Cost-benefit analysis alone shouldn't guide Olympic bid decision
S​pecial to The Globe and Mail
As an economist, perhaps I should find it satisfying that every public-policy decision we make demands an economic justification. What's the cost-benefit analysis of the project? What's the return on investment of building a new tunnel or library? Do the economics of it make sense? We obsess over these questions.
Surely economic analysis does provide valuable guidance for policy makers. The problem is we work ourselves into analytical cul-de-sacs from which we can never return. The traditional models of estimating the impact to the country's gross domestic product can tell us whatever we want them to tell us – they are only as good as the assumptions that go into them.
Canada – and Alberta specifically – is about to enter another analytic cul-de-sac with the question of whether taxpayers should back a bid for Calgary to host the 2026 Winter Olympics. Already the debate hinges on one question: Will it be good for the economy?
Almost universally, economists agree that hosting a sporting event is not worth the economic benefits to the host region. The costs are enormous – the cost of security alone for the 2010 Games in Vancouver rang in at almost $1-billion. Most economic cost-benefit analyses would suggest that coin this large would be much better spent elsewhere, or rebated to taxpayers, if boosting the GDP is the goal.
Yet, economic impact is not the only thing that matters. When it comes to supporting an Olympic bid, other questions should guide the debate.
The first question Canadians should ask is whether we value amateur sports and the future of the Olympic movement at all. Some would say no. But my guess is that most Canadians like cheering on our nation on a global stage. We love our Olympic athletes. Who didn't love watching Penny Oleksiak win in Rio? Or Clara Hughes on the ice or her bike? Or Sid the Kid score the winning goal in Vancouver?
If that's the case, Canada has a responsibility to host the Games at least occasionally. Between the Vancouver Games and 2026, there will have been eight Olympic Games – Winter and Summer. Canada is one of only a handful of countries geographically capable of hosting the Winter Games. And as the list of countries willing to bid on the Olympics diminishes, the future of the movement could be in question. Besides, why should we expect other, much poorer countries to host? Some nations are so corrupt that hosting the Games has burdened their people unfairly.
The second question that should be answered is whether the host city will find a lasting economic impact from the sports facilities left behind. Certainly some cities have found their stadiums to be enormous white elephants that sit empty and eventually crumble.
But in Calgary's case, the venues of the 1988 Games have continued to generate economic activity. The speed-skating oval at the University of Calgary and the bobsleigh and luge track at WinSport continue to attract world cup events. None of this is accounted for in a traditional cost-benefit analysis.
The third question is whether the city in question would benefit from a boost in global profile. For Olympic cities such as London, Tokyo or Sydney, the answer is probably not.
But for small cities such as Calgary, Pyeongchang or Salt Lake City, the boost in profile could be enormous. You can't buy this kind of tourism promotion.
Economic studies and cost-benefit analysis can be valuable tools for policy makers. But relying too heavily on an economic impact study – whether it is positive or negative – can result in a wrong decision. Other factors need to be taken into account as well.
Do Canadians care about the future of the Olympic Games? Can we derive value for decades to come from the sporting venues? Will we benefit from a boosted global profile? If the answer to even one of these questions is yes, the strict economic analysis alone should not be our guide.
What's in store for Canada's economy in 2017
Special to The Globe and Mail | Thursday, December 29, 2016
Ten years ago, I wrote a book entitled Coming Up Next, which tried to predict long-term economic trends in Canada's economy. It was sobering to pull the book off the shelf to see which predictions I got right – and which ones I got wrong.
Economists are our own worst enemies. We set ourselves up for failure every time we make predictions, yet we can't help ourselves. And as another year draws to a close, it's time once again to guess what's going to happen next. So, here are some bold (and some not-so-bold) predictions for Canada's economy in 2017 and beyond.
1. Canada-U.S. trade disputes will intensify. One doesn't need a Nobel Prize in economics to make this forecast, it's already happening. With the expiry of the softwood-lumber agreement and an incoming White House administration vowing to get tough on trade deals, it is a certainty that trade spats will dominate the economics news. Softwood lumber will be front and centre. Trade lawyers are rejoicing.
2. West Texas intermediate will close the year at $55 (U.S.) a barrel. Statistically speaking, the best guess is often that prices will end the year at the same point they started. But there is some logic to this as well. OPEC agreements to limit supply may or may not hold together, but Saudi Arabia has realized $30 oil hasn't worked out that well for it. And shale oil in the United States is likely to put a cap on oil prices when they start bumping up against $55 or higher.
