The Price of Violence

Founder of IEP and the Global Peace Index, Steve Killelea is an accomplished entrepreneur in high technology and is at the forefront of philanthropic activities focused on peace and sustainable development. 1

Violence costs society and taxpayers a lot of money—but how much? To help answer this question the Institute for Economics and Peace (IEP) has developed a new methodology to determine how much of the U.S. economy is related to violence, the suppression of violence, or its avoidance.

When adding up the concrete costs to the average American taxpayer it is estimated that violence containment spending costs $15,000 a year, or $7,000 for every man, woman and child each year. That is $6 billion a day in total, or $246 million an hour.

Containing violence is an important public good, but the less a nation spends on it, the more resources can be allocated to more productive areas of economic activity.

All expenditure to contain violence, whether spent by the military internationally or by police and private security fighting crime domestically, has been classified together as the violence containment industry (VCI), or alternately, as violence containment spending. This offers a framework to define and better understand a substantial part of the U.S. economy as well as create a platform for future research. Violence containment encompasses local, state, and federal government expenditure as well as private spending by corporations, households, and individuals. It includes medical expenses to recover from violence, incarceration, insurance, alarm systems, the private security industry, homeland security, and the work of the Central Intelligence Agency (CIA).

While containing violence is an important and necessary public good, the less a nation spends on it, the more resources can be allocated to other, more productive areas of economic activity, such as education. Expenditure on violence containment is economically efficient when it effectively prevents violence for the least amount of outlay, provided that society finds the actions taken to prevent violence morally acceptable. Money spent on surplus violence containment or inefficient programs can constrain a nation’s economic growth: A larger proportion of violence containment spending that does not produce any additional goods or services is fundamentally unproductive, and if redirected toward productive pursuits, the same money could improve government balance sheets, company profits, and ultimately, the productivity and wellbeing of society.

IEP research shows that in 2010, the VCI accounted for $2.16 trillion, or around 15 percent of U.S. GDP. This figure is considered conservative due to the difficulties of accounting for all private and public sector spending. Not having analyzed the amount of violence containment spending in other countries, it is difficult to assess independently how the United States fares compared to other nations. However, given the size of its defense, homeland security, and prison spending, the size of the U.S. VCI is likely higher than that of other developed nations. The key findings of the IEP violence containment study are:

• U.S. violence containment spending amounted to $7,000 per year for every man, woman, and child, as mentioned above.
• If violence containment spending were represented as a discrete industry, it would be the largest industry in the U.S. economy—larger than construction, real estate, professional services, or manufacturing.
• If violence containment spending were represented as a discrete national economic entity, it would be the seventh largest economy in the world, only slightly smaller than the UK economy.
• Violence containment spending is four times higher than the national defense budget.
• Public sector spending on VCI accounts for 10.8 percent of GDP while private sector spending is 4.2 percent of GDP.
• If U.S. federal violence containment spending was reduced by 5 percent each year for five years, the $326 billion of saved funds would be sufficient to entirely update the energy grid, rebuild all levies, and renew the nation’s school infrastructure.

Violence containment spending can be broken down between the public and private sectors. When it is represented as net value added, it shows that the federal government spends more than state or local authorities or the private sector on violence containment spending—over $1.3 trillion, or approximately 9 percent of GDP in 2010. This is more than the federal government spent on employee retirement and social security pensions and more than double what it spent on infrastructure in the same year.

National defense spending includes the budgets of the departments of defense, homeland security, and veterans’ affairs, as well as the debt servicing on these expenditures, which is based on the proportion of military-related government expenditure. Private sector spending on violence containment is conservatively estimated to be $605 billion. The remaining amount is spent by state and local governments on police, justice, corrections, and other security measures. These figures are likely to underestimate the final figure, as many items could not be counted, including the following:

• Business alarm systems to protect against theft
• Private household fire alarm systems to protect against arson
• The self-defense training equipment market
• The security passes systems industry (except biometrics)
• Security functions at port authorities (other than the New York Port Authority); the market for passive security, including protective fences and gates (except for locks)
• The private market for taser guns, pepper spray, bulletproof glass, bulletproof vests, and tear gas
• The private market for armed vehicles
• The private market for personal security aids, such as night lights
• Defense exports other than the top ten major exporters; given the dominance of the ten largest exporters, other arms exports were excluded due to the difficulty of counting.

If violence containment spending were represented as a discrete national economic entity, it would be the sixth largest economy in the world.

The IEP analysis, based on calculating the percentage of GDP spent on violence containment, enables a novel approach to understanding the international economic competitiveness of a nation: The less a country spends on violence containment, provided it is also peaceful, the more competitive its economy should be, as the country can deploy more resources more efficiently. Prior IEP research for the 2011 U.S. Peace Index calculated that if the United States had the same level of peacefulness as Canada, an additional $361 billion would be available to state and federal governments for other areas of economic activity. This evidently is only one dimension of national competitiveness, but it is a unique and important one.

For business, higher violence containment spending can result in unplanned costs: higher taxes; increased costs, such as investing in security systems and security guards; or even higher insurance premiums. Additionally, the higher the level of violence in a corporation’s area of operations, the more management time is devoted to responding to security rather than market development or competitive issues. These lost opportunities in time and money could have been transferred into developing infrastructure and expanding profits.

The sheer size of spending on violence containment illustrates the enormous benefits to investing in violence prevention. Preventing violence can take many forms, from recidivism reduction programs to improved international relations to implementing governmental programs aimed at enhancing social attitudes, institutions, and structures that support higher levels of peace. If policymakers clearly understood the economic burden of unproductive violence containment, improving levels of peacefulness would be seen as central to long-term structural reforms.

For the complete paper along with detailed estimates please refer to: http://www.visionofhumanity.org/info-center/violence-containment-spending