Think Again

Think Again: The Afghan Drug Trade

Why cracking down on Afghanistan's opium business won't help stop the Taliban -- or the United States' own drug problems.

"The Afghan Drug Industry Mostly Benefits the Taliban."

Far from it. Today, Afghanistan essentially holds a monopoly on heroin exports to the Old World. The country accounts for more than 90 percent of global production; although drug markets evolve over time, Afghanistan's production costs are so much lower than its would-be competitors' that it is a safe bet to assume the country will be the leader for at least five or 10 more years.

In the popular and American political imaginations, the Taliban are thought to be the big winners from this near monopoly, and there is some truth to this. The "narcoterrorist" label is often misused, but the Taliban are the real deal. They really do use profits from the opium trade to finance terrorist attacks on civilian and military targets. Although the Taliban traffic only modest quantities entirely on their own, taxing other people's drug deals is an important source of revenue; no one knows how much the Taliban profit from the drug trade, but whether they do isn't up for serious debate.

But just because the Taliban benefit from the heroin business doesn't mean the heroin business mostly benefits the Taliban. Consider the numbers (or at least the rough ones -- production figures fluctuate from year to year, conversion rates are crude estimates, and price data beyond the opium bazaars are sketchy). In a typical year, Afghan farmers sell about 7,000 tons of opium at $130 a kilogram to traffickers who convert that into 1,000 tons of heroin, worth perhaps $2,500 a kilogram in Afghanistan and $4,000 at wholesale in neighboring countries. That works out to roughly $900 million in annual revenues for the farmers, $1.6 billion for traffickers from operations within Afghanistan, and another $1.5 billion for those who smuggle heroin out of the country. (2010 was atypical; a poppy blight drove opium production down and prices up.)

The Taliban's take is subject to debate, with responsible estimates varying from $70 million to $500 million -- but either way it's not a big slice of the pie. The Taliban take 2 to 12 percent of a $4 billion industry; farmers, traffickers, smugglers, and corrupt officials collectively earn much more. It is not clear why the Taliban have been so unsuccessful at translating their power and influence into a larger share of trafficker revenues, but one thing is clear: They have nowhere to go but up. Upsetting the apple cart just to see where it lands is ill-advised; to the extent that counternarcotics efforts succeed, they are more likely to increase than to reduce the revenues and power of the Taliban.

"American Drug Addicts are Supporting the Taliban."

Hardly. In the months following the 9/11 attacks, the Office of National Drug Control Policy ran public service announcements implying that American drug users were supporting terrorists targeting the United States. In fact, while users in the United States are supporting plenty of unsavory characters, they aren't likely to be in Afghanistan. The big money in U.S. drug markets is still in cocaine, all of which is produced in the Western Hemisphere.

The United States consumes only about 5 percent of the world's illegal opium, and most of that comes from Colombia and Mexico. Most Afghan opiates, meanwhile, never leave Asia -- they are that continent's health problem, and to a lesser extent Europe's. Iran and Russia may have a stake in Afghan exports, but protecting those countries' citizens from drug abuse is not obviously a major U.S. interest unless the Russian and Iranian governments are willing to offer something of value in exchange.

"Reducing Production in Afghanistan Hurts Traffickers Everywhere, Including the Taliban."

Wrong. In December, the Guardian interpreted news of the Taliban's attempts to stockpile opium as an effort to "manipulate street prices in the west." An economist would laugh -- or perhaps cry -- at this notion. As Thomas C. Schelling pointed out in the 1960s, law enforcement and organized criminal enterprises are on the same side when it comes to the price of illicit commodities: They both want them to be higher.

Yes, entirely eliminating Afghan drug production would eliminate Afghan drug revenues. It would also be impossible. And though reducing production is possible, reducing it will also drive up Afghan export prices more than proportionally, increasing overall drug revenues.

Monopolists facing inelastic demand don't worry about production reductions -- they love them. Less production means higher revenues; this is why OPEC meets to discuss how to constrain oil production, not expand it. Counternarcotics strategy solves this coordination problem for the drug traffickers, reducing exports and increasing industry revenues -- as amply illustrated by this year's blight, which reduced production by far more than the U.S. Drug Enforcement Administration (DEA) could have managed, but also drove opium prices up over $200 per kilogram. 

