Book Summary: Narconomics (Part 2)
Richard Toad
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In the previous part, we discussed why influencing the price of cocaine by affecting supply has failed and how the differing drug industry structures in Mexico versus El Salvador have resulted in violence versus peace.
In Part 2 of Narconomics book summary, we will delve into the issue of tackling the labor supply of cartels and explore how cartels use brand building to compete.
Cartel recruitment
How Prison Reforms Can Tackle Cartel Recruitment
As we've previously discussed, drug cartels have an opex (operating expense) heavy cost structure. This makes attempts to influence the price of cocaine through the cost of goods largely ineffective. A big portion of opex stems from personnel recruiting to sustain operations. The work is dangerous, resulting in high turnover rates, as sicarios (hitmen) often die, get poached by rival cartels, or end up in prison.
This brings us to a key point: the role of prisons in the cartel cycle. Once in prison, former cartel members can be recruited, trained, and offered jobs for when they're released—often returning to cartel life. Gangs essentially run recruiting operations within prison walls.
Recognizing that prisons are a natural recruiting ground for cartels, some anti-narcotics organizations have begun tackling the issue from the inside. Prisoners are often neglected by society upon release, facing limited job prospects and family rejection. This lack of support frequently drives them back to the cartels, perpetuating the cycle that led to their imprisonment.
Rethinking Prison Design to Reduce Recidivism
Law enforcement agencies are rethinking prison design to disincentivize reoffending and reduce cartels' capacity to recruit from this pool.
For example, prisons in Latin America have historically segregated inmates by gang affiliation into different prisons to prevent inter-gang violence within prison walls. However, this strategy created a new problem: it reinforced gang unity and made recruitment easier within each prison.
Recent efforts in the Dominican Republic involve a new model where maximum-security areas isolate gang leaders, preventing them from directing operations from within. Strict measures, including the confiscation of cell phones from visitors and monitoring of inmates and guards, are in place to communicate with each other and with the outside criminal world.
In a women's prison in Najayo, Dominican Republic, inmates are engaged in productive work, such as making candles, flower arrangements, and jewelry. These items are sold to visitors in a prison gift shop, 70% of the proceeds going to the inmates (who get 30%) and their families (who get 40%). This initiative aims to maintain inmates' connections with their families, as one of the reasons people join gangs is the lack of a support network. Maintaining family ties provides a sense of belonging, reducing the allure of criminal organizations.
Redefining Prison Staffing and Operations
Traditionally, prisons in Latin America have been run by low-performing members of the military or police forces, which often leads to corruption and poor management. Next-generation prisons also require a different staffing approach.
In the Dominican Republic, however, ex-police or military personnel are banned from working in experimental prisons to reduce corruption. Instead, the prison system recruits and trains its staff, offering them salaries three times higher than the old system, making them less susceptible to bribes from cartels.
Moreover, providing meals in-house has eliminated one of the biggest sources of prison contraband: smuggling weapons or drugs hidden in food deliveries. While running new, reformed prisons may be more expensive, it is a cost worth bearing. The taxpayer may not like paying for criminals' lunches, but it is a cheaper alternative than dealing with the aftermath of rampant corruption and violence and paying for metal detectors.
Understanding Cartel Labor Dynamics
Unlike legitimate businesses, drug cartels do not have formal labor agreements binding their "employees" legally. While you might assume cartels 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 for cartels. Interestingly, most traffickers prefer to use nonviolent methods to settle disputes whenever possible, understanding the challenges involved in recruiting and maintaining reliable contacts in the drug trade.
Cartels face significant challenges in managing their labor force. Some prefer to hire many full-time employees. A growing trend among some cartels is adopting a franchise model, working with a network of freelance workers who do not know each other well—reducing the risk of exposure if one member is captured or turned.
A New Approach to Reducing Cartel Recruitment
Many of the issues with cartel recruitment stem from inadequate state approaches that leave inmates vulnerable to the influence of criminal groups that offer them protection and privilege. 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 cartels' ability to replenish their ranks.
In conclusion, the key to reducing the pool of hirable talent for cartels lies in improving the conditions where this talent is sourced—in the prisons. By rethinking prison design, management, and inmate rehabilitation, we can disrupt the cycle of crime and reduce the grip of cartels on vulnerable populations.
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Cartels and Their Sales & Marketing Strategies
Even in the legitimate business world, traditional advertising has seen its influence wane, with many companies shifting towards public relations (PR) to shape consumer perceptions. Interestingly, drug cartels have also recognized the power of PR and take it very seriously.
Securing public support—or at the very least, public indifference—is a scalable way for cartels to deter being reported to the authorities. For those who have watched Narcos, you're familiar with Pablo Escobar being revered by Medellín citizens and the Rodríguez brothers of the Cali Cartel investing in local communities, such as building football stadiums and keeping the local economy afloat. 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 unimpeded.
The Two Audiences of Cartel Propaganda
Cartels target their propaganda efforts at two main audiences:
Because cartels make big money, they often step in to provide public goods and services that the state fails to deliver. In doing so, they improve their public image, making civilians more sympathetic to the cartel despite the dangerous and unstable environment they create.
The Cartel as an Enforcer of Informal Agreements
In regions of the world where the rule of law is weak, cartels and other criminal organizations often step in to enforce contracts and agreements that violate free competition—much like the Italian mafia’s historic involvement in labor unions and the trash collection industry. This involvement means that local businesses, which might otherwise oppose cartel activities, find themselves reliant on the cartels to maintain their own shady business agreements and thus having a vested interest in the cartels’ continued existence.
Changing the Narrative: What Can the State Do?
To counter the positive image that cartels often cultivate, the state must step up its own game in providing basic public services. The more effective and reliable the state is in meeting the needs of its citizens, the less opportunity there is for cartels to present themselves as a "responsible" alternative.
To undermine cartels' role in enforcing illegal agreements, the state cannot replicate these activities due to their illegality. However, increased regulatory oversight and globalization have reduced mafia influence. For instance, New York’s garbage industry, once mob-dominated, is now monitored by the Business Integrity Commission, and globalization of commerce has made local crime groups' control more difficult.
Controlling the PR Narrative and Educating the Public
To prevent cartels from controlling the PR narrative, governments should protect journalists with severe penalties for their murder, similar to those for killing police officers. Additionally, wealthy nations should educate the public on the broader impacts of the drug trade, highlighting that buying cocaine indirectly funds violence and murder in countries like Colombia and Mexico.
In conclusion, addressing cartel PR strategies requires a multi-faceted approach. The state must enhance public services, strengthen legal institutions, and expose the true impact of cartel activities. This will reduce the cartels' allure and weaken their influence over both the public and businesses.
Conclusion
To effectively combat drug cartels, we must reform prisons to prevent recruitment, enhance public services to reduce cartel influence, and counteract cartel propaganda with strong journalist protection and public education on the impact of drug use.
Next time, I'll share lessons on production offshoring, innovation and e-commerce of the drug business.
Thanks for reading. I will talk to you next time.
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