'Narconomics': How The Drug Cartels Operate Like Wal-Mart And McDonald's

Transcript

TERRY GROSS, HOST:

This is FRESH AIR. I’m Terry Gross.

What do the drug cartels have in common with Wal-Mart and McDonald’s? Journalist Tom Wainwright discovered the cartels’ business models have several things in common with the business models of big box stores and fast food chains.

He learned that and more when he decided to cover the global drug industry as if it were a business like any other business. He describes his new book “Narconomics” as a business manual for drug lords and also a blueprint for how to defeat them.

He describes himself as a not-very-brave who has covered the most exotic and brutal industry on earth. He became the Mexico correspondent for The Economist in 2010 and spent the next three years covering that country as well as parts of Central and South America. He’s also reported on legalized marijuana in the U.S. and on the Dark Web, the black market side of the Internet, where illegal drugs are sold. He’s now the Britain editor for The Economist.

Tom Wainwright, welcome to FRESH AIR. So why did you want to report on the drug industry as if it were a global business - like, a legit global business?

TOM WAINWRIGHT: Well, I should say, first of all, the book isn’t trying to legitimize the industry in any way. It’s device for looking at and, hopefully, understanding better this business. But the reason that I first of all got into it, really, was that I was sent to Mexico with The Economist. And I was covering a whole range of things, and I found myself writing about business some weeks - like, let’s say, the car business or the oil business or the tequila business or something like that. And then increasingly I found, very often, I was often, in other weeks, writing about the drug war, which, at the time, was a really big news story in Mexico. This was during the presidency of Felipe Calderon and, later, Enrique Pina Nieto. And the murder rate in Mexico was going through the roof. And it was the story.

And I found that, you know, one week, I'd be writing about the car business, and the next week, I'd be writing about the drugs business. And I gradually came to see that the two actually were perhaps more similar than people normally recognize.

GROSS: So one of the comparisons you make is between the narco supply chain and the Wal-Mart (laughter) supply chain. Make that comparison for us.

WAINWRIGHT: Well, it sounds kind of outrageous, but the reason that I got to thinking about this was that I was looking at the supply chain of cocaine. I went down to Bolivia, and I went to visit some of the terraces down there in the Andes where the coca leaf is grown. So the coca leaf is the raw ingredient for cocaine. And all of the world's cocaine is grown down there in the Andes, in either Bolivia, Colombia or Peru.

And so I went down there, and I read about all the incredible work that's being done down there to try to disrupt the cocaine supply line. And you'll have seen footage, probably, of airplanes and helicopters dumping tons of weed-killer on these Andean terraces in Colombia, for instance. And they've done lots of work of this, and they've done a, you know, fairly effective job of making it harder to grow coca leaf. They destroyed hundreds of thousands of hectares over the years. And it's made the lives of cartels more difficult, on the surface at least. And yet, I looked at the price of cocaine in the United States, and it's hardly budged. You can go back decades, and you know, the price has remained roughly $100 per pure gram.

GROSS: And part of the rationale for destroying the crops is that it drives up the price of the coca leaves, therefore driving up the price of drugs, therefore making it less affordable for people, therefore being effective in the war on drugs. Do I have that right?

WAINWRIGHT: Well, that's the - yeah. That's the idea...

GROSS: That's the idea.

WAINWRIGHT: ...At least. An economist would assume that if you cut supply, as you say, then the price will go up, other things being equal. And yet, this hasn't happened. So I was kind of intrigued by this. It seems like a puzzle. And I looked into it, and it turns out that if you compare areas in Colombia, for instance, where crop eradication has gone on with areas where it hasn't the price of coca leaf - the wholesale price of coca leaf doesn't really change. And the theory is that the cartels in the area have what economists call a monopsony, so that's like a monopoly on buying in the area. In other words, they're the only ones who buy the products in the area.

And this rang a bell with me because it's something that people very often say about Wal-Mart. They say that in certain industries, Wal-Mart is effectively the only buyer in the industry. And so if there's some disruption to supply - let's say the harvest fails for apples or something like that - apple growers aren't able to increase their prices because Wal-Mart is the only buyer. And they say well, sorry, but this our price. And if you don't want to sell to us, well, tough. And so the sellers have to carry on selling it at the same price as before.

