The Architecture of

Illegal Markets
Towards an Economic Sociology
of Illegality in the Economy

Edited by
Jens Beckert and Matías Dewey

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1

Introduction

The Social Organization of Illegal Markets

Jens Beckert and Matías Dewey

Estimates place the annual revenues from market exchanges that violate the
law at over 653 billion US dollars (Economist 2013).1 From illegal drugs, stolen
artwork, and forged trademarks, to fraud on financial markets, the phenom-
enon of illegality in market exchanges is pervasive. Transactions on markets
that are outright illegal and illegal transactions in legal markets are econom-
ically important, have significant social and political consequences, and shape
market structures in specific ways.2
Strangely, the field of economic sociology remains almost silent on the
topic. This is despite the broad range of topics addressed in economic soci-
ology over the past thirty years and the fact that the “architecture of markets”
stands at the center of much of the sociological approach to the economy
(Fligstein 2001). With few exceptions (Beckert and Wehinger 2013; Centeno
and Portes 2006; Fligstein and Roehrkasse 2015; Dewey 2015; Dioun and
Haveman 2016), however, the literature unquestioningly accepts the premise
that the institutional structures and exchanges taking place in markets are law
abiding in nature. Though some scholars have complained about this (Zelizer
2007; Sørensen 2003), illegality and crime have not been established as major
fields of analysis. Economic sociology has addressed neither the consequences
of the illegal production, distribution, and consumption of illegal products for
the architecture of markets, nor the underlying causes or political and social

1
Such figures are notoriously imprecise and cannot provide more than a rough estimate of
illegality. Moreover, the estimate does not include illegality in markets in the form of rule
violations, what we call “type 5” markets.
2
We would like to thank Henri Bergeron, Renate Mayntz, Letizia Paoli, and Philippe Steiner for
their valuable comments on an earlier version of this introduction.
Jens Beckert and Matías Dewey

concerns stemming from the infringement of the law. In the sociology of

finance, to give one example, one finds much research on market devices but
until now only scarce research on the prevalence of financial crime. That the
illegal side of market exchanges has failed to gain attention in economic
sociology seems almost ironic given the historical tradition of ground-breaking
work on illegality in sociology exemplified, for instance, in the work of the
Chicago School and in more recent studies such as those by Howard Becker
(1963), Philippe Bourgois (2002), and Sudhir Venkatesh (2006, 2009).
Instead of being a subject area of economic sociology, the analysis of law-
breaking social phenomena in economic action has developed around the
notion of organized crime, an established field of research informed mainly by
criminology and economic theory, and often oriented towards the policy-
making process. Here, the social organization of markets—the focal point of
economic sociology—has so far occupied a secondary role at best. This book is
motivated by recognition that the analysis of extra-legal arenas of exchange
and illegal practices in the economy can contribute to a more general under-
standing of markets and should play a much more prominent role in the field
of economic sociology.
Our main aim is to contribute to the analysis and understanding of market
exchanges under conditions of illegality from a perspective that focuses on the
social organization of markets. Illegal markets can be characterized as arenas of
regular exchange of goods or services for money under conditions of competi-
tion and in which the product itself or its production, exchange, or consump-
tion violate legal stipulations (Beckert and Wehinger 2013).3 While the first part
of this definition alludes to features shared by both legal and illegal markets, it is
the second that flags the specific difference and provides the particular tonality
of this type of exchange: the violation of legal stipulations. The definition does
not imply that necessarily all elements in the market are illegal. Rather, it is
often the case that only certain actions are illegal, and these illegal aspects may
be embedded in perfectly legal organizations, take place within legal market
structures, and stem from otherwise legally operating actors.
Though there are many overlaps with the literature on organized crime and
the informal economy, the definition underlines four significant elements
that distinguish it from these approaches: for one, it shifts the focus onto

3
This does not imply that conditions of perfect polypolistic competition must be given.
Without any competition, however, we could not speak of a market. Steiner and Trespeuch
(2015) (see also Steiner in this volume) argue that the notion of “illegal markets” is a misnomer
because the transactions lack the guarantee of property rights by the legal system. They suggest
“illegal exchanges.” We do not follow this suggestion based on our definition of markets. However,
there are clearly different degrees of “marketness” in illegal transactions. This itself would be an
interesting point for empirical investigation.

2
 Introduction

market exchanges, making clear that we have entered into a social space
structured around sellers and buyers. Putting market exchanges at the center
of the investigation provides a different and more comprehensive perspective
to the study of illegality in the economy compared with a focus on criminal
organizations. This perspective takes into account the interactions between
the supply and demand sides, emphasizes the demand side as the propelling
force behind illegal market exchanges, stresses the interfaces between illegal
and legal action, and investigates the coordination problems faced by actors
when their transactions violate the law. Secondly, unlike qualifiers such as
“shadow,” “underground,” or “black,” the adjective “illegal” makes no bones
about the nature of the phenomenon we are confronted with: market
exchanges that stand in violation of the law. Thirdly, by including the exchange
of products or services whose production, exchange, or consumption are pro-
hibited, the approach goes beyond what is usually known as the informal
economy. Research on the informal economy has been concerned mainly
with the distinction between wage employment and self-employment (Hart
1973), and the avoidance of regulations (Centeno and Portes 2006: 26; Portes
2010: 134). While several contributions in this volume suggest considerable
overlap of both phenomena, they are also in many ways distinct. Fourthly, the
focus on markets allows for a systematic comparison between the functioning of
illegal and legal markets and enables us to bring the investigation of illegality
within the context of a broader debate on markets, capitalism, and the role of
the state in them.
In this introduction we will develop conceptual ideas for the study of illegal
markets and illegality in markets from the perspective of economic sociology.
Our interest focuses on the social organization of illegal markets, including
their relationship to the state, social norms, political power, and capitalist
accumulation. In the course of developing these conceptual ideas we will
locate the chapters of the volume and introduce them briefly.
We will start by presenting a typology of different forms of illegality in
markets, followed by a discussion of the role of the state in illegal markets.
Illegal markets, we argue, are illegalized arenas of exchange, which makes the
state a central actor in them. This is followed by a discussion of several
interfaces essential to illegal markets: the interface between illegality and
informality, the interface between illegality and legitimacy, and the interface
between illegality and legality. In the subsequent section we discuss the
peculiarities of the social organization of illegal markets, bringing to the fore
the parallels and differences in the organization of markets under conditions
of legality and illegality. Finally, in the last section we discuss the connection
between illegality and the capitalist economy. Illegality in markets is not
simply a parasitic phenomenon at the fringes of the economy. Instead, it is
an integral part of capitalist accumulation and should be investigated as such.

