When 43 students disappeared in the Mexican city Iguala in September 2014 during an attack of a joint group made up of local mafia and municipal police forces, a public outcry plunged the government of President Enrique Peña Nieto into crisis and decisively contributed to the defeat of his PRI party in the presidential elections. However, public protests were driven mostly by the circumstance that, this time, mafia-unrelated students fell victim to organized crime violence and because of the highly incompetent and probably corrupted investigations conducted by the General Attorney´s office. Interestingly, the collaboration between the local mafia and local police received considerably less attention. In fact, the videos showing gang members and police officers fighting side by side in the streets of Iguala confirmed what Mexicans already knew for a long time: that the infiltration of local institutions by criminal organizations is widespread and systemic.

In the Journal of Public Policy article “The Decentralization of Death? Local Budgets and Organized Crime Violence” I explore the relationship between the size of local public resources and the evolution of organized crime violence in a context of widespread and systemic local capture by mafias. I argue that criminal organizations compete for access to local municipal budgets by violent means. The argument takes account of four enabling conditions:

• Widespread local capture: In countries suffering from systemic organized crime presence, capture of municipal administrations and local police by these organizations is a common and well-documented issue. This holds for developing countries such as Mexico or Brazil. However, it is also relevant for advanced economies such as Italy.
• Diversification of rents: Criminal organizations strategically look for additional income sources, especially as core branches such as drug trafficking become riskier. For example, in recent years, many of Mexico´s major drug cartels diversified activities into less risky activities such as extorting municipal governments.
• Weak institutions: An enabling environment characterized by a deficient rule of law, weak local accountability and high levels of corruption decreases the risk of substantially engaging in illegal activities.
• Substantial local resources: Substantial discretion of financial resources at the local level makes local budgets attractive to capturing mafias.

The key assumption, namely that criminal organizations diversify into appropriating local public funds, is a well-documented phenomenon. After the local elections in 2011 in the Mexican state of Michoacán, the leader of the then powerful Caballeros Templarios is reported to have called a large number of mayors and demanded that 30 percent of the budget be reserved for public works, 20 percent of salaries reserved for municipal staff and that public contracts be awarded to companies connected to his organization. As a consequence, I argue that as mafias diversify into the business of extorting municipal governments, they enter into turf battles with each other to gain access to local budgets.

My econometric analyses, which are based on data from 2466 municipalities on criminal violence over the years 1995-2015, confirm this argument: the size of local budgets has a conducive effect on organized crime violence. However, local budgets seem only to be an incentive for criminal organizations to intensify existing turf battles with their rivals. They are insufficient to explain the onset of turf battles in the first place. In fact, for criminal organizations engaging in turf battles is a decision of great importance as battles can be bad for business. Local budgets may not be interesting enough to take this step. However, they seem to be important enough for gangs to increase violence of turf battles, which are already ongoing. The major conclusion is that while fiscal decentralization theory promises a substantial increase in service delivery efficiency as promised by Wallace Oates and Charles Tiebout, in contexts of local capture through organized crime, decentralization as such can be a danger to one of the most basic public services delivered, namely public security.

The argument should provoke a debate on the general adequacy of decentralization-induced higher levels of local public spending in these contexts. In fact, in other sectors, such as health, a discussion on recentralizing governmental functions has begun as local governments have been accused of being overburdened with managing technology-centered sectors. Recentralization could also be an option in countries suffering from generalized local capture.

The findings are relevant for countries experiencing local capture through OCGs such as Colombia, Brazil, Venezuela, and various Central American countries, amongst others, but also for more advanced economies such as Italy. As these countries think about further fiscal decentralization, a cautious approach should be adopted.

– Helge Arends, University of Bremen

– Arends’ Journal of Public Policy article is available free of charge until the end of 2020.