Narconomics

Crooks already know these tricks.

Crooks already know these tricks. Honest men must learn them in self-defense. Business Acumen. Drug cartels, despite their violent nature, operate much like legitimate businesses, employing strategies related to supply chain management, franchising, public relations, and diversification. They face similar challenges, such as managing personnel, navigating regulations, and dealing with competition. Walmart Analogy. The Colombian cocaine manufacturers protect their profits by tightening control of their supply chains, along the same lines as Walmart. Mexican cartels have expanded on a franchise basis, with the same success as McDonald’s. Business Manual. Understanding the economics of the drug trade and recognizing that cartels are run like multinational companies is crucial for predicting their next steps and developing effective counter-strategies. This book serves as both a business manual for drug lords and a blueprint for how to defeat them.

The world’s taxpayers spend upward of $100 billion a year combating the illegal-drugs trade. Eradication Futility. Governments focus overwhelmingly on suppressing the supply side of the drug business, particularly coca cultivation, but this approach has proven largely ineffective. Despite massive eradication efforts, cocaine prices remain stable, and production bounces back due to the "cockroach effect." Monopsony Power. Cartels act as monopsonies, dictating prices to coca farmers and absorbing the costs of eradication efforts, leaving farmers impoverished without significantly impacting cartel profits or consumer prices. The best estimates available suggest that the wholesale price of marijuana in Mexico is about $80 per kilo, or just 8 cents per gram. Demand-Side Solutions. Addressing demand through prisoner rehabilitation, job creation, and addiction treatment is a more effective approach than focusing solely on supply-side suppression. The vast markup between coca farm gate price and retail cocaine price means supply-side interventions have minimal impact on consumer prices.

Why did one market see heightened competition and the other collusion? Cartel Violence. Mexico's war against the cartels, particularly in cities like Ciudad Juárez, demonstrates that heightened competition among cartels leads to increased violence. The fight for control of lucrative border crossings and the interference of multiple levels of law enforcement exacerbate the conflict. El Salvador Truce. In contrast, El Salvador's maras, or gangs, experienced a dramatic decrease in violence after agreeing to a truce, illustrating that collusion can sometimes be more profitable than competition. The murder rate immediately dropped by the equivalent of about 2,000 lives a year. Market Conditions. The level of violence in criminal markets can be dramatically altered by changes in market conditions, such as the scarcity of border crossings or the presence of government-mediated truces. Governments should consider ways to shape these markets to reduce violence.