Electronic copy available at: http://ssrn.com/abstract=1739203

Collateral Damage: The “War on Drugs,” and the Latin America and Caribbean Region: Policy Recommendations for the Obama Administration By June N.P. Francis and Gary A. Mauser Faculty of Business Administration, Simon Fraser University, Burnaby BC, Canada 8888 University Drive, Burnaby BC, V5A 1S6, Canada, francis@sfu.ca

Electronic copy available at: http://ssrn.com/abstract=1739203

Abstract The Obama administration has an historic opportunity to reform US “War on Drugs” (WOD) policies in the strategically important Latin America and Caribbean (LAC) region. This paper examines the impact of the WOD policies and concludes they have seriously exacerbated crime and corruption rates in LAC. The result is weakened governance structures and economic capacities in LAC. The WOD has emphasized supply curtailment in source and transit countries, rather than demand reduction in the US This off-shoring of attacks on drug organizations has resulted in the acceleration of violence and corruption as drug traffickers develop new strategies to maintain their profits. The LAC region has the highest murder rate in the world, even higher than regions with armed conflict. We recommend that the US abandon drug prohibition. Decriminalization would allow governments to control the transshipment, production and distribution of these drugs. This would immediately allow resources devoted to law enforcement activities to be re-directed to assist addicts and to provide financial support to strategically important neighboring LAC states. Controlling the marketplace would also provide the US and LAC with new sources of taxes. We also recommend that LAC governments act together to overcome their small sizes or weak institutional capacities by deepening cooperation as between MERCOSUR and CARICOM. This would enable joint initiatives such as policing of territorial water thus reducing the need for US incursions into the region. Finally, any solution in the region must be supported by the creation of economic opportunities, both intra-regionally and through fairer access to the U.S. markets, particularly for agricultural goods. Keywords: security and competitiveness, international political economy, policy-oriented studies, Latin America and Caribbean, US drug policy, war on drugs

Introduction

One stated goal of US foreign policy in Latin America and the Caribbean (LAC)

is to help “governments respond to their citizens by promoting security, strengthening

democracy and creating widespread long-term economic growth (USAID).” Many US

led initiatives such as those administered by USAID and the US trade and development

agency are consistent with these objectives. USAID budgeted almost $1billion for

projects in LAC, of which $453 Million, (FY 2009) (USAID 2010), were committed for

democracy building and economic growth. Dwarfing this spending and undermining

many of these initiatives are another set of US policies in the region, under the rubric of

the” War on Drugs” (WOD.) This “war” describes a set of programs pursued by various

US administrations beginning with the Nixon administration, aimed at reducing the use

of illicit drugs in the United States. The hallmark of these policies is that increasingly

supply disruption strategies have been favoured over demand curtailment. The Obama

administration has yet to make a definitive break with the drug polices of previous

administrations. However, there are tentative signals that this administration may be

receptive to a new approach as indicated by recent drug czar Gil Kerlikowske’s call for a

change in domestic US policy to what he calls a “middle way” (Los Angeles Times

October 21 2010).

Latin America’s Andean region, Mexico and the Caribbean have been the major focus of

the American strategy of supply containment. The aim is to reduce production at the

source as well as interdict drugs making their way through the supply chain to US

consumers. The US State Department’s 2010 budget allocated over $888 million for

combating international trafficking in illegal drugs initiatives in the LAC countries. This

is almost half (46%) of the Bureau of International Narcotics and Law Enforcement

Affairs budget and is almost 50% more than was budgeted for Afghanistan and South

Asia (International Narcotics and Law Enforcement Affairs: Program and Budget Guide).

While the drug gang atrocities in Mexico dominate recent news, US strategies in the

region and the concomitant fallouts are not new. Few initiatives have been as dramatic as

the 1989 Panama invasion that resulted in Manuel Noriega’s capture and conviction in

the US for drug trafficking, racketeering and money laundering. Colombia, which

produces 70% of the world’s coca, has been a target of the WOD since President Clinton

launched “The Andean Counterdrug Initiative” or “Plan Colombia” (Fratepietro 2001).

US WOD policies in the region are wide ranging and include eradication, interdiction and

criminal enforcement activities. Despite this, narco-trafficking in the region has

continued at an alarming level. These US offensives have triggered a series of counter

attacks by drug traffickers who seek to maintain this lucrative trade often by infiltrating

and corrupting institutions and setting off cascading effects that reach all areas of these

societies. This “off shoring” of the battle against narco-trafficking has diffused criminal

activities associated with this trade to a widened geographic region and exacerbated

criminal activities as the narco-trade flanks these frontal attacks. These unintended

consequences promote corruption in struggling democracies that further undermines the

rule of law in a fragile region. A recent review of crime in the Caribbean, for example,

concludes “Crime and violence present one of the paramount challenges to

development.” (United Nations Office on Drugs and Crime 2007).

In this paper we examine the wider chain effects of the US-led WOD policies on the LAC

region and argue that the WOD has a net detrimental effect to achieving the political

security that are vital to long-term development in the region. Specifically, the paper

explores the impact of these policies on the economies, political stability and corruption

in the LAC region. We argue that these WOD policies have amplified insecurity in the

region and now threaten the social and economic framework on which their economic

development depends. Most critics to date of the WOD policies have focused on the

consequence of domestic policies for the United States while the offshore consequences

of the WOD have received relatively little attention. This paper addresses this lacuna.

Emerging from our analysis are policy alternatives for both the US and LAC. There is an

urgent need for the US to train its attention on this issue, given the potential impact on

US homeland security of destabilization in Latin America and the Caribbean. The paper

argues strongly for the US to abandon prohibition as they did with alcohol and instead

devise strategies similar to those employed in the distribution of alcohol.

