The Red Mafia: a Legacy of Communism

The Red Mafia: A Legacy of Communism

by Annelise Anderson

Abstract

The mafia is a major feature of Russia's experience in making the transition to a market economy. This article inquires into the nature and origin of this phenomenon. The evidence suggests that the Russian mafia phenomenon is a direct outgrowth of the informal economy and related corruption that was a significant part of the economy of the Soviet Union. Economists have usually concluded that the informal economy improved efficiency and consumer satisfaction in the Soviet economy. As aspects of this informal economy have developed into mafia activity, it has become less benign and is a possible threat to the success of the market economy in Russia because it threatens to defeat competition and thus the major benefit of a market economy.

In Lazear, Edward P., ed.Economic Transition in Eastern Europe and Russia: Realities of Reform. Stanford, Calif: The Hoover Institution Press, 1995.

Copyright 1995 by the Board of Trustees of the Leland Stanford Junior University

Introduction

This chapter inquires into the mafia phenomenon in Russia to evaluate its potential for threatening the success of economic reform. The first section considers the term mafia in popular parlance and in the economic literature. The second section looks at the conditions historically associated with the development of mafias. The third section addresses the underground economy in the latter years of the Soviet Union as the framework from which the current Russian mafia, the subject of the fourth section, developed. The claim that Russia's problems with crime are merely an early stage of capitalism is addressed in the fifth section. A final section considers public policy approaches.

Mafias and Organized Crime

Economists are uncomfortable with the term mafia, preferring to talk and theorize about organized crime and the criminal firm. The resulting speculations or models are sometimes intended to characterize the entities known to the public and the press as mafia organizations. At other times they are more general, intending to cover all organizations engaged in criminal activity, with the assumption that mafia organizations fall in this more general category.

The term mafia arose in Italy around 1865 to characterize some powerful Sicilians or Sicilian families engaged in violent and criminal activity who also achieved considerable control of local economic activity. (The term encompasses similar activity by Neapolitan and Calabrian organizations.) In the United States the term was adopted to describe organized criminal groups engaged initially in gambling and loan-sharking and later, during Prohibition, in illegal liquor traffic. As early as the 1970s in the Soviet Union mafia described the combination of underground economic enterprises and the officials involved with those underground enterprises as protectors and beneficiaries. Today it is used to describe a wide range of criminal activity in Russia.

In Italy and the United States mafia has a more specific meaning than is implied by organized crime, even though the two are often considered to be synonymous. Many crimes are undertaken by gangs or groups with some division of labor, a hierarchical structure, and a distribution of the spoils. (Even small criminal groups, such as a gang that robs banks, have some organizational structure: someone drives the getaway car and someone else rides shotgun; positions in the structure may be vacant and need to be filled.) A gang that robs banks, however, is not a mafia, nor is a terrorist group, despite its use of violence. Neither organization nor violence associated with criminal activity is sufficient to define a mafia.

The term mafia is more often associated with illegal market enterprises providing drugs, illegal liquor, or gambling. These are usually ongoing enterprises in which arrangements and agreements that are not legal contracts are made among participants. To go beyond personal relationships in which deals are completed at face-to-face meetings, participants may need a larger organizational structure to enforce agreements among members of the group and outsiders and to punish or redress violations thereof. Indeed, the successful groups in such enterprises may be those who succeed in establishing such organizational structures. Such structures may greatly increase the size of the deals they can undertake, expand the scope of their market (the distance over which they can do business and the number with whom they can deal), and entail the use of violence or the threat of violence. An organization able to enforce agreements and punish violators is also likely to decide which agreements it will enforce. It may come to control entry into various lines of criminal activity and the behavior (at least to some extent) of those who come under its protection. Thus a characteristic of a mafia is that it performs governmental functionsÄlaw enforcement and criminal justice -- in spheres where the legal judicial system refuses to exercise power or is unable to do so.

