Here is a translation of an article "Rasizade algorithm" written by Azeri-American Sovietologist Ali "Alec" Rasizade from Russian.
PREFACE
Rasizade left the USSR for the United States in 1991. In the USSR, he studied at Moscow State University and taught at Baku University, worked at the Institutes of History and Oriental Studies of the USSR Academy of Sciences, and in the United States became a Sovietologist, teaching courses on Perestroika and the collapse of the USSR at Columbia University (New York) and other universities. He worked at leading research centers specializing in the development and degradation of post-Soviet states. He is the author of more than 200 scholarly works in this field. He might not have been remembered were it not for the so-called Rasizade algorithm, which he predicted back in 2008, when oil prices reached their peak and the flow of petrodollars seemed inexhaustible. However, subsequent events confirmed that he was right: the fall in oil prices triggered a chain of phenomena whose inevitability had been laid out in this algorithm.
THEORETICAL DESCRIPTION
The algorithm was first theoretically described by its author on the eve of the 2008 global economic crisis in the Oxford academic journal Contemporary Review, at the peak of the rise in global oil and gas prices, when nobody anticipated their imminent decline and the irreversible consequences this would have for oil-exporting countries. Before this, the effect of rising prices for exported minerals on strengthening the real exchange rate of the national currency and on the economic development of their exporters as a result of an oil boom had been described only by the theory of “Dutch disease” — a term first used by the London magazine The Economist in 1977, but introduced into academic discourse by the Australian economist Max Corden in 1982 and in his subsequent works. The author of this theory used the Dutch economy as an example because of its dependence on exports of natural gas, whose price was rising, since in a country of that size it was easier to observe the influence of this phenomenon on the entire local economy in relatively pure form, after which he generalized the results of his research as a general economic pattern.
As in the Netherlands in the 1970s, the rapid rise in the world-market price of oil in the early 2000s produced a similar effect in oil-producing countries: Norway, Russia, Kazakhstan, Azerbaijan, Nigeria, Algeria, Venezuela, Angola, Iran, Mesopotamia, Arabia, and the Arab emirates of the Persian Gulf. All of them contracted the Dutch disease, in which engaging in productive labor simply became unprofitable, while it was more rational to use the free petrodollars flowing into state coffers to purchase ready-made products from industrially developed countries. As a result of the strengthening of national currencies and hyperinflation in these states, local industry and agriculture began to contract, unemployment grew, and class stratification deepened, with the emergence of a plutocracy that had access to the distribution of the incoming flow of petrodollars and an oligarchy that circulated those same petrodollars through its banks, commercial operations, construction projects, and the execution of government contracts.
However, the theory of Dutch disease did not describe what would happen afterward, once the world-market price of oil began to fall: what would this mean for oil-dependent countries after their oil boom ended? This is exactly what happened in 2008, when the price of oil collapsed from $147 per barrel in the middle of the year to $32 by the end of it, a decline of 75 percent. Panic and economic crisis began in the exporting countries — nobody had expected this or was prepared for it. It was precisely at that moment that Rasizade’s article appeared, although he had written it in the summer of 2008, when the price of oil had reached its peak and nothing indicated that it would fall. The article appeared at such a timely moment that the downward algorithm formulated in it was taken up in academic literature as the Rasizade algorithm, after the author of the theory. It theoretically generalized and presented in accessible form the results of his previous works, using the Caspian oil boom of the early 21st century as an example.
Like the author of the theory of Dutch disease, who chose the small Netherlands as his example, Rasizade likewise chose the small country of Azerbaijan to illustrate the process, where these patterns can be observed in their purest form, since in this country the economy’s dependence on the inflow of petrodollars was expressed directly, without any additional factors cushioning that dependence, unlike, for example, Russia, with its diverse industry, agriculture and forestry, and scientific and technological potential, or Kazakhstan, with its agriculture and mining industry. Azerbaijan has none of this: it imports everything it needs with petrodollars earned from exports of crude oil, while the industrial facilities inherited from the USSR were demolished there as unnecessary during the first years of independence and the beginning of the oil boom, with prestigious skyscrapers subsequently built in their place. Thus, all the patterns described in the algorithm using Azerbaijan as the classic example are presented as typical of countries whose prosperity depends on the export of natural resources.