This paper is divided into four sections. First, we briefly review the history of American

narcotics legislation. Next, we discuss the supply curtailment programs in the LAC

region. Third, we explore the impact the WOD have had in this region including an

analysis of the role organized crime plays. Finally, we propose policy recommendations

for the Obama administration and for governments in the LAC region.

History of US Legislations Regulating “Drugs”

In 1914, the US regulated narcotics use with the Harrison Narcotics Act (Pray

2003), in order to give effect to the provisions of the Hague Convention of 1912. This

Act formed the basis of the subsequent criminalization of narcotics for much of the early

20th Century. The Harrison Act effectively cut off legal supplies of narcotics for many

users and, importantly, was responsible for the genesis of the illicit drug industry. It has

been argued that while this legislative change was intended to regulate the marketing of

opiates, the actual implementation of the Act was essentially “prohibitionist”. For

example, physicians could no longer prescribe opiates for their drug-addicted patients, a

practice that had been legal prior to this and “What ensued soon after passage of the act

can fairly be described as the most comprehensive general criminal enforcement of any

law against medical professionals in US history” (Hohenstein 2001 pg 231-2).

Subsequent legislation, beginning with the Jones-Miller Act of 1920, criminalized the

importation of narcotics and The Marijuana Tax Act of 1937 placed marijuana in the

same category as opium and cocaine. These early pieces of legislation were the beginning

the ever-increasing criminalization of the use of these substances and a focus on supply

curtailment through prohibitions and criminal penalties.

The 1970s saw major legislative changes concomitant with the rise in use of illicit

drugs traced by some to the 1960s culture of protest and social rebellion. During this

time, drug use moved from the domain of the marginalized to being used by middle class

Americans and in 1975 a majority of young people (55%) had used an illicit drug by the

time of leaving high school (Johnston et al. 2000, pg 6). Illegal drug use reached new

heights during this period with the “hippies” and the “counterculture movement”. A

major impetus for the heightened policy response to drug use that followed is traced to

the migration of opiate drug use from the marginalized to the middle class. In the late

60s, although members of lower socioeconomic groups continued to be over-represented

as heroin-users, there was greater representation in affluent society. A survey in 1975

indicated that over two percent of young adults had tried heroin at some time in their

lives (Monitoring the Future).

The use of illegal narcotics has been seen by a succession of US administrations as a

major social ill. However, it was during the Nixon administration that the view that

“The problem had assumed the dimensions of a national emergency” emerged (New

York Times on Jun 18, 1971) and illicit drug use became "public enemy number one” in

the United States. The Nixon administration also passed the Comprehensive Drug Abuse

and Prevention and Control Act of 1970 that consolidated a variety of drug related laws.

While this act did de-couple marijuana from cocaine and other opiates, it notably

expanded police powers for search and seizures. Subsequently, the placing of drug

control at the top of the national agenda started a legislative fury producing a number of

Acts aimed at increasing the scope, breath and reach of illicit drug control legislation. For

example, the 1970 Organized Control Act and the Racketeer Influenced and Corrupt

Organizations Act 1970 were aimed at organized crime. Another conclusion that can be

reached about legislation in the subsequent decades is that the vast majority was aimed at

supply curtailment rather than demand reduction. A review of the laws concluded,

“Federal legislation in the demand reduction area (prevention and treatment) is sparse

when compared to that of supply reduction (Harrison, Backenheimer and Inciardi 1996

pg 242).”

US WOD Supply Curtailment Strategies and Tactics

In this section we discuss the strategies and tactics used in the WOD policies,

focusing, particularly, on the approach used in the LAC region. The WOD is not a tightly

defined initiative but is instead a loose set of policies and programs that gained

momentum during the Nixon administration with the signing into law of the 1970

Comprehensive Drug Abuse Prevention and Control Act (Krause &, Kopel, 2004) and

the related increases in resources allocated to the effort. It was Nixon who appointed the

first drug czar, and established the Drug Enforcement Agency (DEA) with 2,775

employees in 1972. Today, drug policies continue to be administered through this same

body that, in 2009, controls a budget of 2.6 billion USD with over 10,000 employees (US

Drug Enforcement Administration).

LAC has been a major focus of US initiatives on drug curtailment given the region’s

importance as drug supply and transshipment countries. One way to view the

international drug trade is to classify countries as “headquarters”, “producer”, “transit”

and “consumer” states (Fukumi, 2003, pg 93). Columbia has historically been and is still

a key supplier of cocaine. At one point, cocaine accounted for 6% of the Columbian GDP

(Wall Street Journal) and Columbia supplied 90% of the US and the World’s cocaine

(The Washington Post 2002). However as this production has shifted to neighbouring

countries, its importance to Columbia has declined (Wall Street Journal 2010). Columbia

supplies both the final cocaine product as well as acts as a wholesaler of cocaine-

hydrochloride, the precursor to cocaine. The “supply chain” of LAC operations is

“headquartered” in Columbia where major facilities for producing cocaine powder are

located. Bolivia and Peru are producers as well as suppliers of coca and coca paste. To

move drugs to US consumers, the Andean “suppliers” enjoy the luxury of choosing

between Mexico and the Caribbean as the “transit states” as these countries serve as the

major conduits for drugs en route to North America and Europe. Transit countries enjoy

lucrative profits with “Mexican cartels now estimated to generate anywhere between $10

billion and $25 billion from drug trafficking, or as much as 2.5% of Mexico's GDP (The

Wall Street Journal).” This trade is not unilateral. In addition to money, the drugs are

traded for weapons, technology and various products and commodities (Fukumi 2003, p

94).

