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.
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.
9 comments:
My understanding is that there are some aboveground markets in which organized crime outfits have historically been successful -- for example, in vending machines, and in the financing and distribution of pornography.
Pornography is a special case, given that during the period of substantial Mafia involvement, it was constantly under legal threat, and social pressures contributed to a lot of economic features that made the market similar to black markets even when it wasn't formally one. As for vending machines, I'm not sure where exactly the organized crime element came from -- although I've heard plausible suggestions that coercive control over restaurants and bars (through various forms of racketeering) played a role, and also that getting into businesses oriented around large amounts of cash in small denominations aided in money laundering.
If we saw crime increase with incrimination of more and more activities, would we be so far off by assuming that crime will decrease with the legalisation of certain markets?
In other words, why not expect the bulk of trafficking criminality to go bankrupt? (to the degree that many gang members can't switch to violent crime)
If drug trade is less costly than outright violence/extortion (although my understanding from Freakonomics was that extortion/protection dues were part of the monthly revenue for the gang although a considerably smaller piece), legalizing drug trade wouldn't cause a substitution of increased violence/extortion.
I would argue that drug trade is less costly than violence/extortion because the latter is more risky, distasteful and shorter-lived. The bully/wimp balance likely would come into play, as w
Jason:
Some people get crack money from being mayors or councilmen.
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.
The two are not mutually exclusive. The Freakonomics chapter you allude to points out that gang members make much less than minimum wage. The gangs are making use of inner city youths that ordinary firms cannot -- because the law will not let them pay a wage commensurate with their productivity.
Paying the youths less than minimum wage would be illegal even if the activities themselves were as innocuous as placing vending machines in willing businesses.
In fact, I would guess that any attempt to defeat gangs by legalizing certain activities will fail -- not only because there will always be illegal activities, but because there will always be an illegal market for sub-minimum wage workers.
"In fact, I would guess that any attempt to defeat gangs by legalizing certain activities will fail -- not only because there will always be illegal activities, but because there will always be an illegal market for sub-minimum wage workers."
Some of us don't regard the latter case as failure.
So, if they happen to acquire a perfectly legal business... they'll probably look for a way to cut corners and increase the profits, if not to use it as a cover for existing illegal businesses.
Yeah, I wonder what inner city gangs Ken Lay and Bernie Ebbers were a part of... MBA Mafia, Harvard Crips, Wharton Bloods? ;-)
The japanese Yakuza are probably the closest example to a "legalized gang". They are tolerated by the police and civilians alike. They even have posh business offices.
I would venture to say that most US gangs are not disciplined enough to manage a transition to a Yakuza like status. So while it works in Japan, I don't believe it could work very well here.
No taxes, it is all pure "profit", not a legal business in the world that can match the margins of illegal ones--drugs, guns, whores,... good $ when you can get it
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