Are 2012 Olympics a Waste of Money - Essay Example

Running Head: Are Olympics a Waste of Money? London Olympics – Is it a waste of money? London Olympics – Is it a waste of money? As Beijing bade goodbye to Olympic Games in 20008, London was ready with open arms to welcome it four years later in 2012. While there can never be two opinions about the grandeur and glamour that is associated with Olympics with the host nation’s status and prestige increasing manifold in the eyes of world community, more often than not, there are differing opinions about the justification in spending so much money to hold the Games. Critics have repeatedly debated whether it would be better if that money is spent on other welfare measures instead of spending it on Games. Critics further argue that with the funds directly flowing in welfare projects instead of indirectly trickling in via the Games will also ensure that there are no leakages in the process and the entire fund will be utilized for the proposed project only. Before one reaches a conclusion it would, however, be in fitness of things to examine this issue in detail in the backdrop of London Olympics. Economics of London Olympics Come July 27th, 2012 and London will be the only city in the world which will be hosting Olympics thrice and the city has every reason to be proud of this unparalleled feat. Previous Labor Government had earmarked £9.3 billion for developing the wasteland lying on the eastside of London into a glittering Olympic Park and £2 billion more will be spent on Olympic Games itself. This £2 billion, however, will be borne partly by the International Olympic Committee and the rest would be recouped through ticket sales and associated business of merchandise that invariably accompanies every Olympic Games held anywhere. Once the Games are over, Government has plans to spend more money on the Olympic Park site to converted it into a well laid out and tastefully designed residential cluster (Bose, 2007). This would forever change the face of the least developed and economically weakest part of the city and could surely be ranked as one of the most beneficial spinoffs of the Games. The other benefit would be the boost hospitality industry would receive from the surge of tourists that would come down to London to witness the Games. It is not that London has a dearth of tourists, but this extra surge would surely be welcomed by the hospitality industry. So, according to politicians and the Government, apart from the pomp, glory, prestige and glamour, Olympic Games would also radically improve the lot of those who reside in eastern part of London. There is absolutely no doubt that even the staunchest critic of Olympic Games would welcome such an outcome, but doubts start creeping up regarding how far the forecast would actually be converted into reality. Moreover, and this is possibly most crucial, critics say the development of East London could have been done at a much cheaper cost than holding an Olympic Games for it to be done. So, a quick glance at this stage through the cost structure of Olympic Games might clarify the issue a bit more. Initially, in 2003 when London had bid for hosting 2012 Olympics, the total cost for holding the Olympics including developing Olympic park and widening of Lea River was estimated at £4 billion. Organizers at that time overlooked the tax element which would come up to £836 million. Also, they had never thought that security would become such a big issue and thus never factored in expenses related to security which according conservative estimates would be nearly £600 million. The private funding that the planners had expected would start pouring in as soon as the word goes round has also been lesser by another £600 million. If one adds the cost escalation of items that have already been accounted for, it comes to another staggering £1.1 billion. To make matters worse, within a few months £500 million has already been spent out of £2.7 billion that was kept as a reserve for meeting unforeseen contingencies. There will be some other substantial expenses that are not included in the projected expense budget of £9.3 billion as these expenses are not directly linked with the Games but have to be incurred for the smooth conduct of this so-called “greatest show on earth”. Some such expenses are the cost of widening the M25 motorway and upgrading Channel Tunnel rail link and the west-coast main rail line and also the cost of replacing quite a few lifts in subway stations. Together these add up to more than £5 billion thus increasing the total expenses for conducting the Games to more than £14.3 billion (The Economist, 2010). Once the Games are over, there an additional expense of £450 million will be required to remove all temporary structures that will be put up in the Olympic Park during the games. Once after these temporary structures are removed, the designated authority entrusted to convert it into a residential zone – Olympic Park Legacy Company (OPLC) will step into the scene and start spending the amount allotted to it for erecting residential complexes and other amenities needed for healthy living. The legal formality of handing over the land to OPLC was completed by London Development Agency (LDA) on 29th September midnight of this year (Johnstone, 2010). The detailed plan of building affordable housing in the Olympic Park was unveiled by Boris Johnson, the mayor of London, in first week of October and he declared forty percent of athletes’ accommodation would be converted into three or four bed room apartments that would be sold to families and thirty five percent of the available area in the Olympic Park would be earmarked for affordable housing. Equipped with all amenities including shopping malls and excellent transport links, this place will become an ideal dwelling location for families. According to London mayor, this project will possibly be the best housing solution