Given the work we do in criminal justice reform, I personally felt I knew far too little about drugs and drug policy. Hence I was delighted when I recently came across the book ‘Drugs and Drug Policy - What Everyone Needs to Know’ by By Mark Kleiman, Jonathan Caulkins and Angela Hawken at the Kinokuniya bookshop in Shinjuku. The Economist described the book as ‘a cool, dispassionate voice to sift through the facts.’ That sounded like a good place to start.
Drugs is one of those topics on which many of us have opinions without always appreciating the complexities, and it is also a topic that comes with heavy ideological and moral baggage. This became obvious to me as the book began to dismantle some of my not so well founded beliefs and assumptions. Not wanting to write a book review (if you want one, read the one by the Economist), I will just to share two examples of where I had to reconsider my views.
The paradox of decriminalisation
Many countries have, in recent decades, sought to liberalise drug policy. One of the most common steps in that direction has been decriminalisation. Personally, having seen the failings of ‘the war on drugs’ I had long been a believer in decriminalisation. I probably still am, but with more reservations. The main problem with decriminalisation is that it gives consumers permission to buy what the dealers are forbidden to sell. It is hard to know just how much effect the threat of arrest and criminal proceedings has on potential drug buyers, and it probably varies from country to county. However, if one accepts that the removal of that threat, through decriminalisation, might increase demand for the still illicit drug, then that will inevitably generate more supply - the drug market is very good at responding to demand. This, in turn, would mean more revenue for criminal networks, more dealers (who would still be subject to prosecution) and more dealing related violence. In the Netherlands the rate of cannabis use roughly doubled after coffee shops began to proliferate between 1984 and 1996, but it is difficult to know how much of that rise can be attributed to the drug policy reform. Portugal has decriminalised possession of any drug for personal use, and while some studies suggest that dug consumption in Portugal has increased, such findings have been contested. So, although decriminalisation saves criminal justice resources from being wasted on pursuing buyers and users, it has little effect on the illicit market - it may even boost it, if demand picks up. The illicit market, and all the big problems associated with it, can only be outdone by some legal alternative - by legalisation.
Legalisation and the economics of drugs
Criminal sanctions are typically said to work in three ways: deterrence, incapacitation and rehabilitation. The latter two are almost irrelevant in relation to drug dealers; as long as users continue to want to buy, there will be opportunities for newcomers to replace sellers and traffickers who are incarcerated, executed, or who find alternative ways of making a living. Seizing drugs is even less effective because drugs are even more replaceable than dealers (worth remembering next time I see data on how much drugs the police has confiscated). However, deterrence has one interesting effect. The greater the risk of enforcement, the more money drug dealers and traffickers demand as compensation for taking those risks. That compensation increases the cost of distribution, resulting in considerably higher prices. The book offers a nice example: ‘A kilogram of cocaine that sells for $1,500 - $2,000 in Colombia ($1.50 - $2.00 per gram) could be shipped to the United States by express delivery for less than $50 if it were legal, but prohibition and enforcement increases the cost of that kilogram, in the United States, to about $100,000 (or $100 per gram), after adjusting for dilution.’ The more effective enforcement is, the higher the import-to-retial markups will be.
So, prohibition and enforcement drive up the prices (the book, however, explains how this is subject to diminishing returns). The higher prices, in turn, reduce both the volume of drugs consumed by current users and the number of new users - the evidence for this is convincing (and the book presents it). On the face of it therefore, it appears that higher prices are better than lower prices, and that legalisation would be counter productive, as it would lead to a dramatic drop in prices. But it isn't quite that simple.
Distinguishing drug consumption from drug spending
Much drug related crime is driven more by drug spending than by the quantity consumed. Paul Goldstien, at the University of Illinois, set out three categorises of drug related crime: (a) psychopharmacological crime driven by intoxication or withdrawal, (b) economic-compulsive crime committed by users to finance their drug use and (c) organised crime of producing, trafficking and supplying. Out of these, (b) and (c) relate more to the money spent on drugs than to the quantities consumed. So, how do drug prices affect (b) and (c)? This is where the economic theory gets a little abstract, but bear with me. Drug sending is the product of quantity consumed multiplied by price. We know that consumption will increase in repose to lower prices, but the effect on drug spending depends on how much the consumption responds to the price drop. Imagine a 10 percent price drop leading to a 15 percent increase in consumption - this would indeed mean more money spent on drugs, and more revenue for the drug dealers. If, on the other hand, the same 10 percent price drop triggers only a 5 percent increase in consumption, then drug spending and drug syndicate revenues will have gone down.
Would legalisation help reduce drug related crime? The short answer seems to be that it depends a lot on how the market would react to the price fall.
These are but two points that I found rather intriguing - there are of course many more. So, what is the conclusion? Well, the main conclusion for me was that conclusions, in the debate around drugs, are far harder to reach than I imagined before reading the book. For obvious reasons, the book is centred on the situation in the US, which is a very different from that in South East Asia. But the point of the book is universally applicable; we need to really understand how the business functions in practice, as a global industry, in order to predict the effects of the different policy options available. I am not so sure we always do.
Contributed by Marcus Baltzer
References: Vientiane Times, June 5, 2013, January 8, 2014 and May 23, 2014