Drug Economics of the Americas

...Though the United States undoubtedly still is the largest market for Latin American drug production...

...NACIA REPORT ON THE AMERICAS JoAnn Kawell is editor of the NACLA Report...

...And those involved routinely resort to violence and/or payoffs in order to stay in business...

...market...

...and most other American nations produce some marijuana, if only for domestic consumption...

...the United States, and to a lesser extent Canada, are also major producers of illegal drugs, especially marijuana but also synthetic drugs like amphetamines...

...A more recent, and sophisticated, criticism holds that drug production causes "Dutch disease"-an economic phenomenon, named for what happened in the Netherlands when it became awash in income from North Sea oil-whereby a commodity boom reduces local industrial production by raising the exchange rate for a country's currency, thus discouraging export sales...

...At that time, almost all of the coca leaves used to make cocaine were grown in Peru and Bolivia, and the Colombians had recently consolidated their control over the final refining stages and over wholesale distribution to the U.S...

...I That is still true, and it is still helpful to examine the industry in that light, even though the drug trade has changed in some significant ways since then: In 1989, Latin American drug production meant, above all, cocaine production...

...But these claims seem rather fanciful in present-day Latin America, where unemployment, not labor competition, is a hugely pressing problem, and small food producers are increasingly unable to survive...

...In the past, many of these economists pegged their argument on claims that the drug industry destroys legitimate jobs by competing for labor, or reduces food production as increasing amounts of local farmland are used for drug crops...

...Above all, the drug industry has served as a kind of social safety net, providing jobs for those displaced by liberalization: In Bolivia, many laid off miners, former employees of state-owned mines, transformed themselves into coca growers...

...What's more, despite our desire to divide our economies and societies into "legitimate" and "illegitimate" spheres for the purpose of analysis--and perhaps more important, to make it possible to hold on to our sense of moral certainty-these divisions are, when it comes to the drug trade, rather illusory...

...He argues that there is, in the post-Cold War world, an "International Drugs Complex" analogous to the Military-Industrial Complex that drove the expansion of the military in the Cold War world...

...proreform movement is certainly not limited to libertarians: In June of this year, for instance, the General Assembly of the Unitarian Universalist Association approved a call to "establish a legal, regulated, and taxed market for marijuana" and ' remove criminal penalties for possession and use of currently illegal drugs...

...Most often, though, the argument that drug dollars are "bad" is more closely related to their supposed social and political effects than to economics: Corruption, violence and an upsurge in other illegal activity are the most often-cited effects attributed to the drug trade...

...And tightening supervision of international financial transactions in order to stem money laundering-a key goal of drug control officials-contradicts the free marketers' call to loosen financial controls...

...We detail the history and current state of some of the most important national industries below...

...9. "Widening Destruction: Drug War in the Americas," NACLA Report, Vol...

...Latin Americans, and the rest of us, would have to continue our search for alternatives to the current Washington Consensus...

...upsurge, Colombia and Peru have started producing opium poppies on a commercial scale...

...Indeed, the drug trade may be Latin America's most stable and reliable export industry: While prices for other Latin American export commodities have fallen along with demand for them, drug prices and demand have stayed almost steady...

...5 Indeed, drug control, like the drug trade, is a big money pursuit: The total Federal Drug Control Budget for 2002 is, according the White House Office of National Drug Control Policy, $18.8 billion...

...Industry expert Hans van der Veen sees the growth of the "booming drug industry and proliferating state powers to control it" as interdependent, and he says they need to be studied both as part of the trend toward globalization and in light of "intertwined symbiotic and systemic interactions of the upper and underworld, which take shape in the international political economy...

...Economists have calculated that the importers who bring illegal drugs into the United States receive only about 10% of the final retail or "street" price...

...The remaining 90% goes to local sellers, and most of that flows into the U.S...

...Meanwhile, Europe, East and West, has, over the last decade, become an important market for Latin American cocaine...

...Large-scale marijuana production has not disappeared in either Mexico or Colombia, however...

...Undeniably, drug trafficking almost always occurs in an illicit nexus that includes trafficking in other illegal or stolen goods-as Irene Ortiz documents here in the saga of a stolen Mexican truck...

...But as heroin use has seen a recent U.S...

...But many U.S...

...The Industry: Overview 1. "Coca: The Real Green Revolution," NACLA Report, Vol...

...Such arguments also overlook the social complexity of violence in the poor communities where the drug trade is often centered: In the Rio slums, Robert Neuwirth reports here, residents faced with a historically corrupt police force have in some ways made their peace with violent drug traffickers who have, unlike the police, been able to reduce neighborhood crime and impose a degree of social order that did not previously exist...

...And, of course, governments are unable to tax or regulate the industry because it is illegal...