THE ASCENDING CYCLE OF THE OIL BOOM
The ascending line of the algorithm is akin to the theory of "Dutch disease", with the sole difference in that the algorithm describes not that process itself, but the natural chain of responses of a local economy in free market conditions to the rise of volume or prices of natural resources exported by a country. This chain can be generalized as follows. Because the exported crude oil is itself a competitive product on the global market and does not require refinement in the country of its extraction, there is no longer a necessity to preserve and modernize the unprofitable local industry, whose products have no demand in both local and global markets — it is cheaper to import all necessary goods, frequently of higher quality, with petrodollars earned from raw-material exports. This leads to a complete dismantlement of all enterprises in heavy, light and the vast majority of food industry that were present in the country prior to the oil boom, while their equipment is sold off as scrap metal. Luxurious hotels, malls and pompous office buildings, which have no productive value, are erected in lieu of demolished factories and plants. Moreover, since imported food products are cheaper, local agricultural production becomes unprofitable as well, and farmers who got left without work head toward large cities, where they can somehow sustain themselves. As a result, the urban population rises several-fold, with all of the accompanying problems.
As a consequence, the country loses its industrial base and an army of unemployed people emerges, a significant part of whom leaves the country to earn money. On the other hand, the oil boom produces a local plutocracy (officials with access to petrodollars flowing into the state treasury) and rapidly enriches the national oligarchy that circulates the very same petrodollars through its banks, trade networks, housing construction, and the shadow economy. A significant part of petrodollars that flow into the country is simply embezzled through corruption schemes and transferred to offshore bank accounts of the schemes' participants. Therefore, class stratification of society intensifies, with all of the resultant consequences of social tension. Simultaneously, the urban population is expulsed to suburbs due to mass demolition and construction of their city centers with unaffordable, prestigious new developments. Construction and trade become the only forms of entrepreneurship in such countries, stripped of industry and agriculture by the oil boom and incapable of absorbing the billions of incoming petrodollars. Grandiose construction takes place because, in the absence of production, there is nowhere else to invest these petrodollars besides construction, while the circulation of those same petrodollars through trade generates rampant inflation and makes such countries extremely expensive to live in, leading to the impoverishment of the local population.
A substantial factor in inflating yet another oil boom is also the deliberate exaggeration of oil reserves in a given country by its government and interested international oil companies, creating an euphoria in mass media outlets, academic circles, governments of great powers and international organizations. Sometimes this exaggeration reaches several times the actual amount, and when it gets exposed, it is excused away by the difference between geologically surveyed and actually extracted oil reserves in a particular field. This way, all the interested parties pursue their own goals: 1) Local government (typically of an underdeveloped country) manages to attract foreign investment; 2) Oil companies raise their ratings, stock prices and market capitalization; 3) MSM increase their circulation and revenues from advertisement; 4) Scientists receive grants for research in that area; 5) Governments of great powers obtain budgetary assignments for new geopolitical projects; 6) International organizations and banks attract additional funds for their work. All of this contributes to the further rise of prices, which enriches the local corrupt elite and deepens social inequality.
To avoid a social explosion, the government starts paying welfare benefits to the poor. This creates an entire class of people who neither work nor produce anything, for the sustenance of whom billions of petrodollars are spent. Nonetheless, the flow of petrodollars into the treasury is enough to feed the plebs; fund an arms race; enrich the plutocracy, which has an access to that flow; generate superprofits for the oligarchy; and maintain a large retinue, security agencies and punitive organs which protect the existing order. The government, instead of establishing local production to utilize the army of the unemployed, only allocates petrodollars toward welfare benefits, maintaining an inflated bureaucratic apparatus and security structures, grandiose construction, prestigious international events, as well as assigning funds to infrastructural projects whose cost drastically exceeds their foreign counterparts. A part of those assigned funds is embezzled and transferred to offshore bank accounts of those tenders' participants. Up to 90% of Azerbaijan's state budget, for example, is replenished with revenues from oil exports, although local statistics attribute part of the revenues to taxes and customs duties. In reality, in a country that produces nothing except crude oil, the ultimate source of all salaries, taxes, revenues, duties, and commercial profits is those same petrodollars after they have circulated through them. Thus, the country’s prosperity inevitably becomes completely dependent on the flow of petrodollars into the state treasury, which is the culmination of the ascending cycle of the algorithm.