And it seemed that something similar might be going on in the cocaine industry. And sure enough, when you look at the price data, that's exactly what you see. There's no difference in the price in areas where eradication has taken place and where eradication has not taken place. And according to the analysis that's being done, it looks as if the reason for this is that the cartels that buy the drug are the monopsony buyers - the only buyers in each area.

GROSS: So the cartels aren't, like, learning from Wal-Mart. It's just that that's the way both Wal-Mart and the cartels operate.

WAINWRIGHT: Yeah, that's right. I don't think there's a kind of conscious decision where the cartels have gone out there and thought - hey, let's be exactly like Wal-Mart. But it just - it helps to explain why this strategy, which on the surface, as I say, looks quite effective - you know, governments have been able to disrupt the supply of cocoa leaf quite well. It helps to explain why it actually has had very little effect on the price.

And I mean, that's not the only reason. When you look at the economics of the supply chain, you begin to see why actually, even if you could increase the price of that coca leaf, it's doubtful that it would have very much impact on the final price of cocaine in the U.S. or in Europe. Because to make, for instance, a kilo of cocaine, you need about a ton of coca leaf, and that ton, once it's all dried out, in a country like Colombia, it will fetch perhaps $400. Now, the kilo of cocaine in the United States will fetch about a $100,000. And so if you - let's say you're incredibly successful in managing to raise the price of coca leaf and you manage to double it to $800. If you then manage to transfer all of that extra cost onto the consumer, that final kilo of cocaine is only going to cost now $100,400. In other words, you can double the price of coca leaf and you increase the price of the final product, cocaine, by less than 1 percent. And I sometimes say it's a bit like - imagine if you were trying to increase the price artwork and you decided that you would do this by driving up the cost of paint. You know, you wouldn't expect it to have a very big effect because the cost of paint is such a tiny, tiny part of the overall price of the finished product. It's just the same with cocaine. We're putting all this effort into raising the price of coca leaf, when, in fact, that's only a small part of the cost of the final product.

GROSS: In keeping with the theme of how cartels compare to legit businesses and how they operate - franchising (laughter). Like, some of the cartels franchise. You compare them to McDonald's in this respect. And an example that you give is the Zetas. So who are the Zetas? And how did they franchise the brand?

WAINWRIGHT: Well, the Zetas are one of Mexico's biggest drug cartels, and they have a reputation for being one of the nastiest ones. So when you see pictures of people who've been beheaded or hung up from bridges, you know, these are often the guys who are responsible. And while I was in Mexico, the Zetas expanded more quickly than any other cartel. It was extraordinary. They originally came from the northeast of Mexico, but within a very short space of time, they spread across all of Mexico and, in fact, down into Central America as well. And so I got thinking about how they'd done this.

And when you look at the way that they spread, it seems that what they do is that they go to local areas and they find out who the local criminals are - the people who do the drug dealing and the extortion and all the other kinds of crime - and they offer them a deal. They say - OK, you can use our brand. You can call yourself the Zetas, just like us. And they give them, believe it or not, baseball caps with embroidered logos, and they give them T-shirts with their logo on, and they train them in how to use weapons sometimes. And in return, the local criminals give the Zetas a share of all the money that they get from their criminal activity. So in other words, it's exactly like the kind of franchising model that many other well-known companies use.

And it comes with all the same advantages and disadvantages. I mean, one of the big advantages is that it's allowed the Zetas to grow much more quickly. One of the disadvantages, though - and this is something that you often see in the legitimate franchising business - is that the franchisees often start to quarrel among each other. And the trouble is that the interests of these franchisees, the local criminals, aren't very well aligned with the interests of the main company. Because as far as the main company is concerned - and this applies whether it's the Zetas or McDonald's - if you've got more branches - more franchises - in a local area, that means more income for the main company because they take their money as a slice of the income of the local franchisees. But the local franchisees have totally different motives. They want to be, if possible, the only ones in the area. They want as few branches as possible. And so you've had, very often, cases of franchisees suing the main brand over what they call encroachment, in other words, when the main brand has too many branches in the same area.

