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 When bids open in 2011 (having passed 2016, for which, Rio is the likely candidate), India will bid for 2020 summer Olympics. There’s potential competition from South Africa, Thailand, Nigeria, South Korea, Malaysia, Turkey, UAE, Hungary, Denmark, Germany, Scotland, the Czech Republic, Portugal, Italy, Russia, US, Mexico, Canada, Argentina and Australia, not all of which are equally serious. There’s symbolic value to hosting the Olympics — for instance, Malaysia becoming a developed economy by 2020. This is especially true of the summer Olympics. In different ways, Berlin (1936), Melbourne (1956), Tokyo (1964), Mexico (1968), Moscow (1980), Seoul (1988) and now Beijing (2008) were the recognition of a country’s crossing an economic threshold, an argument that applies for 2020 to South Africa, Southeast Asia or South Asia too. But beyond symbolic value, are there economic benefits from hosting the Olympics and how do they balance against the costs? Both costs and benefits are difficult to pin down. For a start, costs vary from country to country and there are organising costs and infrastructure costs. In principle, organising costs should be covered through revenue from broadcasting, sponsorships, ticketing and licensing and it does seem that organising costs are generally covered, often leaving a small surplus. What’s left uncovered is infrastructure costs, public or private, typically the former.

Recently, Parliament was informed that the 2010 Commonwealth games will cost Rs 6400 crore, with an additional Rs 20,000 crore earmarked for improving Delhi’s infrastructure. That gives a rough order of magnitude, though costs will be significantly higher for the Olympics. Since investments in infrastructure are considerable, and these are usually public, there must be benefits and several impact studies of the Olympics, or other sporting mega-events, float around. Typically, these focus on benefits (including employment) to construction, tourism and allied sectors and legacy effects, such as of infrastructure that has been built. In practice, after the event is over, empirical studies find little evidence of such a legacy effect having been left. But there is a more fundamental conceptual problem. Economic theory has unfortunately left a conceptual legacy that is more often misunderstood than understood. This is the concept of the multiplier, identified with Keynesian economics. Any increase in expenditure leads to a more than proportionate increase in national income. There is the dramatic example associated with Keynes, though Keynes himself never seems to have used this example. This seems to be more a case of Joan Robinson having interpreted what Keynes might have said.

There is an economy that doesn’t need ditches. Employ people to dig ditches. Since these ditches aren’t needed, employ people to cover them up once again. In the process, national income increases. We have digested Keynesian economics rather well. It is still the staple fare in any course on economic theory taught in India. We shouldn’t forget that he worked in India Office and his first book was on Indian currency. Consequently, we have perfected what Keynes preached. In government files, there are several roads that haven’t been built, primary health centres and elementary schools that only exist on paper. Consider an instance of the multiplier at work. DTC buses are a menace. Let’s break down their window-panes. The window-panes will be replaced and the resultant increase in national income will be more than the initial cost of window-panes, courtesy the multiplier. That’s a good way to boost growth and should be factored into Planning Commission models. The fallacy in the reasoning should be obvious to every economist, perhaps less so to non-economists. However, judging by impact studies, the fallacy isn’t that obvious to economists either and that’s because another economic concept, the core of all economics, hasn’t penetrated through and this is the notion of opportunity costs.

All resources have opportunity costs, that is, other uses. We forget Keynes formulated the multiplier in a scenario of unemployment and depression, when resources had no other competing uses. Typically, that’s not the case when one is building Olympic infrastructure. In taking decisions about Olympic venues, the party line is to keep costs low, preference is given to venues where infrastructure already exists, or where construction of infrastructure is part of overall infrastructure plans for the city. However, this isn’t the only criterion used in making the decision. In developed countries, infrastructure is typically better. But in developing countries, resources will certainly be diverted from other possible uses and opportunity costs of these resources (adjusted say for purchasing power parity) will also be higher. In that sense, those impact studies are myopic and reflect an imperfect understanding of economic principles. There will be redistribution of resources to Beijing or Delhi and even reallocation from one sector to another, such as from health or education to roads and hotels. One can’t sell an Olympic bid on the basis of such myopic impact studies. The only way to sell such a bid is on non-economic grounds. For example, Beijing 2008 has been described as a “coming-out party” for China.

Figures aren’t very robust. However, around $20 billion will be spent on stadiums, a new subway, highways, a new airport and a new sewage system. These are costs for Beijing alone. They don’t include costs of other venues that will also be used for the Olympics. Nor do they include monetary (not human) costs of relocation and rehabilitation. Estimates also float around that organising costs, which are likely to be recovered, will be around $1.8 billion. Admittedly, Beijing is in 2008 and Commonwealth games are in 2010, so there is a time difference of two years. However, given Indian democracy and the existence of civil society, there is a phenomenon that seems bizarre. There are assorted cost (not benefit) figures that float around for Beijing. In contrast, barring a figure of $2.5 billion for organising costs, nothing seems available for Commonwealth games in 2010. Are we to assume that democratic India is less transparent than non-democratic China, notwithstanding parliamentary scrutiny? That doesn’t augur well for decisions about India bidding in 2011 (actually by 2013) for 2020. Try visiting the official Indian website for Commonwealth games. You will learn about a group of ministers and diverse committees, an organising budget of Rs 767 crore and there are some expenditure figures on upgrading sport infrastructure. The site of the Indian Olympic Association isn’t much better. Apparently, we will be importing Chinese coaches. It might be a better idea to import some cost-benefit notions from the Chinese.