THE CRIMINAL ECONOMY
2. HOW BIG IS THE CRIMINAL ECONOMY IN RUSSIA? - RAS 13, JRL 6571
SOURCE. O. L. Voronin, "Kriminalizatsiia ekonomicheskikh otnoshenii v Rossii i ee posledstviia (na materiale sibirskogo regiona)" [The Criminalization of Economic Relations in Russia and its Consequences (Using Data for the Siberian Region)], pp. 142-6 in Vostochnosibirskii regionalizm: sotsiokul'turnyi, ekonomicheskii, politicheskii i mezhdunarodnyi aspekty [East Siberian Regionalism: Socio-Cultural, Economic, Political, and International Aspects] (Moscow: Moskovskii obshchestvennyi nauchnyi fond, 2001)
The author of this paper, presented at a conference on eastern Siberia held in Irkutsk in April 2000, tackles the difficult task of assessing the scale of the criminal sector of the Russian economy. (1) Under this term he includes only the supply of illegal goods and services (e.g., narcotics and contract murders) and activity controlled directly by organized criminal groups. (2) Thus "criminal sector" is a much narrower concept than "gray" or "shadow sector," which covers all activity that is not fully legal, including the supply of legal goods and services accompanied by such trivial peccadilloes as tax evasion and operation without the required licenses and certificates.
The author criticizes those Russian and Western analysts who dismiss the criminal sector as a marginal phenomenon (3) as well as those who purvey stereotypes according to which the whole Russian economy is pervaded by criminality. He also draws attention to wide regional variations in the degree to which the economy is criminalized.
He is reluctant to rely on statistics about the criminal economy provided by state agencies. Little or nothing is known about how they are derived, and they may be distorted by the interests of the agency concerned. (4) Nevertheless he thinks that they give a rough idea of orders of magnitude.
According to the Scientific Research Institute of the Ministry of Internal Affairs, annual turnover of narcotics in Russia is about $40bn, while the production and sale of illegal alcohol surrogates yields over $10bn. According to the State Customs Committee, contraband in metals and in sea products in 1998-99 was about $4bn and over $2.5 bn respectively. These four items alone add up to three times the annual budget of the federal government.
No way has yet been found of estimating the total turnover of several other highly criminalized segments of the economy, such as:
* the secondary market in living accommodation
* the market in protection services
* fraudulent "pyramid" financial investment schemes
* the control of wholesale and retail markets
However, the author gives fragmentary data pertaining to various parts of Siberia. For instance, according to analysts at the East Siberian RUBOP (5) in Irkutsk, local criminal gangs control:
-- more than a third of agencies for the sale of real estate in Irkutsk, Bratsk, and Angarsk
-- several dozen notary's offices [in the same cities]
-- all the wholesale markets in Ulan-Ude, the capital of the Republic of Buryatia
-- the whole of the illegal trade in meat and cattle hides in the Republic of Tuva
And in Krasnoyarsk about half of those working for protection firms are or used to be members of criminal gangs.
But what of productive industry? Organized criminal groups have made a concerted effort in the 1990s to expand into industry. In Siberia they targeted above all oil extraction and refining and the production of non-ferrous metals. They made considerable inroads in 1993-95, in connection with the initial phase of large-scale privatization. Thereafter the pace of criminalization slowed down.
In the aftermath of the financial crisis of August 17, 1998, the power of criminal "authorities" declined as strong provincial governors, with the aid of "pocket oligarchs," consolidated "regional financial-industrial principalities." Some examples of such strong governors mentioned by the author are:
* the late Alexander Lebed in the Krasnoyarsk territory, who acted in alliance with the Alfa Group to expel organized crime from the aluminum industry
* Boris Govorin in Irkutsk province, aided by the "Eastland" company of the Yeroshchenko brothers and the "RINKO" company set up by Vitaly Moshchitsky
* Aman Tuleyev in Kemerovo province
In some regions, however, criminal groups had especially close ties with part of the administrative elite and industrial management. Here the power of organized crime has not declined. In Siberia this applies above all to the Tuvan Republic and the Primorye [Maritime] territory. It is an important reason why the economies of these regions have remained depressed.
NOTES
(1) He works at Irkutsk State University and also for the "Azia-in" investment fund.
(2) What it means for a business to be "under the control of organized crime" requires precise definition. If a gang collects tribute from a company but otherwise leaves it alone, does that suffice to include the company? Assessments of the role of organized crime in the economy will depend crucially on which definition is used.
(3) Thus he states (without citation) that Anders Aslund, the Swedish economist who was a principal adviser behind Gaidar's shock therapy, calculates that only 3 percent of the "shadow economy" is connected to the activity of organized criminal groups.
(4) But in what direction would one expect state agencies to distort these figures? Downward, to show what a good job they are doing in combating organized crime? Or upward, to prove that they need more resources? Arguably their interests are best served by demonstrating downward trends from exaggerated initial levels.
(5) Sorry, I don't know what RUBOP stands for. Perhaps someone will be so kind as to tell me.
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