violence containment in the us report

7/31/2019 Violence Containment in the US Report

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VIOLENCECONTAINMENTSPENDING IN THEUNITED STATES

A NEW METHODOLOGY TO CATEGORIZE AND ACCOUNTFOR THE ECONOMIC ACTIVITY RELATED TO VIOLENCE


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The Institute for Economics and Peace (IEP) is an independent, non-partisan, non-profit research organization dedicated to

shifting the worlds focus to peace as a positive, achievable, and tangible measure of human well-being and progress.

IEP achieves its goals by developing new conceptual frameworks to define peacefulness; providing metrics for measuring

peace; and uncovering the relationships between business, peace and prosperity as well as promoting a better understanding

of the cultural, economic and political factors that create peace.

IEP has offices in Sydney and New York. It works with a wide range of partners internationally and collaborates with

intergovernmental organizations on measuring and communicating the economic value of peace.

For more information visit www.economicsandpeace.org

THE INSTITUTE FOR ECONOMICS & PEACEQUANTIFYING PEACE AND ITS BENEFITS

INTHIS REPORT IN

TRODUCTION

01M

ETHODOLOGY

02 RESULTS&FINDINGS03 APPENDICES04


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CONTENTS

Executive Summary

Introduction

What is Peace?

Why is Peace Important or Society and the Economy?

Methodology

Deining Cost

Findings and Discussion

Hypothetical Case Studies o Reducing

Violence Containment

Conclusion

Appendix A Public Sector Methodology Overview

Appendix B Private Sector Methodology Overview

Appendix C Individual Line Item Costing Methodologies

Appendix D Methodological Notes

Bibliography

01

02

03

04


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EXECUTIVESUMMARY

01INTRODUCTION

I t has been wel l establ ished that violence has a marked

eect on economic act ivi ty wi th many studies demonstrat ingthe negative economic impacts o cr ime, incarcerat ion,insurgencies and especial ly war. However, there hav e been

no studies to systematical ly aggregate the economic costso a l l orms o violence, including the costs o preventionand protection, to understand how much o an economy iscaptured by violence and violence containment.

For the purposes o classiication, this orm o economic activity hasbeen deined as the violence containment industry (VCI). Aggregated asan industry sector it would be the single largest in the United States.

The Institute or Economics and Peace (IEP) has developed a newmethodology to quantiy the cost o violence and the economic gainsassociated with peace or the U.S. economy. All expenditure that isrelated to violence containment, whether perormed by the militaryon the international stage or domestically through the provision oservices to ight crime, has been classiied together as the ViolenceContainment Industry or alternately, as violence containment

spending. This provides a ramework to classiy and better understanda substantial part o the U.S. economy as well as providing a platormor uture research. Given the sheer size o the U.S. economy thatis dedicated to containing violence, quantiying the expenditure asa discrete industry creates a unique basis or urther analysis anddebate.

IEP deines violence containment spending as economic activitythat is related to the consequences or prevention o violence wherethe violence is directed against people or property. This includes allexpenditures related to violence, including but not limited to medicalexpenses, incarceration, police, the military, insurance, and the privatesecurity industry. It is divided into local, state, and ederal governmentexpenditure as well as private spending by corporations, households,and individuals.

While expenditures on containing violence are an important andnecessary public good, the less a nation spends on violence relatedunctions the more resources a nation can allocate to other, moreproductive areas o economic activity. Expenditure on violencecontainment is economically eicient when it eectively preventsviolence or the least amount o outlay. However, money that is spenton surplus violence containment, or money that is spent on ineicientprograms has the potential to constrain a nations economic growth.This is simply because much o this type o expenditure is undamentallyunproductive, and i redirected toward productive pursuits, wouldimprove government balance sheets, company proits and ultimately,the productivity and wellbeing o society.

The research presented in this report shows that in 2010, VCIaccounted or $2.16 trillion or around 15% o U.S. gross domesticproduct. This igure is considered conservative due to the diicultieso accounting or all private and public sector spending. Havingnot conducted an analysis o the size o the violence containment

spending in other countries it is diicult to assess independentlyhow the U.S. ares compared to other countries. Given the size o itsdeense and associated homeland security spending, the inal size othe VCI in the U.S. is likely higher than other developed nations.

THE KEY FINDINGS OF THE STUDY ARE:

Violence Containment spending in the U.S. amounted to $2.16trillion in 2010 equivalent to just over $15,000 or each taxpayer or$7,000 per year or every man, woman and child.

I violence containment spending was represented as a discreteindustry, it would be the largest industry in the United Stateseconomy, larger than construction, real estate, proessional servicesor manuacturing.

I violence containment spending was represented as a discrete

national economic entity, it would be the seventh largest economyin the world - only slightly smaller than the UK economy.

Violence containment spending is our times higher than thenational deense budget.

Public sector spending on VCI accounts or 10.8% o GDP whileprivate sector spending is 4.2% o GDP.

I U.S. ederal violence containment spending was reduced by$326 billion or 25%, i.e. to the same relative levels as in 2001, thenin one year the saved unds would be suicient to entirely updatethe energy grid, rebuild all levies and renew the nations schoolinrastructure.

Violence containment spending has been broken down into both thepublic and private sectors, and is represented in terms o net valueadded. It shows that the Federal Government spends over $1.3 trillion

or approximately 9% o GDP on violence containment. This is morethan was spent on pensions and more than double what was spent oninrastructure in 2010.

National deense spending includes the Department o Deense,Homeland Security, Veterans Aairs and the debt servicing on theseexpenditures which is based on the proportion o military relatedgovernment expenditure.4 Private sector spending on violencecontainment is conservatively estimated to be $605 billion or 4.2%o 2010 GDP. The remaining amount is spent by state and localgovernment on police, justice, corrections and other securityrelated measures.


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01INTRODUCT

Based on IRS igures or number o individuals to lodge a tax return in 2009.

The private sector igure is conservative.

Net Value Added is the sum o gross wages, pre-tax proits net o depreciation, and indirect

taxes less subsidies.

4 The interest portion is calculated by taking the proportion o related deense and military

expenditure (including homeland security and veterans aairs) as a percentage o NIPA Federal

Government Consumption and Gross Investment Expenditure. The resulting percentage is

applied to the net interest payments. Brauer, J. Data, Models, Coeicients: United States

Military Expenditure. Conlict Management and Peace Science. Vol. 24, No. 1 (2007), pp. 55-64.

The approach presented in this report enables a new andnovel approach to understanding the international economiccompetitiveness o a nation, based on calculating the percentage oGDP spent on violence containment. The less a nation spends onviolence containment, providing it is also more peaceul, then themore competitive the economy should be, due to the ability to deployits resources more eiciently. This evidently is only one dimension onational competitiveness, but a uniquely original and important one.

For business, higher violence containment spending can result inunaccounted costs such as higher taxes, increased sunken costs andincreased ancillary costs such as investing in security systems, securityguards or even higher insurance premiums. Additionally, the higherthe level o violence in a corporations area o operations then themore management time is devoted to responding to security ratherthan market development or competitive issues. This represents lostopportunity which could be transerred into developing capital andexpanding proits.

Given the enormity o the number o items that needed to be countedin this exercise, it is inevitable many much smaller items were

excluded given the diiculty o obtaining data on the true value-addedigure. As an illustrative example some o the more meaningul itemsexcluded have been included on page ten.

The sheer size o spending on the Violence Containment Industriesvery clearly illustrates the enormous beneits o investing in theprevention o violence. I policymakers clearly understood theeconomic burden o non-productive violence containment thenimproving the levels o peaceulness would be seen as central to longterm structural reorms.


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WHAT IS PEACE? WHY IS PEACE IMPORTANT FORSOCIETY AND THE ECONOMY?The Inst i tute or Economics and Peace has conductedextensive research to better understand the types o envi ronments associa ted w i th peace. Th is researchhas ocused on analyz ing a r ich set o quanti tat ive and

qual i tat ive data and has identi ied the mechanisms thathelp nurture and sustain peace. This shows peace ismore than just securi ty and demonstrates that peaceulenvi ronments are associated wi th a part icular set o cul tural , pol i t ical , and economic character ist ics.

IEP research has demonstrated peace is more likely to be associatedwith a particular set o ormal and inormal institutions, structures, andsocial attitudes. When these elements lourish they provide manyother beneits or society and help create an optimal environment orhuman potential to lourish. These structures have been described asthe Pillars o Peace6 and consist o the ollowing elements;

Well-unctioning government

Sound business environment

Equitable distribution o resources

Acceptance o the rights o others

Free low o inormation

Good relations with neighbors

High levels o education

Low levels o corruption

In practical terms there are many beneits or societies whichperorm well in these categories. These actors can help createhigher per capita incomes, lower levels o business risk, high levelso social cohesion, and greater resilience when aected byexternal shocks.

While saety and security are integral to peace, protection rom

violence does not complete the picture o a peaceul society.The ideal society would have the least amount o violence whilespending the least amount o money to contain what violence thereis within the society. While violence containment spending mayreduce violence, there are other indirect investments which canreduce violence in a cost eective way and build a lasting peace.

