Bristol and Bath Regional Capital (BBRC) is a local social investment company that is proud to have members across local universities, businesses, voluntary groups and local authorities who all help steer how we provide investment solutions which will truly benefit the region. 

Keeping up with thought leadership on key issues such as the Festival of Economics is one example of how we’re delivering on this promise to listen and learn before we act.

I attended Saturday’s session entitled ‘Why Crime Pays: The Economics of Organised Crime‘, chaired by Tom Gash and featuring panelists Nadia Campaniello (University of Essex), Mirko Draca (University of Warwick) and David Skarbek (King’s College London).  This review outlines the main points covered in the session, as well as some take-away thoughts about how we might tackle this issue in the Bristol and Bath region and examples from our networks of good work already being done.

Mirko Draca argued that in the case of property crimes, such as street theft and burglary, criminals often act as rational economic actors over the short run (months), with prices being a strong determinant of activity. Examples included the changing value of gadgetry – as goods fell in price (such as DVD and CD players in the 90s), this led to falls in property crime. The opposite has been true in recent years – with the surge in the value and tradability of smartphones, crime has increased. Draca then sought to distinguish the lack of clear correlation between rational economic behaviours for long run and violent crime – for example, where someone decides to become a career criminal the economic incentives can be mixed with personal psychological and behavioral issues.

Nadia Campaniello’s research primarily focuses on the Italian American mafia, their drivers and their impact on society. She cited an analysis of 800 mobsters which indicated that they earn income 20% higher than other comparable groups suggesting that, financially, crime pays. Anecdotally, Campaniello recognised that the life of a mobster can sometimes end either living in solitude or with an early death, and that the ‘rock star’ status that they earn during their time in power could offset these downsides. These are not purely economic incentives, but are nonetheless a powerful draw.

Campaniello cited economic studies that estimated that without mafia certain regions would have had 16% higher GDP growth, confirming that crime, on economic measures alone, doesn’t pay for wider society. She noted that although the predominant actors in the criminal world are young men aged 15-23, the gender gap appeared to be closing slightly with a 50% increase in women convicted in recent years.

David Skarbek discussed the large-scale prisons in California. His research suggests that a new form of prison gang-led governance is the norm. In this system, informal rules are set by prison gangs, often operating with the tacit permission of the prison staff. The source of the gangs’ power is partly driven by economic motivations, but largely by the need for individual gang members to find a source of protection and safety otherwise lacking from official sources.

From an economic standpoint, orderly prisons are good markets and therefore good for gangs. Orderly prisons can also reduce the cost to the state and potentially reduce the need for guards to intervene. So from this research it appears that the system is set up with joint incentives to allow organised crime to pay.

During the audience Q&A, a variety of topics were covered, including the link between better education reducing criminality, to the similarities between gang/mafia organisational structures to business.

There was a detailed discussion on how disruption of the criminal business model was a key determinant in success in reducing crime, including:

  • The need for focus on reducing the demand for criminal goods and services.
  • Making the selling process more expensive, e.g. scrap metal crime – a higher ID requirement, coupled with no cash payments, and licensing legislation led to a 30% fall due to the higher transaction costs for criminals
  • Restricting access to the raw materials, e.g. crystal meth – restricting access to key ingredients from pharmacies.
  • Using technology to devalue a stolen goods, e.g. technological changes to stop a car from working once stolen. This enables law enforcement resources to be targeted on those gangs that might try to circumnavigate this technology.

However, some disruptive activity can be short sighted and create opportunities for gangs. For example, prohibition of cigarettes in prisons leads to a shortage in supply, leading to increased profit margins and therefore activity for gangs.

In terms of using sentencing as a business deterrent (or ‘criminal tax’), there was a general point made that short term, high certainty penalties for crime are not good for criminal business and therefore statistically have been more effective as a deterrent. This contrasts with longer sentences with a lower probability of them being enforced, where criminals can take a calculated view of the risk and continue their activities.

There was a discussion on legislation and regulation as a policy tool. Arguments for caution include:

  • As well as moral issues, laws and restrictions are there to deal with perceived externalities – usually health and societal disruption.
  • So, if legalised, policy makers need to then think about what can be put in place to control those externalities. The current policy agenda doesn’t think about this much and is at risk of creating a drug epidemic etc.
  • If you liberalise drugs, the price goes down. Is it better to have an oligopoly? This would keep prices higher and therefore demand lower.

Arguments for proactivity include:

  • The war on drugs has been very expensive, ineffective and promotes violent methods of prohibition leading to deaths.
  • Governments can’t regulate drugs when they are illegal.

Either way, what is the mechanism for legalisation?

This was a fascinating discussion, with some highly experienced and well informed panelists. It does seem that in some (but not all) cases, criminal activity is driven by rational economic actions. In terms of the available solutions, the discussion is complex and arguments on either side are many. One ‘value for money’ approach, mentioned briefly by one of the panelists, is the one of rehabilitation.

Rehabilitation, if done well, is a low-cost solution that recognises the role of economic incentives and seeks to ensure that individuals can develop skills, a trade, a purpose and perhaps even hope. Locally, there are good examples of this, such as Bristol Together CIC which employs ex-offenders to build homes.

In the meantime, while the rehabilitation agenda is sub-scale, society must work with the ancient and blunt tool that is the prison system and seek to ensure that it treats people as humans while not enhancing the economic and other incentives for crime.

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