A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.
• • • • • • • • • • • • • • •
It will take more than one dramatic bust to clean up New Yorks mob-plagued building industry.
14 February 2008
Federal and local prosecutors were quick to brand last weeks massive bust of 62 alleged Gambino crime family members, union officials, and construction executives as historic, extraordinary, and a milestone toward eradicating mob influence in New Yorks building industry.
But the real message of the indictments is that even after decades of intensive investigation by law enforcement, organized crime remains a powerful force within the citys construction industry and in related businesseslike truckingthat are particularly susceptible to mob corruption. Even spectacular busts wont end mob influence unless government presses for reforms that transform the very nature of the construction businesssomething that politicians have long refused to do.
The construction industry operates like few other businesses today, especially in New York, because of outdated labor practices. In most unionized industries, a firm hires workers who then join the union; in construction, by contrast, labor law permits contracts between builders and unions in which unions effectively have power over hiring. They enlist workers in their organizations first and then send them out on jobs.
Mobsters have used control of hiring to dominate construction in New York. Wise guys can place friends or associates in key positions, sending them to oversee construction sites, where they shake down contractors and enforce mob discipline among union members. And they can demand payoffs from people trying to get into the business, providing a lucrative source of cash. Indeed, last weeks indictment contained a number of counts charging that Gambino associates accepted bribes so that unqualified individuals could gain union cards.
Control of hiring also gives mob-connected union bosses access to pension and health benefits funds, which they regularly fleece. The latest indictments, for instance, charge Gambino associates with underreporting the hours worked by some Teamsters union members who drive trucks that service construction sites, and pocketing money that was supposed to fund benefits and pensions. Such schemes are a reminder that mobbed-up construction unions havent represented their workers best interests.
New York States laws and policies add to the industrys problems by snuffing out competition. The state decrees that on all public construction projectsrepresenting a huge chunk of the industrys revenue piegovernment must pay even nonunionized workers a prevailing wage that in most cases is equal to the highest union workers wage. The law sharply reduces the ability of non-union contractors to get government work, since they lose any pricing advantage that lower wages would give them. Thus, many dont even bother to bid on government contracts, which the construction unions inevitable win. Thats the kind of monopoly that mobsters love. One of the rare circumstances when the prevailing wage doesnt prevail on public jobs in New York State is when mobbed-up unions solicit bribes from contractors so that they can use nonunion workers. The mob, in other words, plays both sides of the fence.
The states Wicks Law further aids the wise guys by requiring government to carve up public construction projects into at least four separate bidding packages, multiplying the number of contractors and subcontractors involved in any project and adding layers of complexity that encourage fraud, bribery, and bid rigging. For decades, organized crime experts have urged the state to repeal or modify the law because its so hard for local officials to police. But the unions political allies in the state legislature have refused to do sothe unions love the bureaucracy, inefficiency, and extra work (and workers) that Wicks requires. Governor Eliot Spitzer is the latest to propose amending Wicks, but his reform efforts are stuck in the state legislature.
Using control of construction unions as leverage, the mob has also extended its tendrils to the many contractors and subcontractors that do business in New York, effectively creating cartels that reduce legitimate competition and drive up prices. Over the years, mob-owned or controlled companies in the city have monopolized everything from supplying concrete for construction projects to contracts for painting and drywall installation. The price of this mob controlwhat prosecutors last week branded the corrosive influence of organized crime on the construction industryadds hundreds of millions of dollars to the cost of building in the city. In one infamous and representative case from the early 1980s, New York State was overcharged some $12 million for the concrete used to build the Jacob Javits Convention Center because a mob cartel led by Anthony Fat Tony Salerno controlled the business, and no legitimate firms would bid against it.
The current state of the local construction industry contrasts unfavorably with the citys carting industry, in which the mobs influence was dramatically suppressed in the 1990s by aggressive prosecutions and structural reforms. Prompted by threats against a major national competitor, BFI, that tried to pry its way into New York, local authorities began a vigorous investigation of the carting industry and followed up successful indictments and prosecutions by seizing mobbed-up companies and urging landlords to do business with BFI and other clean shops. The city, meanwhile, set up a commission to investigate and oversee new companies entering the industry. The eventual result: a significant decline in carting prices for local businesses and an end to mob violence that had plagued the industry for years.
In the aftermath of these moves, then-Mayor Rudolph Giuliani proposed a similar commission to oversee the construction industry. But the Giuliani-led effort died in the face of fierce opposition from the industry and its city council friends, who complained that a commission would make the construction business too bureaucratic and cumbersome. Not surprisingly, neither the industry nor its political friends proposed any alternate solutions to the problem, leaving the status quo unchangedand that was just fine with the mob.
Even as prosecutors make strides with indictments against members of the so-called five Mafia families in New York, investigators warn that new groups representing Asian and Eastern European mobsters are making headway in labor racketeering in New York City. Without better oversight and structural changes to the construction industry, a new generation of mobsters lies waiting to take over.
Steven Malanga is senior editor of City Journal and a senior fellow at the Manhattan Institute. He is a coauthor of The Immigration Solution.