Quanti ying the size o the Violence Containment Industry ian important i rst step in enabl ing a deeper underst andino the in teract ions between investments in act i v i t iethat reduce violence and thei r potentia l economic low

on e ects. Whi le i t may be necessary, the purchase osecuri ty comes at the expense o investment in othepotentia l ly productivi ty-enhancing assets.

The key policy question is how can a society spend the optimalamount to contain violence while cost eectively investing in uturereductions in violence? Ultimately, a society that manages to createthe appropriate social attitudes and norms acilitates the conditionsunder which the likelihood o violence arising is substantially reducedWork perormed by IEP on the United States Peace Index (USPI)which measures the peaceulness o the ity states o the U.S., hasound several statistically signiicant social and economic correlateswith peace. Peace is strongly associated with economic mobility andaccess to basic needs and health.7

By understanding the social and economic drivers o violence,

policymakers and business leaders can better understand thecosts and beneits o particular social and economic investmentprograms. By directing resources towards addressing the rootcauses o violence, and away rom some orms o short term violencecontainment spending, policymakers and business can begin to makelong term strides towards creating a virtuous cycle o peace andeconomic prosperity.

As government spending becomes more constrained by budgetarylimitations, the cost o police wages, capital costs or jails and theongoing burden o incarceration necessitates a relative decline inspending in other areas. Under these conditions, programs thatalleviate the need to contain violence and are more economicallyviable over the medium term become important or improved inanciamanagement. Many violence alleviating programs also have spin-o eects such as education, which when appropriately targeted

improves human capital as well as reducing recidivism rates. This thenhelps in reducing the need or policing, judiciary and incarcerationcosts, as well as adding to the labor market and increasing thegovernments taxation receipts.

6 Reer to (2011) The Structures o Peace, IEP Research Brie, August 2011.

7 United States Peace Index, Institute or Economics and Peace, Sydney, April 2012.

01INTRODUCT


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METHODOLOGYIEP de ines violence containment spending as publ ic orpr ivate sector economic act ivi ty that is related to theconsequences or the prevention o violence where theviolence is di rected against people or property.

Table oneprovides a number o examples o the types oexpenditures or activities included in violence containment.

Public sector spending includes government expenditures, at the ederal,state, and local (county or municipal) levels. At the ederal level, the mostobvious component is the U.S. armed orces or military expenditure ingeneral. This includes the cost o the Aghan and Iraq wars, U.S. basesand troop deployments, ongoing military-nuclear activity, the military useo outer space, the intelligence agencies, arms procurement, military-aidto oreign powers, virtually all o homeland security, veterans aairs, andmore. Because the U.S. ederal government budget is usually in deicit,the shortall must be debt-inanced.

Thus, in proportion to the violence containment industrys contribution tthe ederal debt, a portion o the interest paid should be counted as alegacy cost coming due in the present budget year. 8

Law enorcement includes police protection, judicial and public sector

legal expenses, and correctional acilities at the ederal, state, and locallevels. Corrections reers to the cost o operating prisons and jails, eveni contracted out to the private sector prison industry, and the cost odealing with parole, probation, and the court system. In addition, securityrelated expenditures or labor, services and equipment associated withinrastructure and events such as municipal airports, public schools anduniversities and publicly sponsored or supported events.

The private sector consists o activities in private households andbusinesses, such as deadbolt locks, building and car alarms, securityguards, insurance premiums paid to insure against loss o lie, limb, orproperty, and so on.

According to estimates made by the Small Arms Survey 2011, the privatesecurity sector employs some 20-25 million people worldwide and 2million people in the United States. This compares to approximately 11million police personnel worldwide o which 883,600 were employed

in the United States in 2007.9 In addition, there are the security costs atpassenger and commercial transportation hubs, which, in the U.S., aremostly privately owned and operated. There are also the private sectorlegal costs associated with violence against property or persons. Whilemostly captured in the legal services industry, these costs are also partlycaptured by large corporations internal legal departments, making themdiicult to count and thereore have not been included in this study.Additionally, there are the costs imposed on the health, medical, andrehabilitation sectors which are associated with violence.

The private sector also covers arms producers, both o majorconventional weapons and weapons o mass destruction. Whenweaponry is manuactured or and sold to the U.S. Department oDeense (DoD) this is captured in the ederal government budget. Smallarms such as bladed weapons, handguns, long-guns and associatedaccessories and supplies such as gun sights, night scopes, and

ammunition, accouterments, shooting ranges, and the gun magazine/publishing industry are also included in the cost accounting, but thesemake up a very minor component o the inal igure.

Neither public nor private accounting systems are set up to separatesecurity rom non-security items, and it would take a major changein government and corporate accounting standards to capture thecorrect numbers.

8 The interest portion is calculated by taking the proportion o related deense and military

expenditure (including homeland security and Veterans Aairs) as a percentage o NIPA Federa

Government Consumption and Gross Investment Expenditure. The resulting percentage is

applied to the net interest payments. Reer to Brauer (2007), which highlights the importance o

counting legacy costs.

9 Small Arms Survey, 2011, chapter 4, Table 4.1 (p. 106).

02METHODOLOGY

Tale One Examples o the Violence Containment Industry

Public Sector (federal, state, and local level)

National Security and Deense: military, counterinsurgency,counterterrorism, transportation security, air transportsecurity, maritime security, border control, etc

Law Enorcement and Intelligence Agencies: FBI, CIA,ATF, DEA, etc

Prison system including ederal and state penitentiaries,the court system and local jails.

Private Sector

Household, Personal and Corporate - capital costs: locks,

alarms, ences, guards, metal detectors, vehicle security,victims shelters, patrol services, controlled access systems,private investigators, etc

Security Services: Estimated size o private sector spendingincludes private security oicers, cyber security market, sel-deense industry, private security guard and schools, etc

Consequences o Violence: legal costs, compensatory andpunitive payments, medical and counseling costs, repairs,remediation, restorations, non-proit sector committed toviolence containment, insurance premiums and payouts

Private deense: deense exports and smallarms manuacturing.


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10 These have not been counted due to data diiculties, and some security unctions at public

transport hubs cannot be completely accounted or due to diiculties disaggregating state and

ederal transport budgets.

11 The 2010 U.S. Fiscal year runs rom 1 October 2009 to 30 September 2010.12 Legacy costs are costs incurred today or purchases made in the past. These may be the cost o

pensions or labor purchased in the past, or debt service payments made today or prior loans.13 Ideally, the inal output o this research would look to something like the U.S. national income

and product accounts (NIPA), as i in addition to being structured along agriculture, mining,

manuacturing, business services, government, and other rubrics it were structured with

separate security and non-security line items or each o the rubrics. One would then know

what percentage o GDP is approximately due to the economic activity o protecting ourselve

rom ourselves. Because o serious accounting diiculties this presents, a conservative

indicative igure is provided which is a conceptual starting point or understanding just how

much is spent on violence containment. Ideally, the inal output o this research would look to

something like the U.S. national income and product accounts (NIPA), as i in addition to being

structured along agriculture, mining, manuacturing, business services, government, and other

rubrics it were structured with separate security and non-security line items or each o the

rubrics. One would then know what percentage o GDP is approximately due to the economic

activity o protecting ourselves rom ourselves. Because o serious accounting diiculties this

presents, a conservative indicative igure is provided which is a conceptual starting point or

understanding just how much is spent on violence containment.

14 See Bozzoli, Brck, and Sottsas (2010).

02METHODOLOG

It is important to reemphasize that the VCI is a necessary commongood or all members o society, however without being able toestimate the size o spending it is diicult to understand its overalleect on the economy. Without being able to compartmentalize thecosts, it is diicult to evaluate other mechanisms or reducing violencewhich may be more cost eective or society.

Given the shortcomings in accounting methods and the diiculty oobtaining value-added data, many items that should be included havebeen let out. For this reason, the inal igures presented in this reportcan be considered conservative. For instance, some items that havenot been counted in this study relate to:

Business alarm systems to protect against thet

Private household ire alarm systems to protect against arson

The sel-deense training equipment market

The security passes systems industry (except bio-metrics)

Security unctions at Port Authorities10 (other than the NewYork Port Authority)

The market or passive security including protective encesand gates (except or locks)

The private market or taser guns, pepper spray, bullet prooglass, bullet proo vests, tear gas

The private market or armed vehicles

The private market or personal security aids, night lights, etc.

Deense exports other than the top ten major exporters. Given thedominance o the ten largest exporters other arms exports wereexcluded due to the diiculty o counting.

DEFINING COSTThe method adopted or this study is to total expendi turerelated to violence containment in the 2010 iscal year. 11

Importantly, this includes expenditures on legacy costs12 that all duein the current year due to violence or past security-related events. Forexample, the medical treatment o a U.S. soldier permanently injuredduring an army exercise in the ormer West Germany imposes a burdenon the U.S. health care system today. Likewise, debt incurred to inancepast military budgets creates interest payments or the current year. Thistudy pursues current expenditures as the method or totaling the costso violence containment.

