Q OP-ED — Chris, the author of this, is a retired international businessman and economist. A recent violent armed robbery in his house moved him to think about the sad and crazy economics of Crime.

It leaves the victims, the robbers and the whole society financially worse off. In addition to the economic effects, it creates widespread fear and personal distress.

Some readers may be moved to consider some of their own seemingly minor transgressions. Others may reconsider their security or even their location.

The amount of crime is unknowable

Honest statisticians tell you that all published data is inherently inaccurate. They make estimates with what information they have available.

Estimation is most difficult in the case of politically sensitive numbers like productivity, growth, unemployment, educational attainment and crime. This is especially true for the black economy.

Governments, the police and international organizations publish crime rates, for example murders per head of population. When crime is rampant, these are especially unreliable.

Why is this?

• Not all crime is reported. This is particularly true when victims have no hope of resolution or restitution. They may feel foolish in falling for a scam. Victims’ friends, families and neighbours may be frightened to speak out for fear of retribution.
• Not all crime is detected. Bodies may be picked clean by wildlife in dense jungle or lie weighted down in deep water.
• Authorities responsible for security, for example governments, have vested interests in minimizing the figures. High crime statistics deter investment, tourism, and voter support. They require higher taxes or borrowing to fund the costs of policing, courts, prisons and hospital care. The police may be too few, underfunded, or have outdated technology. They might be overwhelmed.
• Lawbreaking may be missed or incorrectly diagnosed. A murder might be filed as suicide or an accident. Clever arsonists can fake an electrical fault.
• Insurance companies hate to pay out. They send investigators incentivized to minimize claims.
• Many motorists lie to avoid blame for accidents. They sometimes drive off, to retain low premiums. Maybe they have no insurance or licence.
• The value of the harm inflicted by crimes is often inflated by the media. Sensationalism creates interest, raising their revenues.

The evolution of our animal instincts

99% of human DNA is shared with chimps. Their observed behaviour includes murder, rape and cannibalism.

Any ‘crime’ humans conceive of is normal in some other species.

In examples of social and religious cultures, what we consider breaking laws is often seen as acceptable or even laudable.

In humans, the boundaries of what is thought to be deviant change according to current concerns and beliefs. Generations differ in what they consider criminal. Crises such as wars, famines, or pestilences create tougher rules and enforcement.

Here are some examples:

• Tax evasion is the rule in many countries. The more corruption and bureaucratic wastage, the more this will create a downward spiral.
• Corporal punishment and crimes against women, may be considered OK in certain ethnic or religious groups.

State crimes

Historians have uncovered war crimes, government corruption, and what we now consider to be crimes against humanity on the part of most countries. Cover-ups normally take years to emerge, due to the vested interests of those involved.

The results of state-sponsored colonialisation, slavery, ethnic cleansing, religious persecution, piracy, expropriation, and theft are long-lasting.

Given all the above, estimates of the economic damage caused by crime can never be accurate. We will therefore focus on the issues involved rather than dubious statistics

Economic factors impacting victims, society at large and criminals.

Victims

This itself is a complex matter. They may overvalue their loss to inflate insurance claims or to get attention. They are likely unaware of current market values. This is especially true of art, historic vehicles, jewellery and other items where fashions, and tastes change. The auction value paid for a painting may be wildly out of date.

Missing items may be noticed long after the events. Behavioural Economics studies consistently show that owners of an item put a higher value on it than the market might. One example is an art nouveau necklace, stolen in the raid on our home.

It dates from the 1920s and is made of a shiny, early plastic material. My wife loved it as it suited her colouring. She would put a high value on it. The thieves will get nothing for it.

In other cases, the person losing an item went to the trouble of identifying a source of supply, choosing it above other options and perhaps Had considerable trouble of getting it home.

Where violence is involved, the cost of dealing with funerals, healthcare and post post-traumatic stress disorder may be huge.

The damage to society at large

Some argue that insurance and bank frauds are victimless crimes. This is untrue.

Their result is higher administrative workload, rising premiums and lower dividends for pension funds. Just because. Individuals may lose only tens of dollars in each case.

If these actions become widespread, as they do in skyrocketing motor premiums, the costs to society can be in billions.

