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Email this citationCIAO DATE: 3/00
Shadow Sovereigns
Date
One day the political scientist Ed Garcia, showed me a letter he had received from a well established group that had been fighting for autonomy against government repression for several decades. The authors explained that, as they did not constitute a State, they were cut off from many opportunities most take for granted. Without the status of State, they were not recognized by the other States of the world as a formal trade partner, as part of political and military associations, as being a signatory in economic treaties. Yet their people required food, clothing, household goods, jobs, and cars like anyone else in the world; they needed access to the resources to set up industries and exchange their products on the world’s open market. The state-based nature of the world’s politics and economy forced them to rely on non-formal markets. But, they wanted to know, how would it be possible to function in the world’s formal economy?
It will be obvious to note that as I read this letter, I saw the role of States in determining the kinds of political and economic access people and populations have in the world. But I was in fact struck by something more subtle: I saw the vast extra-state international machinery that kept this group who were fighting for sovereignty clothed and fed and armed and in business for all these decades, a machinery that functions outside of the world’s formal markets and politics–one invisible to government’s formal policies but as equally powerful in shaping the course of the world’s progression. A machinery capable of sustaining entire populations and creating new nations.
I would like to introduce a series of shadow powers, international by definition, that--while capable of shaping world economies and policies--remain largely invisible from formal analysis. These shadow economic and political powers, while working both through and around states, are not comprised by states themselves. One might at first conclude that I am referring to groups fighting for sovereign representation, from the Palestinians to the Karen in Burma, from the Tamils in Sri Lanka to the Kurds--it is not rebel groups seeking sovereignty that comprises the shadow powers I am speaking of here, but the vast international extra-state politico-economic networks that, among other things, supplies such movements. I have come to this study through years of research at the frontlines of wars (citations removed for review), where extra-state transactions are perhaps most developed and visible. But, as this study will show, the vast extra-state networks expand across war and peace, and across all the world’s countries. This trade–from armaments to everyday supplies, from precious mineral resources to international ‘advisors’–often crosses various divides between legal, quasi-legal, gray markets, and downright illegal blackmarkets. Following these threads of supply and demand, I have charted a multi-billion-trillion dollar a year series of (often interlinked) economic exchanges and the power politics that keep them afloat. Some of these networks wield more influence than a number of the formal nation-states of the world.
This article will be devoted to exploring and defining these grids of economic and political power that circulate apart from formal state systems. The process is not easy: very little exists by way of methodologies to collect these data or theories to assess them. There are any number of reasons for this, ranging from the dangers and difficulties of gathering information on extra-state phenomena to a reluctance to do so in fear of besmirching political or military reputations. But regardless of the reasons, one thing is certain: if these systems are critical to the way political violence and peace are expressed in the world today, and if accurate information on these interlocking systems is not available to researchers and policy makers, the latter can engage in little better than “pretend politics.”
I am reminded here of the maps of yore that guided travelers in the Middle Ages, maps that drew large areas of the world as terra incognita marked with dragons at the ends of the world. Sailors set out on largely uncharted waters with maps unable to determine whether the world was spherical or flat. Entire continents were cast as mere guesses, and dragons lurked in turbulent waters. Today, nonformal markets, war-profiteering, blackmarketing, mercenary networks, smuggling and other extra-state activities are portrayed much like the “dark continents” of maps of yore. Mafias are uncharted and turbulent waters. Extensive (illegal) multinationals that trade drugs for armaments are cast as dragons lurking at the edges of the known world. Even such mundane nonformal and extra-state transactions as foodstuffs and medicines are terra incognita marked with primitive symbols. We may laugh at these quaint maps of old, but many sailors were lost to the seas and unknown geography until more accurate depictions of the world around them were developed.
I have called these politico-economic networks “shadow sovereigns.” I am grounding this in an approach to power and sovereignty developed by Robert Latham. 1 His work on social sovereignty revitalizes dynamic definitions of sovereignty as complex domains of power and exchange that move the concept out from under a purely state-based focus. Latham asks “But if the sovereign nation-state is a particular form of state, why cannot the state be a particular form of sovereignty?” 2 and goes on to question the supposed monopoly of sovereignty by the state, and according to territoriality. Latham’s concern in this analysis is with globalizing financial market systems and the “social sovereignty” that can explain internationally-based collectivities. But the definition he applies to sovereignty fits well the “shadow” power grids of non-state based behaviors I am investigating. “When,” Latham asks, “does the web of global financial markets–or any given domain for that mater–constitute a sovereignty?...[T]here is one key marker of a sovereign domain or social sovereignty. The degree to which upon entering the domain an agent is assigned or feels compelled to occupy or resist a role or place within the webs of codes, practices, and significances that constitute the domain. Thus, constitutive capacities rest exactly on the capacity to mark and code phenomena–from bodies and materials, to communications and values–that enter a relevant domain.” 3 Latham concludes: “Sovereignty, not just as an attribute of the state but as a basic dimension of modernity, serves as a compass for directing attention to questions about accountability towards, responsibility for, and authority over setting the terms of social existence.” 4
The term “shadow sovereigns” helps highlight several core features of the phenomena I will be discussing in this paper:
- These networks are more formalized, integrated, and bound by rules of conduct than the studies of gray and blackmarkets that focus on high-risk items like armaments and drugs; or studies that focus on basic informal markets like foodstuffs, imply.
- They involve “extra-state” behaviors (outside of the states’ and international law’s formally recognized institutions), and comprise sprawling international realities that remain largely undocumented. While these configurations do not comprise formal states, though they may partake of state infrastructure in significant ways.
- The networks are by definition international. They blur the distinctions between discrete nation-states and the lines of demarcation forging recognized political and national borders. They entail societal systems that cross-cut national, linguistic and ethnic collectivities.
- They are not simply (shadow) markets or economies 5 as they are a compilation of political, economic and socio-cultural forces. This compilation of forces influences, even brokers, governmental-political policy and practice while forging economic empires on shared conceptions and codes of behavior.
