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  • Mathieu Provencher

2020 Olympics too much for Japan?

Who do you guys think will get the 2020 Olympics? More importantly (for me): whoever gets it, what will it mean for that city?

So... what Economists found in the great majority of cases where cities receive such big events is that the costs vastly outweigh the benefits. For example, Montreal finished paying for the Expo 67 only a few years ago (I will let you guess in which year that event was) and Sidney is probably very far from paying all their debts related to the Olympics.

The benefits usually include tourism, consumption taxes, new infrastructures, and an international spotlight (which can bring more tourism, taxes, and etc.). The costs include loss of workdays, slowdown of productivity during the events, debt repayments, and most importantly non-critical investments (and their relevant opportunity cost). The problem is usually the last of these costs, where cities are forced to build mega-event infrastructures that will most probably be completely unusable when the glitter stops.

Most cases we have seen so far are plagued with mis-investment and bad location choices where city mayors are trying to win support from poorer neighborhoods by placing Olympic swimming pools where a park or a school would have brought a lot more benefits to the community (and where no one in their right mind would go to swim once the event is over). There are a few notable exceptions, China being one of the most notable ones (where they clearly had the money and where it helped change China's perception, giving it a big-country status instead of the low-end one it had).

Now, what about Japan... it depends (yes my all-time favorite answer as you all know). I have little faith in Japan's gains from hosting the Olympics but I am always ready to be surprised. Japan is a very well developed country as far as their infrastructures are concerned. They already have everything they need to function well (except a constant electricity flow a few months ago, I don't know how it is right now) and they will most probably not really use any of the new infrastructures enough to justify these new investments. They are not facing any real confidence crisis from the outside world (the Fukushima disaster was far from the big cities and did not significantly affect their economic output) and they are already on the top few countries in the world as far as exporting quality goes.

Not only will they probably not gain that much from it, I believe they will loose quite a lot. Japan has one of the highest debt-to-GDP ratio in the world (over 200% of their economy, up to 250% depending on the estimates) and although it is mostly internal debt, they will need to start reducing it in a serious way very soon. The new Japanese strategy (Abenomics) could have been carried out much better without such a big punctual event... what Japan needs is a sustained revival of internal consumption (which is one of the most important part of their economic activity) and a long-run solution to their demographic problem. Thanks all and I hope you like these little Econ capsules!

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