Network theory has revolutionized the understanding of economics in recent years. No longer is the economy a mysterious heaving mass governed by arcane laws with little practical evidence to support them.
Instead, the economy is a network of firms that are linked if a financial transaction occurs between them. This approach has given economists a unique insight into the way that different parts of the economy depend on each other and how money, resources and information flows through the business world.
But here’s an interesting question: how does organized crime that into all this? Today we get an answer of sorts thanks to the work of Stefano Gurciullo at University College London. Gurciullo has studied the economic networks of businesses in a region of Sicily, Italy, highlighting the roles of firms known to be associated with the local Mafia.
He says the results reveal an interesting property of businesses involved in organized crime. They tend to be involved in well-connected sectors of the economy and the Mafioso firms themselves tend to be among the most highly connected in the entire economy.
Gurciullo bases his work on data gathered by the Italian anti-Mafia police in 2002. It is centered around Porto Empedocle, a town of some 17,000 inhabitants in southern central Sicily. In 2002, its economy consisted of 1380 companies of which 30 percent have four or more employees and only 0.05 percent have more than 10 employees.
These companies operate in 29 economic sectors, ranging from hotel and hospitality to construction to telecommunications. By far the biggest sectors by the number of firms are the retail and wholesale businesses, implying that the local people’s main source of income is through local commerce.
The evidence gathered by the Italian anti-Mafia police clearly shows Mafia involvement in the construction sector of this economy. This evidence shows a violent struggle for control, and eventual monopoly, of this industry. The Mafia-controlled firms forced local firms to buy raw materials from them and extorted protection money at the same time.
The evidence even includes a recorded conversation in which two Mafioso entrepreneurs planned to kill the CEO of a potential competitor. However, they eventually ruled out this approach because of the attention it would attract from the police and because they believed this measure should be reserved for more serious situations.
Gurciullo’s approach is to map out the relationships between the various economic sectors, paying particular attention to the link between the construction industry, known to have Mafia involvement, and other sectors. He then mapped out the network of links between firms within the construction sector.
The results show a clear trend. “Sectors penetrated by organized crime show a higher than average Index of centrality and concentration,” he says.
What’s more, the specific firms involved in organized crime tend to have a special place in the network. “At least one of the firms experiencing Mafioso infiltration possesses the highest nodal degree in the sector’s sub-network,” he says.
That makes sense. The United Nations defines organized crime as: “a structured group of three or more persons existing for a prolonged period of time and having the aim of committing serious crimes through concerted action by using intimidation, violence, corruption or other means in order to obtain, directly or indirectly, a financial or other material benefit.”
Clearly, a criminal operation of this kind can only be successful if it is linked to many other firms. So it’s no surprise that Mafia-controlled firms sit at the center of an economic network.
Of course, there are limitations to this kind of study. The first is that it’s just one example; perhaps other examples of organized crime lead to different kinds of networks.
Another limitation is that the data is unlikely to be complete. Perhaps there are other firms involved in organized crime that the police did not record giving only a partial picture of the impact on the network.
Nevertheless, despite its limitations, the work provides an interesting insight into the nature of organized crime and its role within the networks that underlie our economies.
And there is clearly work for the future. An interesting question is why the Mafia concentrates on construction when there are other sectors of the economy that are more highly connected within the network, such as retail and wholesale.
Perhaps the answer is to do with the value of the work involved. Single construction projects can often have values measured in millions of euros. But important deals in the retail and wholesale sectors are likely to be worth significantly less.
Gurciullo’s data does not include any study of the monetary value of the businesses. But this avenue could be a fruitful line of research for the future.
Gurciullo’s work is also courageous. Given the nature of the data, the difficulty in gathering at and the types of people involved, this is potentially dangerous research to be involved in. Brave work to be sure.
Ref: arxiv.org/abs/1403.5071 : Organized Crime’s Infiltration In The Legitimate Private Economy: An Empirical Network Analysis Approach