New Russians, Old Cons, and the Transition to a Market Economy: Reflections from Abroad

by Frederick T. Martens

On November 3, 1995, this speech was given at an organized crime seminar at the Minsk School of Law, Minsk, Belarus. Similar comments were made at a previous meeting of law enforcement and government officials at Moscow State University school of Law on November 1, 1995.

Russia and the Russian people are on the brink of what will prove to be one of the most exciting times in their economic history. They are attempting to wrench from the rubble of a collapsed system, an entrepreneurial class that will start the engine of a market economy. With the vast natural resources of this great country, Russia has the potential of becoming a real competitor in the western world, as well as the Far East. It represents a sleeping bear who has awakened to a world filled with new challenges and opportunities. Those with a vision, the skill, and the courage have an unprecedented opportunity to be what is now commonly referred to as the "New Russians." Who are these "New Russians," how do they fit into the emerging market economy, and what perils might they face? Let me try to address these issues

THE "NEW RUSSIANS"
To hear it from the "Old Russians," those who have come up under the Communist regimens, the "New Russians" represent "dirty money" being laundered into the Russian economy. "New Russians," accordingly, are a criminal class who, rather than making their money honestly, are engaged in a variety of frauds, thefts of natural resources, and the manipulation of economic institutions solely for the purposes of self interest. They care little about the larger society, nor are they interested in making life better for the "common man." Rather, they relish the symbols of success: large and expensive cars, beautiful new homes that are lavishly decorated, and connections to and with government officials. The "New Russians," according to the "Old Russians," have ravaged and savaged the new economic order. What is, of course, the paradox, is that the "Old Russians" had a rather lengthy opportunity to improve the quality of life for the "common man," only to have the system collapse under its own contradictions. Today, the "common man" has an opportunity to become part of the new economic order, providing he has the courage, will and skills to compete in a non-regulated marketplace that is fraught with perilous paths. Corrupt public officials seek to enrich themselves from the labor of these "New Russians." Confidence men from the West look to take advantage of these "New Russians." And if the "New Russians" are able to navigate their way through these paths, they are then confronted with the wrath of a "peasant class" which equates the acquisition of wealth with evil, immorality, and gangsterism. The "New Russians" in the "Old Russia" are targets of any interest group that looks to capitalize on the widening gap between the classes

THE "NEW RUSSIAN": A NECESSARY PART OF A MARKET ECONOMY
The "New Russians," are in many respects, the transitional phase to a full-fledged market economy that lives by laws and rules that regulate and allow for predictable market behavior. The ability of the "Old Russians" to transform the state-run economy to a market economy is at best suspect, and more than likely a foolish experiment doomed to fail. The "Old Russians" lack the training, skills, and knowledge to bring market principles to this wrecked economic structure. Only the bold and risk-taking swashbucklers that now comprise this class called the "New Russians," can force the changes necessary to bring about market reforms. The "Old Russians," particularly those who remain in power, can, do, and will extort these entrepreneurs, exacting tribute in return for allowing them to operate in violation of whatever laws exist. Ultimately, the public, which now has the right "to throw the scoundrels out," will respond, bringing about reform government, thus allowing the "New Russians" to operate a bit more honestly. As the process takes a life of its own, scandals in government will be followed by reformists, who will seek to bring order and rationality to the market-place. Only time will tell how long this process will take, for if a sizable portion of the citizentry, using their "right to vote" becomes disillusioned, a return to more repressive government means to contain these "New Russians" may be inevitable. Hopefully, the people will come to understand that the "New Russians" represent a necessary, albeit illegal or even immoral, route to a market-economy

WHAT DOES THIS MEAN FOR ORGANIZED CRIME CONTROL?
The control of organized crime, a category that encompasses the "New Russians," can only be as effective as the government in power wishes it to be. If those persons elected to office wish to make organized crime control a priority, several consequences may emerge.

First, the cost of doing business may increase. Simply stated, bribes to public officials may go up, thus eliminating those "New Russians" who can’t afford such an increase. The marginal players will more than likely be eliminated and a smaller group of "New Russians" will acquire greater power.