The Nixon administration began the US overseas excursions in the name of “drug

control.” A variety of activities and initiatives were aimed at disrupting the supplies of

these drugs in the supplier and transit countries. US customs agents and Ambassadors

were used to attempt to exert US will on cocaine producing countries. Nixon began the

now longstanding practice of direct intervention in the judicial processes in LAC by

pressuring countries to extradite their nationals to face drug charges in the US. Nixon

sought the extradition of Auguste Joseph Ricord, a national of Paraguay, and attempted,

unsuccessfully, to secure his extradition to the US for prosecution, despite Ricord already

being jailed in Paraguay (Narcotics: The Global Connection). This shift to extra-

territorial intervention and pressure, along with supply curtailment efforts has continued

to be US policy.

During the eight-year reign of the Reagan administration, the WOD intensified. In the US

domestic sphere there were increases in prison terms, mandatory minimum sentencing,

legislation allowing for the seizure of property without conviction (Corva 2008), major

rhetorical campaigns including the famous Nancy Reagan “just say no” campaign and the

inclusion of the CIA as active participants in the domestic drug war (Bagley 1988). In the

international sphere, this administration made major incursions into the internal politics

of countries in LAC. In particular, the Nicaraguan “Contra scandal”, implicated the CIA

in aiding and abetting the Contras (resistance fighters who opposed the Nicaraguan

government) in trafficking cocaine in Nicaragua (Central Intelligence Agency). The

justification for these initiatives was tied to the purported need to combat leftist guerrillas

and the Sandinistan government by linking these groups to the Colombian drug cartels.

The Andean initiative, first promulgated as part of the anti-narco-trafficking “National

drug Policy” of President George H.W. Bush’s administration (1989 – 1993), is

illustrative of this approach. The Andean initiative is a supply containment strategy

applied in the cocaine growing and manufacturing countries of Colombia, Peru, and

Bolivia. The ambitious plan initially budgeted over $2 billion, and had multiple aims.

These included strengthening the political will of these governments to cooperate in the

dismantling of cocaine trafficking organizations; increasing the effectiveness of law

enforcement to deal with drug trafficking; and inflicting significant damage on drug

trafficking organizations. To achieve these objectives security training and equipment, as

well as military and economic assistance were provided. Additionally, these countries

were assisted in locating coca-producing areas, destroying laboratories and processing

centers, blocking shipments of precursor chemicals and illicit weapons, and executing

eradication programs (CBO Papers 1994).

Various analyses of these tactics suggest they were largely unsuccessful in appreciably

curtailing the supply of these illicit drugs (Caulkins et al. 2005; Wood et al. 2010). Rather

than abandoning this approach, programs were expanded to try to deal with weaknesses

as they emerged. For example, as the eradication efforts failed to convince farmers to

abandon coca production, programs were expanded to provide support to farmers for

growing alternative crops and trade agreements were enacted to provide preferential

access for these alternative crops. It was hoped these crops would fill the vacuum created

by the destruction of the cocaine industry. In this regard, the Andean Trade Preference

Act (ATPA), enacted on December 4, 1991, gave preferential treatment to goods

exported to the US from that region. This incremental expansion of scope of the tactics

used in the WOD has continued. For example, since the events of 9-11, 2001 in the

United States, these objectives and approaches have widened to incorporate the “war on

terror.” This new mission now includes counter-insurgency. Both the National Liberation

Army and The Revolutionary Armed Forces of Colombia (Fuerzas Armadas

Revolucionarias de Colombia – Ejército del Pueblo,) are being targeted (Juan 2002).

The most recent initiative, the Merida Initiative announced in 2007, targets Mexico,

Central America, the Dominican Republic and Haiti and provides for “support going to

Mexico and its Central American neighbors in the form of hardware, inspection

equipment, information technology, training, capacity building, institutional reform, and

drug demand reduction initiatives” (National Drug Control Strategy, 2008 pg 47).

Approximately $500 million has been earmarked for this initiative.

Compliance by Countries or Coercion?

Since 1986, efforts to ensure compliance by countries in LAC with the WOD

were formalized with the enactment of US legislation that is meant to “encourage”

countries in the drug production and transit zones to cooperate with the US - the so

called “Narcotics Certification Process.” (Ayling 2005). Since 2002, the president of the

US is presented with a list of countries that are deemed to be effectively cooperating with

WOD. Countries can therefore either be certified or decertified based on this assessment

(Narcotics Legislation, US Department of State). Failure to make the certification list has

potentially serious consequences for the affected countries. Penalties include the threat of

aid and trade sanctions, including withdrawal of US aid, vetoing of loans from

multilateral development banks and other trade sanctions. According to the US

Department of State website, any country that is judged to have “failed demonstrably”

during the previous 12 months “to make substantial efforts to adhere to their obligations”

is subject to severe restrictions. For example, “fifty percent of certain kinds of assistance”

is withheld and “most foreign assistance is cut off "and the US is required to vote against

funding by six multilateral development banks to that country (Narcotics Legislation, US

Department of State).” These penalties are seldom imposed but they remain a threat that

coerces complicity with the WOD when cooperation may not be secured any other way

(Ayling 2005).

This certification process has been criticized on the grounds that it creates a “web of

coercion” (Braithwaite & Drahos, 2000). The criticisms are that by characterizing the

WOD as a national security issue, this has justified the use or threat of use of US

economic and military interventions in foreign countries (Hesselroth, 2004), and, thereby,

effectively conscripting foreign countries in the WOD even when it may not be in that

country’s self interest. This process was adjusted in 2003 but analyses of these changes

conclude the essential element of coercion based on threat of economic and trade

sanctions remain (Ayling 2005). In sum, countries participation with the WOD may not

be based on judgments of the actual effects of the WOD on their societies and economies

but rather on the broader need to not anger the “lion in the region” who is capable of

retaliatory measures that could be significant.