In practice, neither private nor public accounting systems are set upto make the necessary dierentiations or many items and the lineso distinction may not be easy to deine. Where there is ambiguity, aconservative approach has been taken; thereore many items relatedto private expenditure that may have been relevant have beenexcluded. To identiy the VCI there is a need to bring together severalevels o spending that have not been previously combined.13 Tworules that have been consistently applied to the data collection areconsistency and comprehensiveness.14 For a more detailed explanatioo the methodology or each sub-item please reer to Appendices Ato C and or urther inormation on the net value approach reer toAppendix D.


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FINDINGS ANDDISCUSSIONTale two summarizes the expenditures associated with theViolence Containment Industry. It is conservatively estimatedthat the private and public sectors together spend approximately15% o GDP, or $7,000 per person on violence containment. Thiscould be alternatively expressed as $15,000 or every tax payeror $1 out o every $7 o the U.S. economy. The major componento accounted expenditure is related to public sector spendingwhich is 10.8% o GDP. This compares to 4.2% o GDP or privatesector spending.

03RESULTS &FINDINGS

Pulic Sector US$ n % o GDP15

National Deense, VA, HS, and Debt Service 1,203.00 8.327%

Police, Justice & Legal, Corrections (PJC) (notincluding local government)

130.80 0.905%

Total Other Public Sector Spending 226.51 1.568%

Total Public Sector 1,560.31 10.800%

Private Sector US$ n % o GDP

Household, Personal and Corporate capital

costs

Household Security Market and Spending(locks, car alarms, saes, biometrics)

15.19 0.105%

Security Services Maret

Estimated Size o Private Sector Spending onPrivate Security Services

87.40 0.605%

Cyber Security Market 130.00 0.900%

Security Sector Training companies 11.00 0.076%

Conseuences o Violence

Victim Compensation Programs 0.47 0.003%

Property Loss rom Intentionally Set Fires 0.67 0.005%

Mental Health Care and Welare Services orChildren o Abuse 27.81 0.192%

Private Legal (e.g., in-house corp. counsel) 25.00 0.173%

Medical Costs o Violent Crime (Upper) 24.81 0.172%

Repair/restorat ion - Vandalism 48.00 0.332%

Nonprot Sector - Violence ContainmentRelated

82.10 0.568%

Insurance (net premiums written - assumed VCIcomponent 25%)

106.55 0.738%

Private Deense

Deense Exports 37.20 0.257%

Small Arms Manuacturing (non-military) 5.00 0.035%

Ammunition Sales 0.50 0.003%

Total Private Sector 601.70 4.166%

Total, Pulic and Private $2.162 Trillion15.0% o

U.S. GDP

Per Household $18,830

Per Taxpayer $15,004

Per Person, per Year $7,003

15 2010 GDP amount o US$14.447 trillion is taken rom OECD Statistics. http://www.oecd-ilibrary.org/

economics/gross-domestic-product-in-us-dollars_2074384x-table3

Tale twoSize o Violence Containment Industries


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03RESULTS &FINDINGS

16 Because o the issues associated with calculating the percentage o private sector spending

that is value added, this part o VCI cannot be reasonably assumed to be completely 100

per cent value added. Counting o non-value added activity in the inal igure is somewhat

compensated due to the likelihood various categories o private VCI spending is let out

because o accounting diiculties.

17 This does not disaggregate the contribution o VCI spending to the various other industries,

so i VCI was truly represented as a separate line item the size o the other industries would

be smaller. State and Local Government have also been taken out, including the Federal

Government share o spending in the military.

As shown in igure one, i the $2.16 trillion o violence containmentspending was represented as a discrete industry, it would be the largestindustry in the United States economy, larger than government, realestate, proessional services and manuacturing.16 The approach taken inthis study is conservative and the inal private sector value added igurewould likely be much higher. Nonetheless, the government componento VCI spending on its own is still the ourth largest industry, behind realestate, proessional and business services and manuacturing. 17

Figure oneI Violence Containment Spending was Represented asa Discrete Industry, it Would be the Largest in the U.S. Economy.

INDUSTRY SHARE AS A % OF GDP 2010

VIOLENCE CONTAINMENT

REAL ESTATE AND RENTAL LEASING

RETAIL TRADE

WHOLESALE TRADE

INFORMATION

CONSTRUCTION

MINING

UTILITIES

ARTS, ENTERTAINMENT AND RECREATION

TRANSPORTATION AND WAREHOUSING

FEDERAL GOVERNMENT (MINUS VC)

OTHER SERVICES, EXCEPT GOVERNMENT

AGRICULTURE, FORESTRY, FISHING AND HUNTING

0%

5%

10%

15%

PROFESSIONAL AND bUSINESS SERVICES

MANUFACTURING

EDUCATIONAL SERVICES, HEALTHCARE AND SOCIAL

FINANCE AND INSURANCE

Source: Bureau o Economic Analysis, IEP


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The enormous comparative size o this spending is shown whencomparing the $2.16 trillion o violence containment spending to theworlds largest economies, as shown in igure two. In nominal terms,U.S. violence containment spending is the size o the seventh largesteconomy in the world, marginally smaller than the United Kingdom andlarger than Brazil.

03RESULTS &FINDINGS

18 For purposes o visualization, U.S. GDP has been excluded rom the chart.

Figure twoViolence Containment Spending Compared to theLargest GDPs in the World in 201018

US$ billionSource: World Bank

NOMINAL GDP bY COUNTRY 2010

CHINA

JAPAN

BRAZIL

ITALY

INDIA

CANADA

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

GERMANY

FRANCE

UNITED KINGDOM

U.S. VIOLENCECONTAINMENT


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Not having conducted an analysis o the size o the violence containmentspending in other countries it is diicult to assess independently how theU.S. ares compared to other countries. Given the size o its deense andassociated homeland security spending, the inal size o the VCI is likelyhigher than other developed nations.

In terms o the composition o violence containment, the majority, 60% isborne by Federal government, with the next largest share spent by theprivate sector at approximately 28%. The rest is comprised o state andlocal government expenditure at 12% o VCI or $101 billion and $154 billionrespectively. This breakdown is shown in igure three.

03RESULTS &FINDINGS

Figure threeThe Majority o Violence Containment Spending is byFederal Government

COMPOSITION OF TOTALVIOLENCE CONTAINMENT

Federal Government $1304.9

PRIVATE SECTOR $601.7

LOCAL GOVERNMENT $154.3

STATE GOVERNMENT $101.1

60%28%

7%5%


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03RESULTS &FINDINGS

Private Sector Composi t ion o Violence Containment

The private sector violence containment igures include private securityand private military companies, the major conventional arms and smallarms and ammunition industries, victim compensation programs, property

loss rom violence and vandalism, spending on cyber security and theinsurance, legal, medical, and nonproit sectors dealing with violencecontainment.

Private sector spending on violence containment has been broken intoour main categories o expenditure;

Household, personal and corporate spending on capital equipmenor security;

General private sector spending on security services;

Spending on the repercussions or consequences o violence;

Spending and revenue o private deense and smallarms companies.

The methodology or the private sector is outlined in Appendix B.

Figure iveComposition o Private Sector Spending the majority oprivate sector spending deals with the consequences o violence

Publ ic Sector Composi t ion o Violence Containment

As has been shown, the majority o Violence Containment Spending is bygovernment, some $1.56 trillion in total. This is equivalent to 10.6% o GDP.Within the public sector, the great majority o this, 77% or $1,203 billion is

apportioned to the ederal governments spending on national deense,Veteran Aairs, Homeland Security and debt repayment on militaryrelated debt. A ull breakdown o the public sector violence containmentis presented in Appendix A.

Figure ourNational Deense, Veteran Aairs, Homeland Securityand Interest on Military Related Debt Dominate Public SectorViolence Containment Spending

PUbLIC SECTOR VIOLENCE CONTAINMENTEXPENDITURE

NATIONAL DEFENSE, VETERANS AFFAIRS, HOMELAND

SECURITY, DEbT SERVICE ON DEFENSE SPENDING $1203 bIL.

OTHER PUbLIC SECTOR SPENDING $227.7 bIL. (INCL. LOCAL PJC)

STATE AND FEDERAL POLICE, JUSTICE, LEGAL ANDCORRECTIONS $130.8 bIL.

77%

15%

8%

52%38%

7%

3%

PRIVATE SECTOR VIOLENCE CONTAINMENTEXPENDITURE

CONSEqUENCEVIOLENCE $315

SECURITY SERVMARkET $228.4

DEFENSE RELAT$42.7 bIL.

HOUSEHOLD,PERSONAL AND

CORPORATE MA- CAPITAL COST$15.2 bIL.