- While benefiting from analyses like those of William Reno’s 6 that look at “shadow states”--nation-based systems of power and patronage paralleling state power--my work focuses on a different, and more distinctly international, set of criteria that constitute a set of “institutional frameworks” in their own right. The data in this article indicate there are econo-power systems that can rival a state in power, but are not grounded in states as politically defined. As I suggest at the conclusion, these shadow systems may herald new power organizations.
- Finally, I focus on extra-state phenomena not as marginal to the world’s economies and politics, but as central. While little in-depth work exists on estimates of the sum monies generated per year through extra-state activities, initial inquiries seem to place it in the trillions.
To give some examples of how these figures add up, the following examples run from the tragically exploitative to the remarkable mundane. As much as 20% of the world’s financial deposits are located in unregulated banks and off-shore locations. 7 UN estimates of illicit drugs earnings run at 500 billion. 8 As single country, India’s black economy in the early 1980s was placed at more than 60 billion dollars, and has grown since then. 9 India is not unusual: In Peru, 48% of the economically active population works in the informal sector, and that figure rises to 58% in Kenya, and perhaps even higher in Russia. 10 South Africa’s Truth and Reconciliation Commissions hearings showed the world that taxes often cover little of a government’s expenses: the apartheid South African government was involved in such extra-state activities as gem, gold, ivory and arms running and even bank robbery. 11 Even single nonformal industries in the world’s smaller states can add up to significant sums, estimates of Sierra Leone’s extra-state diamond earnings on the world market have been placed as high as 500 million dollars a year. 12 Prostitution brings in scores of billions of dollars annually, and people smuggling brings in equally large figures: In a study on money laundering, Pasuk Phongpachit of Chulalongkorn University in Bangkok estimated that people-smuggling earns 3.2 billion a year in Thailand alone, and that solely from Thai women smuggled into Japan, Germany, and Taiwan for prostitution. People smuggling for illegal immigration and labor also add up to multi-billions annually. Profits to Chinese triads smuggling illegal immigrants into the USA along is placed at 2.5 billion dollars a year. 13 and this represents a fraction of people-smuggling worldwide. As to the more mundane, one million tonnes of oil was smuggled into China in the first six months of 1997: the standard savings to smugglers per single standard cargo of 30,000 tonnes amounts to 1.8 million dollars. 14 Freon smuggling is a classical example of the mundane and often overlooked that reaps huge profits--in Miami alone, illegal freon smuggling has exceeded drug trafficking in volume and may soon rival it is revenues, to give an example of a single case, Henneberg was recently convicted on smuggling CFCs with a street value of $52 million. 15
Key to this analysis is the fact that extra-state political economies, licit or otherwise, are more than sprawling value-neutral international market networks. 16 They fashion economic possibilities, they broker political power, and, importantly, they constitute cultures, for these networks of power and exchange are governed by rules of exchange, codes of conduct, hierarchies of deference and power--in short, they are governed by social principles, not merely the jungle law of tooth and claw.
It is anyone’s guess how many dollars are actually generated each year through all these extra-state activities, though, taken as a whole, this represents one of the larger monetary and power blokes in the contemporary world. Nor does anyone know how many people are involved in these exchanges in total, though the number will run in the millions. Nor do we know how these vast sums affect global (stock) markets, economic (non)health, and political power configurations? What we can surmise is that these extensive transnational transactions comprise a significant section of the world’s economy, and thus of the world’s power grids. If all these industries were to collapse overnight, the world’s economies would be in chaos.
Exploring the Defining Characteristics of Shadow Sovereigns
There has been a tendency in both popular and academic analyses to place the following into separate conceptual arenas of investigation: a) illegal luxury items like drugs; b) sanction-breaking high tech goods like state of the art computers and industrial equipment; c) informal sector foods and goods like grains and clothes; and d) the political and social associations that undergird these systems of power and exchange. The difficulty of even finding a term to represent the full spectrum of related “extra-state” transfers demonstrates this: informal markets are defined in most texts as small-scale, rural, and low-tech. That this could equate to multi-billion, even multi-trillion, dollar a year sets of transactions is seldom recognized in such analyses. Political association in these systems is simply labeled “corruption,” which misses entirely the constructions of competing arenas of authority and the complexities of power defining global systems(s).
There is no reason, other than habit, to desegregate these arenas of extra-state activities, and, given the fact that the data shows the integrated nature of these arenas in practice, a great deal of analytical sense in linking them. Thus while arms and luxury blackmarkets items like drugs and precious resources are the classic examples of extra-state exchanges, it is important to keep in mind that traders carrying rice into the Congo or Cambodia outside of state-licensed channels are as crucial to shadow sovereigns as battle-ready solar generated laptop computers or chemical weapons. Take for an example the arms trade that lies outside of formal state sectors and its intersection with high priced, and often high risk, luxury items. Armaments must be purchased with hard currency. Many wars are fought in states where their currencies do not trade on the world market. Luxury items and key commodities, then, provide the equivalent of hard currency. These goods may be tangential to the running of states, such as drugs, or they may be central to the world’s monies, such as gold. They may include the trade in key energy sources, such as petroleum, to the trade in human flesh, as with forced prostitution and indentured servitude. Even a straightforward demarcation of state and extra-state or legal and illegal often proves impossible. As Strange writes: “The fact is that while financial crime has grown enormously...it remains, legally and morally, an indeterminate grey area. The dividing line is seldom clear and is nowhere the same between transactions which are widely practised but ethically questionable and those which are down right criminal...The need to use such secret or covert financial channels is not only a prerogative of organized and economic criminal groups--but also of terrorist and revolutionary groups and indeed of many individuals and economic operators engaged in activities which are not necessarily illicit. Investigations into the biggest financial scandal of the last fifteen years, the bankruptcy of the Bank of Credit and Commerce international, showed that BCCI was engaged in ‘reserved’ or illicit financial services for a very varied groups of clients, including Colombian narco-trafficers, Middle-East terrorists and Latin American revolutionary groups, as well as tax evaders, corrupt politicians and several multinational companies (United States Senate, 1983, 1992).” 17
Similarly, extra-state activities and the power politics that support them can not be easily divided into separate spheres of state/legal and nonstate/illegal. These various spheres of production and distribution are inseparably intertwined. Like the child’s game of pick up sticks, they work together to create interlocking grids of exchange and power: to change any one of the interrelated pieces not only redefines the pattern of the whole, but actually reconfigures it. Unlike the game, however, where one stick is fundamentally separate from another, in politics and economics a state actor can also function simultaneously as a formally recognized official, a non-state actor (say, in his or her role as family member or service organization volunteer), a state-recognized manufacturer, and a blackmarketeer. A state actor can simultaneously vote sanctions into law and then ignore them for profit or power.
