The Curious Case of Albanian Mussel Exports

By Alejandra Jimenez

Albania is blessed with a long marine coast and abundant inland waters including rivers, lakes, agricultural reservoirs and coastal lagoons. But in spite of the abundance of its water resources, Albania is a net importer of fish. The Ministry of Agriculture, Rural Development and Water Management wants to turn this situation around by understanding and eliminating the constraints on exports faced by the aquaculture industry in general and the mussel industry in particular.

In 1994, after a cholera outbreak, the European Union (EU) imposed a ban on all exports of living products from the fishery sector, and Albanian mussel production collapsed. Mussels had been produced primarily in the Butrint lagoon, at Albania’s southern tip, since the 1960s, with annual production ranging from 2,000 tons to a maximum of 5,000 tons in 1989. Our objective, as Harvard CID interns in the Ministry of Agriculture, was set in front of us eight weeks ago: understand why Albania has not been able to eliminate this ban on mussel exports that is now over 20 years old.

Our work has consisted of visits to aquaculture production sites, talks with all relevant stakeholders, and independent investigative research. We first catalogued the assumptions we encountered about the export ban, and then searched for evidence to support or debunk them. We found that the persistence of the ban has been attributed by various hypotheses:

  1. Mussels produced in the Butrint lagoon are not safe for human consumption
  2. Though mussels are safe for human consumption, the Albanian government does not have the capacity to prove compliance with European food safety standards and stop eventual hazardous batches from reaching the market
  3. Production and consumption of mussels is informal and does not create the incentives to produce in accordance with costly food safety standards
  4. EU countries, particularly Greece and Italy, are interested in maintaining the ban so as to protect their exports from competition from the famous Butrint mussels

So which, if any, is correct? Let’s turn to the evidence, checking the hypotheses in reverse order. The most optimistic numbers place the potential for Albanian mussel production at 8,000 tons a year, a number that is almost insignificant when compared with the more than 300,000 tons of Mediterranean mussel produced elsewhere in Europe. In this context, a conspiracy to ban Albanian mussels based out of Italy or Greece is highly unlikely.

Butrint lagoon in Albania

The third hypothesis, however, seems more plausible. Mussel production and sales are, in fact, very informal. Only 25 mussel farmers have approval to produce in the Butrint lagoon (photo). The inspectors in the zone know these farmers personally and do not always enforce all contract clauses, including the government’s requirement that the mussels from the lagoon must undergo a purification process (called depuration) before entering the market. The inspectors argue that the tests done on the water imply the mussels are safe for consumption and therefore that depuration is unnecessary. Besides, restaurants buy the mussels even if they haven’t undergone the depuration process. Meanwhile, the inspectors do not face a punishment from the central authority when they do not enforce the food safety procedures established by law. Central authorities argue that the production is too small to make the purification process profitable, and that it would be done if production were large enough. They believe they have the capacity to enforce the food safety standards but will only do so when the production is large enough to make the process worthwhile.

The Food and Veterinary Office of the European Commission has a different assessment, in line with the second hypothesis. In audits made in 2007 and 2011, they point out deficiencies, both in implementation and in technical capacity, that undermine enforcement of the standards meant to guarantee that mussels produced in the country, and in the Butrint lagoon specifically, are safe for human consumption. The 2011 audit states that the government has made progress since 2007, but that some work remains to be done before food safety is ensured and the ban can be lifted. Testing of both the water and of the mussels needs improvement. The government laboratory is not able to run some of the tests that the EU requires and transportation of the samples is slow, allowing microorganisms to grow and the tests to be undermined. Additionally, inspections fail to meet standards for formalization and documentation. The EU’s regulatory bottom line remains that the depuration process must happen as long as the lagoon waters are classified as a “B” area by the Ministry of Agriculture, which they currently are, and the inspectors must be able to respond immediately to stop a hazardous batch of mussels.

Accordingly, the first hypothesis, and whether or not the waters of the Butrint lagoon are free of pollution and mussels produced are generally safe for human consumption, is irrelevant because there is no system in place to attest that this is the case for each mussel to be exported. In reality, safety for human consumption is not a constant as environmental conditions can damage mussels at any time, which is why the EU requires a reliable system be in place to ascertain food safety continuously. That said, local and central authorities have worked hard to improve the quality of the Butrint lagoon water, and sources of pollution have been reduced: there is almost no agriculture in the zone, and no untreated waters are discharged into the lagoon by the towns nearby.

So what is the reason that the ban is still in place? It is not the mussels themselves and it is not a conspiracy. The second and third hypotheses both hold some truth, and given this situation, removing the ban on Albanian mussel exports has become a chicken-and-egg problem. Inspectors do not have an incentive to fulfill their responsibilities because they are convinced that the problem is not their control, but in the low production.The domestic market remains small and the ban on exports removes any profit incentive for higher production by cutting off sellers from international buyers. Removing the ban requires a system with reliable testing where inspections to assess compliance with regulatory standards are properly done. However, both testing and inspections seem overly costly at the current levels of production.

