In 1971 Richard Nixon, the 37th President of the United States, famously declared the “War on Drugs”. Well, here we are, forty years later, so I thought I’d better give you all a bit of an update on how that’s been working out.
The good news… the War on Drugs is over.
The bad news is… drugs won.
In these posts, I will talk about who won and who lost and share some ideas about some possible solutions to the drug problem that we face.
Do you recognize this man? He’s Amado Carillo Fuentes. At the time of his death, on an operating table in a hospital in Mexico, he is reputed to have been worth $25 Billion. No, that is not a typo, it is billion.
And he is not alone. Carlos Lehder, Dawood Ibrahim, Joacquim Guzman (El Chapo), Jorge Ochoa and Pablo Escobar are just five well know drug world figures who, in their lifetimes, amassed about $15 billion between them. Guzman even made it into Forbes magazine’s list of the world’s richest people.
These men keep details of their operations very secret so it is likely that there are many other billionaire drug dealers whom we will never know about. But how did they get to be so rich?
A kilo of poppies, purchased in Afghanistan, costs between $130 – $180. In order to make a kilo of heroin, you have to buy poppies and refine them, a fairly simple chemical process that yields a kilo of heroin for a total cost of around $2,500. That heroin will sell on the streets for about $10 a “point”, which is one tenth of a gram. That $2,500 kilo has a street value of $100,000! A four thousand percent markup. Approximately the same metrics apply to cocaine. Illegal drugs are by far the most profitable commodities in the world.
In a normal business, prices are governed by the marketplace. If I want to sell a commodity into an established market, I sell at a lower price than my competitors. The end result is that commodities reach a stable price at which all the competitors can make reasonable profits. If competitors price fix, they are subject to regulation by various government bodies. In the drug trade, it is normal for one gang to control the retailing in a specific geographic area. If a competitor wants to come into that area and compete on price they will likely end up on a slab in the morgue. Thus retail prices are maintained and astronomical profits are assured.
An interesting aside: the drug trade has a similarity to organizations like MacDonald’s and WalMart. The people at the top are very wealthy (the Walton family are worth some $90 billion between them) while the people who actually sell the goods to the public are minimum wage earners. In his excellent book Freakonomics, Steven Levitt points out that the average street level drug dealer makes less than the minimum wage.
In the War on Drugs, it is very clear who won big time. In my next post, I will talk about some of the harm associated with drugs.
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