GROSS: So just to back up a bit - you mentioned - so, like, with the Zetas that they gave out -what? - like T-shirts and hats with their logo on it with, like, the Zeta (laughter) - the Zeta name or the Zeta logo? I mean, the Zetas are a drug cartel. Is it really OK to be walking around with their logo on your T-shirt? Doesn't that kind of get in the face of the police?

WAINWRIGHT: You'd think it might, wouldn't you? Yeah. I mean, it depends where you are. I think in some parts of Mexico, that would be a problem. I mean, not all of Mexico is quite as chaotic as what you see on the news. And certainly, if you walk around Mexico City, it's much like walking around a city in - you know, in the United States or in Europe - or at least in the kind of rich very center of the town. But in other bits of Mexico, that's not the case. I mean, you can - sometimes on sale in local markets in cities, including, indeed, actually on the edge of Mexico City, you can see pirate DVDs for sale which have the brand on them. The - you know, it's like a - zeta, I should say, in Spanish, just means the letter Z, or zed, as we say in Britain. And people in northern Mexico even complain that sometimes if you go to a bar, you'll find bottles of whiskey which have this letter Z on them because the cartel - the Zetas - have got into all of these different types of business. And really, like any other big business - like any multinational - they're starting to diversify because they've found that - well, lo, there's plenty of money to be had in drugs. You know, there are lots of other opportunities out there.

GROSS: If you're just joining us, my guest is Tom Wainwright. He's the author of the new bookmark "Narconomics," which is a business reporter's look at how the drug cartels in Mexico and South America actually operate financially - you know, what their supply side is like, what their business model is. And Wainwright is the Britain editor of The Economist, and he's their former Mexico correspondent.

Let's take a short break here and then we'll talk some more. This is FRESH AIR.

(SOUNDBITE OF MUSIC)

GROSS: This is FRESH AIR. And if you're just joining us, we're talking about, like, what the business model is for drug cartels in Mexico and South America. And my guest is Tom Wainwright, author of the new book "Narconomics." He's a business reporter who decided to report on the drug cartels as if they were legit businesses and see how they operate. He's the Britain editor of The Economist and The Economist's former Mexico correspondent. You write that cocaine starts to become really valuable a little further down the supply chain, not where the coca leaves are grown but further down the supply chain at the U.S. border. It's probably an obvious question, but why is that an important place in the supply chain?

WAINWRIGHT: Well, it's a really good question actually because I think very often, when we're reporting on the drug war, people forget that the drug changes value as it moves down the supply chain. And very often, you see these stories where the DEA or the Mexican authorities intercept a large quantity of drugs. And it's reported that these drugs have a street value of however many million dollars. But often, when you look more closely at how much these drugs are worth, you get a slightly different kind of number. And it looks rather less impressive. And just to give one example, when I arrived in Mexico, soon after I got there, there was this incredible finding in Tijuana, where the Mexican police found this amazing stash of marijuana. It was more than a hundred tons of the stuff, all in this warehouse on the edge of Tijuana. And it was reported in some corners of the press that all of this represented a blow against organized crime to the tune of about half a billion dollars. It was nearly $500 million, some people said. And I thought about this. And I thought, you know, can it really be that much? That's a huge amount of money because the drugs business is big enough, but it's not that big. And how could any cartel withstand a kind of defeat like that? So I looked into it a bit more, and it turned out that the way that this calculation had been done was using retail prices in the states. I mean, they just figured a gram of marijuana in American might cost, you know, maybe about, say, $5 as a conservative estimate. And so a hundred tons multiplied by that amount gives you this incredible total. But in fact, this is crazy. I mean, imagine if you did that with another product, like, say, coffee. And you said, well, a cup of coffee in the states in Starbucks costs - what is it? - two or $3 or something lie that. And in that cup of coffee, you've got one or two grams of coffee granules. So that must mean that the kilo of coffee intercepted in Colombia is worth $2,000. And of course it's not. I mean, we know that that's absurd. And the reason that coffee increases in price is because the value of coffee is in - let's say if you have it in a cafe like Starbucks - it's in the fact that it's being served to you. It's in the fact that Starbucks has to pay rent on its premises. It has to transport it around the world and so on. That's why it increases in value. And so it's just the same with a drug like cocaine or marijuana. In Mexico, that drug there in a warehouse, it has a value. But it's not worth anything like as much as it's worth on the streets in the United States. And in fact, in Mexico, the wholesale price of cannabis or marijuana is much less. It's like $80 per kilo. So that stash, which supposedly was worth half a billion dollars, was probably worth about maybe $10 million, which, you know, is not nothing. But it's about 2 percent of the amount that people originally thought.

