ANNOTATED BIBLIOGRAPHY
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Balletta, Luigi, and Andrea Mario Lavezzi. “The Economics of Extortion: Theory and the Case of the Sicilian Mafia.” Journal of Comparative Economics, (June 5, 2023). https://doi.org/10.1016/j.jce.2023.05.003.
In this research report, “The Economics of Extortion: Theory and the Case of the Sicilian Mafia,” Luigi Balletta and Andrea Mario Lavezzi pa. Criminal organizations, specifically the Sicilian Mafia, are essentially another form of legal government, “providing a specific service, protection, which would otherwise be provided by the State,” and they do this with the “implement their own taxation system: extortion.”. This study presents both theoretical and empirical findings explaining how the Mafia established their rates for extortion (referred to as “pizzo”) and how the relationship varies by sector. Balletta and Lavezzi discover that the relationship between the pizzo and the size of the firm is “concave,” meaning that smaller firms face higher marginal extortion costs compared to larger firms. The study also determined that Mafia taxation is “highly regressive” since “the percentage of operating profits appropriated by the Mafia, amounts to approximately 40% for small firms and decreases to approximately 2% for large enterprises.” In other words, smaller firms give away a higher percentage of their profits making it more difficult to expand and grow yet the protection allows them to survive. This large cost distorts small business investments and serves as a barrier to market entry, limiting competition, which is leading to the emergence of oligopolistic (limited competition) markets with a few firms setting high prices and selling low-quality products. In areas infiltrated with criminal organizations, Balleta and Lavezzi also discover that bank loan interest rates for smaller firms tend to be higher, required to provide more collateral, and are credit rationed because they are “less profitable and limited in their ability to build up enough collateral to access further credit,” due to the extortion of criminal organizations. Balletta and Lavezzi characterize this economic environment as a “low-growth poverty trap” since the mafia organizations make it extremely challenging for the smaller businesses and the lower class to invest their way out of poverty due to insufficient initial capital, limited collateral, and high borrowing cost.
This report provides a valuable analysis of the economic repercussions of extortion by the Sicilian Mafia. As seen in earlier readings, extortion is one of the main features of organized crime and plays a significant role in these organizations' success. It's important to understand and develop the argument that while these criminal organizations may be economically prosperous, it is at the cost of the nation's economy and specifically targeting the lower class. I have found that this discovery shows that sectors of the Italian government's failure, which has allowed criminal organizations to develop their own government-like foothold, is no better than the mafia’s governance. This leads me to a new area of research about what is next for the economy and governance of Italy.
Bandiera, Oriana. “Land Reform, the Market for Protection, and the Origins of the Sicilian Mafia: Theory and Evidence.” Journal of Law, Economics, & Organization 19, no. 1 (2003): 218–44. http://www.jstor.org/stable/3554979.
Oriana Bandiera in their article, “Land Reform, the Market for Protection, and the Origins of the Sicilian Mafia: Theory and Evidence,” discusses the origins and development of the Sicilian mafia in relation to the abolishment of feudalism in 1812 and the establishment of private property rights. This generated a major shift in the economic and social landscape of Italy between 1812 and 1860 because the number of landowners increased from “2,000 to 20,000” yet the lower class who accumulated such land struggled to develop profit and therefore restored to “banditry.” In combination with a lack of public security, there became a great need for private protection thus commencing the rise of the Sicilian Mafia. Most landowners hired the mafia for protection against predatory attacks as this dependency and number increased, so did the mafia's “legitimacy and power.” Bandiera proves this relationship between landlord’s fear of stolen property, land fragmentation, and the protection of the mafia through his developed common agency model. Ultimately, Bandiera demonstrates that criminal organizations gain a foothold in their nation's society through their “enforcement services,” which they can thus exploit to allow them to engage in illegal activities. Bandiera draws lessons from the Sicilian experience, advising nations undertaking similar institutional changes to be cautious when establishing private property rights due to the lack of adequate enforcement mechanisms, since separate organizations may develop to fill the gap.
I find this historical recount by Bandiera particularly significant because it highlights the development of the Sicilian mafia and its immediate role in the economic development of Italy post-feudalism. Economic incentives played a pivotal role in the growth and sustenance of criminal organizations. Nevertheless, I would be interested to understand if these deep roots in Italy’s economy were beneficial to establishing order and growing the economic landscape of Italy today.
Castells, Manuel. “The Perverse Connection: The Global Criminal Economy .” Essay. In End of Millennium III, 2nd ed., III:169–211. The Information Age: Economy, Society and Culture. Malden, Massachusetts: Blackwell Publishers, 2000.
