Economics of Mexican Cartel Behavior - Essay Example

Introduction: Whereas the field of economics traditionally deals with legitimate businesses and the means by which interaction between individuals for business entities is conducted, there is a solid strata of the economy that is oftentimes on analyzed. It is estimated that each and every year hundreds of billions of dollars annually are absorbed into the black market. Whereas the black market involves any illegitimate sale of goods or services, a large proportion of this black market is involved in the distribution, production, and transportation of illicit drugs. As a very function of the fact that this particular practice is illegal and almost every single nation around the globe, the profit margins for such behavior are extraordinarily high. Due to the fact that individuals are attracted to this particular line of work based upon the extraordinarily high income they can earn with relatively little effort, there is a continual allure that drug trafficking, smuggling, production, and distribution has for individuals that might not otherwise consider integrating with the traditional economy. Needless to say, in order for drug distribution, transportation, or production to be particularly effective, it must necessarily have a certain level of organization. In much the same way that individual businesses within the traditional economy grow and expand to encompass operational goals and responsibilities that comprised many different individuals, drug cartels have grown as a function of controlling drug trafficking and production as well as smothering potential competition. Whereas the individual might be able to make a relatively small amount of money based upon drug trafficking and production, the protection, level of legitimacy, power, and reach that a cartel as allows this particular process to be engaged in a much more efficient manner. As such, the following discussion will provide a detailed observation with regards to the economics of cartel behavior. Subsequently, it is the hope of this particular author that such a unit of analysis will be beneficial in attempting to relate the dynamics of how this subsector of the economy works; as well as providing an insightful understanding of how economic principles that define the remainder of the economic sphere remain applicable and worthy of consideration – even within the black market. An Identification of Producer Behavior: When one considers the illicit drugs industry, they invariably consider the most commonly referred to forms of drug trafficking; marijuana and cocaine. Although it is true that marijuana accounts for the lion’s share of drug usage, trafficking and industry within the United States, the fact of the matter is that a litany of other drugs that comprise the industry as well as the demand and supply of this industry. Further, a total and complete shift in drug usage has evidenced itself over the past several decades. According to these realities, the following paper will briefly discuss the means by which the illicit drugs industry currently exists and the key changes and realities that define it. This change in the illicit drug industry has promoted a level of prescription drug sale that had previously never existed. Due to the increase of demand by drug addicts for these pharmacologically derived substances, a complete and total shift in the supply and demand structure of prescription drugs has been noted. Whereas many of these drugs can be purchased for only a few dollars via legal means of the prescription from a doctor, a single tablet can sell in excess of $20-$30 on the streets.1 In short, the illicit drugs industry is one that has grown and morphed with the changing realities of the current time. Just as with any industry, the supply demand mechanisms that define it play a powerful role in determining what drugs will come to a further level of prominence, and where the supply and demand curves will meet at a point of equilibrium. Naturally, the reality of the matter is that the prolonged and ineffective war on drugs has shifted the supply and demand curves of the illicit drugs market to be much more expensive than they would be if it were not criminalized. Many individuals have pointed to this as proof and justification for the legalization of all substance; however, the betterment the public health that would nonetheless be realized is most likely one of the many reasons why this is not yet engaged. Determinants of Profitability: Restriction as an Incentive for Higher Potential Earning – A Background and Overview of the Cartels and Why They Have Grown One of the aspects of current drug policy that continues to provide tension and a level of debate is why certain drugs, such as alcohol are allowed to be produced and consumed within the purview of government regulation whereas other drugs, such as marijuana and other illegal street drugs, are completely and entirely outlawed by the federal government. One might posit that the reason for such a differential has to do with the overall level of harm differential that exists between these drugs; however, when one considers the fact that alcohol is more addictive and destructive than any illegal street drug with the exception of heroin and cocaine, the level of differential between these, from a quality of health standpoint, is negligible. Within such an understanding, the following analysis will seek to compare and contrast the objective and subjective effects of the way in which existing drug policy, inclusive of alcohol allowance and taxation, creates a unique and somewhat unreasonable dynamic.2 Although it is not the place of this brief analysis to advocate a safe entirely new approach to drug policy within the United States, it is the hope of this research that a greater level of inference with regards to the appropriate response framework that government represents will be able to be inferred. Firstly, it must be understood that current drug policy within the United States is very much akin to Prohibition that existed following WWI. Within such an understanding, the similarities between the way in which the government, prompted by temperance movement activists throughout the nation, outlawed the production and/or consumption of alcoholic beverages within the United States is eerily similar to the way in which the ATF, FBI, and a litany of other federal and local law enforcement entities have worked in tandem since the declared War on Drugs to rid the United States of illegal substances. Anyone with even a cursory introduction to economics can realize that such a practice is ultimately futile. This is of course due to the fact that the more that a government outlaws the production, sale, distribution, and consumption of a specific good or service, then as long as that good or service is demanded, then