Dr Sam Vaknin

In a State Department briefing on Thursday, 5 August 1999, the spokesman of this venerable and ever-so-truthful organ of the American administration, James Rubin, said:

"We have supported and continue to support the regime in Montenegro that is a democratic regime that has pursued a democratic course. We do believe that Milosevic's efforts to consolidate power have led to repeated violations of the Yugoslav federal constitution, in particular the rights and privileges of Montenegro. In particular, Belgrade has sought to strip Montenegro's constitutional rights and powers and has prevented Montenegro from playing its constitutional role in the federal government. We continue to believe that Montenegro's leaders have demonstrated a measured and rational approach to political and economic reform, which we support. We commend their efforts to work within the FRY for reforms that would bring democracy and a better life to all Yugoslav citizens. To achieve that objective, we've been providing them assistance, we've been exempting them from the effect of certain policies that apply to Belgrade and the people of Serbia. We worked very, very hard during the war to avoid any unnecessary damage to facilities or people in Montenegro as a result of the air war. So we have been showing, I think, great efforts to try to build up the democratic efforts that President Djukanovic has shown in Montenegro. We think that they should continue to work within Yugoslavia to ensure their rights are protected."

The war in Kosovo and the wars in Croatia and Bosnia were examples of gangland warfare. The impending war in Montenegro risks descending into the same kind of gangland warfare. These were skirmishes between gangs of criminals, disguised as statesmen, politicians, members of "parliaments" and businessmen. Some of them were protecting their turf, while others were trying to usurp it. In the end, they all made a killing - often literally. It is the same the world over - from Sierra Leone to Nigeria and from Sarajevo and its ephemeral Stability Pact to the killing fields of Pristina. Crime gangs, Mafiosi, local variations of omertas and vendettas, black hands and red rivulets of the cheapest liquid of them all: blood. Shadowy dealings, drug trafficking, white slavery, smuggling and forfeit goods are all intertwined with political power in the Balkans.

Kosovo Liberation Army (KLA) leader Hashim Thaci we discussed elsewhere. Milosevic we discussed everywhere. But Milo Djukanovic is portrayed as different from these men - more gentlemanly, "democratic," a protector of civil rights. Nothing can be further from the truth. The West - notably the USA - is in the habit of creating conveniently split pairs of villains and heroes, monsters and saints where in reality none exist. It makes for good soundbites and raises the fighting spirits at home by focusing public attention and energy on the enemy. The danger occurs when the spin-doctors become caught up in their own whirlwind and - if they happen to be American - take the rest of the world with them.

Shrewd villagers - as all Balkan politicians are - have caught on to this art of self-delusion. They alternately pose as democrats, autocrats, strong men or underdogs - anything to get Western aid and keep investment flowing. Since it is currently very fashionable and expedient to be a democrat, President Djukanovich is a democrat. And the West duly delivers the goods: international recognition, money, political support.

Milka Tadic is the editor of the popular (and, as you will see, independent) Montenegrin magazine Monitor. This week in her article "Currency Wars" (IWPR number 63), she wrote of Djukanovich:

"Whenever Djukanovic, then Montenegro's Prime Minister, demanded economic liberalisation and more economic independence, Milosevic would close the border and block trade between Serbia and Montenegro. In retaliation, Djukanovic opened Montenegro's borders with Italy, to cigarette smuggling, and with Albania, to oil imports. Djukanovic also liberalized the import of foreign second-hand cars - many of them stolen vehicles from Western Europe that Montenegrins bought in border towns in Bosnia from the Bosnian-Croat mafia. Taxes from imported cars, the smuggling of cigarettes and oil provided Djukanovic with the hard currency needed to replenish the republic's coffers and begin charting an independent course away from Belgrade. In economic terms, this tiny republic was becoming less and less dependent on its partner in the Yugoslav federation...

As NATO launched its bombing campaign, the Yugoslav Army took control of the Montenegrin border crossings and custom posts, banning the entrance even of humanitarian aid. Speed boats smuggling cigarettes between Montenegro and Italy could no longer break the blockade. The border with Albania was also closed. Djukanovic was facing economic disaster and was only saved by the end of the war, which allowed Montenegro to resume its dubious trade with its neighbours."