Breaking the cycle implies a shock to the system. This could be a strong initiative within government to make the public inspection and testing system work; it could be organized pressure on the government from the communities that stand to benefit from mussel exports; or this could be the entry of a large private player that would own the mussel production and internalize the need for EU compliance. Any solution would entail better organization on the part of the government and also paying some form of upfront costs—as even the entry of a private company would require contracting and oversight. Meanwhile, fixing the system is not outside the capabilities of the ministry, and the government has even received external assistance for this goal. However, as is often the case, the challenge is not only technical but also bureaucratic—someone must take the initiative to reverse the cycle. Our hope is that by debunking some of the myths of this curious case, we can make this outcome more likely.

The Unknown of the Balkans: Albania and Foreign Investment

By Emmanual Steg

Albania has a two-headed eagle on its flag to symbolize a country that looks both towards the West and the East. However, since the end of the Second World War, Albania has been curled up and unable to open up to a dynamic Europe. During the Cold War, it was the most reclusive country in Europe, finding an ally only in the distant People’s Republic of China, and even after the fall of communism, Albania remained an anomaly among its Balkan neighbors, who were painfully taking back their place at the heart of Europe. Why would a country just off the coast of Italy and mere hours from Western European capitals have so much trouble attracting foreign investors?

History has not been kind to the Albanian people. Barely half a decade after the fall of communism, the country teetered again on the brink of collapse when large pyramidal schemes failed to make payments. Those schemes represented up to half of Albanian GDP and offered annual interest rates as high as 100%. With their collapse, rule of law virtually disappeared: legend is that more than a million guns were looted from military reserves. Though Albania is now a politically stable country, those images still hurt its reputation abroad.

Even now, Albania is still fighting to shake the remnants of the communist era. And although there has been improvement in the last few years, Albania still consistently ranks in the bottom half of Transparency International’s Corruption Perceptions Index, lagging behind its neighbors. Foreigners in Albania remain reluctant to invest in a country where the judicial system is perceived as unreliable (a planned reform of the justice system has just been announced by the current government). From the outward signals, it is not hard to see why the rest of the world has been avoiding Albania.

However, they would be mistaken to do so. The potential offered by Albania is almost dizzying. Out of all the possible industries, three are especially interesting.

Tourism – As of today, tourism represents less than 5% of Albanian GDP, while it accounts for up to 10x that share for its direct neighbors. The Albanian coast is an untouched jewel, reminiscent of the French Riviera a hundred years ago. The region from Vlora to Saranda is especially magical: the coast is a succession of daunting cliffs and small sandy beaches, bordered by a pale blue sea. The backcountry is just as impressive; the tall mountains allow hikers to discover traditional villages, natural wells, and UNESCO World Heritage ruins.

Energy – Albania has been blessed with many bountiful energy sources, from oil to hydropower. Although still a net importer of energy, recent years have seen considerable investments in this sector that will allow Albania to become a regional power in electricity. The planned creation of an energy market will allow the government to provide a clearer business environment for investors, who will be able to efficiently and transparently sell their production.

Manufacturing – Albania is not only located close to the big European economies; it also has a population that is young, well-educated (most speak Italian or English), hard-working and inexpensive (minimum wage is under 160 euro per month). This should allow the big manufacturing groups of Western Europe to position reliable factories at their very border for a fraction of the cost it would be at home.

Albania’s potential is slowly being discovered as it starts to open up to the rest of the world. The next ten years may well see dizzying growth coming from the center of Europe.

Beyond Remittances: Engaging the Albanian Diaspora in Development

By Sarah Zehner

Since 2001, a growing number of developing countries have established ministries, government departments or other official institutions dedicated to their diasporas. Albania, which has a Diaspora Unit within its Ministry of Foreign Affairs, is among this group. This shift worldwide is consistent with the recognition that diasporas can contribute greatly to both economic and social development in their countries of origin. In a recent article, Ricardo Hausmann refers to opportunities for diaspora engagement as ‘The Diaspora Goldmine’. But what makes a country’s citizens living abroad so valuable? And how does the Albanian diaspora play a role in Albania’s development.

Perhaps the most tangible way that diasporas contribute to the development of their home countries is via remittances. According to the Bank of Albania, remittances flowing into Albania increased by 8.6% from 2013 to 2014, reaching the amount of EUR 592 million. This is the equivalent of 5.6% of Albania’s GDP. These remittances supplement the incomes of households, serve as a critical source of foreign exchange, and help to promote macroeconomic stability. 

However, remittances are only one small part of ‘The Diaspora Goldmine’. In its publication, Developing a Road Map for Engaging Diasporas in Development, the International Organization for Migration (IOM) lists six ways in which diasporas can play an influential role in their home country’s development: remittances, direct investments, human capital transfers, philanthropic contributions, capital market investments, and tourism. To help better understand and facilitate these types of diaspora engagement, the Economic Growth in Albania Project at CID launched its Albanian Diaspora Program earlier this year.

