Understanding Violence in Organized Crime and Illicit Markets
School
Brock University**We aren't endorsed by this school
Course
ECON 2P34
Subject
Economics
Date
Dec 11, 2024
Pages
5
Uploaded by ChefMole7136
1Violence, Organized Crime, and Illicit MarketsAt the beginning of the lecture I revisited some of the issues I had previously talked about with respect to the extent drug markets are competitive or monopolistic, and the implications for violence. I then referenced a Canadian study by Stephen Schneider on Violence, Organized Crime, and Illicit Markets. I have reproduced below, a summary of that paper, found on the Government of Canada’s Public Safety website that formed part of a report on research highlights in the field from 2015 to 2002.https://www.publicsafety.gc.ca/cnt/rsrcs/pblctns/2015-h002/2015-h002-eng.pdfIn the summary that follows, the term oligopoly is used. An oligopoly occurs when only a few firms compete with each other and entry by other firms is impeded. Participants in an oligopoly can achieve the same sort of market power as monopolists and the extent of monopoly power and profitability depends on how the firms interact. If the interaction is more cooperative than competitive, participants in an oligopoly may charge a price well above marginal cost and reap large profits.Summary:Illicit drug markets that are considered to be stable can experience conflict and violence if an organized crime group challenges their entrance to or monopoly of the market.It has long been established that lethal and non-lethal violence is usually present where organized crime elements are active in illicit markets. In Canada, organized crime-related homicides became a serious issue in the past two decades. The rate of organized crime-related homicides increased from 13 in 1993 to 138 in 2008 according to police-reported data. Despite the seriousness of the issue, there has been little empirical research that connected organized crime violence with illicit markets.From a theoretical standpoint, the extent of stability in an illicit market of any kind is an important contributor to the presence or absence of violence. Markets that are stable function in a business-like manner, where the sellers and the buyers engage in a more or less business operations. The relationships between the producers, suppliers, sellers, and customers are clearly defined and understood by all. Deviant behaviour is punished by actions that are understood and accepted by all. Because of this stability, these types of markets are not typically characterized by violence.On the other hand, in unstable markets, especially newly emerging markets, the relationships between market participants are not clearly defined and are oftentimes in conflict. Entrepreneurs and freelancers are more likely to participate in unstable markets with an aim to secure larger shares of the market.Competition is prevalent among these entrepreneurs and more established operators in the market, thus further destabilizing the market and ultimately leading to violence.Thus, markets that have established operators and function in a business-like manner tend to be more stable and much less violent than markets that are new or emerging, where competition over market share is present. Further, markets that are of a monopolistic or oligopolistic nature tend to be more stable and less violent compared to markets where more than one person or group is in control of the market operations.The author uses the so-called “biker war” in the province of Québec, and in particular in the city of Montreal between 1994 and 2001, as a case study to test the theory that connects organized crime
2violence to illicit markets. The chronology of events that led up to the eruption of violence in 1994 and followed suit, demonstrate that the cocaine market in Québec in 1980's and early 1990's was of an oligopolistic nature. Four organized crime groups – the Hells Angels, the West End Gang, the Rizutto mafia family, and the Colombian drug cartels – participated in the cocaine market with roles and boundaries clearly defined and agreed upon. These organized groups oftentimes worked in conjunction with each other and even cooperated in their illicit activities. It could therefore be argued that the cocaine market in Québec in the 1980's and early 1990's was stable with very little violence.The violence erupted in 1994 with a murder of a member of a Hells Angels affiliated gang. What followed was a series of retaliation attacks that eventually evolved into an all-out biker gang war. Analysis of these events reveals that the extreme violence was driven mainly by the Hells Angels' new strategic objective of consolidating and monopolizing the cocaine market in Montreal and eventually inthe province of Québec. This drive for a monopoly of the market was met with resistance from both theexisting organized crime groups who did not want to lose their share of the market, as well as freelancers who saw an opportunity to meet elements of market demand.It would be incorrect to conclude that the violence caused by biker wars between 1994 and 2001 stemmed from instability of the cocaine market in Québec, either due to overseas supply issues or law enforcement actions. The market was rather stable prior to the eruption of the violence. Instead, it could be argued that it was one group's drive to monopolize the cocaine market that caused the violence. In this sense, the case study of the Quebec biker wars shows that markets of monopolistic or oligopolistic nature can indeed become unstable and experience violence. The monopolistic or oligopolistic market conditions restrict competition, which is one of the main traits of illicit markets. Organized crime groups will always want to enter and compete in the drug market simply due to their illicit profit seeking motivation. When these groups challenge their business goals, conflict and violence can follow suit.Schneider, S. (2013). “Violence, Organized Crime, and Illicit Drug Markets.” Sociologia, Problemas e Practicas, 71,125-143.The Economics of Drug Prohibition and Legalization.These notes are based on an article by Jeffery A. Miron published in the Fall 2001 issue of Social Research(The full article has been posted.)In this paper Miron-does not make the case for or against drug legalization or prohibition-instead he shows how the legal status of drugs affects the market for drug and also shows how many outcomes attributed to illicit drugs are instead due to drug prohibition.The paper is divided in 3 parts:
