When fighting the war on drugs, governments typically devote enormous resources trying to reduce the supply. But is this effective? Journalist and author Tom Wainwright of the Economist and author of Narconomics talks with EconTalk host Russ Roberts about the ways that the drug cartels respond to government attempts to reduce the availability of drugs. Like any business trying to maintain profitability, cartels look for ways to cut costs and maintain or grow revenue. Wainwright uses extensive on-the-ground interviews and reporting to understand the behavior of the cartels and argues that reducing demand would be a much more effective strategy for reducing drug use.
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Readings and Links related to this podcast episode
Related Readings
HIDE READINGS
This week's guest:
Tom Wainwright's Home page
Tom Wainwright on Twitter.
This week's focus:
Narconomics: How to Run a Drug Cartel, by Tom Wainwright at Amazon.
Additional ideas and people mentioned in this podcast episode:
10 Favorite EconTalk Episodes of 2016.
"Joint ventures: The narcotics business will slowly step out of the shadows," by Tom Wainwright. The Economist, November 18, 2013.
Wal-Mart Miscellany:
Timothy Taylor on Government vs. Business. EconTalk. February 2016. Wal-Mart and its workers.Angus Deaton on Inequality, Trade, and the Robin Hood Principle
. EconTalk. October 2016. Some Walmart discussions.
Legal highs, New Zealand
Legal Intoxicant. Wikipedia. Also known as 'legal highs'.
Medicines control. New Zealand Government website, Ministry of Health, overseeing licensing of drugs and drug distribution.
"The Toxicity of Recreational Drugs," by Robert S. Gable. American Scientist. Includes table of ratio of effective dose to lethal dose. PDF file.
"Controlling Cocaine: Supply Versus Demand Programs," by C. Peter Rydell and Susan S. Everingham. Research sponsored by the Office of National Drug Control Policy, by the U.S. Army, and by RAND's Drug Policy Research Center with help from the Ford Foundation. 1994.
A few more readings and background resources:
The economics of the middleman
Marina Krakovsky on the Middleman Economy. EconTalk. March 2016.
Munger on Middlemen. EconTalk. October 2008.
Pablo Escobar. Wikipedia.
Cartels, by Andrew R. Dick. Concise Encyclopedia of Economics.
A few more EconTalk podcast episodes:
Sam Quinones on Heroin, the Opioid Epidemic, and Dreamland. EconTalk. January 2017.
David Skarbek on Prison Gangs and the Social Order of the Underworld. EconTalk. March 2015.
Highlights
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0:33
Intro. [Recording date: February 2, 2017.]
Russ Roberts: Before introducing today's guest, I want to share your 10 Favorite Episodes of 2016 as revealed by those responding to our Annual Survey. Over 2000 people voted overall. I want to thank you all for participating. And I hope to do a bonus episode where I share some additional insights from the Survey and respond to your excellent comments and suggestions. So, thanks again. Here are the Top 10: .... I want to thank you again, everyone, for voting, and I hope to do some more comments on those results later.
2:15
Russ Roberts: Now on to today's guest. He is journalist and author Tom Wainwright. He is a reporter at The Economist. His book is Narconomics: How to Run a Drug Cartel, which is our topic for today's conversation. Tom, welcome to EconTalk.
Tom Wainwright: Thank you.
Russ Roberts: In many ways, your book is a tribute to economics. You look at drug dealers, wherever they are in the supply chain, as a business facing the same incentives, competition and constraints facing legal businesses. And I want to start with a mistake that you identify, or at least that you claim governments make in fighting the War against Drugs: and that's the focus on supply. What is that focus? What are governments around the world doing to restrict supply? And why is it a mistake?
