Also the government will expect to see lower unemployment in the future as the stadiums used by the local sports teams will require more stewards, ticket people and other workers. Also additional people will be needed to work in the new gyms and to drive the trains and buses on the new public transport links. The training pitches would also need to be retained and new grounds men would be used. This would benefit the Japanese economy, as fewer benefits would be paid out because less people would be unemployed and they would receive more income tax, as more people would be working. This would lead to an increase in GDP, which generally means that people’s income and life prosperity would also increase.
Also Japan will have improved its public transport systems and road infrastructure to cope with the additional traffic to and from the games. After the World Cup this will work as an advantage to commuters and the government. If the road system is better then more people will be encouraged to commute from towns to the city for work if traffic is less than it is before. This will result in greater demand for petrol and diesel so the government will receive greater tax income in the future. This money can then be used in other ways to benefit the economy e.g. investment in education, grants for small businesses. The government would also get more money from public transport if links to towns and cities had improved with the extra investment. If more people start to use the subway and rail systems then the Japanese government will receive greater income from subway tickets. This would allow them to increase drivers’ wages (increasing aggregate demand) and also allow the Japanese government to invest in public services such as the NHS and public transport. . In fig 2, demand for petrol increases from D1 to D2 as a result of petrol’s increased use. This results in the price of petrol to increase from P1 to P2 and the quantity of petrol sold to increase from Q1 to Q2.
- Short-term economic stimulus from spending during the World Cup and from new construction before the World Cup.
During the World Cup it is expected that a large number of supporters and tourists will be visiting Japan to sample the culture and watch the football games. While doing this they will probably stay in a hotel, eat out in restaurants and visit tourist attractions and bars. This means that while in Japan they will be spending their money in the Japanese economy. This would cause demand for goods to increase like beer, clothes, high-tech goods and bottled water therefore causing aggregate demand to rise. The companies producing these goods will therefore receive greater income as more goods are being sold, this gives the company and its workers better income and so the labour force has more disposable income. More money is then spent on luxury products which in-turn benefits the workers who make these luxury products resulting in increased spending and profit for Japanese firms. As sales in the Japanese economy rise firms want to increase output. To increase the output of their product they will need more capital stock, which is the value of machines, equipment and factories. Changes to the capital stock are called investments, which the company would have to increase to expand output. For example if sales of PCs went up in Japan then the company or companies producing the hardware would have to expand output to increase their profits and the market proportion. To do this they may have to invest in efficient new machinery and a bigger factory. Not only would this lead to a greater profit for the firm but again more income for workers building the factory and machinery benefiting the economy. In fig 3 we can see that AD increases again from AD1 to AD2 but this time there is no spare capacity in the economy. This causes the price to increase from P1 to P2 and Real GDP to increase from Q1 to Q2. Then we see that firms respond to this by increasing output which increases supply and forces the Long Run Aggregate Supply curve to the Right from LRAS1 to LRAS2. This causes prices to fall back to P1 and Real GDP to increase to Q3.
During Japan’s preparation for the World Cup a skills shortage is likely to have emerged as not enough skilled workers would have been available to construct the stadiums, roads and sports training facilities needed to have a smoothly run World Cup. This meant the firms recruited by the government increased their demand for employees e.g. bricklayers, causing average wages to increase. This would encourage more people from other less paid jobs and also from the unemployed sector into the building trade and by 1999 would have a surplus of workers. Supply of workers is elastic in Japan as there is underemployment in the economy (unemployment) and people can learn new skills and change to different jobs. As a result of the wages being forced upwards, more people in the building trade would have more disposable income to spend on luxury goods. This again will lead to more consumers spending in the Japanese economy resulting in increased commercial profits and rising economic growth because firms will respond to increased demand by trying to increase supply. This will result in future growth of the firm and the Japanese economy as more goods are being sold and more people are using the goods.
Also during the World Cup many supporters in Japan will watch the match live on TV since live tickets have been sold out months before the games. This gives the broadcasters and the camera people down at pitch level a good chance to make money. First of all the cameramen will need to be trained in order to record the match and Japanese commentators found to give their views on the match to the public. So people in the football and TV roles will receive additional income from the 30 days of football played around the country. Also inside the stadiums a large number of billboards will be bought and used in order to advertise local companies and before the build up of the match and half time adverts will also be broadcasted to viewers watching from home in large numbers. For example if a local company is advertising on the billboards and by TV its name will become better known with the Japanese public. When people are shopping they will recognise the name and buy the product even though they might not need it. The effect of advertising is that it shifts the demand curve to the right therefore increasing sales of a particular product. If sales increase beyond the cost of the advertising then the company and its employees will benefit from the increased profit and this will benefit the economy. Wages will be forced up and the company’s profits increased, allowing the company to advertise regularly and keep its popularity and sales high. As we can see from fig 4, By Advertising Coca-Cola during the World Cup the demand for Coca-Cola increases from D1 to D2. Supply of Coca-Cola cans then increase from Q1 to Q2 and this allows the firm to raise prices from P1 to P2.