3In the first part, Miron analyses how drug markets under prohibition compare to drug markets under legalization.He first provides a PositiveAnalysisofDrugProhibition.Positive analysis describes “the way things are” as opposed to normative analysis, which describes “the way things ought to be”. (For example: in labour economics, a positive statement wouldbe that minimum wage laws cause unemployment, while a normative statement would be that the government should raise the minimum wage.)And so, his positive analysis describes the effects of prohibition, without addressing whether these effects are good or bad.To do this he must compare it to an alternative, in this case legalization.The Demand and Supply of Drugs Under Prohibition and Legalization- drugs continue to be demanded and supplied, despite prohibition (this is counter to a common flawed assumption that whatever happens under the law is what the law directs).-this creates an illegal or “black” market for drugs, rather than eliminating them.EffectsontheDemandSide1) Prohibition might reduce demand if some consumers exhibit respect for the law (though many people disregard laws that are weakly enforced.)2) Prohibition might encourage demand through a “forbidden fruit” effect, though there is little concrete evidence of this, except perhaps among teens.3) Prohibition might reduce demand directly by punishing purchase or possession of the good. Mironnotes though that statistically there is a very low probability of being arrested for mere purchase or possession, so the strength of this deterrent effect might be questionable.EffectsontheSupplySide1) Prohibition increases the cost of manufacturing, transporting and distribution drugs as supplier musttake steps to avoid detection. This is a direct effect.2) Conditional on operating in secret, black market suppliers face low marginal costs (i.e. the cost ofsupplying one additional unit of output) of evading tax laws and regulatory policies. This is a cost advantage (relative to legal suppliers). This is an indirect effect that partially offsets the above direct effect.According to Miron, existing evidence suggests that net costs for drugs are higher under prohibition.
4SummaryofFirstOrderEffectsProhibition probably raises the costs of supplying drugs. This would cause a leftward shift of the supply curve, leading to higher prices and reduced consumption.Prohibition may reduce the demand for drugs. This would cause a leftward shift in the demand curve resulting in lower prices and reduced consumption.Hence, the effect on prices is ambiguous, while the effect on consumption is that it would decrease. (We have seen this sort of scenario before, I leave it up to you to draw it.) Without going too deeply into it, the amount of change in equilibrium price and change in equilibrium quantity depends on the price elasticities of both demand and supply.According to Miron , whether or not these effects are large or small is not resolved. For Miron, the overall implication is that the effect of prohibition on drug consumption is more nuanced than is usually assumed. The presumption is that prohibition reduces the quantity consumed and the direct effects would suggest this, but these direct effects are not necessarily large and there are indirect effects operating in the opposite direction.Evidence on whether drug prohibition significantly reduces consumption is incomplete. Many continue to consume drugs under prohibition, but that fact alone does not determine whether the quantity is different from what it would be under legalization.ProhibitionandCrimeProhibition increases violent crime by preventing drug market participants from resolving disputes. Black market participants can’t use the courts as that would reveal their identity and activity and courts cannot enforce illegal contracts.As well, drug market participants cannot use advertising to compete with rivals. This results in turf wars as a substitute. As well, by raising the price of drugs, prohibition encourages income- generating crime (such as theft and prostitution).Enforcement of prohibition diverts criminal justice resources from deterrence of all kinds of crime. (We saw this result earlier from Benson.)The conclusion that prohibition causes crime contrasts with the usual claim that drug use itself causes crime. According to Miron, there is little evidence that drug use per se leads to violence or other criminal behaviour. Though there may be a correlation, correlation is not necessarily causation.OtherEffectsofProhibitionDecreased Product QualityIn legal markets consumers who purchase faulty products have legal recourse. This is not the case in illicit drug markets and this effect explains accidental overdoses and poisonings.Corruption
5In black market participants must either evade law enforcement or pay them to look the other way. As well, standard lobbying techniques are difficult for the black market supplier. Thus prohibition increases corruption of law enforcement agents and politicians.Redistribution to CriminalsIn a black market suppliers capture the revenues that would be taxed in legal markets,as profits.These tax revenues do not accrue to government and can be in the billionsComplications to Policy-MakingBecause drug crimes involve voluntary exchange, prohibition enforcement relies on:-asset seizure-aggressive searches-racial profilingAll of these measures put a strain on civil liberty.Some jurisdictions prohibit the sale of syringes. This has lead to the spread of HIV and other blood- borne diseases.In some jurisdiction marijuana is more tightly controlled than morphine and cannot be used medicinally.Foreign policy decisions and free trade negotiations are often bound up with drug policy decisionsRespect for the LawAccording to Miron, experience to date shows that even under the strictest measure, prohibitionhas failed to deter a great many from supplying or consuming drugs. Any signal that “laws are for suckers”undermines the spirit of voluntary compliance to law enforcement that is vital to the continuation of a free society.Direct Costs of EnforcementAt the time this per was written, the direct costs of enforcement in the US were in the 10s of billions and do not include ancillary expenditures related to prohibition induced crime.Overall:Miron concludes that prohibition probably reduces drug consumption relative to what would occur under legalization, but evidence suggests that the reduction is modest.But, in Miron’s view, whether the effect is large or small, prohibition has many other effects, comparedto legalization.In the next lecture we will look at Miron’s Normative Analysis of Prohibition