The gains from the games

In a period of austerity,the prevailing question in UK is: will the Olympics be worth the accompanying costs,inconveniences?

Written by The Financial Times | Published: January 23, 2012 12:11:08 am

Roger Blitz

John Bigos is dreading the Olympics. Along with many other businesspeople in the city,the managing director of London Duck Tours,an amphibious sightseeing company whose vessels are a familiar feature of the river Thames,he is worried about the practicalities of how to keep trading in the run-up to and during the Games in July and August.

At one point,Mr Bigos was facing a complete shutdown over the summer. The introduction of special Olympic lanes on larger London roads for the smooth transit of 55,000 athletes and associated officials,media and dignitaries across the city would have cut off his access to the river for six weeks. The company and transport officials negotiated a partial solution that gives his craft access for all but nine of those days. But that will still cost him up to £175,000 in lost business,leaving him questioning the benefit of the Games to London.

“The Olympics are not going to make a big difference to us other than being hit by major logistical problems,” says Mr Bigos. “I don’t think London will benefit at all in tourism as a result of the Olympics coming.”

As the UK gears up to stage both the world’s biggest sporting event and the uniquely British pageantry of the Queen’s diamond jubilee,the nation should be looking forward to an explosion of optimism. Descending deeper into a protracted period of austerity,the country and its battered businesses have a rare chance to prosper from weeks of patriotic celebrations — and to show other nations how to put on large,expensive events in ever harder times.

The glad,confident morning that the government and Games organisers hoped would arrive with the dawning of the Olympic year has not materialised,however. Instead,the prevailing question is simple: will it all be worth it? Will the costs and inconvenience accompanying the event be a small price to pay for longer-term economic gains? And will London’s promise to put on a sustainable,compact Olympics that delivers the regeneration legacy that has eluded so many other cities prove both achievable and a model for others?

After seven years of planning and replanning large infrastructure projects,security operations and multibillion-pound budgets,this is galling for those behind the event. The Games have so far consumed £9.3bn of public money and involved 46,000 construction workers to deliver one of Europe’s newest large urban parks. At least in comparison to earlier host cities,London has avoided spiralling budgets and construction delays. Indeed,as a model for organising a relatively cost-efficient Olympics,and trying to avoid the perennial problem of venues that turn into white elephants while creating lasting physical regeneration,London can claim a medal of some colour.

But having largely accepted the scale of the costs involved,the focus for the British people is worries about disruption to everyday life,coupled with doubts about economic benefits both to the capital and the UK. A poll this week found that only 13 per cent thought the Olympics would benefit their lives,while only a third thought the event was worth the money.

Rarely has there been such an inauspicious economic backdrop to an Olympics. The last “austerity Games” were held in 1948; athletes brought their own food and lodged in army camps and dormitories. The host city? London. David Cameron,prime minister,would certainly like to shed the tag of the “2012 austerity Games”. Last month he personally ordered a doubling of the budget for the July 27 opening ceremony to £81m,facing down hostility from those who regard such extravagance as unseemly at a time when thousands are losing jobs and public services are being slashed.

For the past quarter of a century,Olympic hosts have had little problem rousing themselves for their moment in the sun. Cities such as Seoul,Barcelona,Sydney and Beijing have brushed aside concerns about disruption to working life,viewing the quadrennial event as a springboard to increasing the global presence of their cities and countries.

London is different. Gilbert Felli,executive director of the International Olympic Committee,recognises that staging the games in a western industrial and financial centre is a departure for the movement,bringing its own difficulties — particularly for the working population.

The IOC likes to award the Games to cities for overt political reasons – for example,to Beijing for 2008 to encourage understanding of China; and to Rio for 2016 to recognise Brazil’s emergence on to the world stage. “It’s true that it is a long time since we have a capital city like London [hosting the Games,” says Mr Felli. One of the main reasons the IOC picked London despite fierce competition from Paris,New York,Madrid and Moscow,he says,was the promised regeneration of the depressed area of east London where most of the infrastructure is sited.