Manuel Castells’ “End of Millenium”, chapter three, titled “The Perverse Connection: The Global Criminal Economy,” provides a comprehensive analysis of the dynamics of global organized crime. As markets have globalized, there is no question that criminal organizations have taken advantage of this new source of profit with the most profitable markets being drugs, weapons trafficking, nuclear material, smuggling of illegal immigrants, the trafficking of women and children, the trafficking of body parts, and money laundering. Castells explains that the strategic approach of criminal organizations, such as the Sicilian Mafia, is to function in “low-risk areas'' as they can hold stronger positions in local politics as well as target ideal markets in areas with the “most affluent demands” to raise prices and profit. This chapter specifically highlights the deep and vast influence of the Sicilian Mafia in southern Italy and the Italian state. Castells explains that the Sicilian Mafia’s ties to the Italian Christian Democratic Party provided them with the power to expand their presence throughout the entire country and penetrate the banking system. Through this network, they were able to further expand and connect with “the entire political and business elite of the country, even coming very close to the Vatican through the Banco Ambrosiano”. Castells then describes the Silcian Mafia’s best documented international moves in 1987, where they fostered the connection of Asian and European heroin markets to the cocaine markets of Colombia, allowing Colombian cartels to then introduce heroin to the United States, all while the Sicilian Mafia would get a share for the trade. Castells describes the drug traffic as the “paramount business' ', identifying it as the primary business of the criminal economy. It is explained that the only legitimate threat to this market is the legalization of drugs; nevertheless, these criminal organizations thrive because of the common “political blindness, and misplaced morality” of governments and societies surrounding drug epidemics as they forget the foundational problem “demand drives supply”. The globalization of organized crime has created flexible and versatile organizations, that can stay under the radar as capital can switch through more financial institutions, currencies, stocks, and investments allowing criminal capital, Furthermore, Catells discusses the destabilizing impact of criminal capital on international finance and its role in transforming the economic environment of countries like Russia and Italy to become unpredictable and favor “short-term” investment strategies. Additionally, Castels emphasizes criminal organizations' “corruption of democratic politics” as their desire for political infiltration has involved them within campaigns and elections which can disrupt the functions of economic systems such as competition and resource allocation. Castells also provides new insight into the continuance of criminal organizations, as they have become “role models” for a generation facing limited opportunities amidst the popularity of Mafias through media. This may signify not just a “cultural breakdown of traditional moral order” but also the development of a new society “made up of communal identity and unruly competition, of which global crime is a condensed expression”. Castells’ nuanced exploration of the global criminal economy encompasses the organizational strategies, social implications, and the multifaceted nature of global organized crime.
Castells’ chapter was the first insight I have explored about the global criminal economy and its behaviors. With the expansion of the global criminal economy, there is a transformative influence on the economic environment of Italy and its future with the Sicilian Mafia. Specifically, I found Castell’s analysis of the current generation particularly interesting as he indicates that the current global economy, which is becoming increasingly disproportionate in providing opportunity and financial security for the majority population, may become a more widely accepted economic structure. I would like to explore this concept further as this may indicate further penetration of organized crime within the Italian economy and a switch in the public's perspective of the benefits and consequences of the Sicilian mafia.
Daniele, Vittorio, and Ugo Marani. “Organized Crime, the Quality of Local Institutions and FDI in Italy: A Panel Data Analysis.” European Journal of Political Economy 27, no. 1 (March 2011): 132–42. https://doi.org/10.1016/j.ejpoleco.2010.04.003.
Vittorio Daniele and Ugo Marani’s study, “Organized Crime, the Quality of Local Institutions and FDI in Italy: A Panel Data Analysis,” investigates the influence of organized crime on foreign direct investments (FDI) in Italy. FDI is a financial investment made by a company or individual from one country to a business located in another country and therefore plays an important role in the upkeep of the global economy. Studying Southern regions of Italy where 35% of the Italian population lives, Daniele and Marani note that between 2005 and 2006, this region “received about 1% of total FDI inflow,” which is not a substantial amount. It is explained that the presence of criminal organizations is considered “an additional risk (or an additional cost) for business,” and therefore creates an undesirable business climate for foreign and national investment. To estimate the impact of crime on FDI, Daniele and Marani observed 103 Italian provinces between 2002 and 2006. They concluded that there exists a “negative correlation between the index of organized crime and FDI,” even if there is a presence of financial incentives for investments.
Since the FDI can play an essential role in economic development across borders, Italy seems to have a disadvantage by not receiving much of the investments due to its unique presence of organized crime. This study underscores the broader implications of Italy’s culture of organized crime for foreign investments and I would like to understand more how this is negatively impacting their economy in comparison to other countries.
