Monday, March 01, 2010

Profit, Loss, and Proliferation

Russia’s Olympic Problem

by Molly Cernicek and Cheryl Rofer

Russia’s President Dmitri Medvedev has requested that the officials responsible for preparing the Russian national teams for the recent Olympic Games resign after Russia won only 15 medals placing the country 11th in overall medal standings. This was the worst the country has ever performed in a winter Olympics, after a record investment to support athlete training over the past four years. Medvedev went on to state that future resources should support the athletes not the “fat cats” of the Sports Federation. He declared that the era of traveling on the successes of the Soviet Olympic and sports organizations has come to an end. He has accurately diagnosed the problem, but has no way to fix it any time soon.

Over the past 20 years, lucky friends of Boris Nikolayevich (Yeltsin) and Vladimir Vladimirovich (Putin) ingratiated themselves into positions of power and wealth. Whether through greed or ignorance, these leaders isolated Russia from painful but necessary integration into the global economy. They failed to insist on continued (let alone increased) investments into their citizens’ future and instead turned a blind eye as government investments went into the pockets of those appointed to oversee the country’s progress. Results of this model are starting to be realized as Russia has used up the positive results left by the Soviet government, most noticeable in the decline of Russia’s educational system, science and engineering prowess, infrastructure, manufacturing, and of course its athletic performances on the world stage.

Russia’s Olympic Problem could get much bigger than the lackluster performance of its athletes. In the glory days of 2008 when oil was $130 a barrel, President Putin signed up Russia to be the host of the 2014 Winter Olympics, a very controversial project even during the perceived good times of the Russian economy. Putin expected that gas and oil taxes and donations by his friends would build the unprecedented infrastructure to make Sochi thehost for the 2014 Olympics and an international destination. When the price of oil decreased late in 2008 to as low as $34 per barrel, Putin’s plans for Sochi became colossal. Russia had to dig deep into its once large coffers of savings while the government adjusted its budgets in real time to reflect the greatly reduced barrel price. (Russia’s 2009 budget was based on an oil price of $95 a barrel, with no contingencies for such a severe drop.) On top of that, many of Putin’s billionaire buddies lost money as the global markets crashed.

Current estimates put the cost of preparation for the Sochi Olympics at $33 billion, greatly exceeding the original budget of $6.25 billion. To get a sense of what it will take to convert the sub-tropical Sovietesque summer resort town of Sochi on the Black Sea to a city with modern venues and infrastructure, take a look at this BBC video. This news report only focuses on construction in Sochi, not on the infrastructure in the mountains high above the city where many of the events will be and the challenge to transport thousands of people up thousands of feet to the mountains’ events. The challenges are so enormous, one wonders whether this will be the first Olympics that has to be hosted somewhere else at the last minute. Russia’s medal count is a symptom of an economy dependent on natural resources and plagued with corruption in every nook and cranny.

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