Violence costs world economy $14 trillion a year: It’s an alarming market failure

A Journal of People report

The economic impact of violence and conflict to the global economy was $13.6 trillion in 2015, said a report of the Institute for Economics and Peace (IEP). The figure is equivalent to 13.3 percent of the world GDP or $1,876 PPP per annum, per person. To further break it down, that figure is $5 per person, per day, every day of the year. When one considers that according to the most recent World Bank estimates 10.7% of the world’s population are living on less than $2 per day, it shows an alarming market failure.
The figures in the report are expressed in purchasing power parity (PPP) terms.
The IEP said:
Iraq, Afghanistan and Venezuela are the countries where the impact of violence is more than 40 percent of GDP, and the Syrian economy is the most affected by violence, at 54.1 percent of GDP. Regionally, the cost of violence has surged in the Latin America, the Middle East and North Africa.The study found:
The major contributor to global violence containment costs is military expenditure. Military spending reached $6.16 trillion or 45 percent of the economic impact of violence in 2015.
Internal security expenditure including police, judicial and prison system spending exceeded $3.5 trillion or approximately 26 percent of global violence costs.
The economic impact of homicide in 2015 was approximately $1.79 trillion, which was 13 percent of global violence costs; this is an 8% increase between 2007 and 2014. However, this upward shift has reverted in 2015, dropping 7%. This decrease was seen in advanced economies. Direct costs of homicide and violent crime include medical costs, lost earnings and damages to the victim and the perpetrator. Indirect costs include lost productivity of the victim, as well as family and friends due to psychological trauma. Economic costs arising from intentional homicides are greater than the costs of any other category of crime or conflict.
It found:
Violence reduces investment in capital intensive sectors, lowering productivity and reducing returns. Businesses tend to shift investment to conflict-related goods instead of investing in the production of consumption and exportable goods. Investors also “shift from high risk, high return long-term investment to low risk, low return and short-term projects.” Foreign direct investment declines due to risks associated with violence and the higher cost of crime to businesses.
The IEP study said:
The world continues to spend vastly disproportionate resources on creating and containing violence compared to what it spends on peace.
In 2015, UN peacekeeping spending of $8.27 billion was only 1.1 percent of the estimated $742 billion of economic losses from armed conflict.
The report said:
“Although peace-building and peacekeeping expenditure has approximately doubled during the last nine years, these numbers suggest a severe under-investment in the activities that build peace and demonstrate that the international community is spending too much on conflict and too little on peace.”
Camilla Schippa, director, IEP, said in the article “Conflict costs us $13.6 trillion a year. And we spend next to nothing on peace”:
“While the devastating human suffering caused by war is the most obvious impact, the long-term cost to the economy can be crippling for a region’s infrastructure and stability.
“While the physical, emotional, and societal benefits that would result from improvements in peace seem self-evident, the potential economic benefits of peace are continually overlooked in economic debates.”
The report focuses on estimating the economic impact of violence and conflict on the global economy. The research provides an empirical basis to calculate the potential economic benefits from improvements in peace.
Released in December, the Economic Value of Peace report uses a complex methodology to account for the economic impact of violence and conflict based on 16 separate expenditure categories. The selection of the 16 expenditure categories is based on the definition of activities related to “containing, preventing and dealing with the consequences of violence”.
The methodology includes a multiplier effect, which calculates the additional economic activity that would have been accrued if the direct costs of violence had been avoided.
Camilla Schippa said in the article:
“It is important to note that the figures presented by IEP are conservative: only variables of violence for which reliable data could be obtained are included. Areas such as domestic violence, household out-of-pocket spending on safety and security, the cost of crime to business, self-directed violence and the cost of intelligence agencies are not included due to an absence of reliable date.
“Violence costs (at least) 13.3% of world GDP – compare that to the 0.7% commitment in official development assistance (ODA). To put this into perspective, a 10% reduction in the economic impact of violence is equivalent to ten times the value of ODA, more than the total value of global food exports in 2014 or more than total global foreign direct investment in 2014. Given the enormity of these figures, it is essential that we analyse where the expenditures are occurring and what could be done to reduce them.”
The article said:
“The prevention of violence is an essential element to any functioning society: spending on a police force or on personal security is indeed necessary while military costs when used for protection against external threats are a justifiable expense.
“However, unless we look at what is being spent, we cannot clearly understand if and where there are misallocations. Why is this important? Some investments are more productive than others and investments in violence are not that productive. Your dollar goes further if used to build a school than a jail. If we can reduce the amount of money tied up in violence and invest it in elements that sustain peace – then this would lead to a virtuous cycle of less violence and stronger economies.”

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