Tom Wainwright: Well, I guess if you think about the War on Drugs, the kind of images that pop into your head kind of give you a clue as to the answer to this. You know, the sorts of policies that governments have been carrying out now for some decades. The ones which see police forces and armed forces trying to intercept drugs on their way to consumers. So, that could be anything from the programs that have gone on in South America in which tons of weed-killer have been dropped from airplanes and helicopters to try to destroy coca crops in countries like Colombia--coca being the raw material for cocaine. To operations in the United States or in, you know, in the United Kingdom, involving police officers trying to arrest drug dealers on street corners here. All of that is what I mean by supply side: It's the part of the business in which the drug makes its way from an Andean hillside to, you know, an American or British nostril, in the case of cocaine. That's where our efforts have been focused. And, you know, it's not entirely a waste of money. But what I argue in the book is that there is some reason to think that it might have a bit more success, they might get more success for every dollar spent, if they spent a bit more time focusing on the demand side. And, by the demand side, obviously I mean the consumption, if you like. So, the people who--we are talking about the people who actually take drugs. The parts of the business in which the drugs are actually consumed. I think there is some evidence that if governments spent a bit more time and money trying to dissuade people from taking these substances and giving them the help that they sometimes need--and they sometimes need as well to not take them--that might be more effective than just trying to intercept them on their way.
4:51
Russ Roberts: It's such a bizarre thing, actually, when you stop to think about the way--when you said it the way you said it, it just sort of jarred me: Government should just stop people from wanting to do this. And it does raise a question, which I'm going to push to the side, but I want to mention it, that one could question why government is involved in this at all. But let's stick with the question of efficacy and effectiveness. And I want to come back to the Demand side, because I think it's very interesting. But I want to stick with the efficacy of the Supply side part. It seems logical: What we're going to do, says the government or say the government officials, is, 'We're going to destroy these plants.' And that's going to do two things. It means there should be less of it, to start with. Because they've destroyed some of it. And the second thing it should do is it should raise the price; and that should discourage people. But you point out that both those are shockingly, perhaps surprisingly, ineffective. Why?
Tom Wainwright: Well, you are right. There is a bit of a paradox here. People who say the War on Drugs has been a failure: They are not entirely right. In some ways, actually, governments have been quite successful in eradicating crops. I mean, if you look at the cocaine business in South America, efforts to restrict the supply of coca leaf have, you know, actually had some big successes. These days, every year a gigantic area of land of coca leaves is eradicated. It's an area of something like 14 times the area of Manhattan. That's far more than used to be the case. People reckon that about half of all the coca leaves grown by drug cartels now are eradicated. So, they have had some success. And yet, at the same time we haven't seen any impacts on price. If anything, if you trace the price of cocaine over the past couple of decades during which all this eradication has been going on, it hasn't risen as you'd expect. If anything, it's fallen. It hasn't changed very much. But if anything the trend on the whole has been a downward one. And--
Russ Roberts: It's a bit of a paradox.
Tom Wainwright: Yeah. It's surprising, right? I mean, if you saw this nanny[?] of the market, you'd wonder what was going on. So I decided to try and find out a bit more about what was causing this. And I went out into Bolivia, which is one of the 3 countries that supplies cocaine. Those three countries being Colombia, Bolivia, and Peru. And what I saw down there and what I read about the business reminded me of a legal business. And the comparison I draw in my book is between the drug cartels of South America and Walmart. And it's kind of an odd comparison. And it's worth making clear that there's no implication that Walmart has broken the law in any way. But the thing that they seem to have in common is that both of them are arguably examples of monopsony--in other words, monopoly of demand. If you think of Walmart, you see, sometimes a similar phenomenon in which you see, for example, a reduction in the supply of a particular good. Let's say there is a failure in the harvest for apples or something like that. You might normally expect the price of apples to rise. But magically in Walmart, or indeed in any other big supermarket which has that kind of purchasing power, the price of n[?] remains about the same. And the people who take the hit are the farmers. And the reason that Walmart or other supermarkets are able to do that is that they have this extreme buying power: very often they are by far the dominant buying power in the market. And so they are able to save their suppliers: 'Sorry, but this is the price. And it's the only price we are going to accept.' The suppliers don't have many other people to sell to. So they have to take that price. The same thing seems to be happening in South America. If you go to Colombia or Bolivia, in any one area where the cocaine[?cotton?] crop is grown, there is only going to be one drug cartel buying it. It's not a proper competitive market in which coca farmers can sell their product to the highest bidder. There's really only one buyer in each area. And so, if there is a failure in the crop, you don't see the normal market response that you would normally expect. You might imagine that the price would go up. But you don't see that. And that's because the cartels are exercising this monopsony power and telling the farmers, 'Look, but sorry guys: We're the ones that--you set the price--and this is the price we're going to carry on paying.' So, it's not that restricting totally supply has had no effect or that no one is paying. The problem, I argue, is that the people who are paying this price, the people who are suffering, aren't the drug cartels. And it's not the consumers, either. It's these farmers in countries like Colombia who are earning a dollar or two a day. And they seem to me to be not the people who are really in our interest to be targeting. And yet the evidence seems to be that they are the ones who are paying for this, this program.
