Many countries dream of hosting the Olympics, but of the few who have held the Olympics, even fewer have realized the great economic effect known to many as the Olympic Legacy. Beijing, China, the city chosen for the 2008 Olympics, anticipates that the Olympics will leave behind this long-lasting economic effect. However, many scholars and economists have become doubtful. They believe that China will not see these effects because China is a developing country and lacks many modern facilities. The Chinese, however have seen economic progress through many technological advances. For this reason the Olympics could leave behind the Olympic Legacy, if it is possible. Will China, the developing economic giant, see these effects after the Olympics?

What is the Olympic Legacy, you may ask? It is a bundle of long term effects that remain long after the Olympics have ended. Following the closing ceremony at the Olympics, the legacy begins. The Olympic Legacy supposedly consists of positive publicity, increased tourism, attraction of residential and commercial industry, improved living standards, infrastructure investments and improvements, and improved urban environment, the positive long term effects are not incorporated in the economic study. They are regarded as additional benefits. Many economists argue that the Olympics can advance a city from a second tier to first tier city, but it has not been proven yet. This year at the 2008 Olympics, Beijing, China might actually gain these benefits and prove this economic phenomenon exists.

How do the economists go about studying the effects of the Olympics? Economists from renowned colleges and universities look at factors and variables from income gained by hosting the games to the expenses incurred by hosting the games. They make a model of every possible financial scenario and they use this data in the research study.

Prior studies show no evidence of the “so-called” Olympic Legacy, for instance the Atlanta 1996 study showed no evidence of positive economic impact. Of course, hosting the Olympics costs the host city large amounts of public funding, but in turn, you would expect there to be job creation and visitor spending, but actually there isn’t. This occurs because of misapplications that happen when researchers miss variables, which then throw off the entire research.

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There is a standard procedure for determining the economic effects of hosting the Olympic Games. However, for every study there are misapplications that change the overall result. Treating costs as benefits, ignoring opportunity costs, using gross spending instead of net spending, using multipliers that are too large, are all things that can change the outcome. One misapplication that researchers disagree about is treating the cost of materials from suppliers as a benefit. However, many economists argue that if you use a backward-looking model, then it can be seen as a benefit. For example, if your initial cost is five million, then it provides the local economy with five million, so it can be seen as a direct impact. In addition, if the initial cost is counted twice (direct and indirect), then it is cancelled out and is not a benefit, but rather a misapplication. When it comes to hiring, employing can be a misapplication or a benefit. Note that, if the economy is at full employment, then it is not a benefit because it causes public investment to crowd out private investment. However, if the economy is at a high unemployment rate, then it is a benefit to employed workers because it gives jobs and cash flow into the economy. If there is a high supply of workers, then the company can pay low wages, which then gives more money to the companies on the job site. If the construction costs are seen as a benefit, then it has failed to recognize the opportunity costs. This causes it to appear as if money grows on trees. After the Olympic Games, the winner (host) is the seller and the losers (other countries) are the buyers. So, exports bring in money. However, local spending is meaningless when it comes to the study. To determine if local consumption is important, researchers use exports/local consumption. If there are more exports than local consumption, then it brings in money for the country. However studies have shown that for past Olympic hosting cities there has been no evidence that there is such a thing as the Olympic Legacy. So, will Beijing prove this theory wrong?

Many other large sporting events such as the Super Bowl have not shown positive benefits on the state or city, or even the stadium. The explanation can be found by looking at the hotel industry. As room prices rise, the room occupancy does not change, causing crowding of areas and net spending does not change at all or changes little. Even when there is a long-term development in sports, there is still no impact.

Many people believe that when a developing country (second tier city) is hosting the Olympics that the effects will be better. However they are actually worse for a developing country. This is worse because of all the high opportunity costs and the lack of modern facilities which requires significant investments. This means that they spend more money than they earn. The Olympics can even cause the economy to decline because of the circulating money over time. This means that the developing country keeps distributing money into the economy for the Olympics, which then over time becomes too great and causes the dollar to be worth less.