D’Angelo, Elena, and Marco Musumeci. Rep. Organized Crime and The Legal Economy: The Italian Case. Torino, Italy: United Nations Interregional Crime and Justice Research Institute, (2016). https://unicri.it/sites/default/files/2019-10/UNICRI_Organized_Crime_and_Legal_Economy_report.pdf
The United Nations Interregional Crime and Justice Research Institute (UNICRI) case study, Organized Crime and The Legal Economy: The Italian Case, explores in depth the infiltration of the Italian mafia into the legal economy and its impact on the economy and society. Inspired by the U.S. Department of State's (2015) estimation that 12.4% of the country’s GDP Italy’s black market and the Italian Parlients Antimafia Commission’s estimation that the “ total turnover of endogenous organized crime in Italy valued at €150 billion in 2012,” ​​UNICRI’s study was guided by two main research questions: “How does organized crime infiltrate the legal economy?” and “What is the impact of organized crime infiltration in the legal economy?” The findings of this research reveal that infiltration is growing, taking many forms, including direct or indirect control of legal enterprise, the creation of monopolies, and illegal access to public bids, and as a result, worsening economic performance. There are four main sources of illicit profits of organized crime: counterfeiting, drug trafficking, human trafficking and migrant smuggling, and environmental crimes. Counterfeiting is “performed through hidden channels, often creating a parallel underground market” which makes it difficult to explore and prevent, making it one of the main sources of revenue for the mafia. Drug trafficking, mainly Cocaine, Heroin, and Cannabis, is the “main driving force behind the accumulation of illicit proceeds,” and hence become a significant element in Italy’s criminal society. Human Trafficking and Migrant Smuggling are some of the most recent sources of profit because of the recent surge in migrants combined with a lack of governmental structure for supporting these migrants. Criminal organizations take advantage of this lack of governmental structure because it allows this strategy to be an “activity with high profits and relatively low risks at the penal level.” Environmental crimes include “illegal logging, poaching, the illicit trafficking of a wide range of animals, illegal fishing, illegal mining and the dumping of toxic waste” and have become an extreme point of concern for many economics and environmentalists as “verified eco-crimes totaled 29,293 in 2014, with a total turnover of €22 billion” and infiltration in comparison to the previous year increased by 26% in the waste sector and 4.3%in the cement sector. These four sources of profit guide infiltration into the legal economy because they are driven by the need for “concealing criminal activities,” the “economic benefits: an increase in profits,” and its development of their “social acceptance and control of territory” which allows them to continue their growth. The study explains that criminal organizations' success in infiltration has been due to several strategies including money laundering, extortion, protection money, the creation of monopolies, the infiltration of ancillary activities such as gambling, the infiltration during special circumstances such as the reconstruction work post the L’Aquila earthquake of 2009. The UNICRI case study provides a thorough explanation of the Mafia’s success in infiltrating the legal economy and its negative effects to offer insight into strategies for combating organized crime. A few offered strategies include attacking criminal wealth, and the need to promote risk assessment tools, as well as, further research and data collection. Other strategies include proper prevention of “vulnerability of public biddings,” a study of the “transnational element of reinvestment activities,” and communication with the general public about the negative impacts of reinvestment activities of organized crime to “undermine their control.”
This case study highlights the multifaceted and complex nature of organized crime’s infiltration into Italy’s legal economy and its far-reaching implications for the country’s economic and social landscape. These criminal organizations are shown to have an intricate and adaptable nature for criminal infiltration. As this case study was published in 2016 by a United Nations organization, I would like to understand what has been done since the accumulation of this information to mitigate its economic effects as the urgency emphasized by UNICRI is evident that international cooperation and public awareness is required to address the large challenge of organized crime.
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Fenizia, Alessandra, and Raffaele Saggio. Rep. Can the Mafia’s Tentacles Be Severed? The Economic Effects of Removing Corrupt City Councils. Washington, DC: The George Washington University Institute for International Economic Policy, (2020). https://www2.gwu.edu/~iiep/assets/docs/papers/2020WP/FeniziaIIEP2020-22.pdf
Alessandra Fenizia and Rafaele Saggio’s research article, “Can the Mafia’s Tentacles Be Severed? The Economic Effects of Removing Corrupt City Councils,” investigates the long-term economic impacts of arguably the most aggressive policy aimed at combating organized crime. This policy is known as the City Council Dismissal (CCD) and involves the dismissal and replacement of the entire political apparatus of a municipality when they are allegedly infiltrated by the Mafia. The policy aims to have two features: the CCD “generates sharp variation in the “quality” of local institutions in a given municipality,” and the “CCDs represent a unique type of place-based policy” by directly targeting local institutions rather than imposing external policies like tax subsidies. Fenizia and Saggio’s study is of 243 CCD events across Italy that occurred between 1991 and 2016. The results show that there is a general increase in economic activity such as “an increase in formal employment of 16.9% in the long run” and “a 10% increase in the price of industrial real estate (i.e., small factories and craft workshops.”. Fenizia and Saggio also investigate the number of social security records recorded during the CCD intervention which shows “first time increases by 4.4 percentage points” which indicates a high number of individuals in the CCD areas are switching from informal to formal employment with potential benefits (i.e., healthcare and retirement) which can suggest an improvement in the formalization of the labor market and the economic well being of the population. Positive fiscal effects include improved tax enforcement by roughly 10% and an increase in local administrative expenditures such as the development of “roads and other transportation infrastructures.” While this economic growth generally commences around three years post-intervention from the CCD, Fenizia and Saggio’s study shows evidence that the mafia hinders competition and economic growth and therefore encourages policymakers to continue to pursue such aggressive policies like the CCD to help break ties from the mafia and encourage growth.
This is the first study I have discovered that provides accumulated evidence of a variety of economic factors pre and post-mafia policy, and therefore the first study showing the effectiveness of policymakers. In almost all other research I have conducted, authors argue that there has not been any effective policy-making to combat the Mafia because they have not taken into account foundational aspects of the Mafia’s structure. I would like to further research and interview Fenizia and Saggio to understand the characteristics that the Italian government was aware of and took into account when designing such a policy and why some may find this policy ineffective.
GAMBETTA, DIEGO. “Fragments of an Economic Theory of the Mafia.” European Journal of Sociology / Archives Européennes de Sociologie / Europäisches Archiv Für Soziologie 29, no. 1 (1988): 127–45. http://www.jstor.org/stable/24467490.