With over one-third of Albanians living outside of their home country, migration plays a critical role in economic and social change in Albania. Most Albanian emigrants live and work in neighboring Greece and Italy, while the United States is the third most popular destination. Earlier this year, CID did a statistical profiling of Albanian-Americans and found that this group is highly skilled and educated, with most of the population concentrated in just a few states. In March, the Diaspora Program conducted online surveying that confirmed that Albanian-Americans’ high levels of human and economic capital could be better leveraged to spur inclusive growth within Albania. The survey found that the diaspora is willing, able and committed to engage in the development of Albania through education, professional exchange, humanitarian aid, business development, trade, and investment.

The Diaspora Program is now working to bring stakeholders together in order to move toward this vision. You can follow along here and learn more about what the Diaspora Program is doing this summer through the Global Albanians Newsletter. 

Energy as a Big Opportunity in Albania

By Juan Domingo Riesco

This year, Albania’s Parliament approved an ambitious new electricity law. With it, the country is trying to complete the unbundling of its electricity generation, transmission and retail; move toward a non-discriminatory competitive market; and integrate more fully with the rest of Europe, both in energy markets and energy priorities. If that sounds complicated and technical, that’s because it is.

Upon the foundation of the law, the Ministry of Energy and Industry is now working to develop specific procedures and regulations designed to increase the overall supply of energy, decrease losses of electricity in the system, improve service to customers, and reduce financial risk to the government—all within sustainable market systems. The devil is, of course, in the details, but the Ministry is using hard data to rank options and knowledge of international experience to avoid the pitfalls that have derailed a similar process in other countries.

So how important are these electricity reforms in Albania? The answer: hugely. According to business surveys, 21.6% of Albanian firms identify electricity as a major constraint to doing business—higher than accessing finance, taxes, corruption, education levels or transportation. This leaves Albania ranked 152nd out of 189 countries on ease for firms to connect to the electricity grid. And these are, by necessity, only firms in the industries that can survive in Albania. Industries that require large amounts of electricity do not report because they do not exist. Progress on the Ministry’s reform initiatives should help to solve that problem. It may take time, but with well-structured reforms we would expect the share of electricity-intensive industries to grow in Albania’s export basket, helping to generate new permanent employment.

For these and other reasons, getting the technical details right is important. Here is some of what to look for as the Ministry continues its efforts.

In 2019, when the new law is fully implemented, there will be a large flux of high-consumption customers (mainly businesses) moving from regulated to open markets, where tariffs will be market-determined rather than fixed by government. For this to succeed, new markets (day ahead, ancillary and balance) must be in place and complete. Incentives must be structured such that electricity users and electricity sellers both benefit from making the switch and such that generators, transmitters and distributors internalize the need to increase efficiency and invest in their assets. Albania will also systematically integrate into a market much more developed and 654 times bigger than its own. If successful, this will improve energy security and quality of service, while also lowering business and commercial risks to invest in the country.

Albania should view the new framework as a big opportunity for its economic participation in Europe, and ministries must join together to take serious steps to eliminate distortions that could reduce the scope of the gains. A good experience in the electricity transition will improve the overall business environment and will provide better opportunities for industries that depend critically on cheap and reliable energy. If matched by appropriate industrial policies, this could increase economic diversity and complexity, enhancing productivity and economic growth, which the single most important determinant of consistent increases in living standards and reductions in poverty.

The new law and integration may also provide benefits in other ways. First, if investments complement reforms and water storage management is improved, Albanian power, which is already highly valued for its cleanliness and low operating price, could be prized for its flexibility as well. Connecting with markets abroad may allow for the export of electricity at peak hours, improving the trade balance and serving to attract new energy investment. Second, reforms could pave the way for optimized access to and use of natural gas from the Trans Adriatic Pipeline, which is planned to become operational in 2020. Such could allow for much needed diversification of Albania’s electricity production.

With well-designed and implemented public policy, several countries have improved their position significantly in just one generation. One such case is my country, Chile, which was able to quadruple its GDP per capita and reduce poverty from 39% to 8% in just 25 years. In all such cases, there were binding constraints that needed to be lifted to unleash the country’s true potential. This required long-term solutions to complex problems. In Albania, electricity is one of those types of constraints, although maybe not exclusively. The new electricity law is one step toward a long-term solution, but it is one among many steps. The focus on designing procedures and regulations must now remain detailed, and the responsibilities must eventually be shared, to take advantage of a big opportunity.

Kickbacks, gambling, and match-fixing in football dwarf the FIFA scandal

Authors: Douglas Barrios, Matt Andrews, and Stuart Russell

The world of sports was taken by storm when a recent FBI probe led to the arrest of a series of high-ranking FIFA officials and the subsequent resignation of Sepp Blatter after winning re-election to a fifth four-year term as president of the organization.

The uproar is understandable; the accusations have been scandalous, their impact has been felt all around the globe and a never-ending series of notable sport controversies appear to be linked to the investigation. 

