Narconomics: How to Run a Drug Cartel

“Narconomics” is about how drug cartels are taking pages from the playbooks of big businesses like Walmart and Coca-cola. In cases like diversifying into new markets or deciding to collude with a competitor, this might not seem surprising. However, it may come as a shock to find out about the franchising and CSR (corporate social responsibility) practices of drug cartels. Other than being outside access to the justice system, and thus resorting to violence to achieve what contracts, mediators, and courts would do for other businesses, the drug business it turns out is very much a business.Along the way a secondary story emerges that is just as interesting and even more important. It’s the story of how the drug war makes no sense from the standpoint of economic logic. Destroying fields in South America only makes for poorer farmers because their monopsonistic (i.e. single buyer) market pushes the cost of lost crops back onto them. And because raw product is such a tiny portion of retail price, their destruction has almost no effect on prices at the user end. Furthermore, as more US and European states legalize marijuana, it seems that this will have more of an effect at putting cartels out of business and ending their reign of violence than all the arms shipments and foreign aid for drug enforcement ever had.The book consists of ten chapters, each of which addresses an area of business practices that have been taken up by the drug cartels. Chapter one is about supply chains, and in the case of cocaine there is a rather long one. The raw product is grown in South America and must be infiltrated into the US—usually through Mexico. (For a while there was a prominent Caribbean route, but it was shut down—at least for a while.) This is where we learn about how the cartels adapt to eradicated crops, as well as how the product is marked up at various stages of the operation.Chapter 2 is about the decision to compete versus collude. We mostly read about the competition, because in a lawless market competition equals violence. However, over time cartels have been increasingly willing to agree on distribution of territory. Although, there are also clever means to compete unique to criminal enterprises, such as engaging in violence in someone else’s territory to cause the police to crack down there—thus making it harder for said opposition.Chapter 3 is about human resources, and the different approaches used to handle problems in this domain. In the movies, an drug cartel employee who fouled up always gets a bullet to the brain, but it seems that this isn’t always the case—though it certainly happens. Different countries and regions have differing labor mobility. In some cases, there is no labor mobility. (i.e. if one has a gang’s symbols tattooed all over one’s body, one can’t interview with a rival gang and Aetna sure as hell isn’t going to hire you.)Chapter 4 is about public relations and giving to the public. One doesn’t think about drug lords engaging in CSR, but in some cases they may be more consistent with it than mainstream businesses. The cartels face an ongoing risk of people informing on them, and at least some of those people can do so without their identities becoming known. Violence is often used to solve problems in this domain, but it can’t do it all. That’s why drug lords build churches and schools, and often become beloved in the process.Chapter 5 explores “offshoring” in the drug world. This may seem strange, but drug cartels, too, chase low-cost labor. But it’s not just about lowering costs, it’s also about finding a suitable regulatory environment—which in the cartel’s case means a slack one. An interesting point is made that all the statistics on doing business are still relevant to the drug business, but often in reverse. That is, if Toyota is putting in a plant, it wants a place with low corruption, but if the Sinaloa want to put in a facility--the easier the bribery the better.Chapter 6 describes how franchising has come to be applied to drug cartels—famously the Zetas. The franchisor provides such goods as better weaponry in exchange for a cut of profits. Of course, there’s always a difference in incentives between franchisors and franchisees when it comes to delimiting territory, and this doesn’t always work out as well for drug dealers as it does for McDonald’s franchisees.While the bulk of the book focuses on cocaine and marijuana, Chapter 7 is different in that most of it deals with the wave of synthetic drugs that has popped up. The topic is innovating around regulation, and so it’s certainly apropos to look at these drugs. If you’re not familiar, there are many synthetic drugs that are usually sold as potpourri or the like. Once they’re outlawed, the formula is tweaked a little. In a way, these “legal highs” may be the most dangerous because no one knows what effect they’ll have when they put the out on the street.In chapter 8 we learn that the drug world hasn’t missed the online retail phenomena. Using special web browsers, individuals are able to make transactions that are not so difficult to trace. In an intriguing twist, the online market may foster more trust and higher quality product than the conventional street corner seller ever did.Chapter 9 examines how drug traffickers diversify—most notably into human trafficking. Exploiting their knowledge of how to get things across the border, they become “coyotes.”The last chapter investigates the effect of legalization, and it focuses heavily upon the effects that Denver’s legalizing marijuana has had in Denver, in the rest of the country, and on the cartels. Wainwright paints a balanced picture that shows that not everything is perfect with legalization. E.g. he presents a couple cases of people who ingested pot-laced food products intended for several servings, and did crazy stuff. However, the bottom line is that legalization (and the regulation and taxation that comes with it) seems to be the way to go if you want to really hurt the cartels and stem the tide of violence, as well as to reduce the number of people showing up at the ER having ingested some substance of unknown chemical composition.There is an extensive conclusion, about the length of one of the chapters that delves into the many ways our approach to eliminating drug use is ill-advised and dangerous. This connects together a number of the key points made throughout the chapter.I found this book fascinating. Wainwright does some excellent investigative reporting—at no minor risk to life and limb. If you’re interested in issues of business and economics, you’ll love this book. If you’re not into business and economics, you’ll find this book to be an intriguing and palatable way to take on those subjects.

