The government and bandits: similarity and difference in theory and in Russian practice

In 2011 publishing house of European University issued a book written by Vadim Volkov «Force business: economic and social analysis». This book can be called a bible of gangster capitalism in Russia. What sides of force entrepreneurship does it reveal? What is the evolution of a gangster business in Russia?

Liberal reforms of the 90s in Russia were accompanied by the appearance and active growth of illegal violent structures. From moral point of view, we can judge people who chose this way, but from analytical and scientific point of view, we have to admit that illegal power structures played a positive role in the development of market economy by creation of conditions of compliance with the contract law in situations when the government was unable to regulate economic processes. In 2000 years illegal power structures practically disappeared. What did bring them back to life and what were the reasons of their disappearance? Does their disappearance mean the victory of the government as a warrantor of law and order and the contract law?

First of all, we’ll take a look at theoretical analysis. The thing is not about violence in general, but about the role of power structures in economic processes. So we are interested not in any bearer of physical violence, but only in such bearer whose actions play an important role in the functioning of the economy. This could be governmental and private structures, which can be divided by legal and illegal.  

What does unite the government and the bandit?  The thing that they represent different forms of one phenomenon – of violent entrepreneurship (force business), the main idea of which is to convert organized power into the source of fixed income by controlling economic agents.

 

1. The government and bandits: theoretical aspect

 

For ordinary people it can be strange to compare government and bandits. But science has its own approach. In order to understand the role of power entrepreneurs several statements are principal.

First statement. Public relations are built on the base of three resources – power, money and words. Physical violence, economic resources and the ability to put sense into actions form the society. Societies vary in forms of realization of these resources, in mechanisms of its conversion and in principles of distribution between social groups. In this triad physical violence plays the main role, and even in modern societies it represent relict phenomenon. Voluntary market-based interactions of egoistic people represent the facade of modern societies. And this is the biggest mistake which impedes the understanding of the mechanism of market exchange.

The thing is that voluntariness of each transaction is based on the knowledge that if money is fake or scales cheat you, swindler will be punished and that there is some power which forces to comply with the terms of the transaction. Именно The force of coercion constitutes the rule. Coercion as a potential violence, which applies to the violators of rules, is holding the whole scenery of free market relations.

Second statement. Under the guise of the fight against criminal groups government fights against competitors. From functional point of view, they are colleagues, because they produce goods of one type: by means of power resource they maintain the rules of interaction.  Quality-price ration of this service affects consumer’s choice: if Sicilian mafia returned stolen cattle faster and more effective than police, peasants preferred to pay tribute to mafia than to pay taxes to the government. The conclusion is that two principal strategies of fight against bandits is their total physical destruction or economic devastation, when consumers of power services will vote for the government as only reliable warrantor of economic life.

But the government will never defeat bandits. The thing is that the government can’t set rules in such economic area, which is not recognized as a legitimate one by the government. So in this way it gives economic reality to alternative power organizations. If drug trafficking and prostitution are not legalized, then criminal groups will become functional analogue of the government. Criminal peculiarity doesn’t negate the need of these markets in physical coercion to maintain the rules. Dry law in USA became the “golden century” of American mafia, because underground bootlegging needed the power resource for regulating economic processes and for conflict resolution. Criminal business can’t pay taxes to the government, but it pays tribute to bandits, what from the point of view of purchased services is the same thing. For criminal business gangster groups are no alternative power partners, some kind of shadow government, which set the code of conducts on this market.  

Third statement. Government is not the project of a genius mind. From historic point of view, government is only a final point of competitive struggle among those who try by force to provide regular income.

Government is a condition when only one player is left in a shootout game of the members of the top brass.  And then rules set by them will be recognized by fair and reasonable people, because there is no one to choose from. Time and regularity of violence form the habit blocking the idea that government and bandits are not different phenomenon. In reality each bandit is becoming the government, if he eliminates all competitors on one specific territory and becomes some kind of exclusive manager of violence, and also if he guarantees to protect the border from attack from the outside. The government is not the goal of the movement of practicing members of the top brass, it is a logical bound of their competition and concentration of the power resource.

