Economist Pierre Salama has listed the problems that the study of the production, distribution and use of drugs presents for him and his colleagues: “The object of the study is poorly defined, measurement is difficult and often ‘folkloric,’ and the behavior of the traffickers is little known and changes difficult to evaluate.”[1]
The first reason it’s hard to measure the industry is, of course, that it’s illegal and therefore those taking part do not file statements with regulatory agencies, file tax returns or make other public statements concerning their production, income, and profits.
Economists—and drug control officials—have come up with a variety of ways to measure the trade; all of these involve assumptions and extrapolations from those few facts that are known, like the quantity of drugs captured by law enforcers each year. By making an assumption about what percentage of the illegal drug flow this represents, statisticians calculate—actually guesstimate—total drug consumption. Officials can also learn a good deal about market prices at the two ends of the production and distribution chain: They can find out what coca, opium poppy or marijuana producers get paid for a certain amount of their crop—“farm gate” prices, as these are known for other agricultural products. They also have a pretty good idea what drug consumers pay for cocaine, heroin and marijuana in the retail market—”street prices” as these are known to law enforcers.
Using these two sets of figures, consumption levels and prices, the statisticians can then try to derive the numbers everyone wants to know: How much are all the illegal drugs that are consumed every year worth? How much are the drugs each country produces worth? How much does drug production add to national income or trade? These latter calculations involve another set of big assumptions about the share of the final “street value” that should be assigned to each set of actors who take part in the industry and about what percentage of the income earned by any group of national actors is actually brought back or repatriated.
Officials might guesstimate, for instance, based on an average “street price” of a gram of cocaine and assumed total sales, the value of the cocaine sold in the United States in a year. Figuring out what impact those sales have on the countries involved in the production and distribution chain involves more educated guessing: What part of that total sale price stays in the hands of U.S. “retailers” (local dealers)? What percentage goes to “wholesalers” (international traffickers)? What percentage of this do the distributors send back home, and what percentage stays in the United States—or in accounts in Panama or one of the many other countries that have become havens for money launderers? (Many experts assume that 90% of U.S. retail drug sales are not repatriated; the bulk of that stays in the United States.) Finally: In the case of products where the main distributors and raw material producers are different—Colombians, for instance, distribute cocaine made from Peruvian and Bolivian coca leaves—what percentage of the income should be attributed to each country?
There are, however, other ways of trying to derive national drug revenue figures: Statisticians can try to work forward from what is known about how much land is used for drug crop cultivation and how much of the finished drug could be produced from that acreage—that doesn’t tell much, though, about how much “value added” at other stages of the industry should be attributed to that country. Economists also try to calculate, based on what is known about total national income and about domestic cash and banking flows and the like, what percentage of a country’s economic activity is occurring “off the books.” Then they must try to make another determination—another guesstimate—of how much of that is due to the illegal drug industry and how much can be accounted for by other illegal activity like contraband, illegal arms sales, and the like, or by licit but untaxed and unregulated economic activity in the in the so-called “informal sector.”[2]
Rand Corporation economists Peter Reuter and Victoria Greenfield, who have critiqued many well-circulated drug-related statistics in a recent article, say that the warning label “use with considerable care” should be attached whenever numbers relating to the drug trade are published.3 That caveat certainly applies here: At best, the figures we include in this report should be read as rough guides; keep in mind that other calculations of the same statistics may differ by an order of magnitude, and that some statistics contradict others.
ABOUT THE AUTHOR
JoAnn Kawell is editor of the NACLA Report.
NOTES
1. Pierre Salama,“La economía de los cocadólares,” http://www.mamacoca.org/
2. Economist F. Schneider discusses definitions of and contributors to what he calls “shadow economies” in “Illegal activities and the generation of value added: size, causes and measurement of shadow economies,” UNODCCP, Bulletin on Narcotics, LII, 1 & 2, 2000. http://www.undcp.org/bulletin_200001_1_page009.html#_4
3. Reuter and Greenfield, “Measuring Global Drug Markets.”
