The overall economic impact of violence

Summary:

– The overall economic impact of violence has been assessed since 2007 using the Global Peace Index (GPI), an indicator that ranks 162 nations according to their respective states of peace.

– Between 2008 and 2013, all regions of the world saw their peace situation deteriorate, resulting in a 5% decline in the Global Peace Index.

– In 2012, the Global Peace Index estimated the overall economic cost of violence at 11% of global GDP.

– According to estimates bythe Institute for Economics and Peace (IEP), a 50% reduction in spending on violence containment would provide the funds needed to repay the debt of developing countries or to finance the European Financial Stability Mechanism.

On June 12, 2013, the United Nations hosted a conference entitled « No Development Without Peace: Laying the Groundwork for Peace Measures in the Post-2015 Development Agenda. » Given the current global context—civil conflict in Syria, European revolts following the debt crisis, and more recently protests in Turkey and Brazil—peacekeeping and violence control are major challenges in the development of the United Nations’ post-2015 development agenda.

In June 2013, the^{7th edition}of the Global Peace Index ( GPI) was published, ranking 162 nations according to their respective levels of peace between 2008 and 2013. Through this global analysis, the concept of « peace » is defined as the level of harmony achieved in a society through the absence of war, conflict, violence, or threats of violence. Thus, nations that are not involved in conflict with neighboring states, civil wars, or violent protests are considered to be in a  » state of peace.« 

1. Definition and construction of the GPI

The Global Peace Index, founded by Australian engineer and philanthropist Steve Killelea, is produced bythe Institute for Economics and Peace, a think tank that analyzes the link between economic development and peace. The GPI is constructed and the data on which it is based is collected by The Economist Intelligence Unit.

The GPI is a composite indicator that includes 22 quantitative and qualitative indicators covering three main aspects: the level of protection and security in a society, the extent of conflict at the national and international levels, and the degree of militarization. Its purpose is to determine the extent to which countries are involved in conflict at the national and/or international level. It also assesses the level of harmony or discord within a nation. Signs of a peaceful situation include low rates of crime, terrorist activity, violent protests, and conflicts with neighboring countries, as well as a stable political situation and a low proportion of displaced persons or refugees.

The GPI also explores the concept of positive peace, based on the idea that a culture that promotes peace is founded on respect for human rights, gender equality, democratic participation, a tolerant society, freedom of expression, and international security.

These indicators were initially selected in 2007 by an international panel of independent experts and are reviewed annually. The scores for each indicator are standardized on a scale of 1 to 5, from the lowest to the highest level. The GPI consists of two groups of indicators: an internal peace indicator and an external peace indicator, which respectively provide a measure of the level of peace within and outside the country’s borders.

The table below lists the 22 indicators included in the GPI:

Among the qualitative indicators that measure the level of internal peace, the IEP seeks to take into account the social and political dimensions that contribute to the absence, existence, or threat of violence. For example, the indicator of the probability of violent demonstrations determines whether violent protests or social unrest pose a threat to property or the smooth running of the country’s economic activities in the two years following the demonstrations. Similarly, the political instability indicator encompasses five different sub-indicators relating to social unrest, transfers of power, opposition to the ruling power, excessive executive power, and international tensions.

The analysis is based on the assumption that the more a country is characterized by a high level of internal peace, the lower the probability of external conflicts. This is why the IEP gives more weight tothe internal peace indicator than tothe external peace indicator in the overall GPI weighting. Its score is established on a scale of 0 to 5, where the lowest score corresponds to the highest level of peace.

2. Evolution of the GPI between 2008 and 2013

Between 2008 and 2013, the peace situation deteriorated in all regions of the world.

The GPI score deteriorated by 5%, representing an average decline of 1% per year. Among the 162 nations, 110 countries saw their level of peace deteriorate significantly. This downward trend can be explained by a number of major upheavals on the international scene: the outbreak of violence in the Middle East caused by the Arab Spring; the deterioration of security conditions in Afghanistan and Pakistan; civil war in Syria and Libya; the rise of violent conflicts linked to drug trafficking in Central America; the deterioration of the situation in Somalia, the Democratic Republic of Congo, and Rwanda; and violent protests caused by the economic crisis in Europe. This deterioration in the level of peace worldwide is determined by three main factors:

– The negative trend in internal peace indicators , with an increase in the number of civil conflicts.

