The Hidden Benefits of the Pyeongchang Olympics
Carl Harris, Dartmouth Business Journal
From an economic perspective, hosting the Olympic Games is often considered a poor investment. They are frequently touted as catalysts for explosive job, infrastructure, and economic growth. These results, however, are generally short lived: increased employment in the hospitality and service sectors only lasts until the end of the Games. Rapidly constructed infrastructure often falls into disuse, leaving vacant housing and sports venues. Economic growth fueled by tourism quickly fades after the end of the Games, returning cities to their pre-Olympic state, and often saddled with exceptionally large amounts of debt.
The 2016 Rio de Janeiro Olympics provides a typical example. In its Olympic bid, the Rio government estimated the costs of the Olympics to be approximately $3 billion. However, at the start of the Games this cost had increased to approximately $4.6 billion, ballooning to a final tally of over $13 billion after the Games had concluded, according to an article in popular statistics website FiveThirtyEight.com. Frequently, winter Olympics are even more expensive than their summer counterparts, with the 2014 Sochi Games in Russia resulting in a total price tag of around $50 billion, according to the Washington Post. The Pyeongchang Olympics, for its part, has a stated cost of around $12.9 billion, compared to its estimated cost of $7 billion – $8 billion. With such a high up-front cost, South Korea must consider the potential social, diplomatic, and economic benefits it may receive to offset the large amounts of debt hosting the Olympic Games in Pyeongchang is likely to incur.
From a social standpoint, many citizens in Korea, and Pyeongchang specifically, support hosting the Games, with 92.4 % considering it a “good thing,” according to several public opinion polls tabulated by the International Olympic Committee (IOC) in its Olympic Games Impact Study. For many, hosting the Olympic games is a point of pride, and similarly contributes to the host city and country’s international reputation. Due to the popularity of the Olympics (with approximately 3.6 billion people watching some part of the Rio Games — almost half of the world’s population), international recognition is unavoidable, and often the Games provide a cultural and societal value beyond that quantifiable by objective economic analysis.
Currently, the Korean peninsula is facing a time of increasingly tense international relations, exacerbated by the development of nuclear weapons in North Korea and threats of conflict between North Korea and the United States. A major hope of South Korea’s President Moon Jae-in is that the 2018 Games will help ease these tensions, echoing the “ping pong diplomacy” policy seen in the 1970s, in which table tennis players competed in Communist China and helped create the opportunity for President Nixon to visit the country in 1972, which had largely shunned interaction with the United States. This move towards unification, whether truly a representation of a unifying sentiment or merely a symbol of diplomacy, is epitomized by the decision for the North and South Korean teams to march together for the first time since 2007, following discussions in the Demilitarized Zone bordering the countries. The gesture of marching together in this Olympic Games, however, is particularly significant given the current diplomatic climate. Increased militarization and development of nuclear weapons in North Korea, as well as comments from both Kim Jong Un and President Trump, have likely increased tensions between North Korea and the USA. From a practical standpoint, the addition of an “Olympic Truce” in the 2018 Games ensures athletes’ safe travel, providing a conduit for athletes to leave North Korean.
Although the economic benefit of the Games tends to be overstated, it is not absent, as countries often experience an economic boost following a winning bid. A major challenge for Pyeongchang in generating economic growth will be in eliminating runaway costs, as was seen in the Sochi Games and its $50 billion price tag. In fact, the Hyundai Research Institute estimates that the Games will add over $61 billion into the South Korean economy — a $52 billion net economic benefit. It is estimated that over 2.6 million people (both local residents and visitors) will attend events associated with the Games, driving economic growth in a variety of sectors: from construction to hospitality and food service. A common issue to Olympic host cities is vacancy and a return to the former employment rate following the conclusion of the Games. In the case of Pyeongchang, however, city officials believe that they will be able to utilize the buildings constructed for the Games, coupled with the international recognition the Gangwon province will receive, in order to drive long-term growth in the area’s currently underdeveloped tourism industry. In this way, they hope to avoid the common pitfall of explosive growth followed by excess capacity and a return to the prior unemployment rate that appears to be endemic in hosting the Olympic Games.
Although the Games will likely result in a significant economic burden for South Korea in the long-run, there are additional non-quantifiable factors that could contribute to its ultimate success. It will assuredly increase the area’s international recognition, due to the worldwide popularity of the Olympic Games. It has the potential to catalyze discussions between the North and South, which could result in de-escalation at a time when nuclear tensions between North Korea and the rest of the world have never been higher. And it is certainly possible that Pyeongchang will be able to accomplish the unlikely, and utilize the Games to establish long-term, sustainable growth in the Gangwon region. With this in mind, the ultimate success of the Pyeongchang Olympics will not be determined by two weeks in February, but rather will take decades to be evaluated.