Legalize It?

Amphibious-Southern Partnership Station (A-SPS) 2012

It is time to think differently about the war on drugs.

The mess we are in cannot continue. The poor and disadvantaged suffer the most. Cocaine must be legalized and regulated, and heroin should follow. The prohibition of drug markets has generated more violence. It is clear that we must regulate, but the question is how.

We believe a multilateral initiative is preferable to a unilateral approach and that support from the United States is needed more than ever. We also argue that regulation is in the United States’ best interest. It is, by far, the developed country with the highest incarceration rate in the word, mainly due to drug-related crimes. This has a high cost at a time when many U.S. local governments are on the verge of bankruptcy (The Pew Center on the States 2011).

This article explores the issues surrounding regulation as they relate to a new approach that is gaining support in Latin America, started by a move by Guatemala.


For the first time in history, a Guatemalan president has proposed drug regulation to reduce violence in the region. It is the first time since the 1950s that a Guatemalan government explicitly contravenes official U.S. international security policies. This may be a symptom of the loss of power of the U.S. government in the Western hemisphere. Christopher Sabatini (2012) and Russell Crandall (2011) suggest that the focus on the wars in Iraq and Afghanistan, an outdated and naive understanding of Latin America among U.S. academics and politicians, and increasing economic prosperity and political stability in Latin America may be some of the causes of this loss of power. But as Guatemalan President Otto Pérez Molina indicates, the main reason is simple: the war on drugs has failed (Pérez Molina 2012).

Drug regulation implies decriminalization. President Pérez Molina is trying to per- suade other presidents in Latin America to form a united front to regulate drug markets. President Felipe Calderón of Mexico (Economist 2012) and President Juan Manuel Santos of Colombia (Doward 2011) support drug regulation as do former presidents Fernando Henrique Cardoso (Brazil), Cesar Gaviria (Colombia), and Ernesto Zedillo (Mexico). President Pérez Molina argues that drug markets need to be regulated because: (1) the supply of drugs has increased dramatically and market forces cannot be suppressed; (2) drug addiction and the problems it generates should be seen as a public health problem, not as a criminal problem; and (3) it is the only way to reduce associated violence.

Figure 1

Figure 2

Figure 3

Mean harm score for 20 substances. Classification under the Misuse of Drugs Act, where appropriate, is shown by the color of each bar.

Source: Nutt et al. (2007).

Drug-related killings have escalated to unprecedented levels in the region. In Guatemala, for example, from 1999 to 2009, the homicide rate increased around 90 percent.1 As can be seen in Figure 1,2 the number of homicides per 100,000 inhabitants increased from 32 in 2002 to 40 in 2011, with a peak of 51 in 2008. Most of the homicides were committed with firearms.

While the homicide rate has decreased recently in Guatemala, it has increased in Honduras. With more than 80 homicides per 100,000 inhabitants, Honduras has the highest homicide rate in the world; this figure compares to about 5 per 100,000 in the United States (Ungar 2012). San Pedro Sula, the most violent city in Honduras, has almost twice the national average of the homicide rate (Arce 2012). In 1975, the costs of crime and violence amounted to 7.3 percent of the gross domestic product in Guatemala (PNUD, 2006) and 7.7 percent in 2008 (Serrano-Berthet and López 2011).




There is systematic evidence of the link between the war on drugs and drug- related violence. Dan Werb et al. (2010) found “a significant association between drug law enforcement and drug market violence. . . . [G]un violence and high homicide rates may be an inevitable consequence of drug prohibition.”

Gabriel Demombynes (2011) argues that the areas of intense drug trafficking in Central America have higher homicide rates. He indicates that traffickers are more resourceful and have corrupted state institutions. He shows that in Guatemala 66 percent of adults say that local police officers are involved in crime (Demombynes 2011, 7).