More so, associated football (soccer) is widely perceived as the world’s most popular sport and the World Cup is its pinnacle event. It is revered by athletes, fans, cultural icons and even heads of state as it inspires dreams of glory, both for players and countries. Learning, or rather confirming, that some of those whom were supposed to serve as the guardians of the game, develop football for all and leverage the power of the sport to improve social outcomes have rather tarnished its legacy is disheartening, but it begs the question: What if this is merely one piece in a broader puzzle of illegal activity?

If one goes beyond the prestige associated to the World Cup, it quickly becomes evident that the financial size of FIFA, and its dealings in general, pale in comparison to the rest of organized football.

According to FIFA’s 2014 Financial Report the organization’s global revenue for the 2011-2014 period was 5.2 billion USD which was the highest in its history and 23.9% larger than the revenue for the previous 4-year cycle. However, this is only 41% of the revenues generated by the top 5 football leagues in Europe just in the 2012/2013 season1.  

Revenues generated for World Cup hosts don’t hold up much better. While FIFA receives revenues from TV rights, marketing rights, hospitality rights, licensing rights and ticketing, host nations only reap revenues through taxes imposed to economic activities generated by the World Cup. In the case of the 2014 World Cup, the most optimistic estimates put the revenues generated by Brazil for hosting the event at 7.2 billion USD, while more moderate guesses places them at a mere 500 million USD.

More so, when we aggregate the yearly revenues of FIFA, UEFA and other Regional and National Associations and compare them with a broader definition of organized football, we find that they represent less than 15% of the global revenues directly associated with the sport2.

In this light, it becomes evident why the biggest scandal in FIFA history, centered on 151 million USD in kickbacks spanning a 24 year period, may not be as large as initially perceived, at least in financial terms, when compared to broader maladies in football.   

For instance, as of 2013, Operation Soga, a tactical operation coordinated by INTERPOL to address illegal football gambling activities in Asia, had resulted in the closure of gambling dens which handled illegal bets worth more than 2 billion USD.

According to the World Lottery Association, an organization of state authorized lotteries, at least 90 billion euros are spent each year in illegitimate football betting, creating incentives for individuals outside the game, overseeing the game and leading the game to partake in a myriad of match fixing schemes. Perhaps even more damaging, these sorts of schemes appear to have been used by criminal organizations to launder 140 billion USD a year, creating a dangerous link between popular sporting activities and organized crime. 

These kind of illegal activities represent an epidemic attacking the integrity of the game at its very core. A 2013 INTERPOL report on match-fixing highlighted that in just the period between June 1st 2012 and May 31st 2013 English-language open-source media reported match-fixing incidents in over 70 countries and across 6 continents.

This report also typified the type of matches usually targeted by match-fixers. They stated that despite the fact  there may be higher returns to betting on top level competitions, matches in lower or semi-amateur leagues are usually targeted as ‘they are less likely to be monitored.’ Similarly, ‘friendly matches, often international, are particularly vulnerable, as they are less regulated than FIFA-sanctioned competitions.’

Kickbacks on marketing and TV rights, illegitimate betting and match-fixing don’t even encompass the whole array of illegal activity associated with organized football. Allegations of vote-rigging for host city selection and illicit reselling of tickets have also been rampant. Additionally other accusations of more subtle vote manipulation that have come to light, while potentially not illegal, are downright murky.  

Public opinion is right to be appalled at the corrupt acts conducted by some at the very top of FIFA. Fans, players, and the history of the game deserve better, but if the concerns of sports fans and citizens in general are to be in the right place, we should interpret this most recent scandal as a symptom of a larger, deeper-rooted issue. The fact is that most of these scandals transcend the categorization of corruption in football, at any level, and truly reflect the pervasiveness of broader corrupt and criminal activities that merely utilize sports as a vehicle.

FIFA reform would be a step in addressing that issue. Yet safeguarding the integrity of the game, promoting healthy citizen engagement with sports and stopping these corrupt activities and criminal endeavors require a stronger and more proactive stance from national organizations, local organizations, and even from us, the spectators.

[1] In European soccer, a season is played between the fall of one year until the summer of the following year. We use this season as reference because financial data is publicly available for all top 5 leagues for this season and it represents a mid-point for the 4 year period of FIFA. Revenues for these leagues for the 2013/2014 season sat approximately at 15 billion USD.

[2] We conducted an attempt to reconstruct the annual revenues from organized soccer in different regions of the globe, including supranational organizations like FIFA and UEFA, CONCACAF, and CAF. The estimates for the European top leagues were informed by rigorous data from UEFA, FIFA, and independent studies by the firm Deloitte. Estimates for regions like Africa, Central and South America, Oceania and Asia were not as rigorous, given the lack of any organizations or processes to capture, audit and share data in these regions. Estimates in these cases were based on primary research into regional associations, national leagues, and even clubs, where data are also scarce and difficult to verify. All in all the revenue identified from these different sources of information add up to 33.5 billion dollars annually, 14% of which refers to FIFA, UEFA and other Regional and National Associations. Similarly an AT Kearney study estimates the size of global football at 35.3 billion dollars.  

This research is part of an ongoing collaboration with the International Centre for Sport Security (ICSS). This blog highlights some of the findings of this work.