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Hypothetical Case Studies o Reducing Violence Containment

Given that violence containment spending totals 15% o the U.S. economy,the opportunity cost and economic implications o reducing violence arepotentially very signiicant. This is shown in tale three which illustrates

the very substantial amount o money that could be available to spendon other orms o economic production. This illustrates very clearly theenormous iscal and economic beneits o reducing violence. It can beseen that a 25% reduction in violence containment spending wouldresult in $390 billion o unds being available to local, state and ederalgovernments or redirection into other potentially more productive areas.Additionally, $150 billion would be available or the private sector.

Because the ederal government accounts or the great majority oviolence containment spending at 72%, it is useul to estimate theimpact o possible reductions in this expenditure. Federal spending 19 in2010 on violence containment is calculated at $1,304 billion in total, orapproximately 9% o GDP.

Federal expenditure has expanded in the past ten years increasingby 25% in real terms. Tale three demonstrates that i total ederalviolence containment had remained at the same percentage o GDP thatit was in 2001, the ederal government would have been able to saveapproximately $326 billion rom its 2010 budget which could be used onother investments, to reduce debt, or provide tax cuts to stimulatethe economy.

03

Tale three Total Additional Public Funds and Private Sector Moneyrom Reductions in Violence Containment

Tale our What i Just Federal Government Violence ContainmentSpending was Lower?

% Reduction% o2010GDP

AdditionalMoneyin theEconomy(Bn)

AdditionalPublic Fundsor Local,State andFederalGovernment(Bn)

ApproximateMoney thePrivate SectorCould Directinto OtherExpenditure(Bn)

No reduction 15.0%

5% reduction 14.2% 108.26 78.0 30.2

10% reduction 13.5% 216.53 156.1 60.5

15% reduction 12.7% 324.79 234.1 90.7

20% reduction 12.0% 433.06 312.1 120.9

25% reduction 11.2% 541.32 390.2 151.1

30% reduction 10.5% 649.58 468.2 181.4

35% reduction 9.7% 757.85 546.3 211.6

40% reduction 9.0% 866.11 624.3 241.8

45% reduction 8.2% 974.38 702.3 272.1

50% reduction 7.5% 1082.64 780.4 302.3

55% reduction 6.7% 1190.90 858.4 332.5

% ReductionExpenditureUS$ bn

% o 2010GDP

(FiguresromOECD)

Federal

GovernmentSavings US$(Bn)

No reduction 1304.90 9.0%

5% reduction 1239.66 8.6% 65.25

10% reduction 1174.41 8.1% 130.49

15% reduction 1109.17 7.7% 195.74

20% reduction 1043.92 7.2% 260.98

25% reduction closeto 2001 levels 20

978.68 6.8% 326.23

30% reduction 913.43 6.3% 391.47

35% reduction 848.19 5.9% 456.72

40% reduction 782.94 5.4% 521.96

45% reduction 717.70 5.0% 587.21

50% reduction 652.45 4.5% 652.45

55% reduction 587.21 4.1% 717.70

19 Federal Government spending is composed o National Deense spending (including the

Department o Deense), Veteran Aairs, Homeland Security, interest payments on national

deense debt, ederal police, justice, corrections and the Central Intelligence Agency (CIA).

20 In 2001, these components o spending were in the region o US$644 (in 2001 dollars) or

6.27% o 2001 GDP.

RESULTS &FINDINGS


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03RESULTS &FINDINGS

21 This uses available data on the increasing size o ederal government military outlays and

police, justice and corrections spending, while holding private sector and other public sector

spending constant. Local Police, Justice, and Corrections spending and other public sector

is held constant at 1.06% o GDP and 0.502% o GDP respectively. Private sector VCI held

constant at 4.187% o GDP.

Even small redirections o expenditure could have a meaningul lowon eect. Figure six illustrates the growth in violence containmentspending as a percentage o GDP. The estimated value o total violencecontainment spending is shown below.21 This demonstrates the growingconstraint that violence containment has had on economic productivity.The 2% growth in real terms, while seemingly small, is in act large whenconsidering it is equivalent to almost $300 billion o value added 2010dollars, or greater than the $288 billion o tax cuts contained in theAmerican Recovery and Reinvestment Act o 2009.

Small increases in violence containment can result in the potentialcrowding-out o more productive economic activity. To imagine thetangible opportunity cost o violence containment, the reductionsidentiied above can be translated into alternative policy options.

Figure sixViolence Containment as a Percentage o GDPhas been Increasing

TOTALV

IOLENCECONTAINMENTSPENDING

ASA%

OFGDP 15.5%

13.0%

12.5%

12.0%

11.5%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

15.0%

14.5%

14.0%

13.5%

2%OF

GDPG

ROWT

HIN

FEDERA

LVCII

NREALT

ERMS

VCI PERCENTAGE OF GDP


17/40

03RESULTS &FINDINGS

22 American Society or Civil Engineers (ASCE) http://www.inrastructurereportcard.org/

23 Ibid

Tale ive is a list o the cost or key inrastructure projects taken rom theAmerican Society o Civil Engineers (ASCE). They have calculated the totalunding required to adequately update the nations roads, bridges, rail,mass transit, levees, dams, energy, water, and waste networks.22

Tale ive Inrastructure Investments which Could be Made withRedirected Federal Violence Containment Spending

% Reduction in FederalViolence Containment

Spending

Money Accrued in 1 yearthat could e Redirectedinto Other Expenditure

Inrastructure Opportunity Cost

Current Federal

budget Allocation

over Five Years

Current Estimated

budget Shortall

over Five Years

5% reduction $65.3 BillionFund the necessary $50 Billion or updating thenation's system olevees

$1.1 Billion $48.9 Billion

10% reduction $130.5 BillionFund the necessary $75 Billion or updatingenergy inrastructure and the $50 Billion or

updating the nation's inland waterways

$74.9 Billion $50 Billion

15% reduction $195.7 BillionFund the necessary $160 Billion to update thenations school inrastructure

$125 Billion $35 Billion

20% reduction $260.9 BillionFund the majority o the $265 Billion needed toupdate the nation's transit systems


25% reduction closeto 2001 levels

$326.2 BillionFund one-third o the total $930 Billion neededto update the nation's roads


25% reduction o ederal VC in one year $326.2 billion $656.4 billion $873.5 billion

Savings generated rom 25% reduction inederal VC over ve years

$1631 billion Total Reuired $1529.9 billion

Even modest reductions o 5% or 10% would result in signiicantinvestments in updating the U.S.s system o levees, energy inrastructureand inland waterways. Spending on levees could signiicantly increaseprotection or lood prone areas, while investments in energy networkscould clear transmission bottlenecks and protect against productivityinhibiting power blackouts and outages.23

The opportunity is highlighted when the savings rom one year o a 15%reduction in ederal government spending on violence containmentwould be enough to ully und the updating o the nations schoolinrastructure over a ive year period. Notably, these scenarios do not takeinto account the longer-term productivity boost that would low rom thesevarious investments.


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03RESULTS &FINDINGS

24 Pollin & Garrett-Peltier (2009) The U.S. Employment Eects o Military and Domestic Spendin

Priorities: An Updated Analysis, Political Economy Research Institute (PERI) University o

Massachusetts. http://www.peri.umass.edu/ileadmin/pd/published_study/spending_prioritie

PERI.pd

25 Table six shows a simple static application o the results o the Pollin & Garrett-Peltier study

with several key assumptions. Because Veteran Aairs employment and economic activity is

qualitatively dierent to that modeled in the military, it has been excluded. It has been assum

that Homeland Security, interest payments and military expenditure have the same eects on

employment as that directly spent on the military.

Tale sixJob Eect o Redirecting Related Violence ContainmentSpending into Tax Cuts or Education25

An alternative method o understanding the opportunity cost is in terms ojob creation. Using research rom Pollin & Garrett-Peltier24 which analyzedthe employment eect o military and domestic spending priorities, it ispossible to conduct an indicative analysis o the eectiveness o militaryor violence containment spending versus ederal government spending inother areas on job creation. This approach looks at the eectiveness o$1 billion o ederal government spending on the military versus money

spent in other areas, such as education and tax cuts or personalconsumption. By applying the results o this input-output model toassociated reductions in violence containment spending, it is possibleto create indicative igures o the eect on unemployment by divertingederal expenditure to other orms o spending.

This is shown in tale six, below.