SYSTEMATIZATION OF CORRUPTION
As a result of the oil boom, corruption naturally becomes systematized in countries inundated with petrodollars where there are no legal avenues for their spending. Corruption, as an economic phenomenon, also develops according to certain rules and becomes an integral part of the local economy and state system; in other words, a certain order emerges in directing and distributing illegal financial flows. For example, if an official in Azerbaijan receives a bribe, he keeps no more than half of it for himself, while passing the rest to his superior. The superior keeps another 20–25% of the amount received and passes the remainder further up the chain, and so on up the administrative hierarchy. In return, superiors turn a blind eye to their subordinates’ bribery and even demand regular tributes from them, thus creating an entire chain of the corruption algorithm. Such a system of governance produces negative selection in favor of personnel who know how to steal, because honest and educated employees are undesirable.
But what to do with this corruption money? A shadow economy emerges in which billions of petrodollars obtained this way circulate. The government is perfectly aware of its existence, but officially there is not a single millionaire holding public office in the country, because minister-oligarchs register their multi-billion empires on their representatives. The facts, however, suggest otherwise: for example, for the 2015 European Games, the Baku Olympic Stadium, costing more than $600 million (officially) was built, but no such allocation had been considered in the state budget, meaning that the stadium was built with money of unknown origin, into which the state preferred not to inquire. Under an informal agreement, the government turns a blind eye to officials’ theft on the condition that the stolen money can, when necessary, be mobilized for state purposes. Roughly the same scheme was implemented with the $50 billion spent on transforming the summer resort town of Sochi into the site of the 2014 Winter Olympics, an absolute world record for Olympic construction.
Such is the practice in almost all oil-producing states, since the overwhelming majority of them are not characterized by scrupulous adherence to the law, freedom of speech, or an independent judicial system, which leads to lawlessness and a lack of transparency in the inflow and distribution of petrodollars. The largest share of profits goes to the ruling elite directly controlling oil exports, which directly siphons off and launders part of the proceeds (unaccounted-for revenue) through fake offshore companies, purchasing real estate and other valuables abroad, where it also flees in the event of regime change. The second and third tiers of people close to the government content themselves with various corruption schemes for circulating budgetary petrodollars through the overpriced import of equipment and luxury goods, endless façade renovations and paving of sidewalks with tiles, as well as the construction of prestigious and expensive government facilities. Kickbacks to officials for obtaining government contracts are paid out of the budget allocated by the state for the same project. At the same time, a simple scheme is widely used to cut up budgetary allocations and transfer them to the foreign accounts of those involved: tenders for government contracts are generally won by offshore companies established through representatives by the very officials distributing those allocations. Regulatory bodies that know about this receive their own share of the transaction. Such a scheme simultaneously allows the profit received for the completed work to be legally transferred to the foreign accounts of offshore contractors — that is, the officials themselves. In this way, the ruling regime of such a state becomes a kleptocracy.
A system of buying appointments to government positions also emerges (reminiscent of a practice once officially used in the Ottoman Empire): positions are purchased for a certain fee and then repay themselves many times over through embezzlement and corruption carried out while holding those positions. Diplomas and academic degrees, examinations and certifications, awards and honorary titles, judicial decisions and amnesties, victories in competitions and tenders, promotions and military ranks, and any signatures on any permits are likewise bought and sold. Thus, a seat in the Azerbaijani parliament cost $1 million in 2012, while ministerial positions cost $10 million or more, depending on their profitability. State banks issue multimillion-dollar loans to oligarchs for fictitious projects in exchange for kickbacks to bankers and officials, who subsequently forgive the loans. For example, the International Bank of Azerbaijan issued $2 billion for the construction of a fictitious one-kilometer-high tower as part of the Khazar Islands project, and after the project went bankrupt, simply forgave the loan. This was also illustrated by the case of the bank’s chairman, J. Hajiyev, who managed to embezzle an amount equal to the country’s annual state budget. Supervisory and state-security agencies extort payments from entrepreneurs under various pretexts, while law-enforcement agencies engage in racketeering against small businesses. Ironically, this pattern is also illustrated by the case of Hajiyev’s brother-in-law, Azerbaijan’s Minister of National Security E. Mahmudov. Local authorities also engage in racketeering, leading to racket protection of large companies (and sometimes entire sectors of the economy) and the monopolization of imports by officials who receive a regular share of their profits in return. Because the entire niche of organized crime is filled in this manner by systemic corruption among officials from top to bottom, the Mob does not exist in Azerbaijan, since its functions are performed by the mafia state.
