Thursday, October 15, 2009

Socialism for the Very Rich: The Case of Professional Sports in the USA

One of the themes swirling around the current health care debates is the notion of a European socialism. In the standard rhetoric, not just restricted to health care, the pervasive and enervating affects of collective provision of goods and services are contrasted with the dynamism and freedom of pure market mechanisms. Well and good, but why is this model not used in the USA where most markets are dominated by cartels and collusion? Only the ideologues believe in the free market. The rich and powerful do not. And to prove my point I only need to look at professional sports in the USA. ‘Collectivist’ Europe has a fierce market system in the dominant game of soccer. Take the English Premier League (EPL) where at the end of every season the poorest performing teams are relegated to lower divisions, thus losing out on valuable televising rights revenues. The successful teams in the lower leagues move up to the more lucrative divisions in a direct relation between performance and pay. The very successful teams in the EPL get to compete in European-wide competitions where there is an even bigger payout. Competition is used to reward the successful and punish the unsuccessful.

Compare this with the closest USA equivalent, the National Football League. Here poor performance is rewarded not punished. If your team has a lousy season, you get the first round draft picks—the most promising players coming from college—and your schedule is adjusted the next season so you face weaker teams. Getting lower draft picks and a tougher schedule against good teams in contrast punishes the successful teams. The emphasis is on creating parity between teams. Where is the free market? Where is the competition? Relegation for the awful? Forget about it. Lousy teams are never relegated. Owners get to keep their teams in the lucrative TV-revenue sharing deals. The emphasis is on continually leveling the “paying field” so that mediocrity is always rewarded and excellence is always penalized. Of course the whole system is geared so that owners can keep raking in the money no matter how incompetent their franchises. Owners and players are kept in clover with no fear of relegation or revenue loss. Real competition? Forget about it. A monopoly system continually reproduces itself so that the poor and the weak get to stay with the rich and the strong that would have Karl Marx applauding. Sounds like socialism to me. And this same system also extends to baseball and basketball, where we have perennially woeful teams such as the Pittsburgh Pirates in baseball and the LA Clippers in basketball. So let’s bring all this criticism of European-style socialism even closer to home of the professional sports cartels. When the NFL looks like the EPL, that is when people can start speaking about a real market in sports. Until then sit back and watch Europe-style socialism at work in the NFL. To accurately reflect the business model used, the acronym needs to be changed to NSL for the National Socialist League.

Friday, October 2, 2009

And the winner is Rio, or is it Chicago?

Rio is the winner of the competition to host the 2016 Summer Games. The announcement made today from Copenhagen is now being celebrated in Brazil. Sadness reigns in Chicago, and Obama is second-guessing his decision to be the first US President to lobby in person for a US Olympic bid. But are the real winners the cities like Chicago that just failed to win the final nomination?

The Games will come to Rio along with all the costs and benefits. Hosting the Games demands major urban infrastructural investment. For the 1988 games Seoul expanded its airport, built three new subway lines, and cleaned up the polluted Han River. For the 1992 Games, Barcelona built a new waterfront and upgraded a declining area of the city as well as making numerous improvements throughout the metro area including new roads, a new sewer system, and the creation or improvement of over 200 parks, plazas and streets. For 2000 Sydney built a new road linking the airport to the downtown and the main venue on a contaminated inner city site. Athens spent close to $16 billion in large-scale public investments in water supply, mass transit, and airport connections to get ready for the 2004 Games. Beijing undertook a building frenzy with an estimated $40 billion of Olympic-related buildings and infrastructure including a new expressway and ring roads, miles of rail and subway tracks, and a $2.2 billion new airport that is the largest in the world.

The Olympics Games provides both the opportunity and the deadline to implement long-held redevelopment plans. In Greece, for example, the rest of the country had long resisted national investments in Athens. The international showcase of the Olympics provided the necessary spur. The Games start on a specific date with a global audience. The brute reality of such a severe deadline overcomes political resistances, bureaucratic logjams, and administrative inertia. The temporary and permanent greening of the city is also a possibility since the IOC now promotes ‘green’ games. The Sydney Games were held on a former abandoned waste site, Homebush Bay, and the Games were part of a wider urban remediation and greening project.

Are the Games a net cost or a net benefit to the host city? An honest answer has proved elusive. Inclusive cost-benefit analyses are severely hampered by lack of proper accounting methods, technical issues, such as accurately estimating exchange rates of foreign currencies, and such basic issues as the lack of available data. Costing the Olympic Games is a fiscal mystery made more complex by the partisan nature of much of the analyses. Organizations seeking to promote, justify, or attract the Games generate the vast majority of cost cost-benefit analyses. While many studies highlight the positive benefits of the Games (largely funded by organizations and groups seeking to justify the Games), fewer studies examine the costs of the Games and their redistributional consequences. The Games involve massive investments that crowd out other forms of public investment, such as spending on education and social welfare that may serve better the long-term needs of ordinary citizens. Other costs include the dislocation to the city during the construction period and the possibility of increased house prices and rent levels. There are also social and environmental costs that are rarely factored into the standard cost-benefit or economic modeling approaches. A recent report estimates that the staging of the last twenty Olympic Games displaced 20 million people, including the displacement of almost three quarters of a million people for the Seoul Games, 30,000—predominantly African Americans—for the Atlanta Games, and approximately 1.25 million displaced for the Beijing Games.

Objective cost-benefit analysis of hosting the Games remains at a rudimentary stage, with few accurate or comprehensive studies and little comparative data. There is often massive public investment in the Olympic Games that goes unrecorded in most cost-benefit analysis. The existing analyses suggest that the distribution of costs and benefits is regressive with most of the costs borne locally, especially by the more marginal urban residents displaced to make way for the Games, while most of the benefits accrue to local elites and a global media market. The measurement of costs and benefits and their social distribution deserve much more careful analysis.

A reputedly $40 billion Beijing Games raised the stakes: Beijing’s lavish spending and the grand spectaculars of its opening and closing ceremonies all ratchet up the expectations for subsequent Summer Olympics. Hosting the Games provides an opportunity for city reimagining. In the context of a global media spotlight, the spectacular staging of the Games launches the makings of a new city. But these new urban dreams are also fleshed out in the bids of serious candidates. So perhaps Chicago gets to make the dreams of making a better city without having to bear the heavy costs of actually hosting the Olympics.