Canadian Premiers are revolting!

It’s backlash week in Canadian politics. Ralph Klein, Alberta’s neoliberal premier and the closest thing Canada has to George W Bush (Klein would take that as a compliment) sent a letter to the US ambassador to Canada, repudiating the Prime Minister’s (rather ambivalent) anti-war stance and talking about Alberta’s “abiding friendship with the United States, a friendship based not only on mutual interests but also on shared values. In short, the president and your nation have exemplified leadership”

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How Would Drug Legalization in the United States Affect Colombia?

The drug war, or drug prohibition, in the United States is a socially devastating program. The U.S. government’s drug control budget for 2002 was $18.8 billion, most of which came out of other programs like public housing subsidies and immigrant assistance. The drug war strengthens police, military, prisons, and organized crime, while forcing addicts to support their habits through crime. Furthermore, it demonizes poor, black, and brown people and condemns hundreds of thousands to jail who pose no threat to society. The problems generated by drug prohibition in the United States extend far beyond its borders, however.

In Colombia, two of the most devastating aspects of the drug war are the aerial fumigation program and the funding of terrorist armies. According to the Transnational Institute’s Drug and Democracy Program, 550,000 acres of agricultural lands in Colombia have been sprayed with 2.5 million liters of glyphosate, with untold health and environmental effects (see, Plan Colombia’s Killing Fields). The drug war also contributes to the financing of illegal paramilitary groups linked to U.S. foreign-policy objectives. These armies are responsible for terrible human rights violations, including assassinations and massacres. The presence of these well-financed paramilitary forces, along with the systematic corruption of the police and judicial system by drug traffickers, has eroded the legitimacy of the Colombian state.

Much of the laundered profits from the drug trade end up in the hands of the financial sector, but Colombia’s “narcobourgeoisie” invest a significant amount in land. This narcobourgeoisie is estimated to own 11 million acres of land in Colombia, worth $2.4 billion. It is estimated that of Colombia’s 285 million acres of available agricultural land, 46 million acres are currently under cultivation and another 100 million acres are used for ranching. In a country that has never had a significant land reform, the concentration of 11 million acres in the hands of drug mafias is a significant brake on agricultural progress and a progressive agrarian agenda, and has been labeled an “agrarian counter-reform” by some Colombian analysts. An industry that is prohibited cannot be taxed, and drug activity constitutes 3-4 percent of Colombia’s GDP. This is a significant source of revenue that a government with a traditionally small public sector (14 percent of GDP compared to a regional average of 28 percent from 1987-1998) cannot afford to forego.

A program of controlled drug legalization could solve many of these problems. It is the illegal nature of the drug trade that makes drug profits so high and empowers violent criminal mafias. If drugs were a legal, banal product, the infrastructure of violence would be an unnecessary encumbrance that inflates costs and therefore prices: The mafias could quickly be underbid by more efficient, less violent enterprises. This would remove much of the funding for terrorist groups like Colombia’s paramilitaries. Funds used for the drug war could then be used to address drug addiction as a public health problem, and to create economic and social opportunities for low-level dealers in the United States and farmers in Colombia for whom the drug industry is currently the only economic option. The prison population and the repressive apparatus of the state would also be reduced and the ecological destruction caused by aerial fumigation would end.

Legalization could also have some negative effects, as the Colombian economy is dependent on the drug industry. Colombia’s National Association of Financial Institutions (ANIF) estimated the nation’s 1999 income from the illegal drug trade to be $3.5 billion (assuming 10 percent of the profits were repatriated), which is close to the income from oil, and more than the income from coffee. As much as 3 percent of Colombia’s workforce, or 300,000 people, are directly employed in the drug industry. Drug cultivation accounts for 6.7 percent of Colombia’s agricultural production, compared to 12 percent for coffee. In some regions the percentage approaches 50 percent. If legalization were to occur suddenly, without any provision for softening the economic shock, the effects on the Colombian economy could be devastating.

Colombia has been the site of large drug industries, from marijuana in the past to cocaine at present, for several reasons. Its soils and geography provide a suitable climate for growing drug crops. Its strategic location between Central and South America has long made it a hub of contraband activity. Its geographic size and division into “natural regions” have limited the ability of the state to reach remote regions, meaning that the repressive apparatus that would punish drug cultivation and the social services that would have made it less attractive were both missing. In the 1980s, Colombia was an exporter of cocaine, but most of the coca leaf, the raw material for cocaine, was grown in neighboring Peru and Bolivia. Repression and eradication measures were successful in those countries (to the detriment of the peasants), and cultivation of coca shifted to Colombia during the 1990s (see, The Failure of Eradication in Peru and Bolivia).

According to the RAND Corporation, the production process for cocaine works as follows: One ton of coca leaf annually can be harvested from each two and a half acres of coca grown. This ton of coca leaf makes about 10 kg of coca paste. This 10 kg of coca paste produces about 2.5 kg of cocaine base, which finally yields about 2.2 kg of pure cocaine.

In Colombia, 4.5 kg of coca paste, which will yield about one kilo of cocaine, fetches about $4,500. On the streets of the United States, selling this kilogram of cocaine will earn between $200,000 and $600,000. It is estimated that there are markup ratios of 2.1:1 from cultivation to overseas packaging (a markup from $4,500 to about $9,500), of 3.7:1 for smuggling (from $9,500 to $35,000) and in distribution a 13-fold markup, which takes the price from $35,000 to $450,000.