Hence the love affair with the West. To paraphrase Benjamin Franklin, human vice is the most certain thing after death and taxes. The only type of economic activity, which will surely survive even a nuclear holocaust, is bound to be crime. Prostitution, gambling, drugs and, in general, expressly illegal activities generate approximately USD 400 billion annually for their practitioners, making crime the third biggest industry on Earth (after the medical and pharmaceutical industries).

Many of the so called "economies in transition" and HPICs (highly indebted poor countries) do resemble a post-nuclear-holocaust wasteland. GDPs in most of these economies either tumbled nominally or in real terms by more than 60 percent in the space of less than a decade. The average monthly wage in the HPICs is the equivalent of the average daily wage of an industrial worker in Germany. The GDP per capita in these countries - with very few exceptions - is approximately 20 percent of the EU member state's average. These are the telltale signs of an impending comprehensive collapse of these infrastructures along with their export and internal markets. Mountains of internal debt, sky-high interest rates, cronyism, other forms of corruption, environmental, urban and rural dilapidation characterise these economies.

Into this vacuum - the interregnum between centrally planned and free market economies - crime has crept. In most of these countries criminals run at least half the economy, make up a part of the governing elites or influence them from behind the scenes through monetary contributions, simple bribes or blackmail and through the process of money laundering, are slowly infiltrating the legitimate economy.

What gives criminals the edge, the competitive advantage over older, ostensibly better established elites? The free market does. Criminals are much better equipped to conceptually deal with the onslaught of this novel new beast - the market - than most other players in these tattered economies.

Criminals, by the very nature of their vocation, were always private entrepreneurs. They were never state-owned or subjected to any kind of central planning. Thus, they became the only group in society to not be corrupted by these unnatural inventions. They invested their own capital in small to medium size enterprises and ran them as any American manager would have. To a large extent the criminals single-handedly created a private sector in these derelict economies.

Having established a private sector, devoid of any involvement of the state, the criminal-entrepreneurs proceeded to study the market. Through primitive forms of market research (neighbourhood activists), they were able to identify the needs of their prospective customers, to monitor them and to respond quickly to changes in the patterns of supply and demand. Criminals are market-animals, and, although they are not likely to engage in conventional marketing and advertising, they have always stayed attuned to the market's vibrations and signals. They change their products and their prices to fit its fluctuations.

Furthermore, criminals have proven to be good organisers and managers. They have very effective ways of enforcing discipline in the workplace, setting revenue targets, maintaining a flexible hierarchy combined with rigid obeisance and offering a clear career path with very lucrative opportunities for upward mobility. A complex system of incentives and disincentives drives the workforce toward dedication and industriousness. Criminal rings are well-run conglomerates and the more legitimate industries would have done well to study their modes of organisation and management. Everything from sales through to territorially exclusive licences (franchises) to effective stock options was being applied within international crime organisations long before it acquired the respectability in the corporate boardroom.

The criminal world has replicated those parts of the state which were rendered ineffective by unrealistic ideology or pure corruption. The court system makes a fine example. Criminals instituted their own code of justice (law) and their own court system. A unique, and often irreversible, method of enforcement sees to it that respect towards these indispensable institutions is maintained. Effective often interactive legislation, an efficient court system, backed by ominous and ruthless enforcement officers ensure the friction-free functioning of the wheels of crime.

Crime has also replicated numerous other state institutions. Small wonder that when the state disintegrated, crime was able to replace it with little difficulty. The same pattern is discernible in certain parts of the world where terrorist organisations duplicate the state and, in time, overtake it. Schools, legal assistance, family support, taxation, the court system, the transportation system, telecommunication services, banking and industry all have a criminal doppelganger.

To secure this remarkable achievement the underworld has had to procure and then maintain infrastructure and technologies. Indeed, criminals are great at innovating and even more formidable at making use of cutting edge technologies. There is not a single technological advance, invention or discovery that criminals were not the first to grasp the full potential of. There also exists a vast support structure consisting of accountants and lawyers, forgers and border guides, weapons experts and bankers, mechanics and hit-men which stands at the disposal of the average criminal. The choice is great and prices are always negotiable. These auxiliary professionals are no different from their legitimate counterparts, only the clientele and products vary.

