The War On Drugs — Drug Cartels and Drug Lords (Mini Documentary [script])
The year is 1971. On a warm June day, President Nixon officially declares the War on Drugs, citing that drug abuse is “public enemy number one”. Over the next 50 years, the War on Drugs would cost the nation an estimated 1 trillion USD, but the exact cost is unclear. And while the US goes to incredible lengths to prevent the creation, distribution and sale of illicit substances, they can’t crack the seemingly never-ending supply of cocaine, marijuana, and opioids that are smuggled into the country from our neighbors to the south.
While the US government attempts to tighten the supply of drugs, the demand for drugs in the US remains relatively constant. While the public’s tastes have changed (opioids are more popular than ever), the overall demand for the imported illegal goods has stayed about the same. A study by the RAND corporation found that between the years of 2006 to 2016, Americans spent anywhere between $120 billion and $145 billion on drugs, which is similar to the amount spent on alcohol. It would seem that selling drugs is big business.
When the US officially made drugs illegal, it set the stage for drug cartels to dominate Central and Southern America. Because manufacturing drugs in America wasn’t allowed, the supply for drugs had to come from somewhere, and savvy businessmen saw an opportunity. Two well known drug traffickers were Pablo Escobar and Joaquin Guzman, also known as El Chapo, which means “Shorty”.
Escobar made his fortune during the cocaine boom of the 1980’s. Originally from Colombia, Escobar’s upbringing was modest, but he always had ambition. When Escobar took over the cocaine trade in Colombia (allegedly after the murder of another cocaine kingpin), he oversaw the operation of purchasing coca paste from Bolivia and Peru, processing that paste into the final product, and then trafficking it into the United States. Under Escobar’s leadership, the Medellin Cartel saw maximum profits of $420 million per week.
El Chapo and Escobar were remarkably similar. El Chapo also came from humble beginnings, working on a farm. Eventually, he started cultivating marijuana and working with other well known drug lords. Eventually he became the leader of the well known Sinaloa Cartel which sold cocaine, heroin, and marijuana into the US. One of El Chapo’s specialties was figuring out how to move vast amounts of product through challenging territories. One of his strategies for doing so was by digging long stretches of underground tunnels through which his henchmen could move the product unnoticed. El Chapo has been captured a number of times, but most recently, he was arrested in 2016 and extradited to the US. There, his earnings were estimated at about 12.5 billion USD. But that doesn’t even scratch the surface of the total earnings of the cartel, which the State Department estimates at between $19 and $29 billion USD per year.
As you can see, there is money to be had in the illegal drug trade. But how does the business actually work?
Thomas Wainwright argues in his book Narconomics that the illegal drug trade is run very similarly to a staple of the US economy: Wal-Mart. In many cases, Wal-Mart is the only purchaser of certain products that American’s rely on. Because Wal-Mart holds a monopoly on the purchase of these products, they get to set the price that they are willing to pay. The suppliers are at the mercy of their buyer, Wal-Mart.
Similarly, the drug cartels are at the mercy of their purchaser, the United States. In the US, a gram of cocaine will cost about $100. The price has been mostly stable for the last 30 years, despite attempts by South American governments to disrupt the supply chain of cocaine manufacturing. The reason this is true is because of the massive profit margin that cartels make on the sale of cocaine. Any increase in price in the coca leaf is a pittance in comparison to the amount the cartels make off of it.
Another aspect of the cartel’s operation is a familiar concept: franchising.
Wainwright also describes how the Zetas cartel in Mexico has taken over the entirety of the country. Similarly to how a McDonald’s would start a new franchise, the Zetas go to a new town and talk to the existing criminals that operate there, where they convince them to run their criminal activity under the Zetas name. The Zetas will provide these local criminals with weapons training as well as the cartel equivalent of corporate swag, in some cases hats and t-shirts. Being affiliated with the Zetas has another key advantage for the local criminals: their operation is taken much more seriously under the Zetas name. In return, the Zetas take a portion of the local criminal’s profits, in exactly the same way that a US company would.
These cartels are raking in some serious dough, what do they do with all of it? The answer is simple: they launder it. For the Sinoloa Cartel, their laundering method of ch oice was to get their profits into the international banking system as quickly as possible. To do so, they had a little help on the inside. An investigation of the State Department found that HSBC in Mexico consistently looked the other way as they wired billions of dollars to accounts in New York.
Similarly, Pablo Escobar’s operation relied on personnel on the inside of banking institutions. They used Mexican banks to convert large swaths of dollars into Mexico pesos. There also was a clear operation in Miami where criminals were depositing as much as $250 million USD per year into checking accounts. The criminal enterprise relied on the fact that their men on the inside would never submit a report on the fraudulent activity.
For more information about money laundering, check out our previous video.
It’s obvious that the War on Drugs has created a black market for the substances that is unstoppable. Thomas Wainwright has a solution for that too: legalize drugs. In an interview with NPR, Wainwright says: “The choice that I think we face isn’t really a choice between a world without drugs and a world with drugs,” he says. “I think the choice we face really is between a world where drugs are controlled by governments and prescribed by pharmacists and doctors, and a world where they’re dealt by the mafia, and given that choice, I think the former sounds more appealing.”
And if you look at what has happened with marijuana in the US, the suggestion lines up with facts. Before legalization in many US states, a kilo of marijuana went anywhere from $60 — $90 in Mexico. After legalization, that cost is down from $30-$40. Mexican marijuana growers are concerned that American legalization might run them out of business.
The solution relies on a very simple economic idea: that competition will keep prices low and push bad actors out of the marketplace. In terms of marijuana legalization, this basic principle seems to be working. If we apply the same principle to other drugs, we may see the cartels with fewer profits and less influence.
