Tag Archives: managing crime

Managing Crime on the Southern Border

America’s Gangster Auxiliaries,” by TM Lutas, Flit(tm), 13 August 2005, http://www.snappingturtle.net/jmc/tmblog/archives/005512.html.

Qutong an article on strategy page, TM Lutas discusses how America has established an informal border security system

The Intel agencies have spread the word around the criminal underground that pursuit will be relentless, and punishment harsh and certain for anyone who gets too cozy with Islamic terrorists. It’s understood that the criminal gangs will do business with just about anyone (including intel agencies from just about anywhere). But even in this amoral atmosphere, the Western intel agencies have drawn a line of death for the players. At the other extreme, the word is out that valuable favors can be had for any gangsters who pass on valuable info about terrorist operations. Such deals are fairly common, although not given much publicity for obvious reasons (the resulting headlines cause major political headaches.)

This explains a major mystery. Why hasn’t Al Queda been going through notoriously corrupt Mexico with their well established illegal immigration system and launched attacks on the US? Such an obvious attack route has led to calls on the right for the militarization of our southern border. The militarization didn’t happen but the attacks didn’t come either. Al Queda didn’t show other evidence of being that kind of stupid so why not exploit a gaping hole in US defenses?

We are managing crime by informally signaling very high prices for actions we don’t like, like maintaining minimal prices for crimes that the government doesn’t care about (people smuggling). However, TM Lutas notes a fragility to this policy

The safety of the US southern border is thus now under indirect, and not direct, US control. This is tenable, for now, but we might not understand impending failure of the arrangement until two late. Two important failure modes come to mind. First, that Al Queda could inspire greater terror and flip these forces to become their auxiliaries. Second, our own tales of unendurable retribution could no longer be believed and commercial avarice could carry the day.

One might say that this is a stick-heavy approach:

Now the mystery is solved. The coyotes and drug barons who carry on illegal cross border trade have been warned in a manner that has scared them into being US allies on the issue of US homeland defense in much the same way that the Mafia was recruited into our forces for WW II duty as black hat auxiliaries.

But “carrot-and-stick” works best for changing behavior. So what’s the carrot?

Bribery as a Form of Horizontal Control

Side Payments in Marketing,” by John R. Hauser, Duncan I. Simester, and Birger Wernerfelt, Marketing Science Journal, Vol. 16, No. 3, 1997, http://bear.cba.ufl.edu/centers/MKS/abstracts/hausersimesterwernerfelt.html.

In Random Regional Business – Reflexions,” by Collounsbury, Lounsbury on MENA, 19 April 2005.

Collounsbury continues to provide the best arguments in favor of bribery (at least in international markets) that I have heard. After discussing impacts of the Sarbanes-Oxley (anti-corruption) Bill, Col writes

One begins to wonder how publicly listed US firms will be able to compete in emerging markets where … ahem standard and legal practice departs from the increasingly absurdly prissy standards in the United States.

In particular, I draw attention to this observation:
“To those tempted to see this as American smugness, she points, in contrast, to sharply lower prosecution rates across much of Europe for similar international bribery cases. The problem is particularly acute in industries or regions of the world where a degree of modest generosity has always been seen as a polite way of building long-term relationships.”

Indeed, emerging US standards are absurd and cold in the context of where I am at

Bribery is interesting in the context of horizontal controls. It is clearly a form of strong (because money talks) explicit (because it is obvious) horizontal control. Becuase horizontal controls are preferable to vertical controls, it is questionable whether bribery should be a crime. Fortunately, a better solution than Sar-Ox may have been form: good horizontal management

Side payments, known politely as gainsharing and pejoratively as bribery, are prevalent in marketing. Indeed, many management schools have added ethics modules to their basic marketing courses to discuss these issues and there is much discussion of side payments in the literature (e.g., Adams 1995, Borrus 1995, Mauro 1997, Mohl 1996, Murphy 1995, Peterson 1996, and Rose-Ackerman 1996). We seek to provide insight with respect to one class of marketing side payments. We hope that our analyses clarify some of the issues and suggest how these side payments affect marketing activities.

We next show that the firm can anticipate these side payments and design a reward system to factor them out at no loss of profit. The intuition is straightforward. The firm first adjusts the marginal returns in the reward functions for sales support and for the salesforce such that they will each take the “optimal” actions even though they engage in side payments. Then the firm adjusts their fixed compensation so that the firm extracts its full profit. The proof is difficult because we must show that adjusted reward systems exist and we must show that they allow the full profit to be extracted.

Market-based solutions tend to be better than government solutions. Col is onto something.

Update: He comments further

Quickly from an internet cafe: I have no problem with sidepayments that are transparent and subject to disclosure. Obviously there has to be a line between criminal behaviour and greasing the wheels. People are people, and trying to run human interaction without a little grease only ends up criminalizing what should be open.

So long as there is disclosure, that should help keep keep distortion to a minimum, without overloading commerce with wrong headed regulation (and as you know, I am not against regulation per se, regulation is good when it is market making – which is more often than market purists admit, far less often than Big Gov people would have it either.)