【Book】Narconomics

🟥 What the book is saying

This book won the "Best Book of the Year" in 2016 by Amazon's online bookstore in the United States. The author visits the operation of the drug cartel and exposes the face of the entire drug industry. He finds that the drug cartel may be very different from the image we imagined only relying on violence and coercion. , In fact, the drug cartel will learn from various large enterprises, such as Wal-Mart, McDonald's and Amazon, and will also integrate various management methods. At the same time, the author analyzes why the government's anti-drug policy is not effective through the viewpoint of economists, and finally provides effective countermeasures.

🟥The real appearance of the drug industry chain and drug cartels

The annual output value of the drug industry is about 300 billion US dollars. If this industry is compared to a country, the "drug country" can be ranked among the top 40 economies in the world. The traditional image of drug cartels may revolve around violence, blood, dark corners of the street, and sneaky dark market transactions.

But in fact the appearance of the drug cartel may be more "friendly" than we imagined. Because drug cartels face problems that all businesses encounter. Such as human resource management, supply chain management, changes in consumption habits, and even the impact of the rise of e-commerce and changes in the political and economic situation .

With the change of the general environment, the drug industry that relies purely on violent coercion will easily be eliminated over time, and many drug industries have developed a set of business philosophy, using the franchise system, offshore outsourcing, competitive cooperation, risk Passing on, building a buyer's market, diversifying careers and focusing on social corporate responsibility, etc. , can be said to be more than that of large companies and even multinational companies.

Although the protagonist discussed in this book is a drug trafficking group, the content is not only aimed at its drug trafficking behavior, but also a comprehensive analysis of violent coercion, human smuggling, extortion and other underworld or related behaviors derived from violent groups. It also made suggestions on how the government should respond to regulations.

🟥The life journey of cocaine

Cocaine (also translated as cocaine) is the first drug introduced by the author in the book. Through field visits to its origin, back-end manufacturing and distribution processes, and finally comparing the control measures of various governments on drugs, analyze why Existing anti-drug measures are often less effective.

🔷Materials and effects

Cocaine is a common drug that mainly has two effects of anesthesia and excitement. The annual output value of cocaine is about 90 billion US dollars , and most of its raw materials come from Bolivia, Colombia and Peru in South America.

Coca (coca) is the raw material of cocaine. Coca is a kind of shrub. After the leaves are dried, cocaine can be extracted. "crack" to smoke.

Traditionally, local residents would have chewed coca leaves or used them to make tea. It is said to have the effect of repelling cold, relieving hunger and alleviating altitude sickness , and it has only a slight stimulating effect. In addition to being refined into coca base, coca can also be used as a raw material for tea, toothpaste and other products , so the Bolivian government does not prohibit the cultivation of coca, but there is a bookkeeping management, but there are still many coca flows into coca alkali market.

🔷Price and Industry Scale

Whenever the government cracks down on drug gangs smuggling or drug manufacturing sites, news headlines such as "Hundreds of millions worth of drugs seized" and "Hundreds of millions of drugs were intercepted before entering the market" often appear, although we may not know the market of drugs. , but always know that drugs are not cheap, but in the whole process of production and sales, profits are not evenly distributed on each node.

Take the price change of one kilogram of cocaine from the Andes Mountains in South America to Los Angeles in the United States as an example:

350 kg of coca leaf is about $ 385 , refining it into 1 kg of cocaine can sell for $800 in Colombia, then 2,200 when exported from Colombia, soaring to 14,500 when shipped to the US, transferred to intermediate dealers It can be sold for 19,500, and finally street dealers will sell it to consumers for 78,000. Adding in the dilution (watering/adulteration) after each pass, the estimated selling price after correction is $ 122,000 . This markup is staggering compared to the 10-100% markup in retail.

🔷Profit structure of production and sales

Traditionally, the manufacture of commodities consists of four cycles of "raw materials → mining → processing → distribution". The particularity of drugs and other commodities is that almost all links are located in illegal control areas, so in order to break through the government Each time a node passes through, the price is increased by several orders of magnitude according to its risk and cost.

The coca farmers at the source of the production chain are the most vulnerable group in the entire drug industry chain , and the raw material side is the focus of many governments to crack down on the drug industry. Coca farms, or sending planes to spray herbicides on a large area, etc.

