Government is the partner of organized crime

By Michael Duffy and Bob Bottom.

We have just finished a 21-part history of organised crime in Sydney, for a series to be published in the Herald's new iPad edition. Most organised crime took place in the 20th century, and naturally we found ourselves pondering why.

What we found is that much of it emerged following the introduction of laws banning popular pleasures. America is famous for one big Prohibition: we had a lot of smaller ones.

What happens is that illegal markets are set up to provide the banned goods and services such as drugs and alcohol or gambling and prostitution. The volume of these illegal transactions is enormous, making it profitable for organisational entrepreneurs to move in. They take two forms: the efficient businessmen, such as Abe Saffron and George Freeman, and the standover men who in effect “tax” the illegal businesses, and give permission for them to stay open. Perhaps Sydney's most famous standover man was Lennie McPherson, known in some circles as Mr Big and in others as Mr Ten Per Cent.

One example of this pattern was the 1916 Liquor Act, which made the sale of alcohol illegal after 6pm. It was to assist with wartime productivity, but was not repealed until long after World War II. It spawned dozens of illegal bars around the city catering to everyone desperate for a drink in convivial surroundings after dark. People prepared to supply them, whether Kate Leigh with her sly grog joints in Surry Hills or Joe Taylor's and Saffron's celebrity nightclubs later on, became very wealthy.

You can track the rise and fall of a great deal of organised crime against the legislative history of popular pleasures, with a decline as laws were introduced legalising prostitution and extending drinking hours, and with the creation (and later the extension) of the TAB and the setting up of NSW's first legal casino, Star City, in 1995.

The nature of the illegal pleasures shapes the nature of the organised crime that arises to provide them. Drugs are unusual, historically, because they are not sold or consumed at a relatively small number of locations. This means dealers are harder to locate and tax, making it impossible for standover men to impose a certain amount of stability on the underworld. The profits are enormous and easy, which attracts a continual stream of psychopaths into the milieu to try to rip off those already there.

For these reasons, the drug underworld is far more volatile and violent than the old underworld based on alcohol and gambling and prostitution. The days when McPherson, Freeman and Stan Smith could pretty well run the underworld for decades are long gone.

A final difference is drugs are used by a relatively small number of people. This means police and politicians are far less prepared to take bribes – an important factor in the decline of corruption in recent decades.

What does history tell us about measures that work against organised crime? The biggest success in Sydney was in 1930, in response to the violence of the razor gangs involved in cocaine and other illegal trades. Parliament passed the NSW Vagrancy (Amendment) Act, which made it illegal to be seen habitually with reputed criminals or people with no visible means of support.

Alfred McCoy, in his book Drug Traffic, calls this “one of the most authoritarian and effective measures against organised crime ever passed in a Western democracy”. Police numbers were increased and it became illegal to carry a razor. Within months the level of violence dropped. It took longer – about five years – but the cocaine trade was crushed.

The laws were draconian, but according to McCoy, “In the small-town atmosphere of Sydney in the 1930s it was generally understood who the targets were to be, and there were few abuses of these exceptional powers and fewer civil libertarian qualms.”

Would the law be acceptable today? Justice James Wood noted, during his Police Royal Commission in the 1990s, that the law gave police such extraordinary powers that it eventually became “an instrument for corruption and for the establishment of improper relationships”.

Still, harsher laws can work. One great example of this is America's RICO legislation, which allows someone to be sentenced to a long jail term if they are a member of an organisation that has committed any two of 35 designated crimes. The law has been particularly useful in locking up large numbers of criminal bosses. Writer Evan Whitton has urged NSW to consider such a law, and we think the idea deserves serious consideration.

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