How To Run A Drug Cartel

 

Every now and then, most of us have moments when we think that the industry we are in has had its day or that the office is too riven by politics  and incompetence, and so we start to consider what line of work to do instead.

Something better paid, with a high margin of profit, offering a bit of excitement, maybe the opportunity to travel to exotic locations. Something, perhaps, like the drugs business. That line of work  has so much money sloshing around in it that they carry bundles of cash in suitcases.

But anyone considering such a jump should first read Tom Wainwright’s Narconomics: How To Run A Drug Cartel, a guide on the economic realities of running a drugs cartel. It carries a stark reminder that your professional life can always be worse.

Your book is advertised as a business manual for drug lords.

It is a manual for how to run a drug cartel. But as well as that, it’s a blueprint for how to defeat them.

But when you write that “there has never been a better time to run a drug cartel” it sounds quite encouraging. So, please, share some tips on becoming a successful drug lord.

First, it’s not so easy. Actually, the barriers to entry in the drug business are quite high. The key important thing you have to be prepared for is violence, which is inextricable from the drugs trade. And there is a sort of economic reason for that.

Because the business is illegal, the only way people have of enforcing contracts is violence. The contract is a crucial basis of every other business. If you agree with someone that you are going to write an article for them, and they agree they will give you $100, and then one of you fails to meet that contract, you can enforce the contract through the court system, through the justice system. When it comes to drugs, you can’t really use the courts, because the whole business is illegal. So the only way to enforce the contract in an industry like drugs is through the use of violence or at least the threat of it. It’s inextricably linked to organized crime in general. That’s one important thing.

So, if I want to be this nice, pacifist drug lord selling fair trade cocaine, I won’t make an impressive career in drugs?

Sorry, but no. And this idea of fair trade cocaine is a bit of a joke, too. Just look, all of the world’s cocaine comes, really, from three countries: Colombia, Bolivia, and Peru. And it’s all controlled by organizations that use extreme violence.

Let me be clear, I’m not saying that this is ok, or a good thing. This is just the economic explanation as to why illegal businesses are always accompanied by violence. It’s not that the people involved in the drugs trade are horrible, even though some of them surely are. There is just no other way to enforce contracts.

What would I need beside a willingness to use violence?

You would also need quite an extensive list of contacts to start off in this business.

Doesn’t that apply to every other business as well?

Okay, let’s say you start selling books online or something; you can advertise openly. People can compare the products, they can compare your prices with other ones, and if you offer a better product, or a better price, or better customer service, then you’ll succeed.

The drug business is a completely different kind of market: a hidden market. If you’re a new dealer of cocaine, you can’t really advertise your product and customers can’t find out where you are. The big local dealer of a particular drug with all the contacts within the area will always have a big advantage over someone just starting off.
I see, it’s not easy to get into the drug business as a street dealer. But I asked you how to become a drug lord, not some low-level pusher. The most powerful cartels don’t really get involved in dealing, or do they?

It varies a lot, actually. There is a quite interesting example at the moment in the United States, where heroin has taken off again. One reason for this increase in consumption is the epidemic of opiate abuse, OxyContin, and other prescription drugs. But another one is that Mexican cartels are pushing the product quite heavily in the United States. And in some cases, it seems that they are doing that by actually sending their own people to the United States to don the dealing. That’s quite unusual.

What usually happens is that the Mexican cartel would ship their product through the border and then it’s distributed by the local American dealers. But it changes when it comes to heroin. I spoke to some guys from the DEA in Colorado. They were saying that there’s a new strategy used by the Sinaloa Cartel. They would send over a small team of people from Mexico to the United States to start pushing the drug. For the cartel, it’s always risky to send over very expensive product with a bunch of employees that they don’t necessarily trust. When they use their own people from Mexico they have a stronger hold on them; they know who these guys are, and they know who their families are, so they can put a lot of pressure on them. The cartel changes the personnel involved every two or three months, so it’s harder to get infiltrated by the DEA.

That would be the Sinaloa’s way of doing business. They control everything from the cultivation of the poppies from which the heroin is made, to the distribution in the United States.

That sounds quite old-school. I thought that every global business is run like Apple nowadays: every part of the product is manufactured in a different place in the world.

You’re right that the drug businesses are in some instances less sophisticated than other businesses. But you have to remember that every time you’re moving the product around somewhere you’re facing the risk. Crossing borders is very expensive, you have to bribe the guards. It makes sense that the Sinaloa Cartel tries to keep as much of the process as they can within one single organization. It minimizes the risk of the product being discovered, it minimizes the cost of the product being shipped around.

This model applies to every drug cartel?

Los Zetas Cartel is different. They have their franchise.

A franchise? You mean like McDonald’s?

Pretty much like McDonald’s or Hilton hotels. And they seem to be pretty successful, they spread very, very quickly. Instead of sending their own guys, like the Sinaloa Cartel does in the U.S., they would go to the city and find out who the local criminals are, and they offer them a chance to become a part of the franchise. What they offer is the use of the brand, weapons, sometimes training.