In a different take, MIT economist Melissa Dell (2011) looks at how violence responds to the election of a PAN party candidate in Mexico. President Calderón, the leader of PAN, declared a frontal war on drug cartels in early 2007. Dell found that “the probability that a drug trade– related homicide occurs in a municipality in a given month is 8.4 percentage points higher after a PAN mayor takes office than after a non-PAN mayor takes office.” As indicated by Ray Fisman (2011), “Dell estimates that the drug-related homicide rate almost doubles relative to ‘control’ towns where the PAN wasn’t elected.”

At a national level, the statistics seem to support Dell’s study. Mexico’s homicide rate more than doubled between 2006 and 2010, from 10 to 23 per 100,000 inhabitants. There was a downward trend in the number of homicides in Mexico before the war on drugs. Figure 23 is illustrative. After a declaration of war on drug cartels at the beginning of 2007, the homicide rate increased dramatically.

The legal framework that allows some drugs and forbids others has also been questioned. David Nutt et al. (2007) interviewed experts to assess the harm of twenty different types of drugs. The authors found that the expert assessment varied significantly from the classification scale found in the Misuse of Drugs Act of the United Kingdom (see Figure 3). The act ranks drugs in three categories: A, B, and C, with A being the most harmful. The authors conclude that the legal classification that determines what drugs must be illicit is arbitrary. In fact, alcohol and tobacco, the most commonly consumed drugs, occupy positions five and nine, respectively, on the overall scale of harm. The authors conclude: “[T]he fact that the two most widely used legal drugs [alcohol and tobacco] lie in the upper half of the ranking of harm is surely important information that should be taken into account in public debate on illegal drug use. Discussions based on a formal assessment of harm rather than on prejudice and assumptions might help society to engage in a more rational debate about the relative risks and harms of drugs.”

The Economics of Decriminalization

The economic rationale is that decrimi- nalization will increase the supply of drugs. As a result, more drugs will be consumed at a lower price. Production, distribution, and consumption will occur in the formal market. Lower prices will make the economic returns of drug production converge toward normal market returns. The current economic incentives that make narcos kill each other (and innocents) to gain territory and transportation routes will disappear and violence will go down. In addition, the thinking is that robberies will decrease because many individuals steal or commit crimes in order to pay the high prices for the drugs they consume. Producers, intermediaries, and consumers will pay taxes. The taxes could be used to fund social programs for people with drug addictions. Entities that would supervise the quality of different drugs would emerge. “Legalize, regulate, and tax” is the economic conclusion.

The economists’ arguments, however, have not been very effective in persuading politicians. But now that the violence toll is unbearable, politicians are considering different options. President Pérez Molina argues that he does not propose a total liberalization of the drug market, but instead a regulated market in the same way that alcohol and tobacco markets are regulated.

Many people in Guatemala are not convinced. In fact, more people supported Pérez Molina’s arguments in the UK Guardian (2012) version of his recent article than in the local newspapers in Guatemala. It is interesting, however, that in the comments section of the articles in Prensa Libre, the largest local newspaper, some said that they changed their minds in favor of regulation after reading the article. If President Pérez Molina wants to regulate drug markets, he will have to work harder to change popular opinion in Guatemala. This will help him gain democratic legitimacy for his proposal. One thing is clear: the general public is so affected by day-to-day violence, either through personal experience or through the media, that an opinion shift in favor of legalization is possible, and it is beginning to happen.




Given the evidence and the timing, countries in Latin America need to decide if they will stick to the status quo or if they will regulate drug markets. If they regulate the market they need to decide if cocaine, marijuana, heroin, or all three will be regulated. Each country needs to decide its position with respect to other Latin American countries and then as a region with respect to the United States. A reasonable strategy is to regulate the cocaine market first through a united front. As the evidence in Figure 2 shows, the levels of physical and social harm and addiction are similar for alcohol and cocaine.

President Pérez Molina and President Santos know the broad direction of a new drug policy, but they do not know what to do specifically. Pérez Molina asked four key questions in his Guardian article:

1. How can we reduce the violence generated by drug abuse?

2. How can we strengthen public health and social protection systems in order to prevent substance abuse and provide support to addicts and their relatives?