9:28
Russ Roberts: So, I'm a skeptic about that argument for a bunch of reasons. I'll just lay them out briefly and you can respond.
Tom Wainwright: Sure.
Russ Roberts: And there are other parts of it that I find utterly fascinating. We'll get to those. But, in my experience, talking to Wal-Mart suppliers, you are certainly correct that Wal-Mart puts a lot pressure on suppliers. I don't think they are anything close to a real monopsonist. There are lots of other places--grocery chains, other retailers, that these folks can sell to. But they certainly do want access to Walmart's market, onto Walmart's shelves, because they are very successful. They don't have a monopoly but they are very successful. So, what I've seen is that Wal-Mart relentlessly tries to squeeze cost out of the supply chain. So, when they go to their suppliers and say, 'We're only going to accept this price. We're not going to take a higher price.' Or, 'We're only one--if you if can give it at this lower price'--what that does is it pushes the suppliers to innovate and to find ways to cut costs and to do their work more efficiently. And I think that's one of the unseen benefits of Wal-Mart: Just things that are being produced at lower cost and they are being enjoyed also by the consumer. So, it's not like they are squeezing the suppliers. They are motivating the suppliers. Now, it may be different for the Drug Cartel. The Drug Cartel may actually have an actual monopsony, through the threat of violence: and you have to sell to them. And if they say you are not going to get as much as got last month, 'Too Bad.' So, that's my first thought. My second thought, though, is--I think your much deeper point, which I agree with--which I hadn't thought of, and which is fabulous. Which is: In my mind, Okay, the government restrains supply. Governments do around the world. But I'm mainly thinking of the United States. We restrain supply. We try to keep out supply. We intercept it at the border. We are constantly trying to do stuff. And we are encouraging other governments around the world to destroy the coca bush or the poppies, to try to keep the price high. And that, we think, we hope, so is the argument, we'll discourage consumption. But as you point out--this is so fantastic--the price is so, the effect on price is so small. And that's just totally ignored in all the discussions. So, respond to my monopoly/monopsony if you want; and then talk about why these supply changes are so ineffective.
Tom Wainwright: Sure. Well they are both great points. I think on the monopsony argument--I think the distinction between Walmart or indeed, any other buyer squeezing versus motivating its suppliers is a nice one, and one that you'd have to question suppliers about, whether they squeeze or motivate. But, I mean, that, your general point: Of course you're right. Of course Walmart isn't a pure monopsony. All I mean by that is that in many markets is its a dominant buyer. I think it's reasonable to say. But I think you are right that in many cases it does lead to suppliers being more innovative. And indeed we do see that to some extent in the drugs' business as well. Constantly. In South America the cocaine business is innovating. And when I went to Bolivia I saw some of these new techniques. One of the things that they do in the--sorry--one of the things that they do in the Cocaine production business now is that they use old washing machines as primitive centrifuges to complete the process of extracting the active ingredient from the leaves themselves. And, whereas the laboratories where they used to do this in used to be based in the jungle. Which left them open to being raided by the government. They now often put these labs in the back of trucks which rumble around the jungle, not being captured. So there is innovation in the drugs business, just as in any other. On the second point you raise about the price--rather than the cost of the raw materials relative to the final price: Yeah, that's absolutely right. And I try and spell this out in the book by providing a few numbers. Just to give people an idea. That, to make a kilo of cocaine, for example, you need about a ton of fresh coca leaf. And that ton of coca leaf in Colombia is worth about $500. Now, by the time that's turned into cocaine in Colombia it's worth perhaps more like $1000. By the time it makes it to the United States it might be work $15-20,000. By the time eventually it's sold in tiny portions to a consumer, that kilo is worth the equivalent of about $100,000. So there's a very, very big increase as you go along the supply chain. So, imagine if those eradication methods are very effective in raising the price of coca leaf--and as I said, I think there are reasons to be skeptical about whether they are. But imagine they are so successful that they are able to raise the price of the raw material, the coca leaf, by 100%--they are able to double it from $500 per ton to $1000 per ton. That is transferred--eventually--let's imagine, to the consumer. But by that stage, it's such a tiny proportion of the final price that it makes very little difference. Imagine that $500 being transferred to the final cost of the kilo in the United States. It means that kilo is worth $100,500. So, in other words, a very, very effective program which is double the price of the raw material, has increased the price of the final product by less than 1%. Or to spell it out using a legitimate industry, which I think helps to clarify the point: Imagine if you were trying to raise the price of artwork, and you said, 'Okay, well, we want to try and raise the price of paintings, and the raw material of paintings is paint. And so what we're going to do is we're going to try to raise the price, drive up the cost of the box of paints from $50 to $100. We're going to double it. And on that basis, we reckon that the price of this $1-million-dollar painting is going to double from $1 million dollars to $2 million dollars. Obviously that's not going to happen, right? At the very most what you'd expect is that the artist might add that extra $50 onto the price of his painting. You are not going to double the price of the price of the final product, necessarily, by doubling the price of the raw material, if the raw material is a sufficiently small part of the eventual price of the finished product. So I think that's what we are doing in drugs: We're often making the mistake that if we drive up the price of the raw ingredients--whether that's coca leaf or opium poppy or whatever--we're going to have a big impact on the price of the finished product. Very often it seems that's not the case at all.