GROSS: So because the border crossing is so important, because the value of the drugs increase across the border, you say that's why there are so many cartel wars at border towns that have legit border crossings. Give us a sense of the kind of wars that are going on in the border crossing towns.

WAINWRIGHT: Well, you're right that when you see these reports about violence in Mexico, it's very often taking place either along the border or in cities like Ciudad Juarez or Reynosa or Tijuana, places like that - or occasionally in port cities, like Acapulco or Lazaro Cardenas, and places like this. And the reason really is that these are the kind of pinch points. They're a limited number of places at which you can transport cocaine or marijuana or, indeed, anything else into the U.S. And so if you want to smuggle large quantities of drugs into the states, you really have to control one of these cities. That's why the cartels fight so brutally for control of these particular places. It's why you see in Ciudad Juarez, in the past at least, a murder rate which was perhaps 200 times the murder rate in the U.K., whereas in Mexico City, you see a murder rate which is - you know, it's higher than here in Britain. But it's comparable with some cities in North America.

GROSS: You say that the cartels have personnel and HR issues that are similar to the issues that legitimate businesses face and that you've spoken to cartel leaders who sound like CEOs. Who have you spoken to?

WAINWRIGHT: Well, this was a guy that I had in mind in particular who I went to see in El Salvador. And he's a guy called Carlos Mojica Lechuga, who is the leader of one of the two big street gangs in El Salvador. There are two of them, one called Barrio Dieciocho, or the 18th Street Gang, as most people call it in English, and the other, called the Mara Salvatrucha. And both of these are effectively transnational corporations, really. I mean, they make their livings dealing drugs and with extortion, principally. Those are the two main business lines that they have. And so I thought it would be interesting to go and speak to this guy and find out how he ran his company. So I went to see him. And he's in jail at the moment, which doesn't seem to be stopping him from running his business in any way. So I went to see him in this prison in El Salvador. And apparently by the standards of El Salvador, this is classified as a medium security prison. But it didn't look like one. I mean, outside you had soldiers with machine guns behind nests of sandbags, and... Anyway, I went in there and handed over my telephone and all the rest of it and went in. And they brought this guy in. And he's - just to describe him, you may have seen pictures of these El Salvador gangsters. They're the ones who very often have tattoos from - literally from head to toe. And sure enough, this guy Carlos had a great big tattoo going across his forehead, saying in Spanish, in memory of my mother. And all over his body, he had these tattoos with the number 18 featuring prominently, which was the name of his gang. And so we sat down, and we started talking business. And it really turned out that a lot of his complaints were just like the kind of complaints that I'd heard many times before from other businesspeople. He complained about managing his staff. He complained about competition with his rivals. He complained about, you know, his image in the international media. It was really strangely reminiscent of speaking to a kind of frustrated, mid-level manager. And sure enough, the kind of tactics that his gang is employing are not so different from the ones that other firms employ. And when I was there, the main sort of business strategy that he was experimenting with was a temporary truce, the kind of collusion with his archrivals, this other gang, the Mara Salvatrucha that I mentioned. And the two gangs had decided at the time to stop murdering each other, which they'd been doing a lot, because they thought it would be better for business. And it had the most incredible effect. I mean, San Salvador, the capital of El Salvador, at one point was the world's most murderous city. And after the gang signed this truce and decided to collude, the murder rate fell by about two-thirds overnight. And it was - by that stage, it was lower than in some cities in the states.