An enjoyable read and I learned a few concepts along the way. The author leverages both Microeconomics 101 and Macroeconomics 101 to illustrate how a cartel can mimic the operational efficiencies of a publicly traded company on the S&P 500.Page 208 describes in detail how the cartel create heroin in the mountains of the Sierra Madre.And Chapter 7: Innovating Ahead of the Law -- favorite chapter in the book highlighting the regulatory experiment in New Zealand.I do recommend reading the Conclusion (Why Economist Make the Best Police Officers) on Page 239 *first* before reading Chapter 1 and onward.

Nearly every book about the drug trade suffers from one fundamental flaw: guesstimates about the financial and other figures related to drug trafficking. This is so even when academics pretend they are relying on solid data while actually making an ideological case about drugs (or America). But 34-year-old journalist Tom Wainwright, the Britain editor of the Economist and the magazine’s former correspondent for Mexico and Central America and the Caribbean, has a university background in economics, politics and philosophy, which makes for clear analysis and a creative approach to figuring out the realities of the underworld.As one example of how the value drug seizures are falsely estimated by officials, Wainwright cites a Mexico City marijuana haul which US newspapers reported was worth over half-a-billion US dollars. The actual value, says Wainwright, was probably more like US$10 million. That’s because all drugs have to be processed before being sold, so using the street value for crops destroyed, Wainwright points out, is like estimating the value of a steer based on the cost of a steak in a restaurant.Throughout the book’s ten chapters, Wainwright applies economic concepts like monopolies and labour supply to show how the drug trade works. He deals not only with staples like marijuana and cocaine, but also designer drugs created in laboratories and discusses how the Internet has affected the trade in illegal narcotics.Applying business models, Wainwright explains that “Cartels play a role more like that of large supermarkets, buying produce from farmers, processing and packaging it, then selling it to consumers.”The book is also leavened with lively anecdotes and colourful characters. Wainwright writes that “Straightforward ineptitude is frequently the cause of drug traffickers’ downfall, according to the Home Office researchers, who noted that the ‘soap opera lifestyles’ of dealers and their associates were often what caused them to be caught,” In one such case, a courier who had to hand over $US500,000 in cash decided to put the bills on a bed and have sex with his 17-year-old outside woman, taking selfies while doing so. When the girlfriend showed the pics to the driver’s wife, the wife became so enraged that she tipped off the police about him.Much of the book is devoted to showing why existing anti-trafficking polices aren’t working. For instance, Wainwright explains thatdestroying crops doesn’t raise the prices that wholesale farmers charge to cartels, because the armed groups that control the cocaine trade in Colombia act as monopsonies. That means that one group has a monopoly in specific regions, like cable companies in Trinidad and Tobago until recently. All that destroying crops does is make poor farmers poorer, says Wainwright, while the cartels’ profits remain the same.Moreover, he cites figures showing that, from coca leaf to cocaine powder, the mark-up is more than 30,000 percent. Put another way, even if destroying crops tripled the farmer’s price, the retail price in the United States would rise less than one percent.“This does not seem like a good return on the billions of dollars invested in disrupting the supply of leaves in the Andes,” Wainwright dryly remarks.The final chapter is titled, with seeming egoism, “Why Economists Make the Best Police Officers.” But Wainwright’s book proves his core point as to why an economics approach rather than an ideological one will do most to reduce the ill effects of drug trafficking.

British journalist Tom Wainwright’s masterful overview of the modern drug trade, its key players, and significant trends is a fascinating read for anyone interested in the how the drug trade functions at the highest level, what kinds of things it takes to run such a business, and how these organizations are keeping up with the times (through about 2015).A solid and engaging book, broken out into digestible chapters that focus on different components of the drug trade - production, HR, the impact of the Internet, and the looming specter of US legalization efforts - the author keeps things moving while offering insightful vignettes from the very real people involved, across the public and private sectors, albeit with relatively few insights from drug lords themselves.If you liked Clear and Present Danger, this’ll be right up your alley!

I thoroughly enjoyed the authors take on the subject. Looking at such a massive criminal business from the lens of an economist is an idea worth exploring. I think this book could be turned into a Holywood blockbuster or Netflix should def pay attention.Pick this up, I highly recommend it. Thank me later.