15:59
Russ Roberts: And that's just fantastic. And I want to talk about that some more. But before I do, one of the things that I thought about reading your book is, you talk about reading some of the extraordinary ways that governments in the three countries of Bolivia, Peru, and--what's the third one--
Tom Wainwright: Colombia--
Russ Roberts: Colombia. We are trying to get rid of coca plants. And you'd think: How hard can it be? So, in some of those countries, I think it was Bolivia in particular, it's like: They really don't like the whole idea of eradication. I think you said the head of Bolivia, at least when you were writing the book, was a former coca grower. And coca is a fairly mild thing in its raw form. And people kind of resent the idea that we are supposed to crack down on it. The tragedy here is that in doing so they are not really having much effect. But the other part, I wonder: Are they really trying very hard? Is it really that hard? Because the plants can't run away. It's not like the dealers who can--get in their car and speed off. Plants are kind of stuck in the ground. I'm just wondering: Is some of this just for show? Do you have a feel for that? How come they can't destroy more if they really want to?
Tom Wainwright: It's a good question. I think it probably is quite hard. I mean, if you imagine eradicating these, these fields of coca plants, it's not as if they are just being grown in big fields on the edge of big cities. I mean, we are talking about the Andes Mountains here, which are not all that well explored in some areas. We are talking about very, very remote parts of the countryside where these coca plants are grown secretly, and they blend in with the rest of the local vegetation. But the governments there have got some quite sophisticated ways of trying to track them down. They fly over the areas with planes and take photos of the land down there. They use satellite imagery, increasingly. And with technology improving, it's getting gradually and cheaper over time. I was looking at some images that were shared by the United Nations, which is involved in this work, showing the kind of satellite photos that they take of the coca-growing areas. And the improvement in their resolution of these photos, just over the past few years, really does make it easier to spot the coca fields as opposed to the, let's say the banana fields or whatever. But it's not all that easy. I mean, imagine using a photo taken from space and trying to spot the difference between one type of plant and another. It's not quite as easy as you might think. And then of course in many of these areas, Colombia for example, for many years those areas have been guarded by guerillas using everything from landmines to machine guns to rocket-propelled grenades. And so on. So, this isn't easy. And I think the success that governments have had in eradicating coca plants in some of these countries is in many ways quite impressive. That's why I think it's such a tragedy that they've been engaged in this activity which I think is ultimately in economic terms pretty futile.
18:55
Russ Roberts: So, the other part I want to explore about this observation you made about--that restraining supply is like trying to raise the price of artwork by raising the cost of paint--is to talk for a minute about the increase in markup that happens all along the supply chain. So, I think some people find it perhaps puzzling that the raw material--that the final price isn't closer to the price of the raw material. Certainly once it gets to the United States--and it doesn't have to be processed in other ways--you'd think the price would be something similar. And it's not. There's a huge markup. And you'll often hear that--you know--they dilute it along the way. And of course, this is an illegal market. But you might wonder about competition. Why isn't there is more competition that would keep the markup down? What are your thoughts on that?