European Aspirations in the Balkans

By Ishani Desai

“Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity.”

– Robert Schuman, 9 May 1950

In his historic declaration in May 1950, Robert Schuman, the architect of Europe, voiced his determination to merge the economic interests of his region and raise living standards, and to eventually create a more unified Europe. The result—the European Coal and Steel Community (ECSC), which included six Western European countries—was the first supranational European institution and would ultimately pave the way for today’s European Union (EU).

Since 1950, the EU has grown to include 28 member states with six others recognized as candidates for membership, including Albania, Serbia, Montenegro, and Macedonia. Bosnia and Herzegovina and Kosovo, for the time being, are potential candidates because they have not yet submitted membership applications. In order for any of these Western Balkan nations to join the EU, they must leave the divisive “balkanized” politics of the past behind and strive for regional cooperation.

Arriving in Albania on the eve of Tirana Talks, a meeting of the Vienna Economic Forum, I was welcomed to a decorated Tirana full of security guards, blocked streets and traffic jams. This was, in part, due to the first ever visit by a Serbian Prime Minister to Albania. The scene must have resembled that of Belgrade last November, when Albanian Prime Minister Edi Rama’s visit to Serbia marked the first for an Albanian head of government since 1947.

In total, Prime Ministers from all six Western Balkan nations were in attendance in Tirana to discuss regional collaboration and prepare for the upcoming Vienna Forum in August. Their shared aim was simple: faster EU accession supported by improved regional integration. While disputes surfaced during the talks, this motivation ruled the day. An emphasis was put on increasing infrastructure and investment; however, securing funding for proposed projects remains a large challenge. To fulfill EU requirements, the region plans to invest in new highways to link ports and capitals and enhance mobility, to establish the first government-led regional youth center to foster social integration, and to work on linking energy markets. With the talks completed, the actions of the six nations over the next few months regarding these and other initiatives will be telling.

The priority of integration is clear within the Albanian Ministry of Foreign Affairs and is broadly supported by public opinion. The EU-funded Balkan Barometer 2015 Public Opinion Survey indicates that more than 84% of Albanians think that EU membership would be a good thing. Meanwhile, the surest path to EU accession is through regional integration. Although there are challenges to regional collaboration that are embedded in deep-rooted history and complex politics, the potential benefits are driving this priority today. One key idea is that regional cooperation will lead to regional security, which in turn will increase investments and help Albania (and the Balkan region) grow.

Working for the Center for International Development, my role for the summer is to help the Albanian Government explore ways to enhance regional integration and prepare for the next meeting of the Vienna Economic Forum. The Tirana Talks have set a positive atmosphere at the highest levels of government. The goal now is to design sound public policy, structure forward-thinking investment plans, and operationalize this spirit of regional collaboration into sustainable joint projects and initiatives. Trade is already encouraged in the region through the Central European Free Trade Agreement (CEFTA), but Albania must lead the push for still greater economic cooperation and improved social integration. Such is the only way to achieve the de facto solidarity that Schuman described more than a half century ago.

A Better FIFA Won’t Solve Football’s Ills

Authors: Stuart Russell, Matt Andrews and Douglas Barrios

Recent accusations of corruption at the Fédération Internationale de Football Association (FIFA) are, unfortunately, entirely unsurprising. Allegations of bad governance, bribery and fraud have surrounded the organization for years, but repeated calls for reform have generated limited change. While FIFA needs reform, many of the recent calls for change seem excessively narrow when one considers that the organization is only marginally important in the general governance of football (or soccer). One needs to look beyond FIFA to seriously correct the governance problems plaguing football and sports more generally.

At the most basic level, governance is about the exercise of authority by some agents on behalf of others to affect a certain result or achieve a particular impact. Football governance is complex. It involves many different authorizing agents distributed across multiple levels of government or parts of society, acting on behalf of different groups and with different ends in mind. Besides supranational entities like FIFA, there are many other authorizing agents: national entities (central governments and national football organizations), regional and municipal governments, football clubs and teams, associated sports-related firms (broadcasting corporations and sponsoring businesses), and more.

Improving football governance requires recognizing this complexity, which has implications for how we think of the calls to reform FIFA. First, we need to recognize that FIFA does have some authority in the sport and that the organization can be better structured to exercise that authority. Second, we need to acknowledge that FIFA’s actual power is rather limited and many of the governance ills in the game require reforms in other jurisdictions and entities. Third, we should accept the need to carefully re-examine the roles of different governance agents, especially more important, but lower-profile authorizing agents like national and municipal governments.

FIFA’s limitations
FIFA’s limits become plain when one scrutinizes the organization’s role and the tools at its disposal. To start, one might assume that FIFA controls the rules of football, but these standards are actually determined by the International Football Association Board (IFAB), an organization in which FIFA possesses some, but not complete, influence. One might also think that FIFA provides money to build the sport across the globe, especially in poor and emerging countries. However, FIFA’s Goal and Financial Assistance programs are actually quite limited in size and seem to be used less for large scale development and more as mechanisms for the FIFA leadership – and President Sepp Blatter in particular – to consolidate power. FIFA doles out financial assistance in return for pledges of support and votes in internal elections. The formula is simple pork-barrel politics, used by politicians all over the world to mobilize support, and seems to have been ineffective for actually developing the game.