It’s a good book but not great. You can see the author has been clueless on the topic initially but has done a lot of research to compile the book and he’s managed to get some good info on a number of occasions yet it’s clear his own understanding and outlook on the topic is still somewhat lacking. Still a good read none the less but it could be better had it been written by someone different imo.I did get a shock listening to the book at one stage as it unexpectedly mentioned the website me and my friends made use of to assist with our studies in this particular field, the wonderful officialbenzofury.com - had he reached out to the operators of this site I believe he could have had a better viewpoint which would have allowed him to write parts of the book with more understanding, particularly regaridng the feelings and motivations concerning the many libertarians in the space.Drugs should undoubtedly be legalised, whichever side of the fence you may find yourself it’s clear legalisation is the only route that works for society!If you believe drugs are dangerous and harmful to society a legalisation framework would both make them safer and society considerably better.If you believe people should have that right to do what they wish with their own bodies, whether for pleasure, bio hacking or medicinal purposes then of course legalisation is the preferred route.Let’s make drugs, users and society as a whole safer by introducing a legal framework that would ensure quality control standards, remove criminals lacking care and compassion from the supply chain, increase awareness and correct information concerning the affects of each drug, allow addicts (addition is about the individual, not drugs! The majority of peope who use drugs are NOT addicts, same as the majority of people who eat food are not addicts but we also have many addicted to food amongst us!!) the help they need and deserve without fear of criminal prosecution, allow our polices forces to focus on true crimes & criminals that hurt individuals terribly such as paedophile, rapists, traffickers etc, stop wasting extreme sums of money ie billions and trillions on the failed ‘war on drugs’ and put these funds along with the immense tax revenues that would be generated to use to make society better, let’s allow people to escape depression and find a cure for many other ailments where dr’s have failed their desperate patients, let’s allow research scientists and bio hackers the ability to make new discoveries for the field of medicine and general human wellbeing without harsh, restrictive licencing requirements let’s allow people to use a substances to reduce pain, anxiety etc to make themsleves feel happy, relaxed etc when they desire without fear of harsh judgment or repercussions, particularly considering alcohol is often the legal alternative despite being considerably more dangerous than 99% of drugs and often having a profoundly negative impact on the user and their surroundings.When this day comes and it will come, the tax revenues will ensure that is the case!, only then will we find ourselves in a better society....In the meantime please consider where your beliefs, particularly prejudices, regarding drugs have been obtained, is it via a government’s sinister self serving false and flawed narrative? That was certainly the case with myself along with teachings from family with good, albeit flawed intentions but a little research goes a long way and can open the eyes of anyone lacking in the true facts of the matter, making for more tolerant, compassionate thinking and actions - isn’t that what the world truly needs?Best Wishes to one and all :)

This is an entertaining book and one that is worthwhile reading. It is a little outdated, but it represents a good book for someone new to the subject. It certainly paints a colourful picture of the illegal drug supply issue and how it is being managed, or not.

Al igual que el autor, vivi en Mexico (de hecho pienso regresar lo antes posible pa' alla :) ). El libro presenta nuevas formas de pensar en la guerra contra los carteles y la droga y estoy totalmente de acuerdo con el "ensayo" ya es hora de cambiar las cosas porque el sistema de guerra claramente no funciona!El libro de manera general esta muy bien argumentado con muchos ejemplos y referencias. No obstante, a veces lo encontre un tanto rapido en sacar conclusiones de ciertas situaciones:- Los comentarios hacia el ex-presidente de Mexico (Felipe Calderon) son un poco arbitriarios: El hecho que en 2010-2011 la guerra se haya hecho muy pesada no necesariamente esta relacionado con la llegada del presidente en el poder (sino que una situacion menajada por los carteles que coincide con la guerra que empezó el gobierno). Esto me lleva por ejemplo a questionar parte de las soluciones presentadas: Pues hay que recordar que Latinoamerica en general es muy corrupta y que los carteles tienen (generalmente) mas recursos que el mismo estado. Como pueden los gobiernos (con los niveles de corrupcion, endeudamiento, las exportaciones en peligro - con el amigo naranja del norte ahora - etc...) luchar de manera "educativa" contra los carteles.- La parte sobre la deep-web y el bitcoin, el tono del libro da entender que deberia todo esto ser prohibido hasta cierto punto. Con cualquier tecnologia vienen puntos positivos y negativos. En ambos casos (deep-web, bitcoin) los beneficios que se pueden esperar son mucho mas interesantes que los relativamente raros puntos nefastos.Muy bien escrito de manera general y muy facil de leer!Gracias al autor y felicidades por dar opciones a un problema que nada mas esta en expansion!

Not an easy reader managed 2 chapters before I called it off, feels like the author has just spent a while on Google and wiki researching then stuck it all in a book not engaging.