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Stunted economic growth due to high crime diet?

The extraordinarily high cost of crime is debilitating to the economy and a barrier to growth.
The high cost of crime discourages investment and suppresses entrepreneurial aspirations in the formal and informal sectors. Image: Shutterstock

Government is targeting infrastructure investment to promote growth through its stimulus package, yet is silent on the high crime levels that are a major cause of divestment in a society with characteristics of both the Wild West and a Mafia state. Without getting crime down to tolerable levels, economic growth will remain at best stunted.

South Africa’s shocking crime statistics have been paraded on social media and talkshows as being mainly caused by poverty. Economic growth can be considered essential if poverty is to be reduced, and crime levels would then also decline.

Looking at data, however, an inverse picture emerges.

The statistics on crimes against business indicate that a range of criminals is at work: those who shoplift a piece of frozen chicken, those who need a sheep for the month, and those who cash in on others in transit. It’s almost like the range from informal traders to struggling SMEs and the few big corporates.

Crimes against business

Bank robbery

1

per month

Cash-in-transit heists

5

per week

Truck hijacking

25

per week

Robbery at business premises

56

per day

Stock-theft

80

per day

Shoplifting

173

per day

Burglary at business premises

198

per day

Source: SAPS Crime statistics 2017/2018

The belief that poverty causes crime, which subtly shifts the blame for criminality from the perpetrator to society, was at work again: almost no-one mentioned really poor countries with far lower crime rates. Tanzanians are significantly poorer with a per-capita GDP of less than 20% of South Africa’s, but on the Word Economic Forum (WEF) Global Competitiveness Index, Tanzania ranks significantly better (36 positions) than SA concerning the cost of crime. Sri Lanka, which, like South Africa, suffers from a violent past, is another example. Recently, Stellenbosch University economics professor Johan Fourie was the lone voice asking why criminality is higher in the richer provinces of Gauteng and the Western Cape than the poorer Limpopo.

The argument even changed from poverty to the rich being the culprit: if they were not so rich and no wealth gap existed, there would be no incentive to pilfer …

Anine Kriegler of the University of Cape Town, responding to the shockingly high crime statistics, argues that police minister Bheki Cele’s call for more police isn’t the answer since “a number of studies on the relationship between policing levels and crime rates suggested that the impact of more police is generally small”.

Kriegler argues that leaders must address inequality: “South Africa is a highly unequal society (and) has one of the highest Gini-coefficients in the world. Research shows that inequality and crime go hand in hand.” She quotes a paper in the April 2002 edition of the Journal of Law and Economics Vol XLV by Pablo Fajnzylber and Daniel Lederman titled Inequality and Violent Crime.

Unfortunately, she did not mention that the authors themselves thought their paper had serious shortcomings – “we have not provided a way to test or distinguish between various theories on the incidence of crime” and “a more nuanced econometric exercise than what we offer is required to shed light on the relative validity of various theories on the inequality-crime link.”

Another shortcoming is that “we have not identified mechanisms through which more pronounced inequality leads to more crime. Uncertainty about these mechanisms raises a variety of questions with important policy implications. For instance, should police and justice protection be redirected to the poorest segments of society?”

The source Kriegler quoted to argue against increased policing actually proposed the consideration of more policing in poorer areas.

No definite correlation between inequality and crime in the data

Unlike what Kriegler suggests, a recent World Bank funded study on the socio-economic determinants of crime in SA came to the conclusion: “We did not detect any relationship between inequality and violent crime, nor between unemployment and any crime type.” 

While several studies have found positive correlations between poverty and crime, in 2013 Hector Rufrancos of the University of Stirling in Scotland remarked that the “findings on income inequality and property crime differ considerably to those on income inequality and violent crime”. While a review of the literature suggests that “property crime is related very strongly to changing income inequality … [the] time-series evidence on the relationship between income inequality and violent crime is considerably more mixed”.

Gini and the cost of crime for business

The Enterprise Observatory of SA (EOSA) tested the correlation between the Gini coefficient and criminality at a global level. For the latter, we used the WEF’s indicator of the cost of crime for business (see chart below).

No correlation between inequality and the cost of crime

Sources: EOSA, WEF

The two countries with the highest Gini coefficient (Lesotho at 0.632 and South Africa at 0.625) experience radical differences in the cost of crime. In addition, the hail gunshot distribution around the regression line in the chart confirms there is no correlation, contrary to the arguments by Kriegler.

While correlations do not prove causality, the following chart is essential to understand criminality in South Africa.

Inefficient policing closely correlated with crime against business

Sources: EOSA, WEF

The correlation between inefficient policing and a high cost of crime for business is so significant that one can confidently predict that when policing efficiency improves, crimes against business decrease. Likewise, an increase in crime against business can be taken as an indicator that there has been slippage in efficiency in the police service.

In 2017, according to the WEF, South Africa’s police ranked as the 20th most inefficient, with the cost of crime for business as the fifth highest in the world – a clear signal that investment in South Africa is too risky. The only countries with a higher cost of crime for business are El Salvador, Venezuela, Honduras and Guatemala.

Combining the WEF’s cost of crime for business data with the Fraser Institute’s Economic Freedom rankings, a significant correlation emerges – businesses in the most free economies have the lowest cost of crime. South Africa, however, is sliding towards the cliff-edge. Venezuela reached that point, then dropped into the abyss.

Businesses in the ‘most free economies’ have the lowest cost of crime

Sources: EOSA, WEF, Fraser Institute

While acknowledging the complex characteristics of poverty and structural unemployment, without economic growth these systemic symptoms cannot be addressed. As British author C Northcote Parkinson remarked: “Aim at prosperity and employment will follow. Aim at employment and you will get anything but prosperity.”

