The world’s top athletes are competing for the gold at the London Olympics. But it’s not just the Olympians striving to come out on top. So is the city of London. This month, British Prime Minister David Cameron made a pledge to turn the Olympic games “into gold.” Every four years, host cities hope the international platform will serve as a catalyst for economic growth. Officials see it as an opportunity to modernize transportation systems, jumpstart urban renewal, attract tourism, and gain international prestige. But some doubt London, or the host cities before it, will ever come out ahead. Diane and guests discuss the costs and benefits of hosting the Olympics.

Guests

  • Steve Wilson European sports editor at the Associated Press.
  • Mark Spiegel vice president of international research at the Federal Reserve Bank of San Francisco.
  • Lisa Delpy Neirotti associate professor at George Washington University.
  • Tom Rhoads professor of economics at Towson University.
  • Andrew Zimbalist professor of economics at Smith College.

Transcript

  • 10:06:55

    MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Some estimate more than $15 billion will be spent on the London Olympics. British officials hope it's worth the investment. They believed it could boost the economy by at least $20 billion over four years. But some experts say, when it comes to hosting the Olympics, the cost outweigh the benefits.

  • 10:07:23

    MS. DIANE REHMJoining me in the studio to talk about whether host cities ever win: Dr. Tom Rhoads from Towson University, joining us from a studio in North Hampton, Mass., Andrew Zimbalist of Smith College, and, joining us from a studio in London, Lisa Delpy Neirotti of George Washington University. I hope you'll join us as well, 800-433-8850. Send us an email to drshow@wamu.org. Join us on Facebook or Twitter. Good morning to all of you.

  • 10:08:05

    PROF. ANDREW ZIMBALISTGood morning.

  • 10:08:05

    DR. TOM RHOADSGood morning.

  • 10:08:06

    PROF. LISA DELPY NEIROTTIGood morning. Good day, as they say here.

  • 10:08:07

    REHMGood to have you with us. Joining us now from London is Steve Wilson. He's European sports editor for the Associated Press. Good morning, Steve.

  • 10:08:22

    MR. STEVE WILSONGood morning, Diane.

  • 10:08:23

    REHMI know you're covering the 13th Olympic Games. Now that the games are underway, how are things going?

  • 10:08:32

    WILSONWell, I'd say they got off to a jittery start here. We had headlines about security worries and transport chaos. And now that the games have started and the sports are underway and medals are being won, things are going a bit more smoothly. But there's still a lot of concern here about empty seats at some of the venues. They're trying to bring in some soldiers and kids and others to fill those seats so you don't see this wave of empty stands at the venue. So that's still the big issue, is getting those seats filled so they are, you know, looking good on TV as well as in person.

  • 10:09:10

    REHMI understand that after those seats were photographed as empty, there were news statements issued that they'd be given to members of the armed service.

  • 10:09:27

    WILSONThat's right. And they have been using some of those seats to put in the troops who are working here already, and there's school kids coming in. And they're also trying a new system whereby they kind of recycle the tickets. They resell used tickets when people are leaving and others can come in and take them like they do at Wimbledon tennis.

  • 10:09:44

    REHMIs there any estimation on how big the final price tag is going to be?

  • 10:09:52

    WILSONNo, it's going to take a while. But what we do know at this point is that, you know, the government and the taxpayers are footing a bill so far of what's £9.3 billion, which is just over $14 billion, to put on the games in terms of getting this Olympic park built and all the infrastructure around it and the venues in place. So that's the figure that we know about. In addition, we know about another figure of £2 billion. That's about $3 billion.

  • 10:10:21

    WILSONAnd that's what the local organizing committee, which is a private company, is spending or is trying to meet that budget to run the games. And they're doing that through ticket sales and getting revenues from TV, merchandise and sponsorships. So we'll know a few months after the games whether they've broken even or not on that budget. But in terms of whether how much it costs in the long run and whether it was a drain or a gain, we won't know for some time yet.

  • 10:10:51

    REHMSo London officials saw the Olympics as a way to redevelop East London. Talk about the development there that's taken place.

  • 10:11:04

    WILSONYeah. Well, that's probably been the most dramatic part of this entire Olympic project. And the London bid committee years ago made plain that the reason that they wanted to hold the games here was to regenerate a part of the city which had fallen into disrepair. And that's really an industrial area which had been left unused for many decades, so they focused on revitalizing that part of London. And what they've done is they built a -- an Olympic park, which is about 250 -- well, about one square mile of size.

  • 10:11:44

    WILSONAnd they put in some new venues in there, eight new big sparkling venues, some new, some temporary. And they built it in -- it's built as the largest urban park in Europe. So they hope after the games, this will remain as a great legacy for London. We have new transport systems coming into this part of town. They're going to have a medical facility, schools. They want to build it into a new neighborhood for a part of London that had been neglected for many years.

  • 10:12:12

    REHMAnd, before I let you go, I want to ask you about the tons of sand that were brought in for the volleyball.

