NYT forum on Latin American drug policy

If not legalization, what could stem the bloodshed?

The NYT “Room for Debate” section has seven essays on policy changes to protect Latin America from drug violence. Here’s my contribution. (“Giving up the pipe dream that enforcement can stem the flow of drugs would free it to reduce the flow of blood.”) Here’s Viridiana Rios: (“It is quite plausible that legalization would cause newly unemployed criminals to engage in kidnapping, extortion, robbery and other forms of local crime. A criminal outburst may be the unintended consequence of legalization.”) Here’s Alejandro Hope: “Two inescapable facts about the drug problem in Latin America are that it is mostly about international trafficking, which dwarfs domestic consumption, and it is mostly about cocaine, which provides the bulk of illegal drug revenue.”)

On the other side of the debate, some of the usual suspects offer some of the usual irrelevancies and non sequiturs. No one has a practical suggestion about a legal successor to the illegal cocaine market.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

22 thoughts on “NYT forum on Latin American drug policy”

  1. A random modest proposal for countries with drug violence problems stemming from supplying the US market. Decriminalize international trafficking and replace enforcement with a legal buyout. Offer to buy any quantity of drugs voluntarily surrendered at wholesale market prices + 5%. Destroy all purchased drugs to prevent domestic use or export.

    Of course, reducing demand in the US would have a huge impact but nothing can be done on that front because reducing the number of desperate people who have no hope but drugs would be evil socialism.

    1. Sorry, non-starter. Been there, done that, have the T-shirt. Production rises, with one crop sold to the buyout program and the other to the traffickers, who can always afford to pay more. (About 90% of the price of cocaine is value added in the U.S.

  2. Mark,

    Thanks for the promotion. Ethan Nadelmann does provide kind of an alternative, but one that seems rather unworkable: “allow addicts and other serious consumers to obtain the drugs they want or need from legally regulated sources.” That is heroin-assisted treament, writ large. The problem is of course definitional: who exactly are the “addicts and other serious consumers”? They don’t come with barcodes, as far as I know. If the definition is too rigid (as it is in Switzerland or the Netherlands), the impact on the illegal market is very small. If the definition is too lax, the scheme would produce a price collapse (or even bring it all the way to zero, if the drugs are provided free of charge), with the corresponding increase in consumption. I don’t think anyone really knows or can know ex ante what would the Goldilocks level of access.

    Best regards,

    1. Worse: As you point out, cocaine is the big issue, but all the medical-provision programs are about opiates. That’s why I said “irrelevancies.”

  3. No one has a practical suggestion about a legal successor to the illegal cocaine market.

    Given the fundamental hold of prohibitionism on the American polity, reformers, at this stage, are naturally concerned with shifting the Overton window rather than putting the cart before the horse.

  4. The real lesson of American drug policy is that if people enjoy doing something enough, you have to let them do it.

    The successor to the illegal cocaine market is the legal supply of cocaine to those who wish to use it, along with the sorts of things we do with respect to tobacco to discourage consumption.

    I actually think there’s something beautiful about the fact that if people want to do something enough, the government can’t stop them. It’s a form of popular sovereignty, in a sense. But obviously addiction and abuse have huge costs, which aren’t beautiful at all (and based on Prohibition, it is likely that they would get somewhat worse once we legalized). It is still, however, inevitable, and the mindset that we can stop people from doing something they like to do if we just make the government sufficiently oppressive is a proven failure.

  5. OK, here’s my irrelevant suggestion! The distinction between addicts (or perhaps between “addicts and other serious consumers”) and everyone else who uses cocaine is important for control purposes; by and large you let people self-select into these categories. You take advantage of the power of defaults (that people who are not particularly motivated tend to stick with the defaults) by requiring buyer licensing (with appropriate age and info hoops) and, once licensed, to have a default level of access (price menu, advance purchase, etc.) that makes the transition from occasional to habitual user rather hard. You allow people to override these defaults, however, with a little hoop-jumping, and those who do the override get special attention from treatment experts: it’s a little behavioral triage, to use a term that Angela Hawken has applied in the case of repeated HOPE miscreants. The advantages of this system are that it makes it possible for people, without too much rigmarole, to have legal access to recreational cocaine (and hence greatly reducing the huge social costs of prohibition), while still providing checks upon the two big issues, addiction and the transition from occasional to compulsive use. Furthermore, it is pretty low risk — the licensing and the default license can be set pretty conservatively without being worse than prohibition, though of course, not so conservatively that everyone just continues to use the illicit market, and it can be reversed without enormous ongoing costs. (So I reject the notion that we must stick with prohibition (reluctantly) because there is a risk that any legalization regime will not be easily reversible; I think that this one is less risky than prohibition, but if not this one, we can surely find one.)