3) Marketing opportunity to attract tourism and new business in the future.
One of the main reasons the Japanese Government wanted to host the World Cup was to encourage more European and American firms into its country. By doing this they could lower unemployment and force wages to increase competitively. It is hoped that visions of Japan’s culture, infrastructure and its well organised hosting of the World Cup would attract well renowned international firms to move to Japan. If more firms set up in Japan and began employing people the unemployment level would be reduced and the government would benefit from lower payoffs of benefits and increased tax income from income tax and VAT. Also as a result of lower unemployment the crime levels may also fall which would result in lower insurance premiums, less public money spent on supporting people in prison and more disposable income, again benefiting the Japanese economy and allowing it to grow further.
In the short term while the World Cup is in operation there is expected to be a greater number of tourists visiting Japan’s many landmarks and famous cities. This will mean more cars will be rented out, greater use of taxis more hotel rooms booked out, more purchasing of souvenirs, more income from tourist attractions etc. This would result in a rapid rise in aggregate demand, pushing up wages and increasing firms profits which would allow firms to increase investment in machinery and new factories to increase productivity and lower unit costs. The increase in disposable income caused by increased wages and also the fact that firms in the future can produce more and cheaper goods would lead to the purchase of more luxury goods and an increase in life prosperity. If the economy is performing well and the large majority of people are happy then the economy will stay strong and with the right circumstances could grow in the future.
After the World Cup the Japanese government hope people will return after their last visit during the World Cup or after seeing Japan on TV, people to come and visit for a holiday in the near future. This would mean their investment during the World Cup would lead to a long-term income from new tourists visiting from abroad in the future and spending their holiday money. If the government is right and people visit to see Japans vast cultural and interesting tourist attractions it can expect a rapid increase in tourist income during the next few years. If more people are spending their money in Japan then Japan can expect increased consumer spending, rising wages and more economic growth.
4) Urban development
Japan’s government decided before the World Cup that its road infrastructure was not good enough to host major events and its public transport and stadium facilities were of a poor quality in some regions of the country. As a result 20 stadiums were either built or modernised, motorways were extended and public transport systems upgraded to carry vast numbers of people to the games. More parking facilities were built near to the stadiums and more hotels constructed to house the travelling fans. Thanks to this government and private investment commuters travelling into Japan’s major cities can get to work more quickly than usual and lorry drivers can get goods and equipment to once remote areas much quicker. This has allowed Japanese business to make savings as lorries loaded with goods aren’t wasting fuel waiting in traffic jams to get to their destination, business people are wasting less time on the motorway getting to work when they could be in an office working and people who regularly travel around the city using the tube or any other form of public transport will be able to do more work as they will spend less time travelling. If there are less traffic jams then delivery companies and consumers will be saving more money on petrol. Since commuters and delivery services use their vehicles every day then this will be quite a considerable saving. If firms are increasing profits and consumers have more disposable income then more consumer spending will take place and wages will increase creating economic growth.
The development of infrastructure such as roads is considered a positive externality as in the long run there would be less congestion on the new road compared to the old one. If the users of the road are spending less time stopping burning petrol then they will therefore be having a less negative affect on the natural environment. This is considered a positive externality as it is unintended and benefits a third party, in this case those who chart the environment. Also the development of the new subway links in Tokyo would be a positive externality as after the World Cup the local residents (third party) would benefit from less noise and air pollution. This unintended benefit would occur because commuters would prefer to use the subway rather than the congested main roads resulting in fewer cars on the roads. The public transport user is providing external benefits on the community by reducing congestion and air pollution. Therefore the Marginal supply benefit (MSB) is thus higher than the Marginal Private Benefit (MPB). So P2 reflects the true cost and benefit to society rather than P1.
Evaluation
Source: Guardian Unlimited website
Although my report was well planned and my discussions researched well, my theories may not be true, as the actual effects of the World Cup on Japan’s economy cannot be totally proven. Other factors such as the change of interest rates, trade and taxes may also have affected the increase in consumer spending and growth in GNP. So, though figures produced may be accurate, they may not be entirely attributable to the benefits of the World Cup. Also although my report discussed the benefits of the World Cup it did not take into account the negative effects of the tourism, pollution and violence during the World Cup which may have cost Japan money and damaged its reputation. Violence during the World Cup would adversely affect Japan’s reputation and any theft and damage created by fans and possibly locals would cost the government money and time (Luckily during this tournament violence was very low). Also the introduction of more cars and trains would increase pollution and congestion increasing damage to the environment (negative equity). We could say that even though the Japanese economy grew by X amount the quality of life in Japan may have decreased by Y amount.
