ECONOMIC IMPACTS OF ARMED VIOLENCE: RESOUCRCES, CHOICES AND OUTCOMES

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ECONOMIC IMPACTS OF ARMED VIOLENCE RESOUCRCES,
CHOICES AND OUTCOMES

• Presentation to COST Conference on Armed
  Violence, Brussels, 18 March, 2008
• Professor Peter Hall, UNSW_at_ADFA
• Canberra, Australia

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DEFINING THE AGENDA

• Armed violence (AV) is an activity that occurs
  when agents use weapons (usually SALW) to commit
  acts of personal violence (killing, injuring,
  rape) or threaten to use SALW for such purposes
  (terrorise).
• AV occurs in situations of
• Political conflict (intra- and interstate)
• Civil criminality (organised and otherwise)
• (CICS, 2005 p10, adapted. See also SAS, 2005 Ch
  9.)

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DEFINING THE AGENDA

• Consequences of AV
• Direct deaths/injuries - result directly from
  acts of violence in conflict or crime
• Indirect deaths/injuries - would not have
  occurred, absent the AV situation
• Social and economic disruption, short- and
  long-term, when AV occurs or is threatened

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DEFINING THE AGENDA

• Economic impacts relate to the implications of AV
  on
• scarce resources available to economic agents
  (decision-makers) - quantity, accessibility,
  control, transferability. Limits opportunity.
• the choices economic agents make about using the
  scarce resources at their disposal. Constrains
  trust may undermine rule of law.
• the real outcomes those choices yield
• the desirability of those outcomes.

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DEFINING THE AGENDA

• Scarce resources muscle power, skills and
  expertise, physical capital, raw materials, land,
  time, etc
• Decision-makers individuals, households, firms,
  governments, internatl agencies,etc
• Choices What how much to produce and use? How
  to produce? For whom to produce? in all cases,
  now and in future
• Outcomes what how much is produced, consumed
  how production occurs who gets what at
  micro-, macro- and global levels short-run and
  long-run.

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DEFINING THE AGENDA

• Desirability of outcomes at every level,
  assessed in terms of the value of the outcomes to
  the economic unit (individual, household,
  national economy, etc) under consideration
• Economic impact of AV may show up in resource
  availability, choices or outcomes but should
  ultimately be assessed in terms of the change to
  the value of outcomes for an economic unit
  compared with a non-AV alternative.

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DEFINING THE AGENDA

• Key research issues
• What does AV mean compared with armed
  conflict, war, etc?
• What is the non-AV alternative with which to
  compare the impact of AV?
• What cost (?and benefit) items to include?
• By what or whose criteria are the values of
  outcomes and outcome-changes judged?
• Observation attempts to measure the economic
  impact of AV give widely varying results.

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ECONOMIC IMPACTS

• Scarce resources
• Labour killing reduces, injury undermines or
  compromises quantity/quality available to
  households, firms, nations. Time and energy of
  people involved in AV and AV prevention and
  avoidance unavailable for other productive work.
• Raw materials AV denies access to ore bodies,
  fertile land, water, etc impedes transport and
  distribution
• Physical capital AV impedes/prevents transport,
  delivery, operation, maintenance of machines and
  equipment

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ECONOMIC IMPACTS

• Choices (1)
• AV reduces opportunities for exercising free
  choice in economic transactions.
• E.g. Involuntary property transfers at
  gunpoint muggings, protection rackets, looting,
  piracy, land seizures.
• AV introduces additional constraints on
  decision-making. E.g. Individuals now choose home
  location, route to work, etc - subject to
  minimising risk of AV. Firms choose location
  (within/among countries) with eye to AV risks.
  Govts spending opportunities additionally
  constrained by perceived requirements to
  discourage, contain, resist AV.