SA’s high crime prevents investment, growth

The crime rate already prevents local investment and dissuades South Africans from embarking on business ventures:

* Stats SA’s Victims of Crime 2015 report calculates the percentage of persons refraining from establishing a home business out of fear of crime at 11.8%.

* P Cichello, L Mncube & M Oosthuizen (2011) found that crime was the primary deterrent preventing people from entry into the informal sector.

* There are expanding areas of zero investment in South Africa with crime playing a significant role. In the Tokologo local municipal area, there were on average 2.6 crimes per business per year. The value of non-farm commercial and industrial properties has dropped to less than 1% of the overall municipal valuation role.

* Considering that the majority of Tokologo’s urban residents aren’t paying property tax (despite many being beneficiaries of RDP houses), without investment, the municipality has no hope of coming close to balancing its books. Crime is effectively killing off numerous municipalities and thereby shooting massive holes in National Treasury’s money bags.

A stimulus package that would really get the economy growing should entail:

* Effective and efficient policing, with a different skills mix than at present and institutional accountability. The strategy should commence with a reformed police service where remuneration, bonuses and promotion is linked to independent assessments and the monitoring of performance in crime prevention, detective work success rates, and prosecution. It should be introduced wall-to-wall in a single province with newly defined job descriptions and individual performance targets. This decentralised monitoring mechanism should involve the provincial and local government, the private sector and civil society (such as Accountability Now and the Institute for Security Studies), with the police bound to report regularly in writing and with presentations.

* Stop the rot in state-owned enterprises: cull the state-owned airlines and privatise the six main ports – Cape Town, Durban, Richards Bay, Port Elizabeth (two separate deals ) and East London – into competing entities.

* Outsource primary and secondary education in mathematics, physics and chemistry to independent service providers that meet Trends in International Mathematics and Science Study criteria. There’s no way the department of basic education and Sadtu (the South African Democratic Teachers Union) can jack up their services in these subjects to the levels required by a growing economy.

* Put civil service on a drastic weightloss programme, shrinking it by shedding all positions that cannot be linked to outcomes. Political leadership is required and the programme should begin by trimming the bloated overweight cabinet to 30-40% of its current size.

More efficient policing is not sufficient to get crime levels down to tolerable levels: economic growth, efficient service delivery and the nurturing of a modern societal ethos and accountability have a role as well.

However, the type of investment and economic growth we need cannot kick in at the current extraordinary high and debilitating cost of crime. Lower crime levels have to be ensured, and that requires accountable and efficient policing. If the current government cannot perform this Kindergarten task of governing, the exodus of productive knowledge will accelerate.

* Johannes Wessels is director of the Enterprise Observatory of SA. This is a condensed version of two articles on the cost of crime for business that first appeared here.

COMMENTS   11

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unbelievable stats….just when I thought I knew all. Also what is TOLERABLE levels…..c’mon man?…. we all know the stimulus packages that would get the economy growing are an Utopia. Maybe that is why the use of Dagga are legalized.

Dope makes you dumb, unless of course, you are already dumb…

In fact so dumb, you cannot fathom that a crime culture start with a culture of hand-outs, that creates a culture of entitlement.

Affirmative Action (EE, BEE, Black Industrialists, Quotas, etc) is the fundamental reason SA is a FAILED STATE WALKING. Just another African basket-case crippled by crime and corruption – in little over two decades.

You can analyse your MS Excel to a standstill, create reams of scatter graphs, write pages and pages – until SA END ALL HAND-OUTS, ALL WELFARE, IT IS DOOMED TO ECONOMIC FAILURE.

What is the difference between a robbery at a business premises and a burglary at a business premises?

JacoBas, I think a robbery is when staff are held up on the premises and a burglary is an after hours break in when no staff are present, but I could be wrong!!

Robbery is categorised as a violent crime and would occur when owners/staff are threatened and/or clobbered / wounded. Burglary is a break-in normally after hours.

Or: Robbery is the criminal’s fulltime job and burglary just the part time one to make ends meet in these difficult times?

🙂

The most debilitating crime in SA is corruption by the ANC.

Every day I see the lawless, vile, violent, killing-machine called the taxi industry disobey every possible road law and promote a culture of lawlessness with impunity. It not only horrifies me but it seems like the police could not be bothered to bring this stain on our country and society to order. If lawlessness is so brazen and openly practiced then bringing crime under control has absolutely no chance.

The taxi industry is also the training ground for future drivers in SA. It is in the backseat where driving behavior is shaped.

How does one respond to other people (that worked or lived abroad, and talk of experience) that will tell you:

“…yes but, every country has crime” / or has it’s own specific crime problems”.

I suppose it’s all relative? In SA for example we have 50+ murders a day. That’s to be proud of…

Michael
No, shrugging high crime levels off by stating every country has its own problems, would be wrong. The response should be:
1. SA’s businesses (that are supposed to create jobs and fuel growth) suffer from the 5th highest vost of crime. (World Economic Forum data).
2. It is not inequality that drives the high crime: the causes for high crime are far more complex than ascribing it to poverty or inequality (see the World Bank study on South Africa – the link is in the article)
3. The SA police force is one of the 20 most inefficient in the world (again the WEF’s assessment)
4. More inefficient policing will not help: a system of gradually taking an area an institutionalising accountability for the police involving national NGOs and the private sector (e.g. Accountability Now or the ISS) is required)
If we cannot get crime under control, a Job Summit and and Investment Summit will do very little. Check: “The folly of creating businesses in a crime-friendly environment” on EOSA’s website. To get the economy growing:, crime has to be brought under control in addition to the issues I have listed above.

End of comments.

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