3. How can we provide economic and social opportunities to families and communities that benefit economically from drug production and trafficking?

4. Which regulations should be put in place to prevent substance abuse (prohi- bition of sales to minors, prohibition of advertising in mass media, high selective consumption taxes for drugs, etc.)?

One of the problems is that we don’t really know how much violence there would be under a regulated system, but presumably it would be lower than what there is now. There will be important social costs due to health provisions for addicts. It is usually assumed that taxes will increase; this is uncertain. It will happen for those countries or regions that regulate first, but as more and more countries and regions start producing drugs legally this might change; drug companies might lobby successfully for lower taxes. We should take into account that tax evasion in Latin America is high. However, it might be possible to exercise more focused auditing on companies and individuals that produce, transport, and distribute drugs, especially if multina- tional corporations enter into the business, which is very likely. Resources that are currently dedicated to the war on drugs can be transferred toward con- sumption prevention. At least for cocaine, where the social harm is shown to be similar to alcohol, the laws and practices to regulate the market should be similar to what currently exists for alcohol.

One concern is whether regulation should start unilaterally or multilaterally and with or without the support of the U.S. government. If one country regulates unilaterally it will likely generate a domino effect where others will follow. This is because the country that regulates first will likely see a reduction in enforce- ment costs and an increase in public and private income from taxes and sales. It will transfer its enforcement costs to its neighbors. It will only take one country to start for the whole region (and perhaps the whole world) to do so as well. This does not come without complexities such as the possibility of armed conflicts with neighboring countries and even with the United States.

It might be possible to do a field experi- ment. A drug or some drugs could be regulated in one region (the treated region), using another region as a control. In fact, nowadays this is a popular approach to evaluate socioeconomic interventions. Hypothetically, one could regulate the cocaine market in a region in Guatemala, such as Petén, for example, where violence is very high in relative terms, taking the rest of the country as a control group, and then evaluate violence and other socioeconomic indicators after some time. This possibility raises impor- tant concerns, such as how to choose the treated region. One can even think of a provincial plebiscite for voters to decide if they want to be part of the treated region.

Multilateral regulation will be seen as more legitimate. It would be much easier to implement for the following reasons: first, because it would not be seen as an isolated effort of one particular government against the status quo but as an international consensus to decriminalize and regulate drug markets; second, because most of the governments in the Americas are popularly elected and work under democratic regimes, so their stance in favor of drug markets’ legalization will not be seen as an authoritarian decision of one particular leader; and third, because the business of illegal drugs respects no boundaries, so for a decrimi- nalization and regulation policy to work effectively it needs the support of all or most of the countries where the chain of value works. If one link is kept rotten, it will have negative externalities for the country involved and for its neighbors.




Latin America’s weak institutions and socioeconomic problems are its funda- mental reasons for continuing to fight the war on drugs. Drug violence and corrup- tion are symptoms. However, it can take decades or centuries to fix the institu- tions. The regulation of drug markets
can reduce the pain.

Formal institutions in Latin America haven’t had the ability to adapt quickly and effectively to recent changes in criminality. In the case of Guatemala, the national police started a process of reform only in 2011. The initiative began as a response to the rise in criminality in the country, and it was institutionalized through a presidential commission. However, this commission will need to show results to prove it is having an effect. In the case of the military, it is beginning to recover after its reduction in 1996 due to the peace process in Guatemala. However, it is still unclear if the govern- ment will make equipping the military a priority, and if so, if it will be able to do it in the short term.

For other countries, like Mexico and Colombia, the situation of their enforce- ment institutions has been better than that of Guatemala. But, still, that hasn’t been enough to put an end to the business of drugs in those countries. On the contrary, the war on drugs has endangered public institutions in the Americas while creating the incentives for corruption.