...6 Van der Veen sees some form of legalization as necessary to stop the spiral: "Where drug entrepreneurial networks cannot be incorporated in local or national political and economic arrangements, their impact on society becomes much more detrimental...

...While such activities are, again, undeniably linked in the real world, the officials' rhetorical sleight-of-hand encourages us to believe that it is only their enemies, designated "bad guys" like members of Al Qaeda or the Colombian guerrillas, who are involved...

...retail drug price: "Measuring Global Drug Markets: How Good Are the Numbers...

...He discusses how he reached this estimate in the expanded web edition of this issue at http://www.nacla.org There now seems to be no nation in the Americas that has no role at all in the drug trade...

...Researcher John Gettman recently calculated the value of the marijuana produced annually in North, Central and South America "conservatively" at $51.2 billion...

...5. Hans T. van der Veen, "The International Drug Complex," Amsterdam: Centre for Drug Research, revised August 2000, online at http://www.cedrouva.org/lib/veen.complex.html#noot5 6. ONDCP, 2002 National Drug Control Strategy, Appendix A, National Drug Control Budget Summary, http://www.whitehousedrugpolicy.gov/ 7. For the official Libertarian Party position: http://www.lp.org/issues/relegalize.html But the U.S...

...economy, as does the part of the importers' income that they are unable, or do not want, to send home...

...Despite the huge amounts of money that it generates, over the years some economists, including economists from key drug producers like Colombia, have argued that the drug industry creates negative economic effects...

...In Mexico, many farmers are turning to opium or marijuana because their corn and other crops are unable to compete in the newly opened domestic market with cheap imported food produced by giant U.S...

...If this is, more than ever, a truly global industry, the notion of a simple division between the "rich north" as drug consumer and "poor south" as drug producer is no longer accurate-if it ever was...

...1, July-August 2001, available online at http://www.nacla.org/issuedisp.php?iss=3511...

...Now, in the wake of successful U.S.-instigated coca eradication campaigns in Peru and Bolivia, Colombia has replaced them as the world's largest coca producer...

...3 Colombian traffickers were able to take advantage of pre-existing contraband networks in building their own businesses...

...a situation that is only worsened as the state increasingly resorts to criminalization and repressive means to control their activities...

...Until the 1990s, Mexico was the only important Latin American producer of opium poppies and the heroin that is made from them...

...But abandoning drug prohibition would allow us to make a more realistic, less blinkered, appraisal of the important role the drug industry has come to play in our economies and societies and to reduce the harm that is currently being done by the drug war in the Americas-the subject of last year's special NACLA Report-as drug producers and drug controllers clash with each other in an evermore-violent contest...

...8 Since the 1970s, socially progressive researchers in the Andes have argued that coca-the ritual and social use of which dates back thousands of years-is both culturally and economically essential...

...In recent years-and ever more loudly since the September 11 attacks-U.S...

...While the "Dutch disease" theory might have some limited application in relatively more industrialized countries like Colombia or Mexico, it seems of dubious validity in countries, like Bolivia and Peru, which have for more than a century struggled without success to establish a stable industrial sector...

...friends, or former friends, like Peru's unofficial intelligence chief Vladimiro Montesinos, now in jail, have been linked to intertwined drug, arms and money laundering schemes...

...ph p?iss=2 216 2. Peter Reuter and Victoria Greenfield calculate import value accounts for roughly 10% of U.S...

...According to Bill Weinberg's report in this issue, already corrupt and abusive Mexican caciques simply expanded their illicit business dealings into drugs, not the other way around...

...At the same time, as political scientist Peter Andreas has pointed out, there is a deep contradiction between U.S...

...But while officials, and nonofficials, have blamed the drug trade for many of the region's ills, from rampant violence, corruption and civil strife to economic disintegration, the rise of the industry is arguably more the result than the cause of these phenomena...

...But the same is true of all so-called "informal" economic activity, and other analysts have pointed out that this actually constitutes an argument in favor of legalizing the drug trade, which would allow governments to take advantage of this huge potential source of tax revenues...

...Though exact figures are impossible to come by, for reasons we discuss below, it's clear that many Latin American nations now earn as much, or more, from the drug trade than they do from any other single legal commodity or industry...

...And we know from Latin America's long history as a commodity provider to the world that even if drugs were to be treated, in law as well as in our analysis, as "just another commodity," this would not guarantee economic justice for the region's poor, or loosen the powerful grip that international financial institutions, led by the United States, have over the region's economies...

...6, March 1989, available online at http://www.nacla.org/issuedisp...

...And is it a case of historical amnesia that allows so many of us to forget the IranContra and Contra drug scandals, in which Reagan administration officials illegally funded the Nicaraguan counterevolutionary force with money from an illicit arms deal-and also turned a blind eye to Contra cocaine sales...

