The Economic Benefits of Legalizing the Drugs Trade 2

William Easton

Defined as the “cultivation, manufacturing, distribution and sale of drugs, which are subject to drug prohibition laws”[1], the illegal drug trade is a growing industry which has influence all over the world. The UN’s office on drugs and crime (UNODC) predicts that the number of illicit drug users is likely to increase by 25% by 2050, a statistic which illustrates how the illegal drug trade is becoming more and more of a global issue as time goes on. The UNODC’s annual drug report in 2012 reported that 230 million, or 1 in every 20, had taken illicit drugs at least once in 2010[2]. The fact that investigations such as this one are being undertaken shows that the illegal drug trade is a global issue that must be addressed. Neither is the problem restricted to economically developed countries. The UN states that Africa and Asia now account for 70% of the world’s heroin users. Judging whether the idea is economically viable depends on the effects it would have on both the financial and social well being of both developed and developing countries around the world.

While the article published by the DEA on the legalisation of drugs, specifically that the legalisation of drugs would cause more problems than it would solve, is clearly the stronger argument, Allison Schrager’s article raises several valid points that pertain to the economic development of third world countries, and the effectiveness of the anti drug policies enforced by the US.

Allison Schrager’s most compelling argument is the precedent it would set for developing nations which are “mired by the violence and corruption associated with the drug trade”. Although the assertion that if contracts and property rights were “enforceable under law [in developing countries]” that farmers would be more secure and profitable, as well as the government of the country in question being able to put the tax revenue towards furthering economic growth is logically sound, there are no details provided as to how much the country would benefit. However the argument that developed countries such as the US should legalise drugs in order to set a precedent for developing countries is strengthened by this reasoning, as the economic development of LEDCs would have benefits on a global scale, a fact which is shown by the development of Brazil in recent decades.[3]

 Schrager goes on to state that the illegal drug trade favours organised crime, and assertion which, although not backed up by any specific evidence, is widely accepted to be true. Her second premise is that because drug cartels are often so powerful, Schrager says, “crackdowns” on drug trafficking can often lead to increased violence. While she does provide a relevant case study to support her premise, the capture of drug trade leader Felix Galladro in Mexico and the subsequent battle for power between different cartels, there is no evidence of the causal link made between the increased violence in Mexico and the lack of economic growth. In fact the opposite seems to be true, as Schrager concedes that Mexico has “made great progress in terms of economic development”. This inconsistency weakens her claim that organised drug crime undermines economic growth significantly.

While there is further evidence provided to support the claim that organised crime has an impact on economic growth, as Schrager references the World Bank which estimates that organised crime costs Guatemala 7% of GDP in 2005, there is no evidence provided to show that drug trafficking is in any way linked to organised crime. The US Department of State states that entire regions of Guatemala are “essentially under the control of drug-trafficking organisations.”[4], and this would have strengthened the argument had it been included in the article by Schrager.

The second premise put forward by Schrager is that increased prohibition of drugs causes an increase in violent crime in the USA, something which, it would be sensible to assume, is true in other countries as well as the USA. Schrager refers to research by Nobel Prize winner Gary Becker, which indicates that there is a correlation between prohibition of drugs and the homicide rate, which is particularly visible on the graph provided in 1971 when President Nixon started his “War on Drugs”. Although there is some inconsistency within the article, as Schrager says that drug users have an inelastic demand just after saying that demand for cocaine is price sensitive, the data provided by Gary Becker does support her argument, and his status as a Nobel Prize winner makes his views all the more credible. However, despite this data putting drug prohibition in a bad light, there is no link made between this and how the legalisation of drugs would reduce violence.  If a case where the legalisation of drugs had resulted in reduced violent crime had been included then the argument would have been strengthened, however without this the premise seems irrelevant to the point Schrager is trying to argue.

A strength of Schrager’s article is the global nature of the piece, as it refers to countries from North and South America, with arguments pertaining to third world countries as well as developed countries such as the US. It is in this area that the paper from the DEA lacks substance. All statistics are from the US and are relevant to only economically developed nations, meaning that the article does not address the global issue of drug crime. Despite this weakness, the DEA put forward a strong argument that refutes most, if not all, of the points put forward by Schrager.

