Abstract
This report is based on the astonishing contribution of the illegal addiction trade contributed to the global economies. The global world is estimated to have 1% contribution of its GDP from the drug trade. The paper explores the perceived benefits of the black trade regarding cash inflows, investments, and employment. It also looks at the economic costs regarding corruption, drug abuse, and violence. The resulting analysis shows that the benefits and costs exceed each other in different periods. The paper asks the analysts, and policymakers to reconsider the banning of the drug trade in their economies if its economy is dependent on the drug trade. This looks for debate on the legalization of the drug trade, production, supply, and distribution.
Introduction
The production and the sale of the illegal drugs in the Americas has generated over tens of billions of dollars a year from over decades. Even though the exact figures for the sale and production are not possible to come by, it is however evident that the majority of the countries of Latin America earn more or as much as from the addiction trade than for any other commodity or any other industry. Globally, countries have even gone as far as looking to make it legalized to consider its contribution in their GDPs. Perhaps, the crucial aspect of the drug industry is not how wide its operations have spread, but how deep it is woven into the cultural, political, and economic lives of these countries. While the governments and non-officials have widely blamed this trade for the ills of the regions ranging from corruption, violence, and civil strife, the increase in the drug trade is more evidently the result of these ills and not primarily the cause. Despite the desire of the analysts to differentiate between the legal and the illegal sphere of the trades, the divisions, however, are rather illusory when it comes to the economics of addiction.
The following paper looks it in the global, Latin American and Mexican economic perspective to better understand the economic effects of the drug trade.
The Economics of Addiction
What is the economics of addiction? To look at this, we need to look at economic theories which assume that any person or individual demand services or goods to maximize the happiness/satisfaction/utility by taking in consideration the prices, its value, income and many other factors. It is known that any consumption decision on a product is not reliant on the past choices of an individual. However, due to the addictive nature of the drugs, the decision of consuming drugs, at any given point in time, is dependent on the past consumption choices. It implies that the consumer must have consumed drugs before if it is going to make another consumption decision. It also implies that the factors like price, controlling policies, income level plays an influencing effect on the decisions to start, reduce, continue, re-start or quit drug consumption. Thus, it gives the controlling economies the responsibility and the right to control the sale of drug commodities (Harford, 2007).
Addiction Trade Perceived Benefits to Economy
It is said that at the bottom of each economic structure of a society, the drug users with their involvement in the burglaries, muggings, shoplifting, break-ins, and sale of the illegal commodities promotes a type of trickle-down effect of economics in the form of wealth redistribution. In this way, goods reach the poor society segment, as the drug users are always on the lookout for selling something to get the money for purchasing drugs. Some have even speculated that if it were not with the redistribution of the wealth, the quality of the lives of the poorest segment of the society would be worse than the current levels. However, they too are being stripped of their possessions because of the reason that goods and drugs flow through the economy of the street (Singer & Page, 2013).
Drugs Include
The drug trade has widened a lot. The traditional drugs have expanded into new forms. The drug trade commonly includes marijuana, cocaine, heroin, club drugs, and methamphetamines. The cannabinoids include the marijuana as well as hashish. The opioids include the heroin as well as opium. The stimulants include the amphetamine, cocaine, and methamphetamine. The club drugs include MDMA, GHB, and Flunitrazepam. There are also dissociative drugs, hallucinogens, and other compounds (The National Center on Addiction and Substance Abuse, 2017).
Global Addiction Trade
The Global NARCOTICS liberalization was once the thoughts limited to the hippies and free thinkers. However, now sober analysts are also reconsidering the so-called “war on addiction.” A global perspective on the drug policy has met to call for the decriminalization of the drug taking and for conducting experimentation on the legalization of the sale of the drugs by starting from the legalization of cannabis. It is because of the continuous rise in the consumption of drugs and the failure of the spending of billions of dollars and tens of thousands of lives used for stopping it. In the ten years leading to 2008, the cannabis has improved by 8.6%, opiates have amplified by 35.5%, and the consumption of cocaine rose by 27%. The American government alone has spent $15 billion on drug control in 2010 (The Economist, 2011).
