In assessing the performance of state dominated systems, we need to control for population, ethnicity, income level, educational diversity, openness and a host of potential variables that need to be considered alongside the state before we conclude that the state is a dominant influence on sporting outcomes. The USA stacks up well against China scale considered. Australia stacks up even better, although there’s a fair bit of the state in both those systems. So we need to refine our measure of the state to assess its influence correctly.
The next question is: if state-run systems do work well, why? It may be because they identify talent and start training earlier than decentralised systems, although progress at a young age is not always the best indicator of future success.
It is almost certainly linked to the ability to gather the best athletes in one place . Assuming a standard distribution of physiological talent, it is pretty much impossible to become an elite athlete without three things: a good coach, someone good to train with, and someone to look after the social (as well as the financial) costs of going for gold. Preferably lots of good people to play against or train with, and a number of good coaches (perhaps fewer than Dana Torres though) This is why the state comes into Olympic sport in most systems, as the AOC’s bleating for more state funding over the past week loudly attests.
Clearly, physiological talent is not always evenly distributed. But there are actually very few sports where the sheer physiological advantages are enough to ensure a victory (running appears a counter-example). And even in sports dominated by ‘physiological advantages’, one variable appears constant: a highly competitive training environment. Just ask the Kenyans (or, recently, the Kenyans competing for other countries).
Finally, success in many sports is based more upon technique than physiology. Obviously, the two interact, and every sport has both technical and physiological requirements. Countries such as China often dominate more technique-based sports (think table tennis, diving, gymnastics, badminton) thanks, in many ways, to their rigid pyramid-like sport school system.
Significantly, the success of state-based sport systems, if they are indeed more successful, can be seen as a result of a ‘failure’ of markets to price sport at the Olympic level. Assuming that market price can be taken as total career earnings, is the market price for sports stars in Western nations totally detached from success at Olympic level? What, more significantly, are the costs of choosing between Olympic and non-Olympic sports? If you have a non-Olympic sport and the market values it highly (AFL, American football etc), then highly physiologically talented athletes are more likely to switch to playing that rather than sticking it out in the men’s Eights rowing or weightlifting team.
Governments able to rectify this tension on a relative earnings basis (ie ability to earn more than the average median wage) appear able to contribute to enjoying Olympic success.
Given this, perhaps we should all expect Chinese dominance of the Olympic medal table for a number of years to come or maybe, alternatively, we hope that the Chinese develop an enormously popular non-Olympic medal that attracts a large television audience. Then, perhaps the advance of the market, and the retreat of the state in China will gradually knock China off its new-found pedestal……
Ryan,
I have a few thoughts about market failure in sports.
First: returns on investment take a long time to eventuate and are difficult to capture.
Most of the investment takes place over a 15-20 year period during a person’s youth. Capitalising that investment happens over 1-5 years at the peak of the person’s career. In the private sector, it would be very difficult to prevent the investment moving to a competitor since its largely embodied in a person. At the government level, people don’t often change their home country, so the investment is more easily captured.
The alternative model would be a “World Firm’s Games” where sprinters for Nike competed against Adidas and Nintendo. But ensuring the sprinter didn’t defect would be difficult.
Secondly, there’s a large natural monopoly effect.
The capital investments (sports centers, high-performance training equipment etc) are subject to increasing returns to scale.
Third, sports is a “hit” industry. Most of the investment goes to people who never make any return at all, similar to the music and movie industries. Some of the investment goes to someone who delivers massive returns. For these industries to work in the private sector, you need contract arrangements where profits on the “hits” are used to fund investment in the “misses”. This is possible (or we wouldn’t have private music or film industries) but not automatic.
Finally, consumers may be less willing to support an athlete who represents a firm that doesn’t represent that consumer. People pay for sports because they feel they’re part of the team they support. Most people wouldn’t get too excited about the Woolworths Hockey Team.
My 2c.
[…] costs and sports As a further to last week’s article on sport and markets, this article in today’s Australian shows the dilemma facing modern sports administrators, […]
Ryan,
I think your article confuses two separate questions in an attempt to appear ‘economic’.
There is no doubt that certain types of state involvement in sport leads to more gold medals. That is an empiricial question.
However, you attempt to make a wider point – that this indicates a “‘failure’ of markets to price sport at the Olympic level.” Here you are on shaky territory. Clearly state involvement implicitly prices medals more highly, but why assume this price is a reflection of some intrinsic worth of medals? Or even that the state price is efficient? It may be that the market correctly prices the puublic value of a medal at 0 and the private value of a medal at capturable endorsements value plus the personal value to the person who has won it. If this were the case using state spending to buy more medals is inefficient and demonstrates “state failure”. All this is independent of the question of whether additional government spending increases the medal haul.
I am not arguing that the market does price medals correctly. I’m arguing that your article provides no basis for prefering a conclusion of “market failure” ove one of “state failure.” Either requires some external account of how medals ought to be priced.
With respct.
[…] Manuel’s posting on ‘Market failure, the state and Olympic sport’ generated further thought-provoking views, from Dominic Meagher, as well as a follow-up on […]
Pedantic
Good point. Not sure I was trying to make a sweeping statement that state involvement leads to gold medals and thus there is market failure. I think it is far more complex than that. More importantly, it is an empirical question without decent data (what makes a state sport system seems pretty difficult to resolve for starters. A guy at UniSA in Exercise Science has a pretty good paper on this).
But as you rightly note, one needs to back up the argument of market failure over state failure by firstly laying out the assumptions of pricing. In regards to your first point, if we, as Australians, don’t see medals as having an intrinsic worth, why are the AOC arguing for more state spending? Clearly the underlying rationale is that there is a value to an Olympic medal- otherwise why would we ask for more funding based on the Olympics rather than based on some form of grassroots participation metric?
So how do we calculate this funding?
Accepting the AOC’s argument that there is a “price” for a medal, then we can assume that there should be some form of public contribution for a medal. This is, as you note, independent of the effectiveness of state spending arguments.
But, obviously, a medal has significant private value. This is where the argument regarding switching costs comes in. If you accept that a medal has significant value to commercial sponsors, there will clearly be a private contribution.
Thus, value (how much, approximately, the medal is worth) is equal to the public value plus the private value plus some kind of personal value. I don’t really see, by the way, that the personal value would change THAT much. Everyone wants a medal. There will be, however, an ability to make a personal contribution.
Given that, going back to the initial supposition, total funding equals whatever the private contribution is plus whatever the public contribution is plus whatever the personal contribution.
Obviously, in systems where the private contribution by commercial sponsors are low, then the public and personal contributions will have to be higher and so on in order to keep the funding level the same.
Thus, if every medal has the same “value” (which, on the medal tally it does), and should thereby, in a perfect world, attract the same level of funding then countries with generous state funding will do well in sports where they are low amounts of private or personal contributions. Alternatively, if the private and personal contributions are held constant and one country invests much more than others, then you would expect their results to be better (although there are a bucket of other variables that need also be considered, as the start of the article says).
Finally, the total funding, or “value” will need to be higher in countries where there are other, non-Olympic sports which attract a large amount of private (or personal) investment, otherwise high-quality physiological talent will switch sports (eg basketballers and rowers going to the AFL).