Protectionism in the New Capitalist Russia The Russian Mafia has alwaysexercised an important role in the Russian economy. The contemporary mafiosi aredescendents of the seventeenth Century highwaymen and Cossack robbers. These menoccasionally murdered families prior to raids preventing them from beingcaptured. The Russia mafiosi made a point to remain aloof from the state. Mobmen were actually spurned when returning home from fighting in the GreatPatriotic War.
The gangs begin to dominate markets such as car sales, spareparts, cigarettes, food distribution, and other markets that the Communist Partyfailed to provide under the Bolsheviks (Remnick196). Since the collapse ofCommunism and the dawn of Capitalism, the Russian people have been troubled withinnumerable obstacles. There are more than 3,000 gangs known generally as theRussian Mafia. They have proven to be a significant force in delaying the reformprocess (Goldman 58). The new Russian Mafia has involved themselves in everyimaginable kind of criminal activity from drug trafficking and money launderingto protectionism, which penetrates into every area of society.
Under the laws ofthe Soviet Union, the regulations were strong and external. Now the externalregulators have disappeared allowing the Russian Mafia to exceedingly enlargeits strength and influence especially with the accelerated speed ofprivatization without legal safeguards. The Russian Mafia’s effect on theRussian economy through protectionism can be viewed through the different scopesof academia, the United States Press, and the Russian Press. Protectionism is apreferred activity of the Russian Mafia. When a new private business opens, themafia ensures that it will get a share of the profits.
The mob offers the newoperation protection. If the business refuses to purchase protection, the mafiauses violence against them or their property (Gustatson 105). Most entrepreneurspurchase the protection. Then the new company pays unofficial taxes to crimegroups.
This guarantees that nearly all new businesses will have an affiliationwith the mafia. Gustatson estimates that payments can are approximately twentypercent of the profit (105). This is a major form of taxation on top of what thegovernment already commands leading many companies to tax evasion or concealingtheir exact value. These acts forfeit what little protection the authoritiesmight be able to render. The mafia demands a cut of the earnings but in turnfurnish more than adequate security.
The mafiosi provides protection fromunaffiliated criminals and rival gangs. They ensure that property is not damagedor stolen. If entrepreneurs are visited by another organization, they must onlysummon their own mafia group. The two gangs will settle the matter themselves (Gustatson105). This security is an asset that the State seemingly fails to provide.
TheRussian Mafia has more men and weapons than the Russian law enforcement. Thepolice force is an intently corrupt place as is much of the Russian government. Both army officers and law enforcers are frantic for cash and willing to sellweapons such as guns, grenades, and rocket launchers (Remnick 109). The RussianMafia is able to easily locate weaponry to carry out its duties as protectorate;while, the authorities lack money and personnel.
A few days before the uniondissolved the biggest Russian Mafia leaders held a summit meeting at a dachajust outside Moscow with the three main Italian crime organizations from Sicily,Naples, and Calabria. They understood that it would bring turmoil anduncertainty; yet, the Vori v Zakonye or thieves in the law saw possibility inthe disintegration of the Soviet Union. The organizational leaders assembled todiscuss the selling of nuclear materials, and drug-money laundering (108). Themafiosi would use their influence to access bureaucratic power.
They begananticipating the collapse by becoming private businessmen: consultants andrainmakers (197). As Consultants and Rainmakers, they would assert theirauthority through protection. Academia states that protectionism is having atrenchant effect on the Russian economy. It helps create massive inflation tothe already weak economy. The twenty percent of the gross earnings extorted fromthe business as protection raises the price of the goods and servicestremendously for the Russian people monthly. The Russian consumer ultimatelypays the protection bill (Goldman 58).
It is estimated that in 1996 about eightypercent of all private businesses made regular payments to a mafia organizationfor protection and a substantial amount of that money ends up in othercountries. (Gustatsun 104). Thus the underworld is taking a vast amount ofwealth out of Russia. With the Russian Mafia handling so much money, it islittle wonder that they were able to buy so many governmental officials.
Scholars tend to take an objective approach. The Russian Mafia demands a cut ofthe profits, but does render a service that the authorities can not provide. This is having plundering effect on the economy as a whole. It is causingmassive inflation and sinking the already weak economy.
This has lead to a trendtowards nationalism and separatism in Russia. The United States pressunderstands that the Russian mafia had a definite place in society at one time. It grew because of the buying and selling of smuggled or stolen goods. Itsatisfied the Soviet consumer with products that the State failed to provide. These items were both consumer and illegal goods. It filled this role fordecades under Soviet rule.
The mafia was established and equipped to amplify itsbusiness during market reforms. It was more in touch with consumer demand(Tanner C2). Russia suffers the most due to mafiosi activities. It seems thatgangs are threatening to take over the nation’s economy.
Bombings contractkillings, and robberies are a common occurrence. Russia is a very differentplace from the early developing economy of the United States. The robber baronsof the United States can be described as vicious. They made their fortunes bybuilding and preventing others from doing just that.