– The gap between countries dominated by authoritarian regimes and the rest of the world has widened significantly.

– The rise in violent protests in countries that have been hit hard by the economic crisis, particularly Greece, has contributed to the deterioration of the GPI.

Evolution of the Global Peace Index score 2008-2013

Source: Global Peace Index 2013 Report

Among the 22 indicators included in the GPI, the number of homicides, the perception of crime, and the likelihood of violent protests are the three indicators with the worst performance between 2008 and 2013. At the regional level, homicide rates fell significantly in Europe and North America, while the Asia-Pacific, Central America and the Caribbean, South America, and Sub-Saharan Africa regions have performed the worst since 2008. It can also be seen that in Europe, the Middle East, North Africa, Russia, Eurasia, and South Asia, the indicator of the probability of violent protests has deteriorated significantly over the last six years. As a result of the economic crisis, financial instability has led to a significant deterioration in internal peace indicators (particularly political instability and the probability of violent protests) in Europe.

In contrast to indicators such as the political terror scale, military spending (% of GDP) and armed forces personnel have declined significantly, partly due to the gradual withdrawal of US military operations in Afghanistan and Iraq. These trends reflect a reduction in inter-state conflicts at the expense of intra-state conflicts, the most significant example being Syria, which in 2012 had 72,900 deaths related to the civil war, compared to 12,050 in Iraq in 2008. Over the past five years, the three countries that have made the most progress in terms of peace are Chad, Georgia, and Haiti, in contrast to Syria, Libya, and Rwanda, which have experienced the worst developments.

The year 2012-2013 alone was marked by two major opposing trends: on the one hand, the growing intensity of internal civil conflicts and, on the other, the decline in large-scale inter-state conflicts. The civil war in Syria and its geopolitical consequences, as well as the repercussions of the economic crisis for world powers, are the main determinants of the deterioration of the Global Peace Index, reinforcing the downward trend since 2008. This situation is reflected in the rise in the number of homicides, military spending (as a percentage of GDP), and political instability.

In 2013, the top ten nations in the GPI ranking, considered to be the most peaceful countries, are mainly small, stable democracies from the Nordic and Alpine regions.

At the regional level:

–Europe is undoubtedly the most peaceful continent, with a regional score of 1.62, where most countries are not involved in external conflicts and societies are largely cohesive. However, since the European debt crisis, countries facing severe economic restrictions, such as Spain, Greece, Italy, and France, have seen their peace conditions deteriorate significantly. Growing social and political instability in European countries has been strongly felt with the rise in youth unemployment and poverty rates. This is particularly true in Greece and Spain, which are the countries most affected by the rise in violent protests. In 2012 [1], 55.3% and 53.2% of 15-24 year olds were unemployed in Greece and Spain, respectively, representing approximately one in two young people. These two countries also have the highest poverty rates in Europe, at 21.8% and 21.4% respectively. [2]

Compared to 2012, there has been a decline in the GPI resulting from a deterioration in indicators of the likelihood of violent protests, perceptions of crime, growing political instability, and the number of deaths from violent conflicts. Spain is one of the countries that has fallen most rapidly in the rankings, dropping five places to^27thin the world in 2013. In general, despite the growing number of protests and demonstrations in eurozone countries, these have remained largely peaceful. However, the questioning of the legitimacy of governments and the introduction of austerity policies have contributed to amplifying the risk of a European political crisis, thus increasing the likelihood of a deterioration in the GPI scores of eurozone countries in the coming years.

–North America is the second most peaceful region in the world with a score of 1.72. The United States and Canada each recorded an improvement in their scores, mainly due to lower military spending (% of GDP) and the withdrawal of military troops from Iraq and Afghanistan.

Asia-Pacific is the third most peaceful region in the world (regional score of 1.91), thanks in particular to New Zealand and Japan, which rank second and sixth respectively among the 10 most peaceful nations in the world. Australia, Singapore, Taiwan, and Malaysia are also among the top 30 countries in the ranking. However, relations between neighboring countries remain tense, particularly between China and Japan over the South China Sea. The Philippines, Thailand, and Myanmar are still plagued by civil wars and rank at the bottom of the index, in^129th,^130th, and^140th place, respectively, just ahead of North Korea, which ranks^154thin the world.

