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Editorial | How much has crime really cost Jamaica?

Published:Monday | September 19, 2016 | 9:00 AM

Jamaica has suffered from corruption and violence for decades. Is this the main reason why our economy has failed to grow?

Crime inflicts a wide range of costs. The direct costs include death and injury related to crime, the value of lost production because of theft and extortion, and higher spending on security. The indirect costs, which can be less obvious but are usually larger, include the higher cost of transactions in a low-trust society, reduced worker productivity, increased uncertainty and risk, reduced access to borrowing, more expensive insurance and more costly capital, business closures, capital flight, the emigration of skilled workers, and the loss of foreign investment.

High rates of violent crime affect people's ability to save and willingness to invest, which results in reduced rates of capital accumulation, which then depresses future growth rates.

Then there are non-monetary costs, such as the pain, trauma and suffering of victims and their families, the long-term psychological effects of living in fear, and the long-term social damage caused by the cycle of violence, where children who have lost family members or otherwise profoundly traumatised by violence are more likely to be violent as adults, thereby perpetuating the problems from one generation to the next.

These risks are compounded, which can result in a vicious circle of damaging consequences. Areas badly affected by violence receive little productive investment, which means that there are few legitimate employment opportunities, which, in turn, means that crime becomes the main source of opportunity, so the level of crime rises again and further deters investment. This is why studies by the World Bank and other agencies have shown that violence is one of the main causes of poverty.

There are various estimates of the cost of crime to Jamaica, which range from 3.7 per cent of our GDP, taking only direct costs into account, to 7.1 per cent of GDP, once the indirect costs are included. That may not sound large, but the costs mount up over the years. At those rates, the accumulated cost of crime from 1972 to 2010 at 3.7 per cent of GDP would be US$8.7 billion, and at 7.1 per cent of GDP, it would be US$16.7 billion. For comparison, Jamaica's public debt at December 2011 was US$18.7 billion, so the accumulated losses due to crime (at 7.1 per cent of GDP) equalled almost 90 per cent of our total public debt.

 

PRODUCTIVITY LAG

 

This is bad enough, but it is also necessary to include the cumulative cost of four decades of lost productivity growth. One way to estimate this loss is to compare Jamaica with other countries that were at similar levels of development until the early 1970s. If Jamaica's rate of productivity growth had kept pace with that of Barbados, a smaller country with few natural resources, Jamaica today would be almost three times more productive and wealthier than it is now. The Cayman Islands, which was administered by Jamaica when it was very poor, is now about five times richer, while Singapore, which used to be at a comparable level of development to Jamaica, is about 10 times richer today.

So violence, crime and corruption have had a profound and terrible impact on Jamaica. The economy is now, at best, one-third of the size it should have been; it may have shrivelled to just 10 per cent of the size that it should have been.

This supports the conclusion in Jamaica's Vision 2030 National Development Plan that effective action against crime and corruption would do more to increase productivity and improve the economy of Jamaica than any other measure.

Why have successive governments failed to take the decisive action needed to deal with the cancer of crime and corruption? There have been persistent allegations that part of the reason is that some of the main beneficiaries of the years of crime and corruption are close to the centres of power. If so, Jamaica is unlikely to move forward until both parties find the courage to purge the corrupt from their ranks, and sever all remaining links with organised crime.