  • 10:12:23

    WILSONYes. Well, you know, London is not known as a sand and sea city, so what they've done is -- in fact, it's probably one of the most sought-after venues in tickets is to go see the beach volleyball, which is right down at the center of London, not far from Buckingham Palace, just a stone's throw from the prime minister's back window. So they've had to -- they built a temporary venue for beach volleyball right there in the center of London. And since there's no sand in the center of London, as you know, they've trucked in sand from Surrey, not far away, and so a little mini beach just for two weeks.

  • 10:13:02

    REHMAnd it's in sight of the palace, is it not?

  • 10:13:07

    WILSONExcuse me?

  • 10:13:08

    REHMIt's in sight of the palace?

  • 10:13:12

    WILSONIt is. It's not just down the road. In fact, it's always been joked that the prime minister -- it was Tony Blair at the time when they won the games and now David Cameron, of course -- can just look out the back window and watch some sport.

  • 10:13:24

    REHMSteve Wilson, he is sports editor for the Associated Press. Thanks for joining us.

  • 10:13:32

    WILSONMy pleasure.

  • 10:13:33

    REHMAnd now, turning to you, Andrew Zimbalist, countries that host the Olympics talk about big economic returns. Do countries really gain from hosting the games?

  • 10:13:49

    ZIMBALISTThe evidence that we have, Diane, from the last 30 or 40 years is that...

  • 10:13:55

    REHMI'm sorry, Andrew, I'm not hearing you.

  • 10:13:56

    ZIMBALISTYou're not getting my voice? OK.

  • 10:13:59

    REHMLet's -- I'm not hearing him at all. Let's try it again.

  • 10:14:06

    ZIMBALISTThe evidence that we have from the last 30 or 40 years of the games is that there might be one or two cases where there was a clear economic benefit. But in vast majority of cases, it either seems like either a break-even proposition or losing proposition.

  • 10:14:24

    REHMTom, from your point of view, then why is there such a great desire to host this?

  • 10:14:31

    RHOADSI think there's just a lot of input from voters, from just regular folks that think it's really neat to have an Olympics in their backyard. And so the question is, is that worth the effort, the cost of resources to bring something like that in there for, really, for entertainment purposes? But there's some other benefits that can come from it, but again, the long lasting benefits, you're not going to expect to see those.

  • 10:14:56

    REHMWhat do you think, Lisa? You regard them as economically beneficial. Why?

  • 10:15:03

    NEIROTTIWell, having been to 16 Olympics Games -- and I'm currently here...

  • 10:15:06

    REHMDo we have Lisa?

  • 10:15:08

    NEIROTTICan you hear me? Yes.

  • 10:15:09

    REHMYes. Now I can. Thank you.

  • 10:15:11

    NEIROTTIOK. So having been to 16 consecutive Olympics Games and currently in London, I do believe that, even though it may not, you know, have a direct economic impact, there is a lot of intangibles that people forget about.

  • 10:15:27

    NEIROTTIJust the education of the volunteers so they can increase their opportunities to gain employment after the games -- and many of them have been trained in media, hospitality -- just the knowledge of meeting different people from around the world, for many of these youth that have never been exposed to that, especially in the East London area, I mean, that shopping center in Stratford is just amazing. It's at Westfield's.

  • 10:15:53

    NEIROTTIFrom a bombed-out deserted wasteland to now a top-notch mall -- and retail employs a lot of people, and it is definitely doing well. You're -- they're going to have a tech center there, an art center. London is really looking at this as a way to enhance, encourage young people to be entrepreneurs, small business development. They're also bringing over 200 business CEOs looking to, you know, build businesses in London. They're expecting of this 200 to have at least 40 new companies start businesses and...

  • 10:16:36

    REHMAll right. So, Andrew, what do you think of all that?

  • 10:16:40

    ZIMBALISTWell, the problem is, of course, when a country is going to spend $15 billion or more in infrastructural investment and in venue facility construction, then you are going to get some economic activity. The economic activity comes at a cost. The cost in the case of London is somewhere north of $15 billion. When economists do post-talk studies and they look at what happens to host cities over time controlling for other variables, they don't find there to be over time a positive employment effect or positive GDP effect.

  • 10:17:21

    ZIMBALISTSo, yes, it's absolutely possible that there'll be some volunteers who have had their lives enriched, who might have some new employment skills, and it's possible that there'll be some new businesses who'd come to London over time. But when you look at it in the aggregate and you look at the costs that are undertaken, it simply, in the past, has not had a salutary record.

  • 10:17:42

    REHMSo what you're saying is that what's happening now simply does not have lasting power.

  • 10:17:51

    ZIMBALISTThat's right. And, look, we also have to consider that there are many people who, my family included, by the way, who would be traveling as tourists in London this summer who won't come anywhere near the place because we don't want to deal with the congestion, and we don't want to deal with the higher hotel costs. And there are other people who live in London who don't want to have anything to do with the congestion, and they take off. They leave the city.

  • 10:18:16

    ZIMBALISTIt's interesting that even though during the 17 days of the spectacle, the evidence that we have is that tourism in most places doesn't increase, that spending aggregate retail sales do not increase. Hotel occupancy does not increase. Even airport traffic does not increase because you have one group of travelers replacing another group.

