chapter  7
16 Pages

Illicit drugs: markets and market forces

Chapters 5 and 6 established the fact that there are economic and political dimensions to the illicit drug industry, alongside the better known medical, moral and social aspects. It also noted that for some illicit drug-producing nations the economic and political consequences of a too-rapid reduction of output could lead to economic and political de-stabilisation. However, the use of economics and economic theory to make sense of illicit drugs provides an alternative view: one that sees illicit drugs like any other tradable commodity. As a consequence, this allows the use of economic theory as an alternative policy dynamic. This chapter builds upon that idea. Again, illicit drugs are stripped of any moral content and seen only as a commodity to be traded, and thus subject to the laws of economics, in the same way as butter, eggs or cars. As noted, the cultivation and production of drugs has become an important

and sometimes integral part of many countries’ economic development, and given the centrality to those economies that illicit drug production holds there is a persuasive reason as seeing illicit drugs as simply commodities. If this approach is adopted, and there seems to be few good reasons why it should be, there is a need to examine the nature of market-based relationships that surround drug users. The logical extension of this being that the market mechanism, including the laws of supply and demand, holds the potential to control the illicit drug market. Thus there is a need to undertake a market-based review of the illicit drug

milieu in order to ascertain the ways illicit drug markets resemble legitimate markets, and the ways in which they vary. In order to achieve this there are a number of requirements to be fulfilled. First and foremost there is the need to understand the value of illicit drugs in relation to other commodities. Then there is the need for an excursion into economics and economic theory in order to understand the market mechanism and the nature of markets. Following this, the chapter will examine the work of a number of authors who have applied economic analysis to the workings of the drug markets. Before entering into the world of markets and economics, it is perhaps

important to pause to consider why there is need to study this particular

aspect of the world of illicit drugs. Broadly speaking, there are two policy approaches in response to the growth of illicit drug use. The first is harm reduction, which is dealt with elsewhere. The second can be called the demand reduction approach. Essentially, this approach is aimed at reducing the use of drugs by forcing up the ‘cost’ of drug use to an unacceptably high level. Here, ‘cost’ can be either the monetary value of the drug or relate to non-

monetary cost such as the certainty of a prison sentence for those caught dealing in illicit drugs, or to emphasise the harm drugs can do to the user’s health. If this is seen as a determinant of policy, it can be argued that successful prohibition will drive the price of drugs to levels way above that which we could expect if the same drugs were legal. Moreover, if we add vigorous enforcement of the illicit drug market into the equation, which would include seizure of imports, as well as high profile policing of dealers and users, we should see the cost rise above an acceptable level. This high price, in both monetary and non-monetary terms should lead to a fall in demand, supply and ultimately use. If we view illicit drugs as a commodity it allows us to compare their value

to other tradable commodities. For example, looking at retail sales, Caulkins and Reuter (1998: 595) claim that illicit drugs have an ‘extraordinary high per unit weight’. Using figures derived from the Office of National Drug Control Policy (ONDCP) (1997: 10-11), based in Washington DC, they claim that marijuana is literally worth its weight in gold, with cocaine and heroin being ‘one and two orders of magnitude more expensive per unit weight than gold’. In turn, the expensive nature of illicit drugs means that they represent a significant part of the user’s income, unless the user is wealthy. Thus cost, already high, may affect demand if prices rise above a certain level. This leads us inexorably toward the economic theories of supply and demand and the price elasticity of demand.