In the final analysis, have the Olympics struck gold?

Aidan Irwin-Singer 13 November 2012

The Olympic Games were promised to deliver significant economic growth. Almost ninety days after the closing ceremony, exactly how much has Britain benefited?

After all the excitement of the summer, it appears that the Olympics is the gift that just keeps on giving. Last week, the Office for National Statistics released third quarter growth figures which showed the UK is emerging from its double-dip recession, growing by 1% since July. Much of this growth has been attributed to the Olympic games. For example, around 0.2% of the 1% comes from Olympic ticket sales alone.

But whether this is vindication for those who championed the Olympics as an economic shot in the arm is harder to say. The economic legacy of the games can be measured at two levels – the effect of the games on the local area where they were situated, and their wider impact on Britain’s macroeconomic performance as a whole.

During the Olympics, many retailers in central London claimed that the Games were drawing customers away from the main shopping areas. Many hotels too, rather than being fully booked up during the games, had large numbers of empty rooms. One hotel in Devon, near the sailing events in neighbouring Dorset, actually had to close for four days during the games as it had no bookings. Conversely, some retailers have posted large profits on the back of the sale of Olympics merchandise (John Lewis is an example), so the picture here is mixed.

Further ambiguity is to be found, perhaps surprisingly, in the effect of the Olympics on the local area. The government has made much of how Newham, one of the most deprived parts of the UK which had been neglected for years, felt the transformative effects of the games. An area which was once an industrial wasteland morphed into one of London’s largest parks, construction on which will continue until 2030.

The borough is now one of the best connected in London, and hosts one of Europe’s largest shopping centres. Further transformation is still to come, with 130,000 people and 60,000 jobs expected in an expanded Newham by 2025.

Yet house prices, an important economic indicator, have only risen by 3.5% in the borough since 2005, whilst the average for the rest of London is 32.5%. The business community is concerned that, while the Westfield Shopping Centre has attracted shoppers from the rest of London, it has not benefitted local traders. Indeed, some have claimed that its presence has actually had a negative impact on their business.

The economic legacy of the Olympic games will be argued over for years. It is perhaps too early to draw clear conclusions, especially since IOC rules decree that companies involved in delivering the games are not allowed to admit their involvement, and thus capitalise fully from it. But beyond the facts and figures, the economic impact of the

Olympics has broader ramifications for the Government’s approach to growth policy as a whole. To put it simply, the entire Olympic project flies in the face of the government’s current economic strategy.

The games required enormous levels of government spending (£8.9bn to be precise). This has delivered steady growth in many sectors, including construction and services, which would not have occurred in the absence of the games. Therefore the recent growth figures present a peculiar headache for Mr. Osborne. He’s achieved economic growth, not because of his economic strategy, but rather in spite of it.

Worse, the Olympic games are essentially a Labour legacy; the smooth running of the games occurred under a Conservative-led government, but their conception is owed to the governments of Tony Blair and Gordon Brown. The Labour Party appears to be contributing to the economic recovery, without actually being in government.

Perhaps then, the economic legacy of the games should not be reduced to growth and job statistics. The aura of confidence created by the games is as important as its tangible economic benefits. As the global economic system rests on the invisible zephyr of confidence, in these miasmic times the games have, primarily, helped clear the air and provided a distraction from the dire economic situation.

Secondly, attitudes are slowly changing towards the level of government intervention required to foster an economic recovery, and the Olympics have arguably influenced this. The state was able to deliver, on time and on budget, a world class sporting event of infinite complexity, seamlessly and almost without a hitch. Where there were problems, such as the G4S fiasco, these were the result of the state not being involved enough; luckily the military were able to step in, and in doing so won praise from commentators.

At home these attitudes already appear, albeit slowly, to be shifting. Lord Heseltine’s recent report into the government’s growth strategy has called for targeted government investment in particular industries. Vince Cable’s business bank and new industrial strategy are attempts in a similar vein; incredibly, the UK was until September the only G8 economy without an industrial strategy.

Abroad, the IMF shockingly admitted last month that the entire doctrine of austerity might actually be counter-intuitive. Its estimations for the effect of austerity on aggregate output (known as the ‘fiscal multiplier’) were grossly under-calculated. The impact of retrenchment on GDP growth was underestimated – rather than reducing government debt, it has led to a debt spiral where austerity has led to lower tax receipts, followed by more austerity and more borrowing.

In the light of these findings, the IMF is changing is tune, recommending that governments ease off austerity and produce policies to stimulate demand. With pressure from all sides, calls for a more radical change of government policy may yet bear fruit; if this happens, the Olympics will be more than partly responsible.

Aidan Irwin-Singer