for such a large number of people in the history of London (Gibson, 2010). Taxpayers’ Burden As private finances dried up, the Olympic Delivery Authority warned twenty two months ago that private taxpayers would have to shoulder a substantial burden of the expenses that are to be incurred for conducting Olympic Games 2012. Till the end of January, 2009, the taxpayers had already paid £326 million than what was planned (Rajan, 2009). However, Londoners can expect to take advantage of the rush of tourists and might be able to rent out their homes at rates three times more than the normal rates with a four bedroom house in London most probably fetching rent of up to £5000 a week (Gabbatt, 2010). But with respect to the volume of burden on the exchequer, it is really and truly a negligible gain to only a small percentage of people that reside in London. Olympic Games – Is it really worth it? Such huge expenditure quite naturally brings one to ponder whether it was really necessary, at least from the perspective of economy and welfare of Londoners. Anyone who is familiar with Macroeconomic theories is aware that the only way to induce growth in a free market economy is to increase levels of aggregate demand by injecting fresh investments in the circular flow of income. This injection of extra investment immediately boosts the aggregate demand and the national income for that accounting period gets increased by the amount of this injected investment. The twin impact of multiplier and accelerator keeps bringing back portions of the initial investment as consumption expenditure in subsequent periods and the economy over a few years’ time gains substantially from such a dose of autonomous investment. Any event of the size and scale of Olympics would quite obviously set in motion a huge avalanche of construction activity and such activity would not be limited to building stadiums only. Construction activity would encompass building hotels, laying roads, parks, even shopping malls and of course living quarters for the thousands of athletes who would come down to show off their expertise and brilliance. So, if not anything else, at least an Olympic Game would immediately give a huge boost to the construction industry of an economy. The trickledown effect of such a huge volume of investment in this sector will immediately spread cheer in other related sectors that manufacture construction machinery and the core sectors that manufacture iron steel and cement. So, Olympic Games would bring cheer not only to those who love sports but also to all those who love brick, mortar, cement and steel and revel at the ‘melodious music’ of a concrete mixer or a pylon driver (Pricewaterhouse Coopers, 2004). But this could have been achieved even without holding the Olympic Games. The Government could have very well embarked on developing the area designated as Olympic Park on its own. Then the extra expenses on security or, widening of roads or railway links or, taxes could have been avoided. From the details cited above, one can very easily calculate a mind boggling figure of £6 million that could have been saved had the Olympics were not held but the plans and programs of developing the infrastructure of East London carried out in full earnest. Again, there is also the question of excess capacity of stadia that are being built. Authorities have stated that their capacities would be reduced from 80,000 during the Games to a mere 25,000 once they are over but they have not given any concrete plans on how to use that reduced volume in a sustainable manner. It seems thus at first glance that hosting Olympics is possibly too costly an option for the development of East London. Conclusion Apart from the glory that is associated with human endeavor beating all odds that is routinely witnessed in every Olympic event and the rousing feeling that is experienced by every winning athlete as they mount the podium to receive Olympic medals that they would treasure for the rest of their lives and the brotherhood of man that is celebrated in each and every edition of this international extravaganza, it is also a case study for accurate and realistic economic planning by the host country so that it is able to reap the full economic benefits of this international fair of humanity from all across the globe. So, every host country should do its mathematics very thoroughly before getting carried away by the pomp and glory of Olympic Games. References Bose, M. (2007, February 24). BBC News. Retrieved November 24, 2010, from London Olympics could cost £9bn : http://news.bbc.co.uk/2/hi/uk_news/politics/6391075.stm Gabbatt, A. (2010, July 27). London Olympics 2012: two years to go. Retrieved November 24, 2010, from guardian.co.uk: News Blog: http://www.guardian.co.uk/uk/blog/2010/jul/27/olympics-2012-two-years-london Gibson, O. (2010, October 7). London 2012: Boris Johnson unveils housing plan for Olympic park. Retrieved November 24, 2010, from guardian.co.uk: http://www.guardian.co.uk/sport/2010/oct/07/olympic-park-london-affordable-housing Johnstone, N. (2010, October 1). LDA transfers Olympic Park to legacy company. Retrieved November 24, 2010, from Public Property UK.com: http://www.publicpropertyuk.com/2010/10/01/lda-tranfers-olympic-park-to-legacy-company/ Pricewaterhouse Coopers. (2004, June ). The economic impact of the Olympic Games. Retrieved November 21, 2010, from PricewaterhouseCoopers European Economic Outlook : http://www.pages.drexel.edu/~rosenl/sports%20Folder/Economic%20Impact%20of%20Olympics%20PWC.pdf Rajan, A. (2009, January 30). Taxpayer faces bigger bill for 2012 Olympics. Retrieved November 24, 2010, from The Independent: UK: http://www.independent.co.uk/news/uk/politics/taxpayer-faces-bigger-bill-for-2012-olympics-1520389.html The Economist. (2010, July 22). The greatest sideshow on Earth. Retrieved November 24, 2010, from The Economist: http://www.economist.com/node/16647677 Read More