Cocaine Cartels and Economics in Colombia

Posted on 13. May, 2010 by in colombia

I’ve recently finished Economist writer Michael Reid‘s Forgotten Continent. The book looks at democracy and capitalism in Latin America with a focus on economic policies (read ‘mishaps’). It’s required reading for gringos living in Latin America.

Reid devotes many pages to Colombia’s security situation. I’d been contemplating writing a brief history piece about Colombia, but he did it better than I can. Part 1 of 2, on drug cartels:

‘Lead or silver’

Enrique Low Murtra wanted nothing more than to leave his job as Colombia’s justice minister to open a law office and return to his previous career as a university teacher. ‘I would like to imagine that vengeance is not eternal. To be exiled, like Scipio, from one’s own country seems to me to be an injustice,’ he said. A gentle, avuncular man who had once been a supreme-court judge, he was still only 49. He spoke softly as the rain pattered down outside his office in a colonial mansion in Bogotá in March 1988. But he would indeed suffer exile – and worse. Two months earlier, on the instruction of Colombia’s president, Virgilio Barco, Low Murtra had signed warrants for the arrest and extradition to the United States on drugs charges of the five leading members of the ‘Medellín Cartel‘. They included Pablo Escobar, perhaps the world’s most ruthless and notorious drug baron. Faced with constant death threats, the minister sent his daughter out of the country. ‘Even going for a haircut has become a problem,’ he said. So intense did the threats become that, in July 1988, Barco sent him to Switzerland as ambassador. That did not save him. In 1991, he was back in Colombia, working as he had hoped as a law professor at the University of La Salle. No longer in government service, he had no bodyguards. He was gunned down at the entrance to the university.

Low Murtra’s assassination was just one of thousands of murders inflicted on Colombia by the drug trade. It had begun quietly in the 1970s with marijuana and then cocaine. Few people in Colombia bothered much until the traffickers began to use their cocaine wealth to go into politics. Pablo Escobar, who had begun life as a car thief and small-time hoodlum, became the alternate to a Liberal congressman. A reformist faction of the Liberal Party, led by Luis Carlos Galán, denounced the infiltration of ‘hot money’ into politics. When Rodrigo Lara Bonilla, a member of Galán’s group, was appointed justice minister in 1983, he started cracking down on the drug trade, with enthusiastic support from the US Embassy. After the traffickers attempted to smear Lara Bonilla, he denounced Escobar by name in a session of Congress. Weeks later he was shot dead by a hired assassin on a motorbike as he was being driven in his ministerial car in Bogotá. It was the start of en years of warfare of terrifying intensity by the Medellín drug mob against the Colombian state and others they saw as a threat to their business. The victims included judges, politicians and journalists, as well as hundreds of policemen and ordinary Colombians. The carnage reached a crescendo in 1989, when three presidential candidates (including Galán, the likely winner) were murdered and an Avianca jet with more than one hundred passengers on board was blown up in mid-flight between Bogotá and Cali. The country’s politicians had had enough: a constituent assembly, called into being to reform Colombia’s constitution, voted to ban extradition – the fate most feared by the traffickers. The new government of César Gaviria negotiated the surrender of Escobar and his henchmen. But after 13 months in comfortable confinement near Medellín, Escobar escaped hours before he was to be moved to a maximum-security jail. After a desperate manhunt lasting 16 months that involved half a dozen different US government agencies, Escobar was finally cornered and killed in Medellín in December 1993.

Escobar famously offered those who stood in his way the choice of plomo o plata (‘lead or silver’), a bullet or bribe. Either way, the rule of law was the loser. The drug trade enveloped the Colombian democracy in violence and corruption. To defeat Escobar, the Colombian state recruited some dubious allies. These included not just his foes in the Cali drug mob, who were less flamboyant and more businesslike than their counterparts in Medellín; they also encompassed a criminal gang called Los Pepes (short for ‘people persecuted by Pablo Escobar’), whose leaders included the brothers Fidel andCarlos Castaño, who would become leaders of the United Self-Defence Forces of Colombia (AUC), as the umbrella group of the right-wing paramilitaries was known. The Cali drug barons gave money to the 1994 election campaign of Ernesto Samper, whose presidency was dogged by his battle to clear his name in the face of American hostility. And the dismantling of the ‘Medellín Cartel’ had no effect on the flow of cocaine to the United States and Europe.

