London 2012: don’t forget the economic costs

The hype is building as London prepares to host “the greatest show on earth”. The government has urged everyone to come together to support the games, while dissenting views have been deemed unacceptable and unpatriotic. But no amount of political pressure can hide the fact that the 2012 Olympics are an economic failure. The claimed benefits are largely bogus, while the costs to taxpayers are immense.

Indeed, even East Londoners — supposedly major beneficiaries of the largesse — are often sceptical about the games. Residents have put up with years of disruption, with closed roads, traffic jams, dirt and noise. Pretty Victorian terraces have been overshadowed, first by construction cranes, now by the concrete blocks of the Olympic Village.

Urban planning always reflects the ideologies of the time. The architecture of London 2012 would not look too out of place on the outskirts of Moscow or Bucharest. This is not an environment that grew organically through voluntary transactions and freedom of choice; it is the embodiment of brutal, authoritarian central planning.

Major sporting events have often been associated with coercion and the threat of violence. It is estimated that 700,000 people were forced from their homes in the lead up to the 1988 Seoul Olympics; Beijing 2008 saw as many as 1.5 million relocated; the recent World Cup in South Africa was scarred by mass evictions of poor residents and informal businesses; riot police and bulldozers are clearing people off land in Rio de Janeiro for the 2016 Games.

The forcible removal of businesses and residents from London’s Olympic Park is seldom mentioned. An estimated 350 firms, employing several thousand workers, were thrown out. Some did not survive the move. Others suffered massive losses after relocating to less convenient or more costly sites.

Mass compulsory purchase of land also denied owners the profits from redevelopment. Had private owners been granted permission to redevelop their industrial sites as residential or office space, the land would have been worth perhaps ten times what they received in compensation. To add insult to injury, firms had to wait several years to obtain money owed to them.

The destruction of local businesses is just one way in which the Olympics are damaging the economy. Indeed, the frequent claims in the media that the games will provide an economic boost are blatant propaganda that defy economic logic and a wealth of empirical evidence on the impact of major sporting events.

Any perceived benefits must be set against the huge cost of the event. Projected at £2.4 billion at the bidding stage, the final government funding package will exceed £9 billion. Overall expenditure — including all the security, transport costs and so on — is likely to be significantly higher.

To put it into perspective, the London 2012 budget would be enough to reduce the basic rate of income tax by 2p in the pound (for one year) or to take hundred of thousands of low-paid workers out of income tax altogether. Inevitably the games are diverting resources from far more productive uses. Investment and consumption in the wider economy will decline as a result. This also casts serious doubt on job creation claims. For every job created by the games, it is likely that more than one job is lost in the wider economy as resources are redistributed. And unlike alternative investments, the event won’t contribute to increased living standards by raising productivity. In fact, it will destroy wealth, particularly given the long-term costs of maintaining the Olympic Park.

Even the notion that the games will encourage tourism is questionable. Tourists who would otherwise have visited Britain will avoid doing so this year, fearful of overcrowding, disruption and inflated prices. The theatres of London’s West End are particularly worried about the impact. Evidence from similar major sporting events suggests overall visitor numbers in 2012 may be disappointing.

Then there are the arguments that the games will bring regeneration to east London, which according to some indicators, remains one of the poorest parts of the UK. Undoubtedly transferring billions of pounds to this area will provide a short-term economic boost. And all that money is also likely to encourage additional private investment in the locality.

Nevertheless, it is important to recognise that plans for the development of the Stratford Rail Lands – now the major part of the Olympic Park – long pre-date the bid for the games. As early as the mid-1990s proposals were in the pipeline for the development of a commercial centre to rival Canary Wharf, based around the proposed station on the Channel Tunnel Rail Link. Indeed, it could be argued that the allocation of large amounts of land to sport has prevented more valuable uses such as shops, offices and apartments.

Moreover, public funding means resources are being sucked out of other areas to pay for it. This means regeneration in Stratford will lead to degeneration elsewhere – and that includes other parts of east London.

Areas can be regenerated but people can’t. Stratford may improve as higher socio-economic groups move in — as happened with earlier gentrifications in Notting Hill and Islington. But higher rents mean it will no longer be as attractive to the low-skilled immigrants that have populated the district in recent decades. Local councils will also have strong incentives to house problem households some distance from the Olympic Park. They may even succeed in relocating existing council tenants to exploit the profits from redevelopment.

As Stratford rises up, other districts will go downhill as poorer groups are displaced. This is already happening. Barking, four miles to the east, is probably the most shocking example. Previously respectable working class areas on the fringes of Essex are gradually being overwhelmed by the crime and squalor of the inner city, partly as a result of gentrification elsewhere and partly due to unstoppable demographic trends.

Government is playing a disingenuous role here. Significant sums are being spent on so-called regeneration projects in the Thames Gateway. But many of these initiatives are bringing decline. In contrast to Stratford, a high proportion of the new housing constructed has been for social tenants – in effect, a means of dumping families on benefits in outer east London.

There are advantages for our political elites of course. Displacing the poor to the peripheral parts of cities helps keep social problems out of sight. And highly visible renewal schemes such as the Olympic Park can create the illusion of prosperity, even though their high costs are, in reality, speeding up Britain’s rapid relative decline.

If the money wasted on London 2012 had been invested productively or used to cut taxes, it could have made a significant contribution to a much-needed recovery. As it is, the games will be a lasting burden on a near-bankrupt country. Unfortunately it is now too late to cancel the Olympics, but there is at least an opportunity to learn lessons. This economic failure should never be repeated. Never again should jobs and living standards be sacrificed for the pride of sportsmen and the vanity of politicians.

17 May 2012, London Society Journal

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