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Tuesday, May 10

The Matrix and the International Crime Threat Assessment Report

"Dear Pundita, I don't know what to make of Bush's visit to Russia, Georgia and Latvia. It seems he was trying to do many things at one time but I think he managed to upset everyone and satisfy no one.
[Signed] Ann in Cincinnati"

Dear Ann:
The people who wanted to carve up the Soviet Union got their wish. Now Russia is surrounded small dirt-poor countries, none with any experience at democracy; all with deeply entrenched government corruption at the state and local levels, and with age-old internal tribal and clan rivalries--and without the means to compete in the globalized era of trade. And Russia itself is a mess.

But when you ask the freedomists, "Okay, so what are you going to do now that you have brought freedom?" they don't have the answers. All they can do is keep encouraging more freedom, more breakaway regions, more democracy.

Putin managed to get that reality check across to Bush this time around. That's what was accomplished during Bush's trip.

Now in the old days--the days before 9/11--the freedomists didn't have to think because there was a drill in place: First you demand freedom, then you get the World Bank and IMF to figure out what to do, to keep your new country from sinking into quicksand.

But now with The Arab Problem to deal with, and with Tony Blair breathing down Bush's neck about the Africa commission's findings (Blair's pet project) it's a new day. Bank resources won't continue to pour into the sieve of newly independent states in East Europe and Central Asia, not at the rate they did during the 1990s. Ditto for the European versions of the Bank.

To put all this another way, the people who made a killing from the breakup of the Soviet Union and the Soviet state-run enterprises didn't invest their easy USD billions in solving the problems that independence brings. So now there's many mega-messes to deal with.

Just how big the messes, Putin and his technocrats have been learning the hard way. They went gaga over Hernando de Soto's ideas, as did many governments in the developing world. His ideas are sound; for example, the black market is indeed a vampire. But the black market is only one part of a matrix of problems that bedevil every developing country--Mexico, China, India, Vietnam, Georgia, Russia, you name it. You have to go after the matrix.

For example, none of the profits from black market trade are taxed. In Russia alone, the black market accounts for about 40% of business. You can't have a modern government, much less a modern country, if you don't take in enough revenue to build and maintain critical infrastructures.

So Putin said okay, let's go after the black marketeers. But unless you also get control of organized crime then de Soto's point, if implemented, is a disaster. The little guy who did black market trade now has to pay taxes on top of the 30% he has to give mobsters. If he doesn't make those payments on time, he doesn't get a visit from the taxman. He gets his legs broken.

This is the situation in Latin America, as well--everywhere that governments have gone after the black markets. It's a huge problem--just one of many that comes with trying to make democratic government work in regions with no history of democratic government.

That's one reason Putin made the historic trip to Israel. He went in person to ask Sharon a favor. If Sharon's government wouldn't throw out the tax-cheating Russian Jewish oligarchs, could they maybe throw out the Russian mobs?

But that's another part of the matrix. Today's globalized mobsters aren't Al Capone; they don't buy out city governments; they buy out countries. They buy up a big interest in a small country's banking system and financial markets. Israel's been trying for years to extract themselves from that Faustian bargain, as have many other small countries.

Israel wasn't always America's fair-haired child. There were years when the Israeli and American governments were barely on speaking terms. Israel was desperate for cash and had nowhere to turn. Along came Russian mobsters lugging suitcases stuffed with millions of USD to invest.

The hellish part of the deal is that the Russian mobs working in the Middle East touched off wars with mobs connected with the Arab governments in the region.

To pile hell on top of hell, the Iranian military and police have lost many men to fighting the mobs. That's a big reason the awful mullacrat regime stays in power in Iran. The Iranian police state is all that stands between their country being overrun by mob wars.

When Sharon calls them up, they say, "Okay we'll leave. Just give us 10 minutes to cash in our stocks and bonds, the government debt instruments we're holding and withdraw our savings."

Nope, arrests won't work. They keep their nose clean in the countries they park in or do business in such a way that it would take an army of forensic accountants to spot a crime. And realize there are countries that should be called, "Money Laundering, Inc.," so it takes the mobsters only moments at a computer keyboard to transfer funds. And when the auditors show up, the banks simply transfer the funds to another Money Laundering,Inc. then transfer them back when the heat is off.

Nope, tougher banking laws won't work. In the immortal words of one Citibank executive, there's no law you can think up that some Brazilian banker can't find a way around. And if you make the laws too tough, legit corporations and powerful politicians in developed countries set up a howl.

So who do you ring up for answers? Nobody. The policy institutes and academia, the progressives and conservatives--all of them have great strategies for how to bring more freedom. But you get a recorded message when you call and say, "Now clean up the messes that freedom without thought made."

If you have any ideas for how to solve the problem, send them to Vladimir Putin and Ariel Sharon with a cc to George Bush. Before you put on your thinking cap, read the International Crime Threat Assessment Report. The report, published in December 2000, is the first comprehensive inter-agency study of international organized crime and it remains the most informative for the layperson.

Pundita advises that you take a stiff drink before you start reading. Seeing the matrix, all at once, can be a shock.
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