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Narconomics

How to Run a Drug Cartel

By Tom Wainwright
16-minute read
Audio available
Narconomics: How to Run a Drug Cartel by Tom Wainwright

Narconomics (2016) gives us a tour of the business side of the $300-billion global narcotics industry. From human resources to PR to franchising and diversification, these blinks show how drug cartels run their operations not unlike highly successful businesses. By exploring the economic phenomena at work behind the world’s drug problem, the author presents new insights into how governments can defeat it.

  • Students looking for fascinating applications of micro and macroeconomics
  • Readers interested in alternative perspectives on social issues
  • Anyone curious as to how the narcotics industry really works

Tom Wainwright is the UK editor for the Economist magazine. As a journalist and correspondent, he has also formerly covered Mexico and Central America for the Economist. His writing has been published in the Times, the Guardian, and the Literary Review.

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Narconomics

How to Run a Drug Cartel

By Tom Wainwright
  • Read in 16 minutes
  • Audio & text available
  • Contains 10 key ideas
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Narconomics: How to Run a Drug Cartel by Tom Wainwright
Synopsis

Narconomics (2016) gives us a tour of the business side of the $300-billion global narcotics industry. From human resources to PR to franchising and diversification, these blinks show how drug cartels run their operations not unlike highly successful businesses. By exploring the economic phenomena at work behind the world’s drug problem, the author presents new insights into how governments can defeat it.

Key idea 1 of 10

The US government’s efforts to attack the supply side of the drug industry are flawed.

It was in 1971 that then-US President Richard Nixon launched the “war on drugs.” Between then and now, drug incarceration rates have shot up exponentially in the United States. But the amount of drugs being produced and consumed globally has not decreased; in fact, there’s more money in the drug market right now than ever before. How is this possible?

Presumably, the US government wanted to tackle the drug problem at its root. As such, drug policy has been designed to attack the drug industry in one area – supply. Take crop dusting in South America, for instance.

South American countries are an important source of many of the drugs that enter the United States. So, the US government entered into agreements with these nations to crack down on the farming of coca leaves by “crop dusting” them – that is, spraying pesticides on crops from low-flying planes to destroy them. This seems like a logical fix, right? After all, it’ll be harder for the drug industry to flourish if it doesn’t have the supply to meet demands.

Unfortunately, things aren’t so simple. This approach has led to what researchers call the balloon effect. The phenomenon gets its name from the way that when one part of a balloon is squeezed, the air inside moves, but the volume of the air itself doesn’t decrease.

Like air inside a balloon, cartels can also move around, in this case from one area of South America to another. When one government cracks down on coca crops, cartels just pack up and move to another country. As a result, the problem keeps moving around, but never really disappears.

That’s not the only issue with the US government’s approach. Their supply-side attack targets farmers, without ever directly confronting cartels or consumption – two aspects without which the drug industry wouldn’t exist.

Cartels can be described as monopsonies, that is, single buyers. Cartels decide how much to pay farmers, who are essentially at their mercy. By targeting impoverished farmers and not the cartels, the US “war on drugs” hardly gets to the real root of the problem.

What’s more, when supplies decrease, consumers become okay with paying more for the same amount. Therefore, yearly revenue generated from drugs will remain the same or grow, even if supply decreases.

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