3
Jens Beckert and Matías Dewey

Illegal Markets

Illegal markets and illegal practices within markets are multifaceted phenomena
that require typological distinctions in order to be accessible for research. Though
they both involve law breaking, there is a marked difference between, say, the
heroin market (Paoli et al. 2009), in which the production, transportation, sell-
ing, and consumption of the product are all illegal, and the manipulation of
Libor rates by banks, which involves illegal activities taking place within a legal
framework of financial institutions and financial markets. The heterogeneity of
phenomena within the broad category of illegal markets can be systematized in a
typology that distinguishes between five types of illegality in markets (Wehinger
2011; Beckert and Wehinger 2013):
The first type refers to markets in which the traded good (or service) is itself
forbidden, including its production. This is the case for drugs, child pornog-
raphy, child prostitution, and so on. As a consequence of the prohibition of
the good, its subsequent trade and consumption are equally outlawed. Trans-
actions in these products form markets in their own right, which are largely
segregated from the legal economy.
The second type refers to stolen products. Here the product itself is legal but
has come into the possession of the person attempting to sell it illegally,
making its sale and purchase (if the theft is known to the buyer) also illegal.
Examples include market transactions with stolen cars, antiques, or artworks.
Transactions for these products can be organized on separate markets in
which the stolen products are traded or the products can be channeled into
legal markets.
The third type entails products that have been falsified, counterfeited, or
forged. While the act of counterfeiting products itself is often not outlawed (as
is the case for the counterfeiting of art works), it is illegal to trade in these
products. Counterfeit products constitute a major portion of illegal transac-
tions in the economy, including the counterfeiting of trademarks for con-
sumer goods and spare parts for industrial goods. Also in this category are
counterfeit medicines, which may be marked with either the wrong dose of
the effective substance or no dosage at all, and may thus be harmful to the
patient. Falsified and counterfeited medicines are assumed to contribute
between 5 and 7 percent to the global pharmaceutical market, with much
higher rates in many of the poorer countries (Paoli and Feytens 2016). Market
transactions can take place in separate markets or become part of the markets
in which the authentic product is being sold.
A fourth type encompasses products that are themselves perfectly legal, but
trading of which is outlawed. Examples of this are the trade in human organs
(see the chapter by Steiner in this volume), adoptions, and surrogate mother-
hood (in some countries). In the latter case the illegal aspect is not the

4
 Introduction

pregnancy itself, but carrying a child for another person with whom a con-
tractual relation exists that stipulates that the child will be handed over at
birth. Often, markets of this type have been described in the literature as
“contested,” “repugnant,” or “noxious” markets (Satz 2010; Steiner and
Trespeuch 2015). Even in the case of their legalization, market transactions
in these products are typically seen as morally offensive. Often the transac-
tions take place in separation from the legal economy.
Finally, in the fifth type of illegality, the production, exchange, and con-
sumption of the products are in principle legal, but actors violate existing
regulations during the production or the exchange process. Examples are the
import of cigarettes in ways that evade taxation, the violation of insider
trading rules on the stock market, the trading of guns without permission,
and the export of diamonds without a Kimberley certificate (see the chapter by
Engwicht in this volume). Much of what is known as the informal economy
can be categorized under this type. Only in the case of certain commodities
does widespread illegal behavior lead to the constitution of a market in its own
right: alcohol (Radaev in this volume), cigarettes, and precious stones are
possible examples of this. Other illegal practices in markets, such as the
manipulation of diesel engines by Volkswagen engineers to falsify emissions
tests, do not constitute an illegal market. This fifth type is certainly the most
complex and probably also the most common because rule violation can take
very different forms, and the legal and illegal aspects are most closely inter-
twined. Violation of regulations can refer to norms in the production process
(for instance, labor laws or environmental laws), but can also refer to norms
regarding product characteristics (for instance, safety standards), norms that
relate to the transaction itself (the license to trade the good, for example, or
rules against insider trading), or laws regarding the rights of third parties (such
as tax obligations to the state, or royalties to be paid to artists).
Table 1.1 depicts the typology, showing the dimensions in which the trans-
actions are illegal in each type. Clearly, the typology is purely analytical in the
sense that, from an empirical viewpoint, a specific market transaction can be
illegal in terms of more than one of the categories and products may be illegal
in certain contexts but not in others. Given the complexity of the empirical
phenomena in question, the overdetermination of the typology is unavoid-
able. This would also hold for any other typology one might develop.4 The
typology introduced here helps the researcher to become aware of, and dis-
tinguish between, different forms of illegality in markets and thus gives not
only an impression of the breadth of possible violations of legal stipulations in
markets, but also helps to structure the field for the researcher. It may also help

4
See, for instance, the distinction between white, grey, black, and criminal markets often used
in criminology (Paoli and Feytens 2016).

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Jens Beckert and Matías Dewey

Table 1.1. Dimensions of illegality in the different types of illegal markets

Type Product Consumption/ Market Violation of Example

illegal possession exchange regulation
illegal illegal

Type 1 x x x x Hard drugs

Illegal products
Type 2 x x x Stolen artworks
Stolen goods
Type 3 (x) x x Fake Rolex watches
Counterfeit
goods
Type 4 x x Organ transplants
Repugnant
goods
Type 5 x Informal markets
Rule violations Libor manipulation

to counterbalance the trend that much research on illegal markets has focused
on type 1 markets, especially for drugs, which in reality constitute only a small
part of the phenomenon of illegality in markets (Paoli and Feytens 2016).
At the same time, it should also not be forgotten that the distinction
between legal and illegal is neither homogenous nor static. The assessment
of specific products and transactions varies between places and changes over
time. Surrogate motherhood is outlawed in Germany but not in India
(Rudrappa 2015). Commercial transactions for organs for transplantation
purposes are legal in Iran but nowhere else in the world (Steiner 2010). Paoli
and Greenfield (in this volume) show the ambiguities between legal and illegal
within one jurisdiction with regard to the “quasi-illegal” market for doping
products in sport in Italy, demonstrating that legal ambiguities are a chief
cause of the difficulties faced in prosecuting actors trading in doping products.
Statements about illegality thus always need to be made with reference to
specific legal and social contexts. This also holds because of changes in defin-
itions of legality over time. Products and market transactions may shift in and
out of illegality. The need for a dynamic perspective can be seen in several of
the chapters in this volume. Annette Hübschle analyzes the market for rhino
horn after the “production” of this product became largely illegal through the
international CITIES convention in the 1970s (see also Hübschle 2015 and
2016). Cyrus Dioun describes the opposite process of the legalization of
marijuana in several US states since the 1990s. Making marijuana legal, how-
ever, does not mean that there has ceased to be any illegal aspect in this
market. Concurrently with its legalization, the markets became strictly regu-
lated and producers, vendors, and consumers can act in violation of these new
regulations. The illegality in the states that legalized marijuana switched from
type 1 to type 5.

6
 Introduction

From the sociological perspective, it also needs to be kept in mind that the
knowledge of illegal conduct differs between actors. In some cases—especially
in type 1 markets—the illegality of the transaction is clearly visible to all
parties involved. In many other instances, the illegality of the conduct is
much more covert and becomes invisible further down the value chain.
A diamond turned into a piece of jewelry and offered for sale by a jeweler in
Berlin has, for the buyer and the seller, probably completely lost its association
with possible illegal acts at the source of production. Equally, a product that is
completely legal at the beginning of the supply chain may be transformed
into an illegal product later on (see the chapter by Paoli and Greenfield). In
both cases, one of the chief activities of actors involved in illegality is to
camouflage the fact that illegal acts have taken place. Often this is done not
only to avoid prosecution, but also to maintain the value of the product.
A painting known to be forged or stolen sells, if at all, for a fraction of what
it would have fetched otherwise. Hence, as Philippe Steiner maintains in his
chapter, one of the chief characteristics of illegality in markets is secrecy.

