Tuesday, May 25, 2010

Toronto's G-20 Conference: Financial Boon or Boondoggle?

Ever since the ill fated 1999 WTO meeting in Seattle, there has been some debate over the merits of hosting meetings of international organizations in major cities. While some argue that there are economic spin offs from the tourism generated by these conferences, others argue that the security costs far outweigh the benefits. In the lead up to the G-20 meeting in Toronto, there has been a flurry of controversy over the price tag for conference security. The combined security tab for the G-8 and G-20 could end up as high as $900 million dollars. Unfortunately, there has been little discussion about whether the economic spin offs could justify this cost. It seems unlikely, but it would be unfair to jump to any conclusions without looking at the facts.

The tourism industry does have the potential to reap some gains from the G20. The best case scenario for the industry would see 50,000 rooms booked for the conference. Unsurprisingly, Greater Toronto Hotel Association Terry Mundell is excited. "It's a good news story for us," he claims. If we assume (optimistically) that each room goes for $300/night, the hotel industry could make $30 million out of the deal. On top of this, people will obviously be spending money while they're in town. Let's assume that these 50 thousand people consume 4 meals/day at $100/person. This would be a cool $40 million for the restaurant industry. Maybe these folks will have a few drinks. Let's budget in $100/night. After all, these are affluent folks. That's $10 million for the bars. Maybe a few souvenirs to bring back for the kids? Let's say another $10 million. And what if they need some Tylenol? Toothbrushes? Toss in another $10 million. We're up to about $100 million in direct economic benefits. But wait, people need to get to Toronto, and to get around the city. We'll be generous and throw in $100 million for airfare. Add to that $100/day in cabs, and we have another $10 million. This brings the grand total to $210 million. Far from negligible. Unfortunately, that's about double the official estimate of $100 million. Like I said, this is a best case scenario.

On the cost side of the ledger, it is important to note that the costs will be divided between the G-8 Conference in Huntsville, and the G-20 in Toronto. Let be extremely generous and assume it is an even split. Of the $833 million already announced, we'll say $400 million is going to the Toronto conference. This still leaves us with a shortfall of $190 million. Remember, this is an extremely optimistic scenario.

Here's the bad news: even under the optimistic scenario, we still haven't factored in opportunity costs. So far it has been confirmed that three Blue Jays games will be moved to Philadelphia, and the University of Toronto will shut down during the conference. In anticipation of former Jays star pitcher Roy Halliday's first return to Toronto, the team had budgeted for 90,000 fans to attend. At an average revenue of $39/fan, that's a loss of $3.5 million dollars. It's hard to say how many fans would have come into the city from out of town, but it wouldn't be at all unrealistic to say that the city is going to lose at very least another $3.5 million in spin offs.

Even without any similar cancellations, Seattle business managed to lose at least $10 million in revenue as a result of the WTO meeting in 1999 (not to mention the $2 million in property damage). Furthermore, if the G-20 wasn't going to be in Toronto, we don't know how many hotel rooms would have been rented out for other events, or whether the conference goers will crowd out other patrons from restaurants. This is the difficulty with these types of estimates. They take into account the benefits that we see, but not the unseen opportunity costs. It's hard to count a family that decided not to go on vacation, or someone who didn't bother going to the restaurant because it's too busy.

One might argue that the short term costs will be mitigated by long term benefits. After all, some people might like the city so much that they'll want to visit again. Perhaps some number of people will even want to move to the city. I had a similar experience during the G-20 in Pittsburgh last year (though haven't followed through). If we look at it this way, any shortfall could be seen as a tourism advertising expense. Will this pay off in the long run. Unfortunately it is impossible to tell.

So let's assume that the shortfall for the conference is $200 million dollars. That seems pretty reasonable at this point. Let's further assume that there will be a non-trivial long term tourism benefit to the city. In fact, let's assume they make it all back. I still don't buy into the idea of holding major international political conferences in major cities.

My biggest objection is the inconvenience to citizens of the city, which will likely include many people being caught up in violent protests, and police retaliation. No one should have to get tear gassed in the name of boosting tourism. I was there in Pittsburgh when stores were being smashed in, and the police were gassing protesters. Given that I was wise enough to stay away from the protests, I didn't personally witness the chaos. Having said that, there is plenty of footage showing the violent clashes between protesters and police. After Seattle, London, Pittsburgh, and many other cities where these conferences have ended violently, politicians should have learned their lesson. Forget tourism dollars. These conferences are about solving major economic problems. The G-8 meeting is being held in tiny Huntsville, where the G-20 originally was supposed to be held. That's how it should be. It's easier to import police to a small town than to evacuate the downtown of a major city. Hopefully it doesn't take another Seattle to impart this lesson to governments. It probably will.

