David R. Henderson  

Are the Illegal Drug Suppliers Really Cartels?

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I was watching a TV show last night about some of the ingenious ways that drug suppliers use to move drugs across the border: well-built tunnels, a crane lifting a vehicle over the wall, a catapult heaving drugs over the wall, and a large truck with tracks up one side of the wall and down the other so that a drug-filled vehicle could drive over.

At each point in the show when the narrator talked about suppliers of illegal drugs, he referred to them as "cartels." This has become standard usage. In fact, it's rare any more to hear suppliers not referred to as cartels. But are they? The defining characteristics of cartels are that they get together to fix the price and agree to limit production. Do these firms do that? I know that the government limits production by going after producers. But do the firms do it?

Do any of you know? Facts with links, rather than just speculation, would be most appreciated.

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CATEGORIES: Business Economics

COMMENTS (10 to date)
William Bruntrager writes:

This may just be an issue of translation from Spanish to English. Wikipedia indicates that "cartel" is the Spanish-language equivalent of "mafia."


Hugh writes:

The Oxford English Dictionary gives the following definition of cartel:

an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting comptetition: the Columbian drug cartels.

It seems that the English definition may be slightly different from the Economic one.

David R. Henderson writes:

@William Bruntrager,
The OED definition is the same as the economists’ one. But the OED gives an example, Colombian drug cartels, without explanation. My question is whether they are cartels.

Denise writes:

I know that the beef industry has been accused of forming cartels to keep the prices of meat higher.

Sam writes:

This NYTimes blog post from 2009 says that they are not currently cartels and quotes a Mexican economist complaining about the misuse of terminology--

When a Cartel really isn't

David R. Henderson writes:

Thanks so much, Sam. This is exactly what I thought and you confirmed it. It’s just sloppiness on the part of the media; what else is new?

Randall McElroy writes:

The RAE (the Spanish equivalent of the OED) definition of cartel has separate entries for each sense given above. It also says the word comes from German Kartell, which means cartel in the economic sense (according to dict.leo.org).

So it looks like the economist in that NYT link is right. It's just sloppy usage.

Mike writes:

This is what Wikipedia says:

"Drug cartels are criminal organizations developed with the primary purpose of promoting and controlling drug trafficking operations. They range from loosely managed agreements among various drug traffickers to formalized commercial enterprises. The term was applied when the largest trafficking organizations reached an agreement to coordinate the production and distribution of cocaine. Since that agreement was broken up drug cartels are no longer actually cartels in the proper sense of the word, but the term stuck and is now popularly used to refer to any criminal narcotics related organization"

It seems the author is implying that at one time they actually did act like economic cartels.

The NY Times article also seems to verify this:

"... the term made some sense in Mexico in the 1970s when Miguel Ángel Félix Gallardo, who was known as The Godfather, ruled the drug world in the Mexican state of Sinaloa, without considerable opposition. Mr. Félix Gallardo was jailed in 1989 and he began doling out his turf from behind bars, resulting in a fragmentation in what had been a cohesive cartel."

Gabriel Rossman writes:

I don't know about the Sinaloa cartel, the Zetas, etc, but in Killing Pablo, Mark Bowden explains that the Medellin Cartel basically worked by charging protection money from smaller smugglers. I don't remember anything in the book about restricting supply and indeed, Bowden emphasizes that smugglers had a fair amount of autonomy from Escobar so long as they paid him tribute. It's kind of like in Casino when Joe Pesci's character (based on Tony Spilotro) talks about how Vegas was great because it was full of small-time criminals he could shake-down.

There's a similar description of the Mexican Mafia as a stationary bandit in the current APSR.

Also, my understanding is that the black tar market based in Xalisco involves very little violence and is a model of perfect competition driving up supply and driving down price.

GregS writes:

I wish I could give you a more precise link, but I'm sure I've heard Jeffrey Miron speak about this. I've heard him say that the dealers just aren't very good at keeping out the competition; I think he speaks about this on his Planet Money (on NPR) interview. If not there, it was from one of his (few) interviews I pulled off the i-Tunes database.
I am surprised his name doesn't come up more often on the econ blogs I read, including this one. He's the expert on the economics of drug laws, which is one of the great civil rights issues of our time. I'd think his name would come up a lot more in libertarian circles. Anyway, he's published numerous papers on the causes of drug prices. My suggestion is to look there, if you want a little more than a news article.

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