In fact, the key drug dealers in the drug industry chain will pass on the cost or force farmers to absorb it. Because the value-added of the entire drug industry chain is almost all in processing and smuggling , the government's crackdown on raw materials is often ineffective, even if the raw materials are expensive. A few percent of the price will hardly damage the sales price of the terminal, because the raw material itself is not the key to the cost structure of drugs, just like for works of art, pigments can be said to be optional in the cost structure, and the same is true for drugs .

🟥The business philosophy of the drug cartel

The operation of drug cartels may be more professional than we imagined, and there are even things that people can learn from.

🔷Build a buyer's market

Walmart is an American multinational retailer known for offering great prices and a large selection of items. When Wal-Mart becomes a large buyer, it can offer prices to suppliers at will , because suppliers cannot find other buyers and have to let them exploit, which is why Wal-Mart always offers such low prices. For suppliers, the existence of Wal-Mart can be said to be a love-hate relationship. The lover is because only Wal-Mart can purchase such a large amount, and the hater is that Wal-Mart often cuts the price to the bone.

This characteristic is the so-called buyer's market. In terms of supply and demand, only Wal-Mart has the conditions to purchase such a large amount, so it has the conditions and space for bargaining, and even has absolute right to speak. Anyway, besides me, you can also find less than other buyers.

The same goes for drug cartels, which are single buyers for farmers who mainly grow coca, because coca trafficking is illegal, plus each area is usually controlled by one cartels. So even as governments work to eradicate coca orchards, wholesale prices haven't moved much as farmers have to raise costs to grow them.

In other words , only farmers are bearing the brunt, not drug cartels . Colombian coca farmers earn an average of two dollars a day, while drug lords are the richest.

In fact, raising pigs, growing tomatoes or raising poultry is more profitable than growing coca, but these farmers have no capital, so Europe has changed the policy of simply eradicating coca, and instead counseled and provided capital to these farmers.

🔷Diversified career

For enterprises, if the business is too single, it is easy to be exposed to risks. If the professional ability accumulated in this industry can be applied in other fields, or in cooperation with different industries, it can maximize profits and diversify risks .

For drug cartels, whether it is a change in national policy (such as the legalization of marijuana), or strengthening of investigation efforts, etc., it will impact their main business: drug trafficking. The "professional competence" that drug cartels have accumulated in running their business is nothing more than violent coercion and bribery .

Based on these two functions, drug trafficking groups have also begun to operate diversified businesses such as human smuggling and maintaining corporate black market agreements. .

🔷Focus on social corporate responsibility

"Corporate Social Responsibility" is abbreviated as CSR (Corporate Social Responsibility), which is an indicator that many large enterprises in modern times have adopted it as an indicator of their entrepreneurial spirit. Simply put, it is to hope that the enterprise can take from the society and use it for the society, and can give back to the village in addition to making profits. This kind of behavior seems to have nothing to do with the drug cartels in our impression, but this is the area that many drug cartels or underworld have begun to focus on.

The reason why drug cartels start to pay attention to CSR is definitely not because they want to give back to the public because of their conscience, but to gain the support and recognition of the public , which can reduce the possibility of their reporting, and even help hide the traces of drug cartels. Make it easier for drug cartels to run their business.

In many developing countries, many underworld or drug cartels are more popular with the people than the government. In many areas where governments are failing to provide public services, drug cartels are taking the burden. Such as fixed elder allowances provided to remote areas, paying to build bridges and paving roads, maintaining public order and so on. In countries with increasingly incapacitated governments, these gangsters have instead become objects of popular support in the country.

🔷Dahang offshore outsourcing

When local labor costs increase and transportation costs decrease, moving factories to countries with lower labor costs has become the choice of many companies, because even with the addition of shipping costs, the total cost of labor is still reduced.

And drug cartels can also do the same. Compared with developed countries, the laws are more stringent, and law enforcement officers are difficult to bribe. Outsourcing production bases or outsourcing to countries with relatively loose laws can effectively reduce the cost of drug cartels. Coupled with the costs of bribery, manufacturing costs, and hiring killers in manufacturing and distribution, there are always countries that can provide lower labor costs. The difficulty of the government's search for drugs.