...This is a perspective that is gaining adherents in many parts of the Americas, though the politics of this movement, defined in a traditional sense, vary widely: In the United States, a libertarian perspective, which stresses the rights of individuals to determine whether or not they will use drugs and upholds free market economic principles has been most influential...

...Why Should We Care About Them," p. 166, reprinted from World Economics, Vol.2, No.4, OctoberDecember 2001, available from the Rand Drug Policy Research Center, http://www.rand.org/centers/dprc 3. Roberto Steiner and Alejandra Corchuelo, "Repercussiones econ6micas e institucionales del narcotrdfico en Colombia," CEDE: Universidad de los Andes, December, 1999...

...drug control policy and U.S...

...2 Indeed, money derived from some aspect of the drug industry has become a mainstay of many local U.S...

...Critics of the trade also argue, more convincingly, that the large amounts of drug industry-generated revenues that flow through an economy "off the books" Vol XXXVI, No 2 SEPTEMBERJOCTOBFR 20029 VOL XXXVI, No 2 SEPTEMBER/OCTOBER 2002 9DRUG ECONOMIES OF THE AMERICAS prevent governments from setting effective fiscal and monetary policy or monitoring exchange rates...

...7 In Latin America, the politics are more varied: While in Colombia legalization proponents have included both politically conservative members of the business class and left-leaning intellectuals, in the long-time coca producers Peru and Bolivia, it is the left that has most shaped the debate...

...Our multi-billion dollar, decades-long "war on drugs" has, in fact, had little impact on total world production and use...

...But the argument that the drug trade causes other illicit activity vastly oversimplifies both Latin American history and presentday realities...

...XXXV, No...

...officials have tried to sell the "war on drugs" to us by arguing that the drug trade funds terrorism and arms trafficking...

...4. Peter Andreas, "Free Market Reform and Drug Market Prohibition" Third World Quarterly Vol.16, No.1 1995...

...at best, drug interdiction and eradication efforts have caused growers, traffickers and dealers to move their operations somewhere else...

...It's notable, as Juan Tokatlian details in his article in this issue on the history of the legalization debate in Colombia, that it was precisely the Colombian business class and producer groups who favored legalization so that income generated by the drug trade could be absorbed more efficiently into the national economy...

...At the same time, Mexican traffickers have taken on a far larger role in distributing cocaine in the United States, sometimes in competition and sometimes in cooperation with the Colombians...

...This debate took a more concrete turn in Drying coca leaves in Bolivia...

...The United States also benefits from the fact that by far the largest profits in the industry come at the retail end...

...June, when coca grower leader Evo Morales, running as the candidate of the socialist MAS party, took second place in Bolivia's presidential race...

...promotion of free markets and free trade: 4 Much to the consternation of the DEA, NAFTA is making it harder to monitor crossborder shipments of goods...

...8DRUG ECONOMIES OF THE AMERICAS NACLA editor Mark Fried wrote in 1989, in the introduction to our first issue on the subject, "The moral blinders most of us wear tend to hide the essentials of the drug trade...

...Colombian economists Roberto Steiner and Alejandra Cochuela note, as have other writers, that Colombia has a "long history of contraband trade, stretching back to colonial times...

...And the billions of dollars of successfully "laundered" drug funds that now circulate within Latin America's legal economies provide at least a cushion for nations otherwise battered by the region's recurrent economic crises...

...XXII, No...

...Finally, there is marijuana production, which has received less media attention than other targets of the international "war on drugs"-at least since the early 1980s, when U.S.-funded drug control efforts aimed against Mexican and Colombian producers and distributors helped encourage marijuana production in the United States to replace this supply...

...Even if, as its proponents contend, drug legalization or decriminalization would eliminate many of the negative effects of the drug trade, it would hardly be a panacea for Latin America: Abuse of power, violence, and corruption would certainly not disappear, for these have deeper roots and other causes than drug trafficking alone...

...producers...

...descriptions of the others are included in our web edition...

...Perhaps more importantly, however, many analyses of the drug trade gloss over the important role it plays in propping up U.S.-supported free market and liberal economic programs in Latin America...

...Drugs] are not devils, any more than they are gods...

...They are commodities and the drug trade is a multinational industry like any other...

...In the United States, a decadeand-a-half long boom in cocaine use had culminated in "epidemic" use of crack, a particularly concentrated and dangerous form of the drug...

...Perhaps the most important thing about the drug industry, however, is not its size, but how deeply it has been woven into the region's political and cultural-as well as economic-life...

...economies, from Miami to the tiny towns of Northern California's marijuana producing "Emerald Triangle...

...most of the nations of South and Central America and the Caribbean that do not produce significant amounts of illegal drugs for export have some role as drug transit routes or money laundering centers...

...http://www.drcnet.org/wol/243.html#specter 8. Though Peruvian Hernando de Soto libertarian theoretician of the informal sector, also took on weight in the debate while briefly serving as Alberto Fujimori's "drug czar...