% Reduction in ViolenceContainment Spending

Money that could eRedirected into other

Expenditure bn

Job Eect o DirectingVCI reduction into Tax

Cuts or personnelconsumption (Number

o Jobs)

Job Eect o Directing VCIreduction into Education

(Number o Jobs)

Average Number o Jobscreated by channelling

VCI reductions equally intotax cuts and education

NewUnemployment

Rate*

5% reduction 54.68 174,976 956,900 565,938 8.14%

10% reduction 109.36 349,952 1,913,800 1,131,876 7.78%

15% reduction 164.04 524,928 2,870,700 1,697,814 7.41%

20% reduction 218.72 699,904 3,827,600 2,263,752 7.04%

25% reduction close to

2001 levels273.40 874,880 4,784,500 2,829,690 6.67%

30% reduction 328.08 1,049,856 5,741,400 3,395,628 6.30%

35% reduction 382.76 1,224,832 6,698,300 3,961,566 5.94%

40% reduction 437.44 1,399,808 7,655,200 4,527,504 5.57%

45% reduction 492.12 1,574,784 8,612,100 5,093,442 5.20%

50% reduction 546.80 1,749,760 9,569,000 5,659,380 4.83%

55% reduction 601.48 1,924,736 10,525,900 6,225,318 4.47%

*based on December 2011 unemployment igure o 8.5%


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03RESULTS &FINDINGS

26 The basic data or the input-output tool used in this analysis is taken rom the U.S. Departmen

o Commerce and takes account o three actors; (1) direct eects, that is the direct jobs

created by such investment (2) indirect eects, the jobs associated with the industry that

supply the intermediate goods associated with the industry and (3) induced eect, which

is the expansionary eect resulting rom people spending wages earned rom their work.

Dierences in output between industries arise because o varying labor intensity, domestic

content and average wages per worker.

27 Pollin & Garrett-Peltier (2009) The U.S. Employment Eects o Military and Domestic Spending

Priorities: An Updated Analysis, Political Economy Research Institute (PERI) University o

Massachusetts.

As can be seen, transerring spending into tax cuts and educationcreates more jobs per $1 billion o investment than violence containmentspending.26 Tax cuts or personal consumption have a smaller eect thaneducation. Both scenarios also create jobs o equal or higher averagewages. While military spending is generally labor intensive, it does notresult in the same level o indirect job creation and results in lower levelso domestic spending.

On average, military personnel spend only 43% o their incomeon domestic goods and services, compared to 78% or the civilianpopulation.27

A reduction in violence containment to early 2000 levels would yield a25% reduction in expenditure. Based on the preceding table this wouldresult in 2.8 million more jobs and a lowering o the unemployment raterom the December 2011 level o 8.5% to 6.67%. This is a signiicantopportunity or policymakers and business.

Tale seven Reductions in Violence Containment Spending, iChanneled into Education and Tax Cuts will Reduce Unemployment

% Reduction

NewUnemploymentRate based onDecemer 2011Unemployment

Rate o 8.5%

% Reduction in

Unemployment

No change 8.50% 0%

5% reduction 8.14% 4%

10% reduction 7.78% 9%

15% reduction 7.41% 13%

20% reduction 7.04% 17%

25% reduction close to2001 levels

6.67% 22%

30% reduction 6.30% 26%

35% reduction 5.94% 30%

40% reduction 5.57% 35%

45% reduction 5.20% 39%

50% reduction 4.83% 43%

55% reduction 4.47% 48%


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03RESULTS &FINDINGS

Figure sevenEect o Transerring Federal Violence ContainmentSpending into Education and Tax Cuts

UNEMPLOYMENTR

ATE%

12.0

4.0

2.0

0.0

1998

2000

2002

2004

2006

2008

2010

2012(IMF)

10.0

8.0

6.0

HYPOTHETICAL FUTURE EMPLOYMENTEFFECT OF TRANSFERRING FEDERAL VCI INTOEDUCATION AND TAX CUTS

10% REDUCTION

35% REDUCTION

55% REDUCTION

25% REDUCTION TO 2001 LEVELS

MEDIUM TERM FUTURE

PROJECTED UNEMPLOYMENT RATE

Figure seven shows the impact on the unemployment rate in the U.S. oshiting government spending away rom violence containment and intoeducation spending and tax cuts, assuming that all other actors are heldconstant. Halving ederal government Violence Containment spendingand then spending these savings on either education or tax cuts would

reduce the unemployment rate by almost our percentage points in themedium term, rom 8.5% in December 2011 to 4.83%.

NO CHANGE


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03RESULTS &FINDINGS

Figure eightThe Virtuous Cycle o Violence Reduction andViolence Containment Reduction

ReduceExcess Spending

on Violence

Invest inEducation, Health,

Jo Programs &Inrastructure

IncreasedProductivity

& ViolenceReduction

Less Needor ViolenceContainment

Figure eight shows the virtuous cycle o violence reduction and ViolenceContainment reduction. Reducing government Violence Containmentspending allows or increased investment in education, healthcare andjobs programs. Improvements in these areas are closely correlated withimproved productivity, economic growth, and subsequently violence

reduction. This reduction in direct violence lessens the need or ViolenceContainment, which in turn decreases the need or government violencecontainment spending, thus allowing or additional cuts in violence relatedspending, and urther investments in inrastructure, tax cuts, and othergovernment programs.


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03

CONCLUSIONThis report has outl ined a conservative and indicat iveanalysis o the size o pr ivate and publ ic sector spendingon violence containment in the Uni ted States.

The research ound that violence containment spending in theU.S. is 15.0% o GDP or $2.16 trillion o the $14.4 trillion 2010 U.S.economy. The U.S. VCI is slightly smaller than the entire UK economy,and equivalent to over $7,000 or every man, women and child, orapproximately $15,000 or every American taxpayer. I the ederalgovernments violence containment spending was reduced by25% to the same level as it was in 2001 and the remaining undschanneled into national inrastructure investment then the totalunding requirements or rebuilding levees, inland waterways, schoolinrastructure, roads and mass transit systems would be secured inive years. This demonstrates that small reductions in ederal violencecontainment spending, i appropriately redirected, can potentially reapnotable beneits.

The $2.16 trillion spent on violence containment represents a largeportion o the nations economic activity. Clearly, these orms o

economic activity are necessary, however i the need or theseactivities can be lessened, new and additional economic activity canbe generated. Violence and violence containment is costly, not onlyin static terms as a percentage o current income, but also because othe lost uture growth rom investments in more productive activities.

Just as we would look critically at other orms o government spendingor the composition o spending on a companys balance sheet, violencecontainment spending can and should be analyzed or its eiciencyand eectiveness. Better accounting standards to accrue or violencecontainment would allow governments and policymakers to ocus oncost eective programs to reduce violence, thereby increasing theamount o money available to invest in building the economy.

While the U.S. has become more peaceul in the last twenty years,international comparisons show that in almost every measurablecategory o violence the U.S. lags behind most other OECD nations.The sheer size o spending on violence containment very clearlyillustrates the enormous economic and social opportunities associatedwith peace.

RESULTS &FINDINGS


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04APPENDICE

APPENDIX APubl ic Sector Methodology Overview

Item Numer Pulic Sector US$ n % o GDP

1 National Deense, Veterans Afairs, Homeland Security, and det service

1.1 Federal 1203.00 8.153%

2 Police, Justice & Legal, Corrections PJC

2.1 Federal 47.40 0.321%

2.2 State 83.40 0.565%

2.3 Local Counted below Counted below

2 Sub-Total PJC, not including local 130.80 0.892%

3 Other Pulic Sector Security Spending

3.1 Federal (National Intelligence Program i.e. CIA) 53.10 0.360%

3.2 Federal (United States Maritime Administration, Department o Transport) 0.41 0.003%

3.3 State (State VA departments and State National Guards) 4.35 0.029%

3.4 Local PJC + Counties/Cities spending on security 154.00 1.044%

3.5 Fire (Arson) 0.34 0.002%

3.6 Public Schools (Universities and Schools) 13.20 0.089%

3.7 Critical Inrastructure (Port Authority Security) 1.00 0.007%

Total Other Public Sector Spending 226.4 1.568%

Total Public Sector $1560.2 10.800%

Tale eight Total Public Sector Spending


24/4025

04APPENDICES

I tem 1

For ederal expenditure, the U.S. ederal government budget is not necessarilythe best data source, because the distribution o military-related expenditureis spread across many agencies such as the Departments o Deense, Energy,and Veterans Aairs. Instead, the National Income and Product Accounts(NIPA) produced by the Bureau o Economic Analysis (BEA), an agency othe Department o Commerce has been used.28 NIPA reassigns each ederalgovernment budget item rom budgetary categories into economic categoriessuch as deense and non-deense. Additional igures were obtained rom theDepartment o Veterans Aairs and the Department o Homeland Security asBEA does not consider these to be deense unctions.29 Additionally, the interestpayments associated with government borrowing or military outlays is counted.For ederal government deense spending, IEP has used the BEA NIPA igureor 2010 and added to this the budgets o the Department o Veterans Aairs,the Department o Homeland Security, as well as the relevant portion o interestpayments on the ederal debt.30 The 2010 expenditure is $1,203 billion.

I tem 2

Data or the total justice unction, including police, justice, legal and corrections(PJC) or the ederal, state, and local governments is available or 1982 to 2005rom the Bureau o Justice Statistics (BJS).31 In 2005, this was $213.7 billion. Asimple linear regression was used to project the igure to 2010 and comes to$246.9 billion. These two items (items 1 and 2) add up to $1,464 billion in 2010or approximately 10% o GDP.

