Narconomics Book Summary - Narconomics Book explained in key points

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Narconomics summary

Name: Narconomics
Rating: 4.5 (43 reviews)
Author: Tom Wainwright

Tom Wainwright

How to Run a Drug Cartel

4.5 (43 ratings)

24 mins

Table of Contents

Narconomics
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What’s in it for me? Learn more about the worldwide drug industry.

The Mexican government estimates that, between 2007 and 2014, more than 164,000 people died in the war waged against the country’s drug cartels. Despite massive efforts to combat them, the cartels have grown to become enormous enterprises, no longer just selling drugs, but playing a vital role in human trafficking as well.

So how do these cartels work? How have they been allowed to grow to become such a big problem?

These questions are exactly what these blinks will aim to answer, taking a detailed look at the drug industry, both in terms of how its members operate and relate to the challenges of the market, as well as the challenges for governments trying to stop them.

In these blinks, you’ll discover

why the legalization of drugs could be advantageous to society;
why cutting the amount of drugs can lead to higher profits for the cartels; and
how some drug cartels recruit their members.

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.

Legalization of marijuana is one major threat to cartels.

It’s estimated that the US marijuana industry makes a whopping $40 billion each year. A total of $7 billion comes from the legal marijuana market, which is a fairly significant proportion. How does an economic arrangement like this benefit a government fighting a war on drugs?

Well, legalizing marijuana allows the government to weaken drug cartels and generate revenue while doing so, by becoming the cartels’ rival and through taxation, respectively.

Drug cartels engage in both competition and collusion.

We’ve learned about the relationships between governments and cartels, but how do cartels behave toward each other? Well, from an economic standpoint, there are two possible models: competition and collusion.

In Mexico, rivalry reigns as drug cartels compete violently with each other. Take the city of Juárez for example; the Juárez Cartel and the Sinaloa Cartel are now famous for their brutal and public acts of vengeance against one another, which include dumping decapitated bodies on roadsides or hanging corpses from signs along the highway.

Recruiting employees and ensuring they stay loyal aren’t just concerns for companies, but of drug cartels too.

Finding the right person for the job can be a headache for any business. But if you’re a drug cartel operating in total secrecy, you can’t just pop an ad in the newspaper or on LinkedIn when you need staff. So where do drug cartels find their new recruits?

Doing human resources for drug cartels means looking in alternative places, like prisons. Cartels target inmates knowing that it’ll be difficult for them to find normal jobs back on the outside. Joining a cartel is a way for inmates to make sure they have work once they’re released.

Drug cartels, like big brands, use social responsibility as a PR tool.

These days, we expect businesses to demonstrate social responsibility. Some invest in employee health care, while others lead campaigns to support charities. But in most cases, businesses don’t do these good things to be good; most of the time, it’s a strategic public relations ploy. They simply want to look good and boost their brands above competitors.

Interestingly enough, the same applies to drug cartels. Despite their unsavory line of business, cartels are known for trying to market themselves in a better light than their rivals. A common strategy is to decry the drug-related violence in their communities.

Both corporations and cartels use offshoring as a means to increase profits.

Ever wondered why certain consumer objects can be sold so cheaply? Low prices are usually the result of offshoring, when a company moves its production overseas to save money and boost profits. Cartels do exactly the same.

Corrupt governments in other countries offer a great opportunity for cartels to make some money. Loosely enforced laws and weak governmental institutions create an ideal environment for drug cartels.

Franchising is a double-edged sword for drug cartels.

What can drug cartels learn from the McDonald’s business model? Quite a lot, actually. Let’s take a look at how cartels use franchise models to make financial and political gains.

A franchise is a business model whereby companies allow other individuals to undertake specific commercial operations as agents of their brands and organizations. The benefits of franchising for cartels are twofold, allowing them to both expand their territory and secure a steady stream of revenue.

Synthetic drug manufacturers are able to create new products and stay ahead of the law.

Ever heard of legal synthetic drugs? Yes, they exist, and they pose a major challenge to governments combating the drug industry.

Drugs can be created in such a way that they can be sold legally until they’re made illicit. Once a synthetic drug is made illegal, makers simply create a chemically altered version that’s technically a different legal drug.

Cartels diversify to increase their revenue, often by expanding into people smuggling.

Did you know that back in 1977, Coca-Cola made its first forays in the wine industry? It might sound like a strange business move, but all they were doing was diversifying – that is, expanding from their primary product to take on operations in another field to increase profit. Cartels use the same strategy.

Many cartels have expanded from their primary service, drug smuggling, to another field: people smuggling. Why? Simple. Cartels go where the money is. As such, many have diversified their business to include smuggling people across borders, and specifically the United States-Mexico border.

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What is Narconomics about?

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.

Best quote from Narconomics

These two conundrums – how to hire staff, and how to make sure they do what they are told – are what occupy drug cartels human-resources managers.

—Tom Wainwright

Who should read Narconomics?

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

About the Author

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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