Saturday, October 4, 2014

Crime pays, but costs the society a great deal!

A recent article by a contributor to Project Syndicate, an Economic and Political Think Tank and Journal, Professor Bjørn Lomborg, from the Copenhagen Consensus Centre, brought to our attention a recent study on the economic and financial costs associated with violent crime, in a recent article titled: The Economics of Violence.

His ruminations were born out of the current conflicts around the world, from the wars in Iraq and Afghanistan, to the upheaval in the Ukraine and Crimea and how those conflicts affect local economies and the global economy, at large.

He noted that, while it may come as a surprise to some, wars and large scale conflicts, from air-raids to pogroms, cost less than the combined costs associated with murder; domestic violence; and other forms of country-level violence and crime. He notes that it is estimated that nine people are killed in interpersonal violence for every battlefield death due to civil war, and one child is killed for every two combatants.

When we analyse murder rates world wide, it makes sentiments like the ones expressed by Lomborg seem valid.

It almost seems understood that Africa, Latin America and the Caribbean, by region, are ranked the highest in violent crime and murder. United Nations estimates show us the top 5 highest homicide rate by region per 100,000 persons in 2011:
    Southern Africa31.0
    Central America26.5
    South America22.6
    Middle Africa18.5

In an article written by this author in 2011, "Is crime and economic concern?", I noted that in the Caribbean, and in particular Jamaica, Saint Kits and Nevis and The Bahamas, as reported by the UNODC, were ranked well above the average murder rate for the region, with rates of 43, 35 and 22 per 100,000 persons respectively.

That has since changed! The murder rates have increased since that UN report in 2011, and now stand at 62 in Saint Kits and Nevis; and in The Bahamas 37 per 100,000 persons as per the UN's latest Global Study on Homicide, 2014.  However, there was a slight decrease in Jamaica at 41 per 100,000 persons.

We should also add Belize, second behind Saint Kits n Nevis at 39 per 100,000 persons, and with the former capital, Belize City, at over 105 per 100,000 persons.

These are very sad and stark statistics.

One has to ask: Are people from developing countries in Africa, Latin America and the Caribbean just evil people? Have we lost control? Are we just violent people with no understanding, no reason, and no mercy? South East Asia is just as underdeveloped in many areas as some parts of the Caribbean and Latin America, but they have lower crime rates and lower costs associated. Why is the epidemic of violent crime so pervasive as it relates to us?

I guess we can never truly wrap our minds around this. But, we can wrap our minds around the notation of Lomborg and the works highlighted on the economic value of violence and victim costs produced by Kathryn McCollister, et al, 2010, and primarily from the work of James Fearon and Anne Hoeffler, 2014 and their Conflict and Violence Assessment paper.

The documents sourced to produce these works are extensive. Impressive, to say the very least. I'm pleased to have it cross my inbox and thrilled that it induced me to find more information as I wrote this article. It was as refreshing as a cool glass of water on a hot summer's day.

The reason why I was so impressed with the work was that the main thrust of the assessment was centred on the economic cost of crime.

A very strong case for the economic costs associated with crime at many different levels was made; from domestic crime, to child abuse (fatal and non fatal) and violent crime like rape and murder.

These costs were separated between "tangible costs" and "intangible costs": Tangible costs consisted of victim costs, criminal justice system costs and crime career costs. Intangible costs factored were with regard to the pain and suffering costs and corrected risk of homicide costs; or, in other words, the costs associated with crime and violence prevention.

Elaborating point for point on each assumed variable would be too long and cumbersome for this article. So I won't. I just won't. I can't, even if I wanted to. Don't be angry with me, but I really want you to stay awake during this op-ed.

The 2010 study by McCollister found that, in America, $9 million was estimated as a value of economic losses as a result of one murder over the course of the life and working expectancy of both the criminal and victims. This, of course, is a means average. Murders cost more than burglary, rape more than pickpocketing, etc.. This is understood!

Without saying, we can't compare US costs to Bahamian costs, or the US to any other developing country for that matter. But if we scale down to relative size by virtue of GDP, taking the methodology as is, we can see what that $9 million dollar figure per murder can look like in The Bahamas; even bearing in mind the differences in the way criminal investigations are treated, the differences in the legal system and the lack of personal protection and handguns for citizens.

A figure of $423 thousand per murder committed in The Bahamas was estimated. This is 20 times the GDP per capita for the Bahamas. If we take into account the highest recorded murder count of 127 in 2011, we would have something like $53 million. 

This is below the regional average for Latin America and Caribbean, which is somewhat good news. But with the murder rate being extremely high, and with a small economy relative to other countries,  I am reminded that, at times, statistical representations can give you the wrong impression of the facts, if interpreted incorrectly.

Let's also look at the total amount of crime incidents reported for the year, 2011. As reported in the "Bahamas 2012 Crime and Safety Report", there was 11,951 cases of hard crimes reported in 2011. These crimes include assaults and murder as a result of both domestic and non domestic violence.

If we add the amount of child abuse cases reported for that year, 636, we can move closer to the methodological criteria that the researchers used. Also, if we take into account "white collar crime", a total of 448 reported in 2012, and assuming that the differences are negligible between 2012 and 2011, we have a total of 13,305 cases, or thereabouts, of total crimes reported.

If we were to take only robbery, at a total cost of $9.5 million dollars and rape at nearly $15 million dollars, add it to the total cost of murder at $53 million dollars and after calculations, we would have some very interesting figures to play with.

Unless you haven't already totalled, the amount is well over $77 million dollars in economic value and the subsequent welfare losses of victims as a result of the amount of those crimes committed over time. That's nearly 1% of Bahamian GDP!

This multi-million dollar figure amounts to nearly $2 million dollars a year of future earnings lost if we take into consideration the working age expectancy of 40 years. That's 25% of the budget allocated to the Royal Bahamas Police Force.

With an average inflation rate of just over 4 % per year in The Bahamas, by the 40th year an estimated $9 million dollars would have been lost over time if crime statistics remain constant.

This is not to say that we are losing $2 million dollars a year of GDP, just that $2 million dollars per year of economic activity we are projected to not having, and will not have for the future from just one year of crime.

This also does not take into account the already compounded economic losses of crime before and after 2011, which also needs to be factored in. Continue to calculate per year, the value we have already lost and expected to lose, the figures would be astronomical if we take the average from previous years and project crime rates for following years.

The most startling thing is that this is just representative of crimes against a person or business, and not state-crime: For example, tax evasion, false declarations to revenue agencies like Customs and the National Insurance Board, documentation fraud and the like. My word!

Setting aside the dollars and cents of it all, loved ones that were lost and how it affects their family and friends can never be quantified. My deepest sympathies for those grieving and dealing with loss. No amount of money can replace a loved one. Ever!
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