Tom Wainwright: It's a good question. And you're right. The biggest market--if you look at the prices I quoted earlier for cocaine, you'll see the biggest markup isn't even in Latin America or even on the way to the United States. It's in the United States itself. That's when a kilo of cocaine goes from being worth perhaps $20,000 to perhaps more like $80,000 by the time a deal gets their hands on it, to more than $100,000 by the time it's sold to the consumer. So the really big jump is in that stage, between the sort of importation of very large quantities and the distribution of very small quantities. As to why that is--I think that the reason I would come up with is that this is the part of the business which--it may not sound like it, but it possibly is the hardest and riskiest part of the hole business. Imagine the job of the whole person who has to receive, say, several tons of cocaine in a port in Los Angeles or over the border. In a place like, I don't know, San Diego, for example. They have to receive a gigantic quantity of this stuff. And distribute it into much smaller quantities, giving it out to the mid-level dealers who then take it all over the country. This is a job which involves dealing with a large number of criminal contacts. Now, that's difficult in itself. Building up that number of contacts requires a long period of time in the game. It's also highly risky because of course the more people who deal with, the more risk you are exposing yourself to of being either exposed to law enforcement or attacked by rivals. So, there is a very high risk. And we are talking again about a country here, the United States, that has--by what people might sometimes say--it has what's by international standards an outstanding law enforcement agency. You know, very hard to escape from prisons. A justice system that works pretty well. Compare it with a country like Mexico, where the police don't often do their job properly. Where jails, as we've seen in the case of El Chapo [Joaquin Guzmán], are quite easy to escape from sometimes. And that's why the risk undergone by these people is so high, and why it's--you know, you have a relative lack of serious competitors in this part of the business. So, that would be my best explanation: The big, big price increase that you see there is because that actually is the part of the business that it hardest to do. And so the number of people able to do that is smaller than one might think.
22:26
Russ Roberts: Well I think it's absolutely right. And I think it's not just the number--it's--to encourage people in the business they have to have an incentive to take those risks. Those risks are large: 10, 20 years in prison. If you are caught. I don't know how long it can be. That's plenty. And so, the market is going to require compensation for those risks, if people are going to end up doing it--if it's worthwhile at the end, if you can find buyers for the product you are going to have to earn a price from those buyers that covers those costs. And the costs, I think it's important to remember: Costs are not always--it's an incredibly important example in economics is that the price of raw materials is a very small part of the product, often. And this is just a dramatic case where the real cost, the biggest costs, are totally unseen. It's the risk of being caught. You don't see it in time of people creating the product and fashioning it. Talk about the risks to you. As a journalist, you tell a number of scary stories. Of course, you have an incentive to make them dramatic and scary. But I think they really were dramatic and scary. So, talk about what you did to find out what you did in the book, when and why you were scared; and talk about the tragedy of the journalists in some of these poorer countries who get killed because they report things that drug dealers don't like. And the situation say, in Juarez that you mentioned. Let's talk about safety issues.
Tom Wainwright: Sure. Well, I guess dealing with any illegal business involves some risks that you might not undergo in other kinds of business reporting. The first thing I want to make clear is that the journalists who undergo the real risks and the ones who are really heroic in the work they do aren't the foreign correspondents like me. It's the local journalists, because if you're a Mexican journalist in a city like Juarez writing about the drug business, the people that you're writing about, the criminals that you are writing about, know exactly who you are, and they know where you live. And they know where your family lives. And they know that you can't just hop on a flight back home to Mexico City as I used to do. So they are the ones who really face the serious risks. I think as a foreign correspondent you're in a relatively privileged position: attacks on foreign correspondents are much rarer than attacks and murders of local correspondents. That said, researching the book and writing stories for The Economist was sometimes moderately hair-raising; and interviewing some of the guys who I feature in the book was a different experience from some of the usual business interviews that I do. So, I went to interview the head of one of the two big gangs in El Salvador, a guy named Carlos Mojica Lechuga, and he was in jail at the time, which was why I was able to go interview him.
Russ Roberts: That helped.