GROSS: What did they collude on that enabled them to make this truce and still feel like they were getting what they wanted from their business?

WAINWRIGHT: Well, the key difference, really, between the situation in Mexico, for instance, and the situation in El Salvador is that whereas in Mexico, the number of border crossing points to the states is so limited that the cartels really have to compete with each other, in El Salvador, they have a slightly different model where really, they just control territory in the country of El Salvador. And there's plenty of that. And so they divide it up among themselves. So in this case, the Barrio Dieciocho was quite happy to control some parts of the country while the Mara Salvatrucha controlled other bits. And they found that if they left each other alone and effectively ran small, local monopolies, they were able to get higher profits than if they competed across the whole country. In Mexico, it's slightly different because controlling a city like Ciudad Juarez is so valuable that no cartel is currently willing to cede it to any other. It makes sense for them, from a business point of view, to compete over that particular location. And that's why the level of violence in Juarez at the time was so high, whereas in El Salvador at the time, they were willing to collude and sign this truce.

GROSS: My guest is journalist Tom Wainwright, author of the new book "Narconomics." After a short break, we'll talk about how it would affect drug cartels financially if drugs were legalized and regulated in the U.S. I'm Terry Gross, and this is FRESH AIR.

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GROSS: This is FRESH AIR. I'm Terry Gross, back with Tom Wainwright, author of the new book "Narconomics" in which he writes about the global industry as if it were a business like any other business. And he finds surprising similarities between the cartels' business models and the business models of big-box stores and fast food franchises. Wainwright started research on the book when he was the Mexico-based correspondent for The Economist. He's now the magazine's Britain editor. When we left off, we were talking about an interview he did with a cartel leader.

So getting back to the interview that you did with the cartel leader who was in an El Salvador prison - it's dangerous to write about the drug wars because a lot of the cartels attack journalists. There's so many journalists who've been murdered. I think that's particularly true in Mexico. So did you feel like you were taking a risk to speak to this guy who's tattooed from head to foot and is a cartel leader? He's in prison, but he's still running the cartel. Did you feel like that put you at risk?

WAINWRIGHT: Well, I felt kind of nervous to say the least. Yeah, I mean - (laughter) I went into the prison and, you know, they showed me into this cell. And they took the guy in and took off his handcuffs and shut the door behind us, and we were the only two in there. So I - yeah, I was kind of nervous about that. That meeting turned out fine. And in the end, actually, he was kind of intrigued by my line of questioning. I think he wasn't really used to being interviewed as though he were a businessman. And by the end, he was telling me all about his admiration for the criminal gangs of East London who he told me he'd always greatly admired as fellow entrepreneurs.

But I think, in terms of the threat to journalists, it's very real. But it's worth just making clear that, really, the journalists who undergo the really serious risks are the Mexican journalists. I mean, the - those are the men and women who have been killed in horrible numbers in recent years. In the past decade, more than 60 journalists have been murdered in Mexico. And really, it's the Mexican journalists that bear the brunt of this, partly because - I think - the level of impunity for murdering a local journalist is greater than it would be for murdering a foreign one and also because it's often the local journalists that do the kinds of stories that hurt the cartels most. They're the ones that name the local police officers and the local politicians who are involved in corruption on a very local level, whereas the foreign journalists like me, on the whole, tend to do, kind of, bigger picture stories which are perhaps less in danger of naming and shaming, kind of, local people on a very, sort of, micro level.

GROSS: So, you know, in talking about the pressures on journalists and the dangers that journalists risk, especially in Mexico, if they write about business. I mean, there's so many reporters who have been murdered by the drug cartels. And you write that sometimes, the cartels want you to shut up and not report anything related to the drug wars - any of the murders or anything. And other times, they want publicity, and they want you to report on it. And sometimes one cartel wants you to report on things, and another cartel doesn't. You quote, in your book, an editorial that was on the front page of the El Diario De Juarez - which is, I guess, a daily newspaper in a Juarez?

WAINWRIGHT: That's right. Yeah.