Drug-related violence is affecting everyone in most Latin American countries, one way or another. The most affected, however, are those who can’t pay for private security, those who use public transportation, and those who are at the mercy of drug cartels in urban and rural areas. They are the poorest. If nothing is done, violence and corruption will continue. This is the logical outcome of a market where the producers live in low-income countries, with weak institutions, and where the consumers live in high-income countries, with strong institutions. If no action is taken, illicit drugs will continue crossing international boundaries, creating vast profits for the few and incalculable suffering for the many.

The policy direction is clear. But lobbying by a group of presidents, although extremely important, might not be sufficient. Civil support is very important as well. The fight against the war on drugs has to come from the top and from the bottom of society. This means that think tanks, intellectuals, and local leaders must participate in the discussion. This is especially important considering the sentiment expressed in a recent White House briefing in which it was said that

President Barack Obama considers this a legitimate debate (White House 2012). This opens a window of opportunity to change the U.S. discussion and policy toward the business of drugs.

A huge responsibility lies with universi- ties, especially those in the most recently affected areas like Mexico and Central America. Universities need to contribute to the debate by supporting sound research to give us clear answers about what to do and when to do it. The public and private sectors must support these efforts.

Portugal and the Netherlands have advanced in the direction of drug regulation. What lessons can we learn from these cases? This requires deep and prompt academic research. Drug regula- tion is not a magic formula; it comes with significant costs. What are those costs? What is the best way to face them? These are challenges for research in the Americas if the “problem of drugs” is to be solved for both producer and con- sumer countries.




Arce, Alberto. 2012. San Pedro Sula’s violence mirrors Honduras’ pain. Guardian, 9 April.

Crandall, Russell. 2011. The post-American hemisphere. Foreign Affairs, May/June.

Dell, Melissa. 2011. Trafficking networks and the Mexican drug war. MIT, job market paper.

Demombynes, Gabriel. 2011. Drug trafficking and violence in Central America and beyond. World Development Report 2011, World Bank, Departamento de Desarrollo Sostenible y Reducción de la Pobreza y Gestión Económica Región de América Latina y el Caribe.

Doward, Jamie. 2011. Colombian president calls for global rethink on drugs. Guardian, 12 November.

Economist. 2012. Drug policy in Latin America: Burn-out and battle fatigue. Economist, 17 March.

Fisman, Ray. 2011. Narco economics: A new study that could help Mexico win its war on drug traffickers. Slate, 29 November.

Nutt, David et al. 2007. Development of a rational scale to assess the harm of drugs of potential misuse. Lancet 369(9566): 1047-1053.

Pérez Molina, Otto. 2012. We have to find new solutions to Latin America’s drugs nightmare. Guardian, 7 April.

Pew Center on the States. 2011. State of recidivism: The revolving door of America’s prisons. Washington, DC: The Pew Charitable Trusts.

Programa de las Naciones Unidas para el Desarrollo (PNUD). 2006. El costo económico de la violencia en Guatemala, ed. Blasells Conde, Alfredo.

Sabatini, Christopher. 2012. Rethinking Latin America. Foreign Affairs, March/April.

Serrano-Berthet, Rodrigo, and Humberto López. 2011. Crimen y violencia en Centroamérica: Un desafío para el desarrollo, Vol. III. World Bank.

Ungar, Mark. 2012. In Honduras, a catastro- phe long foretold. New York Times, 19 February.

Werb, Dan et al. 2010. Effect of drug law enforcement on drug-related violence: Evidence from a systematic review. International Centre for Science in Drug Policy.

White House. 2012. Press briefing by Ben Rhodes and Dan Restrepo to preview the president’s trip to the Summit of the Americas. Press release, 11 April.


1 Figure created by authors from information from the Ministerio de Gobernación in Guatemala. There has been an important reduction recently. From 1999 to 2011, the homicide rate increased “only” 60 percent.

2 Figure created by authors from information from the Policía Nacional Civil and the Instituto Nacional de Estadística, Guatemala.

3 Figure created by authors from information from the Instituto Nacional de Estadística y Geografía of Mexico and International Monetary Fund.

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