It’s that time again when nationalistic fervor and kitsch uniforms are strangely appropriate, where a blond-haired and blue-eyed man holding a torch isn’t cause for alarm. Yes, it’s time for the Winter Olympics. And what better way to celebrate this quadrennial sporting event than to have a serious discussion about…economics!
In December 2017, I took a trip to Sochi to see firsthand how the Olympics have changed this former Soviet resort town, and determine for myself if the massive amounts of government investment have had a long-lasting positive impact or simply left another Potemkin village. In the process, I uncovered a few surprises.
For starters, saying that the 2014 Olympics were hosted in Sochi is a bit of a misnomer. The Olympic Park is actually in Adler about 30 km south of the iconic seaport, and the alpine skiing events took place 50 km away at Rosa Khutor. Nevertheless, both venues are well connected to Sochi, which is the first thing you notice when getting off the plane; the infrastructure is excellent. Taking the train from the airport to Sochi affords a comfortable hour journey along the coast. Interestingly, it was mainly locals using the train to commute.
The Port of Sochi, though, left something to be desired. It was obvious that it had gotten a massive facelift before the Olympics, with a posh boardwalk featuring restaurants and shops. But most businesses were closed. At the port itself, I was faced with a barrage of touts selling excursions out in the black sea. They were clearly suffering from the economic malaise. One “captain” told me that there while there were enough tourists to go around in the summer, winter was particularly difficult. I asked him if there had been an upswing in foreign visitors in the years since the Olympics. He wasn’t particularly sure but said that the boat trips primarily interested Russian tourists, anyway.
I left Sochi for the Olympic Park at Adler. I was expecting more of the same. From the road, the place looked half abandoned, a cement park where instead of trees and statues rested stadiums and tacky hotels. It was a perfect location for a zombie apocalypse.
But once in the park, I was pleasantly surprised to see quite a bit of activity. The Olympics hold a special place in the heart of Russians, and a number of people were touring the facilities. Along the edges of the park boomed the engines of race cars and motorcycles while kids rode bikes and skateboards over strategically placed ramps. As it turns out, the Olympic Park is being used for conferences, tournaments, and even hosts a Kontinental Hockey League team, HC Sochi. Adler’s boardwalk along the Black Sea showed a bit more life too despite it being the off-season. This hardly seemed the disaster that western media had predicted.
Was it Worth It?
Tourism has indeed risen here, increasing by 29 percent in 2016 and by 20 percent in the first four months of 2017. The infrastructure upgrade too has helped integrate the local economy and make the ski resort at Rosa Khutor easily accessible. While Sochi will never be able to compete with winter destinations like Courchevel or Méribel, thanks to the railway line, tourists can now spend the day in the snow while finding affordable accommodations in the milder climate along the shores of the Black Sea. Certainly, hosting the Olympics is partially responsible for this growth, but at an investment of $51 billion was it worth it?
One thing that is missing is foreign tourism. Russia had intended for the Olympics to make Sochi an option for Western Europeans looking for an alternative to pricey holidays on the French Riviera or in the Swiss Alps. Instead, geopolitics and a global commodities slump have largely limited foreign tourism while at the same time making Sochi the only real vacation option for ordinary Russians looking to spend time at the beach or in the mountains.
There is also the problem that the Olympics led to the building of an exorbitant number of hotels. In fact, Sochi has about as many rooms as Cancun, Mexico. The high room inventory makes competition particularly and unnecessarily ferocious, although, on the plus side, a four or five-star hotel can be had at a fraction of the price that you would expect in the rest of Europe.
The Hidden Cost of Olympic Spending
At the Olympic Park, I met a man named Sergei, who told me that when Sochi won the bid to hold the Olympics “only an idiot couldn’t make money.” Sergei built a construction company on the back of the Olympic bid only to see it collapse when the games had ended. “Two years after the games a lot of businesses began to go under, including mine. Now I drive a taxi.”
Sergei hit on something that is often not discussed when debating the economics of the Olympics: opportunity cost. Sergei spent several years of his life building a company that ultimately was destined to fail. If the government had not distorted the economy, Sergei might have used his time and money building a sustainable business that could have proved more valuable to him and the local economy. It’s hard to say how many people had their lives disrupted because of the boom and bust cycle the Olympics brought, but economists generally agree that steady growth leads to better economic outcomes in the long run than extreme volatility.
Sochi is far from a catastrophe. In fact, it is a fairly thriving resort town, and a pleasant place to spend a winter or summer holiday. Government infrastructure spending can be credited for enhancing the regions trade and commerce. But it seems that Sochi’s growth in tourism has more to do with macroeconomic trends rather than the city being the center of attention for two weeks in 2014. The Olympics may have made Sochi a household name worldwide, but it’s predominantly Russians who are traveling there now, and they were already well aware of what Sochi has to offer. So when the Russian government says Sochi was a success, I would have to agree; it just shouldn’t have cost $51 billion for it to be so.