Excerpts from a paper, delivered by Thomas C. Schelling, professor of Economics, at the Association for the Advancement of Science's recent annual meeting, are printed below. These sections, constituting about a third of the entire paper, are his introduction and his concluding remarks. Intervening sections dealt with market organization, incentives, and various other practices of underworld crime.--Ed.


At the level of national policy, if not of local practice, the dominant approach to organized crime is through indictment and conviction, not regulation, accommodation, or the restructuring of markets. This is in striking contrast to the enforcement of anti-trust or food-and-drug laws, or the regulation of industries affecting the public interest. For some decades, anti-trust problems have received the sustained professional attention of economists concerned with the structure of markets, the organization of business enterprise, and the incentives toward collusion or price-cutting. Racketeering and the provision of illegal goods (like gambling) have been conspicuously neglected by economists. There exists, for example, no analysis of the liquor industry under prohibition that begins to compare with the best available studies of the aluminum or steel industries, air transport, milk distribution or public-utility pricing.

Yet a good many economic and business principles that operate in the "upperworld" must, with suitable modification for change in environment, operate in the underworld as well, just as a good many economic principles that operate in an advanced competitive economy operate as well in a socialist or a primitive economy.

In addition to sheer curiosity there are good policy reasons for encouraging a "strategic" analysis of the criminal underworld, an analysis that might draw on modern economics and business administration. Such an analysis, in contrast to "tactical" intelligence aimed at the apprehension of individual criminals, could help in identifying the incentives and the limitations that apply to organized crime, in evaluating the costs and losses and in restructuring laws and programs to minimize the costs, wastes and injustices that crime entails.

Many Points for Study

A number of questions need to be pursued. What market characteristics determine whether a criminal activity becomes "organized"? Gambling, by all accounts, invites organization while abortion, by all accounts, does not. In the upper-world automobile manufacture is characterized by large firms, machine tool production is not; collusive price-fixing occurs in the electrical-machinery industry but not in the distribution of fruits and vegetables; retail-price maintenance can be legally enforced in the branded-liquor industry but not in the market for new cars. The reasons may not be entirely understood but they are amenable to study. The same should not be impossible for illegal gambling, extortion, abortion, and contraband cigarettes.

A related question is how much organized crime depends on at least one major market in which the returns to tight and complex organization are large enough to support a dominant monopoly firm or cartel. Not all businesses lend themselves to centralized organization; some do, and these may provide the nucleus of well-financed entrepreneurship and the extension of organizational talent into other businesses that would not, alone, support or give rise to an organized monopoly or cartel.

A strategic question is whether a few "core" criminal markets provide the organizational stimulus for organized crime. If the answer turns out to be yes, then a critical question is whether the particular market so essential for the "economic development" of the underworld, and the emergence of organized crime, is one of the black markets dependent on "protection" against legitimate competition or instead is an inherently criminal activity. This question is critical because black markets always offer, in principle, the option of restructuring the market, or increasing competition as well as reducing it, of compromising the original prohibition in the larger interest of weakening organized crime, of selectively relaxing the law or its enforcement. If, alternatively, the core industry is one that rests principally on violence, compromise and relaxation of the law are likely to be ineffectual and unappealing. Restructuring the market to the disadvantage of such criminal business is thus a good deal harder.


It is usually implied, if not asserted, that organized crime is a menace and has to be fought. But if the alternative is "disorganized crime"--if the criminals and their opportunities will remain, with merely a lesser degree of organization than before--the answer is not easy.

There is one argument for favoring the "organization" of crime--the one about "internalizing" some of the costs that fall on the under-world itself but go unnoticed, or ignored, if criminal activity is decentralized. The individual hijacker may be tempted to kill a truck driver to destroy a potential witness, to the dismay of the underworld, which suffers from public outrage and the hightened activity of the police. A monopoly or a trade association could impose discipline. This is not a decisive argument, nor does it apply to all criminal industries if it applies to a few; but it is important.

Organized Abortion

If abortion, for example, will not be legalized and cannot be eliminated, one can wish it were better organized. A large organization could not afford to mutilate so many women. It could impose higher standards. It would have an interest in quality control and the protection of its "goodwill" that the petty abortionist is unlikely to have. As it is, the costs external to the enterprise--the costs that fall not on the abortionist but on customer or on the reputation of other abortionists--are of little concern to him and he has no incentive to minimize them. By all accounts, criminal abortion is conducted more incompetently and more irresponsibly than the illegal control of gambling.

It is customary to deplore the "accommodation" that the underworld reaches, sometimes, with the forces of law and order, with the police, with the prosecutors, with the courts. Undoubtedly there is corruption of public officials, bad not only because it frustrates justice but also because it lowers standards of morality among the public officials. On the other hand, officials concerned with law enforcement are in the front line of diplomacy between the legitimate world and the underworld.

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