Report Highlights Disproportionate Costs of Crime in LatAm

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A report by the Inter-American Development Bank (IDB) on the costs of crime and violence in Latin America and the Caribbean shows that while the region has recently made progress in some economic and social development indicators, the costs of the alarming security conditions in some countries are still disproportionately high. 

In its report, “The Costs of Crime and Violence” (pdf), the IDB estimates that the annual costs of crime and violence for countries in Latin America and the Caribbean amount to an average of 3.5 percent of gross domestic product, a figure which is almost two times higher than the one observed in highly-developed countries like Australia, Canada, France, Germany, the United Kingdom, and the United States.

Over the past few years, most of the region’s countries have experienced some positive results with respect to their economic and social indicators, with average growth rates above 4 percent, stable inflation rates (with the exception of Venezuela and Argentina), decreasing poverty levels — which in some parts of the region managed to meet the Millennium Development Goals — and better educated and healthier populations. Yet when one looks at other indicators, such as citizen and national security as well as the criminal dynamics affecting the region, the outlook is not as bright.

The nations of Latin America and the Caribbean are home to less than 9 percent of the world’s population. However, nearly a third of the world’s homicides occur within the region, 90 percent of which remain unpunished, while 60 percent of thefts involve violence. 

Furthermore, the region’s growing prison population and widespread corruption among security forces and other institutions have created a number of obstacles to the region’s development, highlighting the need for governments to step in to increase their presence in areas under the control of criminal groups.

The average cost of crime and violence between 2010 and 2014 for the 17 countries studied by the IDB report amounted to an estimated $261 billion, an amount comparable to the money those countries spent on infrastructure during that period.

The direct costs taken into account by the report are those that victims pay as a result of criminal activities, such as damages or losses, and those related to their prevention. The latter category includes public and private investment to prevent these illegal activities as well as the costs of responding to crime, such as the money spent on the judicial system and prisons.

However, the report does not take into account the indirect costs of crime, which are best conceived of as the negative externalities that it generates, such as changes in consumption preferences, changes in people’s behavior due to the fear of crime and increases in salaries for high-risk jobs, among others.

High homicide rates are one of the key contributing factors to the high social costs of crime. Their impact is calculated taking into account the income that both the victim and the aggressor cease to receive, should the latter be sent to prison.

A little more than 90 percent of homicide victims across the region were men, and nearly half of them were between 15 and 30 years old — the most economically productive segment of the population. This in turn means that nearly 10 percent of homicide victims were women, an average of 4.3 per 100,000 people — almost twice as high as the world average.

During the years taken into account by the report, the average cost of homicides across the region oscillated between $9.8 and $11.4 billion per year. Among the 17 countries studied, the largest share of social costs related to homicides were observed in Brazil, Mexico and Colombia. By contrast, Chile, Peru and Argentina registered the lowest costs related to homicides as a percentage of GDP.

However, there appear to be some key differences across the region. In 2014, the costs of violence and crime amounted to 3 percent of Guatemala’s GDP, 6.1 percent of El Salvador’s and 6.5 percent of Honduras’ (See the IDB?s breakdown of crime-related costs by country below). 

Crime-Cost LatinamericaA more detailed geographical breakdown of the data for these three countries shows that, while in some parts of El Salvador homicides reportedly did not occur for some years, in others the rate was as high as 200 per 100,000 people, while the average for the departments with the highest homicide rates was 94.6, almost three times higher than the regional average and 14 times higher than the world average.

A similar dynamic could be seen in Brazil, where in some states the costs of crime amounted to 2 percent of GDP, while in others the figure was almost three times higher. The difference can also be observed in the distribution of these costs. While in some states the losses were higher due to the social costs caused by homicides, in others the costs of private or public investments related to crime were far greater.

In 2014, the region’s crime-related public spending amounted to an average of $7.8 billion (or 0.2 percent of GDP), almost twice as much as what was spent in 2010. This figure is also close to the loss that the region’s economies experienced as a result of the lack of productive activity on the part of their imprisoned populations.

Local differences in violence levels also contrast with the global challenges posed by the ever-increasing threat of cyber crime, which crosses both physical and virtual borders. According to a study quoted by the IDB report, between 2010 and 2013 the demand for technologies to protect against cyber crimes grew 14.7 percent among companies and 10.7 percent among individuals.