Impact of the US Supply Curtailment Strategy On Latin America And The

Caribbean

In this section, we discuss the effects of this WOD and its supply curtailment

strategy on the LAC region. The evidence suggests these strategies, despite possible

success in reducing cocaine consumption in the United States and coca cultivation in

Latin America, continue to have serious negative consequences for the political and

economic climates in the LAC region.

The most recent World Drug Report asserts that coca cultivation has fallen 28%

in the past decade and that this decline has been paralleled by a drop in cocaine

consumption in the United States and a reduction in retail value of the US cocaine market

which fell by approximately two-thirds in the 1990s and another quarter since 2000

(UNODC 2010). These statistics may be misleading as they mask other underlying trends

in the worldwide illicit drug industry. According to this same report, there has been

marked increase in the consumption in new markets such as Europe and the developing

world as well as an increase in the consumption of synthetics drugs. European cocaine

consumption increases have partially offset the US declines and in 2008, the European

market for cocaine (USD $34 billion) is now almost as valuable as the North American

market (USD $37 billion). The report also indicated a rise in consumption in developing

countries and an alarming increasing in the consumption of amphetamines worldwide.

One of the intractable problems faced by the WOD strategy is the remarkable

adaptability and resilience of targeted criminal organizations. The lucrative demand for

illicit drugs remains an important mainstay of organized crime and its most profitable

activity (Das 1997, quoted in Fukumi, 2003 pg 93). In the context of LAC, the drug

cartels from Columbia continue to drive the international cocaine trade. The Medellin and

Cali cartels, particularly the Medellin, pioneered drug trafficking in Latin America and

set the stage for the dominance Columbia still holds. As noted earlier, the Andean

initiative, which sought to disrupt cocaine supply at the source, was initially focused on

Columbia and was geared towards disrupting the organization of the Medellin Cartel.

This was done through pressure on Columbian government to prosecute high profile

traffickers, eradicate crops and destroy key production capacity. Despite the success of

these efforts, the drug trade has shown remarkable capacity to change and adapt. Hence,

in response to the pressure mounted on Columbia, drug production capacities shifted to

Bolivia and Peru, and they in turn became targets of the WOD. Similarly flexibility is

seen in the “transit zone” of the LAC region that bridges the supply with the United

States and Europe. In these transit zones, the focus of the WOD is on interdiction and the

disruption of the supply chain. But covering this area adequately requires a massive effort

given its vastness. This region occupies 6-million square mile area that is used by drug

traffickers to transport drugs to the United States markets. This vast region includes the

Caribbean Sea, the Gulf of Mexico, Central America, the northern coast of South

America, Mexico, and the Eastern Pacific. As pressure is put on one region, cartels shift

some of their operation and changed distribution strategies to circumvent these measures.

In response to the pressure drug traffickers faced in Central America, countries in the

Caribbean, notably the Dominican Republic, Haiti, the Bahamas and Jamaica became

major transshipment locations for cocaine while some production relocated to Mexico

(CBO papers, 1994). In the past decade, as pressure has been applied in the Caribbean,

Mexico has become the major transit route for an estimated 90% of cocaine into the US

(Paterson 2009). The WOD has been likened to a balloon – when you squeeze one spot it

pops out on the other side (Friesendorf, 2006).

The net effect is that to the extent that the Andean initiative has been effective in

stemming the flow of drugs into the US, it has provoked international drug cartels to set

up operations in new regions. The channeling of drugs through the Caribbean corridor

brought with it significant increases in the activities of organized crime (Bryan 2000).

Having criminal organizations take root has had far reaching consequences for these

small and often fledgling nations. International criminal organizations differ importantly

from legitimate businesses that possibly account for their impressive flexibility and

durability. First, criminal organizations are primarily involved in illegal activities, so

instead of relying on the law to settle disputes, they use violence to settle disputes and to

terminate contracts. Moreover, the pattern of managerial incentives and disincentives are

different. Employees’ families may be held hostage to guarantee their cooperation. And

when an individual or business organization is no longer useful to the criminal

organization, they need not be bound by retirement contracts or labor unions (Wright

2006). In many other ways, apart from its illegality, organized crime are often likened to

the operation of any transnational organization in its goals, operations and strategies;

hence, the moniker transnational crime organization (TCO). These organizations are

characterized as having an “enviable organizational culture of efficiency …They have

been able to innovate, expand, and flourish in a furiously changing international

scenario” (Bryan 2000 pg 1)

The WOD strategies used in LAC rely on traditional law enforcement approaches such as

interdiction, apprehension and eradication. These tactics, even when successful,

paradoxically increase rather than reduce violence in these countries. The reason is that

violence escalates as drug traffickers respond when threatened with more violence. This

violence is directed against law enforcement and other competing criminal groups often

holding the society at ransom in the crossfire. An example of this is the recent escalation

in violence in Mexico. According to the Mexico Institute, (a think tank that focuses on

the region) “From 2001 to 2009, there were more than 20,000 killings attributed to drug

trafficking organizations”(Astorga and Shirk 2010). The violence stems from the

Calderon government’s sustained policy of confrontation with traffickers, which has

unleashed violent wars between and within drug trafficking organizations (Beaubien,

2010). Further, traditional law enforcement approaches actually widen the infiltration of

organized crime in societies in which they are operating. According to Buscagli based on

empirical results of strategies used by countries which had ratified the UN Convention on

