Staging the 2014
Winter Olympics in Sochi, Russia has cost $51 billion. This cost is what
Russian authorities paid to their contactors. Is this what it really costs to
stage these Games? I use this event to illustrate the concept of external
diseconomy.
In the post titled Olympics
and Economics, I wrote on how Olympics can be viewed as economic
events. Governments and businesses in choosing to stage or promote Olympics
make economic decisions. As a matter of fact, building an Olympic Park and
roads, designing new items for Olympic supporters, sponsoring Olympics, and
bidding an amount of money for the exclusive rights to broadcast the Games in a
region are all well and truly economic decisions taken after assessing their
costs and benefits.
The cost of staging
the 2014 Winter Olympics and Paralympics in Sochi adds up to $51 billion.
This amount is only what Russian authorities paid contractors for delivering
the Olympic infrastructure, constructing new roads … It does not include
inconveniences underwent by the local population due to environmental and
people’s rights’ violation. These inconveniences are called external diseconomies or external costs.
Basically, external
diseconomies are uncompensated costs unwillingly incurred by people as a result
of some other people economic decisions. Sochi 2014 abounds with examples of
external diseconomies. Here
are four of them.
Expropriation – Several people
living around the Olympic Park were expelled from their homes without any
financial compensation. Some of them became homeless after the demolition of
their houses and the luckiest ones were rehoused in very tiny apartments. Local
entrepreneurs were compelled to sell profitable businesses at very low prices
to Russian oficials.
Open Waste Dumps – Despite the pledge
of Russian authorities, construction waste from the Olympic site were dumped
inside Sochi National Park. This protected area is Russia second oldest
national park. The items
dumped include slabs of concrete, tires, cans of sprays, and foam boards.
Water Pollution – A nearby stream
called Bitha connects the open waste dumps in Sochi National Park to the Black
Sea. Chemical products and other waste flow this way into the water killing
fish and causing diseases.
Moreover, to link the
airport to the Olympic venues, a new road and a railway have been built
alongside the River Mzymta. This is destroying the ecosystem of this river that
is the source for drinking water for Sochi.
Embezzlement – The final cost of
staging the Games is nearly twice the initial estimates. This cost overrun is
attributed to corruption and frauds.
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