In “Fragments of an Economic Theory of the Mafia,” Diego Gambetta discusses the role of the Mafia in Italy’s regional economies, particularly as the unique provider of trust and protection for transactions. Gambetta defines the Mafiosi as an entrepreneur of “a very special commodity, intangible, yet indispensable in the majority of economic transactions…trust.” The demand for protection derives from the “uncertainty concerning property rights” and “the largely imperfect flow of information.”. As Gambetta explains, this concept is not widely recognized and hence leads to a failure in legislation that attempts to combat the Mafiosi. The specific key attribute of the Mafia is their “Omerta,” their code of secrecy and intelligence. Secrecy, a powerful tool that a large section of a region like Sicily can maintain when facing public inquiries concerning crime and vaguely threatening strangers, builds the distortion in data about the Mafiosi. Nevertheless, this also develops their reputation and protection. The Mafiosi’s intelligence, the second unique attribute, allows for them to “have some idea of the objective constraints [parties in transactions] are facing so as to be able to assess their reliability” and this inquiry further establishes their reliability and credibility to encourage more business. Additionally, the mafia utilizes Catholicism as a means of symbolic representation and “advertisement” to promote, publicize, and make attractive their protection services and imply power and credibility. Gambetta's intriguing and unique perspective on the Mafia’s role in the economy highlights not just its function as a criminal organization but also as a provider of trust in an uncertain economic landscape.
David Gambetta's dive into the systems and structures of the Italian mafia provides a unique insight into their success. I find this an incredibly valuable idea to recognize as it provides a foundational explanation of how and why the Mafia has withheld their long-term triumph over the Italian economy. Their economic structure cannot be defined by a specific paradigm but rather exploits the inefficiencies of their existing economic and legal system which may be useful to explain Italy’s unique half-developed and undeveloped economy. Nevertheless, this makes growth hard to measure and I would like to discover more research on the economic growth during pre and post-Mafia infiltration and specific legislation that has been implemented to combat this issue.
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Garoupa, Nuno, Vimal Kumar, and Stergios Skaperdas. “On the Economics of Organized Crime.” Essay. In Criminal Law and Economics. Edward Elgar, (2009). https://www.economics.uci.edu/files/docs/workingpapers/2007-08/skaperdas-15.pdf
Vimal Kumar and Stergios Skaperdas’ paper, “On the Economics of Organized Crime,” dissects the intricate economics of organized crime, highlighting the role organized crime groups play in the production and distribution of legal and illegal goods and services. While organized crime may seem similar to regular business firms, their defining feature is their ability to “protect the ownership of other goods and services and make their contractual exchange enforceable.” As Kumar and Skaperdas explain, this protection ultimately derives from their coercive power of the “barrel of a mafioso’s gun,” setting themselves apart from the protection by law enforcement and courts. The paper begins by examining the origins of organized crime, arguing that these organizations emerge in conditions similar to “anarchy (absence of rule),” and in the presence of “a power vacuum.” This tends to occur due to geographical, ethnic, or cultural distance from the state, or during revolutions, wars, and major political changes. Essentially, criminal organizations arise under weak states or when states effectively cede control such as the prohibition of production and distribution of certain commodities. Kumar and Skaperdas then examine the internal organization of organized crime, highlighting the hierarchical structures and role of mafiosos as providers of protection and security. This foundational understanding of criminal organizations then led to the further analysis of the market structure and competition for such organizations. Profit derives from both the protection activities and the production and distribution of commodities. The added factor of protection creates a unique characteristic of competition known as the “knee-cap” which is principally the use of violence to compel customers and competitors to abide by their organization without having to change price or quality. Therefore, the greater competition is for the resources used for violence rather than production and as a result, total production and efficiency are reduced. The study additionally investigates the financial repercussions of organized crime, such as higher operating expenses for legal enterprises that must pay for protection, lower investment, and investment selection biases. In places dominated by organized crime, the arbitrary nature of punishments and the uncertainty around contract fulfillment contribute to violence, property destruction, and death.
Ultimately, this paper highlights the multifaceted economic costs and consequences associated with organized crime, offering valuable insights into this complex, pervasive, and universal issue. I would, however, like to further understand this application in Italy's criminal organizations and understand if any characteristics are unique to Italy’s economy and welfare that have been impacted or are impacting criminal organizations' behavior.
Jennings, William P. “A Note on the Economics of Organized Crime.” Eastern Economic Journal 10, no. 3 (1984): 315–21. http://www.jstor.org/stable/40324917.
William P. Jennings, Jr. provides a basic explanation and perspective of organized crime in his journal article “A Note on the Economics of Organized Crime”. While published in 1984, Jenning’s perspective coincides with the timeline of a rise in organized crime in Apulia and Basilicata in Italy. Jennings Jr. explains that there is no definitive definition of organized crime however it explains that it is “the product of a self-perpetuating criminal conspiracy to wring exorbitant profits from our society by any means- fair and foul, legal and illegal.”. In Jennings, Jr.’s conducted study, he seeks to evaluate the type of crime criminal organizations tend to lean towards. He assumes that the role of organized crime, the mafia, is to “employ resources to enforce a criminal agreement, or ‘oath’, not to help the police,” and therefore they avoid the crimes that are like to be captured through observation such as car theft, daylight armed robberies and street sales of narcotics. Essentially, Jennings Jr. argues that criminal organizations act as a third party to create an official agreement to avoid the police by any means necessary. Therefore group crime, while may seem easier to detect because of the number of players, lowers production costs and the ability to arrest. It also allows for hierarchy where those on top will become more profitable and cushion from arrest allowing them to continue on their organized crime business. As criminals involved in organized crime will become less arrested, profits will increase and there will be fewer expected arrest costs. Jennings Jr. argues that this outline aligns with the proposed remedies of various law enforcement agencies. This outline, however, is strictly limited to the foundational proponents of organized crime and does not include the implications of organized crime infiltrating law enforcement and public sectors which can explain how organized crime has continued to grow in Italy.