GROSS: And this was in 2010. It's on page 88. Would you read that editorial for us?

WAINWRIGHT: Well, the title of this editorial was simply, "What Do You Want From Us? And it went like this. It said - (reading) gentlemen of the different organizations that are fighting over the territory of Juarez, we bring to your attention that we are communicators, not mind readers. For that reason, as information workers, we want you to explain what you want from us - what you want us to publish or stop publishing - so that we know what to stick to. You are, at the moment, the de facto authorities in this city because the legally instituted powers have been able to do nothing to prevent our colleagues from continuing to fall.

GROSS: So - that was pretty brave, no? Direct message to the cartels and so sarcastic. Oh, be clearer what you want. You want us to write about you or not? And how are we to know which is which?

WAINWRIGHT: Well, I think they were at their wits' end. This was published just after the latest murder of one of their journalists. You know, it wasn't the first by any means, and I think they didn't know what to do. And in a way, although the editorial was addressed to the cartels, I think the real audience perhaps was the government. I think this was really a message to the government saying - look, you guys are doing such a hopeless job of maintaining security in this city that we're actually having to bargain with the cartels over what we can write. And it had the desired effect. This article was very widely reported in Mexico and, indeed, outside Mexico as well. It made quite a big story.

So I think, probably, the reporters had in mind a bigger audience than just the cartel members. But it's true that the journalists very often do end up communicating with the cartels and covering news in a way that the cartels want. And a good example of this was - when I was in Juarez, I was on a visit to the morgue there - the city morgue. And I spoke to one of the pathologists there, and he gave me a piece of advice in Juarez. He said never go outside in Juarez at quarter to 6 in the afternoon. That's the most dangerous time of day. And I said - well, why is that? You know, I would've thought the most dangerous time would have been late at night or, you know, just before dawn or something like that. And he said no, quarter to 6 is the most dangerous time, and it's because that's 15 minutes before the evening news bulletin. And very often, the cartels murder people at exactly that time because they know that if there's a murder then - at quarter to 6, all the news reporters will go to cover it. And there'll be there live, and it will be the main story on the evening news. And very often, that's what they want. They want to send a message to their rivals, or they want to send a message to the public that they're the dominant cartel in town. And so, they're so cynical that they actually time their murders around the news bulletins. And quarter to 6, this man told me, is the most dangerous time to be out.

GROSS: Wow. (Laughter) Did you take that advice and not go out then?

WAINWRIGHT: Yeah. I cowered in my hotel room at quarter to 6.

(LAUGHTER)

GROSS: Well, in one city you were going to - I forget what city it was - you had, like, a GPS tracking device that was secretly hidden in your sock or something...

WAINWRIGHT: Oh, yeah.

GROSS: ...So that somebody could be aware of where you were - in case you were in danger, they'd know where to find you. And then you get off the plane and find that the tracking device isn't working (laughter). So, you're...

WAINWRIGHT: Yeah, that wasn't a great moment.

GROSS: Yeah. So you're left alone without any kind of hope of somebody knowing where you are and if you're safe or not. What was the assignment you had given yourself that you continued to do in spite of the fact that the GPS went dead?

WAINWRIGHT: Well, this was when I was going to Ciudad Juarez. And it was in, I believe, 2011, which I wasn't to know at the time, but this was to turn out to be the most violent year in Juarez, when the murder really hit its peak. And I was just going there to try to figure what was going on - to try to figure out why the violence was suddenly so high in this one city, why it had risen so quickly. And I hadn't been to the city before. And so before I went, I went to speak to this security consultant in Mexico City, and just said doesn't look - you know, how dangerous is this? Am I going to be OK? And he looked kind of - a bit nervous about the fact that I was going. You know, he could tell that I hadn't been there before and didn't really know the city very well. And so he gave me this tracking device and said - well, look - you know, hide this on your person. And that way, if you go missing, then we'll be able to figure out where you are. Or at least, you know, if you hide it in your sock, he said, then at least we'll know where your right leg is...

(LAUGHTER)

WAINWRIGHT: ...Which was slightly...

GROSS: Yeah, that's encouraging (laughter).