Second, we may witness an increase in selective violence during the early stages of the government’s efforts against organized crime. Again, as competition becomes riskier, racketeers will offer their services (i.e., intimidation and violence) to the "New Russians" who are attempting to acquire a larger share of the marketplace. The services of these racketeers will be more costly, with the more marginal players being eliminated - voluntarily or involuntarily.

Third, as the market becomes more organized, rationality will provide for market stability. Simply put, those "New Russians" who remain will regulate the marketplace, with occasional government intervention, primarily for symbolic purposes (i.e., to demonstrate that the government is doing something about organized crime).

Lastly, accommodations will be reached between the "power brokers" and the "New Russians." These accommodations will take the form of campaign contributions being enacted in order to continue to expand market-share, and/or engage in illegal practices. What is perceived as legal or illegal will ultimately shape the legislation that permits government intervention.

Organized crime control, under these circumstances, must be seen as just that: control. To suggest or even contend that organized crime can be eliminated is pure fantasy - a fantasy that has not occurred in the United States despite a rather expensive and lethal arsenal at the disposal of the government. The primary role of the organized crime control specialist is to shrink or constrain the growth of organized crime so that it does not become "the government" or even a "shadow government." Given the current political and economic environment in Russia today, this will prove to be a formidable if not impossible task

ESTABLISHING THE "RULE OF LAW"
Not until the "rule of law" is embedded in the culture of Russia, will organized crime control become a reality. As young lawyers entering into this new economic and political order, you will be faced with temptations that will require you to place the "rule of law" before the "ruler of the people." This may cost you your position, your livelihood, and, in some cases, maybe your freedom. Without the rule of law taking precedence over the "ruler of the people," however, your legal system will be perceived merely as a tool for those in power to use at their will and discretion. The foundation of any legal system rests in its integrity. You and your profession give to the legal system that respect (or disrespect) it deserves. A market economy must enjoy a high level of predictability, or investment capital will not be forthcoming. If racketeering interests are permitted to operate with the complicity of government, you have an obligation to expose it and educate the citizentry. Only then can they make an informed judgment on election day

DEMOCRATIC PROCESSES AS THE KEY TO CONTROL
In the end, the only lasting and legitimate form of organized crime control lies with the people. By holding public officials accountable for their behavior, actions and more appropriately, inaction’s, the people are able to demand "good government." Having come form a state in the United States, namely Pennsylvania, that has a history of endemic corruption among its political institutions, it has become increasingly clear that without a vocal and involved citizentry, organized crime interests will dictate. Toward this end, a media committed to investigative journalism plays a central, if not critical, role in the process of educating and mobilizing the public. If the media - a broad-based category to include print, visual, and audio - is committed to exposing public corruption and organized crime, the public may be better informed and demand "good government." To the contrary, if the media is apathetic, lethargic, or just plain corrupted by the "political powers," then organized crime control will be compromised. It is this concept of "investigative journalism" that must become a part of your culture if in the end, the people are to exercise their natural rights over the government

THE FUTURE IS YOURS
Let me close by saying that the American system has no monopoly on integrity in government. Nonetheless, it possesses a unique capacity to adapt and readjust to crises and scandals in government. This is brought about by a system that has invested in its people the right to choose its leaders through popular elections. By establishing three separate but equal branches of government, exposure of corruption and organized crime invariably occurs. Coupled with a strong investigative media, change can occur more rapidly. As you examine and experiment with this model, you will come to find it is far from perfect and perhaps a bit onerous and inefficient. But if you are to embark on the next phase of your noble journey, remember you and only you can define your country’s future. You have the capacity to control its destiny, provided of course, that you recognize and understand that the control of organized crime is above all, a community effort. To invest in your government, your police, your prosecutors, sole authority in this "war" will only result in a new form of government repression - one quite familiar to your people and your country.

About the Author

After a distinguished career combating crime with the New Jersey State Police, Frederick T. Martens served as Executive Director of the Pennsylvania Crime Commission. He continues to lecture and write on the subject of organized crime. Martens is a frequent contributor to Criminal Organizations and is a past President of IASOC.