NEWS: Aus Financial Review - 21/10/2006 'War on illegal drugs is funding our enemies'

War on illegal drugs is funding our enemies

Author: ROBERT LEESON; Robert Leeson is a Campbell National Fellow at the Hoover Institution and adjunct professor at Murdoch University. Additional research by Stanford University economics students Nicolas Beck, Alexandra Baecker, James Morrison, ...

Date: 21/10/2006

The assault on terrorist assets after September 11, 2001, was organisationally impressive. As United States Treasury under-secretary John Taylor documents in his book Global Financial Warriors, 172 countries and jurisdictions issued freezing orders, 120 countries passed new laws and regulations, and 1400 accounts were frozen. But the stock of frozen assets looks meagre at $US137 million ($180 million) compared with the annual flow of $US380 billion generated by the illegal drug industry (about 8 per cent of total international trade).

Agents of organised political violence are often beneficiaries of these illegal flows: such as FARC (the Revolutionary Armed Forces of Colombia) which receives $US300 million a year from the sale of cocaine, and the PKK (the Turkey-based Kurdistan Workers' Party) which is believed to be responsible for most of the narcotics seized in Europe.

Those who associate being tough on drugs with righteousness will only reluctantly admit that their policies with regard to the supply side have been doing the devil's work. The evidence is clear: even as attempts to stamp out drug supply have been increased, production has also increased and terrorists derive a generous portion of their funding from the merchandise. The war on drugs has left terrorists smelling of poppies, if not roses.

Afghanistan produces 92 per cent of the world's opiates. The Taliban and al-Qaeda take a cut at all stages: production (institutionalised taxation at 10 to 20 per cent of the yield), processing and transporting. Between 20 and 30 per cent of al-Qaeda's bucks for bangs may derive from drugs. Partial supply-side victories in the war on drugs are doomed to be illusory.

According to the United Nation's counter-narcotics agency, the export value of the 2004 Afghan opium crop was $US2.8 billion (about 60 per cent of the country's gross domestic product).

In 2005, an internationally funded $US860 million blitz cut Afghan production by an estimated 21 per cent. Yet, given the nature of demand, any cut in supply will cause a more than equivalent rise in price.

Afghan farmers responded predictably to the incentives provided by the blitz: the UN's 2006 Opium Rapid Assessment Survey reported an increasing trend in poppy cultivation in 13 provinces, but a decrease in only three.

Ninety-six per cent of growers offered market forces as the primary explanation for their decision to ignore the fact that opium poppy cultivation is illegal and considered to be prohibited by Islam.

The various parties who lead the fights against terror, crime and drugs have not grasped the interrelationships between the component parts of this unholy alliance; nor do they realise that their war on drugs has created a common interest between these groups. US President Bush correctly states that trafficking of drugs finances the world of terrorism - but how accurate is House Speaker Dennis Hastert's statement that "by going after the illegal drug trade, we reduce the ability to launch attacks against the United States"?

The strength of the desire for drugs means the demand side of the market is relatively unresponsive to price changes. If "going after" means reducing supply, this will tend to increase prices and thus revenue for drug dealers.

To break this drug-terrorist nexus requires a major attack on the demand side and a major rethink of supply. All feasible options must be systematically evaluated. Those who conjure up the image of a drug-free earthly paradise have forged an unintentional alliance with those who peddle the spectre of a heavenly paradise to motivate suicide bombers.

Since demand creates its own supply, we must decide who is to control supply: criminals or health professionals. Many of these drugs were developed by pharmaceutical companies: shouldn't these companies be allowed to develop, test and manufacture similar drugs?

This alternative must be evaluated.

Alcohol and tobacco - the biggest killers - are sold with appropriate health warnings. Why not allow dependency-minimised versions of currently illegal drugs to be supplied with similar warnings?

The alternative is that drug users will be supplied from shady sources: this is the reality of the market. While consumption might increase with decriminalisation, self-harm would be reduced with safety oversight in manufacturing. Fewer shared needles would restrict the transmission of HIV/AIDS.

The war on drugs weakens America and strengthens her enemies in at least five ways.

First, prohibition effectively cultivates among criminals the skills demanded by terrorists, namely, specialised knowledge about how to cross borders undetected.

Second, prohibition helps finance terrorist operations by keeping production in the black economy. After decriminalisation, terrorists would harvest fewer bombs by planting poppies.

Third, prohibition contributes to the supply of drug-corrupted gangster cops.

Fourth, about a quarter of convicted property and drug offenders in the US (and one-third of incarcerated mothers) commit their crimes to obtain drugs or money for drugs. Eighty-five per cent of parents in state prisons have a history of drug use, and a majority reported that they had used drugs in the month before their current offence.

The US Bureau of Justice Statistics reports that almost 10 per cent of imprisoned mothers have left behind at least one child in out-of-home care.

Since family breakdown is associated with intergenerational poverty and subsequent drug abuse it would be preferable to deal with these issues within the health, rather than the criminal, system. Moreover, as the price of drugs falls, drug-related property crime would also fall.

Fifth, successive drug barons have expanded their empires, but after 18 years, the US Office of National Drug Control Policy has failed to curtail drug consumption but continues to consume taxpayer funds ($US245 million allocated for 2007).

Alcohol once made the mob rich and powerful, but now generates state and national tax revenue (in 2005, the US Treasury received almost $US9 billion). Other taxes could be reduced by squashing illegal (non-taxable) drug revenues. This would both reallocate expenditure towards non-drug (taxable) activities and shift spending on drugs away from the underground into the above-ground (taxable) economy.

Alcohol prohibition (1920-33) revealed that the costs outweighed the benefits; the same is revealed by the current experiment. A peace dividend would free up resources for a country already fighting on multiple fronts and degrade the resources of its enemies.

If policymakers fail to make peace work and become nostalgic for current arrangements, the proceeds of the drug industry can be transferred from pharmaceutical companies back to Osama bin Laden and his associates.

The bombs dropped on Vietnam exploded in American cities; the drugs peddled on American streets now finance roadside bombs in Iraq and Afghanistan. President Bush declared that the first shot in the war was when we started cutting off their money. But those who prosecute the war are being shot in the foot by an incentive structure which increases the ability of terrorists to launch attacks against the US and its allies, including Australia.

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