Narconomics

Narconomics

Tom Wainwright

Spotters fly up and down in light aircraft, looking out for the telltale terraces that show that coca production is under way. Farmers have gotten better at hiding their crops, but the authorities are now better at seeking them out. Nowadays the spotters’ planes are helped by satellites, which take detailed images of the countryside for experts to pore over to try to tell the difference between legal plantations of bananas or coffee and illicit ones of coca. Armed with these maps, soldiers are sent to destroy the crops by hand. In Colombia, some of the eradication has been done by spraying the farmland with weed killer from light aircraft.

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Peru’s crackdown triggered a coca-growing boom in Colombia. When Colombia redoubled its efforts and drove the farmers out, the coca terraces reappeared in Peru. Western observers call this the “balloon effect”: if you squeeze in one place, it bulges up somewhere else. Latin Americans have an earthier name for the same phenomenon—the “cockroach effect.” Just like cockroaches, you can chase drug traffickers out of one room, but they soon take up residence somewhere else in the house.

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In the same way that a monopolist can dictate prices to its consumers, who have no one else to buy from, a monopsonist can dictate prices to its suppliers, who have no one else to sell to. If you want to reach a really big audience of consumers, the theory goes, you have to be in Walmart. The store knows this and is therefore able to squeeze suppliers hard. A survey by Forbes magazine found that suppliers that sold a high proportion of their goods through Walmart on average had lower profit margins than those that did less business with the store. The difference was most pronounced in the apparel market: clothing manufacturers that sold less than 10 percent of their products through Walmart were able to maintain an average margin of 49 percent, whereas those that sold more than 20 percent through the store averaged only 29 percent.4

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it’s not that the eradication strategy is having no effect. Rather, the problem is that its impact is felt by the wrong people. The cartels’ Walmart-like grip on their supply chains means that any worsening in coca-growing conditions simply makes poor farmers even poorer, without doing much to cut the cartels’ profits or raise the price of cocaine for consumers.

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The idea is that if it can be made more profitable to grow some other, legal crop than it is to grow coca, then farmers will change their focus. There is interest among cocaleros. Even Édgar Marmani, the local union leader, says he would consider switching to other industries if the start-up costs were lower. “Poultry, tomatoes, pork—they’re all more profitable than coca, but they need investment,” he complains. The European Union has put forward some cash to meet that need, funding projects in Bolivia that encourage the cultivation of bananas, coffee, and citrus fruits, among other things.

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Attempts to raise the price of cocaine by forcing up the cost of coca leaves is a bit like trying to drive up the price of art by raising the cost of paint. Gerhard Richter, whose canvases sell for up to $46 million, would not lose sleep if the price of the oil paints used in his works of art doubled, or even quintupled. And in the same way, as long as counternarcotics agencies focus their fire on the earliest, lowest-value stages in the cocaine supply chain, the drug cartels need not worry too much about their bottom lines.

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The six Mexican states that border the United States have among the highest murder rates in Mexico. The only places that rival them are states that are home to big ports, such as Veracruz and Michoacán, which are highly prized by cartels for the same reason. Precisely because these points of entry are scarce, drug traffickers are prepared to fight tooth and nail to control them.

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I ask Miguel why he is allowing so much space between cars when he stops at traffic lights. “In case of a shootout,” he shrugs. Red traffic lights are a favorite place for hit men to assassinate their targets, so having a few feet between you and the car in front could be the difference between escaping and being hemmed in.

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In a strange twist, Rudolph Giuliani, the mayor of New York City who made inroads into that city’s murder rate in the 1990s, was hired by a private-sector organization to advise on how to pull off the same trick in San Salvador. His input failed to pacify the gangs, who merrily carried on their murderous ways.

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The root cause of the brutal competition for control of cities such as Ciudad Juárez in Mexico is the necessity to control access to the limited number of border crossings. The high levels of violence in border towns have led to calls from some people in the United States for crossings to be shut down. Yet economics suggests the opposite: by opening more of them, each would become less valuable, and less worth fighting for. True, it would give cartels more opportunities to smuggle their drugs into the United States. But clampdowns on supply have tended to have little impact on the total amount of contraband being smuggled, or on the drugs’ price (see Chapter 1). Opening more border crossings could reduce the amount of fighting, with little impact on the American illegal-drugs market.

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The first human-resources problem for drug cartels is finding potential employees with the right sort of criminal background. Someone looking to solve this problem could hardly come up with a more perfect solution than a prison: a place full of criminals, with nothing much to do and no job lined up for after their release.

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(Loneliness is a sad feature of women’s imprisonment everywhere in the world; husbands are much less diligent than wives when it comes to keeping in contact during the sentence.)

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rather than being run along the principles of a “partnership,” as with such gangs as La Nuestra Familia, or employing large numbers of full-time members, as do gangs like Barrio 18, rich-world traffickers often rely on a network of casual freelance workers, none of whom knows too much about the others.

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Because of the difficulty involved in hiring new employees, and in making new contacts in the import and export game, drug traffickers may in fact be more forgiving of mistakes than legitimate firms, they suggest: “Given the impediments to information flows in these markets, relationships may be even more important than in legal markets.”

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Even among cartels that are less picky about skin color, it seems that cultural and linguistic ties count for a lot. Spain is the main gateway to Europe for Latin American drugs. Similarly, the studies mentioned above of Britain and the Netherlands found that a large number of the foreign subjects interviewed was from former British and Dutch colonies in the Caribbean.

