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The Peace-Prosperity Cycle

NEW YORK – At the 68th session of the United Nations General Assembly, which began on September 17, world leaders are laying the foundations of a development agenda to succeed the Millennium Development Goals (MDGs), which expire in 2015. The upcoming Sustainable Development Goals will be based on the understanding that economic development is key to improving human well-being and securing the most vulnerable people’s rights. But, in order to make genuine progress, policymakers must address the factors that constrain development, particularly violence and conflict.

According to the Global Peace Index, containing violence – including internal and external conflicts, as well as violent crimes and homicides – cost the world almost $9.5 trillion, or 11% of global GDP, last year. That is 75 times the volume of official overseas development assistance in 2012, which amounted to $125.6 billion, and nearly double the value of the world’s annual agricultural production. (For further perspective, the post-2008 global financial crisis caused global GDP to fall by 0.6%.)

This means that if the world were to reduce its violence-related expenditure by approximately 50%, it could repay the debt of the developing world ($4.1 trillion), provide enough money for the European Stability Mechanism ($900 billion), and fund the additional amount required to achieve the MDGs ($60 billion).

Reducing violence-related expenditure by even 10% would save $473 billion, while contributing to output growth worth an additional $473 billion – money that could be channeled toward infrastructure, health care, or educational services. And these are conservative estimates; they do not reflect costs related to property crime, burglary, vehicle theft, domestic violence, surveillance equipment, lost wages, and lower productivity, because accurate data are not yet available.

Just as long-term economic development requires political stability, peace can be achieved only in an environment of economic progress and prosperity. External shocks, such as sudden food-price fluctuations, may raise tension within communities – especially those that lack adequate social-safety nets – and even lead to conflict. This occurred in Colombia in the 1990’s, when an unexpected drop in coffee prices lowered wages and intensified conflict in coffee-dependent regions.

Likewise, pervasive or rising unemployment undermines peace by encouraging the proliferation of criminal networks, gangs, and rebel groups. Indeed, in the World Bank’s 2011 World Development Report, young people in conflict-affected countries cited unemployment and idleness as the most compelling reasons for joining such organizations. Given this, governments must intensify their efforts to foster job creation and improve employment opportunities –including finding ways to finance relevant policies and programs.

They could begin by enhancing the efficiency of violence-related expenditure. In the United States, for example, researchers with the Institute for Economics and Peace found that more than one out of every seven dollars spent – a total of almost $2.2 trillion in 2010 and a staggering 37% of that year’s federal budget – is devoted to preventing and dealing with the consequences of violence. In other words, US violence-related expenditure is almost equal to the output of the entire British economy, approximately $2.4 trillion. Just as the ongoing health-care debate focuses on reducing costs while improving outcomes, a public debate centered on the costs and effectiveness of violence prevention and recovery programs should be launched.

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With thorough analysis, governments could identify surplus funds that might be redirected to development pursuits, thereby bolstering productivity, enhancing human well-being, and laying the foundations for a peaceful society. For example, a mere 5% annual reduction in federal spending on violence containment in the US over the next three years could provide the capital to update the entire country’s school infrastructure.

The virtuous cycle by which prosperity engenders peace, which in turn fuels greater prosperity, is also apparent in education investment. Education enhances workers’ skills, knowledge, and behaviors, thereby boosting their productivity. This promotes stability and social cohesion, while making communities more resilient to economic, geopolitical, or natural disasters. Peaceful and prosperous Scandinavian countries, which boast high education levels, are a case in point.

But the cycle runs in reverse, too. In Greece, for example, the recent economic downturn, exacerbated by strict austerity measures, has fueled violent demonstrations. And the prolonged conflict has had a devastating impact on Iraq’s economy. Three decades ago, after Iraq initiated hostilities with Iran, its per capita annual GDP plummeted, from $5,374 in 1980 to $1,253 in 1991.

It is easy to perpetuate the vicious cycle between economic hardship and conflict; indeed, such an outcome requires only that policy makers do nothing. Reversing the cycle, however, is a difficult undertaking – one that requires carefully crafted policies, effective programs, and substantial investment.

In formulating the post-2015 development agenda, world leaders must recognize the tremendous impetus that less violent, most harmonious societies would provide for economic development. By stimulating a virtuous cycle of peace and prosperity, policymakers can contribute to the well-being of people worldwide. Now that is a goal worth pursuing.

Steve Killelea is Executive Chairman of the Institute for Economics and Peace.

Copyright: Project Syndicate, 2013.

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