The World Cup may have had a more positive effect if more match tickets had been sold. Despite regular advertising and high demand for tickets, some games were only 80% full. In the Russia Vs Tunisia game a massive 7,000 seats were left empty while many thousands of Russians and Tunisian fans were outside with no tickets. In terms of revenue from ticket sales this would be an estimated $450,000 of lost revenue from that one game. This under-selling of tickets took place for many games such as the Portugal Vs USA game and the Brazil Vs England Quarterfinal. In total over 39,600 seats were not sold during the World Cup, which means a total loss of $2.55 million. This would not benefit Japan, as it would mean lost revenue, which could be spent on investment and wages. Currently Japan is demanding compensation from FIFA but compensation has yet to be given.
After the World Cup, IDC took a market survey and discovered what they call the “World Cup effect”. This is where business and consumers put off spending to concentrate on the football. The effect of watching games, taking “sickies” and nursing hangovers would not help Japan’s already fragile economy. This occurred on a much greater scale during the France 98 World Cup and resulted in enterprise vendors in Europe failing to meet defined targets. The economic effect of this would be a sharp fall in product revenue, which could cause the loss of jobs and or a fall in wages. The effect of those is a fall in disposable income, which is the opposite of Japan’s aims in hosting the World Cup (to increase its citizen’s disposable income).
In a report by the Guardian it claims that Korea had a more successful World Cup than Japan in economic terms. With the South Korean football team reaching the semi-finals eventually going out to a good German side, the Japanese fortunes were less favourable as they were eliminated in the 2nd round, by the Turkish in a poor game. James Davis the Guardian reporter has come to the conclusion that because of Korea’s better support during the World Cup, the country achieved better economic success. Daisuke Eto a Japanese reporter who travelled to Korea’s games noted: “Everywhere was red, on the markets, in the underground, every one was wearing red shirts. They are fanatics. I wish we were as dedicated to our country” Davis goes on to say that the same level of mass support was not to be found in Japan. In Tokyo he saw few blue shirts and struggled to find a place to watch the match. Eventually when he did it was a Korean restaurant. It is clear from this report that Japan didn’t promote the competition enough and as a result it would gain less consumer spending than if it had. Unlike Korea, in Japan’s schools there were no half-day holidays and children still had to go to school. Consumers during the World Cup in France spent on average twice as much as in a normal month. In the first three months after the World Cup the Japanese economy grew a tiny 0.6% while the Korean economy grew an enormous 5.7% proving Japan did too little promotion, or that the Japanese were for some other reason much less interested than the Koreans.
An interesting article on the BBC news has argued that 10 of the stadiums built for the World Cup have no real future. They are claimed to be “white elephants”, as Japan’s J-league is not very well developed with the big clubs such as Cerezo and Yokohama getting crowds of less than 8,000 a game. The Sapporo Dome that cost £256 million is situated in a city with a J-league 2 team. It is therefore unlikely they will fill 42,500 seats a week or anywhere near a quarter of that. The Yokohama international sports stadium has a capacity of 70,000 and according to Mr Gratton since it’s construction in 1997 it hadn’t even been half filled before the World Cup. The up keep of these stadiums will run into many millions of Yen that some of which the small Japanese clubs may have to pay.
Despite these flaws I believe my report was broadly correct and I conclude that the World Cup benefited the Japanese economy at a time of depression. As we can see in the table above the World Cup created a massive 77,686 jobs and over $290 billion was generated. Also $160 billion was added onto the value of stocks and shares in Japan. Thanks to the increased consumer spending, increased firm output, urban development, tourism, excellent facilities, better infrastructure, rising wages and more tax income the Japanese economy has grown. Future analysis predicts an estimated $12 billion in production and job gains alone. If we look at the diagram below we can see that Japans Production Possibility Boundary increases from CI to XY as a result of increased investment from the government and growing consumption from Japans public. Japans economy also shifts from R to W as a result of these factors.
If I was going to make any further investigations into the effect of the World Cup on Japan’s economy I would wait until 2006 and review if tourism had increased on average since the World Cup had started. I would also check whether the attendance’s and season ticket sales of the Japanese football clubs had increased overall and by how much.
During this investigation my sources were via the Internet from: Guardian Unlimited; BBC News; Observer and soccerphile.com.
Contents Page
Page 1 – Introduction
Page 1, 2 – Economic Concepts
Page 2,3,4 – New sports facilities and associated amenities
Page 4,5,6 – Short term economic stimulus from spending during World Cup
Page 6,7 – Marketing opportunity to attract tourism and new business
Page 7,8 – Urban development
Page 8,9,10 – Evaluation and Final Conclusion
