Dodd-Frank and death in the Congo.

• Author: Slade, Stephanie
• Position: Economist Dominic Parker - Sound Bite - Interview

Section 1502 of the Dodd-Frank financial reform law was supposed to reduce violent conflict in the Democratic Republic of the Congo (DRC) by imposing a de facto embargo on tin, tungsten, and tantalum --the so-called 3T minerals--mined in militia-controlled territories. But a working paper from University of Wisconsin economist Dominic Parker suggests the actual outcome of the legislation in the two years after it was passed in 2010 was very different. In July, Deputy Managing Editor Stephanie Slade talked with Parker about his research.

Q: In a nutshell, what did you find?

A: We found statistical evidence that Dodd-Frank backfired. Our latest estimate suggests that Section 1502 tripled the frequency of looting incidents and attacks against civilian populations.

Q: Tell me about the analogy between militias in the DRC and mafias.

A: We developed a simple theory that's inspired by [economist] Mancur Olson's "stationary bandits" metaphor. In our theory, stationary bandits are like mafia groups that tax neighborhoods or industries. And these mafia groups emerge in power vacuums where the state is absent, and they maximize revenues by, effectively, selling protection to civilians. The protection is both against crime they would commit if not paid these taxes and also, importantly, against crime that could be committed by other groups.

What's really important here is that because the mafia taxes economic activity, it wants the neighborhood that it controls to be safe and productive. So you get this low-violence situation that will persist as long as the mafia group finds it advantageous to remain stationed in the neighborhood, rather than moving to challenge other [groups] or to loot other neighborhoods. In the eastern DRC, the militias are like the mafia groups. The mining villages are like these neighborhoods.

Q: But Dodd-Frank pushed these groups to change their strategy.

A: Yeah. After Dodd-Frank was passed, we theorized that militia groups had three main options for continuing to raise revenues. The first is they could...