A protection racket is a type of racket and a scheme of organized crime perpetrated by a potentially hazardous organized crime group that generally guarantees protection outside the sanction of the law to another entity or individual from violence, robbery, ransacking, arson, vandalism, and other such threats, in exchange for payments at regular intervals.
In some instances, the main potential threat to the target may be caused by the same group that offers to solve it in return for payment, but that fact may sometimes be concealed in order to ensure continual patronage and funding of the crime syndicate by the coerced party.
Protection rackets tend to form in markets in which the law enforcement cannot be counted on to provide legal protection, because of incompetence (as in weak, corrupt, or failed states), illegality (when the targeted entity is involved in black markets), and/or because forms of government distrust exist among the entities involved.
Hence, protection rackets are common in places or territories where criminal organizations resemble de facto authorities, or parallel governments.
Sicily, Italy is a great example of this phenomenon, where the Cosa Nostra collects protection money locally and resembles a de facto authority, or a parallel government.
In either case, the racketeers generally agree to defend a business or individual from any attack by either themselves or third parties (other criminal gangs).
By corollary, criminal gangs may have to maintain control of territories (turfs), as local businesses may collapse if forced to pay for protection from too many rackets, which then hurts all parties involved.
The first element is their willingness to deploy violent forms of retribution (going as far as murder) that fall outside the limits the law normally extends to civilian security firms.
Wang's narrative suggests that local gangs are quasi-law enforcers in both legal and illegal markets, and corrupt public officials are extra-legal protectors, safeguarding local gangs, protecting illegal entrepreneurs in the criminal underworld, offering protection to businesspeople, and selling public appointments to buyers.
In A Short History of Progress, Ronald Wright notes on p. 49, "The warrior caste, supposedly society's protectors, often become protection racketeers.