We are talking here about monopoly not in the sense that the government closes on itself all power functions. It can share these functions with private organizations, allowing creation of private police and private security agencies. But the fact that the government controls these organizations means that the government maintains a monopoly on violence.

But if every law is a derivative of violence, then why do people tolerate violence? Isn’t it better to live outside the law?

 «To live outside the law» means to be natural if to use the terminology of Thomas Hobbes. It also means that your property is your own property until you have the strength to defend it from attacks of people who surround you. In this case each person is a defender of its own things and invader of another’s things, including the life.  But individual protection is expensive and not effective.  Scale economy is reached if to pass the right of defense to the subject who specializes on physical violence. The most effective solution is universal defender, one for everybody. This is the government.  According to Hobbes, people voluntarily call the monster Leviathan in order to stop “the war of everyone against everyone”. They call him because of fear of death.  Because life with monster is better than death from the neighbor. In this way transition from natural condition to civil is done. Leviathan is a mythical image of the government. But Hobbes was mistaken in one thing – people didn’t call a specific monster Leviathan, they created him, by improving the forms of relationships with those who had the competitive advantage in using the physical strength.

2. Government and bandits: Soviet and post-Soviet practice

 

Soviet period (1960-1980). There were bandits in USSR who levied tribute to shadow entrepreneurs.  But don’t confuse them with bandits who appeared in the end of the 80s and became a business card of the 90s.

Bandits from Soviet times came from the criminal world. And this world has its history.  Criminals as a real social group with their own laws and hierarchy were formed in the 30s. Criminal world as social organization appeared in the conditions of strong repressive government, and this fact distinguishes them from the bandits of the 90s who were the product of weak government.

Force business in Soviet times was simple; it was blackmail under the slogan «you have to share». But, of course, nobody wants to share. But there was no way out, because the victims were more afraid of police than of bandits. They could pay off the bandits, and if they go to the police, then it can lead to trials regarding the sources of their income. The thing is that bandits levy tribune from shadow Soviet entrepreneurs. Their business was related to such a thing as “a theft of socialist property”, because there was no free market of raw materials and equipment. And these entrepreneurs were afraid of police and of bandits too.

Regularity of extortion limits its size. The robber who doesn’t plan to re-encounter with the victim, tries to take everything he can. But the bandit, who gets from shadow entrepreneur stable income, has to suppress his appetite.

 The end of the 80s – the beginning of the 90s.   In the end of the 80s the character and scale of violent business changed. Liberalization of the economy is gaining momentum, but weak government is not capable of establishing effective system of property right protection and enforcement of contracts.

At the same time in social sphere appeared groups with specific relation to violence – sportsmen and soldiers-Afghans. Sport is a game form for cultivating aggression and contention, where physical strength is a factor of the victory. Дух Fighting spirit locks in a bottle of sports rules as genie. But this bottle burst together with the collapse of the USSR, when also collapsed previous financing system of sport. Veterans of Afghanistan war were also in very bad position. After withdrawal of Soviet troops from Afghanistan in 1989 society even didn’t thank them.

Sportsmen and soldiers-Afghans as other Russians tried to adapt to new conditions. The thing that sportsmen and Afghans could do better than other people was to tolerate, suppress pain, and to deal with weapons. But the main thing is loyal attitude to violence, moral superiority over those who are not able to defend themselves. These abilities could be easily converted into money in the situation of the emergence of entrepreneurship and the decay of the government. The loss of the government of monopoly on violence returned the country into “natural condition”, expulsion of Leviathan meant uncontrolled violence.  During this time people are seduced with private business. Appear massively those from whom there are things to take. Formally they can find protection from the government but weak government can’t defend them. In these conditions the flywheel of extortion is gaining momentum, which becomes significant social phenomenon.

