In Box

Silver Lining

When winning isn't everything. 

The United States recently came up short in bids for two high-profile global sporting events: the 2016 Olympics (to Brazil) and the 2022 World Cup (to Qatar). But although it may be little consolation to U.S. sports fans, Rio and Doha could actually be the losers. A new study suggests that trying and failing to host major athletic competitions does as much for a country as actually succeeding -- without all the hassle.

"My underlying question when I started this research was: Why would anyone want to host a mega-event?" says Andrew Rose of the University of California Berkeley's Haas School of Business. "It seems like a huge waste of money." Take, for example, the $500 million "Bird's Nest" stadium built for the Beijing Olympics in 2008 and rarely used since, or the $15 billion spent by Greece on its 2004 Olympics, one factor blamed for the country's current economic distress.

Rose and co-author Mark Spiegel of the Federal Reserve Bank of San Francisco did find that countries that have hosted the Olympics have 30 percent higher levels of trade than countries that haven't. Still, countries that mounted serious bids -- but lost -- enjoy nearly the same economic benefits, without incurring the expense of building stadiums and athlete villages. So why is London, the city of the 2012 games, even bothering? "I have no idea what they're thinking," says Rose.

In Box

Why Recessions Are Good for Freedom

Democracy is best served with a side of economic stagnation.

"The more well-to-do a nation, the greater the chances that it will sustain democracy," wrote American political sociologist Seymour Martin Lipset in 1959, crystallizing the idea, now a received wisdom, that wealth is the inevitable handmaiden of political freedom.

But recent events may be starting to topple this notion. In the Middle East and North Africa, it certainly isn't miracle growth rates that lie behind the stunning recent outburst of fervor for political rights. Average per capita GDP growth across the Middle East has limped along at a little higher than 1 percent a year over the past 30 years. And far from the development of a large, independent middle class of entrepreneurs, the region has seen sclerotic private-sector growth, with business opportunities limited to a privileged, increasingly elderly elite. All this should have kept conditions ripe for authoritarians, oligarchs -- anyone but democrats. And then along came Mohamed Bouazizi, a downtrodden fruit vendor in Sidi Bouzid, Tunisia, whose self-immolation set the Arab world on fire.

So is the inverse true? Does lack of economic opportunity set the conditions for democratic upheaval? Economic growth is, of course, a source of popular contentment and stability in countries democratic and autocratic alike. But if you really want to spark a transition from autocracy to democracy, your best bet may be economic stagnation mixed with the flow of ideas. A much more plausible story linking economic performance to political change in the Middle East and beyond is that governments tend to fall after creating expectations in a bulging youth population that they then singularly fail to meet.

Consider this: College enrollment in Egypt has climbed from 14 to 28 percent in the last two decades, and from 8 to 34 percent in Tunisia over the same period. But unemployment among 15- to 24-year-olds in the Middle East and North Africa is the highest in the world, averaging more than 25 percent. In Egypt and Tunisia the numbers are even higher. To the extent that the economy played a role in recent events, it was by fanning a sense of injustice at hardship -- not by creating a class of bourgeois de Tocqueville fans.

Nor is the Arab world an outlier. In a 2009 study, MIT economist Daron Acemoglu and colleagues concluded that "high levels of income per capita do not promote transitions to democracy from non-democracy, nor do they forestall transitions to non-democracy from democracy." In fact, if the last century's worth of global evidence suggests anything, it is that countries seeing a decline in incomes move toward democracy considerably faster than countries that have seen income growth. The Soviet Union fell apart while the economy was shrinking, not in the 1950s when growth was rapid. Newly independent African states moved toward autocracy in the 1960s and 1970s, a period of comparatively successful economic performance. They moved back toward democracy in the 1980s and 1990s, when growth had slowed markedly.

To say that recessions speed the fall of odious regimes is not to say that they are a necessary prerequisite; the overall link between economic shocks and political instability is still subject to debate. And Twitter, Facebook, and satellite TV surely played an important role in spreading the revolutionary fervor. But perhaps the real champions of liberty are the oligarchs and autocrats who promised opportunity and then failed to deliver. Surely they should understand: It's the economy, stupid.

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