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The Progressive Economics Forum

The Lumpenization of the Global Economy

Gabriella Moldonado looked like someone who was thoroughly whipped by life.

This past October I was standing on the front stoop of her sagging home in Laredo, Texas, interviewing the middle-aged, portly woman for a television documentary about Mexico’s drug cartel wars.

Laredo is a city of 230,000 that lies on the Rio Grande river just across from Mexico. It also happens to be the main artery for the (US) $300-billion in annual trade that passes through the US-Mexico border every year. About 12,000 trucks cross the border at Laredo every day – all part of the legacy of NAFTA. It’s also the main entry point for narcotics heading north from Mexico into the US-Canada black markets – an annual trade estimated to be as high as(US) $50-billion a year.

On a hot sunny Friday afternoon, I was talking to Moldonado in one of Laredo’s poorest Latino neighborhoods. Moldonado is a daycare worker and endures poverty that’s of Third World proportions. Her five-room shack has about seven people living in it, from elderly grandmothers to bawling infants. Cockroaches scuttled about on the dirty floors. She told me she was desperate for $400 to pay for a medical procedure.

I was interviewing Moldonado because one of her sons, Gabriel, had been a teenage assassin for the Gulf drug cartel, one of Mexico’s seven major drug trafficking organizations. Gabriel had been recruited at age 15 across the river in the Mexican city of Nuevo Laredo back in 2002. By the time he was arrested four years later, he’d killed at least half a dozen people, including two 14-year-olds he gutted with a broken bottle before burning their bodies. Prior to his arrest in 2006, Gabriel was a leader of a cell of American teenage assassins the Gulf cartel had recruited and set up in safe houses in Laredo to kill competing drug cartel members.

Meanwhile, Moldonado told me her brother had vanished in Nuevo Laredo last spring, having run afoul of one narcotraficante or another. There was little doubt he was dead.

When I asked her why her son went to work for Mexico’s drug barons, she said “The money. They don’t want to be poor.”

Since December of 2006, after president Felipe Calderon swept to power in a contentious election, 31,000 Mexicans have died in drug cartel-related killings. In the city of Juarez, just across the border from El Paso, Texas, and another critical entry point for trade, 3,111 people were murdered last year, up from 2,643 in 2009 and 1,587 in 2008 – a three-year total of 7,341. Juarez, home to a maquiladora economy, is now the most dangerous city in the world. It’s been transformed into a ghost town, with 116,000 vacant houses and 10,670 business having closed since 2008, and more than 300,000 people having fled the city.

Today, northern Mexico is one big gruesome killing field. People are regularly decapitated, burned in oil barrels in something called a guiso, or stew, or dissolved in acid. Whole towns and villages are scenes of narco cleansings, where sicarios (assassins) for the cartels battle for turf and slaughter the locals.

Last spring I travelled into the Juarez valley with two other journalists and saw firsthand burning and abandoned houses and fleeing citizens and blood-stained soil of another day of killings, as the Sinaloa and Juarez cartels wrestle for control of the lucrative drug-smuggling routes into the US. Meanwhile, Youtube and other websites are used by the cartels to display videos of the executions of their victims and other atrocities – borrowing Al Qaeda’s methods.

Many observers now feel Mexico is becoming a failed state. Yet this is all happening in the world’s 11-largest economy as measured by GDP, and a critical player in NAFTA.

What we are really witnessing in Mexico and a growing number of countries around the world is the lumpenization of their economies. And get used to it. In the future, a growing portion of the world’s population will have no choice but to turn to the underground and criminal economy to make a living. And what’s happening in Mexico is going to be replicated in other parts of the world – and in fact, already is. As capitalism fails to produce sufficient numbers of well-paying jobs, criminal enterprises and organized crime are increasingly the only ways to earn an income. This is especially true in the enormous slums that ring most of the major cities in the world where the teeming unemployed try to eke out a living. As the foremost American chronicler of the bloodbath in Mexico, Charles Bowden, has written, “This is not some breakdown of the social order. This is the new order.”

