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Nikkei Business - March 21, 2016
Are you expecting Tokyo´s Olympic Games in 2020 to bring a big economic benefit to the nation? Plenty of people seem to be hoping that it will bring such a benefit, led by the Bank of Japan and of course the national government itself.
If you are among those optimists, please prepare to be disappointed. The net economic effect of the 2020 Olympics is likely to be zero, or as close to zero as to be statistically insignificant. The real impact will be on the reputation and brands of "Japan" and of "Tokyo" itself. And to maximise the benefit of that impact, it would make most sense if the Tokyo Organising Committee, the Tokyo Metropolitan Government, the Government of Japan and the main private companies involved were to focus their efforts on these matters of reputation and brand.
How could this be so, given the millions of visitors the Olympics will attract to Japan in August 2020, and the billions of yen that will be spent on new stadiums and other infrastructure?
The answer begins with the fact that in an economy as big and mature as Japan´s, with an annual GDP of $4.7 trillion, it is simply not possible for a sports event lasting just four weeks to have a major direct economic impact. Japan´s GDP is $400 billion per month. Whatever visitors will spend is small compared with that.
The second important truth, which was clearly demonstrated in the London Olympics of 2012, is that against the direct spending which will be made thanks to the Olympics by foreign visitors and by Japanese residents must be reckoned also some large negative effects. Many new visitors will come, but also some visitors who would normally have come to Tokyo for other reasons will be discouraged by the high prices or by the congestion. Moreover, many of the Japanese who decide to come for the Olympics will choose to spend less money on other purchases or on visits to other locations.
The London Olympics were a great success in terms of sales of tickets and of attracting visitors. But the net effect was more or less neutral. Anyone who focuses only on the number of visitors and the money they will spend is making the mistake of looking only at a company´s sales revenue instead of looking at its profits.
The third truth is that while a lot of money will be spent on building 8 new facilities and refurbishing 19 old ones from 1964, to evaluate the benefits of this you need to ask how productive that investment will be, over the long term, compared with alternative uses for the money. What is the value, in economic terms, of a new Aquatics Center, over the course of 40-50 years? It will clearly have a value, but how high is that compared with alternative projects?
The hard fact, one proved by every Olympics Games over recent decades, is that no city or country should want to host the event for economic reasons, because the economic benefits are unlikely to exist.
This does not mean that it is a bad thing to host the Games, just that it is a mistake to delude yourself that the Games will bring any direct economic boost. The right way to think of the Olympics is as a massive marketing opportunity, a chance to influence and perhaps alter the way in which billions of people around the world think about your city and country.
For Japan in the run-up to 2020 that marketing opportunity looks especially important. Many people around the world admire Japan, but the vision they have may be an old-fashioned one, formed out of images of geisha, Mount Fuji, perhaps Shinkansen, and now of post-bubble economic stagnation. Moreover, partly thanks to that stagnation but also to demography, they probably think of Japan as a country of yesterday (the 1970s and 1980s) increasingly filled with old people and not very internationalised.
So a big sporting gala event that features youth, energy, innovation and internationalism, and is televised all around the globe, offers an unrepeatable chance to change that image. So that is my recommendation. Shape your invitations, your associated events (such as the "Cultural Olympiad"), your logo, your films, your online blogs, all forms of digital marketing and communication, around an image of Japan and of Tokyo that emphasises tomorrow, innovation, coolness, fun, internationalism.
Most of all, when the Olympic and Paralympic Games are over, in September 2020, the image you want to have left in the minds of bright, energetic young people from all over the world is that Japan is a place for them -- somewhere to visit, to study, to start businesses, to make partnerships with, to sell in, to buy from, even to marry. Succeed in that, and the real economic benefits will flow.