Another characteristic of mafias is their influence in the legal law enforcement and criminal justice systems. Leaders of the mafia may succeed in bribing individuals anywhere in the criminal justice system - police, courts, corrections. Cases may be dismissed, juries bribed, sentences reduced, parole lifted. The mafia may agree in some cases to use its powers on behalf of others who are not generally under its protection. Thus a characteristic of a mafia is that it performs governmental functions -- law enforcement and criminal justice -- in spheres where the legal judicial system refuses to exercise power or is unable to do so.

T.C. Schelling of Harvard University, perhaps the first economist to address the mafia phenomenon analytically, defines organized crime as "large-scale continuing firms with the internal organization of a large enterprise, and with a conscious effort to control the market" (1967, 115). Schelling considers the suppression of rivals, possibly in collusion with the police, one of the basic skills of organized criminal groups and argues that their basic business is extortion from the criminal enterprises that actually supply illegal goods and services to the public (Schelling 1971).

Economist William Jennings agrees that organized crime is carried out for profit by groups but rejects monopoly as its defining characteristic. Instead, he says that "organized crime is distinguished from other group-based crime by the degree to which organized crime employs resources to insure that its members do not aid the police" by requiring oaths of loyalty and silence (Jennings 1984, 317). Jennings developed a model that incorporates profitability and the costs of administering and enforcing oaths of noncooperation with the police, given probabilities of apprehension and conviction, to predict what kinds of crime will be undertaken by organized criminal groups. From the model he predicts that mafias will avoid offenses such as shoplifting, where direct observation is the basis of apprehension, and specialize in activities where oaths are of greater relative advantage. Becker and Stigler (1974,4) suggest another reason mafias are found in ongoing illegal markets: "It is difficult to bribe or even intimidate the enforcers who would be involved in a nonrepetitive violation."

In Jennings's model the cost of enforcing the oath of noncooperation with the police is a function of the probability of arrest and of time in jail, but the cost is also a function of the authorities' efforts to develop informants among the criminal group and the vulnerability of members to such efforts. One cost of enforcing noncooperation is punishing violators of the oath; in the American and Sicilian mafias the punishment is death. There are also the costs of preventing cooperation by offering, in return for taking the oath, the benefits of membership in the organization: the opportunity to participate in profitable businesses and financial aid and the influence the group leaders wield over the criminal justice system for those arrested.

The groups that fulfill Jennings's definition of organized crime, including specifically the American and Italian mafias, have one other characteristic: they devote resources not only to ensuring that members do not cooperate with the police but also to corrupting the legal and regulatory authorities. It is this last characteristic --the corruption of legitimate government authority -- that warrants the term mafia in popular parlance around the world, and it is in this sense that the term was first used in the Soviet Union. A mafia, then, is a group that is characterized by profit-oriented criminal activity, that uses violence or the threat of violence, that expends resources to discourage cooperation of its members with the police, and that corrupts legitimate governmental authority.

When legitimate governmental authority becomes corrupted, the government may lose, if it ever had, the power to protect citizens and legitimate businesses from criminal activity. For example, theft and fencing become more attractive than other crimes when those who fence stolen goods are not prosecuted. But worse, the subversion of the criminal justice system allows the mafia to run protection rackets, that is, to extract payments from, control entry into, and mandate conditions of operation of legitimate business enterprises. Under these circumstances the mafia uses its influence in the criminal justice system to perform activities comparable to the taxing and regulating powers of legitimate government. The corruption of the government may extend beyond the criminal justice system to other regulatory agencies or agencies that award contracts or grants.

A full-fledged mafia can therefore have serious consequences for the economic growth of the legitimate economy. The mafia may create monopolies in local enterprises, control entry, and maximize revenue by extracting monopoly profits us protection payments. New investment may be discouraged and old investment driven out. Risk-averse investors are likely to seek localities less arbitrary and dangerous.

