Crime doesn't pay, but it does make an awful lot of money

I teach Economics as well as Maths. Given my mathematical training, my background in insurance pricing, and personal interest and passion for the subject, it is something I have taught more and more over the years. Having recently done research on organised crime I was staggered to discover some of the statistics. Just in the UK alone organised crime groups make billions. If they were listed on the stock market, their share price would probably be in the FTSE 100.

And that's just the UK, globally the revenue of organised crime run into the hundreds of billions, with some estimates putting it at almost one trillion dollars. Holy Moly! That is an astonishing amount of money. Just to give some comparison, the top 100 corporations in the UK make around £514bn per year. Let's just stick with the UK though, so we can make a fair comparison. Taken from page 8 of this government Crime Report in 2012 the estimated revenue of organised crime in the UK was around £13.5 billion. To give some idea of comparison, Debenhams reported a mere £2.3 billion in revenue in 2015. So we're looking at a company roughly 5 times as large as Debenhams here.

Now these organised crime groups are not one unified force, in fact in some areas they are bitter rivals, but nevertheless we are looking at an economic force comparable to a large UK corporation. I was just quite surprised to see no mention of it in the Economics syllabus. Ok so it's not as if organised crime is taking over the economy, but I would have thought it was a large enough factor to merit if not an entire chapter, at least a paragraph. And if we're educating the next generation of potential policymakers wouldn't we want them to have an awareness of this issue? It's interesting to note that the government estimates the social costs of organised crime as quite a bit higher than their revenues, so we're looking at a significant player in the UK economy, and it's fair to assume that the problem is of a similar magnitude or even worse in other areas of the world.

What concerns me though is where is all this money going? And what are the profit margins, because I imagine they are quite high. The criminals are selling pretty inelastic goods and in most cases work hard (by murdering rivals) to get a monopoly on the market place, which creates very high profit margins. I'd also imagine they have much lower running costs, and also pay zero tax. So while their revenue may be lower than some legal organisations, their profits I would expect to be much larger relative to their size. All this wealth and money is just being piled up somewhere. Coupled with their brutal methods of influence, I can only imagine they are stockpiling large amounts of wealth and power. The main question is though, what is the trend. See if levels of organised crime have been static over the decades, then it's fair to assume that as the crime lords die or fight with each other, they will lose money and influence at roughly the same speed as they gain it, so over time no overall net gain will occur. They would under this scenario continue to have roughly the same level of power and influence in society over time.

However, if it is a growing trend, or they are somehow able to build on their gains over time and slowly accumulate more wealth and power, then what we have is a monster quietly growing in the background becoming harder and harder to deal with. As they buy more judges, intimidate more law enforcers, and tighten their grip on society they become more and more difficult to handle. I've seen a documentary about the top public lawyer in Columbia who is charged with tackling corruption in the country, and it is one of the most dangerous jobs in the world. She has had many assassination attempts and lives with a 24 hour armed guard. When you get to that level it is very hard to turn it around because anyone that tries to stand up to the criminals is instantly a target and so not enough people have the courage to stand up to them and the game is pretty much over by that point. I guess what I'm saying is, I don't know if it's all just business as usual when it comes to crime or is the world slowly sliding down the chute to a point where organised crime groups have comparable or more power than the elected governments? I don't know but if it's the latter or there is any risk of it being that then we need to do something about it now before it is too late.

(Published on 1 May 2016)