Introduction
In "Narconomics," Tom Wainwright takes readers on a fascinating journey into the world of drug cartels, examining how these criminal organizations operate using principles similar to those of legitimate businesses. The book provides a unique perspective on the global drug trade, drawing parallels between the strategies employed by cartels and those used by major corporations.
Wainwright's approach is both innovative and eye-opening, as he applies economic concepts to analyze the drug industry. By doing so, he offers fresh insights into why traditional methods of combating the drug trade have often failed and suggests alternative approaches that might prove more effective.
The book covers a wide range of topics, from the supply chain of drugs to the recruitment practices of cartels, and even their attempts at corporate social responsibility. Through this economic lens, Wainwright reveals the complex inner workings of drug cartels and challenges many common assumptions about the war on drugs.
The Flawed War on Drugs
One of the central themes in "Narconomics" is the ineffectiveness of the US government's approach to combating the drug trade. Wainwright argues that the focus on attacking the supply side of the drug industry is fundamentally flawed and has failed to achieve its intended goals.
The author points out that since President Richard Nixon launched the "war on drugs" in 1971, drug incarceration rates in the United States have skyrocketed. However, this increase in enforcement has not led to a decrease in drug production or consumption. In fact, the global drug market is more lucrative than ever before.
Wainwright explains that the US government's strategy of targeting drug production in source countries, such as crop dusting in South America, has led to what researchers call the "balloon effect." This phenomenon occurs when pressure is applied to one area of the drug trade, causing it to simply move to another location, much like squeezing a balloon causes the air to shift but doesn't reduce its overall volume.
For example, when the government cracks down on coca crops in one South American country, cartels simply relocate their operations to another country. This constant shifting of production means that the overall supply of drugs remains relatively stable, despite efforts to reduce it.
Moreover, the author argues that by focusing on farmers rather than cartels or consumption, the US "war on drugs" fails to address the root causes of the drug trade. Cartels operate as monopsonies, meaning they are the sole buyers of crops from farmers. This gives them significant power over the farmers, who have little choice but to sell their crops to the cartels.
Wainwright also highlights the economic principle that when supplies decrease, consumers become willing to pay higher prices for the same amount of drugs. This means that even if supply is reduced, the yearly revenue generated from drugs may remain the same or even increase.
The Impact of Marijuana Legalization
One of the most significant threats to drug cartels, according to Wainwright, is the legalization of marijuana. The author presents a compelling case for how legalization can weaken cartels while generating revenue for governments.
The US marijuana industry is estimated to be worth around $40 billion annually, with $7 billion coming from the legal market. By legalizing marijuana, governments can become direct competitors to cartels while also benefiting from tax revenue.
Wainwright explains that legal marijuana crops can be grown in better conditions, resulting in higher quality products than what cartels typically offer. This forces cartels to reduce their prices to compete, thereby cutting into their profits.
The author uses the example of Colorado, where marijuana was legalized in 2014. Just one year later, marijuana sales by licensed head shops reached $996 million, with $135 million going to the state's tax coffers. This demonstrates the potential economic benefits of legalization for governments.
Moreover, legalization offers benefits to consumers as well. Government supervision and regulation of marijuana production can help ensure product safety, reducing health risks associated with consuming contaminated or adulterated drugs. Legalization also allows for innovation in the industry, leading to a wider variety of products and potentially higher customer satisfaction.
Wainwright describes how Colorado has introduced a "cannabis menu" in head shops, providing customers with detailed information about the expected effects, side effects, and potential health risks of different marijuana products. This level of transparency and consumer information is simply not possible in the illegal drug market.
Competition and Collusion Among Cartels
"Narconomics" provides an intriguing look at how drug cartels interact with each other, exploring two main models: competition and collusion. Wainwright uses real-world examples to illustrate how these economic principles play out in the violent world of drug trafficking.