In this analysis it is important to keep in mind the links between high profile (weapons, drugs, precious minerals and gems, advanced technology, etc.) and informal subsistence (foods, basic goods, medicines, transport, etc.) extra-state networks: all too often people tend to recognize the role drugs and gems play in international money markets, while remaining blind to the question of how people in what is now Croatia and Bosnia obtained cooking grains and antibiotics in 1991. There is also a better understanding of how these illicit industries intersect with formal state apparatus: weapons and drugs purchase hard currency, they broker power; they allow investments into land, legal industries, and political partnerships. They spawn and support subsidiary industries, both legal and illicit. The following discussion of Angola begins an exploration of shadow sovereigns by looking at the intersection of some of the high profile and subsistence exchange networks and their relationships to larger extra-national associations.
Following Diamonds
Arms and supplies are not bought in a vacuum. Procuring cash to buy goods is as important a variable as the procurement of goods in this shadow sovereign equation. Take for example the case of Johannes Savimbi, the head of the rebel group UNITA that has been fighting the MPLA government’s forces for nearly two decades in Angola. As of this writing in the last half of the 1990s, Savimbi’s troops control land that gives him access to some 500 million dollars worth of diamonds a year. 18 As a rebel group–a nonstate–this falls neither within the direct purview of state-based law, nor directly within illegal frameworks. But these five hundred million dollars worth of gems spawns a much larger set of enterprises that also fall outside the scope of il/legal distinctions. But they do not fall outside of power and profit equations. Bringing a diamond out of a mine in Angola (or gold out of the Amazon; or hardwoods out of Southeast Asia) involves an extensive network of people, some of whom I interviewed in 1996 during research in Angola and Southern Africa. Start with the miner who extracts the gems and add in the tool-maker who makes the miner’s tools and the cook who feeds him or her as well as the teachers that tutor the miner’s children. The view that miners in Africa are marginalized and uneducated poor is undermined by one of the few in-site studies of miners: Richards writes that in Sierra Leon during the war a significant number of miners had part-completed secondary, and sometimes even university, education, and thirst for international news and goods. 19 Equally important are the relationships of intimidation or taxation the soldiers have with the miner, the miner’s family, and the mining community. Leaving aside the vast enterprises that sustain soldiering to focus on gems, these minerals do not leave the country as commodities taxed and controlled by the state. Thus a further network of people must be in place to take the goods out of the country and across controlled borders with maximum profit and minimum penalty. Vehicles are needed to transport the goods, and drivers or pilots, mechanics, fuel, loaders, and a host of other people, goods, and services are necessary to see these gems from mine to, say, Antwerp, Belgium. As these commodities are traded not by states, but by rebel-states, transfers must be negotiated outside of formal transaction and transportation channels. Today, there are specialist consultants who make a living by advising people how to transport extra-state and illegal goods. There are also world-wide “businesses” making illegal, but fully reliable, insurance available to protect against the seizure or loss of contraband goods. 20 Others must be in place to forge such documents as customs receipts, lading bills, shipping levies. Further networks of associates must be in place to buy these gems, to convert them to hard currency, and to effect a trade for other valuable items. In the case of Savimbi, these valuable items can range from weapons and communications equipment to medicines, uniforms, and fuel. If the gems are to be sold on the open market, they must be “laundered” to legitimacy. If they are to be sold outside of state-controlled regulations, a further chain of players must link buyers with blackmarketeers. The same kind of networks must be in place to purchase armaments and supplies, to transport them across borders, into countries, and into the hands of the (extra-state) buyers.
When we look at the networks that make such diamond-armament transfers possible, we are talking about thousands of people and billions of dollars annually, from a single diamond locale such as Angola alone. If we expand this to the other gem-producing regions of the world, and the armaments they purchase, the equation moves to millions of people and multi-billions of dollars. The number of people involved can rival those of states, and vastly outnumber smaller ones. The revenues generated can far surpass the GNP of smaller nations. They certainly affect the world’s (stock) markets and transaction possibilities, though these effects are little researched or understood. The power the leaders in these extra-state empires wield can rival that of State leaders. These vast networks shape the course of international affairs to as great a degree as the formal state apparatuses of some countries. When we expand out from gem and armaments to add in all extra-state industries, we are discussing a series of power grids that shape the fundamental econo-political dynamics of the world today.
The Meat and Tomatoes of Extra-state Trade
The example of diamond and armament transfers may give the impression that I define shadow sovereigns as merely extra-state and illicit. This is not the case. In fact, my data indicates that in a double edged reality, non-formal economies may be crucial to development, and far more common and fundamental to industrial states than conventional wisdom holds. Many studies focus on the dangerous nature of extra-state transactions without considering arenas in which certain aspects of nonformal economies and power associations may be basic, even critical, to the development of countries destabilized by war, poverty, or failed state structures. Foods, medicines, clothing, radios, children’s textbooks, spare parts for vehicles and mechanics courses to use them, energy (from fossil fuels to solar panels), and a host of everyday items are necessary to sustain a society at war or at peace.
