One of the final questions that Prof. Jackson posed during the module was if there is such a thing as 'legitimate violence'. I think this question lays a great foundation for the discussion of PSCs and Organized Crime. This also serves to highlight that purely internal matters for a state have an impact on broader issues of sovereignty and legitimacy.
The simple answer to his question of legitimate violence is that it depends. In a liberal democracy, the government theoretically exercises power because it has the consent of the governed. Laws are enacted and enforced because the will of the majority is being expressed. Limits to that authority exist because of the respect for civil and human rights of all citizens. Or so theory states. In practice it's a much muddier picture.
However, there are many dictatorial regimes that do not even pretend to have limits to power. Where is the legitimacy of state security forces in that context? In such a situation, any PSC that derives authority from the state is lacking legitimacy by extension. In this frame, the PSC does not diminish the sovereignty of the state in any appreciable way because the state does not have legitimacy in the first place. The PSC is just another tool for government will.
This is in contrast to a situation where a PSC is able to gain enough control within a state so that it can change the rule of law to benefit the PSC. However, this is just as possible with any other corporate entity. The only difference is that a PSC's business is security, not just commodity extraction or manufacturing. So the threat to sovereignty comes from any corporation.
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