  • 10:18:39

    REHMAndrew Zimbalist, he is professor of economics at Smith College. Short break. We'll take your calls when we come back.

  • 10:20:04

    REHMAnd we're talking about the pluses and the minuses economically and socially of hosting the Olympic Games. Here in the studio, Tom Rhoads. He is professor of economics at Towson University. Joining us from North Hampton, Mass., Andrew Zimbalist, professor of economics at Smith College. And, from a studio in London, Lisa Delpy Neirotti, she is professor of tourism and sport management at the George Washington University School of Business.

  • 10:20:46

    REHMTom, you were saying during the break that, despite the downside that Andrew has just outlined, you got Coca-Cola, you've got McDonald's, all continuing to advertise and push their products even though they're well-known. How does that fit in?

  • 10:21:08

    RHOADSYou think about Coke, you think about McDonald's, for instance, you know what kind of products they are, and yet they still continue to advertise, spend lots of money on advertising. Why do they do it? They have to stay at the front of the consumers' mind. You can somewhat make an analogy with London or any of these cities that are trying to get an Olympics -- to host an Olympics to think that they have to spend the money to stay at the forefront to try to attract those businesses that may have corporate headquarters there, to try to attract tourists that might want to take a visit there.

  • 10:21:41

    RHOADSThey have to -- they feel this compulsion almost to try to draw these games, these mega events in order to attract those businesses and those tourists the same that Coke and McDonald's would have to continue to advertise. We know what product it is.

  • 10:21:57

    REHMWhat do you think about that analogy, Andrew?

  • 10:22:01

    ZIMBALISTWell, I -- look, the games -- whatever one can say about a lack of attendance at the venues in London, the games have a 18 or 19 rating on television in the United States. They have 38, 39 million viewers so far on average. This is a wonderful place to advertise your wearers. And, yeah, it's a competitive world out there, and companies always want to stay one step ahead of the curve vis-à-vis their competitors.

  • 10:22:29

    REHMBut...

  • 10:22:29

    NEIROTTII'd like to add a couple of things to this point.

  • 10:22:31

    REHMSure, Lisa. Go ahead.

  • 10:22:33

    NEIROTTIIt's not always about branding for these companies. While here, I'm meeting -- and my students -- with all the top sponsors, and many times it's just about bringing their customers and building a relationship with their customers. And they're not so worried about whether consumers even recognize their association with the games. There's other reasons they do it besides branding.

  • 10:22:53

    NEIROTTIThe other thing is about the London seats. This is not new. Every Olympic Games, we hear the same complaint about empty seats. And it's because of these sponsors bringing over guests who don't really want to go to the preliminaries. They'd rather go see the London Tower, and they'd rather go see, you know, shopping, you know, do shopping.

  • 10:23:12

    REHMInteresting. Interesting. I want to take a step back. Andrew, talk about the bidding process. How does that work? How much money gets spent just on that?

  • 10:23:26

    ZIMBALISTWell, we know Chicago spent $100 million in their failed bid to host the 2016 Olympics.

  • 10:23:32

    REHMWow.

  • 10:23:33

    ZIMBALISTLook, it's a 10-year process basically. What's typically transpired over the last 15 or 20 years is that, roughly 10 years before the games happen, you'll get several cities from a particular country who are interested in hosting the games. They bid against each other, and the National Olympic Committee, in our case, the USOC, decides which of the prospective host cities within the country will represent the country in the international bidding.

  • 10:24:01

    ZIMBALISTThen there's international countries that enter into a first round of competition before the IOC. The IOC whittles that down to finalists and --their five finalists, and then seven years before the games, the IOC selects one of those five. Now, one of the problems, I think, in understanding the absence of a positive economic benefit is that during these three or four years leading up to the selection of the host, there is intense competition.

  • 10:24:30

    ZIMBALISTIt's a competition that's almost an Olympic Games in itself if you watch the individuals involved. They kind of root for their city and their local organizing community like they would root for a basketball team or a gymnastics team in the Olympics. Well, when they finally get it after three or four years of competing against all these other cities, they have already bid away any prospective game that they thought they had.

  • 10:24:51

    ZIMBALISTAnother problem is that the individuals who run the bidding process for particular cities who run the Olympic committee efforts are generally private interests who are representing themselves. They're not representing the city. These are construction companies. These are construction unions, architectural firms, investment bankers, lawyers who work for all of those groups. They go to politicians, and they form a coalition that roots for the Olympics.

  • 10:25:20

    ZIMBALISTAnd when they do their bidding, they're not thinking about the cost benefit for the city. They're thinking about the cost benefit for their firms, and you invariably get overbidding. Because the IOC, in the course of all of this, is a monopolist and they get to pick the highest bids, they also get to state their terms, and one of their terms is that the city that host the Olympics has to turn itself into a tax haven so that the companies that are involved in sponsoring the Olympics, the individuals who make money off of the Olympics, they don't pay any taxes.

  • 10:25:52

    ZIMBALISTIt's been estimated that for London this year -- this is over and above that $14 billion figure you heard cost for taxpayers. It's been estimated that there's going to be a 700 or $800 million loss in prospective tax revenues.