The most important and obvious authorizing mechanism FIFA has is the power to award the rights to host the FIFA World Cup. However, despite the glitz and glamor that this mega-event attracts, the revenues FIFA derives from its premier championship pale in comparison to revenues in other parts of the football world.

During the period from 2011 to 2014, FIFA reported revenues of about $1.4 billion a year, with about 70% of these revenues flowing directly from the 2014 Brazil World Cup. In contrast, Deloitte’s Sports Business Group reports that the top five leagues in Europe generated over $15 billion in revenues in 2013/14. Likewise, the revenues of just the top three richest clubs in the 2013/2014 season (Real Madrid, Manchester United, and Bayern Munich) sum to more than the annual revenues of FIFA. If leveraged properly, the financial influence of Europe’s top leagues and clubs would clearly dwarf that of FIFA. The power, influence and authority of these leagues and their richest clubs are arguably much more important than that of FIFA.

Of course, FIFA’s limited authority shouldn’t undermine the public’s calls for change within the institution. This is especially important when one notes how much soft and manipulative power the organization seems to have had in the past. European leagues have not stood up as aggressively against FIFA as one might have expected, and national governments in Brazil and South Africa accepted a range of questionable demands from FIFA in order to get rights to host the World Cup. In many ways, FIFA has proved more effective at forcing governments to suspend laws and re-allocate resources than entities like the International Monetary Fund.

Given this, it is necessary to clarify the nature of FIFA as an authorizing agent in sports governance and ensure that it operates in a transparent and accountable manner. Right now, the organization operates, formally, as an “association” under Swiss law, but it acts in a de facto sense as an informal country club of elite soccer executives with minimal accountability. One way to fight backroom informalities would be to officially transform FIFA into a private business. If FIFA acted like a firm, the transparency demands of the market could force FIFA to become more accountable. Alternatively, FIFA could become quasi-governmental organization like the World Doping Agency, an institution partially composed of national governments. An intergovernmental structure could provide countries with direct oversight of the group’s actions.

Governments must do more
While these changes are needed, it is clear that reforms to the governance of football shouldn’t be limited to FIFA only. Put another way, if FIFA possesses limited authority over football, then which authorizing agents are actually relevant?

National governments play an important role, crafting sports-specific policies related to the incorporation of clubs and the regulation of leagues. Moreover, they enjoy broad authority over a range of policy domains that aren’t sports-specific but are still crucial for the sector to function. These include financing transportation systems, regulating the financial sector and labor markets, supervising television broadcasting, and structuring sound legal systems. Spectator sports behave like any other industry in that they rely heavily on the effectiveness of a national government’s authority in these arenas. When one compares FIFA’s authority with that of a national government, it is surprising that countries so often allow FIFA to bully or manipulate them. As agents possessing more significant direct authorities over football than FIFA itself, national governments are far too lenient with the organization and the sport in general. The ongoing American and Swiss investigations into FIFA’s corruption are steps in the right direction, but these inquiries should only be the beginning of national government efforts to use their clout and reform the system.

Regional or municipal administrations also play an important role with respect to the governance of football. At a most basic level, local governments control essential services like policing and utilities systems. These governments also control the use of land, perhaps the most important resource for sports in general (that are played in stadiums and on fields in front of crowds who need to be able to access the spaces via municipal infrastructure systems). Moreover, many municipalities either subsidize these stadiums or support the day-to-day operations of the teams in their jurisdiction. Some clubs, particularly those in central and eastern Europe or in the lower tiers of Europe’s bigger football leagues, operate like state-owned enterprises. Propped up by municipal assistance, these clubs face many of the problems associated with traditional state-owned enterprises: operating inefficiencies, corruption, and political interference. Municipal support often means these clubs have a soft budget constraint, given a reliance on city subsidies for financing rather than the private sector. Such dependence gives municipalities the opportunity to exert significant influence. Regional and municipal administrations need to be more strategic about how they use the influence of these authorizing mechanisms to control corruption and fight fraud in football.

Perhaps the most important lesson to be learned from the ongoing FIFA scandal is that football – and sports in general – has been given special treatment for too long. The Economist correctly diagnosed the problem in a recent article, observing that

Too often the authorities have shared the misconception that corruption in sport is essentially benign. Worried about appearing killjoys, they have let it be.

There is significant room for improvement amongst the many authorizing agents in football governance. Furthermore, international focus on the emerging FIFA scandal has masked ways in which other agents can effect positive change. National governments should crackdown on corruption in football just as they would in any other industry. As the American and Swiss governments have started to do, they should leverage their control of financial, broadcasting, and legal systems to improve the sector. Likewise, regional and municipal governments should consider ways to leverage the authorizing mechanisms under their control to reform football. Given the reliance of European clubs on local government support, these administrations have the power to force real reforms. Football and sports more broadly have many problems, only some of which can be solved through changes within FIFA. As for the rest, other authorizing agents – like national and municipal governments – ought to stop playing around and take the game of football more seriously.