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ECONOMIC IMPACTS

• Choices (2)
• AV creates new market opportunities, leading to
  additional choices over what and how to produce.
• E.g. Firms market and invest in producing
  home/business security products/services,
  self-protection devices (inc. guns)/training
  services property developers ? gated
  communities individuals consider different forms
  of employment PMCs.
• AV (and threat of it) makes govts to rethink what
  public goods to produce, how much to supply of
  each, and how to provide them.
• E.g. law enforcement, national security,
  public health, victim/veteran support net
  additions to public spending?more taxes/public
  debt

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ECONOMIC IMPACTS

• Selected Outcomes (1)
• Individuals injury?physical/psychological pain
• injury?lost wage-earning capacity, income,
  and command over goods and services AV threats ?
  fear and insecurity, involuntary loss of wealth
  (mugging, etc), self-protection spending, higher
  taxes ? lower disposable income for
  non-AV-related spending.
• Household/family members death/injury
  grief/loss, loss of income contribution, care
  costs (including opportunity costs for carers)
  AV threats?security/protection spend, higher
  taxes or reduced non-AV-related govt services.

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ECONOMIC IMPACTS

• Selected Outcomes (2)
• Firms (a) Reduced production potential from
  workforce deaths/injuries (short-run) and
  investment cuts (long run)
• (b) New costs threaten profit/shareholder
  income (e.g.rehiring, training, relocation,
  higher taxes).
• (c) New market opportunities divert
  resources from non-AV-related production to
  AV-related (e.g security, care services, etc).
  May stimulate innovation (e.g. wound care
  products).

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ECONOMIC IMPACTS

• Selected Outcomes (3)
• Economy. (a) AV increases pain, insecurity,
  mistrust ? reduced national wellbeing.
  (Distinguish from heightened morale and social
  cohesion effects of all-out interstate wars.)
• (b) With full employment, responding to AV
  (and AV threats) diverts resources from
  non-AV-related uses. Restructure may prompt
  inflation, innovation.
• (c) With unemployment, response to AV threats
  may create new job and income-earning opps,
  innovation.
• (d) Spillover effects from neighbouring
  country AV (e.g. refugees) may impose additional
  costs.

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ECONOMIC IMPACTS

• Desirability
• More AV (and threats) always undesirable. But
• Are the non-AV uses to which resources would be
  put in the absence of AV necessarily more
  desirable?
• AV-induced innovation may have non-AV-related,
  beneficial externalities (e.g. wound care,
  bone-splinter treatments)
• What is the desirable type/level/duration of
  care/support for AV victims and war veterans?
  Whose judgment counts?

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EMPIRICS

• Costs of armed conflict
• Sköns (05) Few studies approaches vary
  ?comparison
• CollierHoeffler (04)
• - Economic cost negative effect of
  civil war on GDP of country in conflict and
  neighbours, during and after.
• - Sample 78 wars in low-inc countries,
  60-99.
• - Est. mean total cost 64.2bn (250
  GDP) over 21 yrs of average-length war plus
  period to return to pre-war GDP.
• MurdochSandler(02) Civil wars cut short- (but
  not long-) run economic growth in conflict-ridden
  countries and neighbours
• Koubi (05) Long and/or severe wars enhance
  long-run growth
• Stiglitz/Bilmes (08) 3-Trillion Dollar Iraq
  War. (Other Iraq studies Wallsten, Nordhaus.)

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EMPIRICS

• Issues
• Is GDP a good proxy for human wellbeing?
• Does GDP growth correspond to growing human
  happiness - low-inc countries and/or others?
• Does impact-of-war (conflict) analysis spread
  the net too wide for judging impact of AV?
• Can analysis of effects of actual violence
  capture effects of threatened or feared violence?
  
• Different empirics required for AV crime

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EMPIRICS

• Selected responses
• SAS (06) est. costs of/losses from gun violence
  Colombia, 1 of GDP Brazil, 0.5 GDP (2003).
• CICS (05) est. cost of fighting criminal
  violence, Brazil 10 GDP (2002) El Salvador 25
  GDP (1997).
• CICS case studies (05) suggest AV per se nearly
  always reduces economic growth, to varying
  extents (e.g. SALW-armed fighters seizing Sierra
  Leone diamond mines, 95 oil wells, processing
  infrastructure destroyed in Chechnya).

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CONCLUSION

• Little doubt that AV has negative economic
  impacts. But
• Impacts due specifically to AV hard to identify
• Non-AV comparison states ambiguous
• Long term effects may contrast with short-term
• Spillover effects from communities/countries to
  neighbouring region may be large.
• Plenty of scope for further research