INS will not insure money, electronics, cash and jewellery against theft in Costa Rica. To do so would be commercial suicide.

The cost of law and order is increasing in all countries. Not having it is dearer. Creating new laws to solve problems is itself expensive and adds to complexity and legal costs.

Police investigations, the criminal courts and prison systems all add to the price society pays.

State-funded hospitalization and long term care for victims of assault is enormous.

If the damage is environmental, for example from illegal gold mining or deforestation, everyone suffers, especially ecotourism.

Using cash payments to avoid tax or social insurance costs is frequently a national sport. There are multibillion VAT avoidance cases in Europe. The US has different sales taxes with similar issues.

False claimants for medical costs, child benefits, health and social support can be counted in hundreds of millions around the world. This creates resentment especially amongst the honest poor.

Even supposedly successful criminals suffer too

Sharing the loot after the excitement and risks of a robbery must seem satisfying. Young thugs see it as a rite of passage. Stories will be shared over beers and exploits exaggerated. The saddest thing of all is that this is short-term thinking, Even if there is no immediate empathy for the people they have harmed, thinking ahead would be sensible.

Thousands of dollars for a few days planning and a robbery might seem a great deal, especially to poor or unemployed youngsters. Years in prison might make the hourly pay rate trivial.

Ex-cons find it difficult to find work. Few will trust them with second chances or well-paid, responsible careers. Worse is the reputational impact on entire neighbourhoods or even countries. Multinational corporations invest in low crime and secure locations.

Unemployment poverty and crime generate uncertainty and a vicious cycle of decline. Generations of a crook’s family can become condemned as outcasts from normal work. Criminal subcultures sap the will to succeed in conventional ways and take the economic damage into the far future.

Value destruction

New smart TV prices start at less than two hundred dollars and might be as high as thousands.

When ripped off a wall and sold in a bar without a guarantee, some damage, and the risk of prosecution to a buyer, the new TV will realise a tiny percentage of that. A criminal judge in the UK tells me that 10% is the maximum usually received.

When stolen or illegal money is laundered, the process is expensive and results in a significant loss of face value.

The impact on economic growth

Crime generates activities that are currently classed as contributing to Gross Domestic Product (GDP). This is commonly used as a measure of the relative success of a country’s economy. It is easy. Other measures such as Well-being are more difficult to measure, though Nobel Prize-winning economists advocate this and a range of other options.

The cost of policing, courts, prisons, health care for victims, and replacing stolen or other items lost through crime are all included in GDP.

Advocates of GDP argue that the cost of crime might be small, or merely that they are impossible to calculate. Clearly, the size of the black economy in some countries is more significant than in others.

Grounds for Hope?

Endemic cultures of people trafficking, pimping, theft, and fraud do not develop overnight. The sophistication of electronic crime increases speed and intensity very quickly, often masterminded from jails.

In most countries, hundred-million-dollar fraudsters get trivial sentences compared to ‘common’ criminals. There is a class bias in this. Detection and conviction rates are lower for fraud than in physical crimes.

Reducing the black economy is a long, slow process. It requires government commitment, eradication of corruption, and changes in social attitudes across a whole society. It takes years.

Maybe it can never be completely achieved, but it is a vitally important mission.

It can be done. When people lose faith in their political systems, only new credible leadership and dramatic measures can regain trust. People may have to trade some freedom for personal security.

Singapore is a good example. It is a country with a similar population to Costa Rica. On independence in 1665, it was corrupt, had huge racial and drug problems, and had no natural resources. It was very poor.

Now it is a shining example of what can be achieved. In only 10 years under the leadership of Lee Kuan Yu, all these problems were resolved. Today, it has approaching ten times the income per head of Costa Rica. Crime is minimal and corruption has been practically eliminated.

Key policies:

• Zero tolerance of crime, especially for drugs and corruption.
• A Justice system, which has: Highly paid and incorruptible judges and police forces.
• Investigation, sentencing, and appeals usually take a couple of months.
• Housing policies integrate the ethnic groups. They eliminated slums.
• Continuous investment in compulsory, ethnically integrated education.
• Outstandingly effective and modern transportation, health, and other public services.