Economic Principles and Criminal Operations - Research Paper Example

Economic Principles and Criminal Operations Introduction The illicit drug market is one of the most complicated markets to comprehend and the extent of its operations. However, this report provides an in-depth explanation on how the illicit drug market has forced organization into criminology. The report starts with an introduction on the formation of the drug market, the extent to which the drug market spreads globally, the key players in the market. Additionally, it will critically focus on the economic principles on the illicit drug market (Wilson & Stevens, 2008 p.56). Similarly, how these principles affect the drug market. Additionally, the report looks at various criminal organizations, their formation and role in the illicit drug market. Similarly, it will examine the size of operation of the drug market. When critically examining the relationship between the economic principles and the criminal operations, one needs to first define the two aspects clearly in order to make a sufficient comparison and come up with a meaningful conclusion. For instance in this particular case, the two major aspects we are looking at are the economic principle and the illicit drug market hence we need to understand the rationale of these two aspects. We can categorize the economic principles in ten major aspects (Lyman 2011, p.286). These are scarcity, rationality, preferences, restrictions, opportunity cost, efficiency, marginal analysis, equilibrium and the game theory. In the business world, these economic factors drive trade and the economy largely. The drug market is one of the biggest and most dynamic markets in the economy of several countries in the world. However, this market differs significantly from one country to another from the production, the distribution of the drugs and retailing. Furthermore, in as much as this type of trade is illegal in several countries, the demand and supply forces still control the market. One of the most dynamic aspects of this kind of trade is that law enforcement agencies have stiffened their rules and regulations in order to eliminate it but this move has just make the trade to thrive more. However, it is important to note that it the demand and supply curves are generally similar to other goods and services. The demand curve slopes downwards and the supply curve upwards. Additionally, when examining the drug trade operation, the focus will be on the formation of these cartels and how the control the market including the monopolistic or oligopolistic nature of the trade. The drug market has a very wide network that is generally concealed and very quiet in its operations. The drug market controlled by the Mexicans in the United States is worth over four billion dollars and has a gross turnover of 400 billion dollars a year (Drug War distortions, 2011). However, several governments have made major strides in trying to crack down this form of trade (Sharman, 2010 p.49). Nevertheless, there exists an opportunity cost on stopping the trade. The opportunity comes in when law enforcement agencies shift all their efforts in stopping the drug trade and neglecting other forms of crime that occur. Drug use and prevention B PPF for enforcement agencies A Other crime prevention Opportunity Cost The diagram above is an illustration of the opportunity cost that the law enforcement agencies have to deal with when allocating resources in fighting crime. However, to the increased illegal drug trade the law enforcement agencies have moves the resource allocation from point A to point B in order to curb the rising cases of the drug trade. (Decker & Chapman, 2008 p.76). The markets size and operations of the drug trade The illegal drug trade market poses a great challenge in establishing the full extent of the drug operations due to the nature in which the dealers operate. Some of the widely traded drugs include cannabis, cocaine, heroin and other synthetic drugs. When coming up with the market size of this particular trade, prices are of great importance because monitoring the actual trade posses a great challenge (Campbell, 2009 p.158). However, in this case the prices of the drugs are quite high hence making the trade quite lucrative despite the dangers and risks involved (Duyne & Levi, 2005 p.71). However, due to the stringent laws that exist, there are fewer deals in the trade. Scarcity The reason for the high prices is that the drugs are generally scarce but not like the scarcity of diamond. One can easily cultivate the drugs but it is due to its illegality that makes them scarce. However, scarcity alone cannot be capable of generating high prices. Demand needs to exist in order for the price to be high. Demand can only go up if the supply in less than the market demand and in this case, the supply is less due to very few dealers in the trade (Levi, 2007 p.189). Preference The suppliers of cocaine and heroin have a lot of bargaining power when it comes to pricing due to the existing demand and scarcity of the commodity. The demand of these drugs is high due to the preference many users have in favor of them. Similarly, the price of the drugs especially heroin and cocaine increase as they get closer to the final consumer (Reuter, 2007 p.67). Restrictions It is very difficult to establish individual transactions due to the mode of business deals that take place. For this reason, satellite imaging on opium plantations around the world can provide insight information as to the extent in which the market may take. However, the transaction trade ranges from simple one on one transaction to large-scale transactions that entail importations from the producing country to the consuming country. In individual transactions, the dealers cannot subdivide their drugs to less than one tenth of what they purchased (Sharman & Tree, 2010 p.66). Efficiency and Compensation risk The supply chain of cocaine and heroin is one of the largest globally both in scale of operation and the market share. For instance, in the UK the drug business has huge profits. When examining the supply chain and the price of the drugs at each stage of the chain, we realize that the profits are almost double. When the cocaine comes from the farmer, it costs £325 per kilo. However, when it moves to the South American dealers the price is £2,050 per kilo hence having a markup of five hundred and fifty percent. The Caribbean dealers then take up the drugs from the South Americans and the price moves to £7,800 per kilo hence having a markup of two hundred and eighty percent. However, when the cocaine enters into the UK, the price escalates to a whopping £30,600 per kilo with a markup of up to two hundred and ninety two percent. Finally, looking at the street value in UK the amount is £59,659 per kilo with a markup of sixty nine percent. When one examine the supply chain you realize that the price of the cocaine per kilo goes up significantly at the entry point of into the UK. This clearly shows that the rules and regulations directly affect the price of the cocaine (Fukumi, 2008 p.87). However, looking at the heroin supply chain, it is relatively cheaper than that of cocaine. For instance, when the heroin comes from the farm it costs £450 per kilo. However, when the heroin moves to the Turkish dealers the price moves to £8,150 per kilo with a markup of on thousand eight hundred percent. When the heroin enters the UK, the price goes to £20,500 per kilo with a markup of one hundred and fifty one percent. However, when the heroin gets to the final consumer, it retails at £75,750 per kilo with a markup of two hundred and sixty nine percent. Similarly, looking at the heroin Supply chain the price also increases tremendously when it is entering UK. Additionally, from both supply chains there exists a very strong relationship between risk and price. The higher the risk involved in handling the drugs the higher the price and the lower the risk involved the lower the price. Price Price is one of the most determining factors of demand and supply of any good or service. Similarly, it applies greatly to the drug market. However, in this case the supplies hence making a cartel kind of business majorly control the price. Nevertheless, several factors affect the price of drugs either directly or indirectly. For instance, the capture of a key player in the supply chain will make the price go up because of the increased complexity in the channel of distribution. (Boyes& Melvin, 2011 p.244). Rationality The rationality principle involves people making decisions after weighing all the pros and cons However, in the drug trade a variable like price of drugs is generally inelastic meaning that changes in price do not affect the quantity of drugs demanded in the market. However, the reason for this is that the users of these drugs are already addicted to them. Furthermore, when looking at factors that affect demand and supply, they include the government efforts in supply reduction or demand abatement. For instance, the in the United States, the government has invested more of its resources in supply reduction rather than demand abatement. Because of all these factors, rationality does not affect the drug trade as compared to other commodities in the market (Decker & Chapman, 2008 p.86). Tournament Theory This is one of the widely applied theories in the world of economics. It briefly states that a relatively small difference in performance may cause a huge difference in reward (Font of Cyber Economics, 2011). For instance, in the drug market, the distribution chain is what determines who earns more than the other does. When the drugs move from production, the people in the chain just pass the drugs on to another dealer before they reach the final consumer. However, they make a lot of profit by just passing on the drugs hence the tournament theory applies. Beckers model of rational addiction Gray S. Baker clearly explains in his theory the effect of consuming addictive drugs and the relationship they have in the future consumption of the user. He further goes ahead and shows how producers and supplies can use addiction to project future performance. Addicts make rational choices hence the use more and more (Decker & Chapman, 2008 p.117). In the drug market, this theory plays a major role in influencing new entrants into the business. Supply and Demand analysis in the Drug Market When focusing on the supply and demand analysis in the drug market, it is rather straightforward whereby the demand curve is downward sloping and the supply curve is upward sloping. However, the price demand of the drugs is inelastic (Boyes& Melvin, 2011 p.244). Additionally, several factors including law enforcement agencies affect supply that causes the price to rise significantly. Equilibrium Several factors affect the equilibrium of the drug trade market apart from the normal market forces for instance, law enforcement agencies, drug abuse education acting as a deterrent and stiffening of the punishment if caught (The Matrix Knowledge Group, 2007). Price D S1 P2 S P1 Q2Q1 Quantity The figure above represents the effect of efforts made by the law enforcement agencies in supply reduction of drugs. The supply curve (S) of the drugs responds by shifting to the left (S1) due to the increase in price (P1-P2) and reduction of quantity supplied (Q1-Q2). Additionally, due to the elasticity of the price, a small reduction in the quantity-supplied causes a more than proportionate change in the price hence increases the revenue of the drug market (Reuter, 2010 p.29). Due to the addiction that the drug users develop, it make them become insensitive to price changes of the drugs. (Ghodse, 2008 p.189). Additionally, the drug dealers have taken advantage of the cheap labor provided by Africans who are willing to take the risk of carrying the through check points and airports at a minimal fees. It is important to note that the drug dealing business has several levels in which the dealers deal. At the retail level, the dealers make very small profit as compared to the higher levels of the supply chain. The main reasons why drugs are illegal is that they contribute to very many crimes due to the addictive nature and the aggressiveness that they make the user have. Additionally, drugs are harmful to the health of the user. Externalities Externalities are the effects that the drug trade has on the people that are not associated with it. Externalities are either positive or negative. However, in this case because drugs are illegal the externalities are negative. For instance, when people are addicted to the drugs they start stealing in order to satisfy their appetite. This behavior has a negative impact on the people that are not using the drugs. Similarly, the trade increases corruption when smuggling the drugs in and out of the country. Costs and Benefits Marginal Social Cost (MSC) Marginal Private Cost (MPC) Welfare loss to society Marginal Social Benefits (MSB) Q2 Q3 Q1 Quantity Q1-The market level of