The Stowaways of the Global Economy

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The New York Sun

In everyday life, the word “illicit” sends little thrills up the spine. The illicit cookies filched behind Mom’s back, the illicit cigarettes defiantly smoked behind the high school gym, the illicit love affair conducted right under the boss’s nose – these are some of life’s sweetest memories.

But in the global marketplace the word summons up sins of a different order entirely: Drugs, weapons, even human beings move across international borders every day, defying authority and destroying lives. Globalization has spurred the explosive growth of markets everywhere, and the black market is no exception. That hidden monster is the subject of “Illicit: How Smugglers, Traffickers, and Copycats Are Hijacking the Global Economy” (Doubleday, 352 pages, $26), a new book by Moises Naim, editor of Foreign Policy magazine.

Illegal enterprise is not new; witness “the oldest profession.” But as increasing wealth has stimulated demand for automobiles and consumer electronics, it has also boosted appetites for drugs, poached ivory, and, yes, prostitutes. Mr. Naim argues that globalization has not merely caused the illicit economy to grow alongside the legal one; it has actually transformed the underground economy, increasing its size and power relative to the legitimate one.

Mr. Naim’s ambitions are encyclopedic. If someone, somewhere is trying to get something over on their government, he wants to chronicle their evasions. The book’s subjects run the gamut from terror networks to counterfeit DVDs. And not without reason: These networks, Mr. Naim argues, are rapidly converging, across international borders and across professions.

Underworld organizations are no longer the hierarchical, quasi-military operations of mafia movies; they are decentralized networks that overlap and intertwine. People ferrying illegal immigrants across the Mexican border have diversified into drug smuggling, forcing their desperate cargo to carry a little package with them. Terrorists finance their operations by selling smuggled cigarettes.

The strongest threads that bind illic it enterprises together are the financial networks that launder their money. As nations have lifted their exchange controls and loosened banking regulations in the name of globalization, international capital markets have flourished. But as the streams of international payments have multiplied, so have eddies of dirty money, which are becoming increasingly difficult for investigators to pick out among the rising flood of cash. The same financial channels that enable wealthy chiselers to hide a few bucks from the tax man also enable Osama bin Laden and his minions to conceal the origins of the funds they wire to terror cells around the world.

The free flow of money and open borders that empower criminals also hobble governments that pursue them. Money and contraband may skip gaily from continent to continent, but government agents must stop at territorial borders. Even if other governments cooperate, the coordination can be daunting. And too often other governments are not merely uncooperative but actively in collusion with the offenders. Western leaders used to worry about military aggression from “rogue states,” but the new millennium has brought us the “failed state”: Shattered countries become, in effect, wholly owned subsidiaries of criminal operations, as Afghanistan did with Al Qaeda.

Mr. Naim argues that, because of the asymmetry between governments and the criminals they are pursuing, bold new policies are required. Governments must cede traditionally sovereign powers to international bodies that can pursue criminals wherever they happen to be at the moment. They must deploy technology to help them track goods and criminal transactions. And they must decide which illegal activity to fight, decriminalizing relatively harmless trades in order to free up resources to fight the truly abhorrent ones.

Here Mr. Naim’s arguments seem exceptionally naive for so learned an editor. I am open to the idea that marijuana should be decriminalized to free up police resources. So are, reportedly, many politicians – in private. In public, however, they campaign for tough drug sentences because voters want politicians who are “tough on drugs.” Similarly, it may be a fine idea in theory to give international anti-criminal bodies real power, but having witnessed the fate of the International Criminal Court, I am not holding my breath.

Nor are government priorities necessarily synonymous with the public good. If you look at the record of Western governments on money laundering, for example, it often seems their no. 1 priority is not tracking down drug kingpins or the secret accounts of terror groups but cracking down on tax evasion – a crime that in very few minds ranks with those of Hamas or the Medellin cartel. Likewise, our government seems more worried about catching Mexican fruit-pickers than about inspecting more than a pitifully small fraction of the cargo that moves through our ports sealed inside opaque containers.

And what about governments in which politicians or police are collaborators? How do we convince Thailand to crack down on its lucrative sex trade, or North Korea to stop selling weapons to any willing buyer? If Mr. Naim’s book illustrates anything, it is that the most horrifying threats are ones with no apparent solution.

For all that, the threat to the global economy is less dire than his subtitle makes out. Indeed, some forms of illicit activity undoubtedly enable the global economy to function more smoothly. Illegal immigrants occupy niches in the labor market that would otherwise go unfilled, and tax competition – the bane of governments everywhere – prevents governments from imposing confiscatory rates. The denizens of the underworld have not hijacked the global economy; they are stowaways, unable to alter the ship’s ultimate destination, much less cause it to sink.

Ms. McArdle last wrote in these pages on globalization and trade.


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