It was after all leaving for more because the university of chicago such as noble laureates Milton Friedman using simple rules of supply and demand who most forcefully pointed out the fragility of prohibition. This approach was ago by none other than one of latin americas most renowned and into his recent drug warriors, former mexican president Lupe Calderon took he acknowledged the failure of his own drug policies. The end of the term in 2012 he told the wall street journal the following, if the price of drugs goes up thanks largely to interdiction efforts and that demand is the same you will increased profits for your putting more incentives for participants in the market. He went on to say that it is clearly a textbook case for Economic System which is the more successful you are, the more criminals you are creating. This is precisely what the world drugs have been doing for over 40 years. Tom wainwright writes prohibition has driven up the price of a few cheap and cultural commodities trade of 300 billion global industry. And what a formidable industry Drug Trafficking has become. Drug cartels such a tremendous ingenuity, adaptability and entrepreneurship to satisfy over a quarter billion customers worldwide. In this regard, narconomics is a fascinating read for anyone interested understand why government offers to thwart this business are likely to fail. I found it particularly interesting to read how cartels integrated Business Model for her when im for example, controlling the production of the drug all the way from mexico to its douche douche and industries of the United States. However when it comes to cocaine trafficking, criminal organizations preferred to specialize in just one part of the business. In choosing their Business Model, cartels are applauding the finance of another chicago board and noble laureate whose seminal work the nature of the firm explains the conditions under which Companies Choose some stepbystep handling internally. But i will let the author of the book proper explained the findings is research which took them from the plot those of bolivia to the gang infested regions of el salvador to colorado. We will hear from moises naim, whose 2005 book shed light on how the commerce is changing the world by transforming economy, reshaping also takes, politics and capturing politics. Let me introduce tom wainwright. In 2000 was the Moscow Bureau chief for that magazine coming mexico Central America and the caribbean as well as parts of south america and the United States border region. Hes a contributor to the times, guardian and literary review. Has also been a comity or on cnn, the bbc, npr, among others. He has a first class degree in philosophy and politics and economics from oxford university. Please help me welcome tom wainwright. [applause] thanks a lot, thank you all for being here. Its a great privilege to be here especially great to be sharing a platform with moises naim was one of the great authorities on the subject and, indeed, many other subjects. I hear we got practically a full house to a full house today at a city see so many people although im almost a bit concerned are so many people in washington who want to know more about how to run a drug cartels. [laughter] i assume your interested purely academic. I thought i should start by explaining myself and explain how i came to write this rather unusual book. It began when i said to mexico with the economist in 2010, and i thought i was going to be writing about ordinary subjects, regular basis whether oil industry or the car business are tourism, discussed the. Its 2010 inches as i write the drug war arrived. This was a time when the next of the murder rate was spiraling. It almost doubled in the space of two years. Quite quickly i found this was the subject that people wanted to talk about. Go to any views or parties or business roundtables or whatever, and quickly found the subject often returned to the subject of the drugs business. I started writing a lot more about than i expected. I got into this habit of doing business stories one week and drugstores the next week. The more i did this, the more i came to see action with the two were not quite as different as you might think. I begin to wonder if the drugstore was, in fact, a big business and economic story we have been missing. I started to try to think about in those terms. Our tv an example. Soon after got there in 2010, there was this extraordinary case where the Mexican Government discovered a gigantic cash of marijuana near tijuana, the biggest seizure in extras history. More than 100 times that they found in a warehouse on the edge of the city. So they got all the stuff come out of a marijuana, unpacked it and made a gigantic bonfire. Doused with gasoline and set this thing a life. It was an incredible sight of the pleased with having to make sure no one was dancing downwind of this big fire. [laughter] its like a 100 joint. [laughter] it was faltering and i was marveling at this and wondering quite what has been organized by. It was reported at the time this represented a blow against organized crime since about half a billion dollars, that was how much this particular seizure was valued at. I gave this some thought into seemed to me implausibly high. There are not Many Companies in the world that can withstand the shock of half a billion dollars. The cartel are big but not that big. I start looking into it a bit more attractive account this estimate had come about. It was fairly straightforward. It sounds sensible. All they had done, figured out the rough retail price of their one and this because thats where the structure heading and a conservatively estimate its worth maybe 5 a gram in the United States. And then multiply that out over 100 times an and right at the cy of half a billion. It sounds plausible at first but if you give it a moments thought applied to any other