This research is part of an ongoing collaboration with the International Centre for Sport Security (ICSS). This blog highlights some of the findings of this work.

Kicking Off the 2015 Summer Internship Program

By Ljubica Nedelkoska

For a second year in a row, the Center for International Development (CID) at Harvard University is organizing a 10-week summer internship program as a part of the Economic Growth in Albania project. Today, 13 master’s level students from Harvard University stepped into government and ministry offices in Tirana, Albania to work towards development goals. About half of them will work at the Ministry of Economy and Tourism. The other half will join the Ministry of Energy, the Ministry of Agriculture, the Ministry of Foreign Affairs and the Albanian Investment Development Agency (AIDA).

Growth Lab interns seated at table with Ricardo Hausmann

 

Albania has ample economic issues to address, some of which are structural in nature and others which are driven by the recent developments in the Eurozone. While still struggling to break with its socialist past and build good institutions, the European economic crisis took its toll on Albania. Almost one-third of the Albanian population lives in Greece and Italy today – migration has been a major mechanism through which Albania reduced unemployment, maintained wage growth and alleviated poverty through remittances. The European Union is also Albania’s largest foreign direct investment (FDI) and trading partner, and ultimately, is the community Albania aspires to join in the near future. The long-standing mismanagement of public funds is why the country is now undertaking a major fiscal consolidation. With little room for fiscal maneuvers, the government, supported by CID’s project, has turned to a strategy of strengthening the productive capabilities of export-generating industries as well as creating opportunities for FDI investments. Like last year, this year’s internship program will help us advance the implementation of this strategy.

The interns will work on key elements of the growth strategy. They will:

Most students have a combined background in economics and policy, and bring a wealth of knowledge and experience into the program. They come from ten different developed and developing countries spread across four continents.

 

Boston’s Olympic Bid: Leveraging the Non-Economic Gains

Author: Stuart Russell

Earlier this year, the United States Olympic Committee (USOC) named Boston as its candidate city for the 2024 Summer Olympic Games. Boston was chosen over other bids from Los Angeles, San Francisco, and Washington, D.C. It now joins Rome and Hamburg as the only cities to have officially submitted a bid for the 2024 Summer Games, although many other countries ranging from France to South Africa are also considering submitting cities. While the International Olympic Committee won’t select a host until 2017, supporters and critics of Boston’s candidacy have already made their voices heard. Newly elected Massachusetts Governor Charlie Baker hailed the selection of Boston as “an exciting opportunity to promote Massachusetts on the world stage.” However, critics like the group No Boston Olympics were more skeptical. Christopher Dempsey, the co-chair of the advocacy organization, told The Boston Globe that he was worried the city would now focus on the Olympics for the next two years instead of more important priorities like health care, education, and infrastructure.

The arguments of those opposing the candidacy are supported by the findings of a number of economists. The existing literature on sports mega-events like the Olympics, the FIFA World Cup, or the European soccer championships suggests there are relatively few positive economic benefits for the host city or country. Academics such as Rob Baade and Wolfgang Maennig contend that spending by locals during such events merely replaces spending those locals would do on different leisure activities or consumption goods. This sort of substitution effect limits the true additional spending that the events add to an economy. Other economists worry about the expensive and poorly-used sports infrastructure that often accompanies mega-events. Velodromes and archery stadiums, arenas which are filled during the Summer Olympics, are rarely used after the event. In light of such skepticism, why are these sporting events still so desirable? Why did San Francisco, Los Angeles, and Washington, D.C. battle Boston for the USOC’s nomination? Other academics suggest there could be less direct – but nonetheless still positive effects – of hosting mega-events.

In their article “The Olympic Effect,” Andrew K. Rose and Mark M. Spiegel propose one interesting impact. Rose and Spiegel argue that hosting mega-events, such as the Olympic Games may foster trade among countries. They demonstrate that countries with cities that have hosted the Summer Olympics benefit from an economically large and statistically significant increase in trade. In fact, they find that hosting the Summer Games is associated with a permanent 36% increase in exports following the event.1 Interestingly, they also find that the imports of host countries increase in addition to their exports. The findings suggest that the Winter Olympics don’t have the same export effect, a logical conclusion given that the Winter Games are hosted in smaller cities and attract less international attention. Hosting the World Cup, however, does have a very similar effect in both size and significance.

Perhaps the most interesting insight of the study is the finding that the increase in openness and trade extends to countries with unsuccessful bids for the Olympics. Simply bidding for the event brings the same trade benefit as hosting the event itself. Rose and Spiegel conclude that “bidding to host an international mega-event such as the Olympics is part of a costly strategy that signals trade liberalization and results in increased openness.”2 Even in light of uncertain direct economic benefits, politicians may still submit their city as a candidate for the Olympics with the hope of signaling to potential investors and business partners their intention to become more open to international trade.