The brand?

Yes, exactly. The brand matters in most business, drugs included. But it’s especially important with crimes like extortion. In Mexico, extortion is quite a big business, so it’s pretty common to receive a phone call from someone claiming that they kidnapped a family member and asking you to send them some money. Sometimes they do it on Facebook, I know someone who received a ransom like that. Most of them are ignored, because it’s like those emails you get telling you that you’ve inherited the fortune of the King of Nigeria. Almost everybody sends those emails straight to the bin, but there’s a very small percentage of people that fall for it.

I get it, but what does the brand have to do with it?

To make this kind of extortion profitable you have to drive up the response rate. When the threat comes from a well-known criminal brand, from the Zetas, for instance, it’s more likely to be taken seriously, because of their fearsome reputation. It works both ways, because when people read the story on how the Zetas have just decapitated someone in some far away state, that reinforces the Zetas’ brand quite dramatically. The branding is a really big deal, and the local gangs will pay the Zetas a cut from all of their earrings just to use it.

Decapitations, tortures, violence – it all adds up to this fearsome image, which is then capitalized upon at some point. But many drug lords love to present themselves as men of the people. Pablo Escobar built all these schools and playgrounds in Medellín, right?

That’s Corporate Social Responsibility in action. It’s completely cynical on the part of drug lords like Pablo Escobar. Many of them spent quite large sums of money on helping Colombian people.

In Mexico, there are even churches with brass plates on them saying that it was built with a generous donation from some guy that turns out to be the head of the Zetas.

They need a basic level of support from their people, and in order to gain that support you have to invest in a local community project.

Because otherwise, the people would rat them out?

Yes, exactly. Watch Narcos and you will see how the Colombian people kind of know where Pablo Escobar is. It’s impossible to stay completely hidden, and the same was true with El Chapo.

We know that Sean Penn knew where El Chapo was hiding.

And if you read his article, it’s quite obvious that many people locally knew where he was as well. It makes their job much easier when local people aren’t actively hostile to them; when they are willing to tolerate them. Because they operate in the communities in which the government has frankly not been adept at serving the public, drug lords can easily earn trust and support by filling this vacuum. That’s why they employ Corporate Social Responsibility.

Again, consider other companies. Why do you think it is that the so-called dirty industries, like the oil industry, are some of the most enthusiastic users of CSR? Because they know they have a reputation problem. They think, “Okay, if we spend a lot of money on community projects in the country, where we operate, people may be a bit less likely to complain about the pollution that is going on with our kind of dirty business.” The cartels are involved in a huge amount of violence, and that’s why the drugs business is particularly keen on Corporate Social Responsibility.

What you’re telling me is that starting off as a new player in the traditional drug business is extremely difficult. Not only do I have to be a merciless criminal, but also a shrewd businessman. Is there some easier way for beginners? Selling online?

Do you know Etsy?

The website where you can buy handmade jewelry and clothing, right?

So, you can buy and sell drugs in a pretty similar way to buying and selling clothes on Etsy, but on the Dark Web. The internet made it much easier for start-ups, for new people in the industry to enter the retail business, and not only drugs. Imagine if you make clothes or jewelry, normally setting up a shop would have involved incredible expenses. You’d need a huge amount of stock, and to rent a place. It’s a really big undertaking. With the internet, now you can do it more or less for free. So it makes it much easier for new entrants. And I think it’s particularly important for the drug business because this market is a hidden market.

If you go online you’ll see that the drug business there is much more alike any ordinary business. It’s run like a regular open market, where people advertise their prices. Customers are flagging up the quality and purity of the products, and choose between the different companies offering the best price.

The online drugs market is the one where really the person who gets the highest market share is a person who offers the best product for the best price. In the traditional drugs market, it’s often not the case because there the person who is controlling the market is simply the one who has been in business the longest. So if you’re a new person trying to start out in this business I think the internet is definitely the place to go, that’s your best option really.

If the online drug market is so convenient both for customers and retailers, aren’t drug cartels worried they’ll lose their customers?

Not really. I suppose the role the internet is filling at the moment is that it bridges the gap between the (sort of) wholesalers and the consumers. As I understand it, the people who are selling drugs online probably buy quite large quantities on the wholesale level, in the port of Southampton for example. They don’t grow the drugs themselves, it still remains cartels’ job.

What is interesting is that I haven’t seen Mexican cartels selling their product online. I’m wondering whether or not they eventually will. Shipping internationally would be more difficult from a security point of view. If you look online at the Dark Web, what you tend to find is people selling products in their own country, or perhaps within the EU.

And there could be another reason. The people who are successful in the cartel business tend to be the ones who’ve got good contacts in border smuggling. That’s where their sort of comparative advantage is. I suppose they might resist any kind of move to shipping online. It would mean that their skills would become less profitable. Or maybe it’s just that the Mexican postal service is really dreadful. When I lived in Mexico I told people to send me Christmas cards in July, because it would take them so long to arrive. So, if you ordered cocaine from Mexico, you’d probably receive it months later. Often people want it the next day, and these online retailers offer them next day delivery for an extra charge. Very professional.

