Legal Pot Means More Violence in Mexico–Not Less

There’s a lot going on here, both in Humphrey’s quick take and in the Alejandro Hope piece that he links to. I’ll start by saying that, at the top, broadest level, I agree with the Hope-Humphrey’s analysis that were pot fully legalized in the United States this would not collapse the cartels or bring peace to Mexico. I do however, disagree (a little?) on why that’s true.

Drug trafficking organizations (DTOs—or International Criminal Organizations ICOs, the nomenclature I prefer) are involved in several different markets—the vast majority of which are more accurately described as “grey markets,” that is, the illegal manufacturing, trade, or transport of legal goods. This would refer to the Knights Templars’ recent takeover of the otherwise legal avocado market, the infiltration of the ICOs into tomato farming, and even the diversion of oil from legitimate channels into illegitimate ones.

There are of course, as Hope mentions, several other drugs the ICOs trade in as well-heroin, cocaine, and methamphetamine. But there are also a group of non-narcotic but yet still illegal products as well: exotic animals, lumber and worst of all humans.

It’s hard to estimate the amount of money the ICOs make in just the marijuana sector. Hope cites between 1.5 and 2 billion dollars and that seems right to me based on my research. Hope says this will be “a blow” to the ICO revenues but “wouldn’t put them out of business.” I agree with this as well. As a matter of fact, I’m more pessimistic than Hope on this score. Mexico will maintain a comparative advantage in the cultivation and hybridization (and transport and retailing) of marijuana for several years even if (against all odds) the US went all-legal, everywhere, all at once. And the preeminent possessors of that institutional knowledge are the current ICOs and the farmers, soldiers, transporters, retailers (and their US-side distributors). In other words, a legal US marijuana market will be the endpoint for ICO-sourced marijuana. In other other words, while profits in marijuana will decrease, to the extent that any money accrues south of the border, most of it will still be going into ICO bank accounts.

I also agree with Hope, that “Mexico does not have a marijuana problem: it has a state capacity problem.” But that is where Hope and I split (a little).

Right now, 100% of marijuana profits end up in ICO bank accounts. They can use this money to offset future losses due to interdiction, crop burns, etc.; to bribe public officials; to hire new soldiers; and to buy formidable weaponry and other battlefield technologies. The government gets none of it (except those accepting bribes).

However, a legal marijuana market will decrease the cartel’s take while at the same time also increase the government’s take. These are funds the government can use to hire more police officers and soldiers and train them and to raise salaries—making bribery harder. They are funds the government can use to—simply increase their capacity to rein in lawlessness.
The ICOs have done their best to hollow out the Mexican state. Their main weapon in doing this is not their absolute wealth, it’s the difference between the money they can spend to do it vis-à-vis the money the state has to combat it. Addressing this gap is important in increasing state capacity.

So I think legalizing marijuana can actually have a greater-than-the-sum-of-its-parts effect on Mexican state capacity. Why I eventually come to the same conclusion as Hope is because of the nature of the violence in Mexico. Most of the violence in Mexico is not between state actors and the ICOs; it’s between ICOs.

If it’s hard to determine how much money is made in the marijuana biz, it’s even harder to determine which ICOs are profiting the most from this sector (relative to the other sectors they are in). And that’s an important point. Whichever cartels are most affected by the loss of the additional revenues are going to become weaker relative to those cartels which aren’t as affected.

These relative power shifts are the primary driver of inter-ICO violence. In other words, legalized marijuana—at least for a while—should increase violence in Mexico. The plazas that abut the US border will be important geographical areas to control so long as there remain any black or grey market goods to smuggle across them. Disrupting the ICOs relative positions as they battle for equilibrium is exactly the kind of thing that will make violence worse.