William P. Jennings, Jr. provides a notable explanation for the behaviors of criminal organizations that heavily influence their economic infiltrations. The strategy defined by Jennings Jr is quite interesting because it separates organized crime from basic criminal activity. However, I find that Jennings Jr’s research does not encompass the full extent of the mafia's criminal activity as they have also begun infiltrating law enforcement and public sectors, blurring the lines between criminal and legal systems. I would like to conduct further research that combines Jennings, Jr.'s understanding of criminal organizations' behavior and their infiltration of legal systems and governance. This will help develop or further a holistic view of the influence of organized crime on both economic and political fronts.
Mocetti, Sauro, Lucia Rizzica, and Litterio Mirenda. “The Boss on Board: Mafia Infiltrations, Firm Performance, and Local Economic Growth.” CEPR, (October, 2019). https://cepr.org/voxeu/columns/boss-board-mafia-infiltrations-firm-performance-and-local-economic-growth .
The article, “The Boss on Board: Mafia Infiltrations, Firm Performance, and Local Economic Growth,” provides a detailed explanation of the study conducted by Sauro Mocetti, Lucia Rizzica, and Litterio Mirenda, which evaluated the impact of criminal organizations, specifically the ‘ndrangheta, on the performance and growth of infiltrated firms outside of Calabria. Around 1% of firms in central and northern Italy are classified as infiltrated with varying concentrations across geographical areas and these firms rely “heavily on public demand (e.g. construction and utilities) or that are more suitable for money laundering (e.g. retail or financial services).” The study discovers that “'ndrangheta infiltrations increase the revenues of the treated firms by approximately 24%,” but this effect diminishes over time. However, in the long-term scope, the infiltration is evaluated to “lead to a decrease in employment growth of about 28 percentage points over a forty-year period,” particularly in sectors closely related to the public sectors. In other words, firms are spending an equal amount of money on a growing labor force to produce more and spend the excess money on illegal activity rather than put it towards growing their firm. The study proves that the involvement of the ‘ndrangheta is influencing an increase in productivity by firms but stunting the economic growth from this increase or any potential increase. Rather the ‘ndrangheta are creating a deteriorating cycle for firms because eliminating opportunity for growth while pushing productivity to its maximum capacity could lead to burnout and worsening economic outputs.
This article provides an interesting insight into the current and future of the Italian economy and social well-being as organized crime and firm infiltrations continue to grow. The economics of the mafia do not seem to be logical from a long-term perspective; however, specifically in Italy, these criminal organizations have an extremely deep history. It would be interesting to understand the aspects that allow for such organizations to continue to prosper even if their systems do not necessarily seem to promote growth according to Mocetti, Rizzicia, and Miranda.
Mocetti, Sauro, Lucia Rizzica, and Litterio Mirenda. “The Real Effects of ‘Ndrangheta: Firm Level Evidence.” Working Papers. Banca D’Italia Eurosistema, October, (2019). https://bancaditalia.it/pubblicazioni/temi-discussione/2019/2019-1235/en_Tema_1235.pdf?language_id=1
In “The Real Effects of ‘ndrangheta: Firm-Level Evidence,” Litterio Mirenda, Sauro Mocetti, and Lucia Rizzica explain their results of a comprehensive study examining the presence and effects of the exposure to the ‘ndrangheta. Mocetti and Rizzica are one of the first to examine the “dynamics of [firm] performance before and after the criminal infiltration,” and “exploit such micro-level information to analyze the final effect of organized crime penetration at a very fine level of geographical partitioning i.e., the single municipality.” The s
tudy unveils that infiltration boosts the productivity of treated firms, notably increasing their revenue, although this growth may stem from either “over-invoicing for money laundering purposes” or a “dominant market position likely obtained exploiting the coercive power of the criminal organization or the availability of low cost capital.” Additionally, the study discovers that in the long term perspective, there will be a substantial and statistically significant negative impact on employment growth in municipalities affected by ‘Ndrangheta infiltration, especially in sectors for profit-making, potentially displacing competitors. Mirend, Mocetti, and Rizzica’s instrumental approach strengthens the evidence connecting organized crime presence and economic consequences. The findings underscore the urgency of understanding and mitigating the economic influence of criminal organizations to foster a legal and competitive economic environment.
These findings strengthen the evidence linking organized crime's presence to tangible economic consequences, emphasizing the pressing need for a comprehensive understanding of the economic influence wielded by criminal organizations. I would, however, like to further understand the historical timeline of organized crime, as it has deep roots in the Italian economy which grew significantly during the mid to late 1900s. Since Mirend, Mocetti, and Rizzica argue that the future of organized crime presence will result in a fall in economic growth, how was this previously avoided throughout Italian economic history?