3. Japan will become the focus of a trade deal for Canada. With the CETA agreement mostly wrapped up, Canada needs to find other major economies with which it can broaden its trade base. China is tricky at the moment because of Donald Trump. Russia and Brazil have been huge disappointments. India still seems a while in the coming. Japan ticks all the boxes for Canadian trade, particularly in agriculture, and they're still keen to continue work on the Trans-Pacific Partnership.
4. The Canadian dollar dips below 70 cents early in the year, but finishes 2017 at 78 cents. With the economy rising in the United States but stagnating in Canada, traders will find more compelling reasons to buy U.S. dollar assets and investments. The Federal Reserve will raise rates three times in 2017, while the Bank of Canada will sit on the sidelines until 2018. However, the loonie should stabilize and regain some ground toward the end of the year.
5. The Keystone XL pipeline gets Washington's approval. Again, not out on a limb here. This will cheer Canada's energy sector, but it will sharpen the divide between pipeline proponents and environmental interests.
6. Alberta's budget deficit starts to shrink. Higher oil and natural gas prices will lift revenues for the provincial government above forecast levels. The carbon fee, which kicks in New Year's Day, will be redistributed and rebated back to some Albertans, so it won't have an impact on the deficit.
7. Ontario will have the fastest real GDP growth rate among the provinces. Aided by a faltering Canadian dollar, the country's manufacturing heartland will continue to shift gradually away from traditional sectors and develop greater global supply-chain focus.
8. NAFTA is not torn up. There are things said during campaigns to jazz up the crowds, and then there are strategies that make sense from within the Oval Office. Tearing up the North American free-trade agreement does nothing for the latter. Mr. Trump will be preoccupied by China, not Mexico or Canada. He has enough business acumen within his cabinet to advise him against ditching NAFTA.
9. Canada does not submit a bid for the 2026 Winter Olympics. The federal and Alberta governments are unlikely to support Calgary in a bid for the Games, especially given the exorbitant costs of security. Calgary's mayor has said that without federal and provincial support, the city will not bid.
10. Montreal wins the Stanley Cup. University of Calgary Dinos win the Vanier Cup. Winnipeg Blue Bombers win the Grey Cup.
Hold on tight! It's going to be an interesting year.
Pivot or perish: Canada's economic dilemma in 2017
Special to The Globe and Mail | Sunday, January 15, 2017
More than 90 years ago, an enterprising businessman in Cincinnati named Noah McVicker came up with a clever solution to a vexing problem. Wallpaper was popular in homes in the 1920s and 1930s – but because of coal heating and oil lamps, it got filthy. Mr. McVicker developed a putty-like substance that could be pressed onto the walls, cleaning them without damaging the wallpaper.
His family-run soap company enjoyed great success with the product, but he was sideswiped with a most unwelcome development. By the 1940s most homes had converted to natural gas and electricity, and wallpaper was not getting as dirty. This gutted the demand for his cleaning product and threw the company into trouble.
Fortunately, his nephew Joseph was able to see a bigger picture. He recognized that Mr. McVicker's product was so much more than just wallpaper cleaner. It was also popular with art students as modelling clay, and children enjoyed playing with it. With this greater perspective, Mr. McVicker pivoted and changed the market for the product. It gave birth to one of the most successful and beloved toys of all time: Play-Doh.
What lessons can Mr. McVicker's story offer to Canadian industries in 2017? We aren't facing falling demand for wallpaper cleaner, but our economy is in a precarious situation. The United States is shifting toward less, not more, global trade. And like Mr. McVicker who faced an unexpected and unwelcome drop in demand for his product, we need to pivot. Quickly.
But how? It requires us to look at our economy, our resources and our products in a new way.
Bitumen would make a terrible children's toy. Softwood lumber has few other purposes if not sold to U.S. buyers. Our auto parts sector will be decimated if Trump puts Canada in his anti-trade crosshairs. Adapting to unwanted and unexpected change is not easy, and no one suggests it is. Mr. McVicker, too, may have thought he was doomed. What saved him was his nephew's ability to see the wallpaper-cleaning putty in a new way.
So what's Canada's bigger picture? If the world's largest economy is turning inward on us, can we pivot to Japan, the world's third largest economy? They need lumber and oil too, as well as high value-added parts and components in manufacturing. Maybe 2017 is the year we get serious about a bilateral free-trade deal with Japan.