– In South America (regional score of 2.04), Uruguay and Chile are the two most peaceful countries, characterized by strong institutions and the rule of law, ranked^{24th and31st}in the world. Argentina now ranks third in the region (^60thglobally) due to its trade disputes with neighboring countries.

–Central America and the Caribbean achieved a score of 2.10. Costa Rica, ranked^40thglobally, remains the most peaceful country, even though the internal situation has deteriorated. Nicaragua, Guatemala, and El Salvador also saw their scores rise slightly in the GPI rankings following government policies to combat violence and drug cartels.

– TheSub-Saharan Africa region, with a regional score of 2.24, recorded a significant improvement in its GPI regional ranking, placing it above Russia, Eurasia, the Middle East, and North Africa for 2013. Barely affected by the global economic crisis, its new ranking mainly reflects its improved economic performance. However, Côte d’Ivoire and Burkina Faso saw their rankings fall due to waves of violent conflict in 2011.

Russia andEurasia are among the least peaceful regions in the world, with a regional score of 2.30. Ukraine, Tajikistan, and Russia saw their scores decline, mainly as a result of an increase in the perception of crime, deteriorating relations with neighboring countries, increased terrorist activity, and a growing number of deaths from civil conflicts.

– In the Middle East and North Africa (regional score of 2.33), violent protests and political instability in certain authoritarian regimes, such as Tunisia, Egypt, and Yemen, have led to a deterioration in their scores since the start of the Arab Spring in 2011. Libya is the country that has risen most significantly in the GPI ranking (^145thin the world) thanks to the election of a new government and the strengthening of institutions. Syria, still in the throes of civil war, is the country that has fallen the furthest, dropping 11 places between 2012 and 2013 to^160thin the global ranking. With massive militarization of the population, a resurgence of terrorist attacks, and 70,000 deaths, the country now has 1.3 million Syrian refugees abroad and 3.8 million internally displaced persons.

–South Asia, with an overall score of 2.44, is the least peaceful region in terms of both internal and external peace indicators. Bhutan ranks first in the regional ranking (20th in the global ranking), while Afghanistan and Pakistan have seen their situation deteriorate and now rank last, at^{157th and162nd}in the global ranking.

Regional trends in the Global Peace Index 2008-2013

Source: Global Peace Index 2013 Report

One of the main stylized facts emerging from these trends concerns countries with small or medium populations (between 1 million and 20 million inhabitants), which have the highest levels of peace, in contrast to countries with more than 100 million inhabitants. Governance remains the most decisive factor in maintaining and promoting peace in 2013. Countries governed by authoritarian regimes are those whose peace situation has deteriorated most rapidly compared to the global average, with the highest rates of homicides, violent crime, arms imports, and displaced persons and refugees. The 52 countries classified as authoritarian regimes are located in Sub-Saharan Africa, the Middle East, North Africa, and the former Soviet Union countries.

3. The global economic cost of violence between 2012 and 2013

For the 162 nations included in the Global Peace Index, the Institute for Economics and Peace (IEP) has developed a new methodology to estimate the global economic cost of violence.

Defined by the IEP as all economic activities resulting from preventive measures and the consequences of violence in terms of human and material damage, the global economic cost of violence is calculated based on the overall costs associated with containing violence in terms of direct and indirect costs, including those related to protection and prevention.

This new approach assigns an economic value to 13 distinct dimensions [3] of violence, referring to 10 GPI indicators and three key expenditure sectors:

– The number of deaths related to internal conflict

– The number of deaths related to external conflict

– The level of violent crime

– The level of military spending

– The number of refugees, stateless persons, and internally displaced persons

– The number of homicides

– The number of security service officers and police officers

– The size of the prison population

– Private security forces

– The cost associated with terrorism

– The economic cost associated with lost production due to conflict

– The cost associated with the threat of violence

– The cost associated with the United Nations peacekeeping mission

Aggregating all these indicators makes it possible to assess the potential economic benefits of a more peaceful global economy.