Mosca, Michele. “Policies to combat organized crime in Europe: The Italian experience.” The Journal of European Economic History 49. no. 3 (2020): 167-185. https://www.econstor.eu/bitstream/10419/231566/1/49-2020-3-167-185.pdf
Michele Mosca, in the journal article “Policies to Combat Organized Crime in Europe: The Italian Experience,” discusses the pressing issue of the growth of organized crime that requires attention at the European Union level. Inspired by the 2018 Europol report that shows that in the 28 member countries, there exist some 5,000 criminal organizations and most operate in more than one state, Mosca argues that there must be a higher sense of urgency to combat these organizations as they are “distorting and conditioning the functioning of the markets,”. Seeing as though the Italian mafia is the largest form of criminal organization in the EU, Mosca delves into the Italian experience of social and institutional reutilization of confiscated assets as a legislative strategy to combat organized crime. This was introduced by Law 109/1996 and has confiscated “over 33,000 properties and 4,000 businesses.” Mosca argues that these assets hold immense wealth that can be redirected to support the development and implementation of healthy systems in areas of common organized crime. This however has yet to be done because of the “complex administrative procedures, producing lengthy delays before assignment to the persons who apply,” and therefore encourages a reevaluation of administrative procedure. Mosca offers the solution that the transformation of the “social capital” by criminal organizations can be facilitated by non-profit organizations that repurpose these actions for social cases. If the EU adopts such a model, it will be “contributing to a metamorphosis of social capital that can be used to radically counteract the power of organized crime,” while promoting positive social and economic development. The key to this battle is permanently depriving these criminal organizations of their illicitly accumulated assets. This creates a domino effect on deterring criminal organizations because it “discourages criminal behavior by demonstrating the State’s power to regain possession of the resources stolen from the community.” There has already been a significant growth in the number of properties confiscated: “In 2010, the properties definitively confiscated numbered 9,857, of which 82% were in the four southern regions,” and in 2020, “properties now numbered 33,737, 74% of them in the same four regions.” The value of confiscated firms in 2010 “amounted to some €362 million” which is an extreme amount that Mosca emphasizes should be allocated to the growth and strength of the economy to help further combat organized crime. While the number demonstrates the mafia’s strategy of using material goods as a symbol of their power to grow their power, the confiscation can be used as a sign of the government's growing power to deter criminal activity. The Italian experience in reutilizing confiscated assets can serve as a progressive model for other European countries to help combat organized crime while aiding in the growth of social and economic development.
I find Mosca’s research fascinating because it adds two new subjects to the discussion of combating organized crime: first, this battle must be recognized on the international level, and second, that there is a clear solution for deterring criminal activity while growing the economy. I would like to understand if such a solution would work in practice considering the switch from a large dependency on goods and services provided by the mafia may not seem as smooth as presumed. One of the main concerns is will enough resources and investments be provided by reallocating the assets to non-profit organizations to meet the current number provided by criminal organizations.
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Naylor, Robert T. “Mafias, Myths, and Markets.” Essay. In Wages of Crime: Black Markets, Illegal Finance, and the Underworld Economy, 13–43. Ithaca: Cornell Univ. Press, 2004.
Robert T. Naylor’s first chapter, “Mafias, Myths and Markets” of Wages of Crime: Black Markets, Illegal Finance, and the Underworld Economy, he discusses the evolving landscape of traditional criminal organizations, such as the Italian Mafia, which have transcended geographical boundaries to engage in what is said to be “the most massive insidious criminal assault in history”. The chapter highlights the alarming development of international strategic alliances among national criminal groups, which has grown their wealth immensely and he argues that they “threaten the integrity of entire national economies as well as the international financial system itself”. Naylor contends the idea that criminal organizations, otherwise referred to as illegal firms, actions do not compare to legal firms. One example includes how illegal firms mitigate risks by implementing layers of intermediation to resist regulatory authorities, which can be very costly, while legal firms gain security through their transactions with external actors such as the authorities. Naylor continues to explain that there does not necessarily exist a market of goods and services for criminal organizations, but rather, they operate on “ a set of submarkets, segmented by information constraints, regulatory barriers, social and cultural divisions, and, not least, fear” which is essentially coercion. These illegal firms also have to battle obstacles such as lack of access to legal capital markets, the threat of becoming “visible” during a period of growth, and the instability of having one leader. Nevertheless, Naylor introduces the concept of “parallel governments” in which criminal organizations, who step in where there is weak governance, will establish their own stronger form of government because “business needs government”. The similar characteristics between governments and criminal organizations are their defining of property rights and regulation of enterprises, the conducting of “foreign relations”, providing a social security fund for its consumers or citizens, and being the “last resort” in times of crisis such as providing loans. Naylor coined a new term for criminal organizations a “para-political association” rather than a “business”. This chapter then begins to contend with popular stereotypes, one argument being that criminal organizations actually do not generate high rates of return. Naylor draws parallels of these criminal organizations to trusts and hence is extremely vulnerable to any implementation of “antitrust” laws. The prominence of enforcement is the main reason why goods and services provided by criminal organizations have a high price that generates their profit. Thus, Naylor’s evaluation of criminal organizations provides a critical analysis of their true organizational structure and market suggesting that the decentralization, and division of these operations might ensure greater market stability.
