The Doomed Economics of Drug Prohibition

Why the war on drugs can't overcome the economic incentives of the black market

One indisputable achievement of the U.S. war in Afghanistan, which overthrew a regime that alternately cracked down on opium production and profited from it, was an enormous increase in drug seizures. Between 2000 and 2010, according to a study published last week by the online medical journal BMJ Open, "seizures of raw and prepared opium increased by more than 12,000%." To put it another way, the amount of opium seized in 2010, 57,023 kilograms, was 126 times the amount seized in 1990.

Since Afghanistan produces the raw material for something like 90 percent of the world's heroin, you might expect such a dramatic crackdown to produce noticeable results. But the authors of the BMJ study, led by Dan Werb of the Urban Health Research Initiative in Vancouver, found that heroin purity in the United States rose by 60 percent from 2000 to 2007, the most recent year for which data were available, while heroin prices in Europe fell by 74 percent. This is what success looks like in the war on drugs.

The story is similar for cocaine and marijuana. "With few exceptions and despite increasing investments in enforcement-based supply reduction efforts aimed at disrupting global drug supply," Werb and his colleagues write, "illegal drug prices have generally decreased while drug purity has generally increased since 1990. These findings suggest that expanding efforts at controlling the global illegal drug market through law enforcement are failing." That's because supply reduction tactics such as ripping up poppies, spraying coca crops, and intercepting marijuana shipments are doomed to fail by the economics of the black market.

Prohibition plants the seeds of its own defeat by enabling traffickers to earn a premium for undertaking the special risks involved in supplying an illegal product. That means they are highly motivated to find ways around whatever roadblocks the government throws up between them and their customers. Given all the places where drugs can be produced and all the ways they can be transported to people who want them, the idea that the government could "cut off the flow" if only it made a more determined effort is a fantasy. As critics of prohibition often point out, the government cannot keep drugs out of correctional facilities, so even turning the entire country into a prison camp would not do the trick. The most that drug warriors can hope to accomplish is to impose costs on traffickers that are high enough to raise retail prices, thereby discouraging consumption.

The basic problem with that strategy, as drug policy scholars such as University of Maryland criminologist Peter Reuter have been pointing out for years, is that illegal drugs acquire most of their value close to the consumer. The cost of replacing destroyed crops and seized shipments is therefore relatively small, a tiny fraction of the "street value" trumpeted by law enforcement agencies (which may in any case be fictitious). As you get closer to the retail level, the replacement cost rises, but the amount that can be seized at one time falls. That dilemma helps explain why throwing more money at source control and interdiction never seems to have a substantial, lasting effect on drug consumption.

Yet according to Kevin Sabet, who used to work for the Office of National Drug Control Policy and now runs a prohibitionist group called Project SAM (Smart Approaches to Marijuana), it is "far too simplistic" to conclude that "the war on drugs has failed" simply because drug warriors have not achieved their own avowed goals. Self-reported drug use "has fallen by about 30% since 1979," Sabet notes in a recent CNN.com essay. He concedes "there are likely numerous reasons for this drop" but suggests that supply reduction efforts have played an important role.

It's hard to see how, since less pot smoking accounts for most of that decrease in drug use. Between 1990 and 2010, Werb and his collaborators report, the amount of marijuana seized by the U.S. Drug Enforcement Administration rose more than fivefold. During the same period, the average price of cannabis, adjusted for inflation and potency, fell by 86 percent. Take that, potheads!

Sabet's one specific example of a supply-side victory is a two-thirds reduction in Colombian coca acreage from 2000 to 2010. Meanwhile, he admits, "cocaine production has picked up" in Peru and Bolivia, an illustration of the "balloon effect": When you push it down in one spot, it pops up somewhere else. Still, Sabet says, "this shows that progress is not only possible, it is happening." I suppose that depends on what you mean by "progress."

This column originally appeared at Forbes.