I tem 3

IEP has also calculated other public sector expenditure which has not beenincluded in the irst two categories under the heading Other Public SectorSecurity Spending. This has been broken down into three separate areaso ederal spending which are not included in the national deense line item.These include the budget or the National Intelligence Program (NIP), whichincludes the Central Intelligence Agency (CIA)32, and United States MaritimeAdministration (MARAD)33 whose budget resides in the Department o Transport.To calculate the state governments expenditure or Veterans Aairs and theNational Guard a sample o 17 state budgets were analyzed and extrapolatedacross the 50 states.34 The total expenditure or Veterans Aairs and the

National Guard is $4.35 billion.Item 3.4, is the estimate o local government expenditure on violencecontainment. To determine the inal igure, three cities were selected; estimatesmade, and the results extrapolated across all ity states. The three cities wereAustin, Texas; Seattle, Washington and New York, New York. These wereincluded because o the spread o the cities in which the states are situatedon the U.S. Peace Index. Washington State is ranked 10th, New York is rankedin the middle, at 29th and Texas in the bottom ten at 45th. These cities arerepresentative o major cities in their relative peaceulness.

Appendix C, item 2 provides a detailed overview o the costing methodologyor local city and county level spending or violence containment. This includesequipment, services and resources that local and county governments purchaseto prevent and protect against violence. Examples o some o these items aresecurity equipment or town mayors, oices o the comptroller and variouscity bureaucracies such the District Attorney and Transportation, Sanitationand Environmental Protection departments. Due to the enormous accounting

process that would be required to add up all line item expenditures in everysingle county and city budget, IEP has extrapolated average expenditureor the three cities cited in the prior paragraph to arrive at a reasonable andconservative estimate o the nations county and local government expenditureon violence containment. These three cities spend on average $740 per headon violence containment,35 assuming that New York, with its unique securityissues skews the average upwards, a more conservative average would be say,$500 per head, which extrapolated to the national level equates to $154 billionin city level spending. More detail is contained in item 2 o Appendix C.

Also included in table three is line item 3.5 which estimates the governmentcosts associated with intentionally set ires. According to the FederalEmergency Management Agency (FEMA), up to 13% o ires are intentionally set,or which a ixed ongoing yearly cost to government can be attributed. 36 This is$334 million per year.

Item 3.6 estimates university spending on violence containment. IEP has usedcurrently available university data to calculate a per student spending rate o$200 per student, per year.37 Budget data was obtained rom various university

institutions through their budget reports and the number o students studyingat these institutions. Using these two numbers, IEP calculated how much isspent on saety and security per university student. University student includesboth undergraduates and postgraduates. Using these igures, the averagespend per student or saety and security was calculated. This average wasthen multiplied by the total number o public education students, both schooland university to obtain the total average spending in the U.S. or saety andsecurity or students. The U.S. Census reports that approximately 66 millionstudents attend public education institutions and include all students romkindergarten to university. Given that the average cost o $200 per student thetotal expenditure amounts to $13.2 billion or 0.09% o GDP.

The decision to separate education and critical inrastructure violencecontainment spending rom the broader categories o government spending isprimarily the result o the prevailing budget methodology adopted by variousgovernments. As mentioned above, most school districts and departmentso education are independent entities with their own budgets. Additionally,public colleges and universities receive ederal, state, and local unding buttheir budgets do not always appear in the departmental documents o these

governments. Although there are a ew exceptions to this method, pullingeducation data out o the broader level categories allows or more systematiccollection and better comparisons across cities, states, and institutions.

Item 3.7, critical inrastructure is deined as assets which are considered sovital to the United States that their incapacity or destruction would have adebilitating impact on security, national economic security, national public healtor saety, or any combination o these matters.38 Examples o these assetsinclude bridges, tunnels and airports, as well as nuclear reactors, agriculturaland manuacturing acilities, dams, monuments, public water and energysources, and inormation technology inrastructure, among others.

While the DHS is ultimately responsible or protecting these critical sites manyother organizations have expenditures related to the security o these types oinstallations. Tracking and reporting on their expenditures is diicult and otherthan the Port Authority o New York and New Jersey these expenditures havenot been included. The Port Authority o New York and New Jersey has beenincluded because o the sheer size o its expenditure on security and becauseo their well laid out accounts.

In 2010 the NY NJ Port Authority spent nearly $1 billion on violencecontainment. The total spending on security represents nearly 15 percent o thePort Authority budget, the majority o which is unded by operating revenuesrom six airports, two rail systems, the World Trade Center site, and numerousport commerce acilities, terminals, and tolled tunnels and bridges.

To urther enhance the accuracy o uture studies, determining the overallnational expenditure on protecting national inrastructure rather than using onevital city, would be important.

28 Sources: Economic Report o the President and obtained rom ERPs underlying sources, e.g.,

http://www.bea.gov

29 According to a telephone interview on 6 July 2011 with Benjamin A. Mandel at the Bureau

o Economic Analysis, only in 2009 and 2010 were very small portions o the DHS budget

categorized into the NIPA deense r ubric.

30 The interest calculation is based on calculating the portion o National Deense Consumption

a proportion o total ederalgovernment consumption and investment expenditure. The resultinpercentage is then applied to net interest payments and added to the total ederal violence

containment igure.

31 Source: These data were extracted rom the Census Bureaus Annual Government Finance Surve

and the Annual Survey o Public Employment, Bureau o Justice Statistics http://bjs.ojp.US$oj.gov

32 The National Intelligence Program is under the budgetary control o the Oice o the Director o

National Intelligence (DNI) and is unded separately rom the Department o Deense. This numbe

was obtained rom the DNI website http://www.dni.gov/press_releases/20101028_2010_NIP_

release.pd Accessed 19 Sept 2011.

33 MARAD is an agency o the United States Department o Transportation that maintains the Nation

Deense Reserve Fleet (NDRF), assisting the NDRF in ulilling its role as the nations ourth arm o

deense, logistically supporting the military when needed.

34 See Appendix C, Item 1 or ull details on costing methodology.

35 The breakdown o each citys spending is shown in Appendix C, item 2.

36 See Appendix C, Item 3 or ull details on costing methodology

37 Appendix C, Item 4 or ull costing methodology

38

Guarding America: Security Guards and U.S. Critical Inrastructure Protection, CRS Report or Congre


25/40

04APPENDICE

APPENDIX bPrivate Sector Methodology Overview

A conservative approach was adopted or the private sector because othe methodological challenges associated with the potential o doublecounting o private expenditures which is discussed in more detail inAppendix D, Methodological Notes. Due to the lack o data on the sizeo the value added contribution in many o the sectors either revenue orexpenditure has been used when appropriate. Accounting diiculties alsomake it hard to disentangle odd occasions o double counting.

However, unlike the igures or the public sector, the resulting numbersor the private sector can only be expressed as indicative percentageso GDP. In light o this, IEP has applied a very conservative approach andhas minimized the potential o double counting. It is thereore likely thereare many areas o expenditure that have been let out. On this basis, IEPhas calculated the private sector spending on violence containment at$601.82 billion or 4.17% o GDP.

Private sector counting classification

Item counted/estimated by sales revenue

Item counted/estimated by wages

* Item has been imputed

** Item estimated rom income and expenditure

Item Numer Private Sector US$ n % o GDP

1 Household, Personal and Corporate Maret capital costs

1.1 Household Security Market and Spending (locks, car alarms, saes, biometrics) 15.19 0.105%

2 Security Services Maret

2.1 Estimated size o private sector spending on private security services 87.40 0.605%

2.2 Cyber Security Market 130.00 0.900%

2.3 Security Sector Training companies (incl. Sel-Deense classes) 11.00 0.076%

3 Conseuences o Violence

3.1 Victim Compensation Programs 0.46 0.003%

3.2 Property loss rom intentionally set res** 0.67 0.005%

3.3 Mental Health Care and Welare Services ** 27.81 0.192%

3.4 Private legal (e.g., in-house corp. counsel)** 25.00 0.173%

3.5 Medical Costs o Violent Crime ** 24.81 0.172%

3.6 Repair/restoration Vandalism** 48.00 0.332%

3.7 Non-prot sector - Violence containment related 82.10 0.568%

3.8 Insurance (net premiums written - assumed VCI component 25%)** 106.55 0.738%

4 Private Deense

4.1 Deense Contractors - Military Exports 37.20 0.257%

4.2 Small Arms Manuacturing (non-military)* 5.00 0.035%

4.3 Ammunition Sales 0.50 0.003%

Total Private Sector $601.70 4.165%

Tale nine Private Sector Spending on Violence Containment


26/4027

04APPENDICES

I tem 1 Household, Personal and Corporate Capital Costs

Item 1 accounts or the total o household, personal and company expenditure

on capital costs or security equipment such as locks, alarms, ences and

other equipment such as body armor. The size o this private sector spending

is estimated to be in the region o $15.19 billion or 0.105% o GDP per year.

Appendix C, item 5 shows in more detail the ull breakdown o how these

igures were derived.