Naylor’s chapter meticulously examines global criminal organizations, such as the Italian mafia, and provides valuable insights into how such enterprises are impacting the economic landscape of Italy. The international strategic alliances and the adoption of business-like structures offer a new perspective to analyze such mechanisms of impacting the Italian market. The examination of the challenges faced by illegal firms, that actually separate them from a business-like character to rather a government, provides a unique thorough framework of the Italian mafia’s operations which I can use to better understand the operations of such organizations to then develop their role in the Italian economy.
Paoli, Letizia. “Crime, Italian Style.” Daedalus 130, no. 3 (2001): 157–85. http://www.jstor.org/stable/20027711.
Letizia Paoli’s journal article, “Crime, Italian Style,” explores the unique qualities of Italy’s criminal activity in comparison to other countries which has been proven to not be statistically higher, but at a larger magnitude. In Paoli’s subchapter “Underground Economy,” she explores Italy’s underground economy’s distinctive aspects. Paoli stresses that underground economies are an “unavoidable component of all modern societies,” and nevertheless, underground activities hold an unprecedented percentage of Italy’s GDP. Paoli classifies the underground economy into two different sectors: informal and criminal. The informal sector is the “production and sale of goods and services that are legal but that are produced and sold under unsupervised or irregular conditions.” This sector encompasses activities that are not recorded in national statistical accounts and can fail to meet government requirements such as the payment of taxes or social security or the enforcement of health and safety rules. The informal sector includes undeclared employment, which accounts for “15.2 percent of the overall number of workers employed in the production of goods and services.” It also includes the unauthorized production of real estate, and between 1994 and 1998 “232,000 unauthorized houses were built, with a surface area of over 32.5 million square meters and a real estate value of 29 billion lire.” The Southern Italian mafia uses enterprises that conduct irregular and unrecorded activities as a “Trojan horse” to penetrate the Italian legal economy and launder their proceeds. The criminal sector, however, is the “production and circulation of illegal goods and services as well as the illegal production and distribution of legal commodities that are heavily regulated by the state.” Paoli explains that there exist only two goods that meet this criteria: certain drugs and all human beings. It is difficult however to estimate the overall revenue of the criminal sector because of the numerous and varying actors and commodities involved (loose gangs or family businesses that are founded by either profit-making or shared revolutionary or ideological goals). Italy’s defining characteristic for its criminal sector is its “extensive coastline and geographical position at the crossroads between North Africa, the Middle East, Eastern Europe, and Western Europe,” allowing for easy trade from numerous countries. Although such criminal activity may be present in almost every other country, none has the exceptional magnitude as Italy because Italy’s location, multifaceted, historically deep, and expansive criminal system allow for such a prosperous underground economy.
Paoli’s journal article distinguishes Italy’s organized crime from every other country, revealing its unique economic landscape that has been hard to deter. I find this very important to acknowledge considering some argue that policies combating organized crime must be done at the international level. Paoli’s work highlights the importance of understanding the individual characteristics of a state's economy to take the next steps in restoring a functional, legal market.
Pinotti, Paolo. “THE ECONOMIC COSTS OF ORGANISED CRIME: EVIDENCE FROM SOUTHERN ITALY.” The Economic Journal 125, no. 586 (2015): F203–32. http://www.jstor.org/stable/24737566.
Paolo Pinotti's article, “THE ECONOMIC COSTS OF ORGANISED CRIME: EVIDENCE FROM SOUTHERN ITALY,” summarizes his study of the economy of Apulia and Basilicata, two mafia-infiltrated regions, to provide the first substantial data on the impacts of organized crime on the economy. Pinotti characterizes organized crime with illegal activities such as the supplying of illicit goods and services, the practice of extortion and other predatory activities, and the offer of private protection in contexts where state enforcement is absent or limited. Apulia and Basilicata have experienced a phenomenon where organized crime grew expansively in the 1970s and 1980s from runoff from the original mafia regions Sicily, Campania, and Calabria during two significant events. The first is the introduction of cigarette smuggling, which was the most profitable during the 1970s followed by the earthquake in November 1980. The combination of “massive inflows of relief money and public investment” alongside the “sound legislative and administrative framework for crisis management” created the ideal environment for criminal organizations to gain a foothold on the governance and economy of this region. Several judicial investigations concluded that criminal organizations embezzled a significant portion of the “25 billion euro allocated for reconstruction.” Pinotti uses multiple algorithms to compare economic indicators in the treated regions (Apulia and Basilicata) to the synthetic controls (Italian regions non-inclusive of Sicily, Campania, and Calabria). In the study of GDP per capita, the gap, in the 1970s, between the treated and synthetic regions grew from “1%, in 1974, to 7% by the end,” and by the 1980s, it reached 15%. This gap correlates with an increased number of homicides in the treated region which remains high at “3 additional homicides every 100,000 habitants.”. Additionally, energy consumption patterns were also studied, and there was a sharp decline in kWh Per Capita after the presence of organized crime began, suggesting that the arrival of criminal organizations coincides with a decline in the industrial sector and a rise of non-market services. Pinotti’s study suggests that there is a common correlation that an increase in organized crime will reallocate private economic activity to less productive public investments and hence cause a drop in economic activity and suggests that the aggregate loss amounts to “16% of GDP per capita.”.