  • 10:26:04

    REHMInteresting. Tom, should there be a different way?

  • 10:26:10

    RHOADSThat's a good question. Again, it is competitive like Andrew was saying. It's a very competitive process. I think the only the other way you could do it, I think, that would seem feasible would be just to rotate from one continent to the other. And if you have a rotation of, you know, one year in North America, let's say, the next it's -- the next time it's in Europe, the next it's in Asia, and just rotate it around the world, then you don't get the competitive process internationally.

  • 10:26:39

    RHOADSYou'd still have the competitive process within the country or within the continent that you're looking at. But at this point, you know, this is -- the IOC, like Andrew said, the IOC has a lot of power -- a lot of monopoly power, and they can set the price, so to speak. There's a lot of lobbying that goes one, no different than what happens in your state capitals, in your federal capitals with regard to trying to get legislation passed and tax laws favorable for corporations.

  • 10:27:04

    RHOADSSo these IOC members are behaving in somewhat a similar fashion to legislators when they're passing laws and regulations. They have a lot of power.

  • 10:27:16

    REHMLisa, do you want to add something?

  • 10:27:18

    NEIROTTIRight. Well, number one, it's not they come in and say, we're going to offer you X, Y, Z. There's not a financial bid. They look at the venues. They look at your transportation.

  • 10:27:29

    REHMSure. Sure.

  • 10:27:29

    NEIROTTIThey look at all that, so I want to make sure that's clear. And the other thing is companies here are still paying the VAT, which is 20 percent on their hotel bill. So there, you know, yes, there are waivers about bringing in items, and I know Brazil is just going through this right now. But it's not all taxes are waived, so we need to be a little bit clear on that fact.

  • 10:27:55

    REHMOK. And, Tom, turning now to Britain Prime Minister David Cameron promised to turn these games into gold. What do you make of that?

  • 10:28:07

    RHOADSI think -- again, there's some civic pride, some national pride, I think, that he wants to really build on. If the U.K. really does well, if they win a lot of medals, I think a lot of citizens there are going to be proud of their country, and that might lead to more people wanting to come visit.

  • 10:28:28

    REHMSo tourism. OK.

  • 10:28:29

    RHOADSI think tourism, I think civic pride, I think national pride, that's a big thing.

  • 10:28:33

    REHMWhat about trade, Andrew?

  • 10:28:37

    ZIMBALISTWell, let me first just say that I don't think that there's evidence that tourism increases. You always have the problem, by the way, that something bad can happen at the Olympics. There can be security issues. There could be bad weather. Yesterday, I was watching with my family the bike races, and there was a downpour. And that could reinforce any images that people have about rain in London.

  • 10:28:58

    ZIMBALISTYou don't necessarily get positive PR for your tourism industry. It can happen, but it doesn't necessarily happen. In terms of trade, there was a study that was done by Rose and Spiegel a few years ago, and they claimed in their study that countries that bid for the Summer Olympics got a 30 percent boost in their exports. It turns out that there was a selection problem. There's a selection bias in that study, and when you correct for that, there's no boost at all.

  • 10:29:25

    ZIMBALISTAnd even in their study, they found no trade benefits for hosting the Olympic Games. So there isn't clear evidence about a trade benefit either. One of the things that's interesting, by the way, is that last year, the London organizing committee, LOCOG, was concerned about critiques coming out that people would say, oh, you're spending all this money and you're wasting our money and there's no economic impact.

  • 10:29:46

    ZIMBALISTSo they sent out an RFP, a request for proposal, to various consultant companies and economists, saying that we anticipate some pushback about the amount of money we're spending, and we'd like somebody to do an economic impact study that will rebut that, that will say, this is the cat's meow, economically. So they were actually going forward and soliciting somebody to do a study that would counter the kind of critique that you're hearing this morning.

  • 10:30:11

    REHMNow joining us from San Francisco is Mark Spiegel. He's vice president of international research at the San Francisco Fred -- Fed. Good morning, Mark.

  • 10:30:26

    MR. MARK SPIEGELGood morning, Diane.

  • 10:30:26

    REHMI know you co-authored a paper with Andrew Rose that looked at the correlation between Olympic host cities and trade. Talk about what you found.

  • 10:30:41

    SPIEGELWell -- so what we were doing in the paper was trying to reconcile what we viewed as kind of a puzzle in that despite the fact that all the serious studies suggest that hosting the Olympics are big-money losers for the host, countries -- both their governments and their citizens -- almost universally seem quite enthusiastic about trying to host the games. So we tried to figure out maybe something else was going on that might explain the enthusiasm.

  • 10:31:09

    SPIEGELAnd what we did was we estimated a very standard trade model that tries to explain the volume of trade that countries should have, and then included a variable that indicated whether or not countries that hosted the Olympics. And, surprisingly, we found a very large and substantial what we called Olympic effect -- namely that countries that hosted the Olympics had a 30 percent permanent increase in their international trade.

  • 10:31:39

    SPIEGELAnd we were surprised by this result. So what we did then was we went on and said, well, what about the countries that try to -- were finalists? They bid for the Olympics, but weren't chosen to be hosts. And, surprisingly, we found that they got almost the same effect. So, in other words, the effect was not associated with things like tourism or anything associated with the event per se because you did almost as well -- one could argue even better -- by just bidding for the games and not being chosen to be a host.

