This is the second of an eight part review series of the Patterson Summer Reading List.
1. Colossus, Niall Ferguson
2. Illicit, Moises Naim
Illicit, by Moises Naim, is about crime. According to Naim, crime of all varieties is expanding to the degree that it threatens the global economy, and the traditional nation-state seems incapable of doing much about it. Since some of my work involves piracy (the Yarr! kind, not the lame intellectual property type), I was interested in what he had to say.
There’s a lot to like here. Naim details the various ways in which criminal (and terrorist) networks take advantage of the global economy, and shows how they manage to stay ahead of traditional law enforcement. He touches on the markets for small (and not so small) arms, drugs, slavery (although he seems to have a broad definition of slavery, such that it includes essentially voluntary illegal immigration), intellectual piracy, and money laundering. He correctly connects the illicit economy to terrorism, making the relatively nuanced (and correct) argument that smugglers, drug dealers, and terrorist all move through the same shadowy legal areas, and all benefit from the inability of states to enforce their will. Naim argues that the illicit economy is bigger than ever before, that it is escaping the capacity of governments to police and control, and that it threatens general global economic health.
I don’t think that Naim makes his case, however. In order to believe that the illicit economy is a threat to the real economy, he has to convince us that the illicit sector a) has expanded relative to the global economy as a whole, and b) is doing real damage to the legitimate economy. I am less convinced of the first than the second, but I’m not really convinced of either. It seems to me that what Naim wishes to describe as an explosion of illicit activity may well be an artifact of both the general increase in trade and a sharpening of the instruments used for detecting illegal activity. Naim argues that police forces and other state based law enforcement teams are always behind the curve against illicit and criminal organizations, but what appears to be an explosion in crime may just be an improvement in the detection methods that such organizations have. As such, I’m not convinced that the increase in global trade has actually led to an explosion in illegitimate economic activity in percentage terms. Is it easier to launder money now than in 1950? I know several New York Mafia families that might dissent from that suggestion.
I’m also unconvinced that the problem is as devastating as Naim wants to suggest. The global economy, after all, continues to grow in spite of the increase in illicit activity. Not to get all socialist, but Naim seems to assume that the current structure of property rights (both intellectual and otherwise) is more or less ideal, and that divergence from this legal structure, through whatever illicit means, is illegtimate and damaging. It seems obvious to me that the current legal structures that define property rights are contingent and the result of political struggle, and thus that they represent a modus vivendi rather than an ideal, pareto optimal construction. It follows that divergence from these structures does not necessarily represent a reduction in efficiency and general well being, although it almost certainly represents a redistribution of goods within the system. Given this, it’s not quite right to suggest that the copying of a DVD in China, for example, represents a deadweight economic loss. It may involve some overall loss (and it may not), but obviously some actors (including the consumer) are seeing a benefit. The same could be said of illegal immigration and human smuggling; obviously, some actors are seeing important economic gains, and writing those off as illicit isn’t particularly helpful.
Naim ends by arguing that the state is really insufficient to dealing with the problem of increased illicit economic activity. I’m halfway convinced. I certainly think that there’s a good case to be made that criminal organizations can be more nimble than government organizations, or at least that they exist within an environment that favors innovation (because of the need to survive) in a way that government organizations don’t. On the other hand, governments are always going to have greater resources than criminal organizations, although Naim fairly points out that the distinction isn’t always clear, as illicits can penetrate governments and nudge them in nefarious directions. Naim also occasionally, and unfortunately, ventures into almost an “Army of Davids” type argument, suggesting that private groups can fill the gaps that government fails to cover. This isn’t completely wrong, but I think he understates the degree to which these kinds of NGOs operate through government activity, rather than in distinction from it.
Still, even if he overstates (and perhaps slightly mis-states) his case, the argument is reasonable and the information presented is interesting. Certainly, I think that the kind of activity discussed by Naim is understudied in the general academic literature, and Naim’s argument makes one wish that we’ll see more work in this area.