High profile items like weapons, drugs, and luxury items are the only major money earners in nonformal markets. The basic necessities that are traded at the local level--the informal markets of popular conception--add up to a formidable economy in certain instances. Return to the example of post-war impoverished Angola, where formal trade has been almost completely decimated by the divisions of war that have left one side (the MPLA government) with control over urban infrastructure and consumer goods and the other side (Savimbi’s UNITA) with control over farmlands and agricultural goods. Those in the government-held areas have goods, but are suffering from a lack of food. Those in UNITA held areas have basic foods, but lack basic medicines and supplies. What I call “trading tomatoes for medicines” (food for goods) at the local level is crucial for survival countrywide. Speaking in the most simple of terms: if everyone traded one tomato for subsistence goods--a seemingly miniscule economic transaction in the world’s scheme of things--that would add up to some 11 million tomatoes a day given the population of Angola. I asked Mr. Alexander Aboagye the senior economist at the UNDP office in Luanda, Angola the impact of this vast movement of “tomatoes for medicines” (which of course includes everything from clothing to energy products). He replied that it was both considerable and little: “Eleven million tomatoes, so to speak, comprises a formidable economy; but the irony is, no one realizes the sum total of this vast market, its definition of the basic economy of the country. Everyone is thinking in terms of ‘one person, one tomato’.”
Such everyday goods can follow international channels of production and distribution that may intersect with states, but are not bounded by them. They can partake of official channels, nonformal production systems, quasi-legal gray-markets, and downright illegal enterprises. In other words, medicines and food can flow along the same routes as gems and weapons, and these routes may be simultaneously state and extra-state--where, for example, illicit gem running provides hard currency for state and state contenders to purchase armaments and basic supplies that travel across international borders but outside formal state channels. Disenfranchised civilians and wild-catting entrepreneurs bring everything from grains to industrial equipment along these, and other, nonformal routes that link the cosmopolitan centers of the world with its hinterlands (hinterlands that may well be seen as the “breadbaskets” of states for precious minerals and fuels, food and timbers, labor and raw materials). These intersections of power, il/legality, non-legitimacy, and non/formality are characteristic of shadow sovereigns.
Nonformal markets comprise a much larger section of the world’s true economy than formal indices document. Angola’s economy is, in the latter half of the 1990s, 90% informalUN and World Bank estimates, personal communication, senior economists Luanda offices. 21 Given the fact that the country is emerging from a devastating war and a collapsed economy, this may not seem a surprising figure. But the example of Angola raises another point about extra-state transactions: they are fundamental, and possibly necessary, to development in devastated communities. This turns conventional wisdom on gray markets on its head. Conventional wisdom views extra-state transactions as nondesirable, often because of the associations with illicit goods and non-state transactions. As Clement Jackson, senior UNDP economist told me: “The whole point of development is to move economies into formal state-based frameworks and stop nonformal activities.” But it would be virtually impossible for countries like Angola to piece together a society and economy from its war-torn legacy without relying heavily on non-state based development. This relationship between nonformal economies, post-war transition, and development is in no way restricted to the African continent.
Consider the case of Cambodia:
It was not just rice that Cambodians wanted at the end of 1979. In the preceding ten years an incalculable amount of their national and personal wealth had been destroyed. Every Cambodian family had lost what much of the world takes as essentials. Now the nation began to restock itself–in a unique, open-air bazaar along the Thai border at places like Mak Moun and Nong Samet. It must have been the greatest open-air market in the world. Almost everything you can imagine was available there... The sums of money that changed hands were staggering, almost unbelievable. On some days up to $500,000 worth of gold poured out of Cambodia across the border. 22
Conventional wisdom tends to view development as a progress toward increasing state involvement. As countries become stable, the theory goes, extra-state exchanges and politics decrease, replaced by formalized systems. Data does not seem to support this conclusion. Statistics place Italy’s black economy at up to 50% of gross domestic product 23 and the United States as high as 30% in total; 24 one-third of Canada’s population participates in informal economic activities. 25 The Russian Federation Ministry of Labor in 1995 estimated 40% of the country’s economic activities were in the shadows, another 40% is generated through the visible economy but hidden form taxes, and another 6% is unknown. 26
The Smuggler’s Social World--or, The Culture of Networks
Profiteers, smugglers and black/grey market merchants are not isolated actors loosely linked into a web of profit. 27 Farmers who plant drug-related crops or miners who harvest gems have families and children they must provide for, from paying mortgages to celebrating birthdays. Truckers who transport illicit goods need tires and tune-ups for their truck and dental work for themselves and their families the same as if they were ferrying post-toasties cereals. Pilots trained at accredited airschools fly smuggled goods, often wearing professional pilot’s emblems and uniforms. The banker who launders the money and the college student who buys a smuggled diamond studded rolex or deals a few drugs to pay his or her tuition may not fit the dark haired image of the dangerous drug lord, but they are as essential to the whole enterprise as the growers and the transporters. All of these people are deeply immersed into the tendrils of society and civil life: they have families. They need a reasonable doctor, and a pension fund for their old age (the mercenary organization Executive Outcome provides insurance/pensions for its soldiers). They have hobbies and join clubs, take vacations, and purchase goods on the open market (and they pay for these things with monies gained through these vast shadow exchanges)–as “diamond profiteers” or “drug smugglers” they are enmeshed in extended societies. From interpersonal relations to illicit transactions, these people follow codes of conduct and rules of behavior as developed as those followed by people interacting in legally recognized society. People in these systems generally trust (and trust implies interpersonal and cultural definition) that the transaction will occur as predicted, and that they will remain safe--and the fact that large scale massacres, wars, and trails of dead bodies take place with far less regularity within these shadow networks than in and among states attests to the fact that the systems do work. 28 This is no mean feat when we consider we are talking of millions of people exchanging billions of dollars worth of goods and services. 29 Gellner provides an interesting take:
The Hobbesian problem arises from the assumption that anarchy, absence of enforcement, leads to distrust and social disintegration... but there is a certain amount of interesting empirical evidence which points the other way. The paradox is: it is precisely anarchy which engenders trust or, if you want to use another name, which engenders social cohesion. 30
In a powerful irony, even Hobbes recognized that networks of self-interest were grounded in cultural codes of trust. 31 Right or wrong, Gellner asks us to understand how pattern and value become imbued in what is taken to be anarchy--in this case an “anarchy”--standing as it does outside of formal state control-- that molds contemporary economics and politics as we know them. I do not here posit a network/sovereignty dichotomy; nor do I posit a network/society dichotomy: these various arenas intersect in life, and should in theory, they represent different aspects of power, presentation, and exchange. Which refers us back to the fact that sovereignty, as Latham reminds us, exists when an agent “is assigned or feels compelled to occupy or resist a role or place within the webs of codes, practices, and significances that constitute the domain.” 32 Shadow sovereigns, as I define them here, are both intrinsically transnational while simultaneously dipping into the normal and the mundane of state-life. 33
Shadows that Define Nations
Extra-state activities are not marginal to a State’s viability, regardless of popular conceptions that deem otherwise. Another example that points out the importance of shadow sovereign formations takes us down to life in the trenches, so to speak. This example also serves to show the ways in which states and international extra-state activities intersect and shape one another. Warzones are defined by contradictions: the immense suffering and impoverishment of people fleeing ruined towns exist side by side with the immense profits of businesspeople manipulating war economies. An example from my own field data can help introduce the later. I often fly with emergency relief cargo planes when I am at the epicenters of conflict. These emergency airlifts are quintessentially international enterprises: they are generally run through international organizations with goods and personnel from around the world. They often receive aid money, both from governments and large international nongovernmental organizations (INGOs ). They require international alliances: airlifts are very expensive, and cross a host of political, legal, and technical jurisdictions. An old DC3 airplane, the oldest and arguably the most inexpensive workhorse still flying, costs several thousand dollars an hour in aviation fuel and service fees alone. Add on institutional overhead, pilots’ salaries, mechanics’ wages, parts, permits, communications gear, and of course, the goods being transported. In addition, add on the combined infrastructure of the departments that oversee emergency airlifts in the country at war, the allied countries’ aid agencies, and the NGOs providing technical support and. On a few occasions when I was preparing to ride with these cargo planes, I found the flights abruptly cancelled with no explanation, but the planes departed at dawn, destination unknown. This in itself is unusual in airlift culture. Flight plans may not exist, pilots may give researchers unauthorized rides, but among colleagues (and this can extend to itinerant researchers) information is a commodity freely exchanged: staying safe in warzones depends on this.
