Are muggers good for the economy?

by Jim Peron

Gil Gifford, crime reporter for “The Star”, recently wrote an article which revealed that crime is costing South Africans about R80 million per day. Then he looked for the silver lining on this rather dark cloud: “But while crime is costing the country, it is also generating money and employment within the private sector.” He quotes Martin Schönteich of the Institute for Security Studies as saying that about 300,000 to 350,000 people are currently employed in the private security business which will have a turnover of about R11-billion in 1999.

No doubt Schönteich is correct but Mr. Gifford has committed a very common fallacy. Crime does not create jobs. There is no silver lining. What crime does is destroy jobs.

Gil Gifford thinks that crime is “generating money and employment.”. At best it is redeploying money and employment but it produces nothing new. It doesn’t add to the wealth of the nation. It simply prevents loss.

When Toyota hires someone to build a car, the end result is a car worth more than the labour and individual components used to build it. When I hire a computer programmer to do some work for me I get something of value. But when I spend money on protection I get nothing new. What I am simply doing is trying to prevent the loss of something to a
criminal. When we add up the ledger sheets at the end of the day there is no new wealth. In fact we are all a bit poorer.

Mr. Gifford forgets that the R11-billion being spent on private security didn’t come into existence only for that purpose. That R11-billion already existed and could have been spent somewhere else. When a company hires a security guard to prevent theft they are losing money. They simply hope that the guard will cost less
than the theft that they are trying to prevent. R11-billion spent on security simply means R11-billion less spent on other products. We take a risk when we pay for security. We assume that crime is going to cost us something. When we pay for security we hope that what we pay out will be less than what would have been lost due to theft. If we could know in advance that our losses to crime would be R500 a month we wouldn’t spend R1,000 to prevent the loss. But we would spend R200in order to save R500. However, when all is said and done these are expenses with no compensating
income.

When we divert money from the car industry into security we may create jobs in the security sector but we diminish employment in the car industry. The extra expense of crime prevention means I must reduce expenditure somewhere. I transfer money from something which would generate new wealth in order to try to prevent the destruction of
existing wealth. The result means that those spending the money are worse off.

But what about those 300,000 people employed in the security field? They obviously do have jobs. There is no doubt about that. But what is forgotten is that R11-billion worth of jobs in other fields were destroyed. The money had to come from somewhere. Crime prevention diverts spending. It doesn’t create new spending.

Imagine, for a moment, a crime free South Africa. As a society, we would have R30-million per day extra to spend on goods and services. Out of money they would otherwise have spent on security, one woman may buy shoes for her child while a businessman might purchase a new car. The women is poorer by one pair of shoes. The businessman is set back by one car.

The fallacy is completely disposed of when you think on your personal level. Would you be better or worse off if you didn’t have to spend money protecting yourself? Everyone would rather save money and spend it in other ways. Their standard of living doesn’t improve when they spend money on security — they simply prevent the quality of their lives from deteriorating.

Crime never generates money or jobs. It destroys wealth and it diverts jobs from one field to another. In the end we are all worse off.