WAINWRIGHT: ...Slightly intimidating.

So I took it with me. And you know, I go there, and the plane landed. And I went into the bathroom in the airport and tried to switch this thing on, and the light didn't come on. And so I was left there without this tracking thing, but I decided to get on with it anyway. And I just called back to my office constantly to let them know, you know, that I was emerging from one meeting and going into another. And it just had the feel of the city under siege. And I was going through the city with a taxi driver, and it was a boiling hot day. But I noticed everybody had their windows very firmly rolled up. And, you know, people were just very, very unhappy about the idea of being out in public at all.

And another thing I noticed was that the taxi driver allowed plenty of space when we were stopping at traffic lights. He allowed lots of space between us and the car in front. And this was kind of strange because in Mexico City, the driving is quite aggressive. You know, people aren't always terribly polite with their driving, but in Juarez everybody was being very, very courteous and leaving lots of space. And I asked this taxi driver - what's going on? You know - why are people driving so carefully and leaving so much space between each other? And he said well, it's because very often, at these stoplights - at traffic lights - it's where you have executions. It's where you have these shootouts. Very often, one cartel will come up to a member of another at a traffic light and shoot him dead in the car where it's a place where they can't get out very easily. So the reason he was leaving plenty of space was so that if a shootout began, he would be able to maneuver out of the way. And it was things like that that were extraordinary. As I saw, this was just over the border from the States. And it was really a city that felt like a city war.

GROSS: If you're just joining us, my guest is Tom Wainwright. He's the author of the new book "Narconomics," which looks at the drug cartels as if they were legit businesses to try to understand - what's their supply chain like? You know, how do they make their profits? How do they keep people in line? What are their HR problems? And Wainwright is the Britain editor of The Economist and was based in Mexico for The Economist when he did a lot of the reporting for this book.

Let's take a short break then we'll talk some more. This is FRESH AIR.

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GROSS: This is FRESH AIR. And if you're just joining us, my guest is Tom Wainwright. He is the Britain editor of The Economist, the former Mexico Bureau chief for The Economist. And he is the author of the new book "Narconomics," which is a business reporter's look at how drug cartels really operate and make their profits. You examine at the end of the book what it might look like if the U.S. legalized and regulated drugs like marijuana and heroin and cocaine. How do you think the legalization and regulation of those drugs would affect the Mexican and South American cartels and all the crime that goes along with that?

WAINWRIGHT: Well, we're already starting to see an impact on the cartels from the legalization of the marijuana business. Some of those cartels rely - or in the past, at least relied quite heavily on marijuana for their income. Some of them got about half of their income from cannabis. So in that sense, it's hitting them pretty badly. And I think the same thing probably would be true with respect to other drugs. There's an interesting example underway in Switzerland where they've legalized heroin, which sounds crazy. But it's worth making clear that when they legalized it, they haven't put it on sale in the way that marijuana is on sale in Denver. They've just legalized it by allowing doctors to prescribe it to people who are already addicted. And it's had quite an interesting effect there because many of the people who are addicted to heroin in Switzerland and indeed in other countries are people who deal the drug because if you're addicted to this drug, it's a very expensive habit. And for many people, the only way they can afford it is to deal it on the side. And so in Switzerland, what they found is that by taking those very heavy using addicts into treatment, they've stopped them from dealing the drug because now they get their own drug free of charge from their doctors. And because they're no longer out their on the streets dealing the drug, the number of new users has dropped dramatically. And so in Switzerland, funnily enough they found that since they legalized it in this very, very limited, restricted, controlled way, the number of new users actually has fallen quite a lot. And of course, the illegal supply has dried up almost entirely because the supply now is run by the government. So I think - I don't think there's any good way of controlling the drug problem because these are for the most part harmful drugs which are going to do people much good. But it seems to me that what I've seen is that the least bad way to control them is for governments to get more involved in the business themselves because the choice that I think we face isn't really a choice between a world without drugs and a world with drugs. I think the choice we face really is between a world where drugs are controlled by governments and prescribed by pharmacists and doctors and a world where they're dealt by the mafia. And given that choice, I think the former sounds more appealing.