ordinary business you can see how insane this is the imagine if you try to do this with another product like coffee and you said the retail price of a cup of coffee in the United States at starbucks is, three, 4, Something Like that and you get perhaps two grams of coffee so maybe call because a couple Dollars Program that means a kilo of coffee seats in mexico must be worth 2000. Not the case. Imagine undertaken at the price of a cow using the price of a stake in washington, d. C. You would get a very weird that you. This is what were doing. I did a rough regulation of what i thought this marijuana seizure should really be worth using wholesale prices in mexico, which needless to say are much, much lower. The wholesale price in mexico is about 8 cents per gram. Those hundred times are probably worth somewhere that less than 10 million rather than the 500 million we were told. This shock to me and maybe think if, in fact, what were doing on the supply side of the business is sometimes about 98 less effective than we believe, then what else are we kidding wrong . This is when i started to think seriously about looking at this business as a business rather than a war. And in so doing i identified the cartels more closely resembled businesses and you might think in various ways. I spell these out in the book. For instance, the cartel takes parts in things like franchising their brand. They are concerned with things like public relations, and i was told while i was in juarez, so adobe to avoid if i could go outside a quarter to six because that they said was a time when many of the cartels time to their assassinations in order to lead the 6 00 news bulletins. They get into things like on the line online return. Sites like silk road, the cartels and dealers in the rich world our experiment in with ecommerce. I looked at these enemies about in the book and i will highlight a couple because realize we are short of time, one of the ones i thought was most interesting and important was his question is how it seems we very often focus on the supply side of this business rather than a demandside. To give an example look at the cocaine business. I went down to bolivia in researching this book to look at the cocaine business. All of the world cocaine originates in three countries, bolivia, colombia and peru. I went down there to look it was going on. The cocaine business represents a particular puzzle for economist because the idea is very straightforward the idea is to try to cut into supply. If you restrict supply and demand remains constant than you would expect the price to increase. Its straightforward because the price goes up you would expect people to consume less of it. That doesnt seem to be what is happening even look back over the past couple of decades efforts to cut into supply have been quite successful. The governments of those three countries have managed to eradicate very large quantities of locally purchased the need to make cocaine. These days every year that iraq and around the same size of, its about 14 times the size of manhattan. Is as impressive thing. They have to watch out for landmines while being shot at. Is an incredible feat they do. For all those you look at the price of cocaine, retail price in the United States, hardly budged. Easy go back a couple of decades, although time is running around 150 per. Ram. Hasnt really changed much. How has this happened . I went there and had to look and theres a couple things to bear in mind. One thing that seems to me thats happening in south america is you see a world more effectively like. Its important to make clear world mark is not that walmart is like using of wrongdoing. At gdc something similar to what people sometimes accuse walmart of that which is acting as a monopoly player. A monopoly by of some of these products. The idea if you picture a regular market like apple, the idea of some of those markets, walmart is a dominant but even if there are interruptions to supply, you normally expect farmers to raise the price, walmart has a dominant as he is able to say sorry, we are the main buyer, we will set the price. Its not going to go in hi. It seems this is something similar happening in some parts of south america in the cocaine business. You find in some areas where coca leaf is grown coming up on cartel, maybe Mexican Cartel or the farc in colombia which has effectively a monopoly by position of the coca leaves in the area. So they say sorry this is the price that even if supply is interrupted thats a price they continue to pay. So theres efforts to into supply. Its not that they have no effect at all. They are affecting the wrong people it seems rather than affecting the cartels or affecting the consumers in the United States or in your. They are affecting the farmers who grow the stuff. Those are the people who are probably least interested in harming, the regular farmers who exist sometimes on about a dollar a day and those who are very the root of all these exercises. The second point on the supply business, the economics suggest even if you were able to increase the price of coca leaf which seems a bit extreme difficult, even if youre able to increase it theres little reason to think it would have much of an impact on the retail price in the rich world. To explain how this happens i will keep you if you numbers. To make a kilo of cocaine you need about a cut of fresh coca leaf. It weighs less once you drag it out. In colombia that freshly is worth about four or 500. Now kilo of pure cocaine by the time it is sold in tiny quantities is about worth 150,000 to imagine what happens even if youre very, very effective in raising the price of coca leaf. Lets say you double it. Now that so you managed to push alall of the extra costs onto te consumer in the United States. All you would do is raise the price of fuel from 150,000 to 150,400. At the look on the other programs