CS Question #1: How does the influence of a mafia destroy the economy?

The Russian mafia has existed for many years, dating back to the Brezhnev era of Soviet politics. In the late 1960s and early 1970s, the Soviet economy began to stagnate, and fewer and fewer imported goods were available. Incomes had ceased to increase, while inflation at state-owned businesses crept up. A black market began to form, selling foreign jeans, cigarettes, liquor, chewing gum and hi-fi equipment outside of the many restrictive taxes and laws of the Soviet government. These early Russian gangsters, however, kept a low profile to avoid the gulag prisons of Siberia. When the Soviet Union collapsed, the moral order collapsed as well. The power of the government to enforce laws melted away overnight. Thousands of war veterans and KGB agents found themselves without support or employment, and many of them sold their services to the Russian mafia. When the communist government was overturned, many Russians went from one net of oppression and coercion to another. Mob enforcers act as the KGB agents of yesteryear, using intimidation and even violence to control the population at large.

CS Question #2: How did the fall of communism lead to the power now exerted by the Russian mafia?

The pervasiveness of the mafia is alarming. According to the Russian government's own statistics, over 40 percent of businesses are somehow influenced or controlled by the mob. State-owned businesses are said to be over 60 percent controlled by criminal organizations. Russian federal enforcement agents have identified nearly 6,000 different mob groups. In the time of Gorbachev, officials listed only 785 mob groups. The mafia has grown faster than any other industry in post-communist Russia. The cost to the economy has been unmeasurable. Nobody really knows how much money is laundered out of the Russian economy by the mob. Estimates do range from $25 billion to $150 billion U.S. dollars. This sort of criminal activity leads to both the scarcity of currency and inflation, severely crippling the Russian economy and its government's tax base.

CS Question #3: What do you suggest the Russian government does to stop this vicious cycle of criminal activity?

The presence of the mafia in the Russian economy has been severely destabilizing. Without government enforcement, the mob essentially has become the government. It is impossible to do any sort of business without somehow interacting with the Russian mafia. The mafia is stifling foreign investment in Russia. The German minister of the interior reported that German businesses are paying up to 20 percent of their profits to the Russian mafia in the form of bribes and extortion scams. The investment rate in Russia is a seventh of that in neighboring Poland. Poland was also caught in a vacuum after the fall of communism, but a stronger transitional government prevented the mafia from seizing control of the Polish economy. Foreign businesses want to see stable and legalized markets in order to invest capital. Without a stronger government to regulate business and basic law, it will be impossible for the Russian economy to perform up to its potential.

CS Question #4: How does the Russian mafia discourage foreign investment?

Further Thought:

1. What is a black market?
2. Is there a black market in the United States?
3. How could the Russian mafia become a threat to U.S. national security?