And while bitumen has few other purposes other than to be pumped into a pipeline and sent to refineries in Chicago, can we find other ways to economically use the product here at home? Refineries are costly, though, and Canada is an expensive place to build them. What other creative ideas can we come up with to use our hydrocarbons in a different way, rather than simply burning them as fuel?
Our manufacturing sector, too, holds enormous untapped potential. Rather than remaining a branch plant economy that feeds into the U.S. behemoth (the model that worked so well for decades following the Second World War), what can we learn about design mentality from places like Denmark? How can we position our economy at the top end of the value-added chain, which is product design?
Thousands of Canadian companies are already doing this. We are creative, innovative and great designers. But so far, it hasn't been enough. If Mr. Trump carries out his (naive) plans to repatriate U.S. jobs by restricting trade, Canada's economy is in serious trouble. We don't have the luxury of a five-year Royal Commission to explore the problem, and two decades after that to execute a plan (which was the model used to introduce the free-trade agreement in the late 1980s).
We need to act quickly. The solutions may not seem obvious to us at the moment. Then again, I doubt Noah McVicker would have imagined being the inventor of Play-Doh.
The Alberta economy's Christmas wish list
Special to The Globe and Mail | Published December 14, 2016
I know you usually get letters from little girls and boys, but I'm a bit desperate these days.
In the past, you've been very generous with me, but it seems perhaps I've done something to upset you. I've had nothing but lumps of coal in my stocking for the past two years.
Since I'm trying to get off coal, perhaps you'd consider leaving a few goodies under the tree instead. I've compiled a short list of things I'd love to see.
Oil at $55 a barrel. Plenty of Albertans would like a much higher price for West Texas intermediate, such as $75 (U.S.) or $80 a barrel. But I actually don't think we need it that high. Sure, $80 oil would help bring back jobs and investment, and it would certainly boost government coffers. But a big jump in oil prices would just put me back on the roller-coaster of booms and busts. A moderate price with stability is better than a high price that crashes again in three years.
More clean-tech companies. Okay, I'll admit that I've fought a bit with my big sister British Columbia this year. But she's had two full years of strong economic growth and I'm starting to feel left out. Vancouver has worked wonders in building up its tech sector, but from what I've been hearing it's starting to have a hard time holding on to them. The city is too expensive for tech-sector employees to live. Could you please send a few of those companies east over the Rockies? I've got some attractive office space in Edmonton and Calgary, and their employees can get much bigger condos for half the price!
Good weather. Tourism is huge for me, and last year was a record-setting year. But attendance at the Calgary Stampede was down – not only because of the recession, but also because of torrential rain and hail. Could you manage to keep July and August comfortably warm and dry? That would keep the tourists spending. And on the topic of weather, I'd also like to put in a request for decent moisture in April and May – not too much and not too little, but just the right amount to keep farmers happy. Agriculture is my second-most important sector and the proper balance of wet, dry and warm is necessary to keep those wheat and canola crops healthy.
A free-trade deal with Japan. Would you put in a good word for us with the Prime Minister on trade deals? He's done great work with the Comprehensive Economic and Trade Agreement with Europe, but I'd love to have more diversity in global trading partners. Free-trade access into Japan for my lumber, pork and beef products would be fantastic. It doesn't have to be Japan necessarily, but it seems like an obvious market for Canada. Even if its economy is stagnant, there's still more than 126 million consumers.
Favourable deals for Canada in the White House. Could I slip in one more teensy, weensy request? Could you arrange for Donald Trump and his incoming administration to rethink U.S. trade isolationism? I know Canada isn't in his crosshairs, but we risk being collateral damage if he follows through on some of his campaign promises to tear up the North American free-trade agreement. He's talking favourably about the Keystone XL pipeline, which would be welcomed by my energy patch. But what I really need are open borders – and throw in a renewed softwood-lumber trade agreement if you can manage that.
Now, Santa, I know I'm asking a lot. You must get so many requests, especially this year with all of the violence and anger around the world. It's been a tough year for many.
But if you find it in your heart to deliver a couple of these things on my list, I'll make a promise to you, too. I promise – one more time – not to waste this recession. I promise to foster more economic diversity, to encourage more innovation, to continue building up my arts, culture and transportation systems, to lead in environmental stewardship and to be that place of opportunity for people from all corners of the globe.
Have a safe trip on Christmas Eve, and give Rudolph and Mrs. Claus my regards.