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Economics of Conflict, War, and Peace

Prof. Dr. Jurgen Brauer; Summer 2009Chulalongkorn University; Bangkok, Thailand

Session 4.3Capital: Small arms and light weapons (esp. firearms)

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Capital: small arms and light weapons A report released today (15 June 2009) by Nonviolence

International Southeast Asia has called on the Royal Thai government to end the creation of civilian defence volunteer forces and stop the supply of firearms to civilians in Southern Thailand. The report, “Rule by the Gun: Armed Civilians and Action Against Gun Violence”, says that the Thai government’s policy of expanding civilian volunteer forces and deregulating firearm sales to address the violent conflict in Southern Thailand has been counter-productive, leading to greater insecurity and ethnic and religious polarisation. The report suggests that the government’s policy has increased distrust between Malay Muslim and Thai Buddhist populations, while fueling a “security economy” in which arms proliferation becomes a source of income.

Source: IANSA weekly newsbrief (15 June 2009)

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Capital: small arms and light weapons The market

[Brauer’s SAS 2003 theory background paper] Demand

[Brauer/Muggah 2006 paper] Supply / industry-level and firm-level analyses

[Hall, Markowski, Brauer’s Asteriskos 2008 paper] [Markowski, Koorey, Hall, Brauer EPSJ 2008 paper] [Markowski, Koorey, Hall, Brauer DPE 2009 paper] [Kahraman, Brauer, Hall, Basciano, Markowski’s 2008

working paper] [Brauer, et al., forthcoming work]

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Capital: small arms and light weapons

Supply is a relation between quantities sellers are willing and able to provide at various possible prices.

A => B: higher price; more willing/able suppliers

A => C: lower price; fewer willing/able suppliers

A => D: e.g., more regulation A => E: e.g., less regulation

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Capital: small arms and light weapons

“willing and able” can be monetized into a cost-equivalent ($)

A => D = A => A’ E.g., more regulation

imposes higher cost; to sustain Q*, it must be recovered with higher market price

A => E = A => A’’ E.g., less regulation lowers

cost; if demand justifies the production of only Q*, the market price must fall in line with lower cost

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Capital: small arms and light weapons

Demand is a relation between quantities buyers are willing and able to acquire at various possible prices.

A => B: higher price; fewer willing/able buyers

A => C: lower price; more willing/able buyers

A => D: e.g., fewer resources or reduced preferences

A => E: e.g., more resources or increased preferences

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Capital: small arms and light weapons

Now: S/D interact A: equilibrium If S and D shift outward,

then Q* => Q(2) with P’ This is the current

situation Only real solution is to

reduce D to generate outcome C

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Capital: small arms and light weapons Demand

[Brauer/Muggah 2006 paper] Three options: preferences, resources, relative

prices Resources are likely to increase over time Relative prices are unlikely to go against firearms Only work on preferences left

How does one get people to WANT fewer arms when police is distant, ineffective, corrupt?

Prospects not good but that’s the only realistic option left More genuine law and order, governance, etc.

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Capital: small arms and light weapons Back to supply (esp. firearms distribution/trade)

Supply-chain work | purpose: show supply can’t be restricted => really do need to more on demand-side

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Capital: small arms and light weapons Supply-channel

complexity

Parallel vs series Tie/cut sets Capacity Redundancy Dependability Robustness Vulnerability

Logistics mgt. literature

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Capital: small arms and light weapons Complexity of the supply-chain and

asymmetric information disadvantage for law and order forces are the crux of the problem of interrupting an illicit supply-chain

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Capital: small arms and light weapons Supply

From distribution to … … industry-level analysis

U.S. data Civilian, LEA Not military Not imports Voluntary reporting Compliance high but

imperfect

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Capital: small arms and light weapons U.S. demand

NICS data 1999-2008 Annual: steady

through 2005 Monthly: cyclical 70% “rule”

If “demand” is steady but production declines => more imports

Import data Civilian data reliable Military data

unreliable

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Capital: small arms and light weapons U.S. nonmilitary gun imports (in ‘000s) [deemed reliable]

Pistols/ Muzzle- Shot- RiflesRevolvers loaders guns

1998 591 187 166 2291999 656 156 333 3152000 713 259 333 3202001 711 346 428 3222002 949 380 499 4592003 763 354 499 5172004 839 380 507 499

Source: Gabelnick, Haug, Lumpe (2006) [from U.S. Customs Service]

- Demand steady- Domestic production down- Imports up

=> Should put pressure onU.S. producers

=> Concern about tech.transfer to other nations

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Capital: small arms and light weapons

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

S_imports

S_exports

S_netimports

Title U.S. firearms total imports and exports, 1980 to 2007

Source computed from U.S. Census-supplied data files Note: data include military guns

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Capital: small arms and light weapons Market concentration

Top-8 firms HHI

<1,000 competitive 1,000-1,800 middling >1,800+ non-

competitive Misleading numbers

because many brands are owned by the same underlying company

Market concentration (total production; top-8 firms)

0%

20%

40%

60%

80%

100%

120%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

(in

perc

en

t)

Pistols Revolvers Rifles Shotguns

Market concentration (total production; HHI)

0

2000

4000

6000

8000

10000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

(in

perc

en

t)

Pistols Revolvers Rifles Shotguns

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Capital: small arms and light weapons

Market volatility entry/exit; inter-rank movement lots of entry/exit; movement observed

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Capital: small arms and light weapons Market concentration/volatility

Data misleading because of cross-ownership of firms; actual concentration MUCH higher than measured in rifle market

We know from empirical/news media research that the U.S. rifle industry in 2007 experienced a giant merger & acquisition wave

Also know from press/industry reports that many companies are very shaky in terms of profitability

Decided to start firm-level analysis Problem: privately-held firms don’t release data!

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Capital: small arms and light weapons Firm-level analysis Sturm Ruger & Co.

(1949 onward) Consistently

profitabiliy Publicly traded => SEC data from

early 1990s onward

Year Pistols Revolvers Rifles Shotguns Sum

1998 161,058 120,417 335,776 17,441 634,692

1999 213,876 98,855 428,329 18,691 759,751

2000 233,598 112,113 309,017 18,000 672,728

2001 112,847 150,844 243,600 7,740 515,031

2002 114,870 148,199 303,507 5,505 572,081

2003 98,422 110,894 234,595 4,538 448,449

2004 99,002 90,310 248,884 7,405 445,601

2005 125,057 58,951 218,180 11,467 413,655

2006 100,976 115,293 196,472 5,202 417,943

2007 142,017 96,598 222,902 2,479 463,996

Source: BATF annual reports

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Capital: small arms and light weapons Firm-level

analysis Sturm Ruger Read graph

right to left (!) Real GDP up Unit sales and

real sales down

0

20

40

60

80

100

120

140

160

2007 2005 2003 2001 1999 1997 19950

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Real sales (1994 = 100) Real GDP (1994 = 100)Unit sales (right-hand side scale)

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Capital: small arms and light weapons Sturm Ruger

Profit margins Read graph

right to left

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Capital: small arms and light weapons Sturm Ruger

Return on assets

Return on equity Read graph

right to left

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Capital: small arms and light weapons In sum:

~740,000/year die from firearms (directly or indirectly)

Supply: easy and cheap to produce, store, transport; lots of suppliers; ammo easy

Demand: insecurity, resources, relative prices U.S. industry dying (?) =>

Production/technology transferred abroad Supply-chain probably impossible to interrupt

Consequently: continuous and rising problem