Olympics to Bring Economic Reflation until 2020? : TPP and SpecialZones are the Keys.

*This is a translation of an article by Yoichi TAKAHASHI,
  PPPC Chairman / Kaetsu University Professor,
  written for Gendai Business website on September 9, 2013


 Tokyo won the right to host the 2020 Olympics. The news made many
Japanese simply happy in the early Sunday morning. The efforts made by
all concerned, including Prime Minister Abe and Tokyo governor Inose,
may deserve admirations, I think.

 Abe said “given the decision today, I want to overcome the
deflation-oriented economy lasting for 15 years” and Inose also vowed
to “break away from deflation of the mind”.

 Then, let me first summarize the economic impacts of the Olympics.

 The ripple effect released by the Tokyo metropolitan government sets
Tokyo and the neighboring areas during 2013-2020 as analytical targets.
It indicates that the induced products would amount to 2,960.9 billion
yen (1,675.3 billion yen in Tokyo, 1,285.6 billion yen in other areas).

 The figure was calculated through Tokyo’s original chart on the
inter-industrial effects. Its initial breakdown accounts 1,223.9
billion (Tokyo 966.9 bn., others 2.57 bn.) yen for the construction of
the Olympics related facilities, operational costs, accommodation and
food/drink by visitors. And as its first ripple effect the calculation
accounts additional 1.1 trillion yen premised on a special procurement
boom. Further, as its second ripple effect, it adds 600 bn. yen for
expanded consumptions by the laborers in the Olympics-related
industries. So finally the total sum of induced products will amount
to 2,960.9 bn. yen, the trial calculation by Tokyo seems to be saying.


<Tokyo Olympics with the existing facilities is a paying business>

 Besides 2,960.9 bn. yen of the induced products, Tokyo’s calculation

entails 1,421 bn. yen of induced added-values (Tokyo 858.6 bn., others

5.624 bn.) and 755.3 bn. yen of induced income for employees (Tokyo

468.7 bn., others 284.6 bn.) separately.

 Using the trial calculation by Tokyo, one construction company stated

in its website that the ripple economic effect of the Olympics will

amount to 5.135 trillion yen in total; a simple sum of those figures.

But the number is not right. To note, the induced products may entail

overlapping accounts as it focuses on the product-base alone. Also,

while the induced added-value refers to the profits, the induced

income for employees means the salaries of employees within the

profits. So, there is likely a threefold overlapping accounting in the

calculation.

 Anyways, Tokyo metropolitan government also predicts that the

Olympics will induce 152,202 employments (Tokyo 83,706, others 68,496).

 Aside from these ripple economic effects, by simply looking at the

earnings and expenses of the Olympics since Los Angeles in 1984,

Olympics is no doubt a profit-making, commercial event.

 The main sources of earnings in the Olympics are (1) broadcasting

rights, (2) payments by sponsors, (3) admission fees (gate money), and

(4) sales of commemorative goods. In Tokyo, like in London, the

running costs can be kept low for the many existing facilities

avoiding additional construction costs for new stadiums, etc., and the

account will likely get into the black without much budgetary spending.

In any respect, the Olympics, moving the people’s feelings for two

weeks, is surely one of the fewest, most promising business projects

in the modern world.

<Cool views on the economic effects by economists>

 Quite a few economists have rather critical views on such the trial

calculations. Yes, indeed, such trial calculations usually have

certain assumptions which always accompany risks of being questioned

on their neutrality and rationality. But some critics seem to be

rather excessive on this point.

 First, some say that Tokyo’s calculation is based on a “partial

equilibrium” assumption that the other conditions are prefixed. For

that reason, such calculations do not take into consideration the

consumption and investment decreased due to the increased consumption

and investment by the Olympics, they would say. Such a criticism is

not off the point at all, indeed. For instance, it is like saying that

an expansion of public works projects in Tokyo would hinder the

reconstruction works in the quake-stricken areas because it mobilizes

labors even from the suffered Tohoku region. This sort of criticism

deserves a careful consideration, of course. Nevertheless, as it is to

be mentioned later, such counterarguments are rather of a minor kind

compared to the political aspect of hosting and preparing the Olympics.

