The Economics of Drug Violence

Powerful monopoly suppliers need to control key zones so they can guarantee an army of contract employees. These "ants" carry the drugs over the U.S. border at a limited number of strategic points in small shipments. Without mafia-style terror, the cartel's domination along the route cannot be maintained. Mexican law enforcement has been courageous in trying to confront these monopolies, but firepower has not done the job. That's because this is an economic problem. Lower levels of violence in the U.S., despite widespread availability of drugs, and an improved picture in Colombia, where cocaine still flows, are best explained by competition and the smaller scale of the operators. It wasn't always that way in Colombia. In Mexico it could also change. To help Mexico deal with this "antitrust" problem, the U.S. has to recognize that competition in the narcotics sector is preferable to the monopolistic syndicates that threaten the state and could move north. But this would require greater flexibility from U.S. drug warriors. Some progress may be in the making on marijuana, and Mexicans will be watching the California ballot initiative that asks the electorate to approve the legalization of the ubiquitous weed. For sure, the U.S. market is robust, and "medical marijuana" looks like a way of legalizing without admitting to it. There is also the fact that the stuff seems to move around the country quite easily, demonstrating some tolerance on the part of U.S. law enforcement for the retail sector that distributes it. More competition in marijuana production and distribution in the U.S. would help beleaguered Mexico. As it stands now, the gangsters have good reason to pull out all the stops to get their marijuana across the border where the market is large, barriers to distribution are low and prohibition adds value. Profit margins are not huge but the sales volume is there. Mexican officials estimate that the marijuana business makes up more than half of the Mexican cartels' income. Legalizing grass in the U.S. would mean increased competition for Mexican exporters and lower profit margins, thereby depriving the monopolies of important income...more