The paper by the DEA offers up and successfully refutes many of the views put forward by advocates, some of which are the main premises put forward by Schrager. While Schrager asserts that the $40 billion spent per annum on drug prohibition could be spent on other worthwhile causes if drugs were legalised, she provides no evidence to show that the legalisation of drugs would lead to less expenditure by the government. However the DEA paper uses research by the Centre for Disease Control, a large reputable research company, to show that if drugs were legalised, current models based on tobacco suggest that it would cause huge financial losses. The estimated social cost of one pack of cigarettes is $7.18 according to the research, and the federal excise tax on each pack is just $1.01. Despite the fact that these figures are just estimates, the vast gap between the two figures suggest that Schrager’s idea of drastically improving the US government’s budget are flawed.

As the world’s largest economy, the US’ economic strength has global implications. The DEA convincingly argue that the legalisation of drugs would lead to a whole host of further costs associated with rising drug use. Both sources accept that the consumption of illicit drugs would rise if prohibition was ended, but only the DEA explores the possible implications of this policy change. By using data from the Office of National Drug Control Policy, which states that the American economy lost $128.6 billion because of reduced productivity caused by drug use. The legalisation of drugs, they convincingly argue, would only, lead to larger losses. As well as this, the DEA show that improvements have been made in the workplace despite Schrager’s claim that “Prohibition of drugs has not been effective at eradicating their use”. Positive drug tests have fallen from 13.6% in 1988 to 3.6% in 2008, suggesting that in fact drug prohibition has resulted in lower usage by workers.

The accepted fact that the legalisation of drugs would lead to dramatically increased drug usage adds weight to most of the DEA’s points, which are plausible and convincing. The argument that funds currently used for drug prohibition can be transferred for use in other areas is overly simplistic, a flaw in Schrager’s article which is exposed in the DEA’s paper, as they go through the “vast societal problems” which drugs cause. Schrager fails to mention the logistics of preventing underage children from gaining access to drugs, thus weakening her own argument. She ignores the possibility of a “vast black market”. The DEA claim that because “young people are often the primary target of pushers” the illegal groups that currently make a profit would continue to do so. Although there is no substantiating evidence, the paper is far more thorough than Schrager.

Although Schrager’s article identified a link between the prohibition of drugs and the homicide rate in America, the DEA make a more general link between drug use and violent crime, making a convincing argument that the taxpayer would take the burden if drugs were legalised. A statistic from the Department of Health and Human Services, Substance Abuse and Mental Health Administration claims that 1 in 4 violent offenders take drugs, and the fact that usage would increase if legalisation took place suggests that crime rates would rise. More taxes would therefore have to be raised to pay for law enforcement personnel, putting more pressure on an “already overburdened” federal justice system. Drug related crime is not restricted to the US, a report by the Audit Commission in the UK estimates that half of all crime in the UK is drug related[5], showing that this correlation is a global one, not exclusive to the US.

The DEA’s thorough and logically sound argument for the prevention of drug legalisation is not challenged by Allison Schrager, who undermines her own argument throughout her article and fails to make significant causal links between her evidence and her premises. The agreement of the two sources that drug usage would rise in the event of legalisation clearly favours the DEA, who illustrate convincingly how increased illicit drug usage would have adverse economic effects. Further research into the correlation between drug abuse and violent crime would help me to confirm my conclusion, however given the evidence provided I feel that despite the convincing views voiced by Schrager on the corruption and violence in developing countries, which is an issue which clearly needs addressing and is something that I would have liked to research further to aid my investigation, the DEA present a compelling argument which leads me to conclude that the continuation of current drug prohibition policies is perhaps the lesser of two evils.   













2 thoughts on “The Economic Benefits of Legalizing the Drugs Trade

  1. Reply M Singh Feb 6, 2014 3:50 pm

    A very interesting topic, Will. Your write up is based a lot on Schrager’s article and you do conclude by writing that you would have liked to do further research to come up with, perhaps, a different conclusion. I hope you do manage to pursue this and spend some more time researching. Perhaps, you may also want to consider the Prisoner’s dilemma model.

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