Some analysts think that the illegal global trade of drugs is an important and fundamental element of the current economic model and that the battle on trade is only needed to retain it and not to eradicate it. Some think that the capitalist economies depend on the capital movement for generating profits and growth. The free-market model promotes no restriction and control on any trade and leaves it to the market forces to determine the prices, demand, and supply of goods and services.
However, currently, thousands of tariffs, duties, taxes, and financial institutions control the prices, demand, and supply of the commodities and services in the market. Thus, free trade does not exist in the current world. Because of these controlling regulations, transactions become slower, and the complexity leads to opportunities for the traders to bend or break the rules causing instability in the market. However, there is a form of trade, which has remained undeniably unaffected by the instability of the market; this is because of the reason that it’s not subjected to any taxes, interest rates, or duties. It is the black money or known as the illegal business activities including the drug trade, prostitution, and gambling.
The 2009 report by UNODC showed that all together these illegal industries make up 3.6% of the global GDP which was $2.1 trillion. Drugs of these industries are the largest one which makes up about 1% of the total world GDP (Seshata, 2016). The recent data published in a research report published in 2017 shows the scope of the global drug trade. The global market for the illegal drug trafficking has a total yearly value ranging from $426 billion to $652 billion, which makes it the second attractive illicit business after the pirating and counterfeit market. Out of these, cannabis values the highest at $183 billions of worth at least globally on an annual basis and cocaine ranked second (Tharoor, 2017).
Most 5 potent pot economies
The new trend of the legalization of the medical marijuana has been evidently getting popular in the American and European states. In the last 10 years, many states have legalized the medical use of marijuana while four states have legalized the recreational use as well. As per the fortune ranking, the five most pro-pot states in the world regarding their spending from the GDP; Latvia is ranked first with 0.64% of GDP spent on drugs which are not legalized. Australia is ranked second with 0.46% of GDP spent on drugs. Czech Republic is ranked third with 0.45% of its GDP spends on drugs with legalized marijuana. Slovenia ranked fourth with 0.36% of its GDP spent on drugs with no legalization. New Zealand has stricter laws for pot; however, it still ranks fifth with 0.35% of GDP (Mathews, 2015).
Background of Addiction Trade in Latin America
The moral blinders that are worn by the governments and societies are precisely the reason that tends to hide the realities of the drug trade. Analysts have believed that the drug trade has been a multinational industry just like any other industry. By 1989, the production of drugs in Latin America meant cocaine production. The decade-long boom in the cocaine use in the United States has given rise to the epidemic use of the crack. At that time, most of the cocaine made was harvested in Peru and Bolivia. The Colombians had then recently claimed their control over the retail stages and distribution network of the cocaine in the USA. With the US campaigns lead in Peru and Bolivia for the eradication of the drugs, Colombia took place as largest cocoa producer in the world. During the same period, the Mexicans also contributed in distributing of the cocaine in the US by competing with the Colombians or by working together with the Colombians.
Mexico has been the only important producer of the opium poppies and heroin in Latin America. However, with the rising demand in the US for heroin, Peru and Colombia also started its production on a commercial level. Europe, West, and East have by then become an important market for the cocaine of Latin America. Then there is marijuana, which was promoted as the alternative drug when US lead drug was tried to eradicate the trade in Mexico and Colombia. However, the large-scale production of the marijuana kept its roots in Mexico.
Currently, there seems to be no nation which is no involvement in the drug trade in Latin America. Those who are not involved in the production or consumption of the drugs are aiding in the transiting and trafficking of the drugs. The division between the rick north, which is the consumer of the drug and the poor south, which is the producer has become quite impractical. The USA is still the largest market for the producers in Latin America.
America benefits from the fact that the largest profits, which are made in the trade come at the retail segment. The importer who produces and beings the drugs within the USA only get 10% of the final retail price and the other 90% goes to the local sellers in the US which flows into the US economy (Kawell, 2007).
