14 February 2008
It will take more than one dramatic bust to clean up New York’s mob-plagued building industry. Federal and local prosecutors were quick to brand last week’s 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 York’s 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 city’s construction industry and in related businesses—like trucking—that are particularly susceptible to mob corruption. Even spectacular busts won’t end mob influence unless government presses for reforms that transform the very nature of the construction business—something 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 The construction industry operates like few other businesses today, especially in New York, because of outdated labor practices.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 week’s 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 haven’t represented their workers’ best interests.
New York State’s laws and policies add to the industry’s problems by snuffing out competition. The state decrees that on all public construction projects—representing a huge chunk of the industry’s revenue pie—government must pay even nonunionized workers a “prevailing” wage that in most cases is equal to the highest union worker’s 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 don’t even bother to bid on government contracts, which the construction unions inevitable win. That’s the kind of monopoly that mobsters love. One of the rare circumstances when the “prevailing wage” doesn’t 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 state’s 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 it’s so hard for local officials to police. But the unions’ political allies in the state legislature have refused to do so—the 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 control—what prosecutors last week branded the “corrosive influence” of organized crime on the construction industry—adds 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 city’s carting industry, in which the mob’s 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 unchanged—and 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.