PREFACE
Rasizade left the USSR for the United States in 1991. In the USSR, he studied at Moscow State University and taught at Baku University, worked at the Institutes of History and Oriental Studies of the USSR Academy of Sciences, and in the United States became a Sovietologist, teaching courses on Perestroika and the collapse of the USSR at Columbia University (New York) and other universities. He worked at leading research centers specializing in the development and degradation of post-Soviet states. He is the author of more than 200 scholarly works in this field. He might not have been remembered were it not for the so-called Rasizade algorithm, which he predicted back in 2008, when oil prices reached their peak and the flow of petrodollars seemed inexhaustible. However, subsequent events confirmed that he was right: the fall in oil prices triggered a chain of phenomena whose inevitability had been laid out in this algorithm.
THEORETICAL DESCRIPTION
The algorithm was first theoretically described by its author on the eve of the 2008 global economic crisis in the Oxford academic journal Contemporary Review, at the peak of the rise in global oil and gas prices, when nobody anticipated their imminent decline and the irreversible consequences this would have for oil-exporting countries. Before this, the effect of rising prices for exported minerals on strengthening the real exchange rate of the national currency and on the economic development of their exporters as a result of an oil boom had been described only by the theory of “Dutch disease” — a term first used by the London magazine The Economist in 1977, but introduced into academic discourse by the Australian economist Max Corden in 1982 and in his subsequent works. The author of this theory used the Dutch economy as an example because of its dependence on exports of natural gas, whose price was rising, since in a country of that size it was easier to observe the influence of this phenomenon on the entire local economy in relatively pure form, after which he generalized the results of his research as a general economic pattern.
As in the Netherlands in the 1970s, the rapid rise in the world-market price of oil in the early 2000s produced a similar effect in oil-producing countries: Norway, Russia, Kazakhstan, Azerbaijan, Nigeria, Algeria, Venezuela, Angola, Iran, Mesopotamia, Arabia, and the Arab emirates of the Persian Gulf. All of them contracted the Dutch disease, in which engaging in productive labor simply became unprofitable, while it was more rational to use the free petrodollars flowing into state coffers to purchase ready-made products from industrially developed countries. As a result of the strengthening of national currencies and hyperinflation in these states, local industry and agriculture began to contract, unemployment grew, and class stratification deepened, with the emergence of a plutocracy that had access to the distribution of the incoming flow of petrodollars and an oligarchy that circulated those same petrodollars through its banks, commercial operations, construction projects, and the execution of government contracts.
However, the theory of Dutch disease did not describe what would happen afterward, once the world-market price of oil began to fall: what would this mean for oil-dependent countries after their oil boom ended? This is exactly what happened in 2008, when the price of oil collapsed from $147 per barrel in the middle of the year to $32 by the end of it, a decline of 75 percent. Panic and economic crisis began in the exporting countries — nobody had expected this or was prepared for it. It was precisely at that moment that Rasizade’s article appeared, although he had written it in the summer of 2008, when the price of oil had reached its peak and nothing indicated that it would fall. The article appeared at such a timely moment that the downward algorithm formulated in it was taken up in academic literature as the Rasizade algorithm, after the author of the theory. It theoretically generalized and presented in accessible form the results of his previous works, using the Caspian oil boom of the early 21st century as an example.
Like the author of the theory of Dutch disease, who chose the small Netherlands as his example, Rasizade likewise chose the small country of Azerbaijan to illustrate the process, where these patterns can be observed in their purest form, since in this country the economy’s dependence on the inflow of petrodollars was expressed directly, without any additional factors cushioning that dependence, unlike, for example, Russia, with its diverse industry, agriculture and forestry, and scientific and technological potential, or Kazakhstan, with its agriculture and mining industry. Azerbaijan has none of this: it imports everything it needs with petrodollars earned from exports of crude oil, while the industrial facilities inherited from the USSR were demolished there as unnecessary during the first years of independence and the beginning of the oil boom, with prestigious skyscrapers subsequently built in their place. Thus, all the patterns described in the algorithm using Azerbaijan as the classic example are presented as typical of countries whose prosperity depends on the export of natural resources.