The IEP identifies two categories of economic gains resulting from improved peace. The first encompasses the direct benefits associated with the absence of physical capital destruction during wars, civil conflicts, or armed violence. This category also takes into account the reduction in the costs of preventing violence, such as justice, defense, medical expenses, loss of wages due to death or physical disability, as well as private security services used by individuals for protection. The second category concerns the indirect benefits generated by additional economic activity resulting from the reallocation of violence containment expenditures to productive investments, as well as gains in terms of wages and productivity by reducing human losses and the displacement of physical and human capital.

The IEP’s analysis focused primarily on the first category of direct benefits. However, certain indirect benefits for which data was available were also taken into account. For 2012 alone, the overall economic cost of violence amounted to $9.46 billion, half of which ($4.73 billion) was due to direct costs and the rest to additional economic activity that could be generated if the overall cost associated with violence were reinvested in productive investments in infrastructure, education, and health. This is equivalent to 11% of global GDP, or $1,300 per capita [4] worldwide, and approximately 75 times the size of Official Development Assistance, which amounted to $125.6 million in 2012.

Military spending is the main component of the overall cost associated with violence, accounting for 51% of the economic impact per year. The cost of homicides is the second largest component, accounting for 15% of total spending on violence containment. This is followed by police and security spending, which accounts for 14% of total spending.

Overall economic impact of violence containment by expenditure category

Source: Global Peace Index 2013 Report

According to IEP estimates, a 50% reduction in violence containment expenditures would provide:

– the funds needed to repay the debt of developing countries, estimated at $4.076 million in 2010, or 43% of the global economic impact of violence worldwide

– the $900 million needed to finance the European Financial Stability Mechanism

– the additional $60 million needed to achieve the Millennium Development Goals.

The three countries with the highest violence-related expenditures as a percentage of their GDP in 2012 were North Korea, Syria, and Liberia. In North Korea, 70% of these expenditures were related to military spending, 10% to homicides and internal security. In Syria, 50% of these expenditures are associated with direct losses from the civil war, 16% with military spending, and 14% with internal security. In absolute terms, China, the United States, and Russia alone account for half of the expenditures associated with violence, mainly related to military spending, even though their populations represent only 26% of the world’s population. In the United States, the second largest source of costs is related to homicides, accounting for 8% of total expenditure. In China, private and internal security expenditure are the most significant components, while in Russia, 22% is attributed to internal security and arms expenditure.

By comparing the evolution of the Global Peace Index and violence-related spending as a proportion of countries’ GDP, the IEP has highlighted the fact that the most peaceful nations are those with the lowest violence-related spending as a proportion of their GDP. However, this relationship is not universal, given the diversity of the countries concerned and the nature of violence itself. For example, Honduras, despite low military spending, has very high costs in terms of homicides, in contrast to the United Kingdom or North Korea, which have very high military and internal security spending.

However, this estimate does not take into account many aspects of violence, mainly due to a lack of data. It does not include the costs associated with crimes related to theft, arson, or sexual assault; insurance and surveillance services contracted as preventive measures; losses in terms of foreign direct investment flows and portfolios needed by developing regions; direct and indirect costs related to domestic violence in terms of lost wages, productivity or jobs; and the psychological costs induced by all forms of violence.

Expenditures associated with controlling violence are an essential public good. However, the less a nation allocates its budget to violence-related expenditures, the more resources it frees up that can be used for other purposes in productive sectors that promote growth and development. Violence-related expenditures are only economically efficient when they succeed in curbing violence using a minimum amount of resources. Nevertheless, above a certain threshold, they are likely to limit a country’s economic growth. According to IEP analysis, countries with low levels of violence and crime are also those characterized by a lower degree of protective measures. These societies have thus achieved a state of  » peace dividend. » This concept, which first appeared in the political slogans of George H.W. Bush and Margaret Thatcher in the early 1990s, is based on two assumptions: on the one hand, an increase in military spending can lead to a reduction in the stock of available resources that are allocated to more productive investments in physical and human capital (education, health, research and development); on the other hand, this increase can also cause distortions in the efficiency of resource allocation, thereby reducing total factor productivity. [5] According to Knight, Malcolm, Norman Loayza, and Delano Villanueva, if these assumptions are empirically validated, a sustained decline in military spending resulting from progress in international security may translate in the long term into an increase in production capacity in sectors that drive economic growth. In the case of the GPI, the concept of peace dividend refers to spending on violence containment in general, which is targeted both internally and externally.