Book Summary: Narconomics (Part 2)

In the previous partwe discussed why trying to influence the price of cocaine by influencing supply has failed and how the different structures of the drug industries in Mexico and El Salvador have led to more violence than peace.

In part 2 of Narconomics Book Summary: We delve into the issue of addressing cartels’ labor supply and examine how cartels use brand positioning to compete.

As we have previously discussedDrug cartels have an opex (operational costs) heavy cost structure. This makes attempts to influence the price of cocaine through the cost of goods largely ineffective. Much of the opex comes from hiring personnel to keep the operation going. The work is dangerous, resulting in high turnover as sicarios (hitmen) often die, are poached by rival cartels or end up in prison.

This brings us to an important point: the role of prisons in the cartel cycle. Once in prison, former cartel members can be recruited, trained, and offered jobs for release, often to return to cartel life. Gangs essentially run recruitment operations inside prison walls.

Recognizing that prisons are a natural recruiting ground for cartels, some anti-narcotics organizations have begun to tackle the problem from within. Prisoners are often neglected by society upon release, with limited job prospects and rejection from their families. This lack of support often drives them back to the cartels, perpetuating the cycle that led to their imprisonment.

Law enforcement agencies are reviewing the design of prisons to discourage recidivism and limit the ability of cartels to recruit criminals from this group.

For example, prisons in Latin America have traditionally segregated prisoners into different prisons based on gang affiliation in order to prevent inter-gang violence within prison walls. However, this strategy created a new problem: it strengthened gang unity and facilitated recruitment within each prison.

Recent efforts in the Dominican Republic include a new model in which high-security areas isolate gang leaders, preventing them from running operations from the inside. Strict measures are in place, including confiscating visitors’ cell phones and monitoring prisoners and guards to communicate with each other and the criminal outside world.

In a women’s prison in Najayo, Dominican Republic, prisoners are engaged in productive work, such as making candles, flower arrangements, and jewelry. These items are sold to visitors in a prison gift shop, with 70% of the proceeds going to the prisoners (who receive 30%) and their families (who receive 40%). This initiative aims to maintain prisoners’ ties with their families, since one of the reasons people join gangs is the lack of a support network. Maintaining family ties provides a sense of belonging, which reduces the appeal of criminal organizations.

Traditionally, prisons in Latin America have been run by underperforming members of the military or police, often leading to corruption and poor management. Next-generation prisons also require a different approach to staffing.

In the Dominican Republic, however, ex-police or military personnel are prohibited from working in experimental prisons in order to reduce corruption. Instead, the prison system recruits and trains its personnel, offering them salaries three times higher than in the old system, making them less susceptible to bribery by cartels.

Furthermore, self-catering has eliminated one of the biggest sources of contraband in prisons: the smuggling of weapons or drugs hidden in food deliveries. While new, reformed prisons may be more expensive to run, it’s an expense worth bearing. Taxpayers may not like paying for criminals’ lunches, but it’s a cheaper alternative than dealing with the aftermath of widespread corruption and violence and paying for metal detectors.

Understanding the Dynamics of Cartel Labor

Unlike legitimate businesses, drug cartels do not have formal employment contracts that legally bind their “employees.” While one might assume that cartels would automatically resort to extreme violence when dealing with insubordination, the reality is more nuanced. Violence is often a last resort, as losing personnel can be costly to cartels. Interestingly, most drug traffickers prefer to use nonviolent methods to resolve disputes whenever possible, because they understand the challenges of recruiting and maintaining reliable contacts in the drug trade.

Cartels face significant challenges in managing their workforce. Some prefer to hire many full-time employees. A growing trend among some cartels is to adopt a franchise model, working with a network of freelancers who do not know each other well. This reduces the risk of exposure if a member is caught or turned.