A body of know-how and acumen has accumulated over centuries of crime and is handed down the generations in the criminal universities known as jail-houses and penitentiaries. Roads less travelled; countries more lenient; passports to be bought, sold, or forged; how-to manuals; classified ads; goods and services on offer and demand all feature in these educational (mostly verbal) bulletins. This is the real infrastructure of crime, and as with more mundane occupations, human capital is what counts.

Criminal activities are hugely profitable (though wealth accumulation and capital distribution are grossly non-egalitarian). Money is stashed away in banking havens all over the globe. Electronic Document Interchange and electronic commerce has transformed what used to be an inconvenient, slow and painfully transparent process into a speedy now-you-see-it-now-you-don't type of operation. Money is extremely mobile and virtually untraceable. Special experts take care of that : tax havens, off shore banks, financial transaction couriers with the right education and a free spirit. This money, having cooled off in due time, is reinvested in legitimate activities. Crime is a major engine of economic growth in some countries - in Italy and Russia, for example.

In many places, criminals are the only ones who enjoy any liquidity at all, while other more visible sectors of the economy are flounder in the financial drought of a demonetised economy. People and governments tend to lose both their scruples and their sense of honour in these unhappy circumstances. They welcome any kind of money that may ensure their survival. This is where crime comes in. In Central and Eastern Europe this process was code-named privatisation.

Moreover, most of the poor economies are also closed economies. They are the economies of xenophobic nations, closed to the outside world - with currency regulations, limitations on foreign ownership and constrained (instead of free) trade. The vast majority of the populace of these economic wretches has never been further than the neighbouring city let alone outside the borders of their countries. Freedom of movement is still restricted. The only ones to have travelled freely have been the criminals. Crime is international. It involves massive, intricate and sophisticated operations of export and import, knowledge of languages, an acquaintance with world prices and the international financial system, demand and supply in various markets, frequent business negotiations with foreigners and so on. Such a profile and itinerary would fit those of any modern businessman. Criminals are, after all, international businessmen. Their connections abroad, coupled with their connections to the elites in their home country and compounded by their financial prowess have made them the first and only true businessmen of the economies in transition.

There was no one else qualified to assume this role, and the criminals stepped in willingly. They planned and timed their moves as they always do: shrewdly, with an uncanny knowledge of human psychology and relentless cruelty. There was no one to oppose them and so they easily won the day. It will take one or more generations to replace them with a more civilised breed of entrepreneur.

In the 19th century, the then expanding US went through a similar process. Robber barons seized economic opportunities in the Wild East, West and everywhere in between. These rascals were the forefathers of America's future ennobled families - the Morgans, Rockefellers, Pullmans and Vanderbilts. But there is one important difference between the US at that time and Central and Eastern Europe today, and that is the existence of a civic culture and the aspiration to, ultimately, create a civic society which permeated both American popular and high-brow culture. Criminality was regarded as a shameful stepping stone on the way to an orderly society of learned, civilised, law-abiding citizens. The same cannot be said of today's Russia. The criminal there is, if anything, admired and emulated.

The language of business in countries in transition is suffused with the criminal parlance of violence. Since no clear alternative is propounded, the next generation is encouraged to behave similarly. There is no civic tradition in these countries - a Bill of Rights, a veritable Constitution, a modicum of self-rule, a true abolition of classes and nomenclatures - nor has it ever existed. The future is grim, because the past was grim. Used to being governed by capricious, paranoiac, criminal tyrants, these nations know no better. The current criminal class seems to them to be a natural continuation of long-established trends. That some criminals are members of the new political, financial and industrial elites does not surprise them in the least.

Dr Sam Vaknin, 16 August 1999

The author is General Manager of Capital Markets Institute Ltd, a consultancy firm with operations in Macedonia and Russia. He has recently been appointed Economic Advisor to the Government of Macedonia.

Dr Vaknin's website is here.