Sunday, 23 September 2012

A post you can't refuse... - Mafia Economics

"I'm gonna make him an offer he can't refuse" - says Don Vito Corleone, and thousands of fans of the movie 'The Godfather' fans experience the same goose bumps they did back in 1972. Even if you did not see the movie - you should -, you are most likely familiar with the story of Michael Corleone, youngest son of the Don who goes from being an outsider to the head of the organisation. But there are some facts even fans don't know about - for example, that besides being a movie classic, 'The Godfather' serves us with important lessons on supply and demand and the role of government. How? Read below.  


Path to Corruption

While many reader's would claim that the film's main (and only) message was the moral corruption and transformation of young Michael Corleone, that is just one side of the story. Firstly, the Italian Mafia of the 1920's was not only a criminal organisation, but a lucrative trade business, also providing security and agreement ('law') enforcement for its protectees - and secondly, the biggest corruption source of the movie is not the Mafia, but rather the USA government itself.

Prohibition and Black Market

When the Eighteenth Amendment of the USA Constitution was put into effect in 1920, it was already very controversial. The total ban on the sale of alcohol in the United States was expected to lower the consumption of alcohol by lowering the (legally available) supply. However, it wasn't a gradual shift - hence people had no time to accustom to lower consumption levels, hence their demand for alcohol stayed the same. And what happens to a product's price when it's supply decreases and it's demand stays the same? Yep, it goes way up. It hence brings a bigger profit - and people always loved lucrative business. The Prohibition hence didn't achieve anything besides creating a black market for alcohol.

Shadow market, shadow government

While black market trading is a big business, it has one major economic setback - the safety of the deals conducted is not guaranteed by a higher (governmental) authority. This means that traders  had to find alternative ways to assure that everyone keeps their end of the bargain - and nothing is easier for that than raw force. This meant that any company - organisation - which wanted to do alcohol smuggling en masse also had to be organised enough to assert this force - and we arrive at the description of a typical criminal group.
The Mafia of the 1920's not only traded, but helped providing protection against other forms of crime and violations of property and contract rights - naturally, for a hefty price. Don Vito also said that 'a lawyer with his brief case can steal more than a hundred men with guns' - a phrase not so many of us remember.
Knowing this, two questions remain - where was the government to provide protection? And why did Italians organise the Mafia?

Hello, Mr. Sam?

The answer to the first question is easy - the government was busy elsewhere. Enforcing the Prohibition required so much effort from police officers - many of whom were booze enthusiasts themselves - that crime-solving became a distant second after alcohol chasing. And in a situation so hopeless for the cops, people - and cops - give up. That happened in 'The Godfather' as well - Captain McCluskey, the police officer Michael kills was controlling the alcohol trade in a special way, by collecting bribes from the Mafia in exchange for turning a blind eye to their business. In fact, the real-life Italian Mafia was only driven back after the end of the Prohibition in 1933 - it cut their earnings, and police officers could once again concentrate on solving real cases.

Home away from home

For most people the end of the Prohibition meant a return to normal lives, protected by their government. For many however - like American Italians - that never was the case. Emigrating from poor, rural Southern Italy during the 19th century, being Catholics in a predominantly Protestant environment meant that American Italians were social outcasts, only relying on each other for survival. The experience of self-rule was not a new one - for hundreds of years, the Kingdom of Sicily was infamous for inefficient governance and laws favouring a rich elite.
This meant that Italians organised their own communities in the newly found home of United States of America as well. The Mafia was started well before the Prohibition - and while it's golden age has passed, it still governs large parts of American organised crime to this day.

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