I began to research these flight cancellations, and the facts turned out to be a study in power. A group of businesspeople had requisitioned the plane by the day (that means canceling not one, but five or six airlifts) to fly goods across the country. Business goods, telecommunications equipment, war-related supplies, (stolen) motor vehicles, VCRs, luxury items, precious resources–the “hard currency” of warzones. These people not only had the money to “requisition” an airlift plane for personal use, they had the power to make sure the entire machinery that supported that airlift--from governmental to intergovernmental aid organizations and personnel (in this case, USAID among others was providing monetary support in the millions of dollars, though I doubt they were aware of the nonaid uses the plane was being put to)--was kept uninformed or unconcerned. Not all such flights originated in the country as this one did. One night under cover of dark, a plane was “requisitioned” to fly over the border, collect state of the art computers (with planes, we are talking not pounds, but tons of cargo) and fly them back into the country to a top military base. The story is sometimes much bigger: in one case I collected data on personally, a major emergency airlift run by an international organization and paid for by such donors as USAID (who, I am sure, was unaware of any untoward activities) was headed by a European man who was both an international smuggler and a profiteer. The planes actually did fly many tons of cargo to bombed out townspeople for months on end, but a number of other less altruistic activities were taking place as well. This one airlift operation in this one warzone grossed considerable sums of money, though few know how high those figures actually are.
Returning to the businesspeople who diverted emergency flights for their own extra-state purposes raises the analytical issue of currency markets. In warzones, currencies often collapse, and blackmarket (or “street”) currency exchanges (soft currencies or goods for hard currencies) are the norm. Those who control the blackmarket money exchanges also control the exchange rates. These change daily, the product of complex monetary calculations. This itself represents an interesting study in power: in the midst of a warzone where all telecommunications and electricity were knocked out with frequency, businesspeople at various ends of the country would work in unison, along with many others in a world economy, to calculate and set daily currency prices countrywide. These are extra-state calculations, they do not run through the banks and the government institutions of the country. And yet they are, in effect, more powerful than formal institutions: they set the “true” currency prices for an entire nation. These currency markets are very international: businesspeople are calculating money indices based not only on internal conditions, but on a host of global market factors that range from the accessibility of goods and their worth to international exchange rates for hard currencies.
Mozambique is not an unusual example in being a country where the “blackmarket exchange” was taken as a baseline for both formal and nonformal economies. A consortium of international aid organizations and the World Bank counseled Mozambique as it moved out of war to keep blackmarket rates, and not the official bank rates, as the true economic indicator. The health of the formal economy was gauged on the relationship of the blackmarket to the bank rates: as the formal bank rates approached those of the “street”--not vice versa--the formal economy was deemed to be recovering. Mozambique agreed to this. What the consortium and their policies did not discuss was the vast network of international, political and economic linkages, exchanges, and relationships that make blackmarket currency exchanges possible at all. The capacity to forge economic global currency indices constitutes significant power on the international stage, and these vast ‘street’ systems are constituent aspects of shadow sovereigns.
These fundamental financial systems can be found in many guises worldwide. Take, for example, the extra-state “banking systems” in Asia. People often think of off-shore financial interests and their relationship to money laundering when thinking of extra-state banking systems (though few recognize the stastic cited earlier that some 20% of the world’s financial deposits flow offshore). But a far more mundane, yet powerful, “informal” banking system is in place throughout the world. A customer, for example, chooses an informal “bank” in one country in Asia and can send any amount of money to a receiving “bank” in another country in Asia to hold for anyone the sender designates. Cash, goods, and credit flow along these banking lines. This system may be nonformal, and the “banks” little more than storefronts, but the system is both vast and powerful, transmitting untold fortunes through family and ethnic linkages, business partnerships, and triad associations.
How Many Shadow Sovereigns Are There?
How many networks operate at any given time around the globe? Pat answers are, obviously, impossible. But several key observations are possible. Informal economies (small scale susbsistence), large scale gray and blackmarkets (from arms through luxury items to oil and freon), and state industries and personnel (from sanctions-breaking technology to corrupt customs officials) are more interrelated than the predominance of the literature, and certainly neoclassical theories, suggest. I have sought to show in the examples such as Angola and of the businesspeople commandeering aid flights and setting international currency exchange rates how running gems, for example, links within larger international exchange networks ranging from armaments through high-tech computers and industrial equipment to basic foods and medicines. The lines between state and extra-state power can easily blur here: blackmarketeers commandeering INGO relief planes may carry sanctioned telecommunication equipment, VCRs and stolen cars, but they also have the clout to set international currency exchange rates-- and by day these blackmarekteers are often upstanding members and officials of the country. In fact, the returns on such “enterprises” can supply the wealth, industrial base, and influence to gain political office.
