The Economic Cost of Violence Containment
ANALYSIS, 10 Mar 2014
Institute for Economics and Peace – TRANSCEND Media Service
One of the major challenges in developing policies aimed at increasing peace is the difficulty of being able to accurately gauge the benefits that result from peace.
Recognising this, the Institute for Economics and Peace (IEP) has developed a new and ground breaking methodology to estimate the cost of violence to the global economy, including calculations for 152 countries that detail the costs of thirteen different types of violence.
This deeper insight into the breakdown of national costs of violence allows for better targeting of development assistance and also enables national governments to more accurately assess the costs associated with violence and the likely benefits that would flow from improvements in peace.
In developing this methodology IEP uses the concept of ‘violence containment’ spending. IEP defines violence containment spending as economic activity that is related to the consequences or prevention of violence where the violence is directed against people or property.
This approach uses ten indicators from the Global Peace Index (GPI) and three additional key areas of expenditure to place an economic value on 13 different dimensions. This process has been developed to enable relative comparisons between countries at different levels of economic development. GDP per capita has been used to scale the cost of violence containment for each country. In both the
U.S. and the U.K. a number of robust analyses have been conducted on the cost of various types of violence and have been used as the basis for the scaling.
This study is highly conservative as there are many items that have not been counted simply because accurate data could not be obtained. Future estimates will attempt to capture these items and therefore are expected to be higher.
The economic impact of violence containment to the world economy in 2012 was estimated to be $9.46 trillion or 11 percent of Gross World Product (GWP).* This figure is comprised of $4.73 trillion of direct and indirect costs as well as an additional $4.73 trillion in additional economic activity that would flow from the reinvestment of these costs into more fruitful economic activities. Were the world to reduce its expenditure on violence by fifteen percent it would be enough to provide the necessary money for the European Stability Fund, repay Greece’s debt and cover the increase in funding required to achieve the United Nation’s Millennium Development Goals.
One of the easier items to count is military expenditure, thus it is nearly fully included in the study. Military spending constitutes 51 percent of the total accounted expenditure on violence containment. However, the approach excludes many other forms of violence containment due to a lack of available data. If other forms of violence were included in the overall estimate, it is expected that military spending would drop considerably as a proportion of total violence containment expenditure. It is important to highlight that the world’s direct expenditure on the military is more than 12 times the world’s expenditure on foreign aid, as measured by Official Development Assistance (ODA).
The economic impact of homicides represents the next most significant cost at $1.43 trillion dollars or 15 percent of the total impact. The third largest contributor is spending on internal security officers and police, accounting for around 14 percent of the total, or $1.3 trillion dollars of the economic impact.
The longer-term research project for IEP aims to categorise and count many of these relevant areas of expenditure. Some examples of items that have been excluded are:
- The significant costs related to property crimes, motor vehicle theft, arson, household burglary and larceny/ theft, as well as rape/sexual assault.
- Many of the preventative measures, such as insurance premiums or the costs to businesses of surveillance equipment and lost management time.
- The direct costs of domestic violence in terms of lost wages, emotional costs and recovery costs.
While expenditures on containing and dealing with the consequences of violence are important and a necessary public good, the less a nation spends on violence-related functions, the more resources can be allocated to other more productive areas of economic activity. Simply put, economic expenditure on containing violence is economically efficient when it effectively prevents violence for the least amount of outlay. However, money that is diverted to surplus violence containment, or money that is spent on inefficient programs, has the potential to constrain a nation’s economic growth. Importantly, many societies that have lower levels of violence and crime also have lower violence containment spending. These societies reap a peace dividend.
This is because much of the expenditure on violence containment is fundamentally unproductive, and if 5redirected toward more productive pursuits, would improve government balance sheets, company profits and ultimately, the productivity and wellbeing of society.
Unfortunately, the potential short and long term economic ramifications of conflict are often poorly understood prior to conflict. The U.S. interventions in Iraq and Afghanistan underline how immediate political or strategic imperatives are usually the major determinants for decisions surrounding conflict. Furthermore, the impacts of conflict are no longer local. For instance, the 2003 invasion of Iraq resulted in sharp increases in the world price of oil, increasing energy costs for households and stunting world economic growth (Salameh, 2009).
Although quantifying the economic costs of violence and its containment is important, this study also provides the necessary figures to develop a deeper analysis of the costs and benefits associated with various crime or violence reduction programs. This study is unique in that it allows cross-country comparisons of the cost of violence, thereby allowing country by country comparisons of the economic impact of various international programs. The findings also have important applications for business, government and the international community by informing:
- Governments: allowing a greater insight into the costs and likely benefits associated with their policies, both domestically and internationally.
- The international community: enabling a better understanding of the economic benefits that would flow from targeting peacebuilding through development assistance.
- Business: providing a more detailed profile of individual countries so as to better understand peace and its impact on corporate cost bases and markets.
- Civil society: promoting the economic benefits of peacebuilding initiatives, such as mediation and prevention programs centrally aimed at avoiding and resolving conflict.
In addition, some of those countries that were found to have the highest expenditure on violence are also some of the poorest, with the cost of violence dwarfing ODA.
Consequently, these findings clearly demonstrate to the international community the necessity of investing in peace with respect to international development frameworks, such as the UN’s Post-2015 Development Agenda.
This is the inaugural release of the Global Cost of Violence Containment Report, which will be updated and enhanced periodically. The model used in this report will evolve over time as new data becomes available and better mechanisms are defined to estimate the likely costs. Particular emphasis needs to be placed on accounting for the major items that are not currently covered.
Read the complete report with graphs, maps, figures and tables in the original pdf file: The Economic Cost of Violence Containment
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The Institute for Economics and Peace (IEP) is an independent, non-partisan, non-profit think tank dedicated to shifting the world’s focus to peace as a positive, achievable, and tangible measure of human well-being and progress. IEP achieves its goals by developing new conceptual frameworks to define peacefulness; providing metrics for measuring peace; and uncovering the relationships between business, peace and prosperity as well as promoting a better understanding of the cultural, economic and political factors that create peace. IEP has offices in Sydney, New York and Oxford. It works with a wide range of partners internationally and collaborates with intergovernmental organizations on measuring and communicating the economic value of peace. For more information visit www.economicsandpeace.org.
This article originally appeared on Transcend Media Service (TMS) on 10 Mar 2014.
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