Yet, Russian wealth isachieved and held through violence, theft, and manipulation. Many Russians cameto believe that this distorted form of mafia control is the normal free-enterprise system. This sentiment is reinforced when they see Westernbusinesspeople and investors fail to complain and then comply with payingprotection money (Washington Post C2). The Puget Sound Business Journal reported”the Russian mafia is the most Western-like negotiating experience you’llhave in Russia. . .
unlike the slow-moving and fractured government the Russianmafia is businesslike and helpful” (18). The Russian syndicates seem far moreorganized than the legitimate government. The gangsters have a systematic methodof retrieving “taxes” from their businesses under their protection. They useforce. This is how they sustain control. The Atlanta Journal and Constitutionreported an antidote about protectionism.
There was a small store in Moscowselling groceries and other items, Vso Dlyah Vas or everything for you. It wasone of the many new stores springing up in the new Russia. The store’s frontwindows were smashed; yet, nothing was stolen. A few days later the store wasclosed; the owners left town (1B). They had failed to pay the appropriatepeople.
This is just one example of mobsters smashing private businesses forfailure to comply with their protectionism mandates. Democracy in Russian hasturned out to be a free-for-all of profiteering. For many, it brought increasedpoverty and despair. Krisha, in Russian, means protection money.
It is surmisedthat seventy-five percent of the businesses in Moscow pay a percentage of itsprofits to its organized crime associations. Actually, the mafia has a highercollection rate than the Russian government (Washington Post C2). Thisinfiltration of the economy has had dire consequences. There is no way todetermine how much money is involved. However, it is estimated that anywherefrom 50-100 billion of state and communist currency and gold have been privatelyappropriated and transferred out of the country (C2).
That is on top of thetremendous inflation due in part to protectionism. In 1992, the prices rosetwenty-six percent. The inflation rate was eighteen percent a month in 1995. Needless to say, any adjustment to salaries tarried far behind the constantescalation of prices. Things are beginning to change in Russia.
Companies arebuilding up their own security forces. They are obtaining security from the moband their protection schemes for themselves. They are employing armed guards,which is reasonably inexpensive in Russia. Many companies are also introducingclosed-circuit television and scrutinizing visitors even photocopyingidentification papers for future reference (Economist 60).
This is begining toput most creditable businesses beyond the grasp of the most primary variety ofRussian gangster. Protectionism might be slowly coming to an end. The Russianpress reports that fifty-two percent of the country believe that the mafia isrunning the country. The Majority also believed that Russia’s rich got wealthythrough stealing, plundering, bribery, or some other form of corruption(Fifty-two Percent Believe 11). Yet the Russian Internal Affairs minister,Sergei Stepashin, stated that the Russian Mafia is but a myth during an addressreporting on the Russian criminal world at a European Union meeting.
He said,”Fear of the Russian Mafia stems from a lack of understanding the processesthat are occurring today in Russia” (Sukhova 20). He also reported that thereis a myth of a Russian mafia that should be dispelled. Protectionism is notreally occurring. . The Russian mafia controls almost every aspect of the Russianmarket. They determine who can open a business, stay in business, and who mustclose their business.
The mafia makes these determinations, often times, on whois compensating them for their security services. Most Russians report that theyare directly or indirectly intimidated or extorted by at least one of theorganizations within the Russian mafia. The syndicates seem to arrange anorganization for business that is not yet available from the government orprofessional arena. If one business has a problem with labor or anotherbusiness, the business owner merely contacts his mafia link.
The matter isimmediately, quietly, and efficiently resolved. (Crime in Russia14). The Russianmafia is involved in every aspect of Russian life. They provide a code ofconduct for business not yet provided by the professional elite or thegovernment.
The mafia has a detrimental effect on the Russian economy. It notonly creates massive inflation, it deters companies from other countries frominvesting in the Russian economy. Foreign investors operating at the retaillevel where hard cash is a fundamental part of business are particularlysusceptible. They are not excluded from the gangster’s tactics of”offering” protectionism (Fifty-two Percent Believe 11). In some cases, themafia has succeeded in expelling the foreign owner.
Specifically this hashappened to a Canadian-owned wholesale electronic good franchise, and Italianmerchant of leather goods, and an Estee Lauder shop (Washington Post C2). Russiahas taken several steps to stop crime such as protectionism and the Russianmafia. Yeltsin has granted the police various powers to confront these dilemmas. The decree Yeltsin issued permits police to detain organized crime suspects forthirty days without cause, search offices and homes without a warrant, andinspect the finances of suspects. Uncorroborated testimony is now permissible incourt, and witnesses that decline to testify can be punished (Fifty-two Percent11).
Yet, these measures seem to have done little to stop organized crime’sgrowth. Unfortunately, Russian organized crime has prospered in the new economicsystem, and has migrated well beyond the Russian boundaries. Much of the privatebusiness activity lies in a gray region somewhere between legality andillegality. The law has yet to fully catch up with privatization.
Academia, theUnited States Press, and the Russian press all paint a devastatingly bleakpicture of the Russian economy; yet, there is hope for change. Many smallcompanies do not have the luxury of making drastic changes; yet, efforts arebeing made to stop the mafia or at least cease the growth of it on the side ofthe government and larger businesses. Enterprise are creating their own companysecurity and stopping protection payments. Things will not change overnight, butRussia can and slowly is moving toward normalcy. Bibliography”Biz in Russia.
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