Mafia as contract enforcers

Fabio Rojas posts about the relationship between Russian gangs and businesses at Marginal Revolution, as told in the book Violent Entrepreneurs by Vadim Volkov.

An interesting point is that Russian business and oranized crime have become symbiotic. Once a gang provides "protection" to a business, the gang considers the business their "turf" and becomes dependent on the income from the business. Eventually, gangsters come to guarantee transactions of the businesses they protect, a sort of underwriter that facilitates business.

Most people probably react negatively to gangsters playing this role. But how is that really different from what goes on today in the US? There is an entity that has a monopoly on the use of violence that has the final authority to regulate business. This monopoly is called the US government, and thanks to the Commerce Clause, its powers are all-pervasive. Under it are the smaller regional geographic monopolies called called the "States", and under them are the local governments. Functionally, they are no different from gangs.

I often hear the idea that the free market can only exist "in the context of existing rules" or with state-enforced accountability, transparency, and "representation", whatever that means. I happen to disagree with that, and as a result, I get called a "utopian". But that's not really my point, which is that the same dangers that lie with the mafia enforcing contracts exist with the government enforcing contracts because functionally they are equivalent.

Sure "bad things may happen" in Russia if a businessman fails to deliver on the promises he made, but don't be surprised if sooner or later the Don starts asking for protection money when you don't want his protection. Similarly, the US government may enforce property rights, but once they have monopolized the power to do so, it's no surprise that it becomes the biggest violator of property rights.

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This begs the question of

This begs the question of whether the absence of government acting as enforcer simply creates a vacuum of power that by necessity would be filled by another mafia-like institution. We might agree that gov't is bad, but is it any worse than the alternatives?

tom, One reason there was a

tom,

One reason there was a vacuum was that the government had systematically obliterated civil society over the previous seventy-five years.

Jonathan,

I don't doubt that a stateless society can develop a framework of "rules" governing market operations. But establishing and maintaining such a framework has transaction costs, and in a free market the benefits of some kinds of organization we have today may not be sufficient to compensate the transaction costs of providing them.

This might include, for instance, things like centralized transportation and communications infrastructure, or a centralized legal/arbitration system. The transaction costs of organizing them from the ground up may well be prohibitive in all cases where they're not absolutely necessary--like trade in minerals and other geographically limited goods. For everything else, the economy would probably be a lot less centralized.

I would argue that most of the very real pathologies the Left identifies in corporate capitalism result, not from the market, but from the fact that costs are not fully internalized when the state can shift them from favored client firms to the taxpayers at large.

I think the interesting

I think the interesting question is how such a sitution can be kept from collapsing back into monopoly government.

tom, This begs the question

tom,

This begs the question of whether the absence of government acting as enforcer simply creates a vacuum of power that by necessity would be filled by another mafia-like institution. We might agree that gov't is bad, but is it any worse than the alternatives?

The best alternative is for the gang to leave you alone when you don't want it's protection. Many people have written on how this could happen including Murray Rothbard, David Friedman, Hans-Herman Hoppe, Randy Barnett, Bruce Benson, Vernor Vinge, Robert Heinlein, and Tim May.

The best introduction I have found is this chapter from Friedman's The Machinery of Freedom available online.