Narconomics: How To Run A Drug Cartel

Physical Copy:


By: Tom Wainwright

Rating: B+

It has been bizarre to me how drug cartels have been allowed to grow and thrive as much as they have in Central and South America. There is much more to the story that I was ignorant to.

Also, the US prison system is packed with drug criminals. Our system is incredibly expensive and feels ineffective from the ignorant outsider.

The book teaser offered a description of how cartels operate and some potential new approaches to combat them and our incarceration issue.

It piqued my interest.


The US government’s efforts to attack the supply side of the drug industry are flawed.

In 1971, US President Nixon launched the “war on drugs.”

Since then, drug incarcerations rates have shot up exponentially but the amount of drugs being produced and consumed globally has not decreased. There is more money in drugs today than ever before.

The “war on drugs” attacked the supply. They crop dusted coca leaves in South America to kill the crops. This caused cartels to simply move to the next country. As the next government cracked down on the crops, the cartels simply continued to move.

This approach only hurt the “poor” farmers in South and Central America. The cartels are the only buyers of their crops, so they dictate the price not the farmers. The cartels remained unharmed by this approach.

Legalization of marijuana is one major threat to cartels.

The US marijuana industry makes an estimated $40 billion annually. $7 billion comes from the legal marijuana market.

Legalizing weed weakens cartels and generates money for the US.

Legal crops are grown in better conditions, which makes the quality better than what cartels can offer. It is grown commercially so it is more efficient, which makes it cheaper. A better and cheaper product makes it hard for the cartels to compete.

The US can now collect taxes on this while also imprisoning less people for crimes related to it. This is a big net positive in cash flow to the state and federal government.

The US can also supervise and regulate the growth of this to make it safer for the public.

Attacking from this angle hurts the people we want to hurt and makes a safer product for the consumer.

Drug cartels engage in both competition and collusion.


In the city of Juarez in Mexico, the Juarez Cartel and the Sinaloa Cartel compete violently with each other to dominate the areas they sell and traffic drugs. 60,000 people died between 2006 and 2012 from this rivalry alone.


Def: when economic competitors join forces to earn more money for themselves at the expense of the consumer and the overall market. 

Think of utility providers. They collude together to determine the areas of states and our country where they will be the sole provider. The benefit to them is that they all get to dictate the price. Since they’re the only seller in their area, the consumer has to pay whatever price they demand.

This is the same for the cartels in El Salvador. Before colluding in 2009, 71 people were murdered out of every 100,000 in El Salvador due to the 18th Street Gang and Mara Salvatrucha rivalry. They came together to collude and divide up their territory. The result, by 2012 the figures stood at 33 murders per 100,000 people.

Neither of these approaches affect the amount of drugs sold, but they do affect the level of violence and murder.

Recruiting employees and ensuring they stay loyal aren’t just concerns for companies, but of drug cartels too.

Cartels target prison inmates as future employees. They know that it will be difficult for them to find a job after getting out of jail, so they approach them before they get out.

Many gangs and cartels started within prison walls for this very reason. The hierarchy of the cartels is quite sophisticated and it is difficult to get out once you are in.

Drug cartels, like big brands, use social responsibility as a PR tool.

Cartels in Juarez publicly advertised that they don’t target women and children, nor did they allow kidnapping and extortion, unlike the cartel across town.

They present themselves to their communities as public servants, taking up the role of protector. You can even hire them to protect your family.

Cartels give back to their communities by funding the construction of churches. How noble. 

Both corporations and cartels use offshoring as a means to increase profits.

Cartels are always searching for a way to be more profitable. In 2009, they took to Honduras as a departure point for all of their smuggling flights to outside countries. Honduras underpaid their police force for years, and so from 2009 to 2012 Honduras became the destination for 75% of cocaine smuggling flights.

The only way this has been combated is by publicly shaming these lax countries and publishing a corruption index to dissuade outside investment into the economies.

Franchising is a double-edged sword for drug cartels.

The Los Zetas, a criminal syndicate in Mexico, adopted a franchise model.

They identified regional markets they wanted to enter and then reached out to the local drug leaders. Instead of competing with them they offered them a portion of their profits in exchange for protection and arms.

This effectively allowed the Los Zetas to expand by franchising their operations. But the drawbacks came when other gangs entered the market and created more competition. Also, when the franchises decentralized the control of the members, mistakes and breaking of the code occurred more often. Like killing Americans or American law enforcement.

Cartels diversify to increase their revenue, often by expanding into people smuggling.

Cartels go where the money is. Their primary service is drug smuggling. But the other services they offer are gun and people smuggling. 


Many of the supply targeted efforts have been incredibly expensive and we haven’t gotten the results we want. Cartels operate like most businesses conceptually but they just go about most of their operations illegally. An alternative and certainly interesting route to combat them is from an economic perspective.


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Read more about the criminal system and laws surrounding drugs.

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