The puzzle of protection

• Varese (L2): organized crime groups “govern”: they regulate, protect, and enforce
  • Criminal groups step in where the state is absent or unwilling
• Tilly (L3): states and criminal groups do many of the same things
  • War-making, state-making, protection, extraction
  • The line between protection and racketeering is thin (and political)
• So what does it mean for a criminal group to run a market for protection?

Property rights and a weak state in Sicily

What does protection look like in practice?

• In each of these, someone had to enforce rules the state would not
  • Whose cattle? Whose water? Whose contract? Whose check?
• The mafioso sells answers to those questions and the capacity to enforce them

The trust problem and solution

• In any transaction, trust is what makes exchange possible
  • Will the other party deliver what they promised?
  • In legal markets, contracts and courts provide a backstop
• But what happens when you can’t go to the state?
• Example: a butcher and a cattle breeder want to do business outside the legal slaughterhouse
  • Motive: avoid taxes
  • …But no verification of weight, health, or quality and neither can sue if the other cheats
• Needs third party both sides trust to provide information and guarantee the deal
  • “When the butcher comes to me to buy an animal, he knows I want to cheat him. But I know he wants to cheat me. Thus we need, say, Peppe. And we both pay Peppe a percentage of the deal.”
  • …A guarantee requires the credible threat of enforcement

Protection as a business

• The butcher example showed the demand for protection, but who supplies it?
• Mafias are best understood as firms that produce, promote, and sell private protection
  • The input is the credible threat of violence
  • “Joining the mafia amounts to receiving a license to supply protection”
• Not everyone who facilitates a shady deal is a mafioso
  • An information broker connects buyers and sellers; tells you who is trustworthy
  • A guarantor puts their reputation and capacity for violence behind the deal
  • Only the guarantor develops mafioso tendencies
• Crucially: protection money may be willingly paid for a real service
  • Customers are not always victims
  • Sometimes they are buyers of a service they genuinely need
  • …even if they would prefer a world where they didn’t need it
  • Like the state!
• For discussion: are mafias different from private security guards, mall cops, bouncers?

Monty Python army protection racket

Your reactions to Monty Python

Protection is not always fair or universal

1. Protection against competitors: the mafioso directs customers to one seller
   • The seller pays for trustworthiness and for being chosen over rivals
   • Protection becomes a tool for market monopolization
2. Side-taking: the mafioso protects buyers at sellers’ expense, or vice versa
   • Private protection is supplied on the basis of opportunity, not principle
   • E.g., siding with the buyer who pays more, or with the side that’s winning
3. Extortion: the mafioso protects neither side
   • Collects payments without delivering genuine enforcement

Protection or extortion?

Racketeer: “someone who produces both the danger and, at a price, the shield against it”

Protector: “someone who provides a needed shield but has little control over the danger”

— Tilly (1985)

• Recall Olson’s roving vs. stationary bandit (L3):
  • The stationary bandit cares about the future so limits himself
  • The roving bandit has no stake in the future so takes everything and moves on
• The same logic applies to protection rackets:
  • Time horizon: how much you care about the future
  • A mafioso with a long time horizon needs his clients to survive and prosper
  • As the time horizon shrinks, the temptation to prey grows
• Protection and extortion are part of the same continuum
  • Where a mafioso falls depends on his time horizon
  • For discussion: what shapes time horizons?

The perverse logic of distrust

• Mafiosi sell protection against the problem of distrust
• But this creates a strange incentive
• If trust developed naturally between buyers and sellers, the mafioso would become idle
  • His income and power are the fruits of distrust
  • So he has an interest in perpetuating the very problem he claims to solve
• How?
  • By ensuring customers know a good deal came from his protection, not the seller’s honesty
  • By making his intervention visible enough to prevent direct trust from forming
  • By making regulated injections of distrust into the market
• The result: distrust, once addressed through mafioso protection, becomes self-perpetuating
  • More distrust \(\rightarrow\) more demand for protection \(\rightarrow\) more power for the mafioso

Case Study: Post-Soviet Russia

• The Soviet state collapses; property and contract enforcement suddenly becomes unreliable
• Privatization creates vast new markets overnight
• Demand for protection (“krysha,” literally “roof”) explodes
• Former security officers, athletes, and Afghan war veterans enter the protection market

• For discussion:
  • Would you expect protection, extortion, or something in between? What would shift it?

For Wednesday: trafficking organizations

• Today: the Sicilian mafia and the protection industry
  • Private protection as a commodity with its own demand, supply, and quality problems
• Next lecture: trafficking organizations
• Questions?