Foursquare: The Next Airmiles?

I've had a few people ask me lately why I use Foursquare. Superficially, it seems like nothing more than a gift to stalkers all over the world. Users don't receive any direct monetary benefit, and it is impractical as a tool to coordinate social events. When I joined up, I had the exact same question: what is the benefit? The answer lays not so much in what you get from it now, but in the potential it has to function as a conduit for rewards programs.

Foursquare is pretty simple. It is a location based social application. You download it on your smartphone, and the GPS enables you to find the venue you're at, and 'check in.' There are a number of badges that you can earn, and if you've checked in more than anyone else, you become the 'mayor' of the place. This is the most that you will get out of Foursquare itself, but increasingly, venues are partnering with Foursquare to introduce their own rewards.

Though few establishments have began to utilize Foursquare as a marketing tool, there are some significant early adopters. The most notable of which is Starbucks. Starbucks has introduced a rewards program whereby the mayor of each location is entitled to a $1 discount of frappuccinos. That may not seem like much, but it is a start. Now that a major player like Starbucks has entered the fray, there is a good chance that competitors will feel the need to compete with similar rewards programs. McDonald's is actively developing a similar program in collaboration with Facebook.

There are two major hurdles to the spread of such reward programs. The first is that the market for location based social apps is still wide open. Competitors Google Latitude and Gowalla could well end up becoming the dominant technology. The second is a little trickier. Not enough people use any location based social app. Until they become widely used, there will be little incentive for venues to introduce rewards.

In the end, consumers will decide which platform wins out. Maybe location based social apps will die out altogether. It's difficult to forecast which technologies will be adopted by consumers. Only the market can determine this. Regardless of whether Foursquare thrives, the potential for location based social apps is immense. Immediate discounts, combined with social recognition could make location based apps more appealing than Airmiles for some people. I'd bet on it.

Friday, May 7, 2010

Cracking Down On Unpaid Internships | Why Not Just Ban College?

The US Department of Labor is cracking down on unpaid internships. The rational is that internships have become exploitative, leading to little or no benefit to interns. The D.O.L has listed 6 criteria under which unpaid internships can be offered:

  • The internship is similar to training that would be given in an educational environment – even though it includes operations of the employer’s facilities.
  • The internship experience is for the benefit of the intern.
  • The intern doesn’t displace regular employees – he or she works under their supervision.
  • The employer receives no immediate advantage from the intern.
  • The intern is not necessarily entitled to a job at the end of the internship.
  • Both the employer and the intern understand that the intern isn’t entitled to wages.

The most important caveats are the third and fourth. Given the rhetoric around the issue, it is clear that the biggest concern the D.O.L has is that internships are replacing paid entry level positions. While I understand the concern about not replacing paid employees, preventing the employer from receiving any "immediate advantage" is ludicrous. After all, no employer would take on an intern if they didn't feel they'd receive some immediate advantage.

While I've never been an *unpaid* intern, I have had two different internships. In my last internship program, I worked alongside two unpaid interns. To say that they didn't provide any advantage to our employers would be insulting. They were often required to wake up at 5am to do field research, and earned the organization plenty of positive media attention. By this criteria, our employer should be in serious trouble.

Aside from the contribution that they made, these internships certainly paid off. I haven't seen one of them in a few months, but the other is now a full time employee with the organization. She will tell you that her internship was more valuable than anything she ever learned in school. I would agree entirely. Though I've never been an unpaid intern, I have done plenty of volunteer work. I certainly gained more marketable skills from my internships and volunteer experience than from school (and I've got a Masters degree).

If the Department of Labor is serious about cracking down on unpaid internships, maybe they should look at banning post secondary education. After all, students PAY to go to school, with no guarantee of a job after graduation. The work is often more arduous than an internship, and is far more time consuming. Four years of paying to go to school is fare more of a financial hit to students than a 3 month unpaid internship. You could argue that students go to school voluntarily, and that they have reason to believe that it will benefit them in the long run. Then again, the same argument applies to unpaid internships.

It seems that the argument against unpaid internships is based more on a class warfare mentality than actual concern for individual interns. I know some interns from this summer who are still looking for work (unsurprising, given the economy), but I know many who have moved on to rewarding jobs. I certainly don't know of any who are worse off now than they were before. If the Department of Labor is opposed to individuals increasing their long term prospects, than they might as well just ban college.