Richard Nixon was the first American president to declare a ‘war on drugs’. But this only got serious under George H W Bush, after an explosive increase in the use of crack cocaine in the United States. In 1989, in a  televised speech to the nation, he singled out cocaine as ‘our most serious problem’. He committed the US armed forces, whose commanders were seeking a new role after the end of the Cold War, to this new battle. He offered unprecedented amounts of aid to the Andean countries. He urged upon them a three-pronged strategy for the eradication of coca, the hardy shrub from whose leavescocaine is extracted; the use of the security forces to interdict processing facilities and trafficking routes; and ‘alternative development’ of legal crops in or near drug-producing areas. Almost two decades and several billions of dollars later, the drug warriors could point to a series of tactical victories, in particular places at particular times. The total amount of land under coca, as surveyed by the CIA and by the UN, reached a peak in 2001 of around 200,000 hectares and then fell somewhat. But the flow of cocaine was never seriously interrupted, and its street price in the United States, having fallen in the 1980s and early 1990s, remained more or less constant thereafter.

There were three reasons for that. The first was what came to be called the ‘balloon effect‘ – squeeze the drug trade in one place and it will expand elsewhere. That applies to transport routes as well as coca production. Both the trade and drug consumption have spread far and wide. Latin American countries are now cocaine consumers, while drug gangs control many of the slums from Tijuana to Rio de Janeiro. As power in the drug business, like in many other industries, moved closer to the consumer, Mexico’s drug gangs began to mimic the wealth, firepower and turf wars previously confined to their Colombian counterparts. Drug-related murders soared in Mexico (to 2,100 in 2006). Felipe Calderón‘s first initiative as president was to send thousands of army troops to the most affected areas and to expand the federal police. However, it was not clear whether the government would carry out the radical purge and reform of the police that Mexico needed.

The second reason was the modernisation and professionalisation of the drug industry: for example, the bulk of coca cultivation shifted from Peru to Colombia in the early 1990s, and the original drug ‘cartels’ were replaced by a host of small, flexible networks, some of them run by accountants, lawyers or other professionals. There was also evidence that coca growers had raised their productivity. But the third and most important explanation was the peculiar economics of an illegal trade for a good that continued to be much in demand in the United States and Europe despite its prohibition. As Peter Reuter, an economist at the University of Maryland, has pointed out, prices at each stage in the long chain that turns a coca leaf on an Andean hillside into a gram of cocaine on the streets of the Bronx or the City of London are determined mainly by the need to reward risk-taking, rather than the cost of production. That is why the price of a kilo of pure cocaine (measured in relation to its equivalent in coca leaf) rises by a factor of roughly 200 times between the coca farm and the street. Most of the increase occurs once cocaine has entered the United States or Europe – because law enforcement is tighter and risk is thus higher. So even if repression in the producer countries succeeds in increasing leaf prices, this has little effect on cocaine prices.

Both the drug trade and the American-sponsored ‘war’ against it have been very costly for the Andean countries. American aid has been feeble in relation to the scale of the problem. Involving the armed forces and the police in fighting the drug trade has sometimes corrupted them. It has also drawn resources away from other priorities, such as citizen security. It has required democratic governments to use heavy-handed repression of peasants who are trying to earn a better living by growing coca. Such repression has sometimes produced a nationalist reaction. The rise of Evo Morales to Bolivia’s presidency owed much to the American insistence on eradicating coca. Some Mexicans were irritated when the Americans pressed Vicente Fox into vetoing a law legalising the consumption of small quantities of drugs. Large-scale aerial spraying of coca crops with weedkiller by Uribe‘s government in Colombia has brought claims that legal crops have been affected, too, and of environmental damage (though producing cocaine itself involves the large-scale use of more toxic chemicals).

But as long as cocaine remains illegal, officials argued, the costs for the Andean countries of ignoring it were higher than those of fighting it. Visit any drug town in the tropical lowlands of Peru or Colombia, and it is clear that cocaine brings squalor, violence and insecurity as well as easy money. Even if only a fraction of the profits from the trade return to the producer countries, that is still big money – perhaps $2 billion to $5 billion a year in Colombia in the 1990s. The Latin American organised-crime syndicates generated by the illegality of the drug trade have global reach. They are immensely powerful, wealthy and well-armed. By their nature, they pose a huge danger to the rule of law and the democratic state in their home countries. And the profits to be had from cocaine have provided a ready source of cash for illegal armed groups.

Read about those illegal armed groups in FARC, Guerrillas, and Paramilitaries in Colombia.

Read my narcoterrorism article.

Read about the manhunt for Pablo Escobar.

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