When mafia bosses move in, it Is bad news for the local economy as well as for law and order, according to academic research that suggests the presence of organized crime in a region can slash GDP per capita by a catastrophic 20 percent over three decades.
A series of articles in this month’s Economic Journal brings together the latest research on the impact of organized crime groups on the global economy.
Paolo Pinotti, a professor at Bocconi University in Milan, focused on two regions in southern Italy, Apulia and Basilicata, which were dramatically affected by the arrival of organized crime groups, such as the Sicilian mafia, Camorra and ’Ndrangheta, from the 1970s.
Pinotti quantified the costs attributable to organized crime by comparing the economic performance of these areas with that of the rest of the country.
Before the arrival of organized crime groups, Apulia and Basilicata were two of the fastest-growing economies in the country, with low levels of crime. Afterward, their growth rates fell from the highest to the lowest in the country, while the murder rate quadrupled to more than four per 100,000 inhabitants.
Pinotti said his research suggested the presence of organized crime has a long-term impact on GDP-per-capita.
“The estimated effect remains in most cases around 16 percent, increasing to 20 percent when matching on a longer time span,” he said.
Pinotti attributed this stunting of economic growth to the contraction of private investments due to an increase in mafia violence. The crime groups would seize control of politics, and replace private with public capital, so that their profits increased.
Giovanni Falcone, an Italian prosecuting magistrate who led the 1986/1987 Maxi trial against the Sicilian mafia and was killed by the mafia in 1992, said at the time: “More than one-fifth of mafia profits come from public investment.”
Separate research by Gianmarco Daniele and Benny Geys used data from Italian municipalities between 1985 and 2011 to show that the presence of organized crime also leads to less-educated politicians taking charge.
On average, politicians are 18 percent more educated in the absence of mafia infiltration, they found — equivalent to a year’s education.
“In areas with active criminal organizations, the average quality of elected politicians is significantly depressed, because they’re faced with bribes and punishments,” the authors said. “This makes better [or more highly educated] politicians opt out of a political career, and instead pursue an alternative vocation.”
Pinotti said that the expansion of criminal organizations toward the southeast of Italy in the 1970s and 1980s was caused by three main factors:
The increasing importance of tobacco smuggling in the 1970s meant the ports in the south gained a strategic importance to criminal groups, while a major earthquake that struck the region in November 1980 led to mafia members flocking to take advantage of public funds set aside for reconstruction.
The influx of criminals to the region was also due to suspected or convicted mafia members being sent to the region in confino, a measure designed by the Italian police to keep the suspects from continuing to engage in illegal activities by moving them to areas with little criminal activity.
Pinotti said it backfired, simply spreading mafia presence to other regions.
The UN estimates the total profits of transnational criminal organizations may be as high as US$1.6 tn trillion making up 1.5 percent of global GDP, and 70 percent of all criminal proceeds.
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