Hugh Robertson,the Olympics minister,recognises the “pressures” of staging the Games in a city such as London but says the long-term benefits to the UK in terms of physical regeneration are “unarguable”.

Transport officials,however,have for months been warning London businesses to prepare for about 100 days’ worth of disruption to their employees’ travel plans,caused in part by overcrowding at main stations and the designated special lanes.

“It’s certainly not easy for London,built on narrow roads,to accommodate an Olympics without significant disruption to businesses already well established,” says Mr Bigos.

Lord Lloyd Webber,the impresario who owns seven theatres in London’s West End,said last month that advance bookings for summer were so bad that his industry faced “a bloodbath”,though he added that the global focus on London would reap benefits in 2013.

The problems of getting around the city are magnified by the £1bn security cordon being erected for the Games,which includes the deployment of more than 13,000 troops.

The government has rethought optimistic forecasts and is factoring in a decline in tourism to London and the UK in 2012. Visit Britain,the official tourism agency,is anticipating that without a major marketing push,costing £40m,the numbers visiting the UK will fall in 2012,turned off by the inflated prices and the disruption that attend an Olympics host city in the year of the Games.

Christopher Rodrigues,chairman of Visit Britain,acknowledges that the so-called “displacement effect” for Olympic host cities,which causes would-be visitors to “give the country a miss”,cannot be ignored.

It will prove worthwhile if there are long-term economic benefits. The government will get some idea from a three-year study led by Grant Thornton,to be concluded in the summer of 2013. But it will take at least a decade to assess whether the long-term tourism boost or the promised regeneration of east London will materialise.

Previous Olympics have boosted the physical fabric of host cities. Academic studies conclude that Barcelona in 1992 and Athens in 2004 secured faster regeneration from new transport networks built for their Games.

Bridget Rosewell,chief economic adviser to the Greater London Authority,accepts there is a risk of lost productivity in the Olympics year. However,she says,“there is a lot of effort to mitigate these losses”,such as encouraging Londoners to work from home. She says the UK will benefit in two ways – from the feelgood factor and from the spin-off of permanent new investment in east London,principally Stratford,the post-industrial area where most of the Olympic Park is situated. “Opening up Stratford enables you to invest in new ideas,new capacity. It creates profit,activity and jobs and kick-starts that economic activity,” says Ms Rosewell,citing the success of the area’s newly opened Westfield shopping complex despite broader troubles for the retail sector.

But Stefan Szymanski of the University of Michigan wonders about the long-term viability of venues such as the Olympic Stadium,which has cost about £500m to build,and the media centre,envisaged by the government as a futuristic tech city.

“What you get out of this is a big park,” says Prof Szymanski,a long-time sceptic about the economic benefits for host cities and a contributor to the Grant Thornton-led evaluation. “Does it stimulate some kind of renaissance of business and industry in east London? The government is trying to push Google and Microsoft to locate their facilities there. But at best it is relocating business from one part of London to another.” The Olympic site,he says,is little more than “a very small island in a very undeveloped region”.

London’s experience will provide a lesson for future hosts. Who will have the stomach to stage the Games when the economy is against them? Around Athens,the now derelict properties built for 2004 offer a concrete reminder of the perils of treating the Games as an engine for growth.

So will other developed industrial cities be willing to put themselves forward? Tokyo,Rome and Madrid are in the race for 2020. They are competing with cities from emerging nations – Istanbul,Baku and Doha.

Athens won short-term pride from its Games,even if the economic benefits never materialised. Perhaps that is as much as Mr Cameron can hope for. Ms Rosewell recalls a conversation with her hairdresser on the day in 2005 when London snatched the Olympics from Paris: “ ‘You do realise you will have to pay for it,’ I told her. ‘It’s going to go on your rates.’

“There was a pause,and the hairdresser said: ‘Yes,but it’s worth it just to beat the French.’ ”

© 2012 The Financial Times Limited

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