The Mafia Infiltrates the Legal Economy and Builds Consensus in Times of Crisis
POLITICAL SCIENCES |

The Mafia Infiltrates the Legal Economy and Builds Consensus in Times of Crisis

STUDYING ITALIAN PROVINCES IN THE WAKE OF THE 2007 FINANCIAL CRISIS, CLEAN BOCCONI RESEARCH HIGHLIGHTS THE EXISTENCE OF POSITIVE EFFECTS OF MAFIA TERRITORIAL PRESENCE, THUS PROVIDING AN EXPLANATION FOR THE PERSISTENCE OF SUCH PRESENCE, AND SUGGESTS HOW TO OVERCOME THE ISSUE

When a financial crisis strikes, it opens up new business opportunities for organized crime and the chance to build popular consensus. If the 2007 crunch is of any guidance, during the COVID crisis we should beware of Mafia infiltration in the legal economy, according to research on Italy by Bocconi Post-Doc Researcher Marco Le Moglie and Giuseppe Sorrenti (Amsterdam School of Economics).
 
The United Nations Office on Drugs and Crime (UNODC) estimates that organized crime invests more than 75% of its proceeds in the legal economy, in order to launder money, to generate profit and to build consensus as an employer and a funding provider. The 2007 subprime mortgage crisis allowed Le Moglie and Sorrenti to detect Mafia presence in the Italian legal economy. The credit contraction homogeneously hit all the geographic areas, while Mafia presence was stronger in some provinces and weaker in others; Mafia sources of profit and capital were barely dented, as UNODC records, allowing organized crime to invest as usual. If the Mafia invests in the legal economy, the number of newly established enterprises should thus have decreased less in Mafia-ridden areas than in the rest of the country. That’s exactly what happened, according to the number of firms registered in each province in the Registry of Enterprises.
 
The analysis shows that provinces with higher Mafia infiltration experienced a less severe drop in the number of new enterprises established in the post-crisis period. The drop was 4.1% lower, which corresponds to a provincial average of 241 enterprises (28 for every 100,000 inhabitants) established every year in the post-crisis period due to Mafia investment in the legal economy. “This estimate is likely to represent a lower bound for the actual extent of Mafia investment in the legal economy, since it only captures the part of such investment that became detectable due to the crisis,” says Dr. Le Moglie, a fellow at the Bocconi CLEAN (Crime: Law and Economic Analysis) unit, part of the Baffi CAREFIN Centre.
 
Furthermore, judicial evidence and scientific literature highlight that the Mafia prefers to invest in the construction industry (around 30 percent of Mafia-type organizations firms seized by Italian authorities operate within this sector) and, as for the legal form, in limited companies (46.6%). Confirming that the detected effect is due to Mafia investment, construction and limited companies account for the majority of the difference between areas more or less affected by organized crime.
 
Provinces with higher Mafia infiltration also recorded a higher number of enterprise closures (2.7%), which counterbalances only in part the effect on new establishments. “Our study is the first to highlight the existence of positive-in-sign effects of Mafia territorial presence and provides an explanation for the persistence of such presence,” Dr. Le Moglie comments. “The analysis suggests that standard repression policies against criminal organizations should be complemented by institutional interventions, e.g. provision of credit or programs to enhance employment opportunities, to undermine the roots of the social consensus obtained through Mafia investment in the legal economy.”

Marco Le Moglie, Giuseppe Sorrenti, “Revealing “Mafia Inc.”? Financial Crisis, Organized Crime, and the Birth of New Enterprises”, The Review of Economic and Statistics, posted online, DOI: 10.1162/rest_a_00942.

by Fabio Todesco
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