Binibining Pilipinas

‘Narconomics’: Lessons for the Philippines’ war vs drugs

Ronald U. Mendoza, PhD

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‘Narconomics’: Lessons for the Philippines’ war vs drugs
Lowering the age of criminality in the Philippines should be reconsidered. Throwing children in jail cells with hardened criminals may actually strengthen drug lords’ ability to recruit fresh talent – hardening youth who could have otherwise been saved from a life of crime and drugs.

In some ways, drug lords are just like entrepreneurs. They both face competition, management challenges, disruptive technology and pesky government regulations. That is the central thesis of Tom Wainright’s Narconomics: How to Run a Drug Cartel, a recently published volume explaining the economics behind the international nacrotics trade, a $300 billion a year business that caters to over 250 million narcotics users worldwide.

The drug lord as entrepreneur is a lens that could provide powerful insights on how to better understand, and perhaps eventually cripple, the narcotics trade.

Several insights from that volume and the emerging evidence on the war against drugs in Latin America might be relevant in our own country’s effort to stamp out crime and drugs. Here are some of the main lessons.

Supply side interventions alone may not work

Drug lords often oversee complex production chains. In Narconomics, the author reports how 350 kilograms of dried coca leaves worth $385 in Colombia could produce 1 kilogram of cocaine selling for $800 in that country. Yet this same kilogram increases in price to $2200 while in transit, and further to $19,500 once it reaches the hands of a mid-level drug dealer in the US.

With repackaging and further handling by various middle men, the same kilogram of cocaine effectively sells for up to $122,000 – an over 30,000% mark-up.

The war against cocaine trade rests on the idea that restricting its supply could drive up prices and trigger lower drug use. Yet clearly, attacking the supply of raw materials could have very little effect on the final street-price of drugs like cocaine. To illustrate, even if coca leaves were to increase in price per kilogram by $500, the final price per kilogram with complete pass through only increases by the same $500.

Trade and technology can keep narcotics prices competitive

In the Philippines, illegal drug groups with ties to China are said to manufacture shabu for eventual sale at P600,000 ($12,729) to P700,000 ($14,850) per kilo. But stopping this group alone will not solve the drug problem as both new players and new technology help to keep narcotics accessible and ever more affordable.

According to the Philippine Drug Enforcement Agency (PDEA), African and Mexican drug syndicates have been able to penetrate the Philippine market, selling cheaper and, in some cases, higher-quality types of shabu. Technology in drug production has also reduced its production cost by almost 70% in recent years.

A quick comparison of estimated drug prices between 2013 and 2015 suggests that prices for some drugs have in fact fallen in recent years, enabling drug dealers to penetrate even low income markets in the Philippines.

Just like the savviest of businessmen, drug dealers have effectively segmented the Philippine market – producing drugs of varying quality and affordability to cater to different levels of purchasing power.

Table 1. Price Table of Drugs in the Philippines (2013)

Drug Name (Scientific and Street Name)

Average Price Range per Unit (in PHP)

Guesstimated Target Market


hydrochloride “Shabu”

P3,800 to P10,000 per gram Class CD

Cannabis sativa “Marijuana”

P100 to P300 per gram Class D
Benzoylmethylecgonine “Cocaine”

P4,600 to P7,000 per


Class AB

3.4-methylenedioxy-methylamphetamine (MDMA) “Ecstasy”

P1,200 to P2,500 per tablet Class AB

Source: 2013 PDEA Annual Report

Table 2. Price Table of Drugs in the Philippines (2015)

Drug Name (Scientific and Street Name)

Average Price Range per Unit (in PHP)

Guesstimated Target Market


hydrochloride “Shabu”

P1,000 to P9,000 per gram Class CD

Cannabis sativa “Marijuana”

P20 to P200 per gram Class D
Benzoylmethylecgonine “Cocaine”

P3,000 to P6,000 per gram

Class AB

3.4-methylenedioxy-methylamphetamine (MDMA) “Ecstasy”

P1,000 to P2,500 per tablet Class AB

Mix of MDMA and methamphetamine hydrochloride or tadalafil “Fly High”/”Green Amore”/”Superman”

P1,500 to P3,500 per capsule Class AB

Sources: PDEA Press Releases and Newsletters

Drug lords can also win hearts and minds

In Latin America, well known drug lords like Pablo Escobar and Joaquin “El Chapo” Guzmain are local heroes in the areas where they operate, providing various public services (e.g. healthcare, doleouts, jobs, etc) to their communities.

This is essentially “corporate social responsibility” or CSR by drug lords, to soften the impact of their operations, and reduce the threat of local communities cooperating with the authorities.

Recall then how hundreds of people attended the funeral of alleged drug lord Jaguar Diaz of Cebu City recently. And given the poverty and inequality in the country, drug lords are well placed to serve as patrons to many poor and low income families whose allegiance can be secured.

Perhaps it’s not surprising that countries with high inequality and poverty also tend to be prime targets for the expansion of illegal drug operations. Professor Liling Patalinghug of the University of the Philippines analyzed Philippine provincial data from 1979-2008, and found evidence that rising unemployment and stagnant wages are the key factors that exacerbate crime.

If the economy fails to provide decent work for large numbers of unemployed and low-income individuals, then this could also frustrate crime- and drug-prevention efforts.

State and regulatory capture

The other side of narconomics is narcopolitics. Just like businessmen trying to influence or control government in their favor, drug lords could follow the same strategy and try to weaken state efforts to combat the drug trade.

The Latin American experience is replete with examples of how narcos have penetrated the political sphere, such as by financing and supporting politicians, or even fielding political candidates of their own. For instance, in Mexico key government appointments – notably those with oversight over border control and the police – allegedly proved useful for drug cartels in their effort to grow and expand their network into major markets like the US.

In the Philippines, the recent allegations of drug ties in the Philippine National Police, as well as a growing number of drug-related arrests involving local government officials both raise the specter of narcopolitics in the country. Earlier this year, the head of the PDEA reported that up to 200 government officials were allegedly involved the illegal drug trade.

Prisons supply drug lords with fresh recruits

Finally, Narconomics also emphasized how drug dealers faced severe human resource (HR) challenges, given the high staff turnover in the narcotics trade – mostly due to the mortal risks involved. Drug lords in Latin America and the United States have therefore turned to an unlikely source for talent and skills training: prisons.

In this light, lowering the age of criminality in the Philippines to 9 years old should be reconsidered. Throwing children in jail cells with hardened criminals may actually strengthen drug lords’ ability to recruit fresh talent – hardening youth who could have otherwise been saved from a life of crime and drugs.

We will end up strengthening their HR department.

International experience suggests that a whole-of-system approach is necessary to combat the narcotics trade. It requires international cooperation to combat smuggling and interdict drug flows. In addition, we need tighter financial regulatory reforms to make it more difficult to launder drug money and move this across borders. Economic development strategies that provide strong education and produce decent work for millions of young people should also be pursued. Finally, demand side interventions that strengthen community awareness, and assist drug-affected individuals and their families will be critical, in order to save young people from falling deeper into drug dependence.

Ultimately, the most destructive impact of narcotics on our country is through its effects on our next generation of citizens, by weakening them. It would be ironic if the effort to combat crime and drugs sacrifices young people, the very wealth we are trying to protect from this scourge. –

Ronald U. Mendoza is the Dean of the Ateneo School of Government.

*The views expressed in this article are the author’s and do not necessarily reflect those of the Ateneo de Manila University. Jose Carlos Alexis “Bugsy” Bairan provided inputs and research assistance for this article.

US$1 = P47.13

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