the price thereof will increase dramatically.3 This jump in price is the direct result of government pressures and creates a litany of different interests that seek to capitalize on such a lucrative market. As can clearly be noted, Prohibition was soon repealed due to the fact that public outcry against it had reached a tipping point and the inability of the authorities to continue to strain the legal system with such low-level violations had reached a maximum.4 Yet, from an alternate standpoint, there are those individuals that reference the fact that Prohibition was ultimately effective due to the fact that it drastically reduced the amount of alcohol produced and consumed within the United States during this particular period of time; driving many would-be alcoholics into a level of forced sobriety and benefitting society by extension.5 In seeking to address which of these view is the more effective, it is the view of this particular author that the government was fighting a losing battle from the very beginning. Due to the fact that controlling aspects of personality and character and what an individual decides to put in their body is a personal choice, the rate of success that the government might have expected at the outset of Prohibition was limited to say the least. From a civil liberties perspective, the current government is engaging in a situation very similar to Prohibition with regards to the ongoing and exorbitantly expensive War on Drugs. Generation after generation of young disenfranchised citizens are being put behind bars for minor drug offenses; a process that ultimately hardens these young men and women and creates a much greater lasting problem for society as these young men and women emerge from their prison terms hardened criminals. Moreover, as has previously been discussed, the hope that control of the supply will have an impact upon demand has demonstrably been proven to be junk economics. The current price of cocaine within any city in North America is solely contingent upon the demand and is a function of the supply that is so narrowly constricted that it drives up the price; encouraging more and more dealers and producers to integrate with the market. The high cost of maintaining such a robust prison system is ultimately visited upon the taxpayers who in turn penalize themselves twice; once by removing an able bodied worker from the streets and placing them behind bars and twice for incurring a tax bill of at least 40,000 dollars per year in housing, providing medical care, and tending to the security needs that such a prisoner entails. Ultimately, the government has no place determining what an individual should and should not ingest, inject, snort, sniff, inhale, or otherwise put inside their bodies. As a result of this rather libertarian approach, it is the strong belief of this author that the current War on Drugs is a net drain on the resources of the nation; resources that in such a time of economic hardship could most certainly be better spent addressing other more pertinent issues. Rather than penalizing a behavior that cannot be changed, rather than filling prisons with non-violent offenders and in turn prompting them to integrate with other violent offenders, rather than pouring hundreds of millions of dollars down a rabbit hole that has yet to turn a reasonable result, the government would do far better to channel this money towards programs that are aimed at promoting overall health and addiction recovery. Rather than penalizing those individuals who would otherwise pose no threat to society, the government and its interests would be better served by legalizing drugs, managing the trade, and taxing it so that at least some level of mutual benefit can be appreciated within society. However, as the system exists currently, the level of shared benefit that can be had is negligible due to the fact that the government is more focused upon following after the clearly failed policies of the Prohibition era than they are of learning a very painful lesson of the fact that government intervention and regulation with regards to individuals personal choices only leads to creating a cycle of crime and punishment that cannot ever be effectively ended.6 Whereas it is not the purpose of this author to argue for a level of rampant egalitarianism and anarchy, it must be understood that the decision to criminalize personal behavior that is no more likely to have an adverse affect on another individual than would the process of drinking alcohol is both hypocritical and pointless. Although there is not a singular approach that will solve all the societal ills that can be caused by the use of illicit substances, or even of legal substances such as alcohol or tobacco, it is painfully evident, from the analysis that is been conducted, the current policy does not have a justifiable moral, ethical, or illegal grounding. Drugs, by their very nature, are damaging to the individual as a degree of addiction is able to be retained and the individual user becomes numb to the physiological health ramifications that continued use portends. However, a level of legality or illegality for such an action has little bearing with regards to the behavior that individual is likely to portray. Regional Distribution as a means of reducing competition: Regardless of how the individual analyst seeks to understand cartel behavior, one relevant factor that is exhibited nearly across-the-board is with respect to the way in which regional distribution helps to reduce competition. As a function of this, the cartel is ultimately operating as a business organization that seeks to develop ultimate market share within the regions in which it competes. Accordingly, having alternative organizations that offer similar or identical products to theirs, and potentially at a lower price, necessarily reduces the overall competence and potential for profitability that the cartel might otherwise be able to exhibit. As a direct result of this, great energy and expense of lives and money is spent on ensuring that regional distribution remains firmly in the hands of a given cartel. For this very reason, nearly incessant turf wars and fervently guarding distribution routes, existing agreements with corrupt officials, and other means of business operations serve as a fundamental manner in which regional distribution and overall reduction in cost can ultimately be affected. Evidence of the way in which such a regional and geographic segmentation of the drug cartel’s market takes place is exhibited below in Figure 1.0 Figure 1.0 7 By means of contrast and comparison, the individual analyst could easily consider the fact that drug production and distribution would not be nearly as lucrative if there were many different players involved market. Likewise, the cartels themselves recognize this determinant fact and