09 - Protection rackets.

Protection rackets. Scholars such as Diego Gambetta and Leopold Franchetti have characterized the Mafia as a "cartel of private protection firms". The primary activity of the Mafia is to provide protection and guarantee trust in areas of the Sicilian economy where the police and courts cannot be relied upon. The Mafia arbitrates disputes between criminals, organizes and oversees illicit business deals, and protects businessmen and criminals from cheats, thieves, and vandals. This aspect of the Mafia is often overlooked in the media because, unlike drug dealing and extortion, it is often not reported to the police. In one of his books, Gambetta illustrates this concept with the scenario of a butcher who wishes to sell some meat to a supermarket without paying sales tax. Since the transaction is essentially a black market deal, the agents cannot turn to the police or the courts if either of them cheats the other. The seller might supply rotting meat, or the purchaser might refuse to pay. The mistrust and fear of being cheated with no recourse might prevent these two agents from making a profitable transaction. To guarantee each other's honesty, the two parties can ask the local mafia clan to oversee the transaction. In exchange for a commission, the mafioso promises to both the buyer and seller that if either of them tries to cheat the other, the cheater can expect to be assaulted or have his property vandalized. Such is the mafioso's reputation for viciousness, impartiality, and reliability that neither the buyer nor the seller would consider cheating with him overseeing the deal. The transaction thus proceeds smoothly. The Mafia's protection is not restricted to illegal activities. Shopkeepers often pay the Mafia to protect them from thieves. If a shopkeeper enters into a protection contract with a mafioso, the mafioso will make it publicly known that if any thief were foolish enough to rob his client's shop, he would track down the thief, beat him up, and, if possible, recover the stolen merchandise (mafiosi make it their business to know all the fences in their territory). It is a misconception that the Mafia extorts clients by only offering "protection" from its own violence. While the Mafia often coerces people into buying protection, it usually provides it. In fact, many clients, particularly criminals, actively seek Mafia protection. This is one of the main reasons why the Mafia has resisted more than a century of government efforts to destroy it: the people who willingly solicit these services protect the Mafia from the authorities. If one is enjoying the benefits of Mafia protection, one does not want the police arresting one's mafioso. In Sicily, protection money is known as pizzo; the anti-extortion support group Addiopizzo derives its name from this. Mafiosi might sometimes ask for favors instead of money, such as assistance in committing a crime. The amount of money that the Mafia extorts from firms in Sicily correlates weakly with the revenue of the firm. As a result, smaller firms end up paying a higher share of their profits to the Mafia than larger firms; sometimes as high as 40% of profits for smaller firms and as low as 2% of profits for larger firms. The pizzo is thus a sort of regressive taxation that hurts small businesses more. This presents a barrier to entry for entrepreneurs in Sicily and makes it difficult for small businesses to reinvest in themselves since the pizzo takes a disproportionately larger share of their profits. This in turn results in oligopolistic markets, where a few large firms dominate, selling low-quality products at high prices. Mafia extortion thus mires the Sicilian economy in a poverty trap. Protection from theft. Protection from theft is one service that the Mafia provides to paying "clients". Mafiosi themselves are generally forbidden to commit theft (though in practice they are merely forbidden to steal from anyone connected to the Mafia). Instead, mafiosi make it their business to know all the thieves and fences operating within their territory. If a protected business is robbed, the clan will use these contacts to track down and return the stolen goods and punish the thieves, usually by beating them up. Since the pursuit of thieves and their loot often goes into territories of other clans, clans routinely cooperate with each other on this matter, providing information and blocking the sale of the loot if they can. Protection from competition. Mafiosi sometimes protect businesspeople from competitors by threatening their competitors with violence. If two businesspeople are competing for a government contract, the protected can ask their mafioso friends to bully their rival out of the bidding process. In another example, a mafioso acting on behalf of a coffee supplier might pressure local bars into serving only their client's coffee. The primary method by which the Mafia stifles competition, however, is the overseeing and ...