Pax Monopolista
and Crime:
The Case of the Emergence
of the
Primeiro Comando da
Capital
in São Paulo
Ciro Biderman (FGV),
João M. P. De Mello (Insper) Renato S. De Lima (FBSP) Alexandre Schneider (FGV)
“When I was twenty-five, having studied economics for six years, I grasped suddenly that prices are for allocation not fairness. When I was twenty-eight, …, I grasped that prices are only one possible system for allocation (
violence
and queuing are others), but socially the cheapest.” McKloskey (1992)
Motivation
•
Pax Monopolista
idea: the domination of illegal markets by a single powerful criminal organization is conducive to pacification.• PCC, a prison gang, monopolised drug dealing in São Paulo in the 2000s represents an opportunity to test the hypothesis.
• Pax monopolista have many consequences to policy that is well beyond the hypothesis testing itself.
Why monopoly might reduce crime?
• Trivially: monopoly produces less and crime is a “bad”. • More complex rationale:
• Enforcement mechanism: a drug trade organization (DTO) may have incentives for enforcing “justice” in areas neglected by the State
• Legitimization helps secure the domination of valuable territory for drug distribution. It is also an additional revenue-yielding service.
• Competition channel: Rival DTOs use violence to acquire distribution channels and market shares
• A reduction in competition is conducive to pacification, either directly through monopolization, or indirectly through cartelization.
PCC entry in Favelas
• Primeiro Comando da Capital (PCC), a prison gang turned drug cartel and criminal group may partially explain the decline in homicides in São Paulo (from 50 to 10/100 thousand).
• PCC first monopolize the control of prisons then drug dealing and security in São Paulo’s Favelas dominated by the gang.
• Favelas are small, socially fragile, and well-delimited geographical areas.
• They have limited state capacity, and are fertile terrain for DTOs and more ordinary street gangs.
PCC entry in Favelas
.2 .4 .6 .8 1 (mean) pcc 2 0 0 5 m 1 2 0 0 5 m 7 2 0 0 6 m 1 2 0 0 6 m 7 2 0 0 7 m 1 2 0 0 7 m 7 2 0 0 8 m 1 2 0 0 8 m 7 2 0 0 9 m 1 2 0 0 9 m 7 2 0 1 0 m 1 period_2Jan - 2005 through Oct - 2009
Competition mechanism
• If markets are not contestable, monopolies can reduce violence, inasmuch as violence is used to acquire market share.
• If markets are contestable, monopolies may generate more violence.
• Law enforcement’s repression of incumbents may turn a noncontestable market into a contestable one, possibly increasing violence
• The relationship between competition and violence is intermediated by the attributes of the distribution channel.
• Open street drug markets tend to be criminogenic.
• Cycles of retaliation produce a culture of violence in resolving disputes.
• PCC substitutes actual violence by a credible threat of violence in the event of a war.
• PCC threat is credible because a new gang would need to first challenge their monopoly in prisons.
PCC Business Model for drugs dealing
• PCC monopolizes the (wholesale) distribution of the drug
• The (final consumer) drug dealer must buy from PCC • PCC does not interfere in the retail market.
• They sell the drug at the same price but with lower quality.
• PCC provides security services for drug dealers inside and outside prisons.
• PCC is different from Rio de Janeiro’s organized crime because:
• They do not verticalize retail.
• They do not outsource security services to corrupt policeman. • There is just one gang instead of three.
• PCC’s business model uses more the price system (instead of violence) to resolve conflicts.
How is it possible to monopolize crime?
1. Victims should be poor in protecting themselves. 2. Victims cannot hide from the monopolist.
3. Victims cannot move away easily.
4. It is possible to monitor victim’s activities and earnings 5. Victims must know that she is treated like other victims.
The business of organized crime is not selling illegal goods but rather extortion. PCC victims are street level drug dealer.
Database
• INFOCRIM, geo-referenced crime-report level data from the
Secretaria de
Segurança Pública do Estado de São Paulo
, the state law enforcement agency; •Disque-Denúncia
, a crime hotline from which we extracted geo-referencedanonymous report data;
• PCC entry is very well distributed spatially. • There is no lagged
Empirical Strategy
• Explores variation in crime in favelas with or without a PCC presence.