It is principal that if racketeers from Soviet times were from criminal environment, racketeers from the 90s have wider social base – it is a war between criminals and bandits of non-criminal origin for division of areas of influence.

Withdrawal of the troops from Afghanistan, collapse of sports system, moral and material disparagement of law-enforcement agencies, low legitimacy of first entrepreneurs, inadequacy of laws which look into future – all this has led massive appearance of racketeers. The same situation happened with American mafia, “golden century” of which concurred with the introduction of the “dry law” in USA (1919 year). In the beginning of the 20 century Sicilian mafia run to USA, escaping from the repressions of the fascist regime of Mussolini. Experienced Mafiosi came when the “dry law” was introduced, which provoked underground business and its force support, which led to the golden age of mafia.

This racketeer – extorter collected tribute not in a simple way. He also provided security for the firm in the conditions of potential danger. Bandit was at the same time the defender of “his own” company and the source of danger for others. Racketeer is a bandit, who sells his own abstention from violence and is able to defend from other bandits’ violence. Protective racket was the simplest form of the force entrepreneurship.  

1992-1995 years. Competition between bandits led to the fact that they enlarged and became stronger financially.  Organized criminal groups (OCG) with military discipline inside and established contacts outside, including the contacts with governmental agencies, replaced unorganized bands. OCGs were able to solve difficult problems faster than just to provide security from other bandits.

And they got such an opportunity in view of business development.  The scale of transactions is growing, the number of counterparts is growing, schemes are becoming more complicated, and geography of contacts is enlarging. As a result risks are growing. But the government was not able to keep pace with the business needs in production of trust between the counterparts. And here the thing is not about the trust in personal decency of partners, but about trust in actions of formal institutions, which ensure property rights and compliance with contracts. Of course, the government is trying to do something in this direction. In 1991 arbitration is created. But it takes a lot of time and it is useless to sue on economic disputes.

So business needs in protection of property rights and compliance with contracts bandits, whose financial and organizational possibilities became excessive for a simple security, start to meet. So functional complication of bandits’ relations with their “own” companies is happening. They not just collect tributes, they create for “their” firms opportunities for economic growth, which includes the search of areas for investments, inspection of counterparts, knocking out debts and many other things. This was a new form of business force – power partnership.  Bandits replace arbitration, insurance companies, and police. Ineffectiveness of such a replacement was obvious, but during that time this system was more effective than real Russian government.

Companies, which didn’t have power partners, were turning to bandits asking them to become warrantees of the deal or to solve these or that problems.  Power agency became a separate form of activity. Power agency, unlike power partnership, which had permanent relations with economic subjects, was solving specific business problems on an irregular basis.

It is important to note that a simple security (or racketeers) could exist without connection with authorities. But solving transactional business problems requires contact with governmental structures. And this circumstance gave certain advantage to the bandits of non-criminal origin. Criminal world existed by its own laws, among which there was a ban on cooperation with the government. And also for authorities it was risky to cooperate with the criminals. So the relation “authorities-bandits” was created on the base of the bands of non-criminal origin.

The reputation of bandits was protected, because it was the source of income. But before generating income, reputation required significant investments in form of effective violent actions. Bandits-agents believed that their received payment was a price for their moral superiority over businessmen, whose words could not serve as a foundation for transactions.  They would be very upset if they knew that this was a payment for specific work, which functionally replaced weak government.  

The main result was functional diversity of force business, three forms of which became security, partnership and agency.

But this functional complication was hiding for bandits total danger. Serious competitors appeared in the face of private security agencies. Reorganization of KGB and less acute reform of the Ministry of Internal Affairs led to significant outflow of personnel. Yesterday’s officers, who were professional members of the top brass, had to find a new place in life because of salary reductions, decline in the prestige and planned job cuts. And of course, not all of them, wanted to re-qualify into house managers. And these yesterday’s officers decided to offer the market their private security services, which received legal status after the Law about private detective and security activities was accepted in 1992.

