Legalization vs Decriminalization

Drug wars: Big Pharma, Afghan, Mexican cartels

Decriminalizing drugs can boost corporate profits and state tax revenues

By Paul B. Farrell, MarketWatch
Oct. 13, 2009, 12:01 a.m. EDT

ARROYO GRANDE, Calif. (MarketWatch) -- Mexican drug lord "El Chapo" made
the Forbes list of billionaires earlier this year. No, you can't make
this stuff up: He runs the Sinaloa cartel, a major supplier of cocaine
to the United States. He's an assassin, another bin Laden ... and Forbes
honors him right up there with the world billionaires.

But that got me thinking: In legitimizing "El Chapo" isn't Forbes edging
us toward decriminalizing all illegal drugs? Farfetched? Or maybe
signaling a fundamental shift in America's attitude toward illegal
drugs?

Race to harvest illegal cash crop

Law enforcement officials this year have seized and destroyed a record
amount of illegal marijuana grown in remote parts of public land in
California: more than four million plants with a street value of as much
as $16 billion. Stacey Delo reports.

Suppose I were back at Morgan Stanley, asked to write a securities
report for America's health-care industry, on Big Pharma? Review
competition, market share, new profit opportunities when
decriminalization of marijuana expands to other illegal drugs like
cocaine and heroin, a megabuck market.

Yes, I said "when." Eventually it could happen. Think of states like
California. They're facing a $42 billion deficit. They see their $14
billion marijuana crop as a new source of tax revenue. Legalize it. Tax
it.

Psychologist Anne Wilson Schaef saw the trend coming a couple decades
ago: We're a "Nation of addicts ... our society is deteriorating at an
alarming rate." Why? We refuse to face the real problem: Demand.
Legalizing it will.

Till then we're losing the war. In a "nation of addicts" it doesn't
matter if drugs are legal or not ... where the drugs come from ... who
gets hurt ... nor if we have to waste hundreds of billions fighting
ineffective wars to protect suppliers ... a corrupt Afghan government,
the source of 95% of the world's heroin ... or Mexico, the main traffic
route for wholesalers feeding America's addicts ... or Big Pharma the
biggest pusher for prescription drug addicts. When a "nation of addicts"
needs a fix, they always find it.

New, bigger profits if Big Pharma expands into illicit drugs?

There's so much money being made in illegal drugs that the legalization
of pot really is a sign of what's ahead. More drugs will be legalized
and controlled. Big Pharma will want in on the action. Why not? They're
public companies: They must satisfy stockholders with new products, new
markets, higher earnings and stock prices. Big Pharma's strategy is
clear, they have more salesmen than scientists developing new drugs, and
their efforts to kill health-care reform speaks volumes. So why not
legalize all drugs, for new profits?

Seriously, drugs are a megabusiness. America spends about $2.5 trillion
on health care annually -- including $315 billion in Big Pharma revenues
last year. They must be secretly exploring the untapped market in
illicit drug traffic that siphons off an estimated $400 billion annually
-- plus keep in mind another $175 billion on alcohol addiction.

If Big Pharma can capture part of the market share that's now going to
competing Mexican and Afghan drug warlords, then they can feed their
shareholders addiction to earnings, feed their CEOs' addiction for
megamillion paychecks, while capitalizing on the American addicts need
for a fix. We just need to end our moralistic charade, decriminalize and
control all illicit drugs.

Plus it'll generate new tax revenues.

You can bet this opportunity is being actively explored deep inside Big
Pharma, purely for economic reasons, and secretly, of course, like the
tobacco industry's studies of carcinogens in cigarettes. So if I were
back at Morgan Stanley preparing a securities report on the implications
of expanding Big Pharma's market share when more drugs are legitimized,
there are three studies that must be highlighted:

1. Failed drug policies breed new terrorists and narco-states

Things are worse today than two years ago when Foreign Policy magazine
used the work of 100 experts in their "Third Terrorist Index ...instead
of treating the demand for illegal drugs as a market, and addicts as
patients, governments continue to pursue policies that have boosted the
profits of drug lords and fostered narco-states that threaten all of
us."

Like Afghanistan: Narcotics is a cash crop. Unfortunately, Washington
and the Pentagon fail to see that we're feeding our disease, matching
our addiction to illegal drugs here in America (demand) with the
entrepreneurial spirit of Afghan government bureaucrats, farmers,
Mexican traffickers and the Taliban (suppliers), while misusing our
military.