While charting the size of the underground or black economy is impossible (it’s defined differently by different economists), all signs point to it growing in size and scope. Internationally, annual revenues generated by organized crime exceed (US) $800 billion – up dramatically from (US) $595 billion in 2001 – according to estimates by Friedrich Schneider, an economist at the Johannes Kepler University of Linz in Austria. Estimates of the portion of the GDP controlled by organized crime reach as high as 13.1% in Italy and, startlingly, 11% in the U.S.

As for Canada, the International Monetary Fund (IMF) suggests that money laundering alone accounts for between 2% to 5% of GDP – or somewhere between $30 billion and $77 billion a year. Nationwide narcotics sales in Canada may be as high as $40 billion annually – as much as our domestic mining production – or even higher. In B.C., 5% of GDP is estimated to stem from marijuana production.

So why is the criminal economy prospering? “It’s because of income distribution,” says Schneider, who observes that the growing chasm between rich and poor is driving the world’s indigent toward crime out of necessity. In countries like Colombia, Mexico, Russia, Brazil and Italy, criminal syndicates and drug cartels control whole swaths of both the real economy and the state, creating, in extreme cases like Colombia, anarchic narco-nations.

In Mexico, narcotics are the country’s second-largest export after oil. Edgardo Buscaglia, an internationally-renowned law professor, economist and UN adviser who teaches at both Columbia University and the Mexico City-based university, Instituto Tecnologico Autonomo de Mexico, estimates that as much as 78% of the legitimate Mexican economy is infiltrated by organized crime.

Moreover, the reason the Mexican government has failed so spectacularly in crushing the drug cartels, says Buscaglia, is because the political system is funded by the narco-traffickers, often using legal businesses to funnel money to politicians’ election campaigns. Police forces across Mexico are under the control of the drug cartels, while a recent report by the Mexican Senate said that 71% of the country’s municipalities are under the effective control of organized criminal groups.

In Italy (world’s seventh-largest economy) and Brazil (the eighth-largest economy) organized crime seeps into almost every aspect of the economy and political life. In Italy, the Cosa Nostra, ‘Ndrangheta and Camorra control southern Italy and Sicily and their reach has extended as high as the prime minister’s offices during the decades the Christian Democrats ran the country. In Brazil, the favelas, where millions of the ultra-poor live, are homes to powerful drug-trafficking gangs, as are Brazil’s prisons. Gangs that have the ability to launch co-ordinated attacks on police, banks, and public buildings – as they did in 2006 in Sao Paulo, Brazil’s biggest city. In Eastern Europe, as former BBC correspondent Misha Glenny documented in his 2008 book McMafia, organized crime is a powerful presence.

Canada has not been spared this growing influence of the underworld economy. Last year, Quebec was rocked with one corruption scandal after another when it was discovered that most the construction industry is rife with tax evasion schemes, shakedowns by the Rizzuto crime family, and money laundering. And our banking system is popular among organized crime for laundering cash.

Alarmingly, mainstream economists have paid little heed to the growing lumpenization of the global economy and growth of the underground sector. But as countries like Mexico continue their spiral into lawlessness, this phenomenon will become harder to ignore.

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Comments

Comment from thwap
Time: January 10, 2011, 9:48 am

Exactly! What else is there for them to do? It’s called not being a chump.

The chumps are the still-comfortable North Americans (who aren’t rich) who call simultaneously for union-busting, government austerity, tax-cuts, “law-and-order” policing, etc., etc., …

Mexico’s case is particularly tragic. Displaced by subsidized US agriculture, they have, in the millions, first tried to flee over the border to find work. Many of those will be sent packing back to Mexico where more and more displaced individuals are resorting to the only option: Crime.

The same thing happened when the IMF destroyed Jamaica’s economy. Smug, bigoted Canadians bitch about Jamaican gangsters, unable and uninterested to investigate the roots of the problem in neoliberalism.

