The conventional wisdom used to hold that nothing was better for an economy than war. Pretty cynical view, built on the notion that the Second World War allegedly helped lift the U.S. out of the Great Depression and, thankfully, a view that has been thoroughly debunked.
Last month, a report from the Institute for Economics and Peace (IEP), further makes the case that violence, in all its forms, is economically devastating and downright bad for business (unless, of course, one is in the business of war).
In its report, titled “The Economic Cost of Violence Containment,” the IEP seeks to quantify the global economic cost of violence in 2012 by assessing “violence containment spending” (VCS), which it defines as as economic activity related to either (i) the consequences or (ii) prevention of violence, where the violence is directed against people or property. The report estimates that the total economic impact of violence containment to the world economy in 2012 was roughly $9.46 trillion, or 11 percent of Gross World Product.
This is more than 75 times the amount of foreign aid distributed worldwide in 2012, and just 15 percent of this figure would be enough pay for the completion of the remaining U.N. Millennium Development Goals, repay all of Greece’s outstanding debt and fully endow the European Stability Fund.
The IEP report breaks down VCS by country, in both raw dollars and as a percentage of Gross Domestic Product (GDP). The countries that spent the most on VC, as a percentage of GDP, in 2012? Not terribly surprising, and something of a "who's who" of the world's poorest, most violent and most poorly governed states: North Korea (at 27.5 percent of GDP); Syria (23.8 percent); Liberia (22.7 percent); Afghanistan (21.2 percent); and Libya (19.6 percent). Seeing North Korea atop the list is hardly gasp-inducing, but seeing that its government spends more than a quarter of its GDP on violence containment is, to me at least, still quite disturbing (despite what the North Korean propagandists would have us believe).
The effects of the wars in Syria, Afghanistan and Libya are still being felt economically, as those states continue to pour money into military operations; and Liberia is, well, Liberia. The “developed" country that spent the most on VCS in 2012? The good 'ole U.S. of A, at 10.5 percent of GDP (again, devastating but predictable). Bhutan, the jolly former-monarchy known for its Gross National Happiness standard, spent the least (0.5 percent), followed by Iceland, Laos, Switzerland and Bangladesh (all under 2 percent of GDP).
To underscore just how economically detrimental violence is to the state, the IEP applied a “peace multiplier” to its figure: For every dollar saved on violence containment, it assumed that there would be an additional dollar of economic activity. So, the actual spend on VC activity in 2012 was $4.73 trillion, and the IEP assumed that it cost the world economy an additional $4.73 trillion in economic activity that would otherwise have come from the reinvestment of these costs into “more fruitful” activities.
It is clear, therefore, that violence is detrimental to states. Take Somalia, for example, which the IEP calls “the clearest example available of the worst-case scenario of long term conflict and insecurity and its impact on economic growth and human development and potential.” Somalia’s economic stagnation, attributable to poor (or nonexistent) governance and continued instability, has “undermined any prospect for even short term economic growth.”
Contrast Somalia (and others, like the aforementioned war-torn states of Syria and Afghanistan) with a state like Nepal, which demonstrates that the costs of engaging in a peaceful settlement, through processes such as mediation and truth and reconciliation, are relatively inexpensive when compared to the exorbitant costs of conflict. The war between the government of Nepal and the Communist Party, which raged from 1996 to 2006, saw more than 13,000 people killed and cost Nepal’s economy more than $3 billion (per the IEP’s methodology). This is in stark contrast to a recent estimate of the total cost of the peace process in Nepal by the Nepal Institute for Policy Studies, which put the price tag of the conflict resolution at approximately $207 million (or less than 10 percent of the cost of the war).
What, then, are the implications for individual businesses, particularly multinationals? The IEP report is relevant in a few ways, and further makes the business case for human rights compliance and corporate social responsibility programs. For instance, the fourth largest contributor to VCS in 2012 was spending on private security services -- i.e., money spent on security personnel employed by private entities, such as security guards employed by businesses -- which accounted for 6 percent of total VCS in 2012, behind only military spending (51 percent of the total); the cost of homicides (15 percent); and internal security costs, e.g., police (14 percent).
Image credit: Flickr/beate_meier
Trained as a lawyer, I now focus on legal business development, corporate social responsibility (CSR), and business & human rights. My past experience includes work on complex commercial litigation, international human rights advocacy, education policy, pro bono legal representation, and analysis of CSR challenges in both the private and public sectors.