The dark side of private ordering: An institutional and empirical analysisof organized crime

This Article provides theoretical and empirical support for the claim that organized crime competes with the state to provide property rights enforcem ent and protection services. Drawing on extensive data from Japan, this Art icle shows that, like firms in regulated environments everywhere, the struc ture and activities of organized criminal firms are significantly shaped by state-supplied institutions. Careful observation reveals that in Japan, th e activities of organized criminal firms closely track inefficiencies in fo rmal legal structures, including both inefficient substantive laws and a st ate-induced shortage of legal professionals and other rights-enforcement ag ents. Thus, organized crime in Japan-and, by extension, in other countries where significant gaps exist between formal property rights structures and state enforcement capacities-is the dark side of private ordering Regression analyses show negative correlations between membership, in Japan ese organized criminal firms and (a) civil cases, (b) bankruptcies (c) repo rted crimes and (d) loans outstanding Professors Milhaupt and West interpre t these data to support considerable anecdotal evidence that members of org anized criminal firms in Japan play an active entrepreneurial role in subst ituting for state-supplied enforcement mechanisms and other public services in such areas as dispute mediation, bankruptcy and debt collection, (unorg anized) crime control, and finance. They offer additional empirical evidenc e indicating that arrests of gang members do not curb the growth of organiz ed criminal firms. Their findings may have a significant normative implicat ion for transition economies: efforts to eradicate organized crime should f ocus on the alteration of institutional incentive structures and the stimul ation of competing rights-enforcement agents rather than on traditional cri me-control activities.