The McMafia does exist: it is up to us whether we fund it

If you want elucidation on economic theory and practice you should read a book or journal; if you want entertainment you should watch TV. Given the explosion in online learning via new media outlets such as YouTube it is no surprise that that boundary is getting blurred.

Traditionalists will think that there is a real danger as it moves factual analysis away from the peer review filter of universities and thinktanks and into amorphous world of grading by views, likes and shares.

But given people’s shrinking attention spans and the ability of demagogues such as Donald Trump to exploit that, there is almost a responsibility to use different media formats to raise problems with economic roots and whose solution may well lie within economics.

The current highlight is McMafia, the blood-spattered tale of drug smuggling, assassination, spying, and prostitution that is gripping viewers on BBC1 on Sunday nights. On the surface it is about a man who seeks revenge for the murder of his uncle Boris by disrupting the illegal operations of the man who ordered his assassination.

But it is, of course, about so much more. The central protagonist, Alex Godman, is initially shown as a moral hedge fund manager, if such a thing exists, making a decent income and employing a clutch of people trading in emerging markets’ bonds and shares.

After Boris’ murder, Alex uses his hedge fund to siphon money towards a distinctly dodgy Israeli businessman Semiyon Kleiman who has a plan to exact his own revenge on the Russia gangster by taking over his operations in fake consumer goods and drug trafficking.

Organised crime pays

Thanks to the sophisticated computer technology in the City and what appears to be relatively light regulation, he is able to “invest” millions in Kleiman’s operations. As Godman explains in an early episode: “We would set up a special purpose vehicle in a low intervention jurisdiction like the Caymans. The SPV would lend money to similar funds in The Bahamas [and] Panama, until it becomes impossible to trace and reaches your friend in Mumbai. We would structure it so your name would not appear on the share register.”

This, of course, is what he does and the viewer sees Godman dispatching units of millions of pounds in the same way the rest of us shop on Amazon. The firm’s compliance officer is suspicious about the new fund but is a friend and confides in Godman’s fiancée rather than the regulators.

Rather than being outlandish and fanciful, these transactions are precisely what was exposed by Wikileaks and the Panama Papers and Paradise Papers.

The viewer can look at the portrayal of corruption and organised crime in Moscow and dismiss it as typically Russian, but of course these pernicious trends have been enabled by the behaviour of the West.

The insistence of opening up the economies of the Soviet Union to free market forces enabled former middle managers to become oligarchs by buying assets on the cheap while leaving gaps at the heart of the economy that had been filled by bureaucrats for criminal gangs to fill. Many of the small-time crooks in McMafia are former police officers who have left the force because of low pay and a lack of investment.

Organised crime pays simply because Western Europeans and Americans enjoy buying the drugs, contraband cigarettes, fake branded goods, prostitutes, and trafficked labour that they deliver.

we are not just viewers, but consumers too

The BBC show was inspired by the 2008 book, McMafia: A Journey Through the Global Criminal Underworld, by the journalist Misha Glenny, that showed how gangsters across the globe whether in the Balkans, Brazil or British Columbia are not so different from each other.

They have all effectively taken on the franchise set out by the central tenets of capitalism — thus the book’s title riffing off he success of McDonald’s as a franchise operation — albeit in pursuit of profit in the black and grey markets.

The message for students of economics and finance is that the main reason that this the internationalisation of organised crime is the deregulation of financial markets, which has made it easier for criminals to convert money earned on the black market into legitimate funds.

Anyone who thinks is an abstract notion should look at the number of eastern European mining and oil operations that have been floated on the London stock market and may soon be joined by Saudi Arabia’s Aramco. Meanwhile the Trump White House is looking to dilute some of the financial measures put in place after the 2008 financial crisis.

But if the TV show serves any purpose it is to remind us that we are not just viewers, but consumers too. Every time we buy a bargain Louis Vuitton bag, take drugs, download a DVD illegally, or invest in an offshore fund, we may be helping fund some McMafia operation somewhere.

In this atomised, deregulated, globalised world, the decision on how we use our money is perhaps the last remaining power most of us have.




More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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