At the same time these networks are not all-inclusive: the gem runners in Angola may have nothing to do with the drug runners in Colombia or the non-state banking ventures in Asia. Neoclassical theory tends to postulate non-state networks as quite discrete: there are smugglers, there is official corruption, and there are informal subsistence economies, and essentially never the twain shall these meet. Having noted that no single overarching “network mentality or reality” exists, I want to stress again that these networks are more complex, interrelated, and governed by shared norms of conduct than traditional theory holds. And, curiously, judging from my data, it would seem integrating networks internationally is viewed as desirable in practice. A clear indication of this can be summed up in exploring the question of why some drug smuggling networks based in Latin America and Southeast Asia send drugs to Europe via Africa. Any number of ports, from remote Namibia to urban Nigeria broker drugs from these drug producing regions on their way to Western destinations. The logic of markets and rational analysis would assume the routes with the least number of stops and locations where illegal goods can be confiscated and the carriers arrested or executed would be the most desirable--in other words, a route straight from Latin America or Asia to Europe makes the best sense. No matter how easy it is to get illegal goods into an intermediate port, it is just as hard getting it into Europe from Asia, Latin America or Africa. Why, then, route through Africa? A part of the equation might be that the heavy flow of precious minerals and gems, ivory, weapons, mercenaries, food and medicines in and out of Africa provide more avenues for other types of goods to travel along, speaking to the interrealtedness of diverse networks. But this is only part of the answer, for such exchanges route worldwide. Another part of the answer is that in a different kind of market and political logic, associations of extra-state networks (and their state-linkages) are more productive and powerful than smaller, isolated coalitions of people and profit. Routing drugs through Africa links Africa with the goods and power politics of Latin America and Asia, and provides the latter with the rich resources and human power of Africa. Each county and continent gains more by its association with others than it could hope to achieve alone. Much like Multinationals. 34
Networks, like the markets and the politics that gird them, are constellations of economic, political, demographic, historical, and cultural processes. 35 As such, they are dynamic, not static, phenomena: as the patterns of the constellations of factors that defines networks change over time and circumstance, so too do the defining characteristics of the networks. Perhaps the very extra-state nature of the exchange systems I am speaking of here attests to their success--the more formal nature of state-based systems is vulnerable to bureaucratic grid-lock, while nonformal systems can more easily meet demands both new and old.
Redefining the Nature and ‘State’ of Power, Today and Tomorrow...
How has it come to be that vast international multi-billion dollar a year “industries” and the policies and politics that variously undergird them taking place outside formally recognized state channels–networks of influence whose power can rival that of most states--are so poorly documented and so poorly recognized that we lack both technical and thematic terms to investigate these domains? 36
A researcher is often prompted to collect data, not only in the field, but within the theories of their own discipline. Over years of working in the field in Asia and Africa, I have collected hundreds of pages of fieldnotes documenting the extra-state activities I have described here. But academia has provided little by way of methodology for such fieldwork (how does one go about studying illicit diamond-arms transfers?); and equally little by way of theory to assess these dynamics (exactly how does the massive gray market in gems affect conflict resolution in Africa, or the international stock market?) Policy is equally affected by these data voids. If even in industrialized countries a significant portion of the economy is extra-state, how do we critically assess everything from trade policy through market futures to interest rates? I find it logical to assume the current crisis in economic theory 37 whereby everything from the inability to predict stock crashes to the Asian market collapse is fundamentally affected by the fact that methodologies and theories are simply not figuring in a significant part of the whole (not merely the whole formally defined) economy and the politics that sustain it.
While there is little information on these powerful extra-state networks that cross Angola, eastern Europe, and Asia, there is even less in countries like England and Germany, Japan, and the USA. There is a general tendency to postulate that the nonformal markets of eastern Europe, the former Soviet States, Africa, and Asia are the result of a combination of changing political regimes, social transitions, and economic opportunism. The belief is that as these countries settle down in the course of normal state development, their economies will become increasingly defined by state-regulated formal economies. In this view, while illicit markets and mafias will always exist in the countries of the world, they comprise a marginal part of the world’s real power structures and economy. My research to date suggests we need to rethink these assumptions. I can stand in the most remote warzones of the world and watch a veritable super-market of goods move into and out of the country along extra-state lines. Tracing the supply routes of these goods takes one through both major and minor economic centers of the world. The sanctions-regulated lap top satellite-linked computer I see on the battlefields of Africa was made in a major cosmopolitan center of the world, and the gold, diamonds, ivory, and seafood that pay for these commodities move along the same channels back to those cosmopolitan centers. These international transactions are not comprised solely of such luxury goods. Clothing, watches, industrial components, VCRs, books and medical supplies travel these same routes. At the bottom line, it would appear nonformal economies play a formidable role in countries like Japan, Germany, and the USA as well as in areas of more rapid economic and political change and development. The conservative figure cited above that 10-30% of the US economy is nonformally generated attests to the central role extra-state activities play in shaping national realities. Even the nonformal economies of developed countries are turning out to be more sophisticated and developed than classicial economics or popular academic conception assumes.
