Were the Arctic Winter Games a good investment?
This kind of question often gets asked of economists, either by the proponents of major events, their opponents, or governments trying to decide whether to splash out some public cash.
Choice of language always gives away which side the economist is on. If in favour, public spending on big events is an “investment.” If against, it is a “subsidy.”
The economic analysis of these events has become a big business in its own right. There is a library of economic studies on the Olympic Games, and plenty of glossy studies have been commissioned to support public funding for facilities like a new NHL hockey rink in Quebec City.
Just to be clear up front, as a citizen, I think the Games were a smashing success and worth every penny the Yukon government put into them. The vision of northern comradeship that inspired former Yukon commissioner Jim Smith, former Alaska governor Wally Hickel and former N.W.T. commissioner Stuart Hodgson to create the games was a powerful idea. You can see it in action at the Games as today’s young Yukon athletes compete and make friends with Siberians, Alaskans and other northerners.
The Games also put some sparkle into jaded and winter-weary adult eyes around town. Indeed, it looked to me like some of the adults were having more fun than the kids last week.
It is, however, a tougher challenge to prove to an economist that the Games were a good “investment.”
The organizing committee of the 2000 Games estimated that the event raised Whitehorse’s gross domestic product by $3.489 million and created 106.12 person years of employment.
Without getting into the details of the worthy consulting study behind those numbers, in general you can say that considerable caution should be used about economic-impact studies.
A key point of contention is the “multiplier.” If someone from Alaska drives to Whitehorse and spends $1,000, then the Whitehorse businesses, which get that money, spend some of it again on wages or other products, and the recipients of that money then spend it one more time. And so on. The total increase in spending could be three or four times the original amount of Alaskan cash.
It is also difficult to differentiate between economic activity that is new versus merely displaced. If I spent $50 on Arctic Winter Games tickets, is that a boost to the economy or a net zero impact since I didn’t take the family to the movies that night? If the boost is from extra government spending, did the event add some special value to that spending or did it just replace spending that another department would have made?
Famous economists have made the point that you can use similar logic to justify hiring people to dig holes and fill them in again, or even just dropping money from helicopters.
There is also lots of debate about inflows of money. Certainly the Alaskan dollars and Yamal rubles spent in Whitehorse weren’t here before. But does that mean we should ban our delegation from taking their Yukon dollars to Fairbanks in 2014?
Also, economic impact studies often underestimate costs. What was the added cost to business because of congestion, absent workers and so on. Apparently the museum in Indianapolis closed when the Super Bowl was held in that city, since art lovers made it clear they wouldn’t go within 100 miles of Lucas Oil Stadium. That impact probably was not in the NFL’s economic impact press release.
Finally, there is also the question of long-term assets. These cost money to build, but deliver lasting benefits to the community. The Canada Games Centre and the Montreal Olympic Stadium are classic examples, one viewed quite positively and the other not so much. How do you assess the long-term value of these assets?
Generally, so many assumptions are required to get to the final economic impact number that relatively small tweaks to the assumptions can produce quite different results.
So beware economists bearing multipliers. The real question is: “As a society, do we want to spend X dollars on hosting this fine event?”
As I said above, my answer is an absolute positive for the Arctic Winter Games. I just don’t think we can prove that it was a profitable government “investment.” It was an expense.
There is one other aspect of the Games that is fascinating to an economist. That is how well the Games were run by a largely volunteer workforce. In fact, more than a few volunteers seemed to dread giving up their unpaid outdoors work with high-maintenance teenage athletes to return to their paid jobs.
Economists spend a lot of time studying productivity, often measuring education levels, capital investments, and so on. But the research is seldom definitive, since there is a big human variable in productivity. How hard you work depends on things like whether you believe in your organization’s mission, have a strong relationship with your manager and feel like part of the team. “Employee engagement” is a common buzzword.
It is clear that the volunteers at the Games felt engaged. But on the following Monday, how many felt the same excitement and energy heading to their “real” jobs?
This is a major challenge for large corporations and governments. There is a well-known case study of a middle-manager who was unengaged and underperforming at work and was written off as a Dilbertesque hardcase, but turned out to have a secret life as the convenor of a highly successful youth soccer league. He had the talent and skills, but just had no interest in sharing them with his employer.
We don’t have good data for the Yukon private sector, but the Yukon government “employee engagement” index is 60. Not the worst, but noticeably lower than the Ontario public service score last year of 69.
So, to an economist, the real value of last week’s events would be in figuring out how to change our workplaces so employees feel more like volunteering at the Arctic Winter Games.
Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.