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How to Run a Drug Cartel

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Narconomics.jpg If you missed this week's EconTalk episode with Tom Wainwright of The Economist, you're missing out...whether or not you have any drug-running aspirations. Wainwright's new book, Narconomics, host Russ Roberts calls "a tribute to economics." In his book, Wainwright looks at drug dealers "as a business facing the same incentives competition, and constraints facing legal businesses." Indeed, the business drug cartels most resemble to Wainwright is WalMart. While Roberts and Wainwright don't quite agree whether WalMart (or most Latin American drug cartels) squeeze their suppliers or motivate them to innovate, the parallels between the legitimate and illegitimate worlds of commerce are fascinating.

Perhaps the biggest point of the conversation (and Wainwright's book) is that governments' attempts at attacking the drug problem by focusing on limiting their supply is mistaken. Rather, argues Wainwright, they would be better served by focusing their efforts on the demand side of the market. Wainwright offers evidence that efforts at dissuading people from taking drugs in the first place has the effect of reducing the amount of drugs on the street far more than similarly priced efforts at eradicating supply. As you might expect, Roberts pushes back, asking the larger question whether we want the state involved in trying to stop people from doing something they want to do in the first place, even it is bad for them. He seems to fear a slippery slope...Most things, Roberts pushes, are bad for you in excess, so where would the state draw the line? Cocaine? Chocolate? Soda pop? Wainwright's description of the cat-and-mouse regulation race for "legal highs" in New Zealand is illustrative on this point.

To me one of the most interesting parts of the conversation was the discussion of "corporate social responsibility," which Wainwright says is deeply ingrained in cartel leaders. Even the outcomes of cartel-style CSR might look much the same as in the legitimate business sector. Cartels must count on a "reasonable level of support" from their local community, says Wainwright. Cartel leaders may invest in such things as sports facilities, public housing, and pensions. Of course, they may also use threats of (and sometimes actual) violence. And there are other more "blunt" ways cartels try to curry favor with the locals and the local journalists, which often involve trying to defame rival cartels.

The penultimate part of the conversation focuses on cartels' more recent efforts at 'diversifying' their enterprises, particularly into "people smuggling." The US Border Patrol, chides Wainwright, has unwittingly created a tremendous profit opportunity for cartels by raising the price of border crossings. In some ways, people crossing borders are a lot like drugs crossing. Wainwright thinks it implausible that the American government will ever be able to secure the border as the amount of illegal crossing (of people and/or drugs) is such a minute proportion of the total legal crossings, it's like looking for a needle in a haystack.

The conclusion of the conversation focuses on the effects of the recent wave of marijuana legalization on Latin American drug cartels. I'll leave it to you to decide whether these recent efforts are net positive or negative. Perhaps you'll share your thoughts with us in the Comments!




COMMENTS (3 to date)
David R. Henderson writes:

@Amy,
Does Wainwright make the case that the alleged cartels really are cartels?

Amy Willis writes:

@David, Not in the episode...They do discuss the extent to which the cartels (and WalMart) are true monoposonists...

JC writes:

I find the topic of this article to be very interesting. I find the disputes of the drug cartels and what is being done to be very intriguing. It sounds like in one part of the article, the experts are talking about the opportunity costs of attacking the cartel’s drug supply and the opportunity cost of targeting the demand side of the situation. Apparently, choosing to target the demand side would be more effective in shutting down the cartels. The lower the demand of drugs, the lower the supply of drugs. I also think that the comparison of drug cartels to your everyday local Walmart to be fascinating.
I never would have thought to make the connections between Walmart and a drug cartel. Then there is the part where the experts discuss what is being done at the border to help stop the drug smuggling. I don’t think anyone will ever completely contain all the problems at the border. Given that there is so many illegal immigrants coming in to our countries, it would be difficult to stop all the people that are bringing drugs into this country because that group would be infused with all the other thousands of people coming in to the states. I feel like the opportunity cost of fixing the problems at the border be up there with the opportunity cost of attacking the cartel’s supply.

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