    For those with access to SpringerLink, the related paper is available at http://www.springerlink.com/content/y4lu16t1r6573503/?MUD=MP.

    1. Jim,

      1. Arguably, in your proposal, there would be a significant price differential between the licensed market and the remaining illegal market (otherewise, the whole thing does not make sense: why would anyone go to the trouble of obtaining a license to pay the same purity-adjusted price?). Given that the elimination of the risks created by prohibition could lead to a 95-98% decline in the price of cocaine (as per Jonathan Caulkins), wouldn’t that provide more than enough incentive to override the “power of defaults”?

      2. How do you prevent the licensed cocaine from being resold in the illegal market (the arbitrage opportunity would be rather obvious)? I mean, there is now a significant illegal market for legal, but controlled pharmaceuticals (Vicodin, Oxycontin, etc.). How do you avoid that scenario?

      Best regards.

      1. It seems to me that a casual cocaine user who is legal risk adverse would very much want one of these licenses, even without a huge price difference (as getting caught basically ruins your life, which given existent costs to others, is fair under our current regime). Unless I misunderstand this idea.

        And I doubt if any system can stop all re-sales. That seems too high a bar.

      2. I am not Jim, and know his plan only so far as it’s shown above, but it would be similar to my suggestion.

        I would expect a significant price differential between the licensed market, and the licensed market would have the additonal advantages of legality and reliability. So people who actually wanted to use cocaine heavily would certainly over-ride the defaults. I have not seen cocaine use extensively in-person, so I’m somewhat extrapolating from alcohol use. In that case, even fairly small requirements for forethought will greatly reduce consumption. (For example, I used to estimate that the drinking at an open bar event would be about 75% of the quantity if a bar-tender poured standard-sized drinks, rather than letting people serve themnselves.)

        The porousness of the legal market is in my mind a feature, not a bug. The goal is that all cocaine imported comes in through the regulated markets (thus eliminating international trafficking-related criminality), and that the obvious source for cocaine is someone with a buying license (which ensures that no single dealer can serve more than a few customers, reducing the interaction between sellign and other crimes.)

        1. NCG and Sam,

          The fact that cocaine in the licensed market would be reliable and fairly available would increase the price differential with the illegal market and therefore its attractiveness for all types of users. At the extreme, it would attract all users. And that’s the problem with Jim’s idea. It is premised on price discrimination: cheap legal cocaine for heavy users (to reduce the problems associated with illegal markets) and expensive illegal cocaine for casual users (to prevent initiation and escalation into heavy user). If the price differential (adjusted for quality and ease of access) is too big, then all users flock to the licensed market and the scheme becomes functionally identical to full-blown legalization. To prevent that, the authorities could increase the restrictions to obtain a license (i.e., reduce the price differential), but, given the likely decline in the nominal price (95-98% as estimated by Jonathan Caulkins), the additional restrictions, to be effective, would have to be so massive that almost no users would be attracted to the licensed market, thus reestablishing prohibition for all intents and purposes.

          Would it eliminate international trafficking? Well, it would depend on the price differential between the licensed and the illegal market. If it was large, then, yes indeed, international traffickers would be wiped out (as they would under legalization, which is what this would amount to). If it was small, then no. Illegally smuggling cocaine would provide roughly the same incentives as “smurfing”. So people would still import cocaine illegally.

          Best regards.

      3. Thanks for your reply. I think I did misunderstand, because it seemed to me that Jim was trying to make it harder for people to become addicted, not easier, within his licensing scheme. I guess I’ll have to actually check out his link.

      4. Sorry to comment and (temporarily) disappear. Thanks for the feedback.

        The (monetary) prices for cocaine for licensed users would include significant taxes, though presumably we would aim for some discount relative to current black market prices. (Once most of the cocaine comes through legal channels we can direct whatever fraction of the current enforcement octopus that we want to maintain at the much smaller illicit market, so we should be able to raise the prices there further. Therefore, we might be able to eliminate the vast majority of the black market even if legal channels sell at prices identical to current black market prices. As SamChevre points out, there is much to be said for transacting on the legal market. The well-established and violent black market for alcohol was mostly destroyed (especially in the wet parts of the US) within a couple years of the end of national Prohibition. The same is possible for cocaine.