States and Illegal Markets

Recognizing illegal markets and illegality in markets brings the researcher in

direct contact with the state. In economic sociology today, it is a truism that it
is largely the hand of the state that structures capitalist economies. The idea
that market formation is part of the state-building process, however, takes into
consideration only the establishing of arenas of “legal” exchange. As Philippe
Steiner emphasizes in his chapter, this already holds for the treatment of the
nexus between markets and states in the works of classical sociologists such as
Weber and Durkheim. The addition of illegal markets expands the scope of
economic sociology while holding that the state apparatus is also essential in
defining and giving shape to illegal markets. After all, it is through state-
devised acts that the distinction between legal and illegal is established. Illegal
markets are illegalized arenas of exchange. Or, to express this in a terminology
familiar to economic sociologists: illegality is an act of qualification (Bergeron
and Nouguez 2014). Acknowledging the presence of the state as a key actor
opens up a fruitful entry point to the study of illegal markets.
Each case study contained in this volume shows how exchanges are affected
by specific constellations of the state through its numerous institutions, regu-
lations, and enforcement agencies. This adds an additional layer to the socio-
logical investigation of the relationship between states and markets: the
significance of legal definitions (or, more precisely, their real-life conse-
quences for the way actors exchange goods and services) depends on the

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Jens Beckert and Matías Dewey

concrete actions of the state apparatus behind these definitions and its cap-
ability or willingness to enforce rules.
That a particular product or behavior has been illegalized by the state must
moreover be seen within the wider social and political context. Illegalization
and enforcement are outcomes of moral debates, social demands, and political
power. Prostitution is a pertinent example, as is the alcohol market, as shown
in this volume by Vadim Radaev in the case of Russia. Shaping the boundary
between legal and illegal and deciding on the enforcement of rules is also a
form of governance and often a means of exercising power over marginalized
groups of the population. This also points to the interface between illegality
and legitimacy, to which we will return.

Selective Enforcement
Rule violation in illegal markets does not make the formal rules disappear, and
the state and its agents can selectively exploit the gap between economic
practices and formal rules. Formal rules are devices that allow state authorities
to interfere in informal and illegal practices with the intent to produce order,
to establish positions of domination, or to provide benefits selectively. Referring
to the law, justifying the imposition of the rule of law, selectively enforcing
the law, and bargaining legality are all practices in which state authorities and
economic actors interact in informal settings. Legal definitions are crucial
devices in the hands of state institutions, which shape their practices and
influence both the structure and the extent of illegal markets. Endres’ and
Dewey’s chapters in this volume show just how important legal definitions are
in illegal markets when it comes to the negotiation of order through webs of
generalized protection rackets. Nina Engwicht shows that in illegal diamond
production in Sierra Leone, the state is not simply absent but interferes for its
own goals of taxation. The state benefits from the illegal activities, and min-
imum levels of social and economic security are assured for the communities
involved in the illegal mining. As Boris Samuel stresses in his chapter on
protests against the pricing of consumer goods in Guadeloupe and Mauritania,
the state can pursue clientelistic strategies through the selective enforcement
of laws and public campaigns against illegality. The power of the state lies in
the selective and often arbitrary enforcement of its rules.
The actual enforcement enacted by state agencies can be used as an instru-
ment of social control. In this, non-government organizations, as diffusors of
ideologies and prohibition initiatives, can play a decisive role. The selective
intervention of state agencies is an issue not only for economic transactions
described as informal, but also for illegal markets of the first type; that is,
markets in which the product, its distribution, and its consumption are clearly
prohibited. Annette Hübschle’s chapter is an in-depth portrayal of how racial

8
 Introduction

divisions and the activities of civil society advocacy groups provoke selec-
tive enforcement of the law in South African wildlife parks. The typology
suggested by Paoli et al. (2009: 201 ff.) for the analysis of the world opiate
market also addresses this issue: While “strict enforcement of prohibitions”
poses significant risks of incarceration and asset seizure, “non-enforcement”
means the opposite; that is, the tolerance, or even promotion, of illegal
exchanges by formal authorities. According to the authors, the intermediate
possibility is “lax enforcement,” under which entrepreneurs are not guaran-
teed complete immunity from enforcement and still risk incarceration and
asset seizure. It follows that variations in the size and shape of illegal markets
are closely related to these variations in the enforcement of the law.

Enforcement of Informal Rules

The way state institutions are seen in the chapters of this volume recognizes
the large body of empirical research accounting for the two-sided character
of the state (Reno 1995; Heyman 1999; Bayart et al. 1999; della Porta and
Vannucci 1999; Nordstrom 2000; Green and Ward 2004; Arias 2006b;
Rodgers 2006; Auyero 2007; Auyero and Joseph 2007; Darden 2008; Briquet
et al. 2010; Holland 2015; Auyero and Jensen 2015; Dewey 2015). Economic
sociologists typically stress the significance of the law as applied by the state
and its legal institutions for the structuring of the economy. For instance,
Richard Swedberg (2003: 4) asserts in a Weberian manner that “law, in mod-
ern society, is constitutive for most economic phenomena, meaning by this
that it is an indispensable as well as an organic part of them.” Other economic
sociologists addressing legal phenomena in the economy (Suchman 1995;
Halliday and Carruthers 2009; Fligstein 1990; Beckert 2008) focus on the
ordering effects of the law for economic behavior and the expectations actors
hold based on legally secured property rights, contractual obligations, organ-
izational structures, or bequests. The scholarship usually presumes the pres-
ence of an effective infrastructure of enforcement, including dedicated state
officials tasked with implementing regulations.
This volume reveals the more complex role of states. The cases presented by
Matías Dewey, Kirsten W. Endres, and Nina Engwicht, among others, show
that the state is not the only source of rules. In connection with existing
empirical evidence, centered mainly on Africa (Reno 1995; Nordstrom 2004,
2007; Hibou 2004; Bayart et al. 1999), the Americas (Arias 2006a; Reuter 1984;
Bourgois 2002; Goffman 2014; Brinks 2003; Misse 2007; Dewey 2012), and
Eastern Europe (Volkov 2002; Stephenson 2016), these chapters demonstrate
the existence of well-functioning bodies of informal rules that are nevertheless
enforced “off the books” (that is, illegally) by government actors and law
enforcement agents on the ground.

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Jens Beckert and Matías Dewey

By recognizing formal and informal rules, as well as the specific ways in

which they are enforced, studies of illegal markets consider additional forms
of regulation and alliances between legal and extra-legal actors, private com-
panies and public agencies, or local and foreign actors. Sociological investiga-
tions of illegality in markets focus on sets of “regulations” overlooked by
scholars focusing only on the realm of legal transactions. Extra-legal norms
and their enforcement are often described as corruption, but to understand
them as mechanisms that produce order in illegal markets opens up hitherto
unexplored fields of investigation for economic sociology, especially consid-
ering its interest in the social order of markets (Fligstein 2001; White 1981;
Beckert 2009). In fact, the interest in informal institutions among political
scientists (O’Donnell 1993; Lauth 2000; Helmke and Levitsky 2006; Holland
2015; Darden 2008) and the interest among sociologists in extra-legal govern-
ance structures, as well as criminologists studying mafia organizations
(Gambetta 1993; Varese 2004; Paoli 2003; Weinstein 2008; Campana 2011),
offers fertile ground for dialogue. To grasp the operation of extra-legal institu-
tions, scholars need to pay particular attention to the contestation of the (in
many cases contradictory) rules and how they come to bear on the under-
standing of legality and illegality in economic practices.