The Washington Post says "the drug war has become the Taliban's most
effective recruiter," a source of financing making them "richer and
stronger by the day."

2. America's 40-year 'War on Drugs' is a 'dismal failure'

About the same time Forbes rewarded "El Chapo" with the star status, the
New York Times reported: "Three former Latin American leaders,"
ex-presidents of Mexico, Brazil and Columbia, "called on President Obama
to rethink America's campaign against illegal drugs, which they blame
for helping to foment crime, corruption and political instability in
Latin America while failing to reduce the availability of drugs in
America."

America's been in a misguided war on drugs since the Nixon era, and it
just gets worse. Still we hang onto a failed policy that costs hundreds
of billions, drives drug traffic underground, raising the price of a
commodity that costs pennies. We're creating the opposite result,
increasing demand.

Maybe that's exactly what Big Pharma wants, more addicts to feed its
business model. And exactly what our "nation of addicts" wants, a steady
fix ... maybe it's time to accept reality, stop fighting it, work with
it.

3. Mexican drug cartels using Harvard B-School corporate models

In a confidential report to Big Pharma you'd also find a summary of Guy
Lawson's brilliant assessment, "How the Cartels Work" in Rolling Stone.
The subtitle suggests tacit market-sharing and territory-splitting deals
involving Big Pharma, domestic health-care firms, and foreign drug
cartels: "Mexican drug lords have transformed the narcotics trade in
America -- and the DEA appears powerless to stop them." America
powerless?

"One of the strangest things about the drug war that is tearing Mexico
apart is how little of the bloodshed has spilled over the border," says
Lawson. "On one side of the Rio Grande is Ciudad Juárez, one of the
most violent cities on the planet, with 1,600 drug-related murders last
year. On the other side is El Paso, Texas, the third-safest city in
America, with only 18 killings. The 100-to-1 disparity in murders
underscores a little-understood reality in the War on Drugs: The current
crop of Mexican drug lords is not a bunch of Scarface-style lunatics
high on coke and hell-bent on violence. Instead, they are highly
sophisticated executives, pursuing profit by the cheapest and most
efficient means possible."

Yes, they're using Harvard-style business-school models: "Rather than
resort to violence in U.S. cities, the Mexican cartels have outsourced
street-level grunt work to an army of illegal immigrants."

Forbes' light satire paints "El Chapo" as a B-movie bandito with a price
on his head. By comparison, Lawson's chilling piece reads like a
first-class press release about a Wall Street CEO: Mexican cartels are
run by "highly sophisticated executives, pursuing profit by the cheapest
and most efficient means possible. Torturing rivals and beheading
victims serves a purpose in Mexico, where drug-related violence has
killed 12,000 people in the past three years; narco-traficantes
routinely use brutality to subdue competitors, eliminate witnesses and
frighten off police recruits."

Meanwhile, "north of the border, the drug lords are as corporate and
hyperorganized as Wal-Mart, replacing the top-down approach of their
Colombian predecessors with a new business model, a business model that
works so well they don't want to upset it: "With business booming --
prices are steady and demand remains high -- unleashing a Mexican-style
rampage in this country would only risk riling up U.S. law enforcement. "

In that way, the Mexican cartels resemble Big Pharma's efforts to kill
healthcare reform in America, neither wants to upset a very profitable
business model.
War on drugs is dead, wastes billions, time to shift policy

The truth is, there's no war on drugs to win, nor to lose, just millions
of addicts who need help. I've been in recovery 36 years. Back in the
'80s I worked professionally with hundreds who went through places like
Betty Ford Center. Statistics show that over 10% of Americans are
physiologically predisposed to addictive behavior. That will never
change.
It's in our DNA.

"El Chapo" sure sees the profit potential. The military only sees an
enemy. So we keep wasting money fighting ineffective "supply-side" drug
wars in places like Mexico, Afghanistan and Columbia. Instead of helping
addicts. We've learned so little since Prohibition. The real problem is
demand, not supply. So we'll keep losing our war on drugs till we
fundamentally shift our policies.

Mexican MBA types get it: "Mexican cartels aren't fighting the war on
drugs in the United States for a very simple reason: They've already
won," concludes Lawson.

Given that painful reality, Big Pharma should wise up and get ahead of
the legalization trend. Lead it. If Big Pharma capitalizes on their
unique experience, they can capture new products and new markets driven
by the relentless demand for a fix. Lead in the development of a new
national policy shifting away from military action to treatment,
decriminalization and regulation, generate new sources of tax revenues,
and help millions of addicted Americans.

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