Maybe, authors of this law about private security agencies wanted just to create on labor market a niche for fired members of the top brass. But decline in organized criminality became an unexpected consequence of this step.

The thing is that private security agencies (PSA) took the role of power partners, which previously belonged to the bandits. Business liked a new partnership more. Bandits were taking 10-30% of the profit, PSAs worked under the contract with fixed prices for various types of services. They had licences, paid taxes, and all this was raising their status as business partners. Also they had access to databases closed for bandits. In the competition in price and quality of services bandits were loosing to legal power entrepreneurs.

Of course, criminal business (drugs, prostitution, gambling) didn’t have choice, their only possible power partners were organized criminal groups.

Not the governmental repressions started to force out the bandits from the market of violence, but inefficiency of public services and competition of private members of the top brass, who have legal status. And all this led to the fact that a lot of organized criminal groups started to get licenses and to act as private security agencies.

If in the end of the 80s and the beginning of the 90s struggle for the place in the market of violence was between bandits of non-criminal origin and bandits-criminals, starting from 1993 private security agencies had competitive advantage. Functional complication of the role of violence, transition from security to power partnership created a field for activity, where yesterday’s officers, having professional competitive advantage, started to press bandits.

1996-2000 years. In the middle of the 90s bandits start to capitalize their income, to buy and establish enterprises. So in the middle of the 90s a new period of force entrepreneurship started, it was an active legalization of bandits, their conversion to businessmen. If previously entrepreneurs were sources of income, now they became business partners. Partnership extinguished a sense of superiority of bandit over businessman.

Conversion of bandits into local business-elite had objective reasons. Organized criminal groups saved a lot of money which they had to manage with maximum benefit. By providing economic transactions, they got the experience in solving business problems; they entered into a network of business world. But the main thing is changes that were happening in the country. Government starts to revive. V.Putin, after becoming the president, voiced the idea of bringing order, returning the monopoly on violence. Law-enforcement agencies become more active, repressions against organized criminal groups are growing. In these conditions the only possible variant of future for bandits was to go to legal business or to emigrate with all their money.

Also government started to seriously improve economic legislation. Prestige and effectiveness of arbitration are growing. Loyalty to market ideals of the 90s is shown in the fact that if a businessman finds a legislative “hole” and uses it with benefit, government patches this “hole” without dealing with this businessman, so the government adjusts laws all the time by testing them on practice.  

Institutional improvements and growing effectiveness of state agencies lead to the fact that the basis of trust of market counterparts to each other appears. Power businessmen as producers and sellers of trust, limited by the scale of the deal, lose their field of activity.

So, on the one hand, business attracted bandits with the possibility of capitalization of incomes and avoidance of repressions, on the other hand, state successes in institutional construction were reducing the field of activity of power businessmen. Also the market share, served by bandits, was reducing as the number of private security agencies was growing. The market of violence is becoming very competitive.

Transition to regional business-elite became the typical completion of the career of the top of force business. The lower level joined non-organized criminality.

The changes also started to happen in politics. In order to protect their investments into business, bandits decided to go into politics, and this changed the nature of business, politics and criminality by enriching them with new functional and subcultural content.

2000 years. These years were the years of strengthening of the statehood. In various forms of violent actions – repressions, justice, taxes – government pressed the competitors in the face of private power businessmen, and this can be interpreted as a victory of the government over bandits, main competitors in the filed of violence.  Bandits remained a symbol of the 90s.

But bandits were pressed not by the government as a machine of impersonal maintenance of formal standards, but the army of state representatives, who privately disposed of governmental power resources. Bureaucrats, officers and judges beat bandits because they made administrative and power resources of the government negotiable. Of course, these state representatives comply with formal standards, but they interpret these standards according to clients’ interests. Not for free, of course.