Pino Arlacchi (1986, 229-30), a sociologist and leading expert on the Sicilian mafia, points out that in the 1970s and early 1980s the areas of southern Italy with the highest growth rates were those with the lowest levels of both organized and conventional crime, whereas those areas with the greatest mafia presence were the only economically stagnant regions of Italy. In a survey designed by Arlacchi of young Italian industrialists, almost 27 percent of respondents in the three regions of Italy where organized crime is the most established claimed to have decided not to invest in their area because of criminal pressure (the average for the country was less than 3 percent). In the same three regions 58 percent claimed that they had withdrawn tenders for public contracts as a consequence of criminal threats or political pressure (The Economist 1994, 53-54).

This relationship leaves open the possibility that a common factor is involved in both the mafia presence and the poor economic performance. Political scientist Robert Putnam (1987), who studied representative regions in Italy in the 1860-1920 period and in the 1970s, suggests that the weakness of civic associational culture could be responsible for both. Putnam found that civic participatory culture in the earlier period was a strong determinant not only of civic culture but also of economic development (e.g., the percentage of the labor force in industry) in the later period, indeed a stronger determinant than the level of economic development in the earlier period.

The American and Sicilian mafias admit members, socialize them to their responsibilities, enforce the oath of noncooperation, and deliver the benefits of their influence over the criminal justice system. They may control entry into illegal and legal markets as well. But those organizations are not themselves the economic entities that undertake criminal enterprise. The criminal activity - the businesses operated by the members of the group that bring in the revenue - is undertaken by enterprises far less permanent than the group itself and often involving outsiders. The economic structure is not the same as the governing structure.1 For particular illegal markets the organization may function like a cartel, a franchiser, or a trade association, with the significant difference that it does not leave the monopoly of violence to the state.

Why Mafias Develop

Historically, three major conditions are associated with the origins and development of mafias: (1) an abdication of legitimate government power, possibly encouraged by the population's rejection of government authority, (a) excessive bureaucratic power, and (3) the financial potential of illegal markets. These conditions may interact, each providing growth opportunities to a mafia originating for one of the other reasons.

ABDICATION OF POWER

The island of Sicily, with a long tradition of resistance to outside domination, saw the rise of the Sicilian mafia in the second half of the nineteenth century, especially after the unification of Italy in 1870. Raimondo Catanzaro, an Italian scholar, notes that both "before and after unification, people tended to use new systems of private protection for securing their land and property" (1992, 6). The Sicilian case is thus an example of the rise of a mafia in a vacuum of power or of the inability or unwillingness of the state to ensure public order in a society that had turned, over hundreds of years, away from state power to private means of protecting property and ensuring order (Catanzaro 1992, 20). The state implicitly let local powers control peasant unrest. Catanzaro concludes that "in contrast to what had happened in the past, [violence] occurred within the framework of the weak authority of a state that formally held, but failed to exercise, the legitimate monopoly over violence. It therefore compelled the state to come to terms with those who exercised de facto power at a local level and to delegate to them the functions of exercising that monopoly. Indeed, in practice, the state deferred to their authority, for although it officially prohibited private violence, it nevertheless granted the power to govern on behalf of the central government to that same local ruling class that made use of it" (Catanzaro 1992, 76).

Owners of large estates hired gabelloti (custodians) to run the estates in their owners' absence. The mafia put many of its men in gabelloti positions and thus achieved control over products and manufactured goods going to market as well as control of the peasants. Thus the mafioso played critical roles of mediation among peasants, landowners, and the state and between the countryside and the outside world (Chubb 1989, 9).

Between 1925 and 1929 the Italian Fascists made a concerted effort to eliminate the mafia and reestablish government control of the use of violence, but Prefect Cesare Mori - the man implementing this effort - was dismissed when he targeted powerful people supporting the Fascist regime. Mori's effort did replace mafia control of the relationship between peasants and landowners with state control, but it did not eliminate the problem. The mafia reestablished itself when fascism fell and was given a further boost when the Allied occupation in 1943 turned to local powers for assistance in governing (Catanzaro 1992, 110, 113-114).