Pinotti's study sheds light on the pervasive consequences of organized crime that extend beyond the immediate criminal activities. I found that his combination of GDP per capita, homicides, and energy consumption was a unique approach to evaluating the consequences of organized crime and encompassed three, generally different, sectors to highlight the interconnectedness of economic, industrial, and social activity. Nevertheless, Pinotti’s study is strictly a macroeconomic approach and could dive further into other dimensions that may impact economic activity such as losses caused by human psychological and social changes; however, this data is hard to gather.
Signorini, Luigi Federico. “Italy’s Economy: An Introduction.” Daedalus 130, no. 2 (2001): 67–92. http://www.jstor.org/stable/20027697.
In “Italy’s Economy: An Introduction,” Luigi Federico Signorini provides a thorough breakdown of the Italian economy and its growth post-World War II. Signorini highlights the effects of opening the Italian market to trade with the international market in the early 1950s when the GDP Per Capita was “less than one third of America’s” and analyzes the market’s growth in comparison to other leading countries even though their industries are in between those of undeveloped and developed countries. In 1999, Italy ranked sixth in the world's economies, with a GDP of about €1.1 trillion and GDP per capita at about €319,000. This growth, averaging around 80%, is due to Italy’s vast “scope for catching up,” when opening their markets. The opportunity was to keep the economy open and have labor and productivity rise which could only occur because either market was previously closed, unlike other European states. Nevertheless, Signorini highlights that Italy's cultural values of future, family, and community, are another reason for its success in the market with a multitude of miniature firms. This unique characteristic has fostered an unusual structure of Italian with a high number of small firms and large manufacturers classifying them as a “first-world wage structure and a third-world industry structure.” Italy has also battled a strong division between the North and the South (Mezzogiorno) in unemployment, with the Mezzogiorno (the South) having an “unemployment rate is twice the national average, and more than four times the rate in the North,” and hence creating divisions amongst market types and wealth disparities. Italy, however, did not vary from European countries when experienced high inflation rates in the 1970s and has since worked on slowly recovering and decreasing its debt
While Signorini’s data is limited to 2001, his analysis provides a comprehensive overview of the Italian economy and its historical characteristics. His emphasis on small district-type firms, a sector that organized crime has infiltrated immensely, raises awareness of Italy's distinctive economic landscape due to organized crime. Signorini provides a foundational explanation of the Italian economy but does not include much discussion on the role of organized crime, another unique quality of Italy’s market. Therefore I would like to conduct more research on the role of organized crime in the economy. By using the background knowledge provided by Signorining, I can have a better contextual understanding of the current state of Italy’s economy as it relates to organized crime.
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Sorrenti, Giuseppe, and Marco Le Moglie. “When Godfathers Become Entrepreneurs: On the Organized Crime’s Infiltration in Legal Economy.” CEPR, (August 2020). https://cepr.org/voxeu/columns/when-godfathers-become-entrepreneurs-organized-crimes-infiltration-legal-economy#:~:text=Through%20its%20investments%20in%20legal,is%20either%20lagging%20or%20insufficient.
In the article, “When Godfathers Become Entrepreneurs: On the Organized Crime’s Infiltration in Legal Economy” Giuseppe Sorrenti and Marco Le Moglie argue that organized crime has played a significant role in legal economies around the world, encouraging significant flows of money through legal investments. Sorenti and Le Moglie examine the circulation of money in Italian provinces after the 2007 financial crisis, excluding those that launched organized crime (i.e. Sicily, Campania, and Calabria). Post-crisis environments with limited government response provide the ideal environment for organized crime to infiltrate markets. In this sense, organized crime provides a new source of capital and jobs. Specifically, after 2007, provinces with greater rates of organized crime outperformed those with lower rates by 4%, and every year after the crisis,” at least 241 newly established enterprises every year after the crisis are likely to be linked to mafia investments into the legal economy.”. In a more recent example, Sorrenti references another study that discovered that organized crime employed the distribution of epidemic kits during the COVID-19 pandemic as a new tool to gain a foothold in the economy as it constituted “fertile soil for organized crime to establish or reinforce its infiltration.” During economic downturns, organized crime has now become an alternate source of resources. According to Sorrenti and Le Moglie, their quantification of organized crime's impact on local economies provides a more comprehensive understanding of infiltration and economic ties, which may assist policymakers in developing more effective methods for combating organized crime.
This article is fascinating as it sheds light on a critical aspect of organized crime that is often overlooked but profoundly impacts Italian society: its influence on the legal economy. The role crime plays in the reconstruction of the economic and social landscape, specifically post-crisis, seems to have a potentially significant positive impact and I would be interested to understand what would have happened without such aid from criminal organizations. I also wonder if the government is aware of this potential outcome and may be influenced to develop less response to certain crises knowing that the mafia will likely take advantage of the new production of goods and resources which ultimately helps the society even if they are attempting to further infiltrate the markets. Nevertheless, Sorrenti and Le Moglie underscore the need for a stronger governmental structure and more comprehensive approaches to tackle economic crises to help deter criminal organizations.