Martin Wolf
Business Day - Johannesburg, South Africa
THE world we live in offers vast economic opportunities. But these are not limited to production and trade in what we consider good. They include production and trade in "bads": narcotics, stolen artefacts, arms, slaves and organs. And with these go their consequences: money laundering, corruption and political subversion.
Governments are trying to separate the Siamese twins of licit and illicit trade, in order to kill off the latter. They are failing. This is the thesis of a remarkable new book by Moises Naim Illicit: How Smugglers, Traffickers, and Copycats are Hijacking the Global Economy. Todays world, he argues, offers growing opportunities for profit in illicit activities.
Consider some of the evidence.
‖Seizures by drug-enforcement agencies nearly doubled in volume from 1990 to 2002, but the street prices of illegal narcotics seem to be as low as they have ever been.
‖Traffickers are estimated to move at least 4-million people a year as slaves and are helping to move a far greater number of people as illegal migrants.
‖Traders in small arms have supplied almost 50 wars since 1990, while the network controlled by Pakistans Abdul Qadeer Khan has promoted nuclear proliferation.
‖Counterfeiters supply perhaps 8% of the world market in drugs (beneficial, ineffective and lethal), faked parts and copies of branded products worth about $500bn a year.
‖Pirates distribute tens of millions of illegal DVDs, software and books.
‖Money-launderers pass perhaps as much as $3-trillion through the worlds financial system.
What unites these activities is that they are immoral, illegal and highly profitable. Todays world makes very valuable a host of things that cost little to supply. Intellectual property rights regimes turn goods that are cheap to make a medicine, a DVD or a bootlegged software programme into items of high market value. So do prohibitions on the sale of narcotics, arms, endangered species or the services of prostitutes.
The biggest underlying source of opportunity, however, is the combination of borders with the ease of crossing them. What makes borders permeable is licit commerce, legitimate movement of people and new communications technologies. All countries are now neighbours.
What makes borders economically significant is the gulf in real wages and incomes across them. These gaps create incentives to move people, providers of illicit services such as prostitution, and highly demanded, albeit illegal, products such as narcotics, across borders. Naim contends that dynamic entrepreneurs have been seizing these opportunities on a growing scale. For if nature abhors a vacuum and greed is part of human nature, then greed too abhors a vacuum. That is why profit opportunities never go untapped for too long, not even when it is illegal to seize them.?
Since the early 1990s, argues Naim, illicit trade has transformed itself: it has grown immensely in value and extended its scope in terms of both products and activities.
Illicit trade intertwines closely with licit activities. This is most true of money laundering. The abolition of exchange controls, more competitive financial markets and information technology have all made money laundering easier. Floods of illicitly earned wealth flow through offshore financial centres, and through London and New York as well.
Illegal activities do not merely subvert governments, but have in many cases become their principal businesses. Transdniester, an enclave of Moldova, is a family-owned and operated criminal smuggling enterprise?, writes Naim. He lists parts of Colombia, Russia, Afghanistan, Mexico and places in Africa and Asia where traffickers of illicit goods ?? have a defining role in economic, political and military affairs?.
How, if at all, are the growth in illicit trade and its most malign consequences to be managed? I stress managed?, not eliminated. One must start with a truth: as Naim notes, no government agency can fight the law of gravity?. If millions of people are desperate to buy and millions more desperate to sell, the trades will happen, whether we like it or not.
The first response, then, is to stop indulging in unbridled moralism and concentrate on harm reduction. We should focus efforts on the most harmful trades nuclear proliferation or large-scale coercive trafficking in children and women.
Second, abandon infantile wars? on suppliers. There is no war on drugs. There is, instead, a war on poor suppliers that raises the profits to be gained from the trade. If illicit trade is to be reduced, it can be only by lowering its profitability. If one wanted to halt illegal immigration of workers, for example, the only plausible mechanism would be harsh penalties on those who employ them.
Third, design enforceable property rights. Regimes that reward inventors with temporary monopolies will, for example, be unworkable if the monopoly cannot be protected.
Fourth, make governments work better. We have to defragment? bureaucracies, both within countries and among them. We must also make international co-operation more effective, by tackling state failure, the capture of weak states by criminals and official corruption.
Naim reminds us, rightly, that the profit motive is universal. So, then, are the forces that underpin all illicit trades. Since we cannot compel universal virtue, we must concentrate our efforts, instead, on reducing the profitability of the trades that are most destructive. Not least, we must recognise our enemy: he is not them?; more often, he is us. Financial Times
 |
