Looking over a review of Freakanomics--I haven't yet read the book--I noticed the very plausible claim that inner city gangs are not all that different from other businesses. That suggests an interesting question: Is there a reason why they have to limit themselves to crime? Gangs may have comparative advantage in illegal activities since they have a structure that does not depend on using courts to enforce contracts and the like, so if there are sufficient opportunities in illegal markets, it is not surprising that they exploit them. But suppose the illegal market vanishes. Suppose we legalize drugs, prostitution, and gambling, as some of us think we should. What then?
One possibility is that gangs can only compete in illegal activities--deprived of their current revenue sources, they will turn to extortion and robbery. Another is that they are a form of social organization that works well at employing resources--inner city youths--that ordinary firms can make little use of. If so, there is no obvious reason why they cannot use them for legal as well as illegal activities.