Costs and Benefits London Olympics 2012

Readers Question: What are the costs and benefits of for use in a cost benefit analysis of Constructing the Olympic Site (Village/Stadiums) in London in Preparation for the 2012 Olympics.

A cost benefit analysis seeks to examine all the varous costs and benefits. These include both the monetary costs and benefits and the non monetary costs and benefits.

Costs of Building Olympic Site

1. Financial cost of buying materials / labour
2. The investment is short term. Many facilities can only be used for the 3 week duration of the Olympics. After that there is a danger of ‘white elephant projects’ – facilities that can not be effectively reused. E.g. similar to the Millenium Dome.
3. Opportunity cost. It is estimated the cost of the Olympic village could cost upto £1billion. This is £1billion that cannot be spent on alternative investment schemes like transport and education in London. (source: telegraph)
4. The credit crunch means private sector investment is drying up. This increases the cost onto the tax payers. Government spending is already under strain because of the bank bailouts and recession.
5. If taxpayer has to step in, the Olympics will lose part of its £2.2bn contingency fund

Benefits of Building Olympic Village.

1. Provides Jobs and Economic Activity. Important in times of a recession, when the private construction sector is in a steep decline. The government spending can be seen as part of an expansionary fiscal policy.
2. Hosting Olympics boosts the prestige of a country. It is a ‘once in a lifetime’ opportunity to provide a showcase to the world. Not everything can be reduced to simple accounts. (good example of a non monetary benefits)
3. Hosting Olympics will provide a boost to tourism and travel to London, during the Olympics and hopefully after.
4. Helps to regenerate the East end of London. Increases civic pride.
5. Encourages sport in the UK, might make the UK have better fitness standards and less obese reducing demand on health care.

Conclusion

Personally, I’m glad we are hosting the Olympics. Yes, it might end up costing the taxpayer alot. But, £1bn is less than 0.1% of total GDP. It’s a once in a lifetime opportunity to host the most important sporting event on the calendar. The Olympics may well make an economic loss in the short term, but does everything have to be ruled by profit maximising decisions? People will say it’s better to spend the money on health care and education. I don’t doubt these are higher priorities. But, we spend over £80bn on health care every year. I don’t see why we can’t spend £1bn on promoting the Olympics as a one off event. (which might actually encourage people to be fit and therefore need less health care)

Let’s enjoy and take pride in the London Olympics.

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• Costs and benefits of Olympics