The possibilities of current officers to contribute to business development were incomparable with the possibilities of bandits. First bandits were pressed by former members of the top brass, who created private security agencies and offered to business services which were cheaper and of higher quality than bandits’ services. But “formers” used connections with their colleagues who were still working, but they were loosing in the possibilities to solve business problems. Stronger the state machinery was, more the “formers” were loosing. Business understood that times changed and that the government concentrated in its hands administrative and power resources. Stronger the government was, more the attractiveness of state agencies as “shelters”, matching the profile and scale of business, was growing.

The concept “shelter” has a great history. First it was a professional slang of secret service agents; “shelter” meant formal covering of secret service agent. In the 90s former officers, who came to private force business, enriched the language of gangsters with this concept. “Shelter” started to mean power protection of business by private legal or illegal structures. “Shelter” and the government had different nature. In the 2000 years the concept “shelter” was enriched with informal cooperation with policemen and employees of state security. So by enriching meaningfully, “shelter” from the slang of security service agents came to the slang of the gangsters, then it returned to security service agents equating them to bandits.  

On the market of violence, where power converts into money by controlling economic agents, former policemen by removing gangsters, gave place to current employees of state agencies. These current employees don’t do anything wrong – they find stolen things, provide security, return debts, etc. – but they do it not for all taxpayers, they do it for private clients, they create law and order not as social but as private good.

The dynamics of typical force businessmen, starting with Soviet times, is the following: criminal with spindles, sportsman with massive gold chain, former officer with the license of private security agencies, and working officer with a service certificate.  

So, gangsters after doing their job went into the past. Some of them were repressed, some were seduced with high governmental positions, and some entered into the business-elite. Despite bloody details of that times bandits did a good deed – they provided protection of property rights and compliance with contracts, and this allowed the market to develop in the 90s. These were informal institutes, but there couldn’t be others in the situation of actual loss of statehood. Bandits are the product of weak government. In the 2000 years the government revives, gangsters lose their positions in the economy. But as it was mentioned above bandits were beaten by state representatives, who disposed of administrative and power resources of the government for personal purposes, and this allowed them to become force businessmen with superiority over gangsters in solving business problems. New force entrepreneurs, as previous bandits, ensure the work of informal institutes of economic regulation. But if gangsters filled the vacuum of formal institutes, their «shiftmen» form informal institutes by relying on powerful coercive apparatus.

 

3. Conclusion

 

According to the data of the Institrute of Public Projects (2007), law-enforcement agencies by the degree of corruption give way only to federal authorities. But the most important thing is that among all groups of respondents the toughest evaluation of corruption of law-enforcement agencies comes from businessmen.  

What does it mean in relations between bandits and the government?

Policemen and employees of state security became force entrepreneurs “number one”. Power state structures, engaged in profitable business of «protection racket», due to limited resources are less distracted by provision of public goods as security and law and order. In the beginning of the 2000 years  the highest share of policemen earning extra money was in the departments for combating organized crimes (см.: L.Kosals, O.Kolennikova, R.Ryvkina, Yu.Simagin, D.G.Wilson The ‘economic activities’ of Russian police// International Journal of Police Science and Management, Volume 10, No. 1, 2008).

Gangster turns into ideally typical government, if he maintains justice and guarantees order, first of all, for everybody, and not just for particular solvent clients, secondly, on the basis of formal procedures, and not of personal sympathy. Then collective illusion about the government as a useful patron, whose violence is justified by good intentions, is inevitably created. Although their intentions are the same as of the bandits – at the expense of power resources to organize economic process in such a way that the regular income could be provided to political elite.

And vice versa, if state representative disposes of power resources as private goods, allowing bargaining around decisions and practices of law enforcement, government is turning into the bandit while saving symbols and organizational forms. 

 

COMMENTS:

THERE ARE NO COMMENTS YET.