Retail drug demand responds to changes in retail prices -- maybe not quite proportionally, but it does respond. However, even large changes in export prices produce retail price changes that are quite modest, in percentage terms. The reason is that the value of processed heroin in Afghanistan is a small fraction of its value in the countries that consume it: A kilogram that sells for $3,000 at export from Afghanistan fetches $70,000 at wholesale in Britain, and perhaps $300,000 at retail. The price of drugs at export is such a small fraction of the final retail price that the latter would register only the largest disturbances in the former.

You would have to double the Afghan export price, for instance, to bump up the retail price in Iran by 20 percent, which in turn would suppress consumption there by only about 15 percent (using a conventional estimate for the sensitivity of consumption to price). And because Western European (and U.S.) prices are five to 20 times higher than Asian wholesale prices, those markets are among the last to be shorted when supplies are tight. So even if the Western Hemisphere's heroin exports vanished overnight, the quantity of heroin produced and exported from Afghanistan would have next to no bearing on rates of dependence or drug-related crime in the United States.

"Reducing Supply Hurts the Taliban in Particular."

Just the opposite. When military action or law enforcement reduces Afghan heroin exports, total trafficker revenues increase, but not everyone wins. Naturally, traffickers who are arrested or killed are worse off, but those who remain are in much better shape -- they capture a larger slice of a bigger pie.

In an ideal world, law enforcement would selectively target the nastiest of the nasty dealers, putting them at a competitive disadvantage and shifting market share toward traffickers who are merely bad in a common-criminal sense. The DEA and military understand this and try to selectively disrupt the traffickers who are linked most closely to the insurgency. But Afghanistan is not an ideal world. Even if coalition agents act sensibly on the available operational intelligence, that intelligence is far from perfect and there is good reason to fear that it can be systematically imperfect in perverse ways.

Afghan officials play a key role in obtaining and evaluating targeting information, for both cultural and legal reasons. But Afghanistan is one of the most corrupt states on Earth. Target selection is an exercise in discretion, and whenever officials exercise discretion, stakeholders have an incentive to sway those decisions with bribes or threats. Inasmuch as the most powerful insurgents are, almost by definition, the most skilled at bribing or intimidating officials, increased enforcement can specifically benefit those insurgents, even if the U.S. military and DEA do their best to avoid it.

"Destroying Afghan Farmers' Poppy Fields Is a Bad Idea."

Often, but not always. In the early years of the Afghanistan war, coalition policy included widespread forced eradication. In June 2009, however, Barack Obama's administration announced that U.S. and other international forces would no longer conduct eradication operations, on which the late Richard Holbrooke said the United States had "wasted hundreds of millions of dollars."

The sensible motivation for this reversal was recognition that eradication produced unintended consequences. Pulling up a farmer's opium crop could generate ill will, perhaps enough to produce a new recruit for the insurgency. It was also geographically inconvenient. Afghanistan is a horrendously complicated place, but to oversimplify, two-thirds of the country (roughly 27 of 34 provinces) has been nearly poppy-free and relatively stable for a few years. The remaining third -- in particular Helmand and Kandahar provinces -- is rife with both poppies and insurgents. Eradication in those areas has a minimal and temporary effect on the drug trade, at most pushing production to the next valley or district. And angering farmers where Taliban recruiters prowl seemed like a gift to the enemy. So the Obama administration swore off direct support of eradication, though the governors of some Afghan provinces continue to pursue their own eradication programs.

But swearing off eradication everywhere has come with its own unintended consequences. Two-thirds of Afghanistan has -- at considerable cost -- been largely rid of poppies already. Keeping them poppy-free is not only relatively easy at this point, but will maintain a degree of normalcy for more than half the country, placate Russia -- which, as one of the principal markets for Afghan drugs, is understandably irate at the prospect of a hands-off opium policy -- and cement the United States' local reputation for being opposed to drugs at a time when addiction is sweeping Afghan society. If America wants to win hearts and minds in a country whose addiction rate is among the highest in the world, there are worse things than being seen as resolutely anti-drug while reminding people that the Taliban profit from the illicit industry that has enslaved their family members. Refraining from quixotic and counterproductive measures in the south does not require sacrificing progress already made in the rest of the country.

