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Underground economy is booming

Cover of "McMafia"

TEXT OF INTERVIEW

KAI RYSSDAL: Take a look around at the global economy, all of it, from retail sales to manufacturing and transportation. The World Bank says global gross domestic product comes to about $48 trillion. Add maybe another 8 or 9 trillion if you want to have some idea of how much daily commerce happens illegally. Best estimates are that about 15 to 20 percent of the world's economy happens off the books. Illegal trafficking drives all kinds of business, from cigarette smuggling, to heroin and people. Journalist Misha Glenny takes a tour of the underground economy in his new book McMafia. He says it's able to flourish today thanks to free trade and globalization.

MISHA GLENNY: That success also coincided, in 1989, with the collapse of Communism, and the temporary devastation of states all over Eastern Europe. In their place, there were these very awkward things, the transitional states, which started to produce things, produce goods and services. Some of which are entirely legitimate, some of which we call illicit goods and services, and with the increased flows in trade and capital, it became much easier for us to get our hands on those things, and for the gangsters, from the transitional states in particular, to provide us with them.

RYSSDAL: You spend a lot of time talking about Russia and about the Balkans, what about other failed states, and I'm thinking now specifically of Iraq and what's going on there, and how that relates to security and the economic roots of what might be happening?

GLENNY: Well, Iraq is very interesting because if you look at the surveys of ordinary Iraqis, of what distresses them most of all, their major concerns, consistently, over the years since 2003, the issue of security has been joint-top with the issue of corruption. People who live in neighboring Amman, the capital of Jordan, for example, know it full well because a lot of the money which is being syphoned off into people's pockets, from the oil industry in particular, has gone into buying property in Amman, which, of course, is relatively secure, and so people in Jordan have since house prices go up really dramatically, as a consequence of corrupt money from the oil industry in Iraq coming into their country, displacing Jordanians from their houses, and generally disrupting that economy. I mean, aside from everything else, Iraq has created a tremendous criminal sub-economy, since 2003, in the Middle East, and you see this replicated in many places, particularly where there's conflict, but also when you see a dramatic upsurge in economic activity.

RYSSDAL: What, if any, is the United States' role in all this?

GLENNY: From the mid-1990s onwards, there was an attempt to start looking, in particular, at the banking industry around the world, because if you can get hold of gangsters' money, then you're doing them real damage. When the Bush Administration came in, the first thing it did was start trying to dismantle this regulatory system because it argued that it was damaging to the competitiveness of American banks. Then you get 9/11 and the Bush administration turned around and said: "Where was that money coming from?," and so you started the laborious process, again, of trying to build up a regulatory regime.

RYSSDAL: I don't want to belabor the obvious, but the American financial system these days is having its own troubles, and Ben Bernanke and Henry Paulson and the gang in Washington are busy trying to figure out how to keep it from collapsing, forget about organized crime.

GLENNY: Absolutely, and one of the things which I find very, very distressing is when global banks, like BNP Paribas in France, admit that it itself is unable to calculate the extent of its losses in the subprime fiasco. Now, when we've got that situation, when the banks are actually unable to keep track of what money is where, it's a golden age for people who want to get money from the illicit economy, dirty money, and clean it through these very, very confused systems.

RYSSDAL: The latest book by Misha Glenny is called McMafia: A Journey Through the Global Criminal Underworld." Mr. Glenny, thanks for your time.

GLENNY: You're more than welcome. Thank you.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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