Narconomics: How to Run a Drug Cartel

Narconomics: How to Run a Drug Cartel

Tom Wainwright

4.15(10960 readers)
What drug lords learned from big business

How does a budding cartel boss succeed (and survive) in the 300 billion illegal drug business? By learning from the best, of course. From creating brand value to fine-tuning customer service, the folks running cartels have been attentive students of the strategy and tactics used by corporations such as Walmart, McDonald's, and Coca-Cola.
And what can government learn to combat this scourge? By analyzing the cartels as companies, law enforcers might better understand how they work--and stop throwing away 100 billion a year in a futile effort to win the "war" against this global, highly organized business.
Your intrepid guide to the most exotic and brutal industry on earth is Tom Wainwright. Picking his way through Andean cocaine fields, Central American prisons, Colorado pot shops, and the online drug dens of the Dark Web, Wainwright provides a fresh, innovative look into the drug trade and its 250 million customers.
The cast of characters includes "Bin Laden," the Bolivian coca guide; "Old Lin," the Salvadoran gang leader; "Starboy," the millionaire New Zealand pill maker; and a cozy Mexican grandmother who cooks blueberry pancakes while plotting murder. Along with presidents, cops, and teenage hitmen, they explain such matters as the business purpose for head-to-toe tattoos, how gangs decide whether to compete or collude, and why cartels care a surprising amount about corporate social responsibility.
More than just an investigation of how drug cartels do business, Narconomics is also a blueprint for how to defeat them.

Publisher

PublicAffairs

Publication Date

2/23/2016

ISBN

9781610395847

Pages

301

Categories

Economics

About the Author

Tom Wainwright

Tom Wainwright

Tom Wainwright is the Britain Editor of The Economist. He joined the Britain section in 2007 to cover a beat including crime and justice, migration and social affairs. In 2010 he became the newspaper’s Mexico City bureau chief, responsible for coverage of Mexico, Central America and the Caribbean. There he wrote a special report on Mexico (“From darkness, dawn”, 2012). In 2013 he returned to London, to take up the role of Homepage Editor, and latterly International Correspondent before his current appointment in 2015.

Before joining The Economist Mr Wainwright was a trainee on the Daily Express, and a contributor to newspapers including the Times, Guardian and Daily Telegraph. He read philosophy, politics and economics at Oxford University, graduating in 2004.

Questions & Answers

The illegal drug trade operates like a legitimate business by employing various economic principles and strategies. Like legitimate businesses, drug cartels manage supply chains, diversify into new markets, and innovate to evade law enforcement. They also engage in franchising, offshoring, and public relations to maintain their operations.

Supply chain management is crucial, with cartels controlling the production, transportation, and distribution of drugs. This control allows them to maintain high profits, despite the significant markup from the Andes to the United States, which can be as high as 30,000 percent.

Economic principles like elasticity of demand play a role, as the demand for illegal drugs is generally inelastic, meaning price increases do not significantly reduce consumption. This makes supply-side interventions, like eradication campaigns, less effective.

Cartels also face challenges, such as the need to manage human resources and maintain relationships with staff, suppliers, and clients. They must innovate to stay ahead of law enforcement, as seen with the rise of online drug markets and the use of cryptocurrencies for transactions.

The "cockroach effect" and "balloon effect" in the drug trade refer to the phenomenon where efforts to suppress drug production or trafficking in one area lead to an increase in production or trafficking in another. This has significant economic and social impacts:

Economic Impacts:

  1. Increased Costs: Governments spend vast resources on eradication and enforcement, but the cost of drugs remains stable or even decreases due to the shift in production.
  2. Market Expansion: Cartels adapt by expanding into new markets, leading to increased violence and corruption in those areas.

Social Impacts:

  1. Increased Violence: Competition for new markets can lead to increased violence, as seen in Mexico and El Salvador.
  2. Corruption: The need for bribes and protection money grows, corrupting local institutions and communities.

These effects influence policy decisions and enforcement strategies:

  1. Shift from Supply to Demand: There's a growing recognition that addressing demand is more effective than focusing solely on supply.
  2. International Cooperation: The need for coordinated international efforts to combat the drug trade is emphasized.
  3. Legalization Debates: The inefficiency of current strategies has led to increased discussions about legalizing drugs to regulate the market and reduce violence.

Drug cartels innovate and adapt by mimicking legitimate business strategies. They off-shore operations to countries with relaxed regulations, use franchising to expand, and invest in research and development to stay ahead of law enforcement. The rise of online shopping has allowed them to reach a wider market and improve customer service through feedback systems. Legal cannabis markets threaten their profits, prompting them to diversify into other illegal markets or even legal ones, like tobacco.

For law enforcement, this means adapting strategies to combat online platforms and considering the economic impact of legalizing drugs. Policies must address the root causes of drug trafficking, such as poverty and lack of opportunity, and consider the potential benefits of legalization in reducing violence and corruption.

The "war on drugs" has incurred significant economic and social costs. Economically, it has been inefficient, with billions spent on enforcement that has not significantly reduced drug use or trafficking. Socially, it has led to increased violence, overcrowded prisons, and a criminalization of drug users.

A more effective approach should focus on demand reduction and harm reduction. Demand reduction can be achieved through education, prevention programs, and addressing underlying issues like mental health and addiction. Harm reduction involves providing services like needle exchanges and treatment programs to reduce the negative impacts of drug use. Legalizing and regulating drugs could also reduce the power of cartels, as it would take the market away from organized crime and into the hands of legitimate businesses. This approach would likely reduce violence, improve public health, and save billions in enforcement costs.

Understanding the economics of the drug trade can significantly inform law enforcement and policy. First, recognizing that demand is often inelastic can shift focus from supply-side enforcement to demand reduction strategies, like public health campaigns and addiction treatment, which are more cost-effective. Second, acknowledging the role of corruption and weak institutions in facilitating drug trade can lead to efforts to strengthen governance and reduce corruption, rather than just focusing on enforcement. Legalizing and regulating drugs could also reduce the power of cartels by taking the market away from them. Changes needed include: 1) Shift from supply-side to demand-side strategies; 2) Strengthen governance and reduce corruption; 3) Consider legalizing and regulating drugs; 4) Invest in education and treatment programs.

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