GROSS: So when you're talking about regulating a drug like heroin, you're talking about doctors prescribing it to help people who are already addicted get off of it.

WAINWRIGHT: Absolutely, yeah. And the thing to understand about legalization and regulation is that there's a whole spectrum of regulation that you can get involved in. You can regulate something very, very lightly if you want, like, say, the way caffeine is regulated, which is to say not really at all, or you can regulate it very, very heavily in the way that something like, say, Valium is regulated. It's controlled more strictly by doctors. And I think the harder the drug, the more damaging the drug, the more you would want to go along that spectrum towards the drugs which are more heavily regulated and dished out by doctors.

GROSS: You also questioned where we put our priority in terms of trying to stop the drug trade and where do we put our money. And a lot of that money goes towards law enforcement and toward the destruction of crops at the source. You question whether that's the best use of money. What's the model you'd like to see financially, as a business reporter, for the use of money to try to stop the drug cartels and to also try to stop more people from getting addicted?

WAINWRIGHT: Well, I think if you look at the way that we fight the war on drugs at the moment, all of the attention or the great majority of the attention is on the supply side of the business, which is to say the smuggling side of it, the growing side of it, the trafficking side of it. And so governments have plowed lots of money and expended lots resources and indeed given up many lives of police officers in trying to down the production of drugs like cocaine in South America. What I suspect they might have more luck doing is actually looking at the demand side of the business - i.e. trying to treat addicts, more trying to educate people more about cutting down on their drug use. And there's some good evidence on this, actually. There was a good study a few years ago where a think-tank did an investigation into the effect of spending a million dollars on trying to stop cocaine consumption in the States. And they compared the effects of spending that million dollars at different stages in the business - so in South America, on the way to the States, within the U.S., on educating people in schools and so on. And what they found was that for every million dollars spent on trying to reduce cocaine consumption by intercepting it in South America, you cocaine consumption in the States by about 10 kilograms. But for every million dollars that you spend in the States on drug treatment for people who are already addicted, you cut consumption by about a hundred kilograms. So it's 10 times more effective - you get 10 times more bang for your buck, if you'd like. And I think this just suggests that that's where the real wins are to be had. Everything suggests that all of the money being spent on trying to reduce drug use by interrupting the supply has gone about as far as it can go. And as I was saying earlier, the economics of the supply chain mean that even if you do succeed in increasing the price of coca leaf in South America, it doesn't have very much impact on the price of cocaine in the States because that coca leaf makes up such a small part of the overall final price, whereas if you do tackle the drug nearer its consumers and particularly if you tackle the demand side of the business, you have a better chance of both driving down the price because the lower the demand is, the less the cartels are going to be able to charge for their product and reducing the amount of consumed. So that seems to be the best way to tackle the business on two fronts.

GROSS: But you point out in times of, like, budget crises - and we always seem to be trapped in budget crises - that the money is cut in treatment programs, prison reform. And you think those are often, like, the wrong places to cut because that's what can really help cut down on addiction.

WAINWRIGHT: I think that's right. And people are understandably unwilling to spend money on things like prisons because prisons are where the very worst people in society go. But very often, actually, by economizing on things like that, you let yourself in for much, much higher costs later down the line. I mean, if you have a prisoner in jail and you neglect to give him or her the training that that person needs to get a job on the way out once they're out of jail, then you greatly increase the chances that they're going to go back to jail. And keeping someone in prison is a ludicrously expensive way to treat them. It's a great, great cost. It costs more to put someone in prison for a year in the States then it does to send them to the most elite boarding school here in England. I mean, it's a very, very expensive way to attack the problem.

GROSS: Well, Tom Wainwright, thank you for the reporting, and thank you for talking with us.

WAINWRIGHT: Thank you very much.

GROSS: Tom Wainwright is the author of the new book "Narconomics." After a short break, rock critic Ken Tucker will review the debut album by Paul Westerberg and Juliana Hatfield, who have formed a duo called The I Don't Cares. This is FRESH AIR. Transcript provided by NPR, Copyright NPR.