Drug Trade in Mexico
It is quite an evident fact that the addiction trade in Mexico constitutes to one of the largest industries of the country making up for about $991M annually. The capture of the fortune of one of the drug smugglers Zhenli Yen Gon in 2006 which was valued at $ 206 million was about the same as the total budget of the General attorney office of the Mexican for three months. It was also the largest seizure recorded anywhere in the world. Drug trade generates a lot of revenue for Mexico, which raises a lot of concerns for the efforts of the country that is put into the eradication of the drug trade. If the drug trade continues to be as one of the important industries of the economy, then there are concerns that some serious examination should be done before discouraging it. After all, the dollars brought in by the drug industry are in the same value as the other dollars. The drug industry is also another industry which fosters competition, employment, large capital inflows, and consumption within an economy. Thus, it is essential to look if Mexico is losing or winning with drug industry part of its economy.
Preview
The financial support that the drug trade as the industry provides to the economy of Mexico is not discussed in detail. The costs and benefits of the trade are much important to be ignored just because it is illegal. How many of the dollars flow into the economy, and what are costs beard. Does this support economic growth and who sins at the industry? Does the violence, corruption, and drug abuse associated with the industry outweigh its benefits and represent an essential part of the cost. How much is the opportunity cost of being known as the home for the world largest drug dealers and corrupt politicians of the world? These questions are important to be answered. A preview of this study conducted in 2008 is presented below:
Mexican Cartels
One of the most influential and well-known drug traffickers and dealers in Mexico is the Mexican Cartels. They dominate the United States market not only because of the large wealth of the US market, but also because of their proven business organization and savvy. These dealers run their groups like any other corporations. These cartels think long term and reinvest their profits. The cartels have layers of different staff; frontline to background managers, to mid-level supervisors. They also have their law enforcement officials who work on trafficking of the organizations by exchanging bribes to the law departments. As per a study a typical drug franchise employs 61 to 600 internal and 109 to 1000 law enforcement employees. It is huge. It is greater than any of the legitimate firms of Mexico. The mean salary of the drug employee is also about 1, 3 times more than the mean salary of Mexican employee and 6 times more than the minimum wage in Mexico.
Drug trafficking is worth more than $50 billion to the nation on an annual basis. It is also said that the complete loss of the drug industry will cost the economy with more than 63% of shrinkage. It provides insight on the economic reason of not eradicating the drug trade in Mexico. The huge money, which is earned in this trade faces difficulties when it is needed to be legitimized as it is all in cash. It is done majorly by investing in real estate, hoteling, legal gambling, and construction industry. It shows another aspect of the industry economic effect which has not been measured (Winkfield, 2016).
The scope of Drug Industry of Mexico
The industry of Mexico is a very profitable and diversified business which is concentrated in the production as well as the distribution of the marijuana, heroin, and cocaine. It is the main exporter of the drugs to the United States, accounting for 70% of the drugs used in the US. Marijuana is the most demanded and the most competitive product of Mexico. The number of small firms and distributors involved in this market is more than others.
Cocaine is the most important regarding the profits associated with it. Even though cocaine is not produced in Mexico and it only helps distribute it in the USA the profits associated with it are huge. Controlling of the US cocaine market implies the control of the 90% of the global cocaine market. The heroine is produced and distributed from Mexico. The states of Durango, Sinaloa, and Chihuahua produce the heroin. Mexico heroin captures about one-third of the market of US, and Mexico produces only 2.7% of the total world consumption of heroin. Combining the three products earns revenues, which could not be estimated exactly. However, some calculations can be made to get an idea. A study shows that about 6.6 billion dollars of illegal drugs are sold to Americans by Mexico. Analysts have raised concerns that the stopping of the dollar flows from drug trade can cost saver destabilization of the Mexican economy (Rios, 2008).
Economic Benefits of Drug Industry of Mexico
The economic benefits of the drug industry in Mexico can be seen in three categories; Investments, cash flows, and employment. Agricultural employment has risen in the last decade with the rise in the drug consumption. The nature of the drug market makes it labor intensive. The cultivation, production, and distribution of the marijuana need a workforce. The agricultural benefits of cultivating drugs are evidently the higher revenue as compared to other crops. The salaries for these crops are also better than others. These employment benefits are not limited to the agriculture sector the production chain; include more employers from professions like lawyers, chemists, transporters, merchants, private security, vigilance, and managers.