Comment from Nick Rowe
Time: January 10, 2011, 11:05 am

Anybody who takes cocaine is complicit in this. Push to legalise it if you want. But, until you succeed, don’t. Spend your income on something Mexicans can produce legally.

Comment from Marc Lee
Time: January 10, 2011, 3:49 pm

Nice piece, Bruce.

There were two shootings in my Vancouver neighbourhood last year and more recently ten shot on the upscale west side last month. Clearly, the damage due to criminalization of drugs outweighs the damage to individuals from drug use.

Just like the days of alcohol prohibition, the solution lies in putting away the moralizing “drugs are bad” attitude and legalizing these substances so they can be regulated and taxed. Put some of that money back into education and addiction treatment, but accept that adults like to drink, smoke and do other stuff. The vast majority of whom never become addicts; those who do tend to be struggling with demons in their past.

I recommend Bruce Alexander’s Globalization of Addiction for a saner view on addiction and what this means for policy:
http://www.policyalternatives.ca/publications/reports/roots-addiction-free-market-society

Comment from Paul Tulloch
Time: January 10, 2011, 6:05 pm

I have been researching El Salvador, and the underground economy is bigger than the formal economy.

I was told that some communities the busiest companies in town are the undertakers.

So if one is striving to be a worker what choices do you have in such environments- the sweat shops or the gangs. The pay is much greater in the underground, but life expectancy is not so great. Under the new left government if Funes, some progress has been made. However, with nothing but attraction to the sweatshops, the global economy just passes by these countries. Hopefully some of the more left measures of the south will network their way north and help these countries. I think somekind of European union might work within the latin and south American economic juggernaut.

The north’s only interest seems to be cheap labour and destabilized politics to keep the less developed as such.

Quite a sad story- so much death and destruction within such small cultural and precious spaces.

Comment from Brandon L
Time: January 11, 2011, 3:59 am

@Marc Lee

It is ironic position you have, as it isn’t just morals. Adults should be allowed intellectually as with alcohol to poison ones own body. However in the world of socialized healthcare, the taxpayers are now responsible for any costs related from adverse effects from such choices, or it defies religious decrees, morals. It is often cited by many often who support a collectivest view.

Also prostitution should be legal so these woman have access to courts, police as any working citezen. Accept due to supply & demand, it will exist. The best way to protect many women at large, trapped into this brutal system we socialists made with our good intentions by outright banning them. We must allow women/men to voluntary meet such demand that exists, with the protections any other taxpayer would receive.

They do not like addicts need, nor deserve a criminal record, often worsening their quality of life. Leading to the very skillsets we set out with taxpayers dollars & good intentions to prevent.

Comment from Marc Lee
Time: January 11, 2011, 1:09 pm

Brandon, those costs are already there. My proposal would provide a source of revenue to assist in treatment and education, while reducing costs associated with policing and the risk of getting shot in my neighbourhood. Not sure where you see the irony in that.

Comment from Nick Falvo
Time: March 22, 2011, 6:28 am

Bruce:

What’s your e-mail address?

Comment from Reply to Marc Lee
Time: April 20, 2011, 12:54 pm

The ironic position is for example, we agree. Many however have morals especially voting seniors where legalizing drugs, gay marriage, prostitution are still a resounding No. We have collectively have hurt those in these areas.

“Clearly, the damage due to criminalization of drugs outweighs the damage to individuals from drug use” Yes, I aggree. Secondly I think its just as clear criminalization of prostitution outweighs the damage to the individual. Thirdly If giving subsidy, other factors over-investment by governments & private investors over many decades in OIL if that was wrong. We collectivly prevented alternative energy by decree. Just as I think morally led push to invest green through government subsidy will lead to debate in the future, we were wrong to invest green. What energy sources will not get invested, or not created, as we invest green? Indigo energy anyone?

I think its important to ask, if investment in Oil didnt work. Its possible the damage from investing green could be as bad.

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