Narconomics Summary

Drug cartels are not just criminal syndicates; they operate like multinational corporations with business strategies, HR policies, and market strategies designed for survival and profit.

1. The Flawed "War on Drugs" Strategy Targets Supply, Not Root Causes

The US government's "war on drugs," begun in 1971, primarily focuses on cutting the supply of drugs through tactics like crop dusting in South America. However, this supply-side approach neglects the complex market dynamics underpinning the drug trade. When the government targets one region for coca crop eradication, cartels simply move their operations to other areas, a phenomenon known as the "balloon effect."

The strategy also affects the wrong targets – impoverished farmers – while leaving consumption and cartels relatively unchecked. Cartels hold monopsony power, determining the price paid to farmers who have few alternatives for income. This keeps cartels largely unaffected by eradication efforts. Even when coca supplies diminish, consumer willingness to pay higher prices sustains cartel profits.

Supply-side efforts, thus, fail to address the root causes of the drug trade: high consumer demand and the cartel monopoly. Without targeting the real drivers of the trade – cartel networks and market demand – this "war" achieves little reduction in drugs but creates devastating effects for local populations.

Examples

• Crop dusting coca plantations in Colombia prompted cartels to move operations to Peru and Bolivia.
• US drug policy often focuses on rural farmers while ignoring the networks controlling supply chains.
• Cocaine prices have remained stable or increased despite reduced crop supplies, proof of resilient demand.

2. Legalizing Marijuana Challenges Cartels While Benefitting Consumers and Governments

Legalizing marijuana can hurt cartel profits by introducing legal competition into the market. Unlike illegal cannabis, legal crops are often grown in better conditions, producing higher-quality products at competitive prices. By reducing the market share of cartels, governments can weaken their dominance while simultaneously profiting through tax revenues.

The state of Colorado is a prime example. After legalizing marijuana in 2014, Colorado generated nearly $135 million in tax revenue from $996 million in sales within just one year. Legalization also ensures better consumer safety by monitoring the product’s quality and risks, reducing the chances of health hazards. As a result, consumers have access to cannabis that is safer and tailored to their preferences.

While legalizing marijuana has clear benefits, the resistance in many places leaves a dual market intact, with cartels still profiting in regions where legalization has not taken hold. Expanding legalization policies could significantly disrupt cartel revenues on a larger scale.

Examples

• Colorado's cannabis tax revenue funded infrastructure and public health programs.
• In states with legal cannabis, cartel profits from marijuana sales dropped sharply.
• Government-regulated cannabis reduces the risk of hospitalizations caused by toxic strains.

3. Cartels Practice Both Competition and Cooperation, Shaping Local Realities

Cartel dynamics range from violent rivalries to peaceful collusion. In places like Juárez, Mexico, competition between groups such as the Sinaloa Cartel and the Juárez Cartel has resulted in extreme violence, with incidents like mass killings and public displays of mutilation. These rivalries create a climate of instability and fear.

In contrast, El Salvador has witnessed collusion, where cartels agree to split territories and earnings. By dividing markets, rival groups reduce competition and focus on profits. While such collusion does not curb drug consumption, it significantly reduces violence – for instance, murder rates in El Salvador fell from 71 per 100,000 in 2009 to 33 per 100,000 in 2012 when gangs struck a truce.

Though collusion diminishes public violence, it perpetuates cartel control and keeps their grip on the market intact. Governments must weigh the temporary peace gained by collusion against its long-term societal impacts.

Examples

• Mexico’s Juárez region experienced over 60,000 deaths from cartel wars between 2006–2012.
• In El Salvador, violent murders decreased after the 18th Street Gang partnered with Mara Salvatrucha.
• Civilian casualties in areas with high competition often discourage anti-cartel resistance from locals.

4. Cartels Rely on Prisons and Hierarchies to Build and Maintain Workforce

Cartels recruit their workforce from unconventional places, particularly prisons. Many incarcerated individuals join cartels as a way to find purpose and work upon release. Inside prisons, cartels recruit members for tasks such as extortion, which prepares them for roles in drug trafficking once freed.

To ensure loyalty, cartels enforce strict hierarchies, such as the model used by Nuestra Familia in California. Structured like a corporation with generals, captains, and soldiers, this system balances power to prevent corruption. Leaders are held accountable through checks and balances, reducing internal theft or rebellion.

These strategies strengthen cartel operations by creating efficient, loyal networks. However, they also perpetuate the cycle of crime, as prisons often become breeding grounds for future offenders.

Examples

• The Mexican Mafia actively recruits prisoners by offering post-release employment security.
• Nuestra Familia’s hierarchical order provides stability, reducing insubordination.
• Jailed cartel members use prisons as operational hubs to expand influence.