Simon Kuper and Stefan Szymanski offer another thought-provoking argument in favor of hosting a mega-event like the Olympics. In their book Soccernomics, Kuper and Szymanski write that mega-events are desirable not for their economic appeal, but for the effect that they have on national happiness. They draw upon research that Szymanski conducted with Georgios Kavetos using European Commission survey data on happiness between 1974 and 2004.3 The researchers checked the happiness data’s correlation with eight major sporting events hosted in different European countries (the 1990 and 1998 World Cups and the 1980, 1984, 1988, 1996, and 2000 European championships). Interestingly, happiness in a given country wasn’t correlated with whether or not that country’s national team performed well. Instead, Szymanski and Kavetos observed a significant increase in happiness in a country after it hosted a mega-event. Happiness gains following the World Cup were robust, lasting two or three years after the event. Gains following the European championships were more fleeting, lasting only a year after they were finished. The increases in happiness that Kuper and Szymanski report are large. They compare the increase to “an unexpected increase in income that takes someone from the bottom half of the income distribution to the middle half.”4

The arguments above suggest that there might be more to hosting mega-events than direct economic gains. These benefits might be indirect in the sense that they are mediated by non-monetary outcomes. In fact, as Kuper and Szymanski suggest, the impacts might be entirely intangible in nature. Countries considering hosting these events should therefore be mindful of a wider array of potential benefits. The 2012 Summer Olympics in London are a good example of a mega-event that adopted this broader mindset. Part of London’s strategy focused on the legacy of the games with respect to four areas. Two of them, economic growth and East London regeneration, are related to traditional goals of hosting events. The other two, sports engagement and community engagement, are often overlooked by governments that usually focus on physical infrastructure and retail sales. Focusing their strategy on these four areas, London attempted to leverage the impact of the Olympics as much as possible. They created a number of innovative programs based on themes like sustainability, disability, equality, inclusion, and diversity. For instance, one creative program launched a business directory for firms that won sporting events contracts in order to allow these firms to secure more events-related business around the world. Another example is a program that offered volunteers who worked in the Games the opportunity to receive training as community organizers, as well as a fund for English youngsters to run their own volunteering projects inspired by the Olympics. While the precise impact of these programs is still being evaluated, the broader mindset that the London organizers used is potentially a very important strategy for future mega-events.

Although hosting a mega-event remains a controversial topic, some important impacts of hosting are often overlooked and left out of the public dialogue. Moreover, ensuring that the event has a successful, long-lasting legacy could hinge on the capability of policymakers to craft creative programs that effectively capture these impacts. Officials should therefore think beyond first-order, highly visible outcomes. Accordingly, if it is selected by the IOC, Boston should seek to identify a range of positive impacts associated with hosting the Summer Games. The city could utilize the region’s considerable human capital and innovation capacity to develop policies that subsequently leverage these benefits. The research we are conducting hopes to shed further light on these potential impacts and how to best take advantage of them.

This research is part of an ongoing collaboration with the International Centre for Sport Security (ICSS). This blog highlights some of the findings of this work.

[1] Andrew K. Rose and Mark M. Spiegel, “The Olympic Effect,” The Economic Journal 121 (2011): 658.

[2] Rose and Spiegel, “The Olympic Effect,” 654.

[3] Simon Kuper and Stefan Szymanski, Soccernomics (New York: Nation Books, 2009), 290.

[4] Kuper and Szymanski, Soccernomics, 291.

2015 Summer Internships with the Economic Growth in Albania Project

The Summer Internship Program of the Economic Growth in Albania Project is now recruiting Master’s level students to spend a summer in Albania working in areas that include but are not limited to:

We are looking for students who are interested in working at various government ministries for about ten weeks from end of May through July 2015. Students will work closely with Albanian senior officials to conduct research as well as policy and regulatory analysis. They will also receive close supervision from CID’s faculty and research fellows involved in the project. Familiarity with economic development theories and methods, and legal research and analysis are helpful for the internship. Familiarity with the country or fluency in Albanian is not required.

Assignments to students will be given by CID and their Albanian counterparts. Last year, the interns presented their findings before the Prime Minister and relevant cabinet members at a conference organized by the Albanian Government at the end of the internship program.

The internship is ideal for those who want to discover an unfamiliar country, work in an environment where politics, policy, economics and law are all intertwined, and be part of joint endeavor with CID in assisting a country in transition. The placement of students in various ministries will be done based on preferences and matching of skills with needs. CID will arrange accommodation for students in Tirana.

Eligibility
Harvard University Master-level students. Students from all Harvard Schools are encouraged to apply.

Funding
Students from the Harvard Kennedy School of Government are eligible for scholarships provided by the project itself. All applicants are encouraged to apply for school-specific scholarships (e.g., Harvard International Development Internship Fund).

Important Dates

Internship Information Session:

Date: February 12
Time: 4:10 pm
Location: Perkins Room, Rubenstein Building 4th floor, 79 JFK Street, Cambridge, MA.

Application Deadline: March 31, 2015

Throughout spring, CID staff will be available to provide continuous information and answer any questions that you may have. Please do get in touch with us!