In Mexico, the author describes a landscape of fierce rivalry between cartels, exemplified by the brutal conflict between the Juárez Cartel and the Sinaloa Cartel. This competition has led to shocking acts of violence, including public displays of mutilated bodies and an estimated 60,000 deaths between 2006 and 2012 in Juárez alone.
On the other hand, Wainwright presents the case of El Salvador, where cartels have chosen to collude rather than compete. In this scenario, cartels set high prices and divide territories among themselves, sharing profits. While this arrangement doesn't decrease drug consumption or the number of people involved in the trade, it has had an unexpected positive consequence: a significant reduction in violence.
The author provides striking statistics to illustrate this point. In 2009, before the cartels began colluding, El Salvador's murder rate was 71 per 100,000 people. After the 18th Street Gang and Mara Salvatrucha partnered and divided the country into sectors, the murder rate dropped to 33 per 100,000 people by 2012.
Wainwright's analysis shows that while neither competition nor collusion affects the rate of drug sales and consumption, collusion can be more beneficial to communities due to the reduction in violence. This insight challenges conventional wisdom about how to address drug-related violence and suggests that encouraging cooperation between cartels, counterintuitive as it may seem, could potentially save lives.
Cartel Human Resources and Recruitment
One of the most fascinating aspects of "Narconomics" is Wainwright's exploration of how drug cartels handle human resources and recruitment. The author draws parallels between the challenges faced by legitimate businesses in finding and retaining talent and the similar issues confronted by criminal organizations.
Wainwright explains that cartels can't simply advertise job openings or use professional networking sites like LinkedIn. Instead, they often turn to alternative sources for recruitment, with prisons being a prime hunting ground. Cartels target inmates, knowing that their criminal records will make it difficult for them to find legitimate employment upon release.
The author uses the example of the Mexican Mafia, a US-based cartel, to illustrate this point. The cartel reaches out to new inmates not only to offer them future employment but also to provide them with work while they're still incarcerated. This work might include extortion or threatening violence against other inmates. Once released, these recruits are then set to work on drug trading and smuggling operations.
Wainwright also delves into the challenges cartels face in maintaining employee loyalty, which he frames as a "collective action problem." This economic concept refers to the conflict between group interests and individual interests. In the context of drug cartels, the challenge is ensuring that employees don't steal from the organization.
The author uses the example of Nuestra Familia, a California-based organization, to show how cartels address this issue through power distribution. Nuestra Familia operates with a hierarchical structure of generals, lieutenants, and soldiers. Power is distributed in a way that allows lower-ranking members to hold their superiors accountable. For instance, while a general can fire captains, they cannot hire replacements without the approval of lieutenants. This system helps ensure fairer treatment of members and promotes loyalty.
Corporate Social Responsibility in the Drug Trade
In a surprising parallel with legitimate businesses, Wainwright reveals how drug cartels engage in activities akin to corporate social responsibility (CSR). Just as major brands use CSR as a public relations tool, cartels attempt to improve their image in the communities where they operate.
The author explains that cartels often try to present themselves in a more positive light compared to their rivals. For example, the Sinaloa cartel in Juárez put up billboards condemning violence and proclaiming that they would never target women and children or engage in kidnapping and extortion. This strategy aims to differentiate them from other cartels and gain public support.
Wainwright also describes how cartels position themselves as heroes filling the gaps left by inadequate public services. In areas where law enforcement and social security are lacking, cartels step in as protectors and patrons. They distribute money to the poor through "drug alms" (narcolimosnas) and fund the construction of churches and chapels.
The author notes that cartels even offer a form of security service to individuals. For a fee, people can hire cartels to protect them or threaten those who are causing them trouble. In this way, cartels attempt to fill the role traditionally held by police forces.
This insight into the PR strategies of drug cartels provides a fascinating look at how these criminal organizations attempt to legitimize themselves and gain support from local communities. It also highlights the complex relationship between cartels and the populations they operate among, showing that the situation is often more nuanced than simply "good guys" versus "bad guys."
