Tuesday, May 15, 2012

The Sicilian Mafia and the International Lemon Cartel

From VoxEU:

Bitter Origins of the Sicilian Mafia
If it were a business, the Mafia would be one of Italy’s most successful and one of the largest in Europe. But how did it come to be so powerful? This column argues that it began with control of the international lemon trade in the 19th century.

The Italian Mafia can be seen as one of the largest and most successful businesses in Italy. In one of the latest reports from the Italian Minister of Home Affairs, it has been estimated that revenues from just the informal sector related to the Mafia amount to almost €180 billion. In terms of GDP, revenues from Mafia-related businesses represent almost 12% of the total Italian GDP and are equal to the sum of the GDPs of Estonia, Croatia, Romania, and Slovenia (Ruffolo et al. 2010). To date, the Italian Mafia is the most successful form of organised crime in Europe and comparable to the Chinese, Japanese, Russian, and South American crime organisations in terms of business.

Given the economic and social relevance of the issue, it is natural to wonder why these forms of organised crime develop and what factors explain the cross-regional variation of Mafia. Both institutional and historical explanations have been proposed in the literature. Fiorentini (1999), Grossman (1995), and Skaperdas (2001) focus on weak institutions, predation, and enforcement of property rights. On the other hand, with regard to the Sicilian Mafia, Villari (1875), Sonnino and Franchetti (1877) and Colajani (1885) focus on the legacy of feudalism, the development of latifundism and a loss of social capital and public trust.
Even though the above literature provides plausible explanations for the origin of organised crime, it is still difficult to understand why we observe a huge variation across regions experiencing very similar conditions. Organised forms of crime normally appear only in a small number of localities and then expand through the entire region. It is therefore important to understand what is specific to these few localities where the Mafia appears.

In a new paper (Dimico et al. 2012), we try to explain such a variation of the Mafia across villages in Sicily using a parliamentary inquiry about the economic, social and moral conditions of Sicilian peasants in 1886. Our hypothesis is that the regional variation in the presence of the Mafia depends on the development of the lemon industry in Sicily. We argue that Sicily had a dominant position in the international lemon market which was the result of barriers to entry related to the particular climatic requirements for lemon trees to vegetate. These particular climatic conditions required by the plant provided variation across countries and across villages that could produce lemons, resulting in a natural dominant position for countries on the Mediterranean, particularly for Sicily. The dominant position, together with a boost in the international demand after the 19th century (when Lind proved the beneficial effect of lemons in curing scurvy), provided huge profits associated with the sector which the Mafia systematically used to extort in exchange for protection which could not be provided by the state. We view such profits from imperfect market structures as a natural condition for the development of the Mafia.

Table 1 reports the distribution of lemon trees in the south of Italy in 1898. The total number of trees in Sicily amounts to almost 70% of all trees in Italy, affording Sicily a national dominant position in the industry....MORE