On the whole, the Mexican drug industry employs between 50,000 to 100,000 employees. The cash flow represents another economic benefit which is shown in the revenue generated ranging from $9.9 billion to $3.2 billion. The economic impact, however, is considered lower than this because of the uneven distribution of the revenue. A conservative study shows the cash inflow in the economy of Mexico to be near $8.9 to $2.5 billion annually from the drug trade. The part of the income which went back to Mexico in legalized form invests in different industries producing a multiplier effect to the economy (Rios, 2008).
Economic Costs
The economic cost of the drug trade can be characterized in the form of cost of violence, cost of drug abuse, and cost of corruption. There are many other economic costs as well, but these are the ones which can be measured somewhat. The best estimate, which is given by the CIDAC in 2003 of the economic costs of the drug abuse, shows a cost of $0.68 billion annually. The economic cost of violence is very difficult to be measured. However, a study has shown that the economic loss form violence attributes to 12.3% of the total Mexican GDP. Thus, the cost of violence is estimated at $0.43 and $1.43 billions of dollars on an annual basis. Corruption costs the economy of Mexico by lowering the investment by 5% in the corrupt countries. It provides the loss of 0.01 to 1.66 billions of dollars on an annual basis (Rios, 2008).
Economic effect
Adding up the economic costs and the economic benefits, altogether the costs of the industry exceed the benefits. However, it is not always the same case. The economic benefits surpass the economic costs as well. However, recently, the economic costs have inclined as compared to the cost because of the rise in local consumption, and stricter control is translating and lower trafficking of the drugs (Rios, 2008).
Mexico Dependency on Drugs
Mexico economic dependency on drugs can be seen by looking at the fact that it made more money from moving the drugs in 2009 than it did by exporting of the oil. From the beaches to a violent town near the US border the drug cash is found everywhere. The banking system of the country cannot also rely upon without it as it helped in the dissolution of the financial crisis and helping the economy. Drug money has also helped the real estate boom in the Mexico City. Businesses who are enlisted to launder the money earned from drug trade get a 3 to 8% cut typically on their books. It is believed that the cartels have laundered more than $680 million to the banks in Sinaloa, which makes up about 20% of the economy of the state (Lange, 2010).
Supply Meets Demand
The escalating violence has been seen as derived from the rising taste of the US market for opiates and thus the subsequent cultivation of opium poppies. The recent boom in their heroin market has created wars among the groups to compete for control of territories and smuggling routes (Brown, 2017).
“Main opiate trafficking flows, 2011-2015” Image adapted from United Nations Office on Drugs and Crime. (2017, June 16). World Drug Report 2017. Retrieved April 15, 2018, from https://www.unodc.org/wdr2017/field/WDR_2017_presentation_lauch_version.pdf
Conclusion
It is evident that the drug trade represents a major portion of global economics; Latin American economy and Mexican economy. Whether we keep on ignoring the numbers and the gravity of the subject, the industry will remain present. The past 50 years of drug trafficking eradication policies have resulted in complete failure. It is thus a time to reconsider our standpoint. Debates on the legislation of the drug trade are vetoed by the consumer countries fearing a further increase in addiction if it were legalized. However, for transit and producing countries like Mexico, the governments have asked to legalize the supply and distribution which indeed is a gamble worth taking.
References
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Harford, T. (2007, August 4). The economics of addiction: Is it possible that heroin junkies and crackheads are actually rational? Retrieved from http://www.slate.com/articles/arts/the_undercover_economist/2007/08/the_economics_of_addiction.html
Kawell, J. (2007, September 25). Drug Economies of the Americas. Retrieved April 15, 2018, from https://nacla.org/article/drug-economies-americas
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Singer, M., & Page, J. B. (2013). Social Value of Drug Addicts: Uses of the Useless (1 ed.). Left Coast Press.
Tharoor, A. (2017, April 21). Global Drug Trafficking Market Worth Half a Trillion Dollars. Retrieved April 15, 2018, from https://www.talkingdrugs.org/report-global-illegal-drug-trade-valued-at-around-half-a-trillion-dollars
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