Offshoring in the Drug Industry
Wainwright draws another interesting parallel between legitimate businesses and drug cartels by examining how both use offshoring to increase profits. Just as companies move production overseas to save money, cartels exploit weak governmental institutions and loosely enforced laws in certain countries to their advantage.
The author uses Honduras as an example, where low police salaries and limited resources create an environment ripe for exploitation by drug cartels. Officers can be easily bribed or intimidated, making it difficult to enforce anti-drug laws. As a result, Honduras became a major hub for cocaine smuggling flights between 2009 and 2012, handling approximately 75 percent of such traffic.
Wainwright explains that governments fighting the war on drugs attempt to combat this offshoring through international pressure and public shaming. Organizations like Transparency International publish yearly corruption indexes that rank countries based on factors such as the prevalence of bribery, attitudes toward politicians, use of public funds, and crime rates.
These reports serve a dual purpose. They not only highlight which countries are making life easy for drug cartels but also provide valuable information for transnational companies looking to invest overseas. Countries with high levels of corruption and crime are less attractive to legitimate businesses, creating an incentive for these nations to improve their law enforcement and reduce corruption.
The author contrasts Costa Rica with Guatemala and Honduras to illustrate this point. While Guatemala and Honduras struggle with high murder rates and endemic corruption, Costa Rica has improved its standing due to the impartiality of its judges and the reliability of its police forces. This improvement makes Costa Rica a more attractive destination for legitimate international investment.
The Double-Edged Sword of Franchising
In one of the book's most intriguing sections, Wainwright explores how drug cartels have adopted franchising models similar to those used by fast-food chains like McDonald's. This strategy allows cartels to expand their territory and secure steady revenue streams, but it also comes with significant risks.
The author explains that franchising enables cartels to gain access to new markets without the need to directly control operations in those areas. He uses the example of Los Zetas, a Mexican criminal syndicate, to illustrate this point. Los Zetas identified regional markets they wanted to influence and partnered with local leaders who became franchisees.
This approach allowed Los Zetas to share profits with local leaders rather than engaging in costly and violent conflicts to gain control of new territories. The franchisees, in turn, provided protection for Los Zetas' local operations and supplied arms to their staff. Through this model, Los Zetas could secure a certain amount of money without risking the lives of their members or overspending on expanding into new regions.
However, Wainwright points out that franchising is a double-edged sword for cartels. One major drawback is the potential for competition within a territory, which can lead to a loss of revenue. Just as two McDonald's restaurants opening next to each other would split the available customer base, multiple franchisees operating in the same area can lead to reduced profits and increased tension.
Furthermore, the decentralization of power that comes with franchising makes it harder for cartels to maintain control and ensure adherence to their rules. The author cites an incident where a Los Zetas member murdered a US Immigration and Customs agent in Mexico, breaking an unwritten rule among Mexican cartels to never kill American law enforcement officials. This action led to increased arrests by American and Mexican authorities, significantly hampering cartel operations.
The Challenge of Synthetic Drugs
Wainwright dedicates a portion of "Narconomics" to discussing the growing challenge of synthetic drugs, which pose a significant problem for governments trying to combat the drug trade. These drugs can be created and sold legally until they're made illicit, at which point manufacturers simply alter their chemical composition to create a new, technically legal drug.
The author uses the example of benzylpiperazine (BZP), a drug originally designed as an antiparasitic agent for cattle but which produces effects in humans similar to amphetamines. When BZP was outlawed in 2008, drug dealers simply moved on to chemically altered versions of other amphetamines that produced similar highs but were not yet illegal.
This creates a cycle that presents enormous regulatory challenges for governments. As soon as one drug is banned, manufacturers alter its composition to create a new legal alternative. This leads to a constant game of cat and mouse between drug makers and regulators.
Wainwright explains that some governments are attempting to address this issue by increasing safety procedures and creating labs to test the safety of new drugs as soon as they start circulating. Others have changed legislation to shift the burden of proof onto drug manufacturers. In New Zealand, for example, laws were changed in 2013 to require drug manufacturers to prove that their products were safe, rather than requiring prosecutors to prove they were dangerous.
