Original File Was Oc Framework Revision 08 to Rtf.Tex

Organised Crime and the Economy: a Framework for Policy Prescriptions* Andrea Mario Lavezzi+ Abstract In this paper we discuss policies to combat organised crime from the perspective of economic analysis. We introduce concepts such as supply and demand for Mafia and the implied notion of equilibrium to build a framework to classify the contexts in which organised crime interferes with the economy. We then use this framework to discuss policy interventions, distinguishing between policies implemented by the State and mobilisation of civil society. We show that using the economic approach helps understand the aspect of persistence of criminal organisations and identify vicious circles of different nature. The broad spectrum of State policies identified includes norms on competition, on the efficiency of the State, on decriminalisation and on market deregulation. Finally, in discussing the mobilisation of civil society, we highlight the problem of coordination, an aspect often overlooked in the literature. Keywords: Organised Crime, Deterrence Policy, Civil Society * This paper is based on my seminar at Fonderia Oxford of March 2012. I wish to thank Paolo Falco and seminar participants. I am grateful to two anonymous referees for very useful comments. Thanks also to Luigi Balletta, Francesco Biondo, Paolo Campana, Francesco Calderoni, Giovanni Trovato and Alessandro Spena for useful comments and discussions. Usual disclaimer applies. + A. Mario Lavezzi is Associate Professor of Economics in the Faculty of Law at the University of Palermo, Italy, and member of CICSE. His research focuses on economic development, the economics of organised crime and social networks. Address: Dipartimento di Scienze Giuridiche, della Società e dello Sport, Sezione Diritto e Società, Università di Palermo, Piazza Bologni 8, 90134 Palermo, Italy. Email: [email protected]. Tel. + 39 091 23892208. Fax + 39 091 6111268. 1 1 Introduction The presence of organised crime is found in a conspicuous number of countries (Van Dijk, 2007), Italy being a prime case in the context of Europe. This paper uses the perspective of economic analysis to study a specific aspect of the presence of organised crime in an area, namely its interference with the economy, and possible policy interventions. Previous economic analyses of criminal organisations include, among others, Konrad and Skaperdas (1998), Bandiera (2003), and Bueno de Mesquita and Hafer (2007) but, to date, with the exception of Skaperdas (2001), the economic approach has not been used to discuss policies to combat organised crime. By focusing especially on the Italian experience, the aim of this paper is to propose a framework to classify the contexts in which interferences between organised crime and the economy occur, and then to use this framework to discuss policy. In the discussion of policies we distinguish between policies implemented by the State and the mobilization of the civil society, a distinction often found in the literature.1 For this purpose, we use standard concepts of economic analysis, such as demand, supply and equilibrium, and focus on incentives that the agents concerned, namely affiliates to criminal organisations and non-affiliates, have in carrying out their actions. In this way we can define simple concepts such as demand and supply of Mafia, and identify vicious circles, that is cases in which organised crime becomes a persistent phenomenon. We argue that the economic approach has important merits with respect to the existing literature. First of all, it allows the use of simple concepts (e. g. demand and supply of Mafia, equilibrium) to tackle an otherwise complex phenomenon2 such as criminal organisations. Secondly, it provides crucial elements to design policy interventions. Specifically: i) the emphasis of organised crime as an equilibrium phenomenon, and the related notion of vicious circle, allows us to understand its persistence. Policies, therefore should aim at breaking such equilibria, targeting supply, demand, or both. ii) Economic reasoning with its focus on incentives shows that State policies other than pure repression (e.g. those promoting market competition) should be included among the deterrence policies. In general, the diverse nature of the vicious circles identified suggests a selective use of policies according to the nature of the vicious circle. Finally, the economic approach provides elements to understand the difficulties related to the often invoked mobilization of civil society, namely those 1 Previous works on antimafia policy and/or mobilization of civil society, taking a sociological and politological approach, include schneiderSchneieder and Schneider (2003), La Spina (2005) laSpina2005, and mete2010Mete (2010). 