are ruthless in guarding the potential entry of any competitor into an area that they consider themselves as operating within. In tandem with the illegality of the enterprise, which helps to prop up an already expensive baseline price, the absolute control of the inputs, in addition to near monopolistic dominance within a given region, all contribute to the way in which the behavior of the cartel is able to elicit a level of primal and dominant economic success. However, this should not be understood to mean that conflict between cartels does not take place. As exhibited below in Figure 2.0, this conflict has seemingly grown over the past several years; creating existential problems for the governments, peoples, and authorities that attempt to keep this type of behavior in check. Figure 2.0 8 Agreements between cartels to reduce competition Yet, it must not be understood that cartels are locked in continual bloodshed with one another. Whereas it is true that these cartels carefully guard the turf that they operate within and specifically attempt to constrict the expansion of any competing interests within this territory, they also are known to broker deals with other cartels and, on occasion, to work in close cooperation as a function of achieving a mutual goal. By very definition, the cartel is nothing more than a group of like-minded individuals which seeks to manipulate market price based upon manipulating the supply side of the economic chain. As a direct function of this, cartels are regularly engaged in agreements with other cartels as a means of reducing the overall supply; thereby contributing to an increase in the price demanded for the products that they provide. It is essential to note that the rules of economics do not cease to exist once one begins to analyze the black market or the means by which drugs are bought and sold.9 Instead, powerful cartels within Mexico and elsewhere throughout the globe operate not as monopolistic superpowers; but instead as an oligopoly – mindful of the fact that powerful organizations that could potentially dwarf their own in size and scope are beneficial in seeking to accomplish the overall broader goals that the cartel itself seeks to accomplish within the market in question. From the standpoint of an oligarchic system, one can see that the few players within this market would necessarily stand to benefit from controlling the price of the goods that they sell. Hence, Figure 3.0 illustrates the way in which the few cartels that do exist function in tandem with one another as a function of setting prices and defining the market. Figure 3.0 10 Similarly, Figure 4.0 helps to illustrate the way that the price of drugs has increased commensurate with other drug cartels; indicated a situation that even though these entities are locked in continual strife with one another; agreements are formed and understanding, whether tacit or non-committal is referenced. Figure 4.0 11 Alternative strategies to increase the price of the product Beyond merely approaching the issue of illicit drugs, drug trafficking, drug production, and drug distribution from the standpoint of constricting supply and cooperating with fellow cartels as a function of maximizing the overall profitability that these groups might be able to achieve, there is also a known and verified strategy that can be pursued alongside the ones that have already been indicated within this analysis. Essentially, the moral opprobrium that has been directed at the illicit drugs trade is not something that has hindered the profitability, sales, or success that these different cartels have been able to realize. Instead, the more draconian laws, if harsher it is analyzed, and the greater the degree of public interest involved all equates to a situation in which demand increases and prices go up. As such, one particular mechanism that is regularly used as a function of increasing the overall price of the product and promoting a further level of market profitability within a given region is with respect to bribery and the overall means by which public officials can be discouraged to behave in a particular manner.12 For instance, individuals within the decision-making structure of a particular cartel, or those that have access to a large amount of resources that the cartel has been able to amass, can easily utilize these resources as a function of encouraging a given public official, or group of public officials, to behave in a particular manner. This process of bribery invariably involves punishing one particular cartel or group of individuals related in drug trafficking, production, or distribution, while ignoring another. Within such a dynamic, it is clear to understand how a particularly corrupt political system would find itself deluged with money from drug cartels intended to destabilize the government, and specifically target those competitors that previous interactions or deals with had not panned out as they had anticipated. Conclusion: From the information that has thus far been presented, it is the hope of this particular analyst that the broader realization concerning the manner in which cartels operate is not they ascribe to an entirely different rule of business as compared to the traditional organization or business entity. Instead, although their products are something that could occupy ethical and moral arguments for decades to come, the manner by which they engaged in business and the manner by which they seek to dominate a given market is not unlike the way in which any other legitimate business firm seeks to operate, increase productivity, increased effect, and lobby the government for favors and special status. Ultimately, what makes the cartels unique is the fact that they utilize ordinary levels of violence, brutality, rate, and a litany of other less than honorable approaches as a function of pursuing their determinate end. Nevertheless, although this particular analysis stops short of being a policy proposal, it should be noted that if governmental restrictions concerning the way in which illicit substances could be transported, produced, and traffic throughout the world were to be relaxed, the ultimate power of the cartel would dissolve overnight in the issue would become one akin to such harmless activities such as illegal cigarette smuggling. Bibliography Bonner, Robert C. 2012. "The Cartel Crackdown." Foreign Affairs 91, no. 3: 12-16. Academic Search Complete, EBSCOhost(accessed September 9, 2014). CONNOLLY, DANIEL. 2011. "THE CARTEL NEXT DOOR." IRE Journal 34, no. 2: 16-19. Academic Search Complete, EBSCOhost(accessed September 9, 2014). DUDLEY, STEVEN. 2013. "DRUG DEALS." Wilson Quarterly 37, no. 4: 39-49. Academic Search Complete, EBSCOhost (accessed September 9, 2014). Grigoriadis, Vanessa, and MARY CUDDEHE. 2011. 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