obligor raise the price by 40 cents. Thats what you get if youre incredibly effective in dublin the price of coca leaf. Sometimes in the book i use the example of the arts business and its rather like saying we want to try to raise the price of works of art. The main ingredient in the painting is painted and so will try to raise the price of a box of paint. You can see this isnt going to be an effective. A box of paint costs 50. We raise it to 100. Whats it going to do . Nothing. Thats what were doing in the cocoa business. That was one thing that caught my attention to another one to highlight is the business of Human Resources. That might not sound like the thing that Cartel People would be particularly concerned about but it actually does. I saw this one went to interview the head of what of the big games in el salvador. That are too big gangs in Central America base in el salvador, the 18th street gang and i went to see the head of the 18th street gang, carlos, who is korean jail and prison on the outskirts of san salvador. We sat down and started talking to business. His Human Resources problem is a serious one. If you picture these groups can give you an idea of the size, these two groups together throughout Central America are reckoned up about 70,000 members. Just the comparison sake thats about the number of people employed by General Motors in the United States. Candidate organizations. Managing is difficult not least because he is in prison but organized crime groups in particular have to unique problems that affect them. One is to have a very, very rapid turnover of their members of staff. Part is due to the high rates of violence in those parts of the world. Those who are not murdered are very often arrested. An example i read from the business of Trafficking Cocaine from the caribbean to the uk. About one in four of the cocaine mules on the road get arrested. I was thinking imagine try to run a business, imagine trying to run a newspaper or think tank in which a quarter of this data to be replaced with every transaction. Its a real problem. This problem is compounded by the fact organized criminal groups cant just advertise for new people. They can place an ad in the paper. Getting new people is a real problem for them. Fortunately, for them weve come up with the perfect solution to this end we called it prison. This place where we hopefully get to give all of the unemployed young men with criminal records, put them in one place, lock them in there for a few years and in this job i visited in el salvador if you were not a member of his gang when you went in, then you were by the time you left. Again and again we see examples of prisons used as these universities of crime. For those of you watching netflix youll come across this guy who has a claim to be the person who introduced cocaine to the United States. Is cocaine trafficking career began when by chance he was put in a jail cell in connecticut with a guy named george younger it was a perfect match. Georgia never trafficking marijuana by playing. Carlos had contacts in colombia and the rest is history. They began Trafficking Cocaine by playing and america got its addiction. So this is how prisons help cartels with his Human Resources problem. I thought this was interesting because it helps the cartels to expand quickly by recruiting through jail, but also because i think of us can be quite a bit impact on the extent to which it would infuse violence. If you think about it, a gang is far more likely to resort to violence and sense of place out to kill and be killed the fcc for them to replace them. To testify do i decide to look at another part of the drove what the situation is different. I looke look at a study that wae in europe for the European Commission a few years ago. Interesting study of what happens when cocaine deals go wrong. This great study with a look at a 30 with big cocaine deals worth, each with 20 kilos, several times, multimillion dollar deals. They looked at these and the ways in which these deals go wrong are sometimes a list. One would want because details on the operations were faxed to the wrong number another one because a consignment was the to be picked up from the whole of the ship that died was meant to pick it up got sea sick during operation and had to call it off. Youd expect if you watch marcos for breaking bad you would expect mistakes like that to be punished fairly harshly. Youd expect pretty violent revenge to be taken. What this paper found was actually twothirds of those cases the problem which was worth millions was resolve without these five people this paper conclude was that in europe and the netherlands the cost of replacing member staff and funding new context if your particular contacts were so high that more often than not it make more sense to resolve a battle without resorting to violence. In other words, the labor market if you like with tighter in el salvador where its easy to recruit people from prison, slack labor market. Organized crime groups dont need to worry about how they treat their employees. If you have a tighter labor market by sending fewer to prison than that cartel say so much our costs in replacing people. The evidence seems to be the other for less likely to use violence. I think im just coming to the end of my slot so i will leave it at that. Theres lots more to be discussed and i look forward to all your questions. Thank you. [applause] thank you, thank you for our next speaker is moises naim, distinguished fellow of the Carnegie Endowment for international peace, international syndicated columnist and contributor editor to the atlanta. Is also the host of producer of a Weekly Television program on International Affairs that airs throughout the americas. He was the editorinchief of Foreign Policy magazine for 40 years and years of the author of many scholarly articles and more than 10 books of