Drugs, “just relying on traditional legal sanctions to counteract organized crime (e.g., increased incarceration and/or extradition of physical persons) will tend to create an incentive for criminal groups to expand their corruption rings (in order to protect themselves from higher expected sanctions) thus increasing the feudalization of the state by criminal groups while enhancing their operational capacities. This unwanted result of applying traditional criminal sanctions will occur if the network of criminal assets (net worth in the hands of a network of licit and illicit businesses) is not hampered by intelligence and judicial authorities first. In the cases where criminal asset networks remain untouched, the data in this paper show that criminal groups will simply react to higher expected punishments by re-assigning their relatively untouched financial resources to expanding their rings (scope) and scale of corruption at higher levels in order to protect themselves. As a result, organized crime and high level corruption grow even when the expected punishment aimed at the members of criminal enterprises is increasing at the same time,” (Buscagli, 2008, pg 291).

In another related study, which empirically examined 66 countries around the

world, homicide rates were found to be positively related to the enforcement of drug

prohibition as measured by drug-seizure rates (Miron 2001). Hence, an unintended

consequence of enforcement is that it may simulate corruption and criminal violence.

Crime levels in the LAC region are at alarming levels. The UN report on crime in the

Caribbean concludes: “While levels of crime and associated circumstances vary by country, the strongest explanation for the relatively high rates of crime and violence rates in the region—and their apparent rise in recent years—is narcotics trafficking. The drug trade drives crime in a number of ways: through violence tied to trafficking, by normalizing illegal behavior, by diverting criminal justice resources from other activities, by provoking property crime related to addiction, by contributing to the widespread availability of firearms, and by undermining and corrupting societal institutions.” (UN Office on Drugs and Crime, 2007, pg i ).

The LAC region has the highest murder rate in the world (25.6 per 100,000) even

higher than regions with armed conflict (UNDOC 2007). The homicide statistics for

countries in the region that are heavily targeted by the WOD are alarming: Jamaica at 59

murders per 100,000 population, and 40 per 100,000 for the Andes and Central America

(in 2008) put these countries among the world’s highest (Report on Citizen Security And

Human Rights). The situation in Latin America, with respect to crime, is equally

alarming. As a region, LAC has the highest rate of violent death in the world. Mortality

due to violence is 21.8 per hundred thousand people compared to a rate of 6.5% in North

America, 4.0% in Western Europe, and is higher than even the former communist states,

which are at 17.2% (Soares & Naritomo 2007).

These crime rates not only have direct effects on those who are their victims but

have long term negatives consequences for economic growth and for the governance of

the society. Crime in LAC is not simply a reflection of economic conditions but is also a

cause of economic underperformance (Collier, 2002; Cardenas, 2007). While the LAC

rates of crime may be partially related to general macro economic crime factors such as

poverty, these factors alone do not account for the level of crime. In the Caribbean, it is

estimated that the overall homicide rates and robbery rates are 34 percent and 26 percent

higher respectively than in countries with comparable macroeconomic conditions (UN

Office on Drugs and Crime 2007). Homicide rates overall have been shown to negatively

affect economic growth (Peri 2004). Estimates suggest that if Jamaica and Haiti were to

bring their homicide rates down to the levels of Costa Rica, they would experience a

boost of 5.4 in their annual per capita growth rate (UN Office on Drugs and Crime,

2007). In a study of the impact of crime on Columbia’s growth rate, a time series analysis

indicated that crime reduced the productivity in Columbia by an estimated 1% per year

since 1980 by diverting capital and labour to unproductive activities. This increase in

crime was attributed to the rise of narco-trafficking in that period (Cardenas 2007). In

2010, PRS estimated the GDP per person in the Andean countries ($6,090 USD) at less

than half the world average ($14,312 USD), and that of the Caribbean countries as not

much higher at $7,161 USD. There are many reasons for this but narco-trafficking and

the unintended consequences of the WOD undoubtedly play powerful roles. One

indication of this is the intra-regional differences in GDP per person for those Caribbean

countries that have high drug seizures (e.g., Jamaica, $4,614) and those that do not (e.g.

Bahamas, $19,151). (PRS Group, table T7, 2010).

Crime has had a significant impact on business in the Caribbean and is a major obstacle

to investment (UN Office on Drugs and Crime 2007). The investment climate reflects the

risks and potential returns associated with investments and macroeconomic factors, such

as the fiscal, monetary, exchange rate policies; institutional factors such as political

stability, effectiveness of governance and institutions, including bureaucratic financial

and legal systems and; infrastructure required for productivity, including transportation,

electricity and communications (Stern, 2002). Crime and corruption, the offshoots of

narco-trafficking are linked to a decline in the institutional integrity of a society. They

undermine the social and economic capacity of a country thus negatively affecting the

investment climate (UN Office on Drugs and Crime 2007). Additionally, crime reduces

access to financing; spending on formal and informal security measures increases; and

worker productivity declines (UN Office on Drugs and Crime 2007). In a study of the

investment climate, crime, theft and disorder ranked as the third most important

constraint to investment in Jamaica; the only Caribbean country for which individual data

is available, after access to financing and tax issues (Enterprise Survey, 2005).

Importantly, on the measure of “ % of Firms Identifying Crime, Theft and Disorder as

Major Constraints” to business growth, LAC reported the highest percentage of all

regions measured.

Organized crime also threatens political institutions and is a major cause of the corruption

of society’s institutions (UNODP 2010). The trafficking of narcotics is seen as

normalizing illegal behavior, subverting the justice system and other civil institutions and

generally undermining and corrupting these societies (Nazario 2007, pg 7). To achieve

their goals, organized crime needs to influence, work through or, at the very least, be

ignored by a number of civil institutions. For example, the movement of illicit goods is

often done through legitimate channels of distribution, such as through ports and on

airlines. The bribing of authorities is just one means used to ensure cooperation.

