Readers Question: Evaluate the arguments for and against the view that major sports events are good for the economy?
Major sports events such as the World Cup and the Olympics are often seen as a potential source of economic regeneration. Yet, many are worried about the economic costs of hosting a major sporting event that only lasts for three weeks. These are some of the economic benefits and potential costs of the Olympics and other major sporting events.
Economic benefits of the Olympics
1. Encourages investment in transport and infrastructure
Major sporting events usually require upgrades to transport and communication links. This investment leaves a lasting legacy for the whole economy. Better transport links reduce congestion and help to improve efficiency for local business. It can help increase the productive capacity of the economy (shifting aggregate supply to the right). For example, for the London Olympics in 2012, we have seen new rail links created in East London, and improvements to existing underground and overground train services (London Olympic rail networks)
2. Influx of foreign visitors
A major sporting event like the Olympics can attract thousands of people for the duration of the games. These foreign tourists bring a boost to the local economy. In particular the local tourist trade, shops/hotels will benefit from the surge in visitor numbers. However, it is worth noting that these visitor numbers tend to be temporary. The major sporting event only lasts for a few weeks; potentially there could be many empty hotel beds in the future. On the other hand, people argue a major sporting event can lead to a long-term growth in visitor numbers. e.g. China felt the Beijing Olympics created a feeling that China could be a popular tourist destination. Barcelona saw higher visitor numbers continue after the Barcelona Olympics of 1992.
3. Job creation
Typically, major sporting events require investment in building stadium and hotels. This creates jobs for the local economy for up to 4 years before the event. These extra jobs help create a positive multiplier effect within the local economy. It is hoped that the London Olympics will help regenerate the east end of London. Some argue this temporary job boost can prove more permanent if the economic regeneration continues after the games.
4. Higher economic growth
It is estimated that the ‘Olympics Effect’ leads to a boost in economic growth due to the higher investment and foreign visitors. This leads to higher tax revenues for the government
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Reducing the power of trades unions and increased labour market flexibility.
Financial deregulation, e.g. building societies becoming profit-making banks.
Reducing higher rates of marginal income tax to increase incentives to work.
Ending state subsidies for major manufacturing companies.
Encouraging home ownership and share ownership.
Targeting money supply and monetarist policies to reduce inflation of late 1979. Monetarism was effectively abandoned by 1984.
Joining EU Single Market in 1988
The Economic Impact of Margaret Thatcher
When Mrs Thatcher came to power, she sought to
Reduce inflation – running at around 14% in 1979 (after periods of 20% plus in the late 1970s)
Reduce budget deficit.
Increase efficiency of the economy
Reduce the power of trades unions
Monetarist policies
On coming to power, the Conservatives followed a policy of Monetarism – seeking to control the money supply in order to control inflation. This involved higher interest rates and higher taxes. This did reduce inflation to 5% by 1983, but at the cost of a deep recession and unemployment rising to over 3 million.
In 1981, 365 economists signed a letter to the Times newspaper arguing the government should reverse its economic policy and seek an end to the recession. This caused Mrs Thatcher to make her famous speech to the Conservative Party conference of 1981.
“To those waiting with bated breath for that favourite media catchphrase, the U-turn, I have only one thing to say: You turn if you want to. The lady’s not for turning! (BBC)
It was great politics, but the economic cost was a significant decline in GDP and unemployment staying at nearly 3 million until the mid-1980s.
Trade unions
In the 1970s, days lost to trade union strikes were at all-time highs. It was feared that poor industrial relations were a key factor in holding back industry. Thatcher was determined to reduce the power of trades unions and end industrial disputes from costing British industry.
Trade union membership fell in the 1980s, forever changing British unions.
There is no doubt that industrial disputes were a real problem in the 1970s (though it should be remembered there are always two sides to industrial disputes – not just unions). Apart from the coal mine strike of 1984, days lost to strikes fell significantly in the 1980s, and there have been improved industrial relations.
To some extent Mrs Thatcher can claim some success, e.g. ending the right to secondary picketing, ending closed shops, compulsory ballots. But, also, the decline in trade union power was also caused by other factors, such as the decline in British manufacturing, British heavy industry and the rise in unemployment.
An iconic moment of Mrs Thatcher’s early policies was the Miners strike of 1984. She successful outmanoeuvred the miners and fundamentally weakened the NUM – no more would the mining unions be able to bring down a government like in the 1970s. The strike was bitter, leaving lasting scars, and miners see the decline of the industry as evidence that their fears over pit closures were true. But, the mining industry had been declining since the 1920s. Even in 1945, half a million people worked in coal mines. Today, the figure is less than 10,000 and is being replaced by cheap imports and other forms of electricity. (see: decline of coal mines) It is hard to justify, given the environmental cost of coal, that a government should have subsidised a declining industry.
UK Unemployment in the 1980s
Unemployment rose sharply at the start of the 1980s, due to deflationary monetary and fiscal policy. The recession of 1981 and decline of heavy industry also caused a rise in structural unemployment – even in the boom years of the mid-1980s, the unemployment rate remained high. Even in the late 1980s, unemployment was over 2 million. A significant factor was the structural and geographical unemployment caused by industrial decline.
After 1985, the UK economy grew very rapidly. Economic growth reached 4-5% a year. This was well above the UK’s long-run trend rate. The Conservatives felt there had been a supply side miracle. But, inflation increased to 9%. And in 1990, the boom came to an end, leading to another recession of 1991-92.
From 1985, the UK economic boom and growth in consumer spending cause a deterioration in the current account deficit. In the Lawson boom, the deficit reached 5% of GDP.
Supply-side policies
A key feature of Thatcher economics was the implementation of supply-side policies aimed at increasing the efficiency of the economy. These policies included:
Reducing the power of trades unions
Privatisation of state-owned assets from BP and BT to gas, water and electricity.
Deregulation of monopolies, such as gas and electricity
Deregulation of the financial sector, e.g. enabling building societies to become profit-making banks.
Housing Market
A key philosophy of Mrs Thatcher was the idea of a ‘home owning democracy’. During the 1980s, homeownership rates rose. In particular, the policy of selling off council homes to residents helped to increase homeownership rates. It is worth noting that homeownership rates had been rising since the late 1960s. In the 1970s, we see a similar trend in house prices to the 1980s. (1970s housing market) Also in recent years, the percentage of home ownership rates has fallen, due to house prices becoming unaffordable for many.
Home Ownership – Mrs Thatcher encouraged a belief in home-ownership. Many Council houses were bought by tenants. It led to a rise in home-ownership rates.
UK Social Trends 20th Century. Research Paper 99/111. 21 December 1999
House prices in the late 1980s boomed, with record house price inflation, especially in the south-east. This created a powerful feel-good effect and contributed to the Lawson boom of the late 1980s. But, the growth in house prices was also unsustainable and prices fell after 1990.
Another feature of the 1980s housing market was a slowdown in house-building compared to the previous decades; this contributed to housing shortages in 1990s and 2000s.