Illegality and Informality in Markets

The investigation of economic activity taking place outside legal frameworks

is not new to sociology. Besides classic studies from the Chicago School and,
more recently, the works of Howard Becker (1963), Philippe Bourgois (2002),
and Sudhir Venkatesh (2006, 2009, 2013), among others, sociology has been
investigating the operation of economic systems in which much economic
activity takes place outside the formally regulated economy (see also Hart
1973; Castells and Portes 1989; Schneider and Enste 2003; Sassen 1994).
Some scholars have argued that informality is a major cause of underdevelop-
ment. An example of this can be found in Hernando de Soto’s famous book
The Other Path (1990), in which the author considers formal property rights to
be cure-all remedies for developing countries that will pave the way to eco-
nomic prosperity through the formalization of economic relations.
Another perspective on informality, however, has become more important.
It emphasizes how local, often marginalized, populations navigate economic
opportunities by sidestepping legal regulations. These activities often consti-
tute a major portion of the economic activity in less developed countries,
where they are primary generators of employment and wealth. The term
“informal,” as originally introduced by Keith Hart (1973), aimed to distin-
guish “the firm-type economy [that] consisted largely of western corporations

10
 Introduction

who benefited from the protection of state law” (Hart 2008: 16) from other
economies, such as those described by Clifford Geertz (1963) in Indonesia, by
Lomnitz (1975), Seligmann (2004), Babb (2010), and Goldstein (2016) in
Latin America, or by Hart himself in Africa. In these places, the economy
functioned according to a different pattern, one that deviated from Weber’s
sense of rational enterprise. In this perspective on informality, the adjective
“informal” leads to a distinction between unregulated self-employed earnings
and wages from formal employment; that is, between the degrees of rational-
ization of the work process (Guha-Khasnobis et al. 2007: 25). In another
definition, tailored more to developed countries, informality refers to all
kinds of unrecorded economic activity, often motivated by an attempt to
evade taxes (Adriaenssens and Hendrickx 2015). In this view, the business
activities and labor practices in the informal economy often violate state
regulation or tap into spaces unregulated by the law.
Although the economic activity detached from official regulations violates
legal stipulations, they do not form illegal markets. First of all, informal
enterprises deal mainly with legal products, implying that the defining char-
acteristic of informality is the circumvention or avoidance of formal standards
and regulations (Centeno and Portes 2006: 26–7), which we have described as
the fifth type of illegality in markets. Informality comprises “economic actions
that bypass the costs and are excluded from the protection of laws and
administrative rules” (Portes 2010: 134). The notion of informality reminds
us that an understanding of illegality needs to be sensitive not only to legal
definitions, but also to the social contexts in which economic exchanges take
place. This leads us to the issue of the legitimacy of illegal market conduct.

Illegality and Legitimacy in Markets

In Chapter 2, Renate Mayntz elucidates the double sense in which we usually

understand legality. On one hand, we designate an action as legal if that
action shows compliance with sanctioned norms. But on the other hand, an
action could be legal not because it shows compliance with existing rules, but
because it does not violate any state-sanctioned norms. In other words, it
exposes a gap in regulation. Parts of the self-styled “sharing economy”—
including companies such as Airbnb and Uber—thrive due to their exploit-
ation of regulatory loopholes and the blurring of the boundary between legal
and illegal in the globalized economy. Legal gaps provide room for economic
activities and innovation, but they may also lead to social and political con-
testation because they are deemed illegitimate by some market actors. The
protests of taxi drivers in many cities around the globe against some of Uber’s
services and practices are a testament to this. The contestation may lead the

11
Jens Beckert and Matías Dewey

state to declare the activities illegal through regulatory initiatives. However,

conflicts can also remain unresolved and linger on.
Renate Mayntz also points out the opposite situation, in which an eco-
nomic transaction is clearly illegal but nevertheless enjoys high social accept-
ance. Legitimacy is a traditional sociological topic of inquiry. As Mayntz
reminds us, Max Weber defined the term “legitimate” not as an objective
property, but as a subjective belief. For the analysis of illegal markets, these
beliefs can be identified empirically only by investigating the assessments
actors make of products, transaction practices, and rules that are formally
illegal. The transactions described with regard to informal markets often fall
into the category of legitimate illegality.
Legitimacy is not just used in the Weberian sense of a belief in the appro-
priateness (Gerechtfertigkeit) of authority and rules, but also refers to the toler-
ance, acceptance, or moral rejection associated with specific products and
services that are offered illegally. Products can be tolerated or rejected (that
is, can be legitimate or illegitimate), which is an important point for the
valuation of the respective products, the pressure to prohibit exchanges, and
their price (see Figure 1.1). There are products, such as child pornography,
human beings, hard drugs, and protected animal species, whose exchange
provokes instant moral rejection among many. In contrast, there are goods
and services that provoke little rejection and may be met with tolerance, either
because of their very nature, because they are embedded in tradition, or
because they are considered vital for life. Examples of markets often met
with tolerance are those for counterfeit garments or illegally copied music,
smuggled cigarettes, and soft drugs (see Dioun in this volume).
It may be observed that the state reacts differently to transactions and prod-
ucts that are strongly rejected compared with those that enjoy high legitimacy
despite their illegality. It should also be considered that rejection and tolerance
do not arise with the same intensity across society. To understand the phenom-
enon, a historical and comparative perspective is needed, as well as sensitivity to
diverging moral judgments between social groups, which allows a developing
understanding of the shifting boundaries and the contestation of legality and
illegality. The market for rhino horn described by Annette Hübschle in this
volume, for instance, can be understood only if one examines the contestation
of the legitimacy of this product among the different economic and social
groups involved in poaching, the protection of the animal, and the consump-
tion of the horn. It is through the investigation of value judgments that the
interfaces between illegality and legitimacy and their effects on the architecture
of illegal markets can be seen. With the term “interfaces,” we refer to the points
at which legal and illegal, or illegal and legitimate, intersect; that is, the term
refers to connections through boundary spanning (see also the chapter by
Renate Mayntz). If considered as a field, illegal markets change through the

12
 Introduction

Legitimate market

Legitimation
Marijuana

Fake clothing

Cigarettes
Cocaine

Stolen parts
Illegal market Legal market
Illegalization Legalization

Tabulization
Art
Arms

Diamonds
Human organs
People
Child pornography Animals
Illegitimate market

Figure 1.1. Dimensions of the legal/illegal and the legitimate/illegitimate

interaction of social networks, institutions, and cognitive frames, a process

similar to what can be observed in legal markets (Beckert 2010).

Sources of Legitimacy
But where does the legitimacy of illegal products and economic practices
originate? The studies presented in this volume highlight two factors in
tolerance or rejection: externalities and hope for the future.
In the case of externalities, tolerance or rejection arise as a by-product of the
consequences of illegal markets. Market activities have social and economic
effects that can be positive or negative. Among the negative aspects are such
prominent issues as violence, interpersonal distrust, predation of natural
resources, addiction, and human rights violations. There is a vast body of
literature on these detrimental effects brought about by criminal groups and
mafias, or by the qualities of the product traded.5 The more these negative

5
One needs to keep in mind that the prohibition of the legal use of certain goods can itself have
negative externalities, as has often been discussed for the prohibition of drugs. The stance of
prohibiting the exchange of certain goods thus does not necessarily follow a consequentialist

13
Jens Beckert and Matías Dewey

externalities dominate perception, the lower the legitimacy of the respective

market. However, illegal markets can also generate socially accepted external-
ities such as work and, more generally, sources of income for significant parts
of the population. This is shown, for instance, by Arias and Barnes (2016; see
also Dewey et al. 2016) in the case of Brazilian favelas.
This is related to the second source of acceptance of formally illegal products
and practices, namely their ability to evoke positive expectations of the future
among actors in the market. It appears as if the expansion of illegal markets
has gained new momentum, especially in countries in the developing world,
propelled by continuous economic crises, forced displacements, migration,
the marginalization of populations, extreme poverty, and persistent inequal-
ity. Illegal economic practices can become a mechanism that promises access
to essential goods and services. Actors project imaginings of better futures
onto their activities in illegal markets. Sometimes this is not just wishful
thinking. Certain illegal markets have become economic structures that pro-
vide access to at least a minimum level of economic citizenship for some. The
production of faked products, the illegal mining of diamonds, or the poaching
of rhino horn need to be analyzed in close connection with (the lack of)
available alternatives and the aspirations of the populations carrying out
these activities.
Ironically, such positive effects are sometimes the result of the fragmentation
of state authority, giving rise to the emergence of illegal markets in the first
place. As pointed out by Diane Davis (2010), new informal governance struc-
tures may emerge under conditions of fragmented state sovereignty that some-
times even include non-state armed actors who take over policing functions.
These actors do not necessarily operate against state authority (Davis 2010;
Clunan and Trinkunas 2010; Nordstrom 2007), but by securing the functioning
of illegal economic activities through, for instance, the policing of market
places or the organization of the supply of resources, they are beneficial for
local economic and social development. Counterintuitively, it is through the
expansion of illegal markets connected to the fragmentation of state authority
that actors perceive new opportunities. The state’s loss of some of its influence
as a sovereign power leads to a shift in governance that intertwines private and
public actors in new ways (Hibou 2004; Reno 1995; Arias 2006a) and generates
illegal market structures that sometimes foster civic participation.
Participation in these economies and access to goods, services, and a certain
lifestyle means that some illegal markets have become mechanisms that increase
people’s perceived opportunities (Appadurai 2013: 115). Especially in the case of
marginalized populations, illegal economic settings may expand the individual’s

ethics but may entail also an ethics of conviction. We would like to thank Henri Bergeron for
pointing this out to us.