Tom Wainwright: Yeah, exactly. Well, you say that--El Salvadorian prisons aren't always much safer than being on the outside. But because of that I was able to go see him. And I went to go interview him, and he was this extraordinary guy--covered literally from head to toe in tattoos. We sat down and talked in this prison cell which he effectively used as his office. And he was a menacing kind of guy, you know, and he was in there for carrying out some pretty grisly murders. But the interesting thing was when I sat down and started talking to him, really the conversation was a business one, and the kinds of questions that I found myself asking and some of the answers he gave reminded me of speaking to regular business people in some ways.
Russ Roberts: Were you scared in that situation? In that one? There are a lot of stories in the book where you are on the street and it's somewhat at risk. In this situation, being that it was in a prison, were you uneasy?
Tom Wainwright: Yeah, I was. As you say, it's in a prison so it's a relatively controlled situation. But Latin American prisons are not terribly safe places. The murder rate inside them is often literally higher than the murder rate outside them. And so when I was in this jail cell and the prison guard brought the guy in and took off his handcuffs and shut the door behind us, I was sweating. And it wasn't just because it was so hot in there. So, yeah, it was an unnerving experience; and I'm not someone who has covered this stuff before. I went to Mexico expecting to write about regular kinds of business. I thought I'd be writing about NAFTA (North American Free Trade Agreement) or the tourism industry or fun kind of things like that. But it just so happened that when I got there the war on drugs was taking off, and the biggest story in town was the drug war. And so it seemed to me that this was an interesting business story. So, that's what I ended up writing about. But for me it was a very different experience. A fascinating one, but at times also rather a frightening one.
Russ Roberts: Why do you think he spoke to you in that jail cell? What was his--what was motivating him? Was it pride? Did he like the idea that The Economist was going to cover his activities? Was it because he felt he was supposed to--or the prison might be tough on him if he didn't cooperate? How voluntary was his cooperation?
Tom Wainwright: I think perhaps all of those things to some extent. I'm sure vanity was involved, up to a point. I think giving an interview to the international press about your sprawling empire is something that would have flattered a guy like that. And he had a real swagger to him and quite enjoyed joking. And on the way out he told me that he was a great admirer of the East End of London.
Tom Wainwright: Tried to create a rapport with you. That's so nice.
Tom Wainwright: Well, yeah, no, yeah--charming guy. But at the same time I think part of the reason I was able to get in and see him, because the government doesn't often grant interviews to journalists with prisoners, was because at the time this truce was going on between the two main gangs in El Salvador. Now, that's since broken down and the murder rate there has rocketed back up. But at the time, the two main gangs--his gang, which is called the 18th Street Gang, and its great rival, the Mara Salvatrucha, had signed an agreement which was effectively a kind of nonaggression pact in which they had obviously decided that from their point of view a period of collusion made more sense than the one of competition in which they'd previously been engaged. And so the government was trying to get some favorable coverage of this scheme that they were involved in, trying to get the gangs to talk to each other. So, I think they were more willing at that stage to allow journalists access to these people, who--you know, they are not normally great ambassadors for El Salvador, it has to be said. But at the time they were engaged in this experiment and willing to give it a bit of publicity. So I think that's how I was able to get in at that stage. I think if you try it again now, you might find it harder.
29:18
Russ Roberts: You tell the poignant story, going back to Juarez, of the newspaper writing the editorial, sort of open letter to the gangs, saying, 'What do you want from us?' after they'd killed some of their journalists. Talk about how the gangs like to use public relations and the cartels, which I found extremely interesting; and the role that newspaper plays, sort of wittingly and unwittingly.
Tom Wainwright: Yeah. It's an important part of their business, really. I mean, like other businesses, they care quite a lot about their public image--more than you might think. And the reason for the cartel really is that in order to survive they have to maintain a reasonable amount of support among local people. These guys make a living out of avoiding being captured, and that's much easier for them to do if local people aren't willing to report them to the police, and tell the police about their whereabouts, and so on. And so, they do this in a variety of ways. Some of it is very unsophisticated, very blunt: if you drive around northern Mexico, sometimes occasionally you'll see banners hung from bridges above freeways. And they are hung there by the cartels; and they often say things like, you know, 'The Sinaloa Cartel', or 'the Gulf Cartel, or whatever is an honorable cartel which only traffics drugs. This other cartel engages in extortion and rape and violence and kidnapping. But we don't do that. We're the good guys.' It's extraordinary that they do this--
Russ Roberts: Shocking. It's bizarre.
