Bigness & Badness

Almost every aspect of the economy has been subjected to searching analysis--except for organized crime. Now Harvard Economist Thomas C. Schelling, speaking in Washington before the American Association for the Advancement of Science, complains that "racketeering and the provision of illegal goods have been conspicuously neglected by economists." He proposes that they be studied--and fought--through techniques of "modern economics and business administration."

The same kind of analysis that federal regulatory agencies use in handling anti-trust and other problems could, says Schelling, "help in identifying the incentives that apply to organized crime and in restructuring laws to minimize the costs, wastes and injustices that crime entails."

Schelling believes that "a good many economic and business principles that operate in the 'upper-world' must, with suitable modification for change in environment, operate in the underworld as well." Indeed, there is a distinct "typology of underworld business." One major group is black markets, which sell "commodities and services contrary to law," such as dope, abortions and--through scalpers--New York theater tickets. A second is racketeering, which includes extortion and other businesses "based on intimidation."

Infra-Structure. Like legitimate business, the underworld has its basic, or "core," industries. "In economic-development terms," says Schelling, "black markets may provide the central core (or 'infra-structure') of underworld business, capable of branching out into other lines." The underworld economy probably grew out of the Prohibition-era bootleg liquor industry, which "may have put underworld business in the U.S. in what economic developers call the 'takeoff' into self-sustained growth."

Nowadays, big crime steals a key principle from big business: "Small-scale operation is more costly than large-scale." Organized crime works at cutting "high overhead costs," uses its "equipment or specialized personnel fully." Large operations take advantage of the fact that "where entry can be denied to newcomers, centralized price-setting will yield monopoly rewards to those who control the market." More over, the bigger the racket, "the more formerly 'external' costs will become costs internal to the firm"--and thus under better control. One important "cost" is violence. The big firms, says Schelling, "have a collective interest in keeping down violence to avoid trouble with the public and the police."

Quality Control. All of this leads, inevitably, to the same problem that befuddles federal regulatory agencies in the upperworld: Does bigness mean badness? Or, as Schelling puts it, "Should crime be organized or disorganized?" In the case of abortion, for example, Schelling admits that "one can wish it were better organized. A large organization could impose higher standards. It would have an interest in quality control and the protection of its 'good will' that the petty abortionist is unlikely to have." Puzzles Schelling: "If the alternative is 'disorganized crime,' the answer is not easy."

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