14
 Introduction

aspirations and their ability to plan for future events. The market opens a door to
the experience of striving to achieve; it allows actors to experience their capacity
to affect change in their livelihood. Including perceptions of the future (Beckert
2016) in an analysis of the attraction of illegal market activities helps us to
understand an important propelling force behind the expansion of illegal econ-
omies: the motivations of actors participating in these risky arenas of exchange.
The promise of access to products, inclusion in reciprocity networks, economic
citizenship, or simply a certain level of economic autonomy are strong motiv-
ators, as several of the chapters in this volume show.

Dialogue among Research Perspectives

In the investigation of illegitimate legality and legitimate illegality, sociological
research on illegal markets has an opportunity for dialogue with other scholarly
fields interested in the legitimacy of informal institutions and illegal activities in
economic exchanges. Considerable advances have been made by criminologists
researching extra-legal governance structures, especially with regard to the sale
of protection as the main business of mafia groups (Gambetta 1993; Volkov
2002; Varese 2004; Campana 2011). Additionally, political science offers a large
body of research addressing the phenomenon of informal institutions under-
stood as “socially shared rules, usually unwritten, that are created, communi-
cated, and enforced outside officially sanctioned channels” (Helmke and
Levitsky 2006: 5). Such informal institutions play a crucial role, for instance,
in the analysis of clientelism and patrimonialism (Helmke and Levitsky 2006;
Erdmann and Engel 2007; Brinks 2003; O’Donnell 1993; della Porta and
Vannucci 1999; Lauth 2000), which are closely linked to research on illegal
transactions (Nordstrom 2004; Reno 2009).
The investigation of the legitimacy of informal institutions and rules (that
is, of one of the bases of the social structure of illegal markets) improves our
understanding of illegal and informal practices. Examples of this are the
understanding of the financing of criminal groups; the conventions and
cultural scripts that influence the production of faked products; the reaction
of the state to illegal practices; the informal norms that regulate competition
among suppliers of illegal products; and the logic behind the commodifica-
tion and innovation of new illegal products and services.

Illegality and Legality in Markets

The relationship between illegality and legitimacy is just one of the interesting
interfaces concerning illegality in markets; another is the interface between
legality and illegality (see also the chapter by Mayntz). Only rarely do markets

15
Jens Beckert and Matías Dewey

operate almost completely in the realm of illegality. Most prominent in this

regard are perhaps the market for hard drugs and the “market” for child
pornography, which are completely detached from legal exchanges in most
parts of the value chain. In the latter case, secrecy is so important that the
emerging structures more closely resemble reciprocal exchange rings than a
market. Pornographic images are used as currency in a barter system
(Wehinger 2011: 36). However, even in type 1 markets the illegal transactions
are not completely separated from the legal economy. The purchase of pro-
duction equipment, the selling to final consumers, and the channeling of
profits into the legal money circuit are points of interpenetration where the
illegal economy and the legal economy interact.
These interfaces are much more numerous and complex in the other market
types demarcated in the typology. For instance, in the market for looted
antiquities described in the chapter by Simon Mackenzie and Donna Yates,
the stolen archaeological artifacts are often sold by fully legal and reputable
galleries and auction houses trading in these objects. The final consumer does
not buy the product from a “dealer” who can be clearly identified as acting
illegally, but from a reputable sales person. The same holds for financial crime,
which in most instances becomes possible only through its operation within
completely legal organizations and market structures. Illegality takes place in a
symbiotic or parasitic relationship of dependency with the legal part of mar-
kets. For the illegally operating actors, the close symbiosis with legal markets
and organizations reduces the risk of detection, increases access to customers
and capital, and allows the illegal conduct to be camouflaged, thus avoiding
having to give illegality discounts to customers aware of the illegality of the
product or service they are buying (see also Mackenzie 2005).6 From the
perspective of (otherwise) legally operating firms, the connection with illegal
market activities—though risky—may lead to competitive advantages. This
holds, for example, for the illegal disposal of toxic waste by industrial com-
panies, the illegal manipulation of test results, the employment of illicit
workers, and the evasion of taxes. In all these cases, the illegal conduct is
carried out with the aim of reducing costs and thus offers an advantage in the
market struggle.
As Renate Mayntz points out, a further interface between illegal markets and
legal entities is established through the encounter with law enforcement. At
first sight, it could be assumed that the relationship is purely antagonistic.
After all, law enforcement has the task of fighting crime. While illegal market
actors must indeed fear the destruction of their business through law

6
Such a discount is not to be paid in type 1 markets, where all participants are aware of the
illegality of the transaction.

16
 Introduction

enforcement and also personal prosecution, the relationship between the two
sides is often more nuanced than it first appears. As already discussed, law
enforcement has different alternatives with regard to how to interfere in illegal
market activities and their destruction is often not the primary goal. The
representatives of the state may also decide to benefit privately from making
the enforcement of the law a tradable good (corruption) and the state may
exercise power and domination through the selective and arbitrary enforce-
ment of the law.
While the concrete gestalt of the interface between illegal and legitimate, as
well as that between legal and illegal, is largely contingent, the close investi-
gation of these interfaces is crucial to understanding the architecture of any
illegal market. It is from these interfaces that the specific morphology of a
market unfolds.

The Architecture of Illegal Markets

By introducing the notion of the architecture of markets, Neil Fligstein (2001)

aimed to develop the conceptual tools needed for an approach to markets that
highlights their social organization. Markets do not just consist of technolo-
gies, competition, and rational actors, but also entail a set of rules that are
indispensable for their development and reproduction. Fligstein distinguishes
between four different types of rules structuring markets: property rights, the
governance structure of companies, rules of exchange, and market actors’
cognitive understanding of the operation of the market, which he calls “con-
ceptions of control.” The state plays the central role in reducing uncertainty
and stabilizing markets through securing property rights, setting standards,
and regulating firms’ governance structures.
Fligstein developed this approach under the presumption of the legality of
the exchanges taking place in markets. By talking about the architecture of
illegal markets, we chime with Fligstein’s interest in the social organization
of markets, while also attempting to understand how the coordination of
exchanges differs under conditions of illegality. The obvious source of such
differences is the completely changed role of the state, which does not
provide the legal infrastructure for market development, abstains from the
protection of property rights, and (selectively) prosecutes market partici-
pants. The social organization of illegal markets can be understood largely
as the outcome of the fundamentally different role of the state, which forces
actors to overcome coordination problems in different ways (Beckert and
Wehinger 2013).
One of the initial problems reflecting the different stance of illegal market
activities is that actors must be willing to engage in conduct that violates legal