Tom Wainwright: Yeah. But they seriously think that this will help to improve their image. That's pretty blunt. But something they do which I think is sometimes more effective is that they intimidate or bribe local journalists into giving them favorable coverage. And this could take the form of bribery or it could take the form of threats. You know, they have this saying, 'Plata o plomo'--'Silver or lead.' In other words, a bribe or a bullet. And they employ that with journalists just as they employ it with public officials. And the rates of violence and kidnapping and disappearance against journalists in Mexico are frightening.
Russ Roberts: It's partly, as you document, the inability of the police to maintain law and order and to stop anything like these things from happening. There's a lot more power in the cartel often than in the state. But what kind of--talk about why they bribe. What's a good story? What would be a positive story about a drug cartel that would appear in a local newspaper? What are they hoping for?
Tom Wainwright: Well, I think there are a couple of things they do. Sometimes what they want is an absence of media. So, if they've done something particularly gruesome that they don't want people to know about, they will tell journalists not to report this; and there will be consequences if they do. Other times they want exactly the opposite. There are times when cartels want to really strike fear into the hearts of their rivals, and so they will make sure that journalists do give a particular massacre as much coverage as possible. There's one interesting case that we sometimes see in Mexico where cartels will deliberately do something outrageous on the turf of a rival cartel: you know, they'll dump a whole load of headless bodies in the middle of a busy street in the middle of the day, for example. And they'll do that precisely in order to draw police and army officers to that city, which is a city run by a rival cartel. They call it 'heating up the plaza'--in other words, it makes it harder for a rival business to carry on doing business in that area because there's a greater presence of police officers and soldiers. And so sometimes drug cartels will enlist the help of journalists in doing this. They'll say, 'Look, we just carried out this massacre and we want you to give it plenty of coverage.' And sometimes that works. But they've got even more sophisticated ways of getting the public on the side, and one of the other things I discuss in the book is corporate social responsibility. And this might sound totally outrageous. I mean, it's not something that you might expect from the Sinaloa Cartel. But it's quite a big part of what the cartels do. To people who might be watching series like Narcos on Netflix, which is all about Pablo Escobar, that is a good example of the kind of corporate social responsibility that these guys sometimes engage in. Again, it's crucial to them that they keep the public on side to avoid being reported and captured. And if you look at the life of Pablo Escobar, he did that very effectively. He spent what was for him a tiny proportion of his fortune on things like building sports facilities, public housing. He'd give out pensions. He'd do all kinds of things--give out presents at Christmas time. And all of this stuff meant that in certain neighborhoods in Colombia, he was more popular than he ever deserved to be. You know, although this was a guy who had caused the murders of thousands of Colombians and set the country back many years. His funeral eventually was attended by thousands of people. And you see the same thing now in Mexico: someone like Joaquin Guzmán, this guy better known as El Chapo, who has just been extradited to the States. The last time he was arrested there were protests against his arrest in his home city of Culiacán. And many of those people will have been there because they felt they ought to be there. But some people--and there's no doubt--do see cartel leaders as being kind of romantic outlaws who are not such bad guys after all. And much of that is because of these corporate social responsibility activities that they engage in, in parts of Mexico where the state is absent: where the state is not very much in the way of a proper social safety net. These guys are there giving out small amounts of money to people. And it's entirely cynical. I'm not trying to defend them for a minute. It's completely cynical on their part. But in some cases it's very effective at getting people on-side.
Russ Roberts: Works for legal businesses, too.
Tom Wainwright: Indeed.
Russ Roberts: As you point out, in many other cases in the book. There are a lot of parallels.
Tom Wainwright: Yeah. In a way, you find often the dirtier the business, the more concerned they are about [?]--
Russ Roberts: cleaning up their image.
Tom Wainwright: Exactly. And there's no business that's dirtier than the illegal drugs business. So it's not surprising that they are so into it.
35:14
Russ Roberts: So, you have a fascinating chapter on New Zealand, which sort of hit me out of the blue. New Zealand is really far away from a lot of these sources of drugs. So, how has the market there responded? Talk about the market for legal eyes[?], and how poorly and ineffectively the regulatory environment has tried to deal with it.