  • 10:32:13

    SPIEGELSo what we argue in our paper is that instead of associating the effect with the games themselves, we associate the effect with the willingness to undergo the costly effort of hosting the games, which we associate with countries desiring to step up to the world stage. And in a number of cases, it's very clear that the timing of large bids for the Olympic Games coincided with countries liberalizing and maybe emerging as more important trade partners with the rest of the world.

  • 10:32:48

    REHMMark Spiegel, he's vice president of international research at the San Francisco Fed. What do you make of that, Andrew?

  • 10:32:59

    ZIMBALISTYeah. Well, I just referred earlier to...

  • 10:33:01

    REHMYeah.

  • 10:33:01

    ZIMBALIST…to that paper. Look, we can get into some very technical discussion here. I think it's interesting that the Rose-Spiegel finding doesn't identify a direct benefit from actually hosting the Olympics, but identifies a benefit from bidding for the Olympics. And that suggests what the underlying problem is with the paper, which is that there's a selection bias.

  • 10:33:25

    ZIMBALISTThe countries that are being looked at are countries that already are developed and developing rapidly or up-and-coming countries and any kind of trade liberalization or shift in trade policies happening in spite of the bidding process. These are countries that are already changing themselves, and because they're changing themselves, they're interested in further projecting themselves onto the world stage. Yeah.

  • 10:33:47

    REHMTom Rhoads, what do you make of it?

  • 10:33:49

    RHOADSI look at it as, potentially, there are some signals being sent that these cities are lobbyers and that they're amenable to some kind of lobbying efforts. And that's always a good thing for trade coming in. So I haven't looked at the study, but I would suspect that there's -- there might be something there suggesting that lobbying is very strong, and there's always dollars that chase after lobbying.

  • 10:34:15

    REHMWhat about that, Mark, chasing after lobbying?

  • 10:34:20

    SPIEGELWell, I think -- I mean, in our paper, we talk about the idea that there is a political economy channel that might influence the willingness of countries to solicit a bid for the games precisely based on the share of export-oriented firms in the country. And so we talk about that, and I'm very sympathetic to that argument. Concerning the selection bias question, I'm aware of a study that tried to talk about that.

  • 10:34:49

    SPIEGELBut in that study, basically the countries that they used to control for the selection bias are the same kinds of countries -- a lot of them are exactly the same countries that we identify as non-hosts. So that study kind of says the same thing that we are saying, that it isn't an effect of the games themselves, but rather the effect of these countries that bid for the games are ready to move into that world stage and become more of an international player. Now, what the causal link is, that's open to question.

  • 10:35:28

    REHMAll right. I'm going to take a call here from Cleveland, Ohio. Good morning, Len.

  • 10:35:35

    LENGood morning. Thank you. In calculating the benefits, the financial benefits of an Olympics Game, a lot of money goes to people who are working on the premises, constructions, working on the site itself, the games themselves. And doesn't this have a multiplier effect on the local economy, taking people off unemployment, adding to businesses that many businesses down the line do? And I also don't know how much of the money on the Olympics comes from outside the country and is just recycled from within.

  • 10:36:09

    REHMTom.

  • 10:36:10

    RHOADSBe careful of how you define costs and benefits. Construction costs are costs. They're not benefits, so that the cost of hosting a game, of setting up these stadiums and venues and whatnot, it's a cost. And so you can't think of that as a benefit. And I see this happen many times with many of these mega events, that when they're trying to be sold to the public, there's a little bit of confusion, I think -- if that's a nice way to say it -- about what is a benefit and what is a cost. So be very careful.

  • 10:36:31

    REHMMark. Mark.

  • 10:36:42

    SPIEGELYes. I would agree with -- I guess that was Andrew. And I would also add that in terms of assessing the benefits, you know, if we take the case of London, it would not be the case that the London hotels would be empty this summer were it not for the hosting of the games. And so we have to be very careful in terms of assessing all of the expenditures on the games as extra benefits and extra revenues that were raised associated with the games.

  • 10:37:11

    REHMAndrew, we've got to...

  • 10:37:11

    SPIEGELAnd so a number of -- I was just going to say the number...

  • 10:37:14

    REHMSure.

  • 10:37:14

    SPIEGEL...of -- the magnitude of the expenditures are just staggering relative to the calculated benefits anyway. In terms of Rio, in Brazil, coming up in 2016, we're talking about $2,000 per Rio citizen that they bid for hosting the games.

  • 10:37:28

    REHMAll right. We've got to take a short break here. Stay with us. Mark Spiegel. And we'll take some more calls when we come back and also hear from Andrew on that last point. Stay with us.

  • 10:40:04

    REHMAnd we're talking about the economic pluses and minuses of the Olympics. I know, Andrew, you wanted to comment on that last caller.