17
Jens Beckert and Matías Dewey

stipulations.7 Customers and suppliers must be ready to overcome moral

scruples stemming from the illegality of the transaction, risk possible prosecu-
tion, and deal with the lack of enforcement of contracts through the legal
system. The moral scruples are a variable of the social legitimacy of the
product, but also, as Wikström’s Situational Action Theory postulates,
reflect the individual’s moral engagement with a certain moral setting and
their personal characteristics (Wikström 2006; Wikström and Treiber 2007;
Wikström 2010).
As Sykes and Matza (1957) demonstrated, deviance-normalizing and neutral-
ization practices play a significant role in masking illegal behavior. Such cogni-
tive techniques are used to silence the urge to follow moral obligations, for
instance through justifications that deny moral responsibility. The chapter by
Mackenzie and Yates confirms the significance of such discursive tools in the
market for looted antiquities that are sold in prestigious galleries. The entry of
these antiquities into exclusive circuits of trade is possible in part because the
dealers and buyers go to great lengths to provide justifications for violating
norms, the result being that criminal acts are camouflaged and the workings of
the illegal market are more easily sustained (see also Mackenzie 2005, 2013). In
Annette Hübschle’s chapter, the notion of contested illegality is used to describe
similar mechanisms of justification for law-violating behavior in the context of
rhinoceros poaching in South Africa. White owners of private wildlife areas
justify their non-conformity with South African conservation laws for a variety
of reasons: the perception that the law is unfair, cultural norms that contradict
the ban, or with a politically motivated defense.
Secrecy is another core component of the architecture of illegal markets that
allows both law enforcement and potential moral condemnation to be avoided.
Studies show the significant role played by officially sanctioned legal mechan-
isms that help keep criminal practices secret (Thomas 2015). One example can
be found in the laws that protect the identities of account holders in tax havens,
which adds to the secrecy surrounding the banking activities connected to
many illegal markets (Volkov 2011; Palan 2006; Palan et al. 2013). As Philippe
Steiner shows in his chapter, secrecy as an institutionalized social mechanism
also plays a significant role in the market for human organs. In France, for
instance, citizens can go abroad, receive a transplant, and return for follow-up
treatment in France without any obligation to declare the operation (Steiner
2010). It is through legal devices that secrecy around illegal trade is facilitated.
Closely associated with secrecy is a further structural aspect of the architec-
ture of illegal markets: their lack of transparency. Lack of transparency is a

7
In type 1 and type 4 markets, participation in the illegal market is the only possibility of
gaining access to the good. In type 5 markets moral scruples may play a diminished role because of
the high legitimacy of the activity.

18
 Introduction

limitation of competition that leads—if seen from the economic perspective—

to market inefficiencies. Customers cannot compare prices and product qual-
ities due to their lack of overview of the market supply. However, as previously
shown for the cases of marijuana and illegal organ transplantation, lack of
transparency is a variable rather than a fixed element. In the market investi-
gated by Dewey—the La Salada market outside of Buenos Aires—the concen-
tration of supply in one condensed location leads to high transparency of
product quality. In the drug market, this is typically much less the case.
In some contexts, such as in the market for stolen car parts, lack of transpar-
ency means a serious inhibiting of market development. It is as a direct
consequence of lack of transparency that illegal markets are usually very
fragmented.
The architecture of illegal markets is further influenced by the fact that the
ability of these markets to create market stability (reduce uncertainty) by
communicating transparently with consumers about product quality is
impaired. Due to the absence of legally enforceable regulations on standards,
problems emerging from the asymmetric distribution of information play a
much larger role in illegal transactions, which increases the risks for the
purchaser. Without a clear understanding of product qualities the problem
of valuation, one of the coordination problems in markets (Beckert 2009),
becomes very difficult to resolve for buyers. Fake medication is a good example
of this in that the buyer has no way of knowing which active ingredients are
present in the purchased substance. Odabaş, Holt, and Breiger focus in their
chapter on the information asymmetries regarding the product quality of
stolen credit card data. The purchaser of such data does not know in advance
what quality the provided data will have. In legal markets, product warranties
play an important role in overcoming market failure deriving from informa-
tion asymmetries (Akerlof 1970). This instrument is not available—or only
very minimally available—for illegal transactions (Wendel and Curtis 2000:
230). However, the way information about products circulates depends heav-
ily on the commodity at stake, the market technologies (especially online
markets), and the present levels of moral tolerance towards the exchange.
Philippe Steiner’s chapter on the market for illegal organ transplantation
and Cyrus Dioun’s chapter on medical marijuana are two cases in point.
Whereas illegal organ transplantation provokes a strong moral reaction in
most countries, leading to the creation of institutions that strictly regulate
the relationships between patients, donors, and doctors (that is, a process
characterized by a consolidated prohibition of exchanges outside officially
sanctioned channels), the use of marijuana for medical purposes is the conse-
quence of advocates proclaiming certain beneficial properties of marijuana
consumption. In the first case, uncertainty regarding quality is huge. In
the second case, acceptance leads to the free flow of information, the creation

19
Jens Beckert and Matías Dewey

of informal institutions such as the “Cannabis Buyers’ Club,” and better-

informed consumers.8
Unresolved coordination problems and the ensuing peculiarities of the
organization of illegal market transactions are caused not only by difficulties
in quality assessment, but also by the risks stemming from the threat of being
prosecuted, the possible non-fulfillment of contracts, and the inability to
secure property rights through the legal system. In more general terms, illegal
markets are limited in their capacity to develop institutional trust (Beckert and
Wehinger 2013). The danger of being prosecuted and the risk of asset seizure
imply that long-term investment in factories and equipment becomes impos-
sible, organizations are kept very small, networks can be only loosely coord-
inated, and networks are structured around kinship relations or regional ties.
Illegally operating firms thus lack access to what Ronen Palan (in this volume)
calls the future economy.
For the reduction of transaction risks, actors need to resort to instruments
that are rather archaic compared with those in the legal economy. Three such
instruments are characteristic of the social organization of illegal markets. The
first is reputation through personal networks. Although personal networks
also play an important role in legal markets (Granovetter 1973; Uzzi 1996),
their role is much more pronounced in illegal markets, in which impersonal
forms of cooperation fail to be adopted. As Gambetta stated for the case of the
Sicilian mafia, personal reputation sets in as an (inferior) substitute for state-
sanctioned and legally enforceable standards and regulations (Gambetta
1993). Odabaş, Holt, and Breiger show in their chapter on the governance of
markets for stolen credit card data that market participants develop interper-
sonal trust through online communication among buyers, sellers, and the
operators of the electronic platforms, which allows transactions to take place
despite the impossibility of resorting to the legal system in the case of fraud.
They emphasize the role of forum administrators who step in as third parties
to help sellers and buyers to promote trust in the transaction partner. The
investigation of such extra-legal governance structures as providers of non-
state assurances for the fulfillment of contracts offers interesting perspectives
for economic sociology research on illegal markets.
The second mechanism is the latent threat of violence in illegal markets.
While illegal markets are not violent per se, the underlying threat of violent
reactions to non-compliance is an important ordering device.9 If suppliers fail
to deliver the promised product quality, purchasers can threaten to retaliate—

8
For marijuana consumers, for instance, web pages exist that allow users to report the prices
they recently paid for the drug. See: <http://www.priceofweed.com>.
9
A possible exception to this is type 5 markets. But also for informal markets it holds that legal
protection is at best incomplete, making the threat of violence a more likely instrument to be used
to enforce contracts.

20
 Introduction

as they do in the wholesale drug market—by punishing defective suppliers.

