The process of transition from communism to capitalism
was largely hijacked either by outright criminals in
budding outfits of organized crime - or by pernicious and
all-pervasive kleptocracies: politicians and political
parties bent on looting the state and suppressing the
opposition, sometimes fatally.
In the past 16 years, industrial production in the
economies in transition tumbled in real terms by more
than 60 percent. The monthly salary in the poorer bits
equals the daily wage of a skilled German industrial
worker, or one seventh the European Union's average.
Gross domestic product per capita is less than one third
the EU's. Infrastructure, internal and export markets, state
institutions - all crumbled with dizzying speed.
In some countries - not the least Russia - privatization
amounted to a mass transfer of assets to cronies and
insiders, often well-connected members of the communist
nomenclature: managers, members of the security services
and other penumbral figures. Laws were passed and
institutions tweaked to reflect the special interests of these
groupings.
"Classical" forms of crime flourished throughout the
benighted region. Prostitution, gambling, drugs,
smuggling, kidnapping, organ trafficking and other
varieties of delinquency yielded to their perpetrators
billions of dollars annually. In the impoverished
economies of the east, these fantastic revenues - laundered
through off shore accounts - were leveraged by criminals
to garner political favors, to buy into legitimate businesses
and to infiltrate civil society.
None of this is new to Western publics. Rogues and
"robber barons" have always doubled as entrepreneurs.
The oil, gaming and railways industries in America, for
instance, owe their existence to dubious personas and
questionable practices. Well into the 17th century, the
British sovereign maintained a monopoly on chartering
businesses and awarded the coveted licenses to loyal
servants and obsequious sycophants.
Still, the ubiquity of crime in east Europe and its reach are
unprecedented in European annals. In the void-like
interregnum between centrally planned and free market
economies only criminals, politicians, managers, and
employees of the security services were positioned to
benefit from the upheaval.
At the outset of transition, the underworld constituted an
embryonic private sector, replete with international
networks of contacts, cross-border experience, capital
agglomeration and wealth formation, sources of venture
(risk) capital, an entrepreneurial spirit, and a diversified
portfolio of investments and revenue generating assets.
Criminals were used to private sector practices: price
signals, competition, joint venturing, and third party
dispute settlement.
Crime - alone among all economic activities in communist
societies - obeyed the laws of the free market. Criminals
had to be entrepreneurial and profitable to survive. Their
instincts sharpened by - often lethal - competition, they
were never corrupted by central planning.
Deprived of access to state largesse, criminals invested
their own capital in efficiently-run small to medium size
enterprises. Attuned to the needs and wishes of their
customers, criminals engaged in primitive forms of
market research, through neighborhood and grassroots
"pollsters" and "activists". They responded with agility
and in real time to changes in the patterns of supply and
demand by altering their product mix and their pricing.
They have always been pioneers of bleeding-edge
technologies.
Criminals are effective organizers and managers. They
excel at enforcing workplace discipline with irresistible
incentives and irreversible disincentives, at setting targets
and at networking. The superior felonious echelons are
upwardly mobile and have a clear career path. Every
management fad - from territorially exclusive franchises
to "stock" options - has been invented by criminals long
before they triumphed in the boardroom.
In east Europe, criminals on all levels, from the organized
to the petty, often substituted for the dysfunctional, or
ideologically hidebound organs of the state. Consider the
dispensation of justice. The criminal code of conduct and
court system replaced the compromised and lethargic
official judiciary. Debt collectors and enforcers stood in
for venal and incompetent police forces.
Crime is a growth industry and sustains hordes of
professionals: accountants and lawyers, forgers and cross
border guides, weapons experts and bankers, mechanics
and hit-men. Expertise, know-how and acumen, amassed
over centuries of practice, are taught in the criminal
universities known as penitentiaries: roads less traveled,
countries more lenient, passports to be bought, sold, or
forged, how-to manuals, goods and services on offer and
demand.
Profit margins in crime are outlandish and lead to feverish
wealth accumulation. The banking system is used both to
stash the proceeds and to launder them. Tax havens, off
shore financial institutions and money couriers - all form
part of a global web. Thus cleansed and rendered
untraceable, the money is invested in legitimate activities.
In some countries - especially on the drug path, or on the
trail of white slavery - crime is a major engine of
economic growth.
As opposed to the visible sectors of the east's demonetized
economies, criminal enterprises never run out of liquidity
and thus are always keen to invest. Moreover, crime is
international and cosmopolitan. It is accustomed to
sophisticated export-import transactions.
Many criminals - as opposed to the vast majority of their
countrymen - are polyglottal, well-traveled, aware of
world prices, the international financial system and
demand and supply in various markets. They are
experienced negotiators. In short: criminals are well-
heeled international businessmen, well-connected both
abroad and with the various indigenous elites.
The Wild East in Europe is often compared to the Wild
West in America a century or so ago. The Russian
oligarchs, goes the soothing analogy, are local versions of
Morgan, Rockefeller, Pullman and Vanderbilt. But this
affinity is spurious. the United States always had a civic
culture with civic values and an aspiration to, ultimately,
create a harmonious and benevolent civic society.
Criminality was regarded as a shameful stepping stone on
the way to an orderly community of learned, civilized,
law-abiding citizens.
This cannot be said about Russia, for instance. The
criminal there is, if anything, admired and emulated. Even
the language of legal business in countries in transition is
suffused with underworld parlance. There is no - and
never was - a civic tradition in the countries of eastern
Europe, a Bill of Rights, a veritable Constitution, a
modicum of self rule, a true abolition of classes and
nomenclatures. These territories are accustomed to being
governed by paranoiac and murderous tyrants akin to the
current crop of delinquents. That some criminals are
members of the new political, financial and industrial
elites (and vice versa) - tends to support this long-rooted
association.
In all the countries of the region, politicians and managers
abuse the state and its simulacrum institutions in close
symbiosis with felons. Patronage and sinecures extend to
collaborating lawbreakers. Veritable villains gain access
to state owned assets and resources in a cycle of money
laundering. Law enforcement agencies and the courts are
"encouraged" to turn a blind eye, or even to help criminals
eliminate internal and external competition in their turf.
Criminals, in return, serve as the "long and anonymous
arm" of politicians, obtaining for them illicit goods, or
providing "black" services. Corruption often flows
through criminal channels or via the mediation and
conduit of delinquents. Within the shared sphere of the
informal economy, assets are shifted among these
economic players. Both players oppose attempts at reform
and transparency and encourage - even engender -
nationalism and racism, paranoias and grievances to
recruit foot soldiers.
Fortunately, there is the irrepressible urge to become
legitimate. Politicians, who grope for a new ideological
cover for their opportunism, partner with legitimacy-
seeking, established crime lords. Both groups benefit from
a swelling economic pie. They fight against other, less
successful, criminals, who wish to persist in their old
ways and, thus, hamper economic growth. The battle is
never won but at least it succeeds to firmly drive crime
where it belongs: underground.