One of the more interesting questions regarding these vast econo-political networks is that of how such massive amounts of goods and money, which follow such a complex set of exchange routes and political conditions, flow as smoothly as they do. In plain words: Savimbi’s gems get to Antwerp, Belgium and then onto rings on our fingers without a great deal more, and sometimes less, murder and mayhem than state-based transactions do. The billions that flow through the informal banks of Asia function quite a bit like state-supported banks in that their customers do not usually loose their money. In a nutshell, the system works. But how is another matter. Many people I have spoken to about this respond that the system works because if it does not, people are simply killed. That may or may not be true: the fact is, it is an assumption, people have not collected representative data. We simply do not know how these vast billion to trillion dollar systems function on a day to day basis. 38
Part of the answer lies in the fact that extra-state networks are not haphazard collections of people in ad hoc groups circling like moths around the light of profit. There is an explicit assumption in many analyses of state and nonstate actors that states are somehow supra-communities, born of unique institutions of leadership that are not replicated outside the formal institutions of the state. No matter how successful or large a nonstate collectivity, it will never approximate the moral community of the state. However true the existential answer to this is, practicalities demand a more nuanced assessment. From diamonds to drugs, dominions exist that follow hierarchies of authority, rules of conduct, ways of punishing transgression, and codes of behavior. Within these dominions, communities form, ideologies develop, and worldwide alliances and antagonisms are drawn. These can not be confused with states, but such interrelated transnational associations do have governing structures, law-like apparatus, and security forces. The people populating international extra-state networks forge trade agreements, foreign policy, and currency exchanges. And they set up the transport routes, communication linkages, and banking systems to sustain their interactions.
In discussing this with the lawyer Joel Siegel, he replied the systems I describe reminded him a bit of the merchants in the middle ages who developed international commerce systems intended to stand apart from kingly rule. The analogy--set as it is in multiple sites of governing power and the development of the State itself--is appropriate. These merchants developed a method of trade agreements and dispute settlement that was based in arbitration and not bloodshed: they instituted functional courts in marketplaces. These actions were as political as they were economic, as I’ll show below. Radical at the time, this, of course, is the basis of customary law and the foundation of contemporary commercial law.
What customary law determines present day extra-state interactions and transactions? What processes of arbitration might be in place? The merchants of the middle- ages were among those social forces instrumental in reshaping global politics. The merchants operated internationally, and thus to a large, and intentional, extent outside the direct rule of “king-doms”. The commercial laws they developed were direct challenges to royal political process. As they gained in wealth and power, these merchants and markets set the way for the introduction of the modern state as it replaced traditional kingdoms. The laws developed in marketplaces to monitor trans-state trade became the basis of economic and international law as we know them today. In the same way that “renegade and lawless merchants” formed the foundations of state-based commercial and international law, it is possible that we might see some of the future politico-economic trends in the vast shadow sovereign realities operating in the world today.
Notes:
Note 1: Robert Latham, “States, Global Markets, and Social Sovereignty.” Paper presented at the Social Science Research Council conference Sovereignty and Security, Notre Dame, April 18-20, 1997. Back.
Note 5: Ed Ayers “The Expanding Shadow Economy,” World Watch 9 no.4 (1996):11-23. Back.
Note 6: William Reno, Warlord Politics and African States (Boulder: Lynne Rienner, 1998). See also Reno, Corruption and State Politics in Sierra Leone (Cambridge: Cambridge University Press, 1995). Back.
Note 7: George Lopez and David Cortwright, “Making Targets ‘Smart’ From Sanctions.” Paper delivered at the International Studies Association meetings, Minneapolis, March 18-22, 1998; Bureau for International Narcotics and Law Enforcement Affairs, International Narcotics Control Strategy Report 1996, Bureau for International Narcotics and Law Enforcements Affairs, Washington DC: US Department of State, March 1997. Back.
Note 8: United Nations Research Institute, States of Disarray: The Social Effects of Globalization, (London: UNRISD, 1995). Back.
Note 9: Suraj B. Gupta, Black Income in India (New Delhi: Sage, 1992). Back.
Note 10: Avner Greif, “Contracting, Enforcement, and Efficiency: Economics Beyond the Law,” In M. Bruno and B. Pleskovic, eds. Annual World Bank Conference on Development Economics 1996, (Washington DC: The World Bank, 1996): 239-265. Back.
Note 11: Truth and Reconciliation Commission Hearings, 1996-1997, South Africa. Back.
Note 12: Clement Jackson, Economist, UNDP, Windhoek Office, personal communication. Back.
Note 13: Susan Strange, The Retreat of the State: The Diffusions of Power in the World Economy (Cambridge: Cambridge University Press, 1996): 115. Back.
Note 14: Singapore Newsroom, WWW posting +65 870 3571, 1997. Back.
Note 15: Rae Tyson, “Freon-Smuggling Latest Maimi Vice,” WWW reprint of 1995 Detroit News report. Back.
Note 16: Arjun Appadurai, Modernity at Large: Cultural Dimensions of Globalization ( Minneapolis: University of Minnesota Press, 1996). Back.
Note 17: Susan Strange, The Retreat of the State: The Diffusions of Power in the World Economy (Cambridge: Cambridge University Press, 1996): 117. Back.
Note 18: UNDP estimates, personal communication of senior economist, Luanda office. See also Karl Maier, Angola: Promises and Lies (Rivonia, UK: William Waterman, 1996); William Minter, Apartheid's Contras: An Inquiry into the Roots of War in Angola and Mozambique (London: Zed Books, 1994); Human Rights Watch Arms Project and Human Rights Watch/Africa, Angola: Arms Trade and Violations of the Laws of War Since the 1992 Elections (New York: Human Rights Watch, 1994). Back.
Note 19: Paul Richards, Fighting for the Rainforest: War, Youth and Resources in Sierra Leone (Oxford: James Currey, 1996): 101-102. Back.
Note 20: Suraj B. Gupta, Black Income in India (New Delhi: Sage, 1992). Back.
Note 21: UN and World Bank estimates, personal communication, senior economists Luanda offices, 1996. Back.
Note 22: William Shawcross, The Quality of Mercy: Cambodia, Holocaust, and Modern Conscience (NY: Simon and Shuster, 1984): 236-7. Back.
Note 23: Donald Rutherford, Dictionary of Economies (New York: Routledge, 1992): 42. Back.
Note 24: Dr. Jackson Clement, UNDP: personal communication; the Internal Revenue Service places it more conservatively at 10%-20% of GNP. Back.
Note 25: Ed Ayers “The Expanding Shadow Economy,” World Watch 9 no.4 (1996):11-23. Back.