Here, the connection between illegal markets and mafias as a sub-type of
organized crime comes to the fore (see also the chapter by Renate Mayntz).
A third device used to resolve coordination problems and create market
stability is the selective cooperation with state agents, who are allowed to
benefit from the illegal economic activities either personally or on behalf of
the state. In her chapter, Kirsten W.Endres describes the situation in a Vietnamese
border market in which market merchants are able to smuggle goods from
China by bribing customs officials. Though merchants try to avoid the bribes
because they cut into their profits, it is a regular means of insuring against the
risk of punishment and thus assuring their ability to bring merchandise to the
market. Seen from the perspective of the social organization of markets,
corruption is a means to structure competition in the market and to protect
market stability by securing the state’s tolerance toward the illegal activity.
While the case described by Endres refers to individuals paying bribes, the
involvement of state agents in illegal markets can also be organized on a larger
scale, as Dewey shows in his chapter. Especially effective is the influencing of
law enforcement by organized crime groups that can, if successful, create
conditions for illegal transactions under which they can operate with little
state interference. Paying bribes or protection rackets constitute at the same
time barriers to entry and thus structure competition in illegal markets.
Further specificities of the social organization of illegal markets refer to the
demand side. In economic sociology, much work has been done recently on
the demand side of markets, especially on the question of valuation and
preference formation (Beckert 2011; Aspers and Beckert 2011; Orléan 2014).
However, this research considers legally produced goods and services only.
Exceptions are Sandberg (2012; Hammersvik et al. 2012) and Dwyer and
Moore (2009), who address the cultural dimension of cannabis consumption,
and Wehinger’s (2013) work on the consumption of counterfeit consumer
products. He shows the importance of an imagined future that potential
buyers indulge in. The lower price of the fake product allows the buyer to
pretend they have a lifestyle that is beyond their current financial means. Also
taking the demand side into consideration, Vadim Radaev shows in this
volume that demand for illegal alcohol in Russia is related to widespread
ignorance, tolerance of illegal conduct, and state pricing policies in the market
for legal alcohol.
Illegal markets are, for structural reasons, especially driven by demand.
Since opportunities to create preferences and brand loyalty through market-
ing tools are limited, market creation through the supply side is seriously
compromised compared with most legal markets (Beckert and Wehinger
2013; Bergeron and Nouguez 2014). One area in which the possibilities for
marketing illegal products may be increasing, however, is online purchases. As

21
Jens Beckert and Matías Dewey

Paoli and Greenfield show in their chapter, illegal doping products for sport
are increasingly offered for sale through web pages. Another example are fake
spare parts for industrial goods which become instantaneously globally avail-
able through the internet. Odabaş, Holt, and Breiger highlight in their chapter
that the internet has enabled the formation of new markets for illegal goods.
Despite these new online opportunities the challenges for quality assessment
of illegally offered goods remain and form an important research domain for
understanding the social organization of illegal markets.
Paying attention to the coordination problems of actors in illegal markets
shows that market exchanges under conditions of illegality take quite a dif-
ferent form compared with their legal counterparts. Common problems in
legal markets rapidly become acute issues in illegal markets. Propelled by the
need to neutralize the enforcement of the law, problems such as building
trust, avoiding risk, and gathering information lead to strategies, practices,
and moral valuations that are specific to illegal markets. The study of the order
of illegal markets, therefore, is tasked with confronting these particular social
phenomena, including the production of secrecy, the justification of moral
transgressions, strategies to cope with lack of transparency, and the practices
of quality assessment.

Illegality and Capitalism

Illegality in markets is often described using examples of economically mar-

ginal product markets and products that are unambiguously legally con-
demned (such as hard drugs), or with reference to socially marginalized
actors and organized crime. This leaves the impression that illegal activities
are relevant only at the edges of the capitalist economy, located on the
periphery, and populated by actors making a living in the shadows of society.
Such a picture is misleading and is at least partly an artifact of previous
research on illegal markets. Often studies in criminology focus on type 1
markets such as for drugs or human trafficking. In studies of informal markets,
the pervasiveness of conduct outside the confines of the law is recognized as
economically important, but the locations investigated are situated mainly on
the periphery of the capitalist system. Illegal activities and pushing the bound-
aries of legality, however, are also constitutive elements of the competitive
struggle at the core of the capitalist economy.
Historians have often alluded to the law-violating practices that existed at
the beginning of capitalist development and helped to bring it about. In his
treatment of the origins of capitalism, Marx (1867) described the violent
process of what he called “original accumulation,” with its disregard of rights.
In the enclosure process beginning in the sixteenth century, peasants in

22
 Introduction

England were violently dislocated from lands to which they had customary
rights.10 In this process of expropriation, important foundations of the capit-
alist economy were laid, allowing the globally operating British wool industry
to emerge and creating a class of landless laborers who would eventually
become the proletariat, fueling the industrialization process. Land-grabbing
processes are not singular to the Industrial Revolution in England and can be
observed in many countries integrating into the capitalist economy today;
China and Brazil are two especially vivid examples.

Illegality and Economic Dynamics

The embracing of illegal economic practices can also be found in the present
as part of economic development strategies. An example of this is the toler-
ance and participation of Argentine state agencies in allowing the growth of
an informal garment industry in which producers systematically violate
legally codified labor standards through manufacture in sweatshops, and
intellectual property rights are regularly impinged through the sale of coun-
terfeit garments (Dewey 2014). As Matías Dewey describes in his chapter, the
informal market “La Salada” has become one of the largest suppliers of gar-
ments manufactured in South America. The expansion of La Salada needs to
be viewed in the context of the devastation of the Argentine garment indus-
try, an important sector of the country’s economy up until the 1980s. The
global relocation of the textile industry, mostly to Asian countries, made tens
of thousands of Argentine garment workers redundant. Some of them found
new employment in the developing informal garment sector, working in
sweatshops and selling products at La Salada. The emergence of an informal
market relieved the Argentine state of some of the social pressures stemming
from the otherwise unemployed workers, and contributed to the social inte-
gration of impoverished people through the evocation of new prospects and
aspirations. Seen from a macro perspective, this trend toward illegal market
activities is based on the drastic lowering of wages and the sidestepping of
labor standards as a path to remain competitive in a liberalized global
economy.
Illegal markets thus become visible as parts of global domination and
exploitation. For this one does not even have to look at the southern periph-
ery exclusively. Sweatshops with large pockets of predominantly Chinese
migrant populations have become a prevailing phenomenon also in the
textile region of northern Italy. And illegal markets for organ transplants or
surrogacy typically have a structure in which demand comes from rich

10
See also Thompson (1963: 237), who speaks of “class robbery.” See also Thompson on the
origin of the Black Act in the United Kingdom (Thompson 1975: chapter 2).

23
Jens Beckert and Matías Dewey

customers in the Global North, while supply is provided by the poor popula-
tions in developing countries.

Illegality in the Capitalist Core

Competitive strategies based on the undermining of labor standards and
business practices that either exploit regulatory loopholes or willingly trans-
gress legal regulations can also be seen in the Global North. The self-styled
“sharing economy” creates business models that target unregulated areas of
commerce, or establishes services that violate the legal standards that apply to
the industry in the country in question. Google CEO Eric Schmidt praises the
internet as “the world’s largest ungoverned space” (Schmidt and Cohen 2013: 3).
Relying on the newest technological developments, such as apps and geo-
localization, the strategy of these companies is to exploit loopholes and
sometimes even to offer their services despite rule violations and to fend off
legal challenges in court. The issue of legitimacy is crucial here, though in a
conflicted way. In taxi markets, established taxi companies view the new
competition as illegitimate and illegal. However, the story is more compli-
cated for the users and drivers. The new service is often cheaper for consumers
and it offers employment opportunities; exactly the kind of positive external-
ities discussed earlier. A similar claim can be made about Airbnb. While the
hotel industry, among other agents, sees Airbnb as an illegitimate and in part
illegal competitor whose business model is based on the flouting of regula-
tions and evasion of taxes, consumers and suppliers focus on the benefits. For
consumers the platform offers accommodation that is often cheaper and more
desirable than a hotel. For private suppliers it is a means to make additional
income. Airbnb exploits this legitimacy to fight its case.11 No matter what
position one takes in these struggles, it is clear that operating on the margins
of legality, or aggressively exploiting regulatory loopholes, can be part of
business strategies even at the dynamic heart of the capitalist economy.
In criminology, the violation of legal stipulations by the management of in
themselves completely legally operating companies has been discussed since
the 1930s under the heading of “white-collar crime” (see Reurink 2016). Such
illegal conduct might be interpreted either as the misconduct of individuals
for personal benefit or as a collective phenomenon (Calavita et al. 1997) and
part of the competitive struggle of companies. While the two variants exist
both alone and in combination, it is the latter—the collective phenomenon—
that is of particular interest for the sociology of illegal markets.

