Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

London’s time to shine?


The Olympics are upon us and the excitement is palpable as sportsmen across the country get ready to compete for their nation. Great Britain did great at the Beijing Olympics to finish with 47 medals (Finishing fourth in the table) and with countries on average winning 54% more medals when hosting the Olympics themselves, Britain could win an outstanding 72 medals (a record for the country if achieved).

But what sort of impact will staging the Olympics have on the City of London and the country itself?

In terms of the legacy it will leave behind, the London Olympics objective seems confused at best. Most countries use it to improve the hosting city or country in general, with Barcelona in 1992 a great example of how a city can use the Olympics to its advantage. Barcelona improved its infrastructure and created a new modern image of itself, which lead to the number of visitors to the city doubling in the decades since – a true legacy. London has repeated this to a degree in revamping the Lower Lee Valley into the modern Olympic park (a much better use of the space) and improving the image of a shabby part of East London. But the city is not in a similar state to the Barcelona of 1992. London is already the most visited city in Europe, is a centre of wealth in the world and has good infrastructure (discounting an overused public transport system that the Olympics is only set to make worse). So what legacy is London trying to leave behind? By the logos up all around the city it could be to promote better fitness and sport participation in an overweight nation by getting the public involved in the Olympics. But this has had little success if the case, with statistics showing no significant change in the nation or in London (though the Olympics could have a more long term effect in this respect). That leaves the reformed areas around the east end, where a new shopping centre and better transport systems have improved the area, but critics suggest the government hasn’t gone far enough in renovating the area while the target of creating jobs has yet to happen. It seems the Government is trying to both improve the rural areas of London and create a sporting atmosphere in the country, a tough combination that could leave either a great legacy or a feeling of regret at not concentrating on one or the other.

The other effect to consider is the economic impact. When the Olympic bid was won Britain was a rich, successful country that could afford such a big outlay on hosting an international tournament. Now the country is in a much weaker state, where three consecutive quarters of GDP decline have seen the economy become smaller than when the coalition government first took over. The costs of hosting the event have come under the £9.3 billion budget set, but this is only because the budget was increased drastically in 2007 from the original budget of £2.4 billion. But this sounds worse than it is, most countries go over budgets when staging the Olympics while China’s cost reached around $45 billion in 2008. On top of this the International Olympic Committee has raised a third of the budget by selling broadcasting and sponsorship rights for the London Olympics. The right to use the Olympic logo in advertising was sold to eleven big sponsors (notably Coca Cola) and brought in just over £600 million pounds over the last three years. In effect these companies (including Panasonic and MacDonald’s) are paying to advertise the Olympics, as boards and adverts that would have already been in place are now including the Olympics logo, in effect advertising the games for London at the company’s cost. Companies do this to either get good publicity or to prove themselves as the top of their markets, though this backfired for G4S who found they had completely underestimated the number of security they would need at the Olympics and consequently saw their share prices nose dive in value. Broadcasting deals meanwhile brought in £2.5 billion over the last three years and £1.6 billion in the three years before that.

But this still works out as a loss for the government in the short term, meaning the longer term impact will need to be positive for the government to make a profit out of this huge expenditure. The Prime Minister, David Cameron had suggested Britain could make £13 billion over the next four years, but many see this as a laughable estimation, with the figures not accounting for the negative effects that the Olympics will bring, such as the impact of people leaving the country to get away from all the crowds etc. This has been proven slightly with hotels claiming that the demand for rooms in London during the Olympics have been markedly weaker than expected. While the money spent on the Olympic structures might never generate a return on its investment. The Olympic stadium cost over £500 million to construct, nearly double what China paid for their “Bird’s Nest” stadium (mainly due to lower labour costs) and nearly double the original estimate of £282 million that was made back in 2004. Its future lies in the balance as a London football club, West Ham United, awaits a decision on whether it can rent the stadium to use as its home ground, with controversial issues remaining about the track field around the pitch and the sharing of the stadium with other tenants. But without tenants like West Ham United, the stadium would make little recuperation on the money spent on it, with the football club along with other tenants expected to pay around £2 million a year on rent to the stadium, which would help offset the maintenance costs of around £5 million a year. Without West Ham United, £50 million would have to be spent to alter the structure to a smaller size for use in future athletics like the world championships in 2017. Then there are other structures like the Olympic Aquatic centre, which at £269 million is very expensive for what equates to a luxury swimming pool. These Olympic structures threaten to become white elephants after the event, expensive relics that lose their usefulness in a months’ time.

Nonetheless, the Bank of England expects the economy to receive a boost in the third quarter by about 0.2% (roughly £5 billion), while another fiscal watchdog has worked out that the 8.8 million tickets sold should give a boost of 0.1% in the third quarter (roughly £2.5 billion). Then there is the boost to morale across the country; where the carrying of the torch helped bring the nation together and the opening ceremony reminded most people of the eccentricity of Britain. This is rather immeasurable, but a timely boost to a country low on confidence with a lot of issues to worry about. For the government it has become an advert to the multinationals of the world, an appeal to global businesses to come to London and spend your money in Britain. For the public it has become just another complaint against the government, joining the current angst against the NHS changes and University fee caps.

But whatever the Olympics has become for London and for Britain, it will hopefully be remembered for the moments in history it creates, rather than the costs it brings and issues it leaves behind.


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