2 See, e.g. Mete (2010, p. 5). 2 concerning the structure of incentives and coordination of the agents involved. The paper is organised as follows: Section 2 presents some evidence for the effect of organised crime on the Italian economy, and sets the stage for the analysis; Section 3 introduces the framework; Section 4 analyses the policy prescriptions suggested by the framework; Section 5 contains the concluding remarks. 2 Preliminaries Recent empirical studies document the negative consequences of organised crime on the Italian economy. In particular, Ppinotti (20112) shows that in some southern Italian regions organised crime has been responsible in recent years for a cumulative GDP loss of approximately 16 %.3 Asmundo and Lisciandra (2008) find that the resources lost to the Sicilian economy through organised crime via extortion amount to 1.4 % of regional GDP, while Daniele and Marani (2011) show that organised crime has a negative effect on foreign direct investments. Albanese and Marinelli (2012, p. 11) estimate that organised crime negatively affects productivity, finding that firms’ productivity (measured by TFP) increases by approximately 9 pecentage points moving from the 90th (Agrigento) to 10th (Perugia) percentile of the distribution of the level of organised crime at provincial level. Finally, Bonaccorsi di Patti (2009) shows that the presence of organised crime in a region increases interest rates paid by firms on loans by approximately 30 basis points. Overall, the above studies demonstrate that organised crime is associated to substantially negative economic effects. In this paper we concentrate on the interaction between organised crime and the economy. We focus on the relationship between criminal organisations and non-affiliates, i.e. agents external to them, essentially belonging to the legal sector of the economy. That is, we mostly abstract from the direct involvement of organised crime in illegal markets, in which production and distribution of illegal goods and services (drugs, prostitution, counterfeit goods, etc.) take place.4 3 This figure is likely to represent a lower bound, as the areas analysed by Pinotti (2012) are Puglia and Basilicata, regions in which there is less organised crime than in other regions such as Sicily, Calabria and Campania. In another study, Tullio and Quarella (1999) find a negative and significant effect of organised crime (measured by the number of homicides) on economic growth in Italian regions, especially in the late 1980s. 4 The direct involvement of organised crime in illegal markets can, however, alter the functioning of the legal sector: i) it may interfere with the allocation of factors, e. g. labour and capital, that might be employed in the legal sector; ii) it allows criminal organisations to accumulate wealth that can be re-invested in the legal sector, lent to 3 The criminal organisations we consider are those of the so-called “Mafia” type.5 That is, entities that not only operate for profits and possess an organised structure, i.e. some division of labour, a hierarchy, etc., but are also have features that make them more similar to institutions such as the State. We refer in particular to their goal of controlling territory.6 In addition, they use violence and intimidation to pursue their goals, but are also interested in obtaining social consensus (see, e. g., sSciarrone, 2011b, p. 3 and Scaglione, 2008a). The goal of controlling territory has important implications for the present discussion. First of all, it is related to the provision of services by criminal organisations to members of society and of the economy (individuals, firms, etc.) that are typical of the State such as protection, and settlement of disputes (Gambetta, 1993).7 This necessarily requires the organisation to interact with the political powers, as the latter comprise the institutional subjects charged with the same goal.8 Finally, the “necessary” interaction with governments implies another important effect on the functioning of an economy, namely interference legal firms, used to corrupt public officers and to strengthen its military apparatus. In particular, reinvestment in legal activities and concession of credit can alter the competitive process, while corruption or collusion with public officers may distract them from impartial provision of services to legal firms. Finally, a strong military apparatus increases the capacity for intimidation (sSciarrone, 2011b, p. 5). 5 The main Italian criminal organisations are Cosa Nostra, the ’Ndrangheta, the Camorra and Sacra Corona Unita, whose regions of origin are, respectively: Sicily, Calabria, Campania, and Puglia, all belonging to southern Italy. However, the recent paper by Calderoni (2011) shows that criminal organisations are significantly

Load more