J Brauer | © Stone Garden Economics
What an interesting month! On Wednesday, 6 April 2001, the Institute for Economy and Peace—headquartered in Sydney—released its United States Peace Index (USPI), a country-specific follow-on on its annual Global Peace Index (GPI). On Friday, 8 April, I happened to give a speech in Mexico on the topic of the cost of violence and the benefit of peace. (Predictably, many of the questions I got post-speech concerned the murderous drug-wars there.) And on Monday, 11 April, the World Bank released its Word Development Report 2011 on the theme of Conflict, Security, and Development. On the same day, the International Monetary Fund released the April version of its biannual global economic assessment, called the World Economic Outlook.
As I have argued in these columns before, violence is very costly. Indeed, it is far more costly than the world economic crisis of 2009. Specifically, the IMF has now confirmed that the economic decline in 2009 amounted to a mere 0.5% decline in world GDP, that is, half a cent on the dollar. No doubt, the crash in the fourth quarter of 2008 was severe—especially in Japan, Western Europe, and North America—and the effects are lingering into 2011. No doubt either that the coordinated, if late, global policy intervention was justified. But a loss of half a percentage point of GDP is little when compared to the cost that violence imposes on people, their families, communities, businesses, governments and, ultimately, their economies. My own estimate—prepared for the Institute for Economy and Peace in 2009 and again in 2010—comes to an annual loss of around 9% of world GDP: nine cents on the dollar, every year.
Unlike the World Health Organization, the World Bank is not concerned with all forms of violence, only with organized crime and politically motivated violence such as transnational terrorism, civil wars, and wars. Even so, the costs are high: the average country experiencing a civil war episode loses 30 years worth of economic growth, the Bank says; it takes some 20 years to recover prior levels of international trade; neighboring countries lose as trade routes are disrupted. In addition, they have to deal with vast numbers of refugees.
The specificity of the examples the World Bank uses can be quite shocking. The average developing country that has not experienced violence has reduced the percentage of their population living in absolute poverty from just under 60% to about 40% from 1981 to 2005. In contrast, the average conflict-afflicted country has seen an increase in poverty levels. “Criminalized peace” in Central America, following the peace accords of the early 1990s is such that homicide rates now are higher than during the vicious civil war years of the 1980s. Not a single low-income “fragile” or “conflict-affected” country has reached even one of the United Nations eight Millennium Development Goals. And after years of effort, it is only in August 2009 that the United Nations General Assembly even acknowledged that security and peace should have been the primary Millennium Development Goal. No peace, no development. It is that simple.
Commendably, the World Bank team has thought about ways to make communities less vulnerable and more resilient to violence. At least, the topic is now firmly on the policy agenda. Therein lies hope.
But even developed countries struggle with the economic causes and consequences of violence. The U.S. Peace Index for instance shows huge differences between the best-performing, most “peaceful,” state, Maine, and the worst-performing one, Louisiana. Interestingly, the index scores do not depend on the political affiliation of the average voter (Republican or Democrat), nor on gun-ownership proxies. (There are no direct gun ownership data, so a proxy has to be used.) The clearest correlations are with access and performance indicators related to health care and education and to social fabric indicators such as teenage pregnancy rates. Costs of incarceration (prisons, jails) are high, as are the associated taxpayer-financed costs of policing and the justice system. On my reckoning, virtually all U.S. unemployment could be eliminated if violence were eliminated. Such would be the stimulatory effects of a more orderly, peaceful society.
Business, as a group, would have much to gain from peace: expanded markets, more secure supply lines, less employee turnover, and so. Unfortunately, some industries gain from violence. Not just the military-industrial complex, but the health “care” and prison industries which have perverse incentives to keep violence and incarceration rates up, even as this hurts the rest of the country. It will take truly brave politicians to break through the logjam, and it will take truly farsighted voters to elect and reward different kinds of politicians to deal with the economic, let alone social, fallout of violence.
J Brauer is Professor of Economics, James M. Hull College of Business, Augusta State University, Augusta, Georgia, USA.