I tem 2 Secur i ty Serv ices Expendi ture

Today, private security companies (PSCs) are the most visible part o the private

security industry and include companies which provide security guards, training,

monitoring services, equipment, tools, and supplies as well as associations and

publications related to violence containment. These are aimed primarily at the

prevention or containment o violence. While the private security industry also

deals with the response to and the atermath o violence, including emergency

responses, other aspects such as insurance payments, private legal work on

violence-related cases, medical and rehabilitation services, property repair are also

included. These ancillary unctions have been divided into separate line items.

Item 2.1 accounts or the size o private security companies contribution

to economic activity. The estimates o the total market value o the private

security industry in the U.S. range rom $17.44 billion to $60.7 billion. The

World Security Association reports the existence o almost 100,000 private

security companies (PSCs) with about 10 million security guards employed

worldwide, and about 1.5 million in the Americas.39 The U.S. Bureau o

Labor Statistics reports that security guards and gaming surveillance

oicers held 1.1 million jobs in 2008.40 These numbers dier drastically

rom the Small Arms Survey 2011 report which states 2 million people are

employed by private security corporations in the U.S. This compares to 20

to 25 million employees worldwide. For urther inormation on the method

or the inal igure, reer to Appendix C, item 6.

Item 2.2 covers one o the astest growing areas o security expenditure

which is in protection against orms o cyber-crime. Increasingly cyber-

crime is seen as a threat to national security as well as to company proits

and individual privacy. As commerce has increasingly become online,

criminal activity has also shited online. All orms o cyber-crime it under

the violence containment deinition. This includes cyber-based terrorism,

computer intrusions, online sexual exploitation, and major cyber rauds.

Item 2.2 uses research rom the Ponemon Institute41 which shows U.S.

companies alone are projected to spend $130 billion in 2011 on security

against cyber-crime or dealing with the eects or cyber-crime. This

estimate does not include lost productivity rom cyber-crime.

Item 2.3 attempts to account or the total size o the sel-deense training

market. This includes private sector spending on various sel-deense

classes, such as martial arts and womens sel-deense classes, butalso private security guard and investigator training and schools and

childhood education programs. Using various assumptions on spending,

an indicative number o $11 billion was used to estimate the contribution

o this sector.42 Undoubtedly this includes some aspects o the leisure

industry as well; hence the conservative number in light o some o the

large industry based assessments mentioned in item 14 o Appendix C.

I tem 3 Consequences o V io lence

This category is aimed at capturing many o the items not covered in other

items such as arson, welare services or victim compensation.

Item 3.1 is sourced rom Victim Compensation Programs43 which is

estimated by the National Center or Victims o Crime to be in the region

o $446 million per year.

Item 3.2 uses research rom the National Fire Protection Association

(NFPA) that calculated the total value o property lost rom ire at over $11.

billion.44 This reports that intentionally set ires o structures cost $585

million and intentionally set ires o vehicles cost $89 million, reaching a

total in the region o $674 million. However, another source rom FEMA o

intentionally set ires45 lists the cost o intentionally set ires at $1 billion pe

year. IEP takes the lower estimate, assuming a certain proportion would

be covered in insurance expenditures which are already counted.

Items 3.3 and 3.5 cover medical costs related to violence and include

mental health care and welare services or children who have suered

rom abuse, as well as the medical costs o assault. These have a

combined economic cost o over $50 billion. These costs have been

sourced rom an economic analysis rom the organization Prevent Child

Abuse o America and IEPs 2011 U.S. Peace Index economic costs o

crime which are itemized in Appendix C item 8. To some extent these

costs may also be accounted or by non-proit organizations which are a

separate line item on 3.7, to account or this the costs have been revised

down to eliminate double counting.

Item 3.4 covers legal costs related to violence and is sourced rom

a Harvard law school analysis o the legal and law proession which

estimates law irms and solo practitioners (excluding proits earned rom

government) earned $180 billion in revenues in 2003. The magnitude o

this spending is conirmed in the North American Industry ClassiicationSystem (NAICS) system which listed legal services as amounting to

$219.2 billion, or 1.6 percent o U.S. GDP on latest 2010 NAICS data. 46

Using data rom the Federal Judicial Caseload statistics on percentage

o the caseload related to IEPs violence containment deinition, a

conservative and indicative igure o $25 billion was derived to be

estimated as violence containment legal spending.47

Item 3.6 is listed as a separate line item under repair and restoration

related to the vandalism o private property. Based on research rom the

U.S. Small Business Association the average cost o vandalism is $3,370

per incident, per year. When multiplied by the number o businesses that

have experienced an incident then the total cost equals $48 billion each

year.48 This number is conservative as some businesses experience more

than one incident per year.

39 See [accessed 13 July 201

40 Quote rom [accessed 27 July 2011].

41 Ponemon Institute conducts independent research on privacy, data protection and inormatio

security policy. http://www.ponemon.org/index.php. Further detail on cyber-crime costing in

Appendix C, item 13.

42 For more detail please see Appendix C, item 14.43 Appendix C, Item 7.

44 Fire Loss in the United States During 2010, (Karter, M) 2011, National Fire Protection Agency,

URL http://www.npa.org/assets/iles/pd/os.ireloss.pd

45 FEMA, Topical Fire Report Series, Intentionally Set Fires, Volume 9, Issue 5 / November 200

URL: http://www.usa.ema.gov/downloads/pd/statistics/v9i5.pd

46 http://www.bea.gov/industry/gdpbyind_data.htm

47 More detail on legal costings methodology in Appendix C, item 10.

48 More detail on vandalism costings in Appendix C, item 11.


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04APPENDICE

Item 3.7 covers the portion o the non-proit sector that deals with the

consequences or prevention o violence and includes some government

expenditure such as the work o Mayors Against Illegal Guns or the

Brady Campaign to Prevent Gun Violence. Additionally, expenses o

organizations providing shelter or victims o domestic violence have

been included. According to the Internal Revenue Service (IRS) o the

U.S. Department o the Treasury, in 2010 there were about 1.8 million

recognized tax-exempt organizations.49

Data rom the Urban Institutes National Center or Charitable Statistics

(NCCS) provides details on the gross receipts received or various

categories o non-proit organizations. Unortunately data is not available

or expenditure broken down by NGO type. While receipts do not equal

expenditure, investigation o NCCS data shows receipts are very close

to expenditures or the NGO sector and expenditure is categorized byNGO type. Categories which have been included in the estimate are

organizations working in international security, national security, crime and

legal, military and Veterans Aairs, mental health and crisis intervention,

amily violence shelters, and victim shelters. Using only gross receipts as

the basis or the calculation the estimate shows non-proit organizations

violence containment expenditure is in the region o $82.1 billion.50 This is

equivalent to 30% o total NGO value added igure o $277 billion in 2010.

Item 3.8 covers another signiicantly large area o violence containment

spending, which is related to payments o insurance premiums and claims

against violence. This also includes private sector legal work to prepare

and ollow-through on cases, medical and rehabilitation costs in the case

o injury or death to persons, and repair and restoration cost in the case

o damage to property. Legal, medical, and repair costs are counted only

to the extent that they are not already captured by public or private sector

insurance or other payments. According to the Insurance Inormation

Institute, property and casualty net premiums written (net, ater reinsurance

costs) in 2010 in the U.S. amounted to $426.2 billion. An additional $581.2

billion was written or lie and health insurance, some o which would be

related to violence containment, or example or lie insurance and medical

costs.51 Premiums written reers to premium over the lie o the contract,

not necessarily to single-year premiums earned although it appears that

most o the sum accrues to the year in which the premium is paid.

It should be noted it is not possible to ully account or this igure as the

ull cost can only be understood by analyzing insurance policies and

individual insurances in greater detail. The objective would be to take

out categories o insurance such as Earthquakes and then attempt to

apportion reduced weight to categories such as Fire which could be

deliberate or accidental. The inal number is likely to be higher once other

actors such as terrorism are included.52

Working with an assumption that 25 per cent o the net premiums written

in 2010 are related to violence or violence containment, we estimate

that $106.55bn in insurance costs can be attributed to the VCI. Reer to

Appendix C, item 15 or detailed costing methodology.

I tem 4 Pr iva te Deense

Item 4.1 to 4.3 lists industries related to the private deense market, principally

military exports rom large deense contractors and small arms manuacturers.

These igures were compiled rom sales revenue and are only indicative o the

value added component.

Item 4.1 analyses the size o military exports rom deense contractors.

While the eect o these violence containment expenditures are elt

overseas, the revenues private deense contractors receive rom abroad

must be counted as additions to U.S. GDP. Based on analysis o annual

reports rom the top seven exporters o deense materiel. Military

exports in 2010 reached $37.2 billion or 0.25% o GDP. This is somewhat

in contradiction to the value o oreign sales as measured by SIPRI.

