Yakuza act as cartel organizer for legitimate industries?

In the previous post, Deep rooted relationship, Japanese companies and Yakuza 2013., I collected the news and incidents show connections between Japanese companies and local organized criminals, well called Yakuza.

I have recently been reading Peter Hill’s “The Japanese Mafia: Yakuza, Law, and the State (Japanese edition)”. In this book, he pursues academic ways to analyze yakuza and Japanese society.
In the first chapter, he overviews and argues about how to organized crime from the aspect of economics. Thomas Schelling is referred so often, but another references to a research looked more fitting for my interest. So get take a look closer at it, concerning how it likely to explain Japanese current situation.


The paper, Conspiracy Among the Many: the Mafia In Legitimate Industries written by Diego Gambetta and Peter Reuter, focuses not on one-way harms to industries by criminal group, but on co-benefit between legitimate industries and mafia, by using economical theories and comparing it with some empirical facts in Sicily and New York city.

The main idea of the research is that mafia groups are likely to act as cartel guarantor backed up with their intimidation, and legitimate companies take some benefit from it because forming a cartel must make sure that every members of cartel obey cartel’s rules, and it also needed to be detected, sanctioned when one goes out of the rule. In this respect, mafia provide services of local public good for a industry.
Through the three elements for designing cartel agreement –rule, detection, sanction, the authors show different condition and output of the result between Sicily and New York.
They also show some examples of mafia cartel, price-fixing, quota agreement, market-sharing, and market-sharing consists of various types, based on what is shared, like territory, customer, queue.

Alright, so mafia can take a role of collusion, And what kind of industry is more likely to practice such a collusion? They explain it and put on list:
emergence of cartel
I think the list is right: Low chance of economic growing in a market –like indicated above, low technology, unskilled labour, and inelastic demand– could leads to cartel rather than expands the market. Large number of firms makes cartel agreement difficult, so that mafia comes to help arranging it. Then, economical recession allow it emerge.
As a result, a industry take benefit through high price.


Certainly, many industries in Japan in such a condition, so this list might explain why there are strong ties of yakuza and Japanese society.

but my question is, why companies dare to depend on mafia, while some cartels naturally emerge without racketeers?
They point out the difficulty of cartel agreement if there large companies in a industry, and also accessibility to mafia is a factor, but making relationship with mafia seems to have huge risk, violating law leading to law cases, and bad reputation among citizen. How the companies and mafia manage the risk especially in Japan?

I think risk about illegality can be reduced when a entire industry or industries share illegal acts, like financial industry’s “too big to fail” problem. Moreover, when all of members equally violate law, that is more nice for risk-reducing for arresting. If police tries to arrest them, it must apply to all the members. So expanding access to mafia could have incentive to do. It could explain wide range of participation of yakuza in Japanese economy. Simply it is low risk.

It is known that Japan has less fluidity of labor market, and both employees and corporate managers need to commit to the same company so long time, typically in a whole life until retirement. It could make a wall of cross-corporations communication, including cartel arrangement. This could be where yakuza can play around. So that Japan is in good condition for inviting organized crime. And fortunately Japanese market has big domestic demand and has a few distinction of consumer orientation. When consumers are fixed, economics’ grow is declining, cartel is a good way to go.
It is my thought that, of course, far from perfect, but any way, the ambivalence of Japanese organization –very lack of communication of among organization, and homogenous of characteristics and united move– is very insightful for me.

Mafia should manage the risk for bad reputation among citizen as well. Citizen’s bad feeling leads to more strong political regulation.
I think some weird behaviors of yakuza imply how they reduce the kind of risk. See Japan Yakuza Mafia Aid Earthquake Tsunami Rescue Efforts – Business Insider, and those aiding act happened in 1995, soon after disastrous earth quake in Kobe. These performance would come from the purpose to rise citizen’s reputation.
And as a mention in the previous post, admissive feeling for yakuza is huge in Japanese society. This certainly helps corporations to access to yakuza.


So Japanese industries seem to tie with yakuza with relatively low risk as least from some points. But it’s just circumstantial. Constructors are famous for cartel and relationship with yakuza though, I need to get more direct evidences for supporting the view. Is there example of it? If yakuza-related cartels are exist, how they arrange the collusion? And how money move?  Can relatively high price use as implication of cartel?

Gambetta, D. & P. Reuter (1995) “Conspiracy Among the Many: The Mafia in Legitimate Industries” in Fiorentini, G. and S. Peltzman (eds.) The Economics of Organized Crime Cambridge: Cambridge University Press, pp.116-136.

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