🟥How to effectively fight against drugs

According to statistics, the world invests 100 billion US dollars to combat the drug trade every year. The US government alone spends as much as 20 billion, but the results are often unsatisfactory. The author of this book puts forward some suggestions and directions through field investigation and analysis.

🔷Control from the consumer side

Governments of various countries usually want to combat drugs from the source, that is, the supply side, thinking that as long as there are no raw materials for making drugs, drugs will naturally not be produced, or find ways to increase the difficulty of obtaining materials to push up their prices and sell them. If the price is too high, the demand will naturally decrease.

However, as mentioned above, the most vulnerable and exploited group of people in the entire drug industry chain are the growers of raw materials, and even if the price of raw materials rises, it will hardly affect the final selling price , because the drug cartels will force farmers to absorb costs and the entire The largest increase in value in the industry is not on the raw material and manufacturing side.

And these farmers usually don't want to get rich by growing drug raw materials, but because there is no other option. Many people want to switch to growing tomatoes or other cash crops, but often suffer from lack of capital, or the country's business environment is poor, so after several attempts, they can only go back to the old way.

If it can be effectively controlled from the consumer side, under the condition that the demand is reduced and the supply is unchanged, the price of drugs will naturally drop until the profit is not as good as the cost of the input and the risks that need to be taken, and the drug industry chain will be self-defeating.

🔷Drug legalization

The legalization of drugs is the direction that many countries have developed. At first glance, it may seem that legalization of drugs does not mean chaos in the world, because everyone can buy drugs. But of course it is not so simple in practice. The so-called legalization of drugs usually refers to a few drugs that are not too dangerous: such as marijuana. Aside from the hallucinogenic state of marijuana use, and the harm caused by performing related risky behaviors, such as driving after smoking marijuana and causing a car accident, marijuana use itself is not fatal even if it is overdose.

The biggest purpose of drug legalization is to "control" . Only when drugs can be viewed under the sun will the government have the opportunity to put them under control. Just as food requires its ingredients, function, expiry date, etc. Because drugs are illegal, the information on both sides of the transaction is often not transparent enough. Consumers are afraid of buying fake products, and sellers are worried that the other party is the police. Legalizing the trade of drugs, in addition to the benefits of economies of scale, can also make the production process more transparent and more verifiable.

Drugs are actually unlikely to be "eliminated" by their nature. Even if existing drugs are cracked and banned, there will always be other formulas that will be researched and cannot be prevented. When we set the goal of eliminating drugs, this goal itself is impossible to achieve. From another perspective, our goal is not necessarily to eliminate drugs, but to control them, and legalization is to take them as management. s method.

🔷Prevention is better than cure

The authors point out that when most countries around the world face a budget crunch, the first areas to cut their budgets tend to be education and rehabilitation programs, while the budgets for investigation and law enforcement are often not sacrificed.

Intuitively, taxpayers should be happy to see this adjustment, because why should their tax dollars be spent on those who commit crimes, taxpayers would rather spend their budgets on law enforcement officers and buy more sophisticated vehicles for them? Equipping or supplementing more manpower to maintain social security, but in fact economics points out that such benefits are the worst.

"Prevention is better than cure" is a cliche, and many cases in the book show that investing resources in early and inexpensive preventive measures can be enough to achieve great results, rather than spending a lot of money on later corrections and treatments.

As mentioned earlier, the reason why many people grow drug raw materials or invest in the drug industry is because they have no choice. If the domestic employment environment is good and the education system is perfect, how many people will be willing to take this road?

🟥Summary

This book explores how drug cartels and other violent groups operate, and on-the-ground visits reveal that these groups may be different than we imagined. The book mentions a point worth thinking about:

The underworld collecting protection fees is actually very similar to the government collecting taxes . Some studies have pointed out that if the government and the underworld have a healthy competitive relationship, it will be more beneficial for the public, because both parties will do their best to win the support of the public. If the tax is too high and the government doesn't do anything, the people will turn to support the gang; and vice versa. Drug cartels or gangsters sometimes gain popular support, especially in less developed places, where government incompetence is more obvious.

In the book, there is a detailed description of the operation of drug cartels and their industrial chain. For governments interested in anti-drugs, knowing themselves and their enemies and fighting a hundred battles is definitely the first step to success.

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