According to SIPRIs trend indicator value (TIV) series, U.S. producers

o major conventional weapons amounted to about $8.6 billion in 2010. 53

Reer to Appendix C item 16 or detailed costing method used by IEP. Item 4.2 and 4.3 covers U.S. irearms and ammunition sales. The Small

Arms Survey 2010 calculated the net value added o the ammunition trade

at about $60 million. The Small Arms Survey 2009 estimates the average

annual small arms exports or 2000 to 2006 to be less than $300 million,

the majority o which are military small arms and may have already been

captured in the public sector estimates. The value o imports was netted out

Brauer estimates or 2009 approximately 5.2 million irearms were

produced domestically, while 3.2 million small arms were sold abroad,

suggesting that 2 million handguns and long-guns were newly produced

and purchased in the United States alone. I the average irearm is

purchased or $500, the GDP-value or these arms would be $1 billion.

It is assumed 8.4 million second hand irearms change hands each year

which, at $500 each would represent purchasing power o $4.2 billion.Combining this with the approximate value o the new guns market allows

one to impute a total igure in the region o $5 billion.

49 In the United States, Internal Revenue Service Form 990 provides this inormation and is

publicly available or tax-exempt organizations. More detail on how IEP derived the inal igure

is in Appendix C, item 12.

50 It is acknowledged many non-proits may derive unding rom government, which i included

as line items in deense, veterans aairs or homeland security would be double counted here

It is assumed most money listed in this line item would nonetheless represent an extraction

rom the private sector via corporate donations. A large accounting process would need to be

undertaken to separate out monies rom local, state and ederal governments given to VCI noproits. More detail in Appendix C, item 12.

51 See

and . An online subscription, ree o charge, is needed to access marke

reports [accessed 25 July 2011].

52 Under the Terrorism Risk Insurance Act (TRIA) o 2002, insurance companies must oer clien

a terrorism-risk insurance option. A 2009 paper surveying 1,808 large irms nation-wide, all

clients o Marsh & McLennan, a prominent insurer, ound that 1,064 ( about 6 in 10) purchased

some kind o TRIA insurance in 2007. For 628 o these irms, suicient data was available to

say that the average premium paid that year was US$111,963.

53 See SIPRI online data base at [accesse

25 July 2011]. SIPRI provides explicit warning that these are not necessarily inancial values.

For instance, arms may be purchased and transerred via grants or loans made by the U.S.

government to oreign powers. Loans made may be orgiven at a later point in time. Thus, the

value o the transer may already be included in the Department o Deense and other estimate

o the public sector. But even i the entire US$8.6 billion sum were pure cash sales by oreign

powers rom U.S. manuacturers, this would amount to only 0.058 percent o U.S. GDP.


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04APPENDICES

APPENDIX CIndividual L ine I tem Costing Methodologies

1. State Veterans Aairs and National Guard

Veterans Aairs is administered by both ederal and statedepartments. The ederal expenditure is captured under item 1.1. Thissection accounts or the State Veterans Aairs departments as well asthe State National Guards.

The total state expenditure was calculated by analyzing 17 Statebudgets. A representative sample o 17 states was chosen whichinclude both smaller and larger states rom diering geographicallocations across the U.S. Since a portion o the state budget ismoney rom the ederal level, care was taken to count only the stateexpenditure and thereby eliminate double counting errors. Theaverage state expenditure was deduced and extrapolated out to the50 states and is shown in tale ten. The line item in table ten itemizestotal expenditure or both State Veterans Aairs and the NationalGuard which is $4.46 billion.

In light o this, IEP has applied a very conservative approach andhas minimized the potential o double counting. It is thereore likelythere are many areas o expenditure that have been let out. On thisbasis, IEP has calculated the private sector spending on violencecontainment at $601.82 billion or 4.17% o GDP.

State Veterans Afairs(US$, hundred million) National Guard

Caliornia 155.00 157.58

Utah 32.22 N/A

Illinois 121.18 3.75

Kentucky N/A N/A

Georgia N/A N/A

Arizona 23.00*included in VA

spending

New York 5.00 N/A

Florida 45.52 78.36

Louisiana 23.00 43.00

Nevada 33.16 26.74

Pennsylvania 110.33*included in VA

spending

Virginia 49.92 49.94

Idaho 16.00 1.50

Kansas 10.00 100.00

North Dakota 1.40 25.00

Oklahoma 40.00 3.13

Indiana 1.50 2.75

Total 667.23 491.75

Average Spend per State(US$ Million)

44.48 44.70

Average Spend Federally(US$ Million)

2224.10 2235.24

Total $4.46 illion

Tale ten State Veterans Aairs and National Guard spending.


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04APPENDICE

2. Local Violence Containment Spending

Violence Containment spending at the local county and city level wascalculated by examining Seattle, Austin and New York City budgets to geta detailed picture o the type o security spending that occurs or thesecities. Total spending was aggregated and then divided by populationto sum a per capita cost. This per capita number was then revised downand extrapolated to acquire a number or the entire United States. It isimportant to note that it includes justice expenditure which in 2005 was$103 billion. To count city or county spending or each city and town in theU.S. would be an enormous accounting and administrative task, outside othe bounds o this research. This is why indicative igures have been usedwhich are deduced rom the three detailed case studies.

Tale eleven shows the total violence containment expenditure or thethree cities and the per capita amount. As can be seen, the average percapita amount is $740. However, because the City o New York54 has aunique set o security issues it has skewed the average upward. A moreconservative estimate o $500 per person has been used which results in

$154 billion or the entire U.S.

Counting process for New York

As might be predicted, New York City has both the highest nominaligure and the highest per capita spending rate. This is partially due to theunique security challenges aced by New York City, as an internationalcity and one o the major global inancial capitals, as well as the targeto the September 11th and other terrorist attacks. However, this indingshould not mislead one into assuming that the per capita spending inNew York City grossly overinlates our average and thereore the nationalestimate. The 2010 budget or the City o New York presented the mostprecise and thorough accounting o violence containment costs, resultingin the most complete picture o any o the cities examined. 55

Item City VC SpendingVC Spending

per capita

1 Seattle $348,504,287 $572.58

2 Austin $317,688,815 $401.94

3 New York $10,189,436,642 $1,246.39

Tale eleven Violence Containment Spending or Seattle,Austin and New York.

54 In the case o New York the above number did not include agencies similar to the Port

Authority o New York/New Jersey, which has its own budget separate rom the state and city

governments. The VC expenditures o the Port Authority nearly match those o the City o New

York, implying that these types o agencies operating major inrastructure around the county

may add very signiicant igures to the VC bottom line.

55 It should be noted that Oklahoma City and Chicago were also examined or possible inclusion

however the city documents did not oer data that could be separated according to the

necessary categories and made consistent with the other samples.

The City o New Yorks budget documentation is an example other citiescan ollow. It is organized using consistent accounting codes or theexpenditures o each city agency and each program o each agency.Included in these codes are lines or security equipment and securityservices, listed under each department that incurs the expenses. Thisallows us to include VCI spending rom agencies whose primary purposeis not related to violence, and may only incur costs in their attempts toprotect their sta and assets. For example, IEP ound that the Departmeno Sanitations budget or the Executive and Administrative oice incurreda $3,435,815 security equipment expense. Not only does the New YorkCity data include these large expenditures, but the budget reportingalso allows us to capture the $240 spent by Brooklyn Community Board#11. Additionally, regarding programs that are wholly related to violencecontainment, such as the Police Department, detailed ootnotes allowedcalculation o the portion o city pensions and ringe beneits attributableto department employees. This level o consistent reporting was notpresent in Seattle and Austins budgets, despite their well-presented

and detailed documents relative to other cities around the counties. Thisimplies that while New York, as the largest city in the U.S., is likely to havethe greatest VCI expenditures, however its recording o public city-levelspending is the most comprehensive and accurate.

Austin and Seattle

The City o Austin, Texas, with a 2010 population o just under 800,000spent $317.7 million or $402 per person on violence containment.

In 2010 Seattle, Washington, had a population o 600,000 and the cityspent a total o $348.5 million, or 9 percent o its total budget on violencecontainment.


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04APPENDICES

3. Fire Arson

One o the causes o damage to property and persons is ire.However, in terms o VCI, not all ires are relevant to the analysis. Forinstance, whilst bushires cause millions o dollars worth o damage,

they may have natural non-human causes. Thus, the total expenditureon ire cannot be counted since we would include accidental ires.The U.S. Fire Association (USFA) gives statistics on various categories.Given the deinition o violence above, only one category is relevantor our discussion: intentionally set ires. Thus, discounting irescaused by heating, cooking, candles, etc., USFA reports that 13% oires are intentionally set. Fire departments receive both ederal andstate unding. Seventeen state budgets were analyzed in a processexactly the same as the one used to calculate state Veterans Aairsand National Guard spending. The average o these 17 states wastaken and then multiplied by 50 in order to obtain the total averageexpenditure. This total was then multiplied by 0.13 in order toaccount or intentionally lit ires. This provides an approximation othe expenditure on combating intentionally lit ires o $340 million56.Federal unds have been accounted or in the Department o

Homeland Security.

4. Security Spending on Students

Three cities were chosen to analyze and then extrapolate the results toprovide the total U.S. expenditure on student secu

violence containment in the us report

Documents