Narconomics: How to Run a Drug Cartel, by Tom Wainwright, is a book that examines the modern drug business (both illegal and legal) in terms of actual business principles. What results is a fairly interesting and innovative book that mixes both journalistic style interviewing and reporting with business and economic principles (though these lightly). Wainwright starts off examining the point of origin, ie. Coca farms in Colombia and Bolivia, through the chain to the US border and the large recreational drug market in the United States. While on the road, the book examines principles of the business world: supply management, human resources, offshoring, alternative products and diversification.
From the supply side, Wainwright examines the mark up - mostly of cocaine. He starts in farms both illegal (in Colombia) and legal (in Bolivia) that grow Coca. These farms are often poorer, and leaves sell for as little as $100 for a large bundle. The mark up as it approaches the US border continues to increase, as various drug running gangs and cartels begin to take hold of the product, and the risk associated with it increases. The sale price in the US, after all is said and done, is astronomically higher (thousands of percentage points) over the original price. Drug cartels achieve similar mark ups to large corporations like WalMart - they put all the price fluctuations on the shoulders of the suppliers, and as retailers charge a fairly fixed rate through the massive mark up price. As Cartels control the supply, there is little room for competition to come in and undercut prices. The Cockroach effect is the end result of crackdowns. Most governments have been focusing on supply to combat drug trafficking. They spray pesticides over farms in Colombia, or send in soldiers to burn crops. This has very little actual effect on the price of the drug, and just like cockroach's, squash one farm and another will take its place.
The second concept relates to collusion vs. competition. In recent years, many of the most violent gangs in Central America have declared truces and have divided up territory to try and reduce the horrendous amounts of violence occurring, for example, in El Salvador. Why? What is the incentive to cease violence in this sort of business. The obvious one is that it reduces the cost of training and recruiting new members. Collusion can also reduce the pressure governments put on drug gangs. No violence? No Problems! seems to be the motto.
The third concept is Human Resources. Drug cartels employ many similar tactics as businesses when looking for recruits, although the tactics are obviously more extreme is some respects. Loyalty is important in most drug operations for obvious reasons. Therefore, it is important to ensure members are satisfied with their employment. High pay, vacations and other incentives are used to ensure members are well remunerated for their work. A high exit cost (in the form, often, of violence) is used to dissuade members from leaving. One of the cradles of any drug organization is prison. Ironically, the tough on crime stance often leads to tighter structural formations and greater loyalty to drug cartels and gangs. Prisoners receive protection and pay in return for working for cartels, and joining one can act as a buffer to the harsher realities of prison.
The fourth concept is PR. Public relations is an important part of any business, and illegal drugs is no exception. Threats of violence or ISIS style videos of murders or violence deters those who act against the cartel, such as bloggers and politicians, as they are seen as a threat against profits. PR can work the other way, bringing folk-hero status to criminals and smugglers in certain areas of Mexico, through charitable donations and infrastructure projects that promote a cartels image. Finally, PR is an interesting weapon against rival cartels. Want a police clampdown in a rivals territory? Send in some goons to start some violence. Federal police will lock the area down, and drain resources from the rival cartel. An added bonus is that police are often pulled out of your own territory to assist.
I won't continue much longer, but other concepts include offshoring of certain aspects of drug production, franchising to expand rapidly, diversifying to people smuggling and new drug avenues, the online drug marketplace and how it effects traditional markets, and the new legal high business, including legalization of marijuana and designer drugs that stay ahead of legislation.
Wainwright's book offers a lot of interesting facts and figures in relation to the world of drug cartels. The way these cartels are organized is often synonymous with established business norms and strategies, albeit with a more sinister twist. Even so, each aspect is highly interesting, and Wainwright's mix of journalistic travelogue and hard facts can be quite good in places.
The subtitle "How to Run a Drug Cartel" is not an apt choice, however. This book focuses more on regulatory reform options. Tackling the demand side of the drug economy instead of the supply side for example. Or offering rehabilitation for offenders over the prison incubation system that seems to be the norm currently. Wainwright is off to show that the war on drugs has been a failure. Prices have shot up to astronomical levels in recent years, which only squeezes addicts harder while bringing in larger profits for the more ruthless cartels who cannot be squeezed out through legislative measures. Was it a let down? No. I was expecting more of a book on business stratagems that a cartel uses, or its relations to established business practices. This is partially accurate. However, the regulatory bend this book took was much different from what was advertised on the cover.
Suffice to say, this is an interesting read. It examines the business of drug cartels closely, and provides an entertaining account of the mysterious world of criminal cartels. This book can be recommended to those interested in the ongoing drug war, and those looking for an innovative read on business theory, albeit with a heavy dose of journalistic messaging.