"Everyone Would Be Better Off if Afghan Farmers Grew Something Else."

Not necessarily. Alternative development -- sometimes called "alternative livelihoods" -- is the kinder, gentler complement to eradication. Both target farmers, the thinking goes, but one plants crops and bulldozes roads, while the other bulldozes crops and plants resentment. Even if alternative development doesn't meaningfully reduce worldwide drug cultivation -- and it doesn't -- at least the do-gooders do no harm, right?

Wrong. The Taliban tax opium not because the Quran opposes intoxicants; they tax opium because it is taxable. In the lawless stretches of Afghanistan, the Taliban, local warlords, corrupt officials, and anyone else with enough guns all extort "protection" payments from almost any activity undertaken in their zone of control -- including alternative-development projects. The Wall Street Journal reported last summer that half the electricity produced by a U.S. Agency for International Development-funded $100 million upgrade to a hydropower plant in Helmand province is effectively sold by the Taliban. Even if one dismisses such egregious examples, back-of-the-envelope calculations of the overall impact are not encouraging. Multiply the commonly acknowledged 10 to 20 percent extortion "tax" rate levied by the Taliban by the total international budget for alternative development in Afghanistan, and you get a revenue stream well in excess of what the Taliban is thought to derive from the opium trade.

No one doubts that development needs to be a major part of the agenda in Afghanistan, but there is a strong case to be made for using these programs as a reward for stabilized provinces -- not a means of winning over hostile ones.

"The Afghan Drug Problem is Beyond Hope."

Not if we're patient. If solutions must be quick or decisive, then counternarcotics in Afghanistan is no solution. But that does not mean that nothing can or should be done. Small steps are better than no steps, and even in a land in such desperate circumstances, giving up makes for bad public relations.

There are practical options. The United States could fund drug treatment in Afghanistan, a country with a horrendous heroin problem, to reduce demand and earn support from the Afghan public. It could encourage consumer countries (including Iran and Russia) to step up drug treatment; that will shrink the revenues of Afghan traffickers. Focusing alternative-development efforts on more stable parts of the country, as a reward for taking steps toward normalcy, could further erode the threat of the Taliban gaining influence there. And removing Afghan officials corrupted by the drug trade from seats of power -- if it were possible -- would bolster confidence in the government.

It would be foolish to expect too much from these approaches. But the limitations of feasible drug-control activities in Afghanistan do not justify continuing to pursue policies that do more harm than good. Because the natural tendency of counternarcotics efforts is to help America's enemies, the country should pursue them as little as possible. This is a case where less really is more.

John Moore/Getty Images

Think Again

Think Again: Latin America

America's backyard is no longer an afterthought -- or Washington's to claim.

"There's no reason for Obama to be going to Latin America now."

On the contrary. Former U.S. President Richard Nixon once famously told the young Donald Rumsfeld that "people don't give one damn about Latin America now." (To be fair, his view of the region may have been colored by the experience of being pelted with rocks in Caracas while on a vice presidential goodwill tour in May, 1958.) Today, with popular revolutions upending the political order in the Middle East, an unprecedented natural disaster devastating Japan, and his own government hovering on the verge of shutdown, it may seem odd to many that U.S. President Barack Obama is choosing to embark on a five-day tour of a region often considered an afterthought in international politics.

But in fact, Obama's trip south is important for long-term U.S. interests, and long overdue. In today's economic order, where the G-20 is essentially a board of directors with only minority shareholders, the United States needs strong allies. Brazil is the ideal partner: large among the emerging countries, democratic, free of internal tensions, and without enemies. Cultivating that relationship is essential if Washington wants to continue to exercise leadership in the region. The recent turmoil in the Middle East also reminds us again of the fragility of energy security in the United States, and the importance of Latin America as a reliable source of renewable and nonrenewable energy.