  • 10:40:15

    ZIMBALISTYeah. I think that Len is raising an interesting question. We know that as a result of the Olympic construction that people are getting jobs, and they're earning income. And don't they then take that income and spend it on other goods, and so more goods are created and more jobs are created? And there's a multiplier effect. Everybody learns about that in introductory economics. It's very important, however, to keep in mind, as Tom was alluding to, that there's a cause for creating that job.

  • 10:40:45

    ZIMBALISTIf it were so simple that all the government had to do was spend money and create construction jobs and the economy would thrust forward, what the government could do is it could hire a thousand workers to dig a great big hole in the center of London and then hire another thousand workers to fill the hole up. That would generate jobs and would generate income. But where's the income coming from? It's coming from the government budget, and the budget comes from taxes.

  • 10:41:08

    ZIMBALISTSo in order to finance that, you have to lower other people's income. And unless the thing that you're building itself has an economic value, the construction itself doesn't advance the country's economy. The other thing that's interesting, I think, is this area that they're trying to redevelop, East London, actually had an increase in its unemployment rate from 5.5 to 6.5 percent over the last year. So for some reason, the construction itself is not propelling the London economy forward at least from the evidence we have so far.

  • 10:41:42

    REHMAll right. And, Lisa, here's a question for you from Joe, who's listening in Indianapolis on WFYI. He says, "I question the premise and the economic analysis that the Olympic Games can answer the question, should our economy -- should our community host the Olympics. Some of the most important rituals in our lives are net losses economically, for example, weddings."

  • 10:42:19

    NEIROTTIRight. I mean, I -- again, I agree that face value may not make sense on paper. It's a catalyst to spend, and sometimes, I mean, in the case of Athens, they needed a metro system, and the Olympic Games were a reason for them to build it. And they were able to get, you know, federal money up front. And I don't want to get into the whole Greece thing.

  • 10:42:40

    REHMYeah, that's the problem.

  • 10:42:41

    NEIROTTIEverybody blames the Olympics on the downfall, but that's not true. You know, every one of these in terms of tourism, you look at the 2000 Sydney games, their tourism had increased, but then 9/11 happened. 2004, they did not plan, and it was -- those I cannot comment because I don't agree that they had any tangible benefit. It was unfortunate. 2008, the financial crisis happened right after. So, you know, every one -- 2012, London, I mean, they, too, Europe, is having economic problems.

  • 10:43:17

    NEIROTTISo, unfortunately, these metrics that we're looking at and trying to make a case or not make a case, there's always so many other variables that fall into place, and it's really hard to make one case or another.

  • 10:43:32

    REHMAll right. To Dallas, Texas. Good morning, Paul.

  • 10:43:37

    PAULGood morning. I've had the privilege of working on five Olympics, and I actually wrote the Dallas Olympic bid for 2012. So I've been involved in this for a long time, and Lisa's an old friend. One of the things that I've been told -- and I had a great boss a couple of years ago -- is that hosting an event like an Olympics or a Super Bowl gives the community a deadline to do the things that they ought to be doing anyway. So if you want to improve your roads, you want to improve your stadiums, having a deadline helps bring those events around.

  • 10:44:08

    PAULHis other great line was on the PR side of this, and he said hosting an event like the Olympics or, again, a Super Bowl, the one thing you can be guaranteed is the morning after the game, the morning after opening ceremonies, every paper in the world above the fold will have a story and a picture that says live from London or AP from London. And you can't buy that kind of publicity for your city.

  • 10:44:30

    REHMTom.

  • 10:44:32

    RHOADSWell, yeah, you do buy it. And for London, it's costing them $14 billion. I think we have to be very careful, again, of looking at these benefits and trying to quantify them as, you know, something that's good, something that's positive. I do like that -- the earlier email that came in about, you know, a wedding. There's a cost to a wedding. You don't necessarily get benefits. Well, there are benefits. Trying to quantify those benefits is really difficult.

  • 10:44:59

    RHOADSAnd I think if we want to shift the conversation a little bit with quantifying the benefits from hosting a games, there's some civic pride, if you want to call it that, that really is true and real. But how do you quantify it? And do you spend billions upon billions of dollars to do that as opposed to spending billions of dollars in capital investment in something that, you know, there's an opportunity cost to these dollars that are spent and where is it best to spend than money.

  • 10:45:27

    REHMAnd here's a caller from Cambridge, Mass. Steve, you're on the air.

  • 10:45:35

    STEVEDiane, there's one measure that I would be really interested in that I have not heard addressed, and that is a comparison of if the city of London had spent this $14 billion in other ways, might they not have received far more benefit than spending the $14 billion on this Olympic event.

  • 10:45:57

    REHMMark, I'm going to ask you what your thought is.

  • 10:46:01

    SPIEGELWell, I would completely agree with the sentiment of that call. So for example, when you build for the Olympics, you might be building a major transportation project, but that project would have to coincide with the needs of the games and not necessarily be, you know, designed in accordance with the ultimate needs of the city in which the games are being held. And in addition, a lot of the projects are for things like velodromes and other kinds of stadiums that don't have much use.

  • 10:46:28

    REHMBird cages.

