen notes, this means local businesses are “caught in a vice between a reduction in regular business on the one hand and increased competition from entry of firms on the other.” This is one way IOC practices favor multinational corporations over local companies. 

This is compounded by the presumption that sports visitors will spend significant sums of money. But Pyo and colleagues found that, “The sports enthusiasts were less affluent than the usual tourists and not big spenders.” In part they’re not “big spenders” because they spend their cash on Olympic-related activities and not the everyday attractions — such as theaters and movie houses — that end up suffering during the Games. Olympic spectators have different spending patterns than average tourists: they tend to return to their hotels and rented apartments for dinner and downtime after attending sports events during the day rather than going out for dinner and attending additional activities in the city. Mega-events like the Olympics may, as Maurice Roche asserts, provide “motivations, opportunities and cultural resources for defending and exercising identity and agency, and generally for constructing a meaningful social life in relation to a changing societal environment that has the potential to destabilise and threaten these things.” Perhaps that is true, but it would be incorrect to make an across-the-board statement that the Olympics generate economic gains for a host city’s general population. Yet that is precisely what Olympic backers often do. In reality, a lot of Olympics-induced commerce could be described as foreign consumers transferring wealth to non-resident corporations based elsewhere (again, reducing any multiplier effect).

All these economic concepts and tools are widely available to sports economists who, by and large, have come to the conclusion that hosting the Olympics does not provide the multifarious long-term benefits that purveyors of economic impact studies proffer. Economist John Madden sums up the key findings of the discipline this way: “Firstly, mega sporting events, even of the size of the Olympics, are unlikely to generate large economic benefits. Secondly, the conventional method for conducting economic impact studies in advance of sporting projects, I/O [input-output] analysis, is poorly equipped for the task and can be expected to generate substantially overly optimistic results.” To be sure, sometimes infrastructure improvement and a short-term boost in employment can occur, as well as a difficult-to-calculate enhancement in the host city’s symbolic image and feel-good factor. But the clash of competing econometric analysis by critics and promoters often happens once the damage has been done and “accumulation by dispossession,” as David Harvey terms it, has been achieved.

Hosting the Olympics on the world stage provides host governments with the incentive to bail out fiscal mishaps so as to avoid embarrassment under the global media spotlight. Knowing this allows private firms to relinquish responsibility when the going gets rough. And when things go wrong, the state — or, rather the taxpaying public — is usually left with the bill. Thus with many PPPs, in a bait and switch brimming with bonhomie, the public takes the risks and the private entities scoop up the rewards that may accrue. As Jerrold Oppenheim and Theo MacGregor put it, “Too often, even in the economically developed world, public-private partnerships combine public money and resources to produce private profit and disproportionately small public benefit. ‘Private sector builds the project — the public bears the risk’ is too often the guiding principle.”

This dynamic has become the modus operandi of Olympic financing. Despite optimistic promises, the trend is that “the games lose large amounts of public money and add to public sector debt,” contend David Whitson and Donald McIntosh. They go on to point out:

Public sector debt will repay itself, according to the standard official rhetoric, in private sector opportunities and ultimately in economic growth that will benefit the whole community. Investment in the games is thus framed as a particular form of public assistance to private accumulation, a postindustrial variant of traditional subsidies to industry.

Public investment in Olympic-related infrastructure and costs thus lays the groundwork for private capital to cash in on the overhauled city. This is the crux of celebration capitalism.

Power Games: A Political History of the Olympics is out now. 

Celebration Capitalism and the Olympic Games is available from Routledge

Filed under: 2016olympics, economics, political-economy, sport