• dft = 1 if PCC is in favela f on month t, and 0 otherwise
• yft is the number of crimes in favela f in month t.
• Zf contains variables at the baseline (2005)
• Ff is a full set of favela dummies
• Xft is a vector of time-variant controls
Results
(1) (2) (3) (4) (5) (6) 0.131 -0.126 -0.083 -0.102 -0.099 -0.052 (2.31)** (4.44)*** (2.46)** (3.31)*** (3.29)*** (1.03) -0.005 -0.005 -0.004 (2.97)*** (3.13)*** (2.47)** 0.056 0.002 (6.78)*** (1.33) No Yes Yes Yes Yes Yes No No Yes Yes Yes Yes 0.002 0.440 0.441 0.445 0.45229,580 29,580 29,580 29,580 29,580 1,295 PCC Presence
Baseline Violence x Trend
Table 2: Effect of PCC Entry on Violent Crime
* p<0.1; ** p<0.05; *** p<0.01 Favela Dummies? Time Trend? N R2 Property Crime
Impact on property crime
(1) (2) (3) (4) (5) 0.319 0.032 -0.062 -0.068 -0.049 (1.61) (0.04) (0.58) (0.63) (0.46) -0.015 -0.014 (0.76) (0.70) 0.214 (5.74)No Yes Yes Yes Yes
No No Yes Yes Yes
0.002 0.685 0.685 0.685 0.689
29,580 29,580 29,580 29,580 29,580
Modulus of t-statisitc in parentheses. Property crime = robbery + theft (all categories). Standard errors computed allowing for intra-favela correlation among the error terms.
Table 5: Property Crime Marginal Effects
N
* p<0.1; ** p<0.05; *** p<0.01
R2
Baseline Property Crime x Trend
PCC Presence
Violent Crime
Favela Dummies?
Heterogeneity
(1) (2)
Effect of PCC Presence on
Violent Crime Below median Above median
-0.026 -0.201 (1.19) (3.21)*** -0.027 -0.180 (0.89) (3.30)*** -0.173 -0.030 (3.33)*** (0.90) -0.114 -0.085 (3.19)*** (1.72)* N 14,790 14,790
Table 10: Heterogeneities According to Baseline
% Without Sewage
Modulus of t-statisitc in parentheses. Sub-samples according to baseline: violence (median = 8 per favela in 2005); percentage of heads of household
earning less that minimum wages (median = 57.12); Schooling (average Violence
% Less 3 Minimum Wages Schooling
Discussion: the monopoly of violence
• Our results reinforce the conclusion that monopoly of violence improves welfare.
• The results are stronger in fragile favelas reinforcing the idea that gangs substitute
for government in underserviced areas.
• It is difficult for the government to take an “active” public policy in an illegal market without getting “dirty hands”.
• Weberian concept of State is the “community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory”
• It is very risky to give up on this monopoly
Discussion: hypocrite public policy
• Fostering DTO “national champions” may serve the immediate purpose of reducing crime by transferring part of the enforcement to a “self-regulation” scheme ran by the DTO.
• The cost of such strategy is fostering a powerful “state” within the state framework, with all its detrimental consequences.
• One obvious consequence is the increased ability of the “national champion” to undermine state capacity and legitimacy, both through corruption and through confrontation.
• PCC attacks on state forces in 2006 and 2012 and the intricate relationship between DTOs and the Mexican government illustrate the risk involved in this “public policy”
Discussion: what about regulating the
drug market?
• The only reason why PCC is providing security is because they can extract rent from the drug market.
• Legalizing mass-consumption drugs is a sound policy because it would allow the government to get back the monopoly of violence in fragile territories that would not be the target of DTOs anymore.
• Evidently security services will be offered privately when the State is not fulfilling its role. When property rights are not clearly defined there will be opportunities for rent seeking and the community itself or a gang will
www.fgv.br/cepesp /cepesp.fgv /cepesp