  • 10:46:31

    SPIEGELIn China, the famous Bird's Nest Stadium that we all remember that looked so magnificent and cost $100 million to build, they don't know what to do with it now, and the rumors are that they're going to change it into a shopping mall because it's so expensive to maintain. So, indeed, the kinds of construction you get are not the best things to do with your buck.

  • 10:46:51

    REHMAll right.

  • 10:46:52

    NEIROTTIIf you go to the cube, though, the Water Cube, they've turned that into a community swimming pool, and millions of kids each year are being trained in it. So, yes, the Nest is not a good example, and I think everybody realizes that. That's why here in London, it's -- it was a very intimate stadium that they built, and it's more reasonable.

  • 10:47:12

    REHMLisa, talk about what you're seeing in London. How does it look?

  • 10:47:20

    NEIROTTII mean, the Central London is not as -- there's not a great look to the Olympic Games. They've kept it very clustered over in -- the Olympic Park is where you see most of the Olympic flags and overlays down by the Horse Guard where all the sand is.

  • 10:47:40

    REHMYes.

  • 10:47:41

    NEIROTTIYes. There is a lot more near the building.

  • 10:47:43

    REHMA lot of sand, yeah.

  • 10:47:45

    NEIROTTIA lot more visibility of the Olympics there. But in Central London, it's -- they've left it so you could see the old historic London.

  • 10:47:52

    REHMOK. To Hallandale Beach, Fla. Good morning, Gil.

  • 10:47:58

    GILGood morning, Diane, and good morning to all your guests. Thank you for having them.

  • 10:48:02

    REHMThank you.

  • 10:48:04

    GILYes. My question -- and I'll take my question off air -- is, what is the relation between first and second world countries hosting the Olympics? And as Brazil prepares for the games, cleaning up the favelas and building venues, what would be the economic impact for them? I know they're doing quite well. And what other countries, second world countries perhaps, in the world are obscure to the OOC, what, you know, what other countries have maybe made bid for the Olympics but fell short for some reason or another?

  • 10:48:38

    REHMAll right. Andrew.

  • 10:48:40

    ZIMBALISTSo it's a very good question, and I think there are certain tendencies that one can identify to answer your question although I don't think that there's a black and white response. In my view, if a country or a city is less developed, it does not have a fully modernized communications infrastructure and transportation infrastructure, then if the planning for the Olympics is done very carefully and properly and there aren't political impediments, then I think such a city stands to benefit more than a city like London, which is fully developed.

  • 10:49:12

    REHMInteresting.

  • 10:49:15

    ZIMBALISTHowever, whether or not Brazil is going to be able to pull that off is another question. We already have horror stories coming out about roads were supposed to be built between the Sao Paulo Airport in Sao Paulo -- that's with respect to the World Cup, by the way, which is 2014. Cleaning up some of the favelas, that's true. Some of the favelas are doing a lot better. Other favelas have been razed, and people who lived in those favelas haven't been replaced.

  • 10:49:41

    ZIMBALISTIt remains to be seen in that system, which is a very complex and corrupt system politically -- it's very hard to get things built. It remains to be seen whether they're going to finish all of the planning on time, and then, once the Olympics happens, whether they'll be able to avoid security issues.

  • 10:49:59

    REHMAnd here's an email from Randy, who asks, "Have two cities or countries ever considered sharing the Olympics? The U.S. and Canada could share the cost and everything else that goes along with the Olympics." Tom.

  • 10:50:17

    RHOADSBaltimore-Washington put a bid in for this 2012 Olympics. So, yes, we have seen that, in terms of bidding for those games, that cities will share.

  • 10:50:26

    REHMBut what about two countries...

  • 10:50:28

    RHOADSTwo countries, I...

  • 10:50:29

    REHM...both the U.S. and Canada?

  • 10:50:30

    RHOADSI have not heard of that...

  • 10:50:31

    NEIROTTIYes. Yes, they have.

  • 10:50:32

    RHOADSBut I'm not the expert on that.

  • 10:50:33

    REHMLisa.

  • 10:50:33

    NEIROTTILake Placid and Montreal have considered it. There was a bid between Scandinavia -- the two Scandinavia countries -- I think it was Sweden and possibly Norway.

  • 10:50:46

    REHMMark, would that make sense?

  • 10:50:47

    SPIEGELJapan and South Korea co-hosted the World Cup.

  • 10:50:52

    SPIEGELI mean, I think when you're talking about the reputation effects, if you buy into the basic story of my study, I think you want to really push these kinds of countries that are emerging market economies, that they would stand more if you believe that the boost of the Olympics is your position on the world stage and sort of a boost to your reputation. Clearly, an already liberalized country like the United Kingdom and then the city of London as well from hosting the games is not like they get much of a further boost of a reputation type from hosting the games.

  • 10:51:26

    REHMAll right. To Toronto, Ontario. Good morning, Dave.

  • 10:51:34

    DAVEGood morning. Yeah, I'm calling from a city who's trying to get the Olympics several times. I think one of the biggest reasons that we didn't get it is just that we couldn't really get the citizenry excited about the whole thing. And I don't know, for a city like -- for ours, I don't see the benefit, especially since 9/11. The cost have gone up so astronomically that -- I, you know, they keep telling us, like, the IOC is like a bunch of gangsters.