Note 27: Most readers will recognize the images that popular culture has produced around smuggling, and the fact that no matter how unrealistic some of these images are, they hold remarkable sway on people’s imaginations. Media and analyses alike tend to focus on the predominately male actor and his linkage into a business cartel or mafia. If you ask a group of westerners to draw a quick sketch of a gun or diamond runner or a drug smuggler, as I have, the most common images to emerge by far are younger adult males with dark hair (often unshaven), a jacket (black leather), a gun, and a threatening demeanor. They are alone, or with others of their ilk. Back.
Note 28: Diego Gambetta, Trust: Making and Breaking Cooperative Relations (Oxford: Basil Blackwell, 1988); See also “Can We Trust Trust?” In D. Gambetta, ed., Trust: Making and Breaking Cooperative Relations, (Oxford: Basil Blackwell, 1988): 213-237. Back.
Note 29: Gambetta, Ibid., p. 230, stresses a key consideration here in writing: “What is at issue is not the importance of exploring in greater depth the causality of those forms of cooperation which are independent of trust, but the fact that economizing on trust is not as generalizable a strategy as might at first appear, and that, if it is risky to bank on trust, it is just as risky to fail to understand how it works, what forces other than successful cooperation bring it about, and how it relates to the conditions of cooperation. Considering the extremely limited literature on this crucial subject it seems that economizing on trust and economizing on understanding it have been unjustifiably conflated. Back.
Note 30: Ernest Gellner, “Trust, Cohesion, and Social Order,” In D. Gambetta, ed., Trust: Making and Breaking Cooperative Relations (Oxford: Basil Blackwell, 1988): 142-157. Back.
Note 31: Diego Gambetta, “Can We Trust Trust?” In D. Gambetta, ed., Trust: Making and Breaking Cooperative Relations, (Oxford: Basil Blackwell, 1988): 213-237, p. 215. Back.
Note 32: Robert Latham, “States, Global Markets, and Social Sovereignty.” Paper presented at the Social Science Research Council conference Sovereignty and Security, Notre Dame, April 18-20, 1997, p. 29. Back.
Note 33: These collections of people intersect with larger and legitimate political collectivities. Few people are surprised today by the degree to which state actors can be embroiled in illegal or extra-state activities. From the popular culture of Mel Gibson’s movie Air America to the politically charged problems defining US-Mexico relations on drug and drug enforcement issues concerning the degree of state involvement (Andreas 19xx), the pull of high profits and power is well recognized. Another example is less widely recognized, but equally influential in shaping ground level politics. UN peacekeepers have been praised for providing solutions to intractable wars, and their work is often exemplary. But the story is more complex than that. Sarajevo provides an apt example, where during the worst of the war when UN peacekeeping troops were stationed there, a large percentage of Sarajevo’s economy was diverted into blackmarketeering through UN troops (Fetherston and Nordstrom 1995). “The UN soldiers are making themselves and the Sarajevo mafia rich. The locals are the middlemen for a trade in cigarettes, alcohol, food, prostitution and heroin, worth millions of pounds” (O’Kane 1993). Not only luxury items flowed along these channels. Tanks and weapons rumbled along these pathways, from states through peacekeepers to fighting forces, each nationality following the alliances of their states, or, more obscurely, the alliances of profiteering. Back.
Note 34: This is not a phenomena isolated to drug shipments. For example, Strange (1996:111-2) notes: “What is new and of importance in the international political economy is the network of links geing forged between organized crime in different parts of the world While the Sicilian and American Cosa Nostras were the growing point, as it were, of this network, they no longer operate alone. There are half a dozen other major transnational criminal organizations... The expansion of illegal markets has fostered a wider and more frequent interaction among the major organized gangs,. Drugs, arms or illegal immigrants often pass through the hands of to ten or twelve different operators attached to various national gangs. Inter-group bartering of illegal commodities has also become very common since such deals help conceal the origin of the profits for the state authorities. As various criminal groups (like the multinationals) have expanded their activities outside their home territories, the illegal markets within state boundaries have joined together the horizontally to for a single world market.”(Italics added). Back.
Note 35: Susan Strange, The Retreat of the State: The Diffusions of Power in the World Economy (Cambridge: Cambridge University Press, 1996): 117; Avner Greif, “Contracting, Enforcement, and Efficiency: Economics Beyond the Law,” In M. Bruno and B. Pleskovic, eds. Annual World Bank Conference on Development Economics 1996, (Washington DC: The World Bank, 1996): 239-265. Back.
Note 36: There are a conplexitiy of reasons for this. One may be less obvious to pulbic analysis, and an example helps to clarify this. When I was recently in Southern Africa, I was speaking with several leading UNDF economists about why formal economic indicators did not take account of nonformal economies when they so significantly affected the outcomes of any policy, from development to peace accords. In both Mozambique and Angola, fully half of the nations’ resources are taken out of the country through extra-legal channels (personal communication, senior economists and resident representatives of UNDP and World Bank offices in Maputo, Mozambique and Luanda, Angola; and senior economists of UN offices at the USA headquarters). Goods from seafood to precious gems disappear into foreign markets without ever passing through the state’s formal sector or producing any state revenue. I asked the UNDF economists why these figures were not represented, even in passing, in formal research and policy documents. “We can not study this” the senior economist from a European office replied, “it is not in our mandate.” I clearly did not understand, replying that retooling mandate priorities would be a good idea. After a few moments, the senior economist asked me to consider where all those millions of dollars of seafood goes–to whose factories and whose tables? Where do all the billions of dollars of precious gems, gold and diamonds end up? They purchase hard currency, weapons, and luxury items, from whom? “The countries,” he answered, “who write our mandates.” Or, as he and his colleagues concluded, who write things out of the mandates. Back.
Note 37: Tony Lawson, Economics and Reality (London: Routledge, 1997). Back.
Note 38: I have done interviews with United Nations officials and lawyers alike asking what actual data they have on what rules of conduct define these systems and how they are “enforced.” Each and every one--from the UNDP officers (Dr. Aboagye, Dr. Clements, Dierckx de Casterle) to academic economists (Professors Dutt and Melber)–said that the question was fascinating, but the data nonexistent. And, lawyers and UN staff alike assured me, lawyers and economists do not “do” fieldwork; without primary data, theory can not emerge. Back.