5. Cartels Use PR Tactics to Win Community Support

Like corporations, cartels invest in public image to gain loyalty. While corporate social responsibility often takes the form of healthcare or environmental projects, cartels use "narcolimosnas" (drug alms) to give back to poor communities. Cartels fund churches, distribute money to locals, and offer protection services, filling gaps left by weak governments.

Cartels also engage in PR campaigns to position themselves as less violent than their rivals. For instance, the Sinaloa Cartel in Juárez erected billboards pledging not to target women and children, contrasting themselves with rivals who adopted more ruthless tactics.

By assuming these roles, cartels appear as protectors rather than criminals, garnering public favor and ensuring loyalty. This complicates government efforts to dismantle their networks, as locals may prefer cartel support over government neglect.

Examples

• Sinaloa cartel billboard campaigns condemned acts of extreme violence by rivals.
• Los Zetas paid for the construction of chapels, gaining public goodwill in outlying regions.
• Cartels often charge "protection fees" for local businesses, replacing ineffective police.

6. Offshoring Allows Cartels to Maximize Profits

Like multinational corporations shifting factories abroad, cartels move operations to countries with weak law enforcement and corrupt systems. Honduras, for example, became a cocaine transit hub between 2009 and 2012 due to its underpaid, easily bribed police force.

Offshoring drug production results in significant savings and profit growth for cartels. Governments address offshoring by highlighting corruption in offending nations to deter foreign investment. Transparency International ranks countries to demonstrate levels of corruption, indirectly pressuring them to reform.

Despite efforts, cartels continue exploiting these low-risk environments while international cooperation remains limited.

Examples

• The lack of resources in Honduras made it an ideal transit point for cocaine.
• Transparency International corruption reports affect foreign investment decisions.
• Neighboring Costa Rica improved its global rating through judicial and police reforms.

7. Franchising Expands Cartel Operations at a Cost

Drug cartels often use franchising to expand territory. Mexico’s Los Zetas franchised operations to local crime groups, sharing drug profits in exchange for protection and cooperation. This strategy secures regional markets while limiting the risk of territorial battles.

However, franchising has drawbacks. It creates overlapping territories where competition arises between syndicates, reducing overall revenue and provoking internal conflicts. Decentralized operations also make monitoring difficult, leading to rogue agents damaging reputations, such as when a Los Zetas affiliate killed a US immigration agent.

Franchising enables growth but creates operational risks cartels must continuously manage.

Examples

• Los Zetas' partnerships with regional gangs minimized initial power struggles.
• Increased cartels’ profits where franchises replaced direct involvement.
• Rogue affiliates within franchises disrupted operations through unauthorized acts.

8. Synthetic Drugs Surge Ahead of Legislation

Innovations in synthetic drug production challenge governments to keep up. Producers tweak the composition of banned substances to create new drugs that remain temporarily legal, such as benzylpiperazine (BZP). This creates a constant game of catch-up between regulators and manufacturers.

Countries combat this by requiring manufacturers to prove their products are safe. New Zealand implemented such rules in 2013, shifting the burden away from prosecutors, though similar legislation is slow to appear globally.

This regulatory race fuels a booming market for synthetic drugs while exposing users to unsafe, untested substances.

Examples

• BZP sales caused public concern yet persisted until its eventual ban in 2008.
• New Zealand’s law placed full responsibility for safety demonstrations on suppliers.
• Synthetic drug producers stayed ahead of bans via constant chemical modifications.

9. People Smuggling Becomes a New Revenue Stream for Cartels

Many cartels have diversified from drugs to people smuggling. Rising border security measures following events like 9/11 made illegal immigration harder, prompting people to turn to cartels for assistance. With up-front payment required, people smuggling offers cartels more financial security than drugs.

This diversification is lucrative, with prices for guided crossings soaring from $2,000 to $5,000, and up to $13,000 with fraudulent documents. Cartels repurpose existing routes, networks, and personnel to dominate this new market quickly.

People smuggling exemplifies cartels’ ability to adapt to market demands and maintain revenue streams amid changing conditions.

Examples

• Border crossing fees skyrocketed as the US tightened immigration security.
• Drug routes were seamlessly converted for human trafficking.
• Upfront payments minimized risks of non-payment or product seizures.

Takeaways

1. Focus on reducing drug demand through consumer education and rehabilitation programs rather than supply-side enforcement.
2. Embrace harm-reduction policies, such as legalizing and regulating certain drugs, to undermine cartels’ market dominance.
3. Strengthen international cooperation and share strategies for combating cartels’ diversified operations globally.