Copenhagen, March 4 (RFE/RL) - Is organized crime
like an octopus that's penetrated the state and has usurped many of
its functions? Or is it operating more like a corporation that
provides certain goods and services that just happen to be illegal?
is it indeed actually useful, filling in an economic, legal or
societal gap that the state can't or won't take care of?
A new book to be published by the Cambridge University Press on
March 26 is analysing these questions from a purely economic point of
view. And while popular culture, history, and modern mythology have
long been preoccupied with mob-related issues, the main reason for
their existence - making money - seems to have been largely ignored.
'Know thy enemy better'...
Edited by Gianluca Forentini of the University of Florence, Italy,
and Sam Peltzman of the University of Chicago, 'The Economics of
Organized Crime' is a collection of essays that draw mainly on the
Italian experience. But as modern economics is international and
works along rules that transcend state borders, so do the 'parallel'
economics of organized crime: what is valid in Sicily can -- and has
beeen -- transposed in Brooklyn - and its modus operandi is
essentially the same in Russia and Romania.
According to 'The Economics of Organized Crime', there are three
historical reasons for the formation of mafias: abdication of state
power, excessive bureaucratic apparatus and the potential of illegal
markets. It is easy to see that these factors combined have spawned
the rise of mafias throughout Eastern Europe and the former Soviet
Union. The post-Communist state, with its weak institutions and lack
of a proper legal framework has nevertheless retained its excessive
bureaucracy. Impoverished officials would eagerly receive kickbacks
for illegal contracts or just to keep their eyes closed.
The next step is the use of these officials and the apparatus they
stand for to keep competitors out, through either threats or
violence. Finally, the mafia monopolizes whole industries that it
operates outside publicly-recognized standards.
Mafia activities can include anything - from 'classic' crimes such
as organized prostitution, drug-trafficking, illegal gambling, tax
fraud and extortion, to newer and more sophisticated crime such as
money-laundering, bankruptcy and insurance fraud, and counterfeiting.
'The Economics of Organized Crime' points out that there are two
main concerns for mafia gangs: how to preserve their monopoly
position and how to impose and maintain their own law and order. The
thinking behind the mechanisms to achieve these aims is economic.
For example, if a criminal organization is involved in a
relatively competitive market, it will likely invest in physical
means to deter new entrants. If, on the other hand, the market is
monopolized, the mob must ensure better ways to keep its internal
discipline. Thus, in a relatively competitive field, a possible
legalisation by the authorities may result in an increase of the
But, with the cartelised gang in mind, keeping the barriers will
result only in increased profits for the mob.
It is not difficult to see how this works in, say, Bulgaria.
Competitiveness between the so-called protection firms is high.
Therefore, these firms invest in thugs who use violence to hamper
'colleagues'. The government has raised the entry barrier by making
new requirements for the operation of the protection racket which now
calls itself insurance business. However, this has not resulted in
its eradication but in the increase of its profits.
Bulgaria is perhaps a good example - and so is Russia - as the
'parallel' economy operated by the mafia has, in many fields, taken
over the legal economy. By proxy, those who operate the mafia have
become a part of the government. In other words, the mob has come to
fill an economic gap that the government is unable to do.
Furthermore, it has come to perform functions, such as security
and the settlement of legal disputes, that are the prerogative of the
government. Needless to say, it requires a more effective form of
government to combat this kind of organized crime.
One way to do that is through economic means: imposing stiffer laws
against tax evasion, or eliminating the need for mafia markets.
History shows that the fight against organized crime is easier said
than done. Even countries with well-functioning legal and police
systems, like the United States, cannot cope effectively with the
mafia. But hitting the problem at its core, 'The Economics of
Organized Crime' suggests, is perhaps one of the best ways to combat
it. After all, when all else failed, Chicago mobster Al Capone was
indicted on federal income tax evasion charges in the thirties...