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Bookmark and ShareJosh Ryan-Collins is a researcher in the Connected Economies team at nef.

olympicsOlympics Minister Tessa Jowell has been out and about recently trying to explain exactly how the 2012 London Olympics are going to be delivered in the worst economic conditions since the War.

Like many Labour ministers of late, she has turned to J.M. Keynes for inspiration, arguing that the government will “turn the great spending power of the Olympics in to economic gold at a time of economic need”.

In terms of investment, I suspect the government might rather get its hands on real gold – which has shot up in value in the past couple of years as investors lose faith in money – than ‘economic gold’, but that’s another story.  The important question is whether the Keynesian multiplier – an increase in government spending leading to increased demand which in turn creates jobs and stimulates consumption – will work its magic in East London and further afield as the £6bn Olympic injection, made up 75,000 odd contracts, takes effect.

Jowell claims it will as, unlike previous games, 2012 has regeneration at the heart of its bid.  75 pence of every pound spent on the Games is regeneration-related apparently.  Most of this will be spent on East London, one of the most disadvantaged areas in the UK.  But as nef has long argued, it is not so much the amount of money invested in an area as how it is spent that determines the regeneration impact.   If the big contracts go to foreign companies – as has happened with the Olympic village which went to an Australian developer for example – there is no reason to expect them to subcontract to locally based businesses or hire local people.

This ‘trickle down’ economics failed in Canary Wharf and it will fail again if money is allowed to leak out of the local economy to consultants, developers and the large companies that are best able to exploit new commercial and sponsorship opportunities.

nef‘s report, Fool’s Gold, suggests there are ways to prevent this from happening.  Community benefit and regeneration could still be made core criteria for all new contracts and larger contracts could be broken down in to smaller lots.  This will level the playing field for smaller, local businesses and social enterprises many of whom are currently struggling to gain access to credit.  Targets for the involvement of local firms and the employment of local people should be also be drawn up.  The report also recommends that the Olympics organisers utilise nef’s Local Multiplier 3 tool which measures the local impact of spend over three rounds.  LM3 has been used successfully across 23 local authorities in the North East to see how public money can maximise public benefit.

Without these steps, it remains doubtful that the 2012 Games will deliver on their promise to regenerate the heart of East London, recession or no recession.


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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.