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(Smuggling cash out of Europe is made much easier by the existence of the €500 bill, a ludicrously high-value banknote that has made life much easier for criminals, who can hide €20,000 in a single cigarette packet. In some European countries the bills are known as “bin Ladens”: everyone knows they exist, but no one apart from criminals ever sees them.)

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Unlike in the legitimate business world, then, race and nationality do seem to count for something when it comes to hiring—though the reason has more to do with the greater potential to carry out blackmail than with a preference for working with people of the same ethnic group.

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Penal reformers have long claimed that “prison doesn’t work.” This is only partly true: for drug cartels, prison works brilliantly. Jails provide a place to hire and train new members of staff, something that is normally extremely difficult for criminal organizations to do becaUSe of the constraints imposed by the illegality of their bUSiness. From kingpins such as Carlos Lehder to vulnerable young Dominicans looking for protection and employment, thoUSands of people every year are guided into a career in crime by a stint behind bars. How misguided it was to send low-level offenders to these universities of crime was apparent even to Richard Nixon, the first US president to declare a “war” on drugs. “To take somebody that’s smoked some of this stuff [cannabis], put him into a jail with a bunch of hardened criminals . . . that’s absurd. . . . There mUSt be different ways than jail,” he said in a private conversation recorded in the Oval Office in 1971.10

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At the time of Nixon’s remark, the country’s prison population stood at about 200,000. It is now 1.6 million.

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Sending a teenager to jail costs more than it would to send him to Eton College, the private boarding school in England that educated Princes William and Harry. It seems especially odd that the United States, a country with a proud history of limited government, is so unquestioningly generous when it comes to this particular public service, on which it blows $80 billion a year. Does it really need to lock up five times as many people per capita as Britain, six times as many as Canada, and nine times as many as Germany?11

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Under the old Dominican system, half of all inmates reoffended within three years of their release. Under the new system, fewer than 3 percent do. Both of those figures are probably underestimates, which reflect the country’s limited ability to detect and prosecute crime. But the difference is stark. For organized-crime groups, steering inmates into criminal careers is far easier under the older, more punitive regime. Better jails make for worse job centers.

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if one can hamper cartels’ recruitment by limiting the flow of apprentices coming through prison, one can tighten up the criminal labor market. For one thing, this will force criminal organizations to pay their employees higher wages, cutting into their profits. It will also deter them from violently quarrelling with the employees they have. One can only treat members of staff as disposable if there is a steady stream of replacements lined up.

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(“legalized lying” is how H. G. Wells described the advertising business; “the rattling of a stick inside a swill bucket” was George Orwell’s take),

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In Ciudad Juárez, a pathologist once told me that the most dangerous time to step outside was at 5:45 p.m., because that was when the cartels would carry out their murders in order to lead the 6:00 p.m. evening news.

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Ryanair has no time for green campaigners. “We want to annoy the fuckers whenever we can. The best thing you can do with environmentalists is shoot them,” Michael O’Leary, its pugnacious boss, has said.

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Buy cocaine in Europe or the United States and it is an uncomfortable certainty that you have helped to pay for someone to be tortured to death in a place like Reynosa. People ought to know this. It is a testament to the success of cartels in laundering their images that millions of consumers buy drugs each year without giving a moment’s thought to the fact that they are funding unimaginable suffering.

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Honduras is now the number-one supplier of cotton socks and underwear to the United States. The low cost of labor in Honduras—average income per person is about $45 a week—has made the country a natural base for companies looking to lower their costs by setting up outposts overseas.

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The rock was seized and given back to the government of Honduras. The full details of the strange tale are recorded in what is perhaps the weirdest case name in American legal history: United States of America v. One Lucite Ball Containing Lunar Material (One Moon Rock) and One Ten Inch by Fourteen Inch Wooden Plaque.5

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“banana republic,” so called because its politicians were so easily bribed and bossed around by the foreign fruit companies that arrived in the nineteenth century. The president of the day was ousted in 1974 after it emerged that he had accepted $1.25 million from the United Fruit Company in return for lowering certain export tariffs.

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In 2013, nearly one in every thousand people in Honduras was killed, the highest murder rate in the world,

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Jack Welch, a former head of General Electric, has mused that it would be handy for a firm to have its factories on giant barges, so that they could be floated around the world, docking in whichever country offered the best economic conditions at the time. Carl Gerstacker, a former chair of Dow Chemical, had a similar idea: “I have long dreamed of buying an island owned by no nation and of establishing the world headquarters of the Dow company on the truly neutral ground of such an island, beholden to no nation or society,” he once said. For the big-thinking executive, national borders belong in the twentieth century.

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Doing Business” is a three-hundred-page document of tables and charts that looks rather dry but has the power to cause elation and despair in boardrooms and finance ministries around the world. In “Doing Business,” the World Bank’s experts rank nearly two hundred countries on how easy they make it for companies to operate. The report shows, for instance, how long it takes to register a new firm (from just half a day in New Zealand to 144 days in Venezuela), and how many forms a company must fill out if it wants to import something

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The World Economic Forum’s rankings could almost have been designed with drug cartels in mind. Its analysts helpfully rate countries according to things such as how widely accepted bribery is, how corruptible judges are, how reliable the police force is, and even what presence organized crime already has in the country. Drug cartels wanting to know where they are going to find it easiest to outgun the local cops, bribe the judges, and get the business community to launder their cash only need read the index.

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Franchising as we now understand it first became prominent in the business world in the nineteenth century, when the Singer sewing machine company gave salesmen the exclusive right to sell their machines in particular regions of the United States, in return for a cut of their sales.

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