Will Brazil 2014 be the last time the football world cup matters?

International football could be the purest of competitions, but the dominance of the global club brands, the bloated finals tournament and lack of surprise factor together with distaste for FIFA mean that it's increasingly becoming irrelevant.

So England will be at next summer’s football World Cup finals tournament in Brazil. It’s possible this might be the last time it matters.

There’s a rich vein to be tapped into when football’s ultimate prize is juxtaposed with Brazil, a country with a romantic tradition in the game and one whose people have a passionate attachment, and no doubt the marketing machine will make the most of it. But the world is changing and it’s not inconceivable that Brazil 2014 will go down in history as The Last World Cup.

For now, qualification matters. It matters for all the reasons to do with sporting achievement and prestige, and it also matters for hard business reasons. The Football Association guaranteed £8m in prize money for making the finals. If the team reaches the quarter-finals, not an unrealistic expectation, it gets £16m. If anyone at the FA is relying on the £26.5m you get for winning the trophy, they may want to seek some advice. But there’s more money to be made.

World Cup-related merchandising could bring in £10m. Nike reckons it can sell more than one million England shirts. And the FA will be looking to build on the £50m a year it makes from its commercial partnerships. Qualification is good for business. When England failed to make the finals of Euro 2008, the British Retail Consortium estimated the economy lost £600m. Such estimates do not usually stand up to forensic analysis – too many assumptions – but what’s more certain is that the FA loses sponsors and income if the team does not succeed.

After England’s dismal performance in the 2010 World Cup finals, major partners Nationwide and National Express opted not to renew their deals. It took the FA six months to sign Vauxhall as a replacement, during which time it missed out on a potential £3m.

So in the short term, some money will be made and Team England will still carry some clout – despite slipping below Switzerland in the FIFA world rankings. But longer term, the World Cup may be losing its shine.

The staging of a big sporting event always prompts questions about the cost and about who benefits. It’s now estimated that over $3bn of public funds will be spent by Brazil to stage the tournament. Last summer’s huge protests around the Confederations Cup tournament, used as a dry run for next summer’s main event, brought public protest to international attention – and in so doing destroyed the myth that Brazilians were so seduced by football they would stand for anything.

Whenever a major sporting tournament is staged these days, there’s always a debate about who benefits. Remember all that stuff about legacy and the London Olympics? That was just one example of how massive public contribution to what is ultimately private profit must be defended to the host population. Potential benefits have to be played up as much as possible, which leads to increasingly wild claims that are believed by decreasing numbers of people.

Public benefits can only be measured longer-term. Ken Livingston recognised this when he saw that only an event such as the Olympics would leverage the kind of funding needed to clean up the deeply polluted land around Stratford. But in the short term, people see public subsidy helping to generate enormous profits for the few. Funny, isn’t it, how the right never question the role of the state in these circumstances?

From Brazil 2014, it is estimated that FIFA – a charitable body based in Switzerland – will earn $5bn. In 2012, the organisation reported a profit of $89m, with reserves totaling $1.378bn. To win the right to stage the finals, countries must agree to FIFA’s stipulations on tax. And they are that it pays no tax whatsoever. Conservative estimates are that this exemption will see Brazil’s Internal Revenue Service lose out on $248.7m. Tax expert Han Kogels told CNN: “I was (and still am) not aware of any other international commercial sport event being subsidised through full tax exemption at the cost of other taxpayers.”

The distaste for the way FIFA conducts itself goes deeper when the controversies over the bidding process that saw the tournament awarded to Russia in 2018 and Qatar in 2022 are factored in. The process is mired in allegations of corruption. Top that off with the serious human rights issues raised over the treatment of workers in Qatar.

If the World Cup business seems a long way from the feel-good factor, so too does the football itself. Once, the tournament was seen as the chance for the world’s best to compete. Now, with a bloated tournament featuring 32 teams, the early stages don’t have the same magic. World Cups also used to throw up surprises, new players, new tactics. Now, the players and the coaches and the tactics are well-known in advance – familiarity and contempt nuzzle up alongside one another.

International football could be the purest of competitions. On this stage, you can’t buy in talent, you have to work with what you have – something that appeals to sporting pursists. Despite flurries of controversy over national eligibility, that fact remains. And yet it is club football that commands attention, and the big club brand names that have the global appeal. For many fans, it’s club before country every time, and the growth of the global club brands does not look like slowing. Nor does the global popularity of a Premier League in which players from so many nations are represented.

Put the aggressive growth of the Premier League, the dominance of the global club brands, the bloated finals tournament and lack of surprise factor together with distaste for FIFA and for the whole process of staging the finals together and you can begin to see a future in which the World Cup is increasingly irrelevant. And how then will the FA generate its money?

This might be the last time the World Cup matters. Photo: Getty

Martin Cloake is a writer and editor based in London. You can follow him on Twitter at @MartinCloake.

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?