This insight into the world of synthetic drugs highlights the complexity of modern drug policy and the need for innovative approaches to regulation and enforcement.
Diversification into People Smuggling
In the final sections of "Narconomics," Wainwright explores how drug cartels diversify their operations to increase revenue, often by expanding into people smuggling. This strategy mirrors the diversification efforts of legitimate businesses, such as when Coca-Cola ventured into the wine industry in 1977.
The author explains that many cartels have expanded from drug smuggling to people smuggling, particularly across the United States-Mexico border. This shift is driven by economic incentives, as increased security measures following 9/11 have made it more difficult for people to cross borders legally, creating a market for smuggling services.
Wainwright points out that people smuggling offers certain advantages for cartels over drug smuggling. While drugs can be seized at the border, preventing cartels from receiving payment, those seeking to cross the border illegally typically pay up-front. This provides cartels with more financial security.
The author provides some eye-opening figures on the cost of being smuggled across the border. A foot crossing with a guide but without documents has increased from $2,000 to $5,000, while crossing with fraudulent documents now costs around $13,000, up from $5,000 previously.
Wainwright argues that cartels have been able to easily adapt their existing structures and networks for drug smuggling to accommodate people smuggling. Both operations require knowledge of border crossings, corrupt officials, and safe houses, making it a natural expansion for many cartels.
The Challenge of International Cooperation
Throughout "Narconomics," Wainwright emphasizes the global nature of the drug trade and the challenges this poses for law enforcement. He points out that widely differing drug laws in different countries have limited international cooperation on what is truly a global problem.
The author highlights the strange position of the director of the White House Office of National Drug Policy, who must speak out against marijuana growing and sales abroad while some U.S. states have legalized the drug. This inconsistency in policy makes it difficult to present a united front against the international drug trade.
Wainwright suggests that a more coordinated, global approach to drug policy is necessary to effectively combat the drug trade. However, he acknowledges the significant challenges in achieving this, given the varying attitudes towards drugs and law enforcement in different countries.
Conclusion
In "Narconomics," Tom Wainwright provides a fresh and insightful perspective on the global drug trade by applying economic principles to the operations of drug cartels. Through this lens, he reveals the sophisticated business strategies employed by these criminal organizations and challenges many common assumptions about how to combat the drug trade effectively.
The book's key message is that drug cartels, at their core, operate much like any other business. They face challenges in human resources, public relations, expansion, and diversification. They respond to market forces, seek to maximize profits, and adapt to changing regulations and enforcement efforts.
Wainwright's analysis suggests that traditional approaches to the war on drugs, which focus primarily on attacking the supply side, have been largely ineffective. Instead, he proposes that understanding the economic motivations and strategies of cartels could lead to more successful policies for combating the drug trade.
The author's exploration of topics such as the potential benefits of marijuana legalization, the unintended consequences of cartel competition versus collusion, and the challenges posed by synthetic drugs all point to the need for more nuanced and economically informed approaches to drug policy.
Moreover, Wainwright's examination of how cartels have diversified into people smuggling and adapted to changing market conditions underscores the adaptability and resilience of these criminal organizations. This suggests that effective policies must be equally adaptable and forward-thinking.
Ultimately, "Narconomics" offers a compelling argument for rethinking our approach to the global drug trade. By understanding drug cartels as businesses responding to economic incentives, Wainwright suggests we may be better equipped to develop strategies that truly undermine their operations and reduce the harm caused by the illegal drug trade.
The book leaves readers with a deeper understanding of the complexities of the global drug trade and the challenges faced in combating it. It also raises important questions about the effectiveness of current drug policies and the potential for alternative approaches based on economic principles.
In conclusion, "Narconomics" provides a unique and valuable contribution to the ongoing debate about drug policy. By framing the issue in economic terms, Wainwright offers fresh insights that could inform more effective strategies for addressing one of the most persistent and damaging criminal enterprises in the world.