Online you can buy illicit drugs and so-called legal highs. And many consumers tend to choose the latter, because their possession is usually decriminalized. Aren’t Mexican drug lords bothered about losing the market to legal highs industry?

I don’t think so. They have a bigger problem to be bothered about: legalization of cannabis. They find it very, very hard to compete with legal producers who produce the drug of much higher quality. If you go to a dispensary in Denver, the typical potency of the THC there is around 18-20%. But with illegal cannabis imported from Mexico, the typical potency is more like 6-7%/. It’s a completely different product.
The legal producers also sell edibles, chocolate bars, drinks, all of these things that cartels just don’t do.

Why don’t they start, then?

It’s quite difficult. Doing the drinks, for instance, is technically more difficult and more expensive. Imagine you’re smuggling something, you want to smuggle the most highly concentrated variety possible. It’s like when alcohol was illegal in America, the bars that would sell illegal alcohol tended to sell really strong whiskey or gin, they tended not to sell a kind of light wine. They focused on the strongest stuff because that’s the easiest stuff to smuggle in terms of the volume.

In the same way, Mexican cartels are fairly unlikely to start smuggling cannabis-infused ice tea for instance (which is something you can buy in Colorado and is very popular by the way). But imagine smuggling that, it’s very heavy, not particularly strong, and hence not very efficient. So they’re never going to get into that.

I think the cartels have a real problem here. The cannabis market is becoming a totally different market. Much more aspirational.

What do you mean by aspirational?

Just look at Snoop Dogg’s cannabis chocolate, Leafs by Snoop. I haven’t tried them, but they look very high quality. The packaging is quite beautiful. It looks like a kind of posh perfume or something like that. Now imagine if you’re the Sinaloa cartel, maybe you can compete in terms of the drug. But this is a lifestyle product, you can’t beat Snoop Dogg in that.

So how do cartels adapt to this new economic reality?

A lot of the farmers in Mexico that used to grow cannabis are now growing opium. We can observe a quite significant increase in the heroin supply. There were some reports as well of drug tunnels being used to smuggle people. From a purely business point of view, it doesn’t make much sense because people trafficking is much less profitable than drugs trafficking. And it also doesn’t make sense to risk a very expensive asset like a drug tunnel to smuggle a few people. So it all suggests that in some areas the cartels are finding it very difficult. Legalizing cannabis is big deal. In the past the people reckoned that up to about a half of the income of the Sinaloa cartel came from cannabis. If that business can be shifted into the legal economy, that’s a pretty serious blow against organized crime.

Maybe if cannabis was legal, drug dealers could leave the criminal world and become legitimate businessmen.

It’s not really happening in the U.S. One of the things that people worried about before legalization was the idea that the people who’d run the legal cannabis business would basically be criminals.

Why worry about that? When cannabis is legalized a lot of street dealers lose their income. A job in cannabis industry sounds like a perfect career opportunity for them.

Well, that’s true. But I’m not talking about former dealers. What people were worried about was the idea of an organized crime network suddenly having access to this lucrative bigger market and using that money in other types of crime. I think that worry is a reasonable one. So far there is no evidence that’s happening.

When you go to a place like Colorado and meet the people who are running these businesses they’re a mixture of some people who you might call enthusiasts (that have been growing their stuff in their bedroom for many years) and some people who are just business people; there’s a lot of people with MBAs running these companies. I’ve found nobody that had any kind of criminal background.

When I spoke to the police in Colorado, even people who were very against the idea of legalization admitted that so far there is no sign of organized crime getting involved in the legal business. Above all, succeeding in business like this requires completely different skills to those that were important in the illegal business.

If you want to be a successful drug lord, you have to be an expert on violence, smuggling across borders, and bribing the police. Selling legal cannabis is a completely different job.

Succeeding in this business requires you to be good at marketing, in making these chocolates and cookies and other edibles. It requires you to be very good at obeying hundreds of new regulations. It’s very complicated from a regulatory point of view.

So even the booming legal cannabis industry doesn’t seem to be an easy way to score some big money. What else can I do? Maybe I could apply for a job in the Drug Enforcement Agency. But would I still have a job in next ten, twenty years?

If you’re looking for a high level of job security, you can be sure that you’ll still have a job as an anti-drug police officer in twenty years. The key reason that illegal drug business will continue in the countries in the West (including the States, Britain, and Poland) is that these countries insist that drugs should be illegal while at the same time importing millions of dollars’ worth of these drugs every year. As long as those two things continue, a very large criminal market is going to exist. The only way to get around that is either those countries stop importing drugs completely, meaning that people living there have to stop taking drugs. Well, experience suggests that probably isn’t going to happen anytime soon. Or these countries could think seriously about legally regulating these drugs rather than just banning them. This is actually something that more and more people are thinking about seriously.

But as long as those two things continue. As long as countries demand these drugs stay illegal and continue to buy them, I think careers in law enforcement will still exist. Certainly, you’ve got more job security as a police officer than you have as a drug lord.