Eleven years ago, Atlanta, Georgia was preparing itself for the XXVI (26^th) Olympics. At the same time, researchers were preparing a study that would determine if Atlanta would benefit. After the study came out, it was projected that significant economic benefits would come to the host city and the state. Indeed, there was a definite impact of net exports from Georgia, but there was little evidence that it was due to the games. The question that had the public befuddled was who was bringing in the benefits and wealth at the time. After the games, there was a modest boost in employment which was short lived. “The city of Atlanta and the state of Georgia spent $1.58 billion to create 24,742 full time jobs or part-time jobs, which averages to $63,860 per job created.” (Qtd. Owen pg 6). Each new job that was created added 50 cents to the economy. However, job creation cannot be justified due to it was paid by the expense per job created. After the study came out, the officials believed that the cost of the Olympics was to be $5.1 billion. However, Atlanta became the first Olympic city to host the games from only private funds and there was a definite overestimation of the cost. The study projected that the local tax would not cover the cost of building construction which cost $353.9 million. The study also over projected that visitor spending was to be $ 1.265 billion, but it really was only $1.146 billion. The 1996 Olympics also had significant crowding. Hotel occupancy rates dropped from 72.9% to 68%, despite the Olympic Games. The study projected that the hotel and restaurant industry would be a benefit to Georgia from the Olympic Games. However, both industries actually hurt the state of Georgia and the city of Atlanta.

Corporations from outside Georgia gained benefits in their own state’s economy because they invested in the Olympics and didn’t have to pay a higher tax. Local businesses in Atlanta had no prime access to the Olympics, so they were caught between the struggle of reduction in their businesses and increased competition. Poor projecting caused Atlanta’s expectations to be unrealistic.

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Many vendors tried to lease vending space and then sued the city of Atlanta due to the fact that Atlanta did not allow the vendors to take up the space. In the hotel industry, hotel revenues nearly doubled. However occupancy rates dropped and it matters because people had to pay more money for the same room size which causes the revenues to drastically increase. When there was an increase in visitors, positive impacts were focused on the hotel industry. Other industries such as manufacturing or the restaurant industries showed negative impacts due to the fact that there were reductions in regular business. At Atlanta, there were legacy effects that were divided into these categories:

1) facilities

2) media exposure on Atlanta and

3) media exposure of Georgia.

“The long-term beneficial effects on decisions regarding investment, trade, corporate relocation, government, spending, convention sites, the location of major sporting events and vacation plans will likely be among the most enduring, yet statistically untraceable, legacies of the Games.” (Qtd. Owen pg 7). Atlanta’s and Georgia’s media exposure was not all positive. For an ideal, news stations everywhere covered stories from Atlanta on traffic problems, the Centennial Park Bombing and administration problems. “As a result of traffic congestion, administrative problems, security breaches and over-commercialization, Atlanta did not receive the kind of media attention it would have liked.”(Qtd. Owen pg 6). However, facilities in Atlanta were updated everywhere. In the long run, the 26^thOlympics proved the theory that host cities do not receive special economic effects. If Atlanta did not benefit from the Olympics, will Beijing?

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Four years from the XXVI Olympics, the down under country was readying itself for their time to shine at the Olympics. However, at the same time, researchers from universities were preparing to turn out not just one study, but three economic studies. Did Australia succeed in gaining benefits from the Olympics? The three sources estimated expenditure to be based on infrastructure, operation, and visitor spending, and publicity. In the study, the contributions were indirect. Sydney received benefits through revenues from ticket sales; however there was no recognition of opportunity costs concerning labor or resources. The studies estimated $5.1 billion for the cost, the same as Atlanta. They expected that two-fifths of the cost would come from household incomes (tax on the people). It was estimated that it would be 25% higher than the usual Australian average excise tax. In the study, some legacy effects were incorporated into the calculations, but other legacy effects were not mentioned. For example, international tourism for Australia was a legacy effect that wasn’t mentioned. Facilities were seen as a legacy effect, but the Sydney stadium that housed the games was not being used four years later. Sydney used the most up-to-date techniques and models when they began studying which gave them more accurate answers than before. Sydney, Australia housed the great millennium Olympics; however even this exotic country didn’t reap financial benefits from the Olympics.

Salt Lake City Two years later, Salt Lake City, USA, housed the XIX (19^th) Olympics and the city with their slogan “Light the fire within”, looked forward to a successful Winter Olympics. However, the study, which a team of researchers produced, did not say the same thing. When the study came out, they expected immigration, and growth in employment and population. The job growth was used to predict the population of Utah after the Olympics. Employment creation was not a net benefit to current Utah residents because the population growth absorbed the newly created jobs. From the ages of 18-65, for every 10 immigrants, there were 11 new jobs created. Employment creation only

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improved slightly because most of the job creation was countered by the increase in the number of laborers. The study showed the same effects from the Olympic Legacy as Atlanta except that the state of Utah would receive an increase in population growth. Today, Utah has the fastest growing population and this is the only lasting effect of hosting the Olympics. The Olympics only showcases the city and it only attracts people when the state or country wants them there. Utah attracted people because the state wanted to attract people. Overall, Salt Lake City showed some gain in positive impacts like population growth. However, it did not gain other significant benefits. The 19^th Winter Olympic proved that countries might benefit from hosting the Olympics.

