I have personally never wanted to run a drug cartel. It is not something that rises to the top when I stop to consider new career paths. However, I am interested in how the drug trade works. So was Tom Wainwright, an editor for the Economist, who wrote this book. He dissected the drug trade by looking at it from an economist’s point of view. What motivates drug cartels and their leaders to take specific actions? Why does this multi-billion dollar industry operate the way it does? What drives the price of drugs at different stops along the supply chain? How should we, as rational consumers and governments (in theory governments should be rational), respond to these actions?

Wainwright opens by walking through the cocaine supply chain. He shows that cartels are successful organizations that are run like giant oligopolies. They are the sole buyers for cocaine sellers (ie. the growers) in their own specific regions. In the past, they have generally set their own avenues or areas of control and then stayed out of each other’s way and often colluded (though Wainwright absolutely discusses how inter-cartel conflict has turned bloody in specific countries like Mexico over the past 20 years). Citing specific figures, he explains how 350 kilos of coca leaves, costing about $385 at the source, is converted into a kilo of cocaine sold in the retail market for more than $120,000. But these huge markups mask an economic mirage. Much of the markup is a result of costs such as smuggling, money laundering, and security along the way. If a country (like Colombia) increases eradication efforts so that the dried coca leaves (the raw materials) double in costs, that doesn’t mean that the cost in the retail market will double. Rather, the new retail price will simply add another $385 per kilo (to $120,385) because the other costs that caused the markup remain constant. And herein lies one of the many economic gems of this book – eradication efforts at the source don’t really end up affecting the retail price of narcotics.

There are scores of other nuggets along the way, than when explained and thought out, suddenly make sense. Just like legal companies are subject to government regulation, cartels need to pay their regulators, the police, through bribery and security efforts. Expecting a certain portion of your drug shipments to be captured is often considered a cost of doing business. Human resource management – hiring and maintaining a quality workforce – is a massive problem for cartels. An excellent location for cartels to recruit is in prisons, where gangs are rampant and job training is minimal, especially across Latin America. Cartels have massive corporate social responsibility and advertising programs to win the support of local communities where they operate by building churches, playgrounds, and other facilities.

For me, the most interesting part of the book dealt with Wainwright’s potential solutions. While he extrapolates on the dangers of legalization as people will overuse and overdose regulated products (as has happened in multiple instances in Colorado with legalized marijuana), Wainwright correctly notes that marijuana legalization in some American states cut Mexican cartel profits by 30% or more. He sees legalization and regulation as a step forward. However, a recent article in Esquire magazine noted that as Mexican cartels were deprived of their profits from the marijuana trade, some turned instead to Heroin and helped drive the epidemic of opioid addiction in America. By legalizing marijuana, we may have made things worse as cartels flooded markets with both home-grown and synthetic heroin.

Wainwright’s other solutions are intriguing and could definitely be helpful. He discusses the need to focus on demand reduction to a far greater extent, the need to invest in programs like job-training in jails and drug addiction treatment to prevent future cartel employees and customers, and the need for more international cooperation in areas beyond just supply reduction. However, these are mostly added in at the end of the book. I feel that the argument would have been much stronger if these were more fully fleshed out. For example, in his discussion of legalization, he never explains how this would work with stronger and more dangerous drugs beyond marijuana, like heroin or methamphetamines.

This book is not quite a how-to manual. But it did make me think about the drug trade from the cartel’s point of view. I definitely recommend it for those who want to learn more. Score: 8.0.