Other powers have begun to take notice. China, for one, seems to have a strong strategic interest in a region where the U.S. is losing influence. China is Brazil and Chile's main trading partner, and in 2009 and 2010, the China Development Bank agreed to lend more than $35 billion to borrowers in Argentina, Bolivia, Brazil, Ecuador, and Venezuela (mostly under "loans-for-oil" arrangements). This is three times what the Inter-American Development Bank approves every year for the region as a whole.

U.S. political and business leaders, on the other hand, often seem reluctant to look to Latin America for opportunity, hampered as they are by outdated views of the region as dangerous, economically stagnant, and politically backward. With the U.S. losing market share to other countries eager to invest in and trade with Latin America, it is time to dispel some myths hanging over the region.

"Latin America is an economic failure."

Not anymore. Alan Greenspan devoted a chapter in his memoir to Latin America's proclivity for populist politics, which he defined as a "very special brand of short-term focus, which invariably creates very difficult long-term problems." Greenspan's observations were probably seasoned by the disastrous decade of the 1980s, during which the region suffered from chronic severe debt crises and hyperinflation. Today, Latin America is on a path of remarkable economic stability and growth thanks to macroeconomic policies that have brought low inflation and sustainable public finances.

The global recession was a small bump in the road for most of Latin America. Today, the region is growing at an average of 5 percent per year, inflation is in single digits and fiscal deficits are small. Public debt as a share of GDP is much lower than in the developed world. Chile and Peru are the two countries that stand out in terms of economic performance, but considerable success is also apparent in Brazil, Colombia, Mexico, Panama, and Uruguay. Rating agencies have granted all of them investment-grade status, which means that the risk of a default is extremely low. (Argentina and Venezuela are the two salient exceptions in the region.)

This is not just good luck, but a result of good policies. China's insatiable appetite for the region's natural resources has certainly helped, but the more important factor has been responsible macroeconomic management, a choice widely supported by voters in Latin America. Center-left governments -- like those of former President Luiz Inacio Lula da Silva and his successor Dilma Rouseff in Brazil, former President Michelle Bachelet in Chile, and former President Tabare Vasquez and President Jose Mujica in Uruguay -- have made macroeconomic stability a pillar of their economic strategies.

"Latin America is ideologically divided."

Not as much as you think. Many think that there is an ideological race in the region, reminiscent of Cold War tensions between East and West Germany. The popular perception is that one of the camps is led by Venezuela's president, Hugo Chávez, while the other camp is formed by the right-of-center governments of Colombia, Chile, and Peru.

In reality, most countries -- with the notable exceptions of Bolivia, Cuba, and Nicaragua -- have definitively rejected Chavez's "21st century socialism," which is based on heavy state intervention, forced nationalizations, and fiscal profligacy. The disastrous economic consequences in Venezuela are visible: Inflation hovers at around 30 percent and investment has been falling continuously since 2007. The economy contracted by 1.4 percent in 2010, in sharp contrast with the rapid growth of other countries in the region. Fewer and fewer countries are tempted by the populist rhetoric and the attacks on private enterprise.

A pragmatic Latin American consensus has emerged in contrast to the more ideologically driven Washington consensus. This new thinking combines market-friendly policies with a much more ambitious social agenda. While preserving macroeconomic stability, both left and right governments are aggressively combating poverty with programs like conditional cash transfers, first introduced by former President Ernesto Zedillo in Mexico, which have become a model for countries outside the region. Latin America's economic growth and effective public interventions have created an unprecedented expansion of the middle class. In a forthcoming Brookings publication with Homi Kharas and Camila Henao, we estimate that by 2020 10 percent of Latin America's population will enter the global middle class, bringing nearly 60 million individuals up to the same level of income as lower-middle-class citizens in such European countries as Portugal and Italy.

"Latin America is violent and dangerous."

