Mafia Capitalism

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MAFIA CAPITALISM

Mafia capitalism is a term that emerged to describe Russia's economic system in the 1990s. While the implied parallel goes to the classic protection rackets of the Sicilian mafia, the actual Russian practice was different. In order to reflect this, both scholars and journalists have taken to describing the Russian system of organized crime as "mafiya."

There are obvious similarities between mafia and mafiya, in the form of organized gangs imposing tribute on businesses. This is the world of extortion, hitmen, and violent reprisals against those who fail to pay up. In the case of mafiya, however, it mainly affects the small business sector. Major actors will normally have affiliations with private security providers that operate a "cleaner" business of charging fees for protection against arson and violent assault.

To foreign businesses in particular, the latter offers plausible deniability in claiming that no money is being paid to Russian organized crime. Money paid to private security providers, or to officials "helping out" with customs or other traditionally "difficult" parts of public administration, may also frequently be offset against lower payments of taxes, customs, and other fees.

The real outcome is one where the Russian state and thus the Russian population at large suffer great damage. Not only is the government's traditional monopoly on violence both privatized and decentralized into hands that are under no effective control by the authorities, but money destined to have been paid to the Russian government ends up instead in the coffers of security firms.

Moreover, businesses in Russia are subjected to demands for tribute not only from organized crime gangs, but also from a broad variety of representatives of the official bureaucracy. This far exceeds the corruption associated with mafia in many other parts of the world, and explains in part why, in the compilation of international indices on corruption, Russia tends to rank amongst the worst cases.

Russian entrepreneurs will typically be subjected to several visits per month, maybe even per week, by representatives of public bodies such as the fire department or the health inspectorate, all of which will expect to receive a little on the side.

The burden on the small business sector in particular should be measured not only in financial terms, as the tribute paid may be offset by tax avoidance. Far more serious is the implied tax on the time of entrepreneurs, which often tends to be the most precious asset of a small business. The number of hours that are spent negotiating with those demanding bribes will have to be taken from productive efforts.

The overall consequences of mafiya for the Russian economy are manifested in the stifling of private initiative and degradation of the moral basis of conducting business.

See also: crony capitalism; organized crime