thenextwave

The impact of global organised crime

Posted in blindspot, books, business, crime, economics, finance, global by thenextwavefutures on 4 May, 2008

One of the observations of last year’s State of the Future report (which I blogged about here) was that organised crime was one of the the three biggest threats to global security and prosperity. Misha Glenny’s new book McMafia (‘a journey through the global criminal underworld’) comes to a similar conclusion – arguing that organised crime is a bigger threat than terrorism.

I haven’t yet read the book, so this post is based on sampling the reviews. The data – as best as can be assembled – suggests that organised crime accounts for 15-20% of the global economy. Other data points (from the Sunday Times’ review):

The EU estimates that identity theft generates £25 billion a year in profits worldwide. Fake goods, from aircraft spares to spurious Harry Potter stories, are worth up to £250 billion annually. China is responsible for 60% of the market in stolen intellectual property.

The causes: a combination of opening up the global economy in the 1980s and the end of the cold war, in particular the collapse of the Soviet Union and the very selective deregulation of the Russian economy. As Anthony Andrew explained (in The Observer):

All price restrictions were removed by government, except those of Russia’s natural resources: oil, gas, diamonds and metals. Overnight, a vast number of Russians were impoverished, while a tiny minority was able to buy up vital commodities at up to 40 times less than their global market price. ‘This process of enrichment,’ Glenny writes, ‘was quite simply the grandest larceny in history and stands no historical comparison.’ In turn the oligarchs required protection, and jailbirds and former KGB agents alike moved into the lucrative if deadly business of the ‘kryshy’ protection rackets, or ‘armed entrepreneurs’.After the failure of the Soviet Union, in which the law was subordinate to shifting party requirements, Russia effectively privatised crime.

$5bln passed through the Israeli economy from eastern Europe following the Communist collapse; an estimated $20bln went to Switzerland. But other oligarchic states do well as well; 150-250,000 barrels of Nigerian oil go missing every day (at around $100 a barrel this all adds up to a tidy amount pretty quickly). But the drugs trade is the driver; 70% of the black economy is fuelled by drugs money.

David Goldblatt (in the Independent) picks up on the globalisation point:

Our misfortune is that the explosive growth of this shadow economy coincided with the deregulation and globalisation of financial markets. … On every page Glenny lays bare human mendacity and greed, failing or failed police forces and judicial systems. But, just as surely, he takes us to the insatiable maw of the North as consumer of cheap labour, cheap sex and cheap drugs. He makes us see a grotesque irony of globalisation; that the very people made rich by the global economy return to its illegal shadow to sate the insecurities and neuroses of their opulence.

The losers, of course, are also hidden in the shadows: Chinese migrant labourers and their gang-masters, the trafficked Moldavian prostitute in Tel Aviv. All of this seems to me to be something of a blindspot in many readings of the global economy, the State of the Future notwithstanding. And even when we see the symptoms, as we did for a moment after the Morecambe Bay tragedy, the response is muted. Any effective response would have to be political, as John Dickie argues in the Guardian:

McMafia amasses an irresistible weight of evidence to support some simple but telling conclusions. Transnational crime is a far bigger threat than terrorism. Offshore banking havens should be shut down. Capitalism without sound law enforcement is banditry. Tooting cocaine, visiting prostitutes and hiring untaxed immigrant maids are no mere peccadillos. And for any politician who hankers after immigration controls or yet another war on drugs, Glenny has a blunt message: it’s the black economy, stupid.

And probably transnational as well. It’s probably not “misfortune” (and I suspect Goldblatt was being ironic) that the growth in organised crime has gone hand in hand with the financial deregulation that was an essential component of the latest wave of globalisation. They go hand in hand. In structural terms, organised crime operates in the gap between where “fair markets” have failed, and where politics and jurisprudence are not accountable. The Salon review has a relevant quote from the book:

“For globalization to work, the world needs to be a level playing field: the West has to stop its protectionist practices and it has to reassess its resistance to the free, or at least a freer, movement of labor. The developing world in turn needs to address the issue of corruption and the strengthening of the rule of law. This raises the awkward question of global governance and standards that might be compatible across the world.”

The Times has a podcast of Glenny talking about his research.

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