Particularly troublesome are the bribing of the vanguards of the law enforcement and

judicial arms such the police, judges, politicians and civil servants. The arrest of a

Mexican Port Captain, Jorge Castaneda, is just one example of how insidious this

infiltration can be (Morning Journal). Corruption further undermines economic growth by

reducing capital productivity (Lambsdorff 2003), negatively affecting investments

(Pellergrini and Gelargy 2004) and slowing economic growth (Mauro 1995). According

to the Corruption Perceptions Index (CPI), corruption is a grave problem for many

Caribbean countries. Haiti is ranked as the country perceived as the most corrupt in the

world (168th out of 168 countries surveyed), with other Caribbean countries, Dominican

Republic and Jamaica (99), Suriname (75), and Trinidad and Tobago (79) being rated

more corrupt than the world average (Transparency International 2009). Corruption is

detrimental to growth, development and the ability to attract Foreign Direct Investment. It

has been estimated that a one-unit reduction in corruption would potentially increase

Capital Formation by $5.0 billion and $1.7 billion (US$) and Foreign Direct Investment

by $860.0 million and $286.4 million in Haiti and Jamaica respectively. (Colier, 2002).

The narcotrade has been squarely implicated as a leading cause of corruption (Nazario,

2007)

Narco-trafficking also can have destabilizing effects on governments, especially in

vulnerable states. Drug organizations attempt to influence the political process in order to

buy favors. As law enforcement pressure is applied directly or through compliance with

the US WOD policies, political instability may ensue as drug organization seek influence

through means other than the ballot. Buying off politicians or openly providing arms to

support one political party or another are common approaches. (Figueroa and Sives

2003). According to these measures, with respect to the Caribbean, countries targeted by

the WOD activities due to narco-trafficking, with the exception of the Bahamas, tend to

fare the worst of all the Islands in the region on the measure of political stability

(Governance Matters 2009). Jamaica, Haiti and the Dominican Republic, rank lower than

other islands. For countries in South America, a similar pattern emerges with countries

that have been targeted for WOD policies, or have been affected by the ripple effects of

these policies, ranking from 3 to 36th percentile in the world on political stability, well

below the other South American countries, such as Chile, French Guyana and Suriname,

that are outside the path of these policies. (Governance Matters 2009).

WOD policies also act to undermine human rights by the militarization of law

enforcement. One strategy when faced with institutional corruption and destabilizing

factors is to use or create alternative institutions. Concerns about corruption among police

agencies have led national governments such as Mexico and Jamaica to rely upon the

national military to crack down on drug traffickers. However, this approach entails

serious risks even if the military is less corrupt than the police and is more responsive to

national priorities. Militaries have fundamentally different goals and training than police.

“The military’s job is to seek out, overpower, and destroy an enemy. Though soldiers

attempt to avoid them, collateral casualties are accepted as inevitable. Police, on the other

hand, are charged with ‘keeping the peace’ ... Their job is to protect the rights of the

individuals who live in the communities they serve, not to annihilate an enemy” (Balko,

2006). The roots of this distinction lie in the English common-law principle that citizens

have certain rights, and the government is obligated to respect those rights, even when

doing so may be inconvenient to government policies.

A recent example of the effects of military intervention is in the case of the extradition of

a Jamaican drug lord, “Dudus” from Jamaica. The Jamaican government had initially

refused his extradition to the US, but under pressure and amid much controversy they

relented. For a variety of reasons, including the unreliability of the Jamaican police, the

government preferred to rely upon the army to capture Dudus. This resulted in

widespread rioting and the loss of some 78 lives. Dudus was insulated by not only

criminal gangs but had “bought support” from the police and the population itself (Llana,

2010). Likewise the Mexican army has taken a leading role in combating drug gangs and

has been criticized for alleged human rights violation, excessive use of force and being

the cause of escalating violence (Olson et al. 2010).

The effects of the WOD policies can be illustrated by looking at one country-Jamaica-

that has been at the epicenter of this crossfire and whose fortunes encapsulates the issues

these countries face. Jamaica was particularly vulnerable to being infiltrated by drug

trafficking. Factors such as the ample availability of rural areas with very low population

density and the development of hyper-dense urban centers rendered a country like

Jamaica vulnerable to being selected as a relocation site (Calvani, Guia and Lemahieu,

1997) as the narco-traffickers expanded their operations, in response to WOD pressure in

Central America. The effects of this infiltration by drug traffickers and organized crime

was a weakening and corrupting of bureaucratic and legal institutions, a decline in the

quality of social infrastructure such as education and health care, high levels of brain

drain, inadequate physical infrastructure, insecurity in financial institutions and

unattractive levels of local and foreign investments. In evaluating the investment climate

for Jamaica a World Bank study concluded that rampant crime “is costing Jamaica at

least 4 percent of its GDP, including lost production, health expenses, and public and

private spending on security (World Bank 2003 pg xv.)” Poor employment prospects and

a high crime rate have encouraged high rates of migration, with the equivalent of some 80

percent of tertiary graduates in the 1990s estimated to have migrated (World Bank 2003

pg 6)”. The same reports highlights fighting crime as a key to addressing Jamaica’s

weakened competitiveness. Despite being rated favorably on a number of dimensions that

indicate a positive business climate such as its strong democracy, the high caliber of its

bureaucracy and solid regulatory framework, crime was seen as negating these positive

elements. According to the report “Jamaica’s most conspicuous and severe problem is the

erosion in the rule of law.” Comparisons of international ratings show that Jamaica is

significantly under-performing in the area of law and order relative to countries with

comparable incomes per capita. The rule of law has been shown to have a strong

statistical relationship to economic growth and poverty reduction (World Bank, 2003 pg.