11
In Paris, Airbnb ran an advertising campaign in 2015 in which it claimed that people renting
their apartments to tourists could realize their life goals through the money they make.

24
 Introduction

The conditions of competition and the institutionally and personally

anchored incentive of high profits seem to induce companies to resort to
practices that seek profits also in grey zones or in outright illegal behavior.
Though anything but new (see Whyte and Wiegratz 2016), one example is the
2015 scandal involving the German car manufacturer Volkswagen. Volkswagen
admitted to having manipulated millions of diesel engines by installing
software that would show lower emissions when the car was at a test rig
compared with the actual emissions produced when the car was on the road.
What made the company cheat? In the wake of the scandal, it came out that
Volkswagen had been under pressure to develop a cleaner diesel engine in
order to conform to tougher emissions standards. Management handed this
task to the engineers together with a clear cost target. The engineers, unable to
find a technical solution within the preset cost frame, decided instead for the
software option as a way to “conform” both to more restrictive emission
standards and the management demands regarding cost. It is not fully estab-
lished at what level of the managerial hierarchy this decision was actually
taken. The illegal conduct is interesting from the perspective of organizational
sociology (see also Vaughan 1985), but from the perspective of market soci-
ology some important additional aspects come to light. Deviant behavior
appears to be the outcome of organizational structures and ambitious market
goals. Volkswagen wanted to become the world’s number one car company
and even resorted to illegal behavior as a means to achieve this target when it
could find no legal solution to a particular technical problem.
Market pressures and institutional rules also seem to be underlying factors
in some of the illegal conduct in the financial industry revealed in the wake of
the 2008 financial crisis (Reurink 2016). Deutsche Bank, currently one of the
global banks most beset by legal disputes (Fligstein and Roehrkasse 2015;
Fouquau and Spieser 2015), set the ambitious goal in 2004 of a 25 percent
return on equity. To reach internally set profit margins—and to satisfy share-
holders, as well as to secure high personal bonus payments—traders, not just
at Deutsche Bank, resorted to illegal practices such as the manipulation of
Libor rates and the fixing of currency prices (see the chapter by Tillman in
this volume).
Illegality in markets needs to be investigated in connection with the hyper-
competitiveness of contemporary global capitalism and companies’ self-set
demands on their profitability. One means of gaining a competitive advantage
is to resort to illegal practices and fraudulent behavior (see also Reurink 2016
for financial markets) Illegal behavior as a way to reduce costs and secure
additional profits is by no means concentrated in car companies or the finan-
cial industry. Norm violations such as the illegal disposal of toxic waste
(Massari and Monzini 2004: 293), the use of illicit labor, or the violation of
environmental laws can be found across industries. But, as Robert Tillman

25
Jens Beckert and Matías Dewey

argues in his chapter on financial fraud, financialization, the increasing sub-

jection of politics by the financial industry, and the dramatic increase in
compensation for workers in the financial sector have heightened its crimino-
genic tendencies. The legality of the organization that carries out such prac-
tices, the high degree of division of labor, the sometimes very high level of
expertise necessary to even understand the norm violation, the high costs of
internal controlling, the dependency of the state on private businesses, and
the high social reputation of the actors involved help to camouflage the illegal
activities. At later stages in the value chain, the violations are often no longer
visible. As a consequence, “market discipline,” the mechanism assumed
by economic theory to drive out fraudulent and deceptive behavior from
markets, is not working. Here, again, the interface between legality and illega-
lity is crucial.

Tax Havens
The possibilities available to camouflage illegal market conduct have been
enormously enhanced by the legal architecture of tax havens. Tax havens are
financial conduits that, in exchange for a fee, offer their own principal
asset—their sovereignty—as a service to a non-resident constituency of
accountants and lawyers, bankers and financiers, to minimize taxes and
conceal the ownership and origin of financial wealth. They are legal entities
at the center of contemporary capitalism in which legality and illegality mix.
Far from being marginal or in the exotic backwater of the global economy,
tax havens are an integral part of modern business practices (Palan et al.
2006, 2013; Maurer 2006; Harrington 2016). The combination of little or
no income and corporate taxes, lax regulations, robust bank secrecy laws,
and easy incorporation laws make tax havens a magnet for money originat-
ing in illegal markets and fraudulent schemes. Their particular legal structure
provides the necessary legal blanket of secrecy that illegal businesses and
organizations need for their operations (Volkov 2011). This has been shown
to the wider public through the recent data leaks, the biggest of them the
so-called “Panama Papers,” that have exposed the practices of law firms in
tax havens, making it possible to conceal illegal business activities. As Ronen
Palan argues in his chapter, tax havens have the additional function of
expanding illegal market actors’ options by granting secure access to a
large variety of financial instruments that allow profits to be leveraged
against the future. Access to elaborate financial tools allows criminals to
launder money and to change the nature of their business by becoming
able to operate—in the same way as legally constituted companies—in “the
economy of the future.”

26
 Introduction

Today, there are at least fifty-six jurisdictions that are commonly identified
as tax havens and connected to cases of money laundering, corruption, and
tax evasion (list of tax havens: Palan et al. 2013: 40–5). Experts claim that tax
havens have not only been a driver of the current European crisis (Zucman
2013), but have also led to rising inequality and human rights violations
(Christensen and Kapoor 2004).

Conclusion

The chapters in this volume all contribute to a research perspective that is

nascent at best: the investigation of illegal conduct in markets from the
point of view of the social organization of markets. The authors capture a
wide array of social and economic settings, each providing a different per-
spective and portraying different actors and products. But despite the many
different vantage points, the goal remains the same: to understand the
functioning of illegal markets, the political reactions to them, the social
consequences of their existence, and their development in connection
with changes in the social environments in which they operate. The chap-
ters show that investigating illegality in the economy from the perspective
of markets provides additional insights compared with perspectives that
focus on organized crime.
Research guided by the perspective of the architecture of illegal markets is
sensitive to the organization of demand. It focuses on a broader set of actors,
going beyond the interaction of suppliers along the value chain and the role of
law enforcement. Illegal markets, as well as illegality in markets, is also seen as
part of the normal operation of economic processes and is not limited to a set
of actors that appear to be disconnected pariahs of an economy otherwise
operating perfectly legally. The chapters in this volume convey the message
that illegality in the economy can be analyzed as part of the capitalist process
of accumulation, a topic that has been explored extensively by historians, but
in much less detail by political scientists and sociologists interested in current
configurations of the economy.
This volume cannot be more than a start. It will achieve its goal if it
motivates more social scientists—and especially economic sociologists—to
extend their research interests to encompass aspects of illegality in markets.
It will achieve its goal, too, if the approaches pursued in the chapters provide
some orientation for social scientists in forging a path through a territory that
is admittedly difficult to map, but full of insights that are crucial for a detailed
understanding of the contemporary economy and the relationship between
economy, state, and society.

27
Jens Beckert and Matías Dewey

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