        So, taxes in the licensed sector will be used to keep prices high, though at first, at least, I would choose a significant discount (25 or 30 percent?) in comparison with the black market. The notion that prices under legalization would fall by 95% might be right under a laissez faire reform, but that’s not relevant here. Indeed, it is not relevant for the significant legal market that currently exists for medical cocaine.

        There’s more you can do with prices. Maybe the default prices would increase with quantity, so that the first doses of coke each month, say, would cost less than additional units. Perhaps license holders could choose among pricing options. For instance, one price alternative would involve a constant per-unit price, whereas a second alternative would escalate charges, with lower prices (than the constant price alternative) for initial units but increasingly higher prices for later units. Maybe people who agree to a longer advance purchase requirement could face lower per-unit prices. Some portion of taxes collected could be returned to a licensed user who agrees to relinquish his or her license for a considerable time, so that heavy users would also have a significant monetary reason (beyond no longer buying drugs) for quitting. But the main point is that there is plenty of room to experiment, not just with pricing but with many other dimensions of drug acquisition and use.

        As for the diversion of pharmaceuticals, the current controls in that realm are meant to preclude recreational use. So recreational users present a pretty enticing set of demanders for diverted pharms. I envision a system for cocaine (and other drugs) that is meant to ease legal access for recreational use. The recreational users would by and large turn to the legal option, where they could procure cocaine legally and at no price premium relative to the residual black market. Would there be some diversion? Yes (though I don’t think diversion from legal medical cocaine is that big a concern right now). But the diversion would be limited by the quantity controls on licensed users, beyond the diversion of demand into the legal market.

        1. OK. Let’s try this with some numbers. Currently, under prohibition, a kilo of 100%-pure cocaine sells for approx. 2000 dollars in Colombia. Let’s assume that, miraculously, the price does not fall under a legal commerce regime (which it would). Sending a one kilo package from Bogota to New York via UPS, Fedex, etc. costs approximately 100 dollars, i.e, 10 cents per gram. So its import price is $2.10 per gram (remember, you now have an FTA with Colombia, so no tariffs). Let’s assume that both the import wholesaler and the retailer have a 50% profit margin each (rather high, but anyway). That brings the retail price to 4.72 dollars per gram, pre-tax. Add in an 8% sales tax. You are up to $5.09. Purity-adjusted, the retail price of cocaine is currently around 100-120 (or even higher, if you believe the DEA: http://www.justice.gov/ndic/pubs38/38661/cocaine.htm). A discount price of 25-30%, as per your proposal, would be $70-90 per gram. Let’s assume it’s $70 (or even $50 for that matter). To get from $5.09 to $70, you would need an excise tax of $64.91 per gram, an implied tax rate of 1375%. Good luck having anyone pay that tax: the profit from evading it would be five times larger than the profit Mexican cartels currently make from smuggling cocaine into the US.

          The rest of your price raising proposals (escalating charges, tax incentives, etc.) are interesting ideas, but not really relevant to the main point of discussion (and anyway, all your restrictions would pretty much work as a non-monetary tax, so the preceding discussion on taxes applies). The key issue is that, if you take out the risks of jail, injury or death to everyone involved in the supply chain, cocaine would be way, way, way cheaper than at present. And unless you have a good reason to believe that cocaine does not have a downward sloping demand curve, consumption (and problematic consumption with it) will increase. By how much? Who knows, but increase it will.

          Sorry, but there is no way to avoid the trade-off between the size of the illegal markets and the level of consumption. In drug policy, as in life, there is no free lunch. Your solution might still be superior to the current regime, but it does not knock down the key objection of non-legalizers: a) we don’t know what would happen under a legalization regime, and b)a return to the pre-legalization status quo might prove amazingly costly.

          Regarding the potential diversion from the legal to the illegal markets, I can think of a whole bunch of categories that could serve as ready customers for diverted legal cocaine: minors, current or former prison inmates (arguably a record of violent crime might be grounds for denying a license, wouldn’t it?), people with suspended licenses, people that selected to restrict their access but then changed their minds, the mentally ill, etc. Of course, all of that would go away if you set the bar for access really low, but then, what would be the difference with the laissez-faire solution? The higher the bar for access, the larger the number of potential customers for illegal providers. Again, no free lunch.

          Best regards.

