Wednesday, January 07, 2004

Anarchy, state, but definitely not utopia
Via a tip from Crooked Timber and
Marginal Revolution, I ran across a review of Vadim Volkov’s, Violent Entrepreneurs, the story of Russian klepto-capitalism from the people who practise it. The book tells how Russian criminal gangs latched on to the country’s nascent business class in the early nineties, at first running protection rackets in the traditional style. Later, as they came to depend more on this revenue the mafiyosi were driven to take a more productive role in the business, guaranteeing contracts, collecting debts, researching rivals and performing primitive forms of due diligence on potential acquisitions.

These groups were later supplanted by equally muscular but more respectable private security companies, usually composed of and led by military or intelligence veterans, with useful connections to counterparts within government. Some of the crime families then used the business skills they had learned as mafiyosi to create legitimate firms. Many of the lower level staff in both these types of security firm also served as mercenaries in the Balkans, Transdniestria and other conflicts around the Russian rim, moving seamlessly back and forth between private and public sector thuggery.

Moving forward, it’s the security and intelligence nexus within the Russian state which is now the dominant force in government as Putin reasserts the power of the state over the business oligarchs who dominated the post-communist economy and battled for control of the permanently sozzled Yeltsin. Thus, the monopoly of violence reverts to the state and protection rackets are formalized first into user fees for security services and then into taxes. And those with the power to challenge the state, or replace it as monopolizer of violence, are stripped of their power, money and freedom.

It’s a remarkable story, similar in some ways to the supposed anarcho-capitalist utopia of medieval Iceland. It surely makes the case that, under the right circumstances, business can “tame” crime and turn it into more productive economic activity. Left unchanged, the original crime/business alliance could possibly have produced private institutions and practices which performed the necessary functions of the state and acted to spread opportunity more widely. In the meantime, of course, there is a thriving “merger and assassination” sector and a general economic environment that makes the Brezhnev days seem like an economic golden age for millions of Russians.

So it’s no surprise then that they seem to have opted in large numbers for the visible hand. Strict libertarians may argue that this was a retrograde step. Non-libbos would point to the role of free market economists in unleashing the violent entrepreneurs in the first place. But it’s probably wrong to link economic criminal behaviour to either statism or laissez faire. Crime, business and politics – or maybe crime, organised crime and very well organised crime indeed – is a triangular relationship, with corruption assuming a bespoke character, tailoring itself to the particular relationships between business and government in any one state. In France for instance…

Disregard for the law has become a national habit - as we have seen this autumn with France's attitude towards the EU stability pact. There is also the current case of France's largest bank, Crédit Lyonnais, which is facing charges in the US for lying about a takeover bid in the early 1990s when it was state-owned. Corruption in the French construction industry, too, means that the EU's "level playing field" public procurement policy - in which companies from any EU country should get equal access to contracts - is a joke which infuriates building companies in Britain and elsewhere.

And in the United States….

I believe there is now a professional, well-trained elite, supported by large institutions, that is adept and willing to use corrupt practices to accumulate wealth. Despite assurances from game-theorists and anthropologists that the criminal cadre in the species remains a constant percentage over time, I believe today's mainstream, sanitized, and institutionally sanctioned financial crime rackets are being run by a new breed of crook. There have always been scandals and crooks in the history of American money, but our predator class is a distinct creation of the late 20th century.

Meanwhile, the parmalat scandal is anatomized by Edward Hugh at Fistful of Euros. He compares the off-balance sheet shenanigans of the milk megalith with the various shifts used to gain Italy Euro membership with a public sector debt of over 100% of GDP. Italy itself is Parmalat writ large.

Moving back to Russia, this is the reason why I can’t support the general criticism of Putin for the way in which he’s dealing with his boyar problem. What’s happening there seems to be a limit setting process. It may or may not have gone to far, but it’s an appropriate tendency. In much of the rest of the West, the reverse has happened. The free market process was supposed to result in a self-reliant community trucking and bartering away under the benign and relaxed eye of a modest government. Instead, it seems to have created a semi-merged political and business overclass which acknowledges fewer and fewer limits on its behaviour.

Whic brings us to Iraq. As everybody knows, mentioning the word oil in connection to the Iraq immediately marks you down as a lumpenchomskyite, outside the parameters of reasoned debate. Well, no. Aside from the business opportunities attending the occupation and complete remaking of Iraq, the invasion also holds out the prospect of breaking the OPEC cartel and re-structuring the middle east as a whole as a friendly place for businesses to do buisiness in. While this may not have been the whole story, to ignore it completely is loony coincidentalism. Why else introduce a flat tax and a fire sale of Iraqi national assets?

The Iraq invasion has generally been discussed as part of the response to 9/11. I think it also reflects a more general criminalization process in western ruling elites. or maybe a process by which there inner criminality, the animal spirits currently being put to sleep by Putin in Russia, is free to emerge.

If protection rackets represent organised crime at its smoothest, then war risking and state making – quintessential protection rackets with the advantage of legitimacy – qualify as our largest examples of organised crime. Without branding all generals and statesmen as murderers or thieves, I want to urge the value of that analogy. At least for the European experience of the past few centuries, a portrait of war makers and state makers .r. coercive and self-seeking entrepreneurs bears a far greater resemblance to the facts than do its chief alternatives: the idea of a social contract, the idea of an open market in which operators of armies and states offer services to willing consumers, the idea of a society whose shared norms and expectations call forth a certain kind of government.

Apparently, neoconservatives take offence at being so named. Fair enough. How about “violent entrepreneurs”?