These figures can in turn be used to estimate the size of the cocaine industry. If 300,000 acres are under cultivation in Colombia, the yield in cocaine is 264 tons, for which Colombian peasant growers receive $1.2 billion and (assuming the low price of $200,000 per pure kilogram) for which U.S. users pay $52.8 billion. Using these markup factors for everything but U.S. distribution, we find that the Colombian cartels pay the peasants $1.2 billion for coca they then process and smuggle to the United States, selling it for $9.2 billion. Most of the money is made in the United States, where the markup is from $9.2 billion to $52.8 billion.

At each stage, there are significant costs to be paid. These include the transportation infrastructure required by the cartels; the suborning of customs agents, police, and judges; legal fees, weapons, and other “risk management” that the cartels must purchase; and the costs of laundering the profits. The RAND Corporation estimated these costs in 1994 to be about $7 billion in the United States due to domestic enforcement, $400 million en route due to interdiction, and $100 million due to source-country controls.

Once these costs are deducted from each stage, the drug producing and smuggling cartels, after paying some of their production costs and some of their “risk premium,” generate revenues of about $7.5 billion. This is close to the ANIF estimate of Colombia’s drug income at $3.5 billion mentioned earlier, especially when additional production costs and the participation of Mexican and other cartels in the drug trade are considered.

The drug industry provides an income of several billion dollars annually to a narcobourgeoisie that uses the money to fund a private army and suborn government officials in order to protect its own interests. From these billions, the Colombian paramilitaries, responsible for thousands of deaths and tens of thousands of internally displaced per year, are partially funded: The estimated costs of the paramilitaries’ operations are $80-100 million annually.

The guerrillas also obtain revenues from taxing the drug trade. It is estimated that Colombia’s largest guerrilla group, the Revolutionary Armed Forces of Colombia (FARC), has an annual income of $448 million, $180 million of which comes from taxing the drug trade. This amounts to 40 percent of the FARC’s revenue-less than the proportion Carlos Castaño claims the paramilitaries receive from drug trafficking. Another difference between the FARC and the paramilitaries is that the FARC’s relationship to the drug industry is that of a state in which the drug industry is considered legal: The FARC taxes and protects the industry. The paramilitaries, however, are directly involved in trafficking.

Drugs are goods for which demand is inelastic. This means that price changes do not lead to quick changes in demand. Because of addiction, this is not surprising-addicts might welcome a drug at a low price, but they are willing to pay very high prices to satisfy their addictions. Under legalization, the prices of drugs would decrease, likely eliminating the black market. In order to discourage increased drug use, governments could apply taxes and regulate the prices of drugs; offer certain drugs only by prescription as part of treatment programs; and provide effective drug education, prevention, information, and treatment. There is little doubt however that legalization would result in a reduction of drug prices.

It has been estimated that the ratio of the illegal to the legal price is 8:1. Using this estimate and assuming no change in demand (although it should be noted that demand would likely go up somewhat even with a careful program of prevention, regulation, and education) U.S. revenues from legal cocaine sales would be $6.6 billion. A kilogram of pure cocaine would fetch about $25,000 in the legal drug market. Even taking into consideration the disappearance of all costs of suborning authorities, sophisticated smuggling methods, and compensating workers for risk incurred, at the new price the industry would cease to be a source of vast profits. The market, measured now in billions instead of tens of billions, would no longer support the repatriation of billions of dollars to the Colombian narcobourgeoisie.

Such a market would not provide billions for the purchase of land and ‘agrarian counter-reform’, nor would it be able to provide 70 percent of the funding for Colombia’s paramilitaries. Indeed, the price paid to peasants for coca leaf would also be reduced, making many farms unviable. Colombian coca growers would suffer the same economic shock suffered by the coca growers of Bolivia and Peru when the eradication programs took effect in those countries.

Historically, the fields of Bolivia and Peru have been more productive in producing coca than Colombian fields. Under legalization, coca production would probably disperse from its current concentration in Colombia, with more production returning to Bolivia and Peru. The hundreds of thousands of peasants who are dependent on coca would have to be protected from the economic shock that would accompany legalization. This could be accomplished either by state subsidies and price supports for coca or by similar state support for alternative crops. There would also be ecological benefits to legalization: the aerial fumigation program would stop, as would the push of peasants to colonize the Amazon jungle to grow coca as these plots would not be economically viable if the price of coca were much lower.

How would legalization impact Colombia’s armed conflict? First, in addition to the paramilitaries losing 70 percent of their funding, the guerrillas would also lose 40 percent of their income. The rebels would, however, continue to tax any other commodity within the territories that they control. Given that the paramilitaries are much more closely linked with and dependent on the illegal drug trade and drug profits, in the contest between the guerrillas and the paramilitaries, legalization would probably provide a net strategic benefit to the guerrillas, and could-since paramilitary activities have been instrumental in destroying possibilities for negotiations-therefore help impel a negotiated solution to the armed conflict.

Any forecasts on the effects of legalization on Colombia’s armed conflict must contend with the real logic of the war. Colombia’s war is at least as much about displacing peasants from resource-rich lands and destroying urban opposition (particularly from trade unions) to neoliberal economic policies as it is about drugs. The Colombian government and military, in their repression of social movements and the guerrilla insurgency, have had the covert help of drug-funded paramilitaries and the overt help of the United States. By removing the possibilities of drug financing for this repression, legalization could have the perverse effect of forcing the United States to escalate its intervention in the Colombian government’s war against its own population.

Many analysts believe, however, that Washington’s resorting to covert, drug-financed warfare against popular movements is a measure of its political weakness-U.S. authorities fear they lack a popular mandate to pursue such wars overtly, so they pursue them covertly. Thus the United States might not have the option of intervening more openly in the conflict. If this were the case, the worst elements in the Colombian armed conflict would be disempowered by legalization, which would help promote a negotiated solution between the guerrillas and the government.

This article originally appeared in Colombia Report, an online journal that was published by the Information Network of the Americas (INOTA).