How firms cope with crime and violence

Crime and violence
Conflict, Crime and Violence

In Latin America, firms have to deal with the high economic opportunity costs of crime and violence. Some firms decide to move to the less-violent countries in the region, others decide to absorb the increased costs incurred in environments with high rates of crime and violence; and others contribute to alleviate the root causes of crime by responding in a way that brings adversaries together and provides a platform for peaceful interaction and alignment of economic interests. The private sector's response to crime and violence varies by country, size of firm, and sector, among other factors. 

A recent report by the World Bank analyzes how firms, private sector associations, and other private sector actors cope with crime and violence. In the study, several factors are considered as causes of crime such as individual factors (exposure to violence or substance abuse); family and peer-related factors; community factors; and societal factors. Across the Latin American and Caribbean region, the drug trade is a key factor for crime and violence because it induces clashes between criminal networks and security forces, between rival gangs, and between the gang and the local community. Specific cases are explored in this report: the city studies include Ciudad Juárez, Medellín, Mexico City, Rio de Janeiro, and Tijuana; the country-level studies include Jamaica, Nepal, and Rwanda.

Although homicide rates do not capture the full complexity of crime and violence, they do allow for comparison across countries and over time. In 2010, the United Nations Office on Drugs and Crime (UNODC) estimated that the homicide rates in the Americas were more than double the global average. Figure 1 shows the countries with the highest homicide rates in the world and Figure 2 shows the homicide rates in the case country studies in this report.

Figure 1: Countries with the highest homicide rates
Countries with the highest homicide rates

Figure 2: Homicide rates in case study countries
Homicide rates in case study countries

Although the issue of crime and violence has been examined thoroughly from a number of perspectives little systematic work has been done to understand how private businesses cope and try to preserve their competitiveness. The case studies in this report show that crime and violence affect firms in five different ways: exclusion from economic activities; productivity losses; climate of uncertainty and negative image; supply chain interruptions; and brain drain. 

How do firms respond? The report illustrates a great variety of coping mechanisms but Public-Private Mechanisms (PPMs) seem to be the most proactive way to address high rates of crime and violence. Most of the case studies include examples of PPMs in some form or another, evidencing that this kind of cooperation is always very effective in stablishing leadership and mobilizing different actors towards a common agenda. For this reason, supporting private sector responses should be part of an integrated approach with the public sector to reduce crime and violence.


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