Later this month the world’s largest sporting event kicks off and millions around the world will sit in front of their television sets to watch the spectacle of 32 nations compete for arguably the world’s greatest sporting prize.  South Africa awaits hundreds of thousands of visitors, overwhelmingly Europeans, to football’s World Cup.  The government claims the visitors and the media exposure will help provide a valuable boost to the nations’ economy.  But what indeed is the basis for such a claim and will South Africa really benefit economically from the event?

First, let’s take a look at the government’s claims.  The South African government’s official World Cup website outlines the expected benefits of holding the tournament.  Discussing those benefits to South Africans, the website claims the following,

The South African Government had already committed to a major infrastructure investment programme but the hosting of the 2010 FIFA World Cup has acted as a catalyst for many of the current infrastructure projects.

Another important claim it makes is that the tournament will bring 450,000 tourists to the country .  That figure is based on an analysis conducted by Grant Thornton, a global accountancy firm.  However, since that first study, the number of visitors has been revised downward to 373,000.  The government however states that the World Cup provides an excellent opportunity to market South Africa as a tourist destination.  

The government also lists its investments in building and upgrading football stadiums in preparation for the tournament.  Additionally, it will spend large sums on upgrading the country’s airports, road and rail network.

The Economist states that in total, an expected 93 billion Rand (US$ 12.4 billion) will be injected into the economy with around 16% or almost 15 billion Rand will come from tourism.  Most of the rest, the news magazine states, will come from central government expenditures.  Perhaps most importantly, the government claims that 159,000 new jobs will be created.

On the face of it, the government’s projections all seem to be a very positive development for South Africans.  Better infrastructure, more tourists, and more jobs.  Indeed it is not only South Africa’s government that is singing the praises of the World Cup’s dividend but also that of private businesses.  However, in truth, it is unlikely that South Africans as a whole will benefit from the cup at all.  Leaving aside the speculative cost benefit calculations made by the government, forgetting for a moment that the government is spending almost eighty billion rand in exchange for fifteen billion rand in tourist revenue, there are fundamental reasons South Africans will be left economically worse off by the tournament.  The reasons were already explained by French economist Bastiat almost two hundred years ago.  Bastiat was the economist that made the important distinction between that which is seen and that which is not seen. South Africans might see the shiny new stadiums, roads and airport upgrades.  They may also see increased employment in construction and tourism.  What they will not see however, is that as a result of the government’s spending, jobs are being destroyed elsewhere in the economy and that investments are lost elsewhere.  

There is, however, a very important difference between the jobs and infrastructure being created and the jobs and investment being sacrificed.  The jobs being created are done in industries that are favoured by the government’s planning efforts – in this instance planning for the World Cup – and those jobs are highly unlikely to be sustainable, particularly those in construction and the short term boost to tourism.  The jobs not being created are being done in industries providing goods and services that South Africans themselves want and are thus sustainable.  How do we know this?  By the simple fact that had the South African government not burdened the taxpayer with the costs of funding the tournament, the taxpayer would have used their own monies to spend on goods and services or save and invest as they pleased.  As an example, instead of being taxed to pay for sporting events, South Africans may have preferred to spend that money on improved healthcare, which may have created jobs for nurses.  They may have preferred to spend that money lost to the tournament on improved education for their children, creating jobs for teachers.  In other words, instead of using their own money for what they want, citizens are having their money taken from them by the government to be spent on something they do not really want.  The benefits of the seen are far outweighed by the loss to the unseen.

A parallel can be drawn with efforts by the Spanish government to create so-called “green jobs.” The country has embarked on an ambitious project to increase power generation from solar and wind sources.  Like the World Cup, the project is a centrally planned government effort financed ultimately by the taxpayer.  Similar to a grand sporting event, the media-popular clean energy story has also lent the Spanish government much prestige.  The government in Spain has been very vocal in proclaiming its success in creating jobs in the renewable energy industry.  In fact the media friendly story of having created green jobs has even caught the attention of President Obama of the United States who has declared his intention to replicate Spain’s policies in the U.S.  However what the government in Spain won’t mention is that, as discovered by Spanish economist Gabriel Calzada, for every one of these green jobs created, 2.2 jobs have been lost or not created to begin with.  Each one of Spain’s government created green jobs has cost the taxpayer between US$ 750,000 and $1.4 million.  Additionally, many of those new positions, like those ‘created’ during the South African World Cup preparations, have been in low-skilled construction jobs that are usually only short-term in nature.

The irony is that the government itself claims that South Africa was ideally suited to holding the World Cup because of the country’s already excellent infrastructure.  On its website, it states that,

In choosing South Africa to bring the World Cup to Africa for the first time, Fifa was not only looking at what the country already offers - world-class transport, telecommunications, tourism and sporting infrastructure, and a people renowned for their hospitality and passion for the beautiful game.

So, if we are to believe the government, South Africa already possessed excellent world-class sporting, transport and tourist infrastructure.  So why spend those billions on further upgrades?  What possible benefit is the taxpayer genuinely likely to see?

South Africans themselves, in large part won’t notice that they are worse off.  Indeed that is the very point of Frederic Bastiat’s insight.  Many will however be seduced by the government’s pronouncements on employment.  Naturally, the government is already taking credit for the jobs created, those jobs it sees, whilst being ignorant of the number and, importantly, the quality of the jobs not created, those jobs it doesn’t see.   Whatever the outcome of the World Cup tournament itself, South African citizens will, courtesy of their government, have scored an own goal.