output Q2-Socially optimal level of output Q3= Law enforcement reduces the MPC The role organized crime in the drug market. Organized crime one of the most sophisticated forms of crimes that pose a major threat to the authorities and governments. For instance, the Mafias and cartels that operates in secret. Additionally, the level of operation is very complex and hard to identify who is in organized crime and who is not. People use to think that organized crime in about cartels and large mafia organization but currently this is not the case (Albertson & Fox 2010 p.25). The current organized crimes include small fluid organizations that run independently but pay tribute and allegiance to a bigger group. Some of the group members in these particular groups either are relatives or come from the same ethnical background. For instance, people know that the Columbians are the largest exporters of cocaine and the Turkish are the largest exporters of heroin. However, the reason for this is marginalization and low economic status of the people. The drug trade uses organized criminal organizations as a vehicle to move the drugs and generate revenue. However, looking at the organizational structure of the drug trade, there are various levels that a dealer can be involved in (Albertson & Fox 2010 p.29). for instance, the highest level is the international level where by the dealer on deals with moving the drugs across the border. However, the next level is the national level, which is lower than the international level. In this level, the dealer deals with moving the drugs across the country. The next level is the local level where by the dealer moves the drugs with a region or a town. The final level is the retail level where the dealer deals with streets. Comparison between the Drug market and the Cigarettes market The cigarette market is one of the largest globally due to the nature of smokers and the addictive nature of tobacco. One of the major similarities between the cigarettes market and the drug market is the nature of users. Both are addictive and hard for users to pull out. Another major similarity of both markets is that the price is inelastic (Reuter, 2007 p.87). However, organized criminal organization deal in both the commodities and sometimes use the cigarette market as a cover up for illegal drug smuggling. Game Theory The game theory involves situations of interdependence and driving force behind people’s decisions and actions. Organized crime is one of the major highways that drug traffickers use in pushing their drugs to the market. Additionally, it is equally difficult to identify the people involved in these organizations. For this reason, drug dealers find safe havens in these kinds of organizations hence advancing the drug network. Similarly, these organized criminal organizations have a code of conduct that they follow strictly. This includes secrecy and allegiance to the leadership (Decker & Chapman, 2008 p.106). As a result, when the authorities have apprehended any of the members, he or she cannot disclose the whereabouts of the other members. Dealing with the illegal drug market Illegal drugs are a big business and have been around for a very long time. However, drugs like cocaine, heroin and other drugs were legal until the year 1916. It is important to understand the origin of drugs in order to come up with adequate measures that will be effective in curbing the activities. However, there are two main approached that authorities can employ in order to deal with drugs these include eliminating the supply or dealing with the consumers (Ford, 2006 p.34). Conclusion In conclusion, the supply chain is very complex and hard to crack at once. However, with proper under cover investigations authorities can blow the whole network wide open. Additionally, the reason as to why the supply cannot stop is that the users are already addicted to the drugs hence it is very difficult for them to stop taking the drugs even if they wanted to. For this reason, various governments have developed public rehabilitation facilities that will enable the addicts pull out of the habit. Similarly, some governments have offered rehabilitation centers free of charge so that it can encourage more addicts to enroll. In doing this, the demand for the drugs is drastically going down. Moreover, some governments have introduced drug education in the school curriculum in order to sensitize the youth on the dangers of using drugs. Several governments have made tremendous strides in curbing the drug trade by arresting the main players in the trade. Additionally, stiffening the penalties for drug traffickers has also acted as a deterrent to drug dealers. However, this trade cannot end at once because it is already entrenched in the economy of several countries and it acts as a source of livelihood for the dealers. Due to this, they are largely protecting it and they will do whatever it takes to remain in business. Furthermore, very influential leaders of several countries are involved in the trade hence making it more difficult to deal with the trade. For instance, the Italian mafia that is deeply rooted in the government and other cartels that government officials run. Another, weakness in the fight against drugs is that some countries have more lenient laws than others hence making it easier for dealers to smuggle drugs. Additionally, it is important to note that the drug dealers are devising much better ways to counteract the advances that the authorities are making. Additionally, with the advancement in technology, the fight against drugs has moved a notch higher. For instance, the introduction of X-ray machines in the airport has greatly reduced drug smuggling into countries. Similarly, sniffer dogs have also enabled authorities to detect, confiscate and destroy drugs that are on transit. However, the major challenge is that drug dealers have devised smarter ways of packing and transporting the drugs without the authorities realizing. Additionally, the ever-changing tactics of drug dealers have also posed a major challenge in identifying the channels of distribution and the people involved in this trade. Fighting the drug trade is like fighting the unseen enemy. This is due to the under cover nature of the trade. Additionally, there is a strong relationship between organized crime and drug trafficking hence the authorities and government should battle organized crime as part of fighting drug trafficking. 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