  • 10:52:01

    DAVEThey keep demanding a lot of things from us, and then you got to put in all this money to get the Olympics. And then after -- because of certain political whims, they'll just give it to somebody. And it's not -- I don't even know if the process is even a democratic process.

  • 10:52:15

    REHMYeah, that's a real question, but he also -- Dave also raises security issues since 9/11, Tom.

  • 10:52:25

    RHOADSAnd I agree with Dave, and I think in Toronto, it sounds like the citizens there are very intelligent.

  • 10:52:35

    REHMVery cool to the idea.

  • 10:52:36

    RHOADSYes. Because for them to be hesitant, I think, to host the games, they understand there's not the benefits that are always touted.

  • 10:52:45

    REHMBut, Andrew, the other question, how much politics are involved in the ultimate choice of a city or a country?

  • 10:52:56

    ZIMBALISTYou know, one can go back to choices over the last 20 or 30 years and make very direct connections between, say, friends of Juan Antonio Samaranch, the old head of the IOC, and business associates he had and pay-offs. It was very clear that it was politically driven. And I don't think that that kind of direct evidence is as available today as it used to be, but it does seem to be the case that the IOC likes to rotate the Olympics from one set of countries to another set of countries.

  • 10:53:31

    ZIMBALISTAnd there's a lot of lobbying about, let's give the next Olympics to Europe so that the Olympics after that can go to South America. But the kind of direct payoffs that were happening in the past, those are more difficult to identify. And just one other word about security, the security costs in London are estimated to well exceed $1 billion.

  • 10:53:51

    REHMAnd you're listening to "The Diane Rehm Show." Lisa.

  • 10:53:58

    NEIROTTIOh, I was just saying that the one billion has been kind of the standard since 9/11 has come into play. I know Greece did the same. And then back to the politics, there are voting blocks. It's pretty well known within the Olympic movement that, you know, there's a Latin and an African, and you know which cities they're most interested in. And then if they go out, then who is our second choice?

  • 10:54:22

    NEIROTTIAnd so you have to build a relationship and understand the round system, and that's -- that helps cities win. And in the case of Rio, I think we should have done a better job explaining the politics of these to the people bidding.

  • 10:54:39

    REHMHow would you have done a better job?

  • 10:54:42

    NEIROTTIWell, for one, everybody said that, like, the Obama campaign or regime is very upset. But if they would have understood the concept that everybody wanted it to go down to South America, that it hadn't been there before and that, even though, technically, Chicago had a better bid, the way the voting blocs go, most likely, we were not going to get that. And they would not have been so surprised and upset.

  • 10:55:12

    REHMTom.

  • 10:55:13

    RHOADSAnd that might be a matter of the U.S. Olympic organizing committee putting forward the right city. If Chicago wasn't going to be viewed internationally as the right place to go, maybe we should have known that ahead of time politically.

  • 10:55:24

    NEIROTTINo...

  • 10:55:25

    ZIMBALISTThere's another set of politics which has to do with international politics and a broad sense of distaste for the U.S. role internationally. And, you know, one of the things -- we got slapped in our face when they ended baseball and softball. They used to be Olympic sports, and they're not Olympic sports anymore. There's question -- I mean, there's been a longstanding resentment that the United States gets a large -- such a large share of the television money from the IOC.

  • 10:55:49

    ZIMBALISTSo there's a lot of, if not antipathy, at least negative feelings towards the United States in the international Olympic community. And that's something else if you're looking at it from the standpoint of why Chicago didn't get the Olympics. It's something else that has to be dealt with.

  • 10:56:03

    REHMDo you think that losing the bid, considering how much has been spent, people are going to look very, very closely at what comes afterwards and whether it was worth it, Tom?

  • 10:56:04

    SPIEGELBut, in terms of the political economy, I mean, I think you have to understand there's also a potential benefit, which is that...

  • 10:56:20

    RHOADSIt's a great question, great comment. Is it worth it? Is there good feelings that comes afterwards? Absolutely, as long as things go well. I think Andrew alluded to this earlier that it's not always guaranteed that you're going to have the best weather, the best events, the best things happening, so if you're guaranteed things are going well, wonderful. Keep going.

  • 10:56:41

    NEIROTTII can tell you that the citizens -- well, they've been so friendly. Everybody here has just been extremely Olympics ambassadors and that, after the opening ceremony, there were just so much pride in hosting these games. And you could just see it on their faces...

  • 10:56:56

    REHMAll right. And that's got to be the last word. Lisa Delpy Neirotti, professor of tourism sports management at GWU. And joining us: Mark Spiegel, he's vice president of international research at the San Francisco Fed, Andrew Zimbalist, professor of economics at Smith College, and Tom Rhoads, professor of economics at Towson University. Thank you all so much.

  • 10:57:32

    ZIMBALISTThank you.

  • 10:57:32

    RHOADSThank you.

  • 10:57:32

    REHMAnd thanks for listening, all.

  • 10:57:34

    NEIROTTIThank you.

  • 10:57:34

    SPIEGELThank you.

  • 10:57:35

    REHMI'm Diane Rehm.

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