Fabio Rojas has an interesting entry at Marginal Revolution on the the evolution of organized crime in Russia. He suggests that one of the more interesting features of the Russian Mafia is “that Russian business and organized crime have become symbiotic,” as gangsters have come to act as guarantors of transactions. As it happens, this is true of the original Mafia too, as Diego Gambetta points out in a classic essay on the evolution of the Mafia in Sicily. Gambetta argues that the Mafia’s main traditional role has been to enforce local monopolies, and to guarantee transactions between economic actors. However, he also points out that Mafiosi may sometimes have an interest in brokering bum deals – they will want to regulated amounts of distrust into market transactions in order to prevent people from coming to trust each other independently, and thus to maintain their own effective monopoly as enforcers of market deals. This analysis suggests that Mafia-style rackets may lead to the long term persistence of markets in which people don’t trust each other, and transaction costs are high.
Gambetta is an economic sociologist who likes game theory. His analysis reminds us that from the point of view of economic theory, the state and the Mafia are functional equivalents in several important respects. Both enforce agreements among economic agents in exchange for a slice of the profits. Indeed, the modern state very likely had its origins in Mafia-style protection rackets, a point made eloquently in another classic of the literature, Chuck Tilly’s War Making and State Making as Organized Crime.