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How to Run a Drug Cartel

The black market is driven by the same forces as any other economic enterprise.

Public DomainPublic DomainTo understand how drug cartels work, we should consider the industry as we would any other that has to deal with regular business problems–how to hire the best personnel, how to handle the competition, how to deliver product to customers, and so on.

That is what Tom Wainwright sets out to do in his new book, Narconomics: How to Run a Drug Cartel. "Regulatory approaches that in the ordinary business world would be discarded for their ineffectiveness have been allowed to endure for years in the world of counternarcotics," says the author, a former correspondent in Mexico for The Economist.

He cites an example from the Andean countries to illustrate how the supply-side fight to reduce drug consumption is absolutely useless. The cost of the coca leaf is so low compared to the high price of cocaine in consumer countries that even if intervention in South America were to double the price of coca, it would have only a negligible impact on consumers in the United States or in Europe.

While travelling two weeks ago in the Mexican state of Sonora, local businessmen told me several people were recently executed in the nearby city of Ciudad Obregón–allegedly, a settling of scores between drug dealers. They confirmed what Wainwright observes: Violence in Mexico tends to be higher in those states bordering the United States and in those with major ports. Drug dealers fight to control these few points of entry and exit. Since supply-side restrictions have almost no impact on drug consumption, the author recommends opening more points of entry on the northern border. At least that would reduce the violence considerably. 

In an illicit industry, recruiting low-skilled workers is challenging because the jobs require discipline and a high level of trust. Prisons in Latin America have made drug traffickers' lives easier, since these have turned into virtual business schools, where the most experienced people in the business are put in touch with those interested in illegal activities. This is also where gangs gain strength, among other ways by requiring their members to get conspicuous tattoos to reduce the dangerous possibility of them leaving the organization.

More than a decade ago, the Dominican Republic implemented a penitentiary reform recommended by Wainwright. The country has jails where gang leaders are separated from the rest of the inmates, fewer criminals are imprisoned, and real jobs are given to inmates, who are also allowed to keep a percentage of the earnings to share with their families. All of this reduces the convicts' dependence on gangs and helps them maintain contact with the legitimate outside world. Under the new system, only 3 percent of those who are released from prison are likely to commit another crime in the following three years, whereas there was a 50 percent recidivism rate under the old system.

Wainwright describes how the homicide rate dropped by two thirds in El Salvador when the maras (gangs) reached a truce in 2012 so as to be able to collude in the domestic marketsomething that was undone when the next president withdrew his support, thus increasing violence once again. He also describes how drug cartels practice corporate social responsibility (church charity, providing public services, etc.) to maintain a certain level of support among the local population, and how the new competition resulting from marijuana legalization in parts of the United States is already taking away a significant amount of business (up to three quarters of the their current revenues, according to Mexican experts the author cites).

Wainwright also predicts that when fully legalized, American marijuana companies will move to Mexico to export their products to the United States. That would be a more civilized world.

Photo Credit: Public Domain

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  • Brian||

    I hate it when the government picks winners and losers in the marketsomething. And especially when they screw with my freedomstuff.

  • Scarecrow & WoodChipper Repair||

    Dash it all!

  • loveconstitution1789||

    Instead of burdening developing nations with costs for corrupt police, military and government officials how about making drugs legal. The price of drugs would bottom out and these cartels would disappear or go into other victimless crimes that have been made illegal by the morality patrol.

    Example- Prohibition. During the period of alcohol being illegal, the mafia in the USA really took hold along with other gangs, alcohol was more expensive, government power grew, wasted a constitutional amendment and this prohibition did not work. After the XXI Amendment, the price of alcohol went down, the Parade of Horribles never materialized, criminal organizations went into other vice crimes to make money and the War on Drugs started to ramp up.

  • MSimon||

    The war on drugs was ramped up as a replacement for Alcohol Prohibition. See Anslinger, Harry J.

  • Bob K||

    "Wainwright also predicts that when fully legalized, American marijuana companies will move to Mexico to export their products to the United States. That would be a more civilized world."

    Can't wait for Trump to issue a statement that he will not allow marijuana products from Mexico to protect our jerbs here in 'merica.

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  • CatoTheChipper||

    When he reads a story about any "failed government program", Robert Higgs asks, "Who has it failed?" Sure, the drug war has been a failure for taxpayers and gullible voters as well as drug users and their families. But, since it is still in place, somebody is reaping a benefit.

    Actually a lot of people are reaping benefits. Obviously the existing recreational pharmaceutical industry prefers the high margins that obtain from the current arrangement. Cops prefer the current arrangement since it affords job security, asset forfeiture goodies, and opportunities for graft. Prison guards also get job security and more opportunities for graft. Politicians who need issues to generate empty promises and opportunities for graft. The money laundering business, closely tied to politicians (remember Clark Clifford), depends on the current arrangement. As do many attorneys, the drug rehab industry, the private prison industry, etc., etc.

    "When we take a realistic view of the political process, we see that so-called failed polices are nearly always spectacular successes. Otherwise, they wouldn’t last. ... But show me a government policy that clashes with the interests of a substantial number of powerful government officials and their resourceful supporters in the private sector, and I’ll show you a policy that can be abandoned overnight."

  • dantheserene||

    Certainly, all the right people are benefiting. Didn't Hillary accidently admit that there was too much money in the drug war to end it? We'd be messing with a lot of people's gravy train.

  • Hank Phillips||

    Asset-forfeiture of cash, stashes and pimpmobiles will get them narcs into a whole lotta hoe panties, knowwhutahmean? George Bush enlisting crocked cops in looting citizens was a stroke of genius. Too bad folks caught on and ran with their money, leaving their subprime mortgages to be confiscated instead as the economy collapsed.

  • hguf||

    thnaks for sharing hguf

  • Vitae Drinker||

    Hmm. I might have to read this book. For... reasons.

  • bassjoe||

    "Under the new system, only 3 percent of those who are released from prison are likely to commit another crime in the following three years, whereas there was a 50 percent recidivism rate under the old system."

    Once a criminal, always a crim... oh, what?

  • MSimon||

    Here is what I don't get. Most drug use is a result of PTSD. Why are we focusing on symptoms instead of causes?

  • Darth Squirrel||

    the author recommends opening more points of entry on the northern border. At least that would reduce the violence considerably.

    Reduce the violence or just spread it around more evenly?

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  • Hank Phillips||

    Yep. Just like Plunkitt of Tammanny Hall. "Can I count on your vote?"

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