Beijing, capital of the fast-growing, large industrial country, was granted to hold the 2008 Olympics. Four months from now, many news channels will be turning their focus toward China and the Olympics. Since China is a communist country, many countries around the world have their doubts about a lasting economic legacy. However, China looks to a bright future, ‘One World, One Dream’ (Qtd. BOCOG motto) and is trying hard to have a successful Olympics.

Where does China stand now on the economic study level? You would need to turn your focus to the BOCOG (Beijing Organizing Committee of the Olympic Games), an organization that has been created to plan the 2008 Olympics. The economic study has not been published yet, hopefully by May. Mostly, China is focusing on transformations on the environment. Right now, you would not be able to see the sun in Beijing because of the haze and gases admitted from the growing number of factories. Beijing, now classified as a second tier, is wishing to surpass the other Asian first tier cities like Tokyo, Singapore, or Hong Kong. Sixty percent of non -BOCOG money goes toward environmental protection. Beijing intends to have the Olympics based on environmental protection plans such as air quality, water conservation, waste disposal, and clean energy development. BOCOG hopes for transportation plans that expand public transportation and clean conversion of energy. They have wide range plans of highway construction and pollution control. Every Olympics presents the entire well-being of the country to the world, and Beijing hopes to show the world that they care about the environment and aren’t too communist. So, the BOCOG plans on using large investments and long-term tourism plans to show the world what they truly are. The BOCOG budget consists and projects only a small surplus. The BOCOG’s question is: how much of the capital investment should be considered cost of the Olympic Games? Many long-term investors say that determining value and comparing it to opportunity cost and capital investment can give important information. For example, the BOCOG states that in 2005 they had 458 hotels with 812 rooms altogether, which isn’t enough and that by 2008 they would have 800 hotels and 130,000 rooms. However, the question is will that be enough? After the Olympics have long passed, the sports venues are left unused. So Beijing, which is spending 458 million on the Bird’s Nest, will not be using it after the Olympics, causing the benefit to really be a negative impact. Capital infrastructure expenditures are nine times the average revenue and expense for the games. The BOCOG has many projects such as transportation, communication, environmental, social improvements just for the Olympics. For a prime example, this past week (week of March 2^nd), Beijing has just opened the National’s People Congress, a step toward capitalism, which illustrates that Beijing wants to prove the world wrong. So will Beijing see benefits? It is too hard to tell now, but all we can do is wait for the XXIX (29^th) to kick off and prove this theory wrong or show that this theory can be useful.

In conclusion, there is no evidence of guaranteed positive economic impact. In China, tourism and investment has more to gain rather than in North America and Europe. Beijing also has a higher chance of tourism growth. However, on the negative side, the displacement of locals because of construction decreases population growth. At this moment, the long-term effects are hard to evaluate, but China could either realize positive or negative Olympic Legacy effects.

Sources

Friedmen, Thomas L.. The World is Flat. N/A: Straus and Giroux, 2005

Gunde, Richard. Cultures and Customs of China. USA: Greenwood Press, 2002.

Kinsman, Jeremy. "Will Olympic torch light way to changes in China?." Toronto Star (Canada) 21 Oct 2007: p. A23.

Jeffery, Owen. "Estimating Cost and Benefit of Hosting Olympic Games." BNET. 05 Oct 2005. CNET Networks. 31 Mar 2008 <http://findarticles.com/p/articles/mi_qa4127/is_200510>.

Lu, Shanshan. "Will China see "Post-Olympic Effect"." TheThunderbird.ca 22 Jan 2008.

<http://thethunderbird.ca/blog/2008/01/22/will-china-see-%e2%80%9cpost-olympic-effect%e2%80%9d/#more-368>

Knowledge@Warton Team, "Will the 2008 Olympics in Beijin Showcase Pollution as Well as World-class Athletes?." Knowledge@Warton 10 Jan 2007 29 Jan 2008 <http://knowledge.wharton.upenn.edu/aboutus.cfm?CFID=54362695&CFTOKEN=79395225&jsessionid=a830c14fd15c2c7b7861>.

Zhen-hai, Peter. "The 2008 Beijing Olympics and its implications for China's social, political, and economic development." HKDF. 11 Nov 2007. Hong Kong Democratic Foundation. 29 Jan 2008 <http://www.hkdf.org/newsarticles.asp?show=newsarticles&newsarticle=206>.

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Last modified: 04/02/08