SEE ALSO: Coverage of Cyber Crime

The activities of organized crime also transcend borders, since the region’s drug cartels, criminal groups and gangs are able to migrate from one area to another and constantly restructure themselves.

Today’s organized crime groups are not the monolithic structures they were a few years ago. In some cases, they are divided into increasingly more sophisticated local groups that enjoy more autonomy. This in turn could allow criminal groups to increase their presence in some areas as opposed to others, and concentrate, as is often the case, in border regions.

However, according to the IDB report, the relationship between the presence of organized crime groups and high homicide rates is not necessarily a direct one. This could be at least in part related to the different nature of criminal groups and the high levels of social control they hold in the communities where they operate.

In countries such as El Salvador, home to some of the region’s most violent gangs, these groups have shown on several occasions that they are capable of influencing homicide rates, and in some cases they have used this as a method for gaining political power.

InSight Crime Analysis

The decrease in the levels of security indicators across the region, despite the significant increase in the amount of resources spent to fight and prevent crime, is a clear sign that these resources are not being invested efficiently.

While most of the homicides committed across the region remain unpunished — at times as a result of weak institutions and widespread corruption — the use of prisons as a means to fight these crimes and others is becoming increasingly popular.

This strategy is premised upon the idea that increasing prison terms will deter criminal activities, but it seems to overlook the high costs that this approach implies for public spending. It also fails to take into account the economic impact for the families of the inmates, who — as the report highlights — are often working-age men from poor backgrounds.

SEE ALSO: InDepth Coverage of Prisons

As InSight Crime has highlighted, the gradual implementation of these heavy-handed policies that began during the 1990s has created more problems than it helped to solve. High overpopulation rates and corruption ended up turning the region’s prisons into breeding grounds for organized crime groups.

Whether because of malpractice, corruption or lack of information needed to design efficient public policies, the current approach also does not include the rehabilitation and reintegration programs that should be implemented inside prisons. At the same time, it does not help to prevent, and in fact increases, the chances that the inmates’ families could fall into the same spiral of poverty and violence that has fed the region’s prisons for so long.

The fact that the percentage of crime-related public spending in Latin America is twice as high as it is in developed countries also illustrates just how much of a burden financing security programs can put on state resources in the region. Despite the large share of resources directed toward security programs, these expenditures seem to provide poor results, suggesting they could be assigned more efficiently to programs in sectors like health and education, which tend to produce better returns on investment.

Gathering accurate data on the economic and social impacts of crime and insecurity poses a number of challenges. The illegal and secretive nature of criminal activities presents a key obstacle whenever one tries to assess their impact, especially considering the growing sophistication of illegal groups and their ability to adapt and elude the authorities’ constant efforts to dismantle them.

Nevertheless, a thorough collection of information is crucial for scholars and policymakers to be able to contrast data between countries and draw clearer conclusions about the relationship between crime and socioeconomic outcomes. Yet certain methodologies for measuring the impacts of crime can leave important aspects of this relationship unexamined.

The IDB report, for example, does not fully take into account the fear victims have when reporting crimes to the authorities, the victims’ inability to present the information needed and at times the governments’ own lack of willingness to publish data and other relevant information. For this reason, the estimates presented in the IDB report must be considered conservative at best.

SEE ALSO: Coverage of Elites and Organized Crime

While the report does not measure the cost of corruption, in part due to the difficulty of assessing and comparing such costs, the damage that this widespread practice causes cannot be underestimated. In countries such as Guatemala, whose former president had to resign after the international community helped to uncover his role in a large-scale corruption scheme, graft is believed to be the cause of annual losses that amount to up to 3.5 percent of the country’s GDP.

Corruption generates massive losses of public funds, as well as distortions in all sorts of institutional and social spheres. Furthermore, due to its ubiquity in Latin American and Caribbean countries, criminal groups often use corruption as a way to co-opt state actors.

Due to their high social, economic and political costs, eradicating crime and violence does not merely depend on how much money is invested to tackle these issues. If resources are only allocated to compensate and prevent the effects of crime in the short term, the region will never efficiently tackle and resolve its structural causes. 

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