The Global Peace Index and the Economic Value of Peace
- by Institute for Economics & Peace
- June 9, 2016 1:23 pm
- Tags: cost, economy, GDP, military spending, Peace, Peacebuilding, Violence, war
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Thirteen point six trillion dollars.
According to the 10th edition of the Global Peace Index produced by my organization, the Institute for Economics and Peace (IEP), $13.6 trillion dollars was the total global economic impact of violence in 2015.
There’s a grim truism that the larger the number, the harder it is for the average person to comprehend it. But let’s take a minute to let it sink in. Another way of expressing it is that violence costs the world 13.3 percent of global GDP. For every dollar citizens create, over 13 cents is spent containing or dealing with the consequences of violence.
It’s a huge number but what does it mean? And why does IEP even try to measure the economic impact of violence anyway? I think there are three key lessons to take from this research:
Violence containment is an industry, and it should be accounted for. A 2014 Consumer Reports editorial entitled “Why is Health Care So Expensive?” notes that health care in the United States is a $3 trillion industry. If health care in the United States “were its own country, it would be the world’s fifth-largest economy” the editorial reads. By now, we’re used to reading this kind of story when it comes to health care or education, two basic public services. The implicit question is straightforward: are we getting enough bang for our buck? Unfortunately, the same questions are not being asked often enough about the violence containment industry, which in our analysis includes both direct (e.g the cost of hiring police officers or military spending) and indirect (factors such as the lost lifetime earnings of homicide victims) costs as well as a multiplier designed to account for the opportunity costs of spending on violence (more on that below). Consider a couple of basic facts:
- In the United States and the United Kingdom, inflation-adjusted investment in police and prisons has doubled from 1950 to 2014 as a percentage of total government revenue;
- In an analysis of 102 nations between 1981 and 2012, IEP has shown that 76 increased their police numbers while 26 decreased them.
Spending on containing violence is important but like other investments is only efficient up to a point. What are we getting in exchange for these investments? It’s not an easy question to answer, but the important point is to start asking in the first place. In the United States, for example, there is now an active debate about the return on investment after the tripling of inflation-adjusted spending on police and prisons since 1978. Legitimate questions have also been raised about costly military projects (such as the F-35 bomber) and the proliferation of spending on counterterrorism programs in the United States (best exemplified by a groundbreaking nine-part series in the Washington Post called “Top Secret America”).
Violence has dramatic – and at times surprising – economic impacts. In addition to global totals, the Global Peace Index offers a breakdown of violence containment spending in 163 countries, which yield some very interesting insights. It should come as no surprise that the United States spends the most on violence containment (around $2 trillion annually). However, given that the US has the world’s largest economy, it is better able to cushion the blow – expressed as a percentage of GDP, the US ranks 42nd in the world because it “only” spends 12 percent of its wealth on violence containment. By contrast, countries like Syria, Iraq and Afghanistan lose over 40 percent of their wealth. The next five countries on the list are Venezuela (43 percent), South Sudan (35 percent), Honduras (34 percent), Colombia (30 percent), and the Central African Republic (29 percent). For those countries the costs are crippling and clearly unsustainable. While internal conflict and civil war account for much of the cost in several of these countries, in others the toll comes from daily, interpersonal violence. For example, the economic impact of homicide in Venezuela and Honduras is the equivalent of 36 and 30 percent of GDP respectively.
War and conflict are not good for business. Some myths die hard, and one that has been particularly difficult to uproot is the now outdated idea that “war is good for the economy.” In fact, economists now understand that war and everyday violence represent an enormous drain on both human potential and economic growth. One way that is expressed in IEP’s research is a multiplier effect, which means that every $1 spent on violence containment costs an additional $1 because the money could have been spent must more effectively elsewhere. Typically money spent on some productive purpose has a multiplier effect – a dollar of expenditure creates more than a dollar of economic activity. But when that dollar is spent on violence containment, it often is less productive or has the opposite effect. For example, fear of crime inhibits people from going out at night to eat dinner or shop. More fundamentally, violence can lead to some economic activity not occurring at all. A dollar spent on violence containment is also a dollar lost to other forms of investment in business development, education of infrastructure.
Despite all this bad news, there is a silver lining: the savings from even small decreases in violence containment spending are potentially enormous. For example, if the world decreased violence by only 10 percent, it would free up more money equivalent to the total amount of global foreign direct investment or the value of global food exports in 2014. Our hope is that these kinds of insights can be used to create greater urgency about the economic imperatives of peace.
Aubrey Fox, Institute for Economics and Peace