 Another counterargument is such that while the hosting cities had

invested huge amount of money to construct the related facilities, the

same facilities and buildings would never be used in the future. But

it doesn’t apply to Tokyo because Tokyo already has lots of existing

facilities and will be able to respond adequately just by simply

repairing them.

 There are yet other negative voices against the rushing demands for

construction and guarding expenses toward opening of the Games. But I

don’t think the 2020 Tokyo Olympics costs a lot more than in other

cities.

<Exports will increase by 30 percent>

 Although it is generally the nature of economists to point out minor

points, there are the economists who speak of the noteworthy points

from a grand perspective. I remind of “The Olympic Effect”

co-authored by Andrew Rose and Mark Spiegel.

 According to the authors, the countries which hosted the Olympics

during 1950-2006 increased the international trades by 30% in average

mainly due to the free-trade and deregulatory measures simultaneously

undertaken with the Olympic Games. In short, it is to say that the

liberalization measures by the hosting countries to make themselves

look good actually contributed to their own economic growth as the

result.

 The interesting point about the literature is the perspective that

the external, internationally-political aspect of the deregulatory

measures had a greater economic effect than the internal,

domestically-political aspect of the public works projects for opening

the Olympics.

 An application of this lesson to Japan today would be the TPP and

“deregulation”, the third arrow of the Abenomics. While the TPP

might bring short-term disadvantages to Japan, liberalization and

deregulation of the country’s markets will surely lead to a long-term

economic growth, as well as that some surprising experiments will

seemingly bring about further national interests.

<Ideas such as Casino and 24 hours-transportations>

 Tokyo governor Inose is the figure having insisted to establish and

legalize Casino in bayside Odaiba, and also who already partially

realized the 24 hours-running of the Tokyo metropolitan transportation

via internationalization of the Haneda Airport. I’m sure the governor

Inose should come up with many ideas to select some Tokyo areas for

experimental deregulatory measures to realize forefront cities, and

the Abe Cabinet may simply approve them as the so-called Abenomics

Special Zones to advance the regulatory reforms even temporarily and

locally under the nominal aim of the Olympics.

 This is not a privilege to Tokyo. The Abe Cabinet is inviting any

ideas and proposals on the National Strategic Special Zones with local

originalities. As the primary aim of the government’s Council on

Industrial Competitiveness this time is the regulatory reform itself,

it is hard to imagine that an excessively-deregulatory proposition

would be rejected as it was actually the case under DPJ government’s

Comprehensive Special Zones.

 From my own experience as a government official, any regulative

reforms are demanding both in terms of times and energies, consuming

3-5 years from policy-planning, enacting processes to actually feeling

the policy consequences. This is to say that the seven-years-ahead

Olympics is apt for experimenting such long-term deregulatory measures.

While it would be odd to speak of an “if…” story, I still believe

that a combination of the Olympics, the TPP, and the Abenomics Special

Zones may enable a long-term economic reflation until 2020.

 The Cabinet Office released that the economy had been in the

recovering phase for the 37 straight months since March 2009 till

April 2013. It means that March 2009 was the “bottom” and April 2013

was the “top”. Though the economic figures are not released

officially yet, November 2012 will likely be another “bottom” and

this will be a good news for the Abe Cabinet as it would mean that the

Cabinet experienced the second shortest 7 months of economic recession

compared to 16 months of the historical Cabinets in average.

 If November 2012 was really a “bottom” of the economy, there is a

possibility of experiencing the record longest 8 years of economic

reflation in the postwar Japan if Tokyo Olympics is appropriately and

successfully combined with the TPP and Abenomics Special Zones.