Gold up for grabs: Rio’s economy and the olympics

Hosting the Olympics is a goal for many nations. Every year, delegations wine and dine the International Olympic Committee with the hopes of winning a bid to host the quadrennial games. This year, Brazil’s Rio de Janeiro won the bid, and is rushing to put together a venue for the world’s biggest sports stage.

Hosting the Olympics is a dicey economic proposition. On one hand, the influx of tourists can be a serious boon for communities. Small businesses can thrive in an environment full of people willing to spend money, and Rio is certainly set up to take advantage of the boom in tourism. Hotels, bars, restaurants, and even cabbies should all expect a huge benefit to their businesses over the next few months.

Rio’s economy should benefit generally from the influx of commerce. More money being spent should translate into more tax dollars, which can be invested in education, healthcare, and other quality of life improvements. These improvements should create a virtuous cycle of increased productivity, wages, and quality of life. In an ideal world, this would be the end of hosting the Olympics. History paints a somewhat less rosy picture, though.

The downside of Olympic hosting duty is the initial outlay of capital. Sports facilities will need to be constructed to meet the demands of the world’s top athletes, along with training facilities and housing to support the competitors and their staffs. Hotel rooms will need to be created to meet demand, not just in Rio but also in the surrounding communities. Transportation infrastructure will need to be repaired and upgraded to handle the flood of vehicles. Even basic public goods like sewer and water facilities will need to be seriously upgraded to show off the best Brazil has to offer.

Once the Olympics are done, this extra capacity is essentially wasted. If Rio follows the example of other Olympic hosts like Sochi and Atlanta, derelict tourist districts will represent a drain on the city’s public maintenance budget for years to come before they are condemned. State of the art sports facilities will sit vacant because no one can afford to use them.

The firms responsible for doing the building will have left town with the tourists, and the government and people of Rio will be stuck holding the bill. The money the event made is mobile, while the infrastructure is not. In the long term, hosting the Olympics will likely have a negative effect on Rio’s economy. Hosting the Olympics is a good way to lose out on gold.

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