Tom Wainwright: Sure. Well, you're right: When you think of, you know, the great global sense is that the illegal drugs business, you probably wouldn't think of New Zealand as being among them. But it is an interesting case, because, as you say, it's out in the middle of nowhere, so it's not really worthwhile for regulatory cartels to bother shipping very much there in the way of cocaine or heroin or other drugs that people around the world--many people seem to enjoy taking. And so, New Zealand has come up with a different solution: They make many of their own drugs. And it's become a great center of synthetic drugs. To give one example: The number of meth labs there, methamphetamine labs--the number of labs discovered in New Zealand each year is greater than that in any country in the world after, I think, the United States and the Ukraine. And for a tiny, tiny country like New Zealand, that's extraordinary. It's because they make many of their own drugs there. And so, they started off with drugs like meth that--drugs like meth were banned. People there moved on to different varieties. And eventually New Zealand became a center of what are known as 'legal highs'. Legal highs--they are a strange part of the drugs business. They sound like they are probably, you know, one of the safer type of drugs, but actually it's quite the opposite: they are very often among the most dangerous types, because the only reason that these drugs are legal is that they are very, very quickly-evolving, new, synthetic drugs that are made in labs and which haven't yet had the chance to be banned by governments. So, it's not that they are legal because they are safe. It's only legal because no one has yet got 'round to outlawing them. And New Zealand has become a leader in this. And many of the most popular of the legal highs were first invented and first popularized in New Zealand. It's become quite a big industry there.
Russ Roberts: And, you point out that, because of this sort of arms race in banning and then innovating, and banning and innovating, it's actually made it a lot harder to produce safer drugs. And that that encouraged New Zealand to have an FDA-equivalent--a Food and Drug Administration--for recreational drugs and not just pharmaceutical drugs. And that did not work out so well. Talk about what they tried and why it failed.
Tom Wainwright: Sure. Well, the reason they did this was, as you say, the evolution of these legal highs meant that with every step people observed, the drugs were getting more and more dangerous. You might normally expect that with development of ordinary product, the people making it would improve the recipe every time and make it--you know, the better one for consumers. But with the drugs business, that's not really what's happened. The way that things have worked is that every time a new legal high is invented, eventually the government gets 'round to banning it. And so the manufacturers will tweak it slightly. They'll move the molecule here and there: Hey, presto, they've got a drug which isn't yet banned. So they'll start selling that. A few months later, that will be banned; they'll modify it again and bring out a new one. And so on. Over the years the various different iterations of these drugs have in many cases become more and more toxic. And so, synthetic drugs that people were using a generation ago, like MDMA (3,4-methylenedioxy-methamphetamine), which is the active bit in Ecstasy (sometimes called Molly), have given way to sort of mutant varieties of MDMA, which, you know, in some ways do a similar job but which are more dangerous. And so, the New Zealand government recognized this; and they came up with this plan--they thought: Okay, rather than playing this game of cat-and-mouse, this game of sort-of catch-up with the drug suppliers, what we're going to do is do things exactly the opposite way around. We're going to say: Okay, if you come up with a legal high, if you come up with a mind-altering substance, we will allow it. We will license it--as long as you can prove that it's not dangerous. So, if it alters people's mental state and it gets them high, that's fine. We're not going to ban it on that basis. We'll only ban it if it does them harm. And this was--you know, it seemed to me like quite an interesting approach. It seemed like a way of overcoming this kind of cat-and-mouse problem that has existed for many years in--well, in all countries. But the program hasn't got off the ground. And the reason that it hasn't is a very frustrating one. The FDA-equivalent that you talk about said that in order to license one of these legal highs and be confident that it wasn't harmful to humans, it would have to first be tested on animals. And this of all things--of all the possible objections that people might have to legalized drugs--this was the thing that failed to make it through the New Zealand Parliament. There were several members of Parliament that were animal rights activists. And so they voted against this part of the program.
Russ Roberts: Well, they didn't want to lose the votes of their constituents, their animal constituents. No, I'm kidding. They obviously had constituents who also cared about animals. That's presumably why they were animal-rights people. Carry on. Sorry about that.
Tom Wainwright: I don't know to what extent they were representing their constituents: whether animal or human. But for whatever reason, they voted against. And so, New Zealand now has the very frustrating situation of having this regulatory apparatus which is set up, which can't yet do its work because it hasn't got permission to do the animal testing that you would have to do before licensing any drug for use on human beings. So, it's an interesting idea which has yet to get off the ground. [More to come, 40:51]