124).

On the micro-level, Jamaican firms face increased costs for security, higher transaction

costs and more expensive supply chains. Survey studies indicate that crime is clearly seen

as detrimental to business success by firms (World Bank, 2003;Francis and Harriot

2003). Of the Jamaican businesspeople surveyed, 39% responded that they were less

likely to expand their business because of crime, and 37% reported that crime

discourages investments that would improve productivity; 22% said that it had a negative

impact on worker productivity and 18% felt crime increased the cost of services

purchased. Most significantly, 51% percent indicated an increased cost of security.

Jamaican managers in this study also indicated a raft of measures taken to protect

themselves. Disturbingly, approximately nine percent of managers report paying

extortion money with five percent indicating they were forced into these payments. The

smaller the firms, the more burdensome are the security cost. Small firms reported that

security costs account for seventeen percent of their revenues while the comparable

amount for medium sized firms is seven point six compared to two percent for all firms

combined (World Bank 2003).

In summary, the Latin American and Caribbean region have paid a heavy price in social,

economic and political costs for being the source countries or for being in the firing line

between the drug producing nations of South America and the drug consuming markets

of North America and Europe.

Policy Implications

The LAC region is of strategic geopolitical importance to North America.

Countries in this region have, of course, considerable importance in their own right. Just

a few decades ago, these states were at comparable levels of economic performance to

countries such as Singapore. Many have, however, faltered in economic performance

despite having some of the hallmarks that should have led to greater development, such

as their reasonably well-educated work force and long-established industries, e.g.,

tourism, agriculture and mining. We argue here that the WOD and its unintended

consequences have been major contributors to the LAC regions' failing fortunes by

exacerbating crime and corruption in otherwise fragile countries.

Tackling the problems in the region that have resulted from the WOD policies and

drug trafficking clearly requires a multifaceted approach. LAC will continue to be in the

crossfire of conflicting interest between the supplying countries and the major consuming

countries as long as the approach to drug trafficking hinges on prohibition in consuming

markets and the “off shoring” of enforcement. Current strategies have been largely

ineffective in reducing the consumption of these drugs in the Western world. As declared

by the Vienna Declaration “Over the past several decades, considerable effort has also gone towards evaluating the 'war on drugs' approach. In this context, the evidence that drug-law enforcement has failed to prevent the availability of illegal drugs is unambiguous. National and international surveillance systems have shown a general pattern of falling drug prices and increasing drug purity. Furthermore, there is no evidence that intensifying the

penalties for the use of drugs meaningfully reduces the prevalence of drug use” (Wood et al. 2010, 310-312.)

Policies, therefore, need to change. At a minimum, we argue for a policy

shift away from offshore supply-focused initiatives to strategies that prioritize demand

management within the US. This would not only be beneficial to the region but also good

public policy as it is estimated that $34 million spent on treatment would reduce the use

of cocaine by the same amount as would an expenditure of $366 million for interdiction

(Rydell and Everingham, 1994).

Even more valuable as a policy option would be for the US to abandon the

prohibitionist approach in favour of legalization (Wood et al 2010). The legalization of

the production, distribution and sale of illicit drugs is now being championed by

mainstream opinion leaders in the region, as exemplified by the call for a debate on drug

legislation by Mexican President Felipe Calderon and former Mexican President Vicente

Fox who went further in calling for the US to end prohibition (The Economist, Thinking

the unthinkable", August 12th). To heed such calls would take a significant reversal of

the Obama administration’s position expressed by the current drug czar, R. Gil

Kerlikowske, who in a speech delivered at the California Police Chiefs Association

Conference indicated, "As I’ve said from the day I was sworn in, marijuana legalization –

for any purpose – is a non-starter in the Obama Administration” (march 14 2010). This,

despite the considerable evidence that suggest prohibition against marijuana in particular

is unwarranted (Pudney 2010). Internal US political pressure may however prove to be

effective in forcing reconsideration by the Obama administration. Whatever the outcome

of the California Tax and Control Cannabis 2010 initiative—Proposition 19 -- that would

decriminalize the possession of limited amounts of marijuana, that is on the November

2010 ballot, it has received prominent support and reflects the continued interest in

decriminalization within the United States.

The next step would be to decriminalize drugs like cocaine, heroin, and marijuana, which

are currently illegal to own or to sell, by legalizing their purchase, like alcohol, from

licensed vendors with appropriate tax stamps. This is not as impossible as it may appear.

Soon after the prohibition of alcohol ended in 1933, the US government instituted a legal

regime for the sale and distribution of alcohol. A comparison between the current

debates on drug legalization with the repeal of alcohol prohibition is instructive. As

Levine and Reinarman (2004) show in a comprehensive review of the history of

prohibition and repeal, there are lessons learned from that period in US history that can

guide the regulation of drugs. Although prohibitionists argued then, as they argue now,

that the industry was “unregulateable”, the US undertook a massive restructuring and

control of alcohol sales that was effective in creating a legal structure that generated taxes

from the industry while controlling quality and allowing for widespread yet controlled

distribution. This largely saw the end of an illegal market that had been characterized by

highly potent product of unpredictable quality and the control by organized and petty

criminals of the trade. The same could be done again by recognizing legal suppliers,

internationally and within the United States. Once legal, governments would earn a

generous source of tax revenue that could be used to fund many vital social programs,

including drug treatment clinics. In fact, that was exactly what was done after prohibition.