A new approach to reduce cartel recruitment

Many of the problems with cartel recruitment stem from inadequate state approaches that leave prisoners vulnerable to the influence of criminal groups that offer them protection and privileges. The more the state fails to meet prisoners’ basic needs, the greater the opportunity for criminal gangs to step in and fill the gap. By focusing on improving prison environments and reducing the flow of recruits from within, governments can significantly impact the ability of cartels to replenish their ranks.

In conclusion, the key to reducing the pool of talent available to cartels lies in improving the conditions from which this talent comes: prisons. By rethinking the design, management, and rehabilitation of prisons, we can break the cycle of crime and reduce the grip of cartels on vulnerable populations.

Even in the legitimate business world, traditional advertising has seen its influence diminish, with many companies turning to public relations (PR) to influence consumer perception. Interestingly, drug cartels have also recognized the power of PR and are taking it very seriously.

Securing public support, or at the very least public indifference, is a scalable way for cartels to avoid being reported to the authorities. For those who have watched NarcosYou know Pablo Escobar being revered by the citizens of Medellín and the Rodríguez brothers of the Cali Cartel investing in local communities, building soccer stadiums and keeping the local economy going. These actions are all part of a broader PR strategy.

Cartels often use intimidation to manage their public image by silencing local journalists. This prevents negative news about drug-related violence from spreading, reducing the likelihood of increased law enforcement and allowing cartel operations to continue unhindered.

The cartels focus their propaganda efforts on two main audiences:

1. The general public: By convincing people that they are the “more honorable” cartel, by claiming that they do not extort or harm citizens, cartels attempt to build a degree of public support or at least tolerance. If the public perceives a cartel as less brutal or more just than its rivals, they are less likely to provide intelligence to law enforcement against that cartel and may even betray its rivals.

2. Law enforcement and judicial authorities: Cartels often launch propaganda campaigns accusing local police or prosecutors of corruption, with the aim of undermining public trust in these institutions. If the public believes that law enforcement is corrupt, they are less likely to cooperate with them, further isolating the cartels from scrutiny and opposition.

Because cartels make a lot of money, they often intervene to provide public goods and services that the state does not provide. In this way, they improve their public image, which makes citizens more sympathetic to the cartel, despite the dangerous and unstable environment they create.

In regions of the world where the rule of law is weak, cartels and other criminal organizations often intervene to enforce contracts and agreements that violate free competition, similar to the Italian Mafia’s historical involvement in labor unions and the waste collection industry. This involvement means that local businesses, who might otherwise oppose cartel activity, are dependent on the cartels to enforce their own shady business arrangements and thus have a vested interest in the cartels’ survival.

To counter the positive image that cartels often cultivate, the state needs to step up its game in providing basic services. The more effective and reliable the state is in meeting the needs of its citizens, the less chance there is for cartels to present themselves as a “responsible” alternative.

To undermine the role of cartels in enforcing illegal agreements, the state cannot replicate these activities because of their illegality. However, increased government oversight and globalization have reduced the influence of the mafia. For example, the garbage industry in New York, once dominated by the mafia, is now overseen by the Business Integrity Commission, and globalization of trade has made it more difficult for local criminal groups to control it.

To prevent cartels from controlling the PR narrative, governments should protect journalists with harsh penalties for their murder, similar to those for killing police officers. In addition, wealthy countries should educate the public about the broader impact of the drug trade, highlighting how buying cocaine indirectly funds violence and murder in countries like Colombia and Mexico.

In conclusion, tackling cartel PR strategies requires a multifaceted approach. The state must improve public services, strengthen legal institutions, and expose the true impact of cartel activities. This will reduce the appeal of cartels and weaken their influence on both the public and businesses.

To effectively combat drug cartels, we must reform prisons to prevent recruitment, improve public services to reduce cartels’ influence, and counter cartel propaganda with strict protection for journalists and educate the public about the impact of drug use.

Next time I’ll share lessons learned on outsourcing manufacturing, innovation and e-commerce in the pharmaceutical industry.

Thanks for reading. I’ll talk to you next time.

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