          1. Constrained but legal access to cocaine for recreational use is not the same as what you seem to have in mind with a “legal commerce regime.” I have not described the supply side regulations, only (some of the) the conditions under which consumers can legally procure limited quantities of cocaine. Where will the state-monopoly or state-licensed stores or pharmacies that distribute the cocaine to licensed customers receive their supplies? One possibility is to expand the existing legal market in medical cocaine. But in any case, you are right, an essentially unregulated supply-side will not be compatible with the high prices that I envision, because the opportunities and incentives to evade the tax would be substantial.

            What numbers are the relevant ones here? Let’s take your suggestion that the current price of pure cocaine in the US is $120 per gram. The licensing system intends to offer that cocaine at a price of, say, $100 per gram. The supply prohibition is still in place, except for the licensed channels. Where will the customers be for the residual black market? Yes, there will be some unlicensed and unentitled users who might still look for illicit supplies, but the vast majority of users will be buying in the legal market. We already have all of this enforcement machinery that can make the US price $120 per gram (that is, we already can enforce a “tax” that yields this price); under the legal regime, the enforcers will only have a tiny percentage of the existing market that they have to worry about. Wouldn’t some small subset of that enforcement machinery be all that is necessary to ensure that the black market price (and here we should adjust for risk, too) is enough above the legal market price that the great majority of consumers prefer the legal market? And if we need to make the legal price $80 per gram instead, so be it.

          2. Jim,

            This is in reply to your post below (for some reason, there is no reply button down there).

            There is an itsy, bitsy, teeny, weeny problem with your regulated supply scenario. It’s called international borders. Clearly, if the US moved in the direction you are proposing, so would Latin American countries (or is your proposal a “legalization in one country” type of thing?). Currently, under prohibition, the retail price of cocaine in Mexico is approximately US$30 per gram (purity adjusted) and for about US$10, wholesale. Following your recommendation, there could be a 20-30% discount on the illegal market (or maybe much more: once the current international control regime is gone, Latin American countries could choose to go for full-blown legalization). So we are down to US$20-24 retail. But maybe Mexico and the rest of Latin America don’t have the same enforcement capabilities as the US (just a thought), so maybe the sustainable discount in Latin America is not 20-30%, but more like 50-60%. So we are likely down to US$10-15 per gram, retail, in Mexico (and that price might not be sustainable because that is pretty much the current retail price of cocaine in Guatemala, which of course would go down as well). Thus we have a legal commodity that sells for US$100 on one side of the border and US$10-15 on the other side (at most). Smugglers face the exact same incentives as they do now: they could very easily undercut the legal market (say, sell it for US$90) and still make a humongous profit (this is not a hypothetical problem: there is a very large market in illegally imported pharmaceuticals). There would, of course, be two solutions to that problem: 1) the US could massively ramp up border enforcement, prosecute illegal importer networks and maybe throw in some source-country interdiction into the mix (and complain about how Latin Americans do nothing to restrict illegal supply, which they wouldn’t, because why would they? Cocaine is now legal, is it not?), but then you are back to a war on drugs scenario; and, b) the US could allow prices to fall to the levels of Mexico (risk-adjusted of course, but that would be far from your US$80-100 range. Currently a wholesale kilo goes for about $12,000 wholesale on the Mexican side and $25,000 wholesale on the US side). Which one would you prefer? A continued war on drugs or very cheap cocaine?

            As for currently legal cocaine, it is a puny market: total global legal production is half a ton (http://www.unodc.org/documents/data-and-analysis/bulletin/2007/Century_of_Drug_Control-E-WEB_FILE.pdf), 0.05% of the estimated global production or about 0.25% of US demand. It is small enough to be tightly controlled (and even then, there is significant coca leaf diversion in Bolivia). But once you start scaling things up, control is not such an easy task: just look at the significant problem of diversion of legal opiates in India (http://www.publicpolicy.umd.edu/files.php/faculty/reuter/afghanistan_legal_opium.pdf).

            Best regards.

    2. Jim, I don’t see how it’s irrelevant.

      However, it does seem to be behind a paywall? Anyway, I’m just an onlooker on this issue. (I also tend to be skeptical that there is a huge unmet demand for drugs, such that the sky will fall if we de-criminalized but, that’s me and I don’t know the data like these guys.)