Yes, but not unstable. Latin American countries have among the world's highest rates of crime, murder, and kidnapping. Pockets of abnormal levels of violence have emerged in countries such as Colombia -- and more recently, in Mexico, Central America, and some large cities such as Caracas. With 140,000 homicides in 2010, it is understandable how Latin America got this reputation. Each of the countries in Central America's "Northern Triangle" (Guatemala, Honduras, and El Salvador) had more murders in 2010 than the entire European Union combined.

Violence in Latin America is strongly related to poverty and inequality. When combined with the insatiable international appetite for the illegal drugs produced in the region, it's a noxious brew. As strongly argued by a number of prominent regional leaders -- including Brazil's former president, Fernando H. Cardoso, and Colombia's former president, Cesar Gaviria -- a strategy based on demand reduction, rather than supply, is the only way to reduce crime in Latin America.

Although some fear the Mexican drug violence could spill over into the southern United States, Latin America poses little to no threat to international peace or stability. The major global security concerns today are the proliferation of nuclear weapons and terrorism. No country in the region is in possession of nuclear weapons -- nor has expressed an interest in having them. Latin American countries, on the whole, do not have much history of engaging in cross-border wars. Despite the recent tensions on the Venezuela-Colombia border, it should be pointed out that Venezuela has never taken part in an international armed conflict.

Ethnic and religious conflicts are very uncommon in Latin America. Although the region has not been immune to  radical jihadist attacks -- the 1994 attack on a Jewish Community Center in Buenos Aires, for instance -- they have been rare. Terrorist attacks on the civilian population have been limited to a large extent to the FARC organization in Colombia, a tactic which contributed in large part to the organization's loss of popular support.

"Resurgent Latin America is a Threat to U.S. Interests."

Quite the opposite. Listen to some of the rhetoric in Washington and you would think that Latin America only impacts the U.S. economy by sucking away manufacturing jobs and flooding the country with illegal immigrants. The truth is that U.S. economic interests are more entwined with those of its southern neighbors than ever. This is an overwhelmingly positive development.

For instance, U.S. oil imports from Latin America are larger than those from the Middle East. Saudi Arabia, Iraq, and Kuwait combined make up only 20 percent of U.S. oil imports. Latin American countries -- specifically Venezuela, Mexico, Ecuador, Colombia, and Trinidad and Tobago -- account for one third of U.S imports. For the United States, assuring a stable oil supply from its Latin American neighbors should be no less important than preserving stability in the Middle East.

Also, the Latin American consumer market is by no means irrelevant for U.S. companies. The region's GDP is $4.2 trillion, roughly 84 percent of China's $5 trillion. With only 40 percent of China's population, Latin America's average per capita income is twice that of China's. Therefore, Latin American households are important consumers of U.S. manufactured goods and services. For example, in 2010, 20 percent of Citicorp's overall profits came from Latin America.

While the Middle East is currently forging its own path toward democracy and Asian nations are rapidly competing with the United States for global market share, the United States can partner with its democratic Latin American neighbors to set a strong path toward mutual economic prosperity.

Stronger hemispheric economic integration is the natural first step. But moving forward in this direction requires debunking the most pernicious myth. Many in Washington still believe that the United States is exporting jobs to Latin America. Rather, the opposite is true: The region buys goods and services that generate jobs in the United States. Mexico is the second-largest market for U.S. exports, Brazil the 8th, and Colombia the 20th -- even without the passage of the pending free-trade agreement. Their combined imports from the United States in 2010 exceeded $210 billion, which represent thousands of jobs in America, especially in the manufacturing sector. But today, Latin America has signed free-trade agreements with countries like Canada and South Korea that can supply similar goods. Signing the pending free-trade agreements with Panama and Colombia would be an effective way to preserve U.S. competitiveness in the region.

Economic success, social inclusion, and political assertiveness are the buzzwords of the new Latin America, a region that now exudes confidence and optimism. Long-term U.S. strategic interests will be much better served by a re-engagement with this often-ignored neighbor.

President Obama is exceptionally popular in the region, and can play a transformational role in hemispheric relations. But to do that he will need to begin by challenging Washington itself, slaying the demons and self-serving misconceptions that muddle a clear view of Latin America.

AFP