THE ASCENDING CYCLE OF THE OIL BOOM
The ascending line of the algorithm is akin to the theory of "Dutch disease", with the sole difference in that the algorithm describes not that process itself, but the natural chain of responses of a local economy in free market conditions to the rise of volume or prices of natural resources exported by a country. This chain can be generalized as follows. Because the exported crude oil is itself a competitive product on the global market and does not require refinement in the country of its extraction, there is no longer a necessity to preserve and modernize the unprofitable local industry, whose products have no demand in both local and global markets — it is cheaper to import all necessary goods, frequently of higher quality, with petrodollars earned from raw-material exports. This leads to a complete dismantlement of all enterprises in heavy, light and the vast majority of food industry that were present in the country prior to the oil boom, while their equipment is sold off as scrap metal. Luxurious hotels, malls and pompous office buildings, which have no productive value, are erected in lieu of demolished factories and plants. Moreover, since imported food products are cheaper, local agricultural production becomes unprofitable as well, and farmers who got left without work head toward large cities, where they can somehow sustain themselves. As a result, the urban population rises several-fold, with all of the accompanying problems.
As a consequence, the country loses its industrial base and an army of unemployed people emerges, a significant part of whom leaves the country to earn money. On the other hand, the oil boom produces a local plutocracy (officials with access to petrodollars flowing into the state treasury) and rapidly enriches the national oligarchy that circulates the very same petrodollars through its banks, trade networks, housing construction, and the shadow economy. A significant part of petrodollars that flow into the country is simply embezzled through corruption schemes and transferred to offshore bank accounts of the schemes' participants. Therefore, class stratification of society intensifies, with all of the resultant consequences of social tension. Simultaneously, the urban population is expulsed to suburbs due to mass demolition and construction of their city centers with unaffordable, prestigious new developments. Construction and trade become the only forms of entrepreneurship in such countries, stripped of industry and agriculture by the oil boom and incapable of absorbing the billions of incoming petrodollars. Grandiose construction takes place because, in the absence of production, there is nowhere else to invest these petrodollars besides construction, while the circulation of those same petrodollars through trade generates rampant inflation and makes such countries extremely expensive to live in, leading to the impoverishment of the local population.
A substantial factor in inflating yet another oil boom is also the deliberate exaggeration of oil reserves in a given country by its government and interested international oil companies, creating an euphoria in mass media outlets, academic circles, governments of great powers and international organizations. Sometimes this exaggeration reaches several times the actual amount, and when it gets exposed, it is excused away by the difference between geologically surveyed and actually extracted oil reserves in a particular field. This way, all the interested parties pursue their own goals: 1) Local government (typically of an underdeveloped country) manages to attract foreign investment; 2) Oil companies raise their ratings, stock prices and market capitalization; 3) MSM increase their circulation and revenues from advertisement; 4) Scientists receive grants for research in that area; 5) Governments of great powers obtain budgetary assignments for new geopolitical projects; 6) International organizations and banks attract additional funds for their work. All of this contributes to the further rise of prices, which enriches the local corrupt elite and deepens social inequality.
To avoid a social explosion, the government starts paying welfare benefits to the poor. This creates an entire class of people who neither work nor produce anything, for the sustenance of whom billions of petrodollars are spent. Nonetheless, the flow of petrodollars into the treasury is enough to feed the plebs; fund an arms race; enrich the plutocracy, which has an access to that flow; generate superprofits for the oligarchy; and maintain a large retinue, security agencies and punitive organs which protect the existing order. The government, instead of establishing local production to utilize the army of the unemployed, only allocates petrodollars toward welfare benefits, maintaining an inflated bureaucratic apparatus and security structures, grandiose construction, prestigious international events, as well as assigning funds to infrastructural projects whose cost drastically exceeds their foreign counterparts. A part of those assigned funds is embezzled and transferred to offshore bank accounts of those tenders' participants. Up to 90% of Azerbaijan's state budget, for example, is replenished with revenues from oil exports, although local statistics attribute part of the revenues to taxes and customs duties. In reality, in a country that produces nothing except crude oil, the ultimate source of all salaries, taxes, revenues, duties, and commercial profits is those same petrodollars after they have circulated through them. Thus, the country’s prosperity inevitably becomes completely dependent on the flow of petrodollars into the state treasury, which is the culmination of the ascending cycle of the algorithm.
