The insurgent economy: Black market operations of guerrilla organizations

This paper is a study of the finances of insurgent groups. It takes the view that a model guerrilla movement evolves through three stages, with corresponding changes in both its expenditure responsibilities and its fundraising activities.In the earliest stage it engages in hit-and-run operations against individual symbols of the state, either officials or isolated institutions like police stations and army outposts. At that stage, the group's expenditure requirements are relatively small and mainly military. Hence, it can rely on fundraising activities based on similarly sporadic and predatory actions such as bank robbery and kidnapping that closely approximate the activities of blue-collar criminals.In the next stage the guerrilla movement begins openly disputing the political power of the state, mainly through the conduct of low intensity war against the infrastructure of the formal economy. The guerrilla group's expenditure obligations are not only much greater in absolute amounts, but also include a rising social security component, for the care of dependents of its militants, as well as providing some assistance to the population whose support it is attempting to win. Fundraising therefore shifts from once-for-all, predatory operations to parasitical ones that yield a steadier, more dependable flow of income at the expense of the formal economy. The most important will be the revolutionary taxation of income and wealth, an activity that more closely approximates that of an organized crime group.In the final stage the guerrilla movement succeeds in implanting itself firmly on a piece of territory from which the state is effectively excluded. To its obligations for military operations and social security for dependents of militants are added those arising from the provision of social services to the general population of the controlled area and the building of the infrastructure necessary for the growth and development of a parallel economy. The most important sources of revenue come from indirect taxation — sales taxes on domestic commerce and/or export and import taxes on foreign trade along with user fees for the public services the insurgent group is providing. Fundraising thus ceases to be parasitical with respect to the formal economy controlled by the state and becomes symbiotic with the emerging parallel economy controlled by the guerrilla group.Although at any point the guerrilla movement may find itself with a temporary surplus of operating funds, it is in the symbiotic stage, with regular revenue flows, that problems of asset management are likely to become significant. Therefore, at this stage, while fundraising activities take on increasingly overt and legitimate-looking forms in areas under the group's governance, fund-man-agement activities require the guerrilla group to interface with the formal and international economy in much the same manner as white collar crime, seeking to hide and launder the returns from its fundraising.     

Violence and illegal economic activity: a deconstruction

Obviously there is nothing new about humans using violence as a tool to advance their economic, political and social interests. There is no lack of quick and superficially convincing reasons on offer, reflecting the political agenda of those doing the offering. However sensible explanations of complex social phenomena are inevitably messy. Rather than yielding absolute certainty, they can at best indicate tendencies constrained by circumstances that are subject to dramatic change through random shocks of both exogenous and endogenous origin. This paper examines the possible role played by violence in contemporary illegal-market activity in an effort to clear up definitional ambiguities and highlight the underlying logic or lack thereof in frequent claims about a close association between earning, spending, saving or investing of ill-gotten gains and any propensity that participants might have to advance or defend their economic interests by violent means. It concludes that the links are at best tenuous and confined only to marginal instances that are usually explicable by the broader social, political and cultural context rather than anything inherent in the logic of these markets.

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