Legalizing these drugs would also allow governments in LAC control over the

transshipment, production and distribution of these drugs thus providing new sources of

taxes. Importantly, the legitimate private sectors (in both the LAC and the US) would

benefit from legalization rather than organized crime. Export of these products in a legal,

organized international framework, would provide badly needed foreign exchange

resources. Savings would derive immediately from reduced law enforcement efforts. For

example, estimates of law enforcement cost savings done in the US, “concludes that

decriminalization of marijuana in Massachusetts would produce an annual savings in law

enforcement resources of approximately $29.5 million.” Miron (2008, 2). The savings to

both the US and LAC governments are likely to be on a much higher scale. Add to this

the reduction of the enormous direct and indirect cost of crime and the benefits to the

region become even more compelling. While some have argued that legalization of drugs

is likely to increase consumption and that these deleterious effects must be balanced

against the savings, the evidence so far suggest the effect on consumption to be negligible

(Miron 2008). Tax-based control through the imposition of “sin-taxes” has been shown to

be effective in offsetting the expected price reductions under legalization (Tedeschi

2007).

Of course the US cannot act alone but must do so in concert with the 200 or so

countries who are constrained in their policy options by virtue of being signatures to the

UN treaties: the 1961 Single Convention on Narcotic Drugs (amended in 1972); the 1971

Convention on Psychotropic Substances; and the 1988 Convention against Illicit Traffic

in Narcotic Drugs and Psychotropic Substances. In the same way, that the US played a

significant role in helping draft and supporting early international anti-drug treaties, their

role now could be pivotal in changing course at the international level. There are some

signs of change at the international level and we urge continued progress. The

Netherland’s less restrictive laws with respect to marijuana has served as example of the

feasibility of decriminalization with other countries, such as the United Kingdom,

Belgium, Spain, Switzerland, Portugal, Germany and Italy, following this lead, albeit to a

lesser extent with liberalized marijuana laws. Additionally, highly respected groups are

calling for an end to prohibition (America 2010,Wood et al. 2010). Given the significant

effects the WOD policies have had on LAC countries, these governments need to become

more assertive in advocating for change, as has started with the comments from Mexico’s

presidents.

Ending prohibition alone will not return the fortunes of the region and reverse the

economic and social conditions that allowed for current problems. Both the US and LAC

countries must make basic changes in political and economic policies. This should start

with immediate dismantling of the US certification process.

The current certification process that links economic aid to a country's cooperation with

the WOD needs to be dismantled. Countries currently enjoy very little policy room and

are constrained to do bidding of the US under the WOD certification process; this

remains true even when the results are catastrophic for the local population. The events

surrounding the extradition of Dudus to the United States will likely seriously erode the

Jamaican economy in terms of reduction in tourism, delays to capital projects, destruction

of infrastructure and general loss of confidence in the countries stability. The Prime

Minister of Jamaica indicated that negotiations with the IMF played a role in his timing

in the events, a clear indication of the effects of economic pressures (Jamaica Observer,

Sunday, July 04, 2010).

Further, the US needs to seriously reconsider its trade policy approach to the region in

order to help ensure economic opportunities provide alternatives to crime. Recent free-

trade agreements have paradoxically reduced economic opportunity in the countries in

the LAC region. For example, bilateral preferential trade agreements, such as the

Caribbean basin initiative, have been gradually eroded by free trade agreements and by

multilateral liberalization at the level of the WTO (Hornbeck 2010, pg1). The recent US

approach is to require these countries to provide unfettered access to their market for

goods and capital. This stance was largely responsible for the demise of the proposed

Free Trade of the Americas (FTAA - an ambitious proposal to extend the free-trade zone

to 34 countries of North, Central and South America). Strong opposition from civil

society and left-leaning governments in the region has been blamed for what was

perceived as a US “wolf in sheep’s clothing” agenda.

Trade liberalization has differential effects depending on the context (Porto 2007). For

smaller, poorer and more vulnerable countries of the LAC region, trade preferential

agreements that privilege some countries may be imperative along with other

compensatory mechanisms if these countries are to benefit from trade and create

economic opportunities for their citizens (Griffith, 2010; Hornbeck 2010, pg 19). Some

countries, it has been argued, cannot yet respond adequately to open market opportunities

given their Colonial histories, which left these economies dependent on few monoculture

crops and a weak manufacturing infrastructure (Griffith 2010). Non-reciprocal market

access agreements, which were previously in place during the 1970s and 80s need to be

seriously reconsidered as policy options especially for the smallest and least developed

countries. With the aforementioned safeguards, expanding free trade should be of benefit

to the region. The Free Trade Area of the Americas that wilted under the Bush

administration needs to be re-started.

Indisputably, governments in the LAC have a significant role to play in improving their

economic performance and governmental institutions. Given the LAC’s common

problems, priority should be placed on shoring up cooperation to strengthen regional

capacities to deal with crime. Existing regional agreements can be used as a springboard

for deepening cooperation as between MERCOSUR, aimed at creating free trade in the

South American region, and CARICOM, Caribbean’s free-trade area. Initiatives such as

joint policing of territorial water and the sharing of intelligence with respect to regional

security are natural extensions that should strengthen the region’s own capability for

providing security and would reduce the need for U.S. incursions. Expanding LAC

regional cooperation will also pay dividends in greater regional ability to respond to

social and political issues. We believe that the Latin American proposal for the formation

of a Latin American-Caribbean trade grouping has significant merit. Regardless of the

US direction for the WOD, a partnership between CARICOM and MERCOSUR would

improve LAC’s ability to prosper while responding appropriately to its own security

needs.

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