      1. OK, I am facing the same issue with the Reply button that Alejandro mentioned, so this comment, responding to Alejandro’s 7:13AM contribution, will be in the wrong place…

        I am not sure I see how the international context that you have elucidated changes the fundamental story. The illicit retail market price for cocaine in the US is massively above the costs of production under our current prohibition, as you have indicated. My proposal aims at diverting most users into a legal market, one that has effective prices that are lower than the current black market prices and offers more protections for addicts and users who are in danger of becoming addicts. This diversion can be accompanied by a redirection of enforcement resources in such a way as to raise still further the price on the remaining illicit market, though I do not think that is an essential element of a successful transition away from prohibition. There will still be a residual black market, as we have seen with other movements from prohibition to taxation-and-regulation, with alcohol and lottery tickets, for instance.

        The international context you have spelled out in your most recent comment suggests that the wholesale and retail prices of cocaine in Mexico could fall quite a bit, depending on liberalization-style policy changes in Mexico and other countries. As cocaine in Mexico is a source of coke in the US, this is another way of indicating that the costs of “production” will be quite low relative to the US retail price, and maybe (despite the lower price in the legal channels I indicated), the gap between costs of production and retail prices will rise. But right now, as we are frequently reminded, the costs of production are almost irrelevant for US retail prices, with almost all of the mark-up coming in getting supplies across the US border and to the retail customer. Maybe every border crosser from Mexico would load up on cheap cocaine to sell to users in the US, but would the incentives really be greater than they currently are, because the Mexican price falls by 2/3? Is the price in Mexico the binding constraint on smuggling now? And you still have to find buyers, most of whom will be content to behave legally in the official market. (Even free downloads took a hit when iTunes came around.) Again, I do not see how the fundamental story, that we can profitably replace a prohibition with a tax-and-regulate system, even in the face of large differentials between costs of production and retail prices, is altered by the scenario you have developed.

        I am intrigued by what you called the “key objection” of prohibitionists, that: “a) we don’t know what would happen under a legalization regime, and b)a return to the pre-legalization status quo might prove amazingly costly.” I call this the “too-risky-to-try” argument, and you won’t be surprised that I do not find it persuasive at all. But maybe that discussion is for a future exchange!

        Cheers,

        Jim

        1. This exchange has beccome too long, but just to wrap things up: I find the notion that you could keep prices pretty much where they are now (with a small discount) in the face of collapsing international prices, very large cross-border price differentials, pretty much no interdiction along the route and reduced domestic enforcement (because that’s kind of the point of the whole thing, isn’t it?) rather bizarre. Whether you are operating under a multiplicative or an additive model (or some hybrid that might more closely approach reality), price changes along the route do have an effect on final retail prices. If there is an ten-to-one (at the low end) crossborder price differential for the same commodity (along the busiest border in the world, mind you), there is no way in hell there is not going to be massive smuggling that will severely undercut the prices, and thus, the market share of legal providers. The only way to stop it would be with equally massive border and domestic enforcement (because there is no way you are going to stop everything at the border), i.e., with the war on drugs.

          But, wait a minute, people won’t smuggle cocaine because there won’t be any demand, right? They will be so happy with legal supply that they will be totally unresponsive to very large price differences. That’s probably the reason why there is simply no tobacco smuggling between high and low tax jurisdictions: http://www.reuters.com/article/2012/04/04/us-tobacco-idUSBRE8330QZ20120404. You won’t be surprised I find that idea rather unpersuasive, but we will continue at some other point.

          Best regards.

          1. I hope I’m not being too annoying here, being a bystander, but I think what the non-addicts would be most happy about is the no-risk-of-going-to-jail part. It seems like that is getting lost. Combined with some purity guarantee, I would think the average casual user would in fact be willing to pay some premium. But, I don’t know any casual users anymore. (I knew some when I was in grad school.)

            And I see what you’re saying — this system would inevitably have some leaks in it, and how could authorities tell the legal from the illegal stuff? Also, it seems like it might really be a job creation policy, since it would be lots more(?) people that someone has to keep track of. Maybe if there were a HOPE style program in place too.

            I hope you will all keep talking about this subject, somewhere. It is hugely important, for humane and fiscal reasons.

  6. Just my two cents, I think I’d rather have the very cheap cocaine. It seems to me there are lots of things we could do to lessen the harmful side effects on society, though if there is evidence it would be much worse than I expect, I’d be interested in knowing that too.

    But I am really just posting to say that these conversations are what make this a really great blog. I have heard more sense here, on both sides, than I ever get on the radio or telly. It gives one hope for the future, I tell you.

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