SYSTEMATIZATION OF CORRUPTION
As a result of the oil boom, corruption naturally becomes systematized in countries inundated with petrodollars where there are no legal avenues for their spending. Corruption, as an economic phenomenon, also develops according to certain rules and becomes an integral part of the local economy and state system; in other words, a certain order emerges in directing and distributing illegal financial flows. For example, if an official in Azerbaijan receives a bribe, he keeps no more than half of it for himself, while passing the rest to his superior. The superior keeps another 20–25% of the amount received and passes the remainder further up the chain, and so on up the administrative hierarchy. In return, superiors turn a blind eye to their subordinates’ bribery and even demand regular tributes from them, thus creating an entire chain of the corruption algorithm. Such a system of governance produces negative selection in favor of personnel who know how to steal, because honest and educated employees are undesirable.
But what to do with this corruption money? A shadow economy emerges in which billions of petrodollars obtained this way circulate. The government is perfectly aware of its existence, but officially there is not a single millionaire holding public office in the country, because minister-oligarchs register their multi-billion empires on their representatives. The facts, however, suggest otherwise: for example, for the 2015 European Games, the Baku Olympic Stadium, costing more than $600 million (officially) was built, but no such allocation had been considered in the state budget, meaning that the stadium was built with money of unknown origin, into which the state preferred not to inquire. Under an informal agreement, the government turns a blind eye to officials’ theft on the condition that the stolen money can, when necessary, be mobilized for state purposes. Roughly the same scheme was implemented with the $50 billion spent on transforming the summer resort town of Sochi into the site of the 2014 Winter Olympics, an absolute world record for Olympic construction.
Such is the practice in almost all oil-producing states, since the overwhelming majority of them are not characterized by scrupulous adherence to the law, freedom of speech, or an independent judicial system, which leads to lawlessness and a lack of transparency in the inflow and distribution of petrodollars. The largest share of profits goes to the ruling elite directly controlling oil exports, which directly siphons off and launders part of the proceeds (unaccounted-for revenue) through fake offshore companies, purchasing real estate and other valuables abroad, where it also flees in the event of regime change. The second and third tiers of people close to the government content themselves with various corruption schemes for circulating budgetary petrodollars through the overpriced import of equipment and luxury goods, endless façade renovations and paving of sidewalks with tiles, as well as the construction of prestigious and expensive government facilities. Kickbacks to officials for obtaining government contracts are paid out of the budget allocated by the state for the same project. At the same time, a simple scheme is widely used to cut up budgetary allocations and transfer them to the foreign accounts of those involved: tenders for government contracts are generally won by offshore companies established through representatives by the very officials distributing those allocations. Regulatory bodies that know about this receive their own share of the transaction. Such a scheme simultaneously allows the profit received for the completed work to be legally transferred to the foreign accounts of offshore contractors — that is, the officials themselves. In this way, the ruling regime of such a state becomes a kleptocracy.
A system of buying appointments to government positions also emerges (reminiscent of a practice once officially used in the Ottoman Empire): positions are purchased for a certain fee and then repay themselves many times over through embezzlement and corruption carried out while holding those positions. Diplomas and academic degrees, examinations and certifications, awards and honorary titles, judicial decisions and amnesties, victories in competitions and tenders, promotions and military ranks, and any signatures on any permits are likewise bought and sold. Thus, a seat in the Azerbaijani parliament cost $1 million in 2012, while ministerial positions cost $10 million or more, depending on their profitability. State banks issue multimillion-dollar loans to oligarchs for fictitious projects in exchange for kickbacks to bankers and officials, who subsequently forgive the loans. For example, the International Bank of Azerbaijan issued $2 billion for the construction of a fictitious one-kilometer-high tower as part of the Khazar Islands project, and after the project went bankrupt, simply forgave the loan. This was also illustrated by the case of the bank’s chairman, J. Hajiyev, who managed to embezzle an amount equal to the country’s annual state budget. Supervisory and state-security agencies extort payments from entrepreneurs under various pretexts, while law-enforcement agencies engage in racketeering against small businesses. Ironically, this pattern is also illustrated by the case of Hajiyev’s brother-in-law, Azerbaijan’s Minister of National Security E. Mahmudov. Local authorities also engage in racketeering, leading to racket protection of large companies (and sometimes entire sectors of the economy) and the monopolization of imports by officials who receive a regular share of their profits in return. Because the entire niche of organized crime is filled in this manner by systemic corruption among officials from top to bottom, the Mob does not exist in Azerbaijan, since its functions are performed by the mafia state.