14 Aug 2012

To the left, the economic spoils of the Olympic Games

Fascinating interview with Phillip Hammond in The Independent today. He suggests that the performance of the army during the G4S Olympic debacle has made him reassess the limits of private sector involvement in his defence ministry.

It rather aptly illustrates perhaps the clearest economic lesson of the “Golden Games”, which I’ll get on to in a “Mo“. First, is there a price that the Games could have cost that would make the adulation, euphoria, smiles, medals and sheer fun not worth it?

Forget all the claims that it will boost or collapse the economy. I doubt it will make any significant difference to our GDP. It did support construction over the past two years. The clearest economics on the impact of the Games calculated that on its original £2.4bn budget, the Department for Culture, Media and Sport under Labour could only get to a small positive economic impact. That was a huge positive to east London, and a slightly less huge negative to the rest of the country which would see capital infrastructure investment diverted to a small patch of east London. If this was purely about regeneration and legacy, would all of the billions have been spent in a tiny parcel of east London? Clearly not.

That sub-regional study was never repeated as the Olympic budget surged to £9bn, and what I expect will soon reach the low teens of billions of pounds when land and regeneration projects are included.

Back to Hammond. In fact to my journey to the Olympic Park on Friday night. It was a journey on state-guaranteed and bailed out high speed train (the javelin), to security brilliantly provided by the army, to a state-funded stadium paid for by Keynesian deficit financing – and all to watch British elite athletes, also funded by the state and the lottery. It was an orgy of Keynesian statism that must have impressed China. And what I find extraordinary is that all the politicians are praising it so much, despite the fact all parties advocate much fewer grand projects such as this.

If the coalition and Labour really mean what they say about the Olympics boosting the economy, then naturally one might expect net public investment to be planned to rise. After all, the government has already identified £250bn of infrastructure that we actually need to keep the country’s economy growing, rather than for two months of sporting fun. Even the Chinese know Britain needs more infrastructure.

But instead, net government investment in infrastructure is being halved. It was going to be cut even more under Labour’s pre-election plans. So when I suggest that the spoils of the Olympics are heading left, at the moment, it is unclear which political party that is. When you consider that the chancellor only tends to appear in public wearing a hard hat on a state-funded construction site, I think it is pretty clear where this is heading in the medium term.

For now, despite having enjoyed the Olympics immensely, I am deeply sceptical about the economic claims made for it.

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