Tuesday 15 January 2008

The Economic and Social Costs of Drug Prohibition

Modern drug prohibition, in the USA, began with the Harrison Narcotics Act in 1914 which banned the sale of opium, it derivatives, and cocaine. This was followed by further tightening with the tax and subsequent ban of cannabis, and the prohibition of the manufacture of heroin1; between 1920-33 prohibition of alcohol was in force. The passage of the Dangerous Drug Acts (DDA) in 1920 marked the start of prohibition of drugs in the UK which imposed severe restrictions on the use and sale of opium and the proscription of heroin, morphine and cocaine. The DDA amendment was passed in 1923 which toughened the sanctions on offenders and increased the police’s search powers.2 All current drug legislation in the UK and USA has its origins in these acts.


The rationale behind prohibition is paternal in nature: drugs are bad for one’s health and can subsequently harm others while under the influence of said drugs.3 These two propositions are undeniably true. Heroin use can lead to collapsed veins, infection of the heart and liver disease4; it was also linked to 842 deaths in England and Wales in 2005.5 Cannabis increases the risk of heart attacks and bronchitis, as well as inducing short term memory loss making learning difficult. It also has an established link to schizophrenia and traces of cannabis have been found in 12% of road fatalities.6 Ellinwood found that LSD led directly to murders committed by those who had killed under the influence of it (Inciardi, 1981 P111).


However it does not follow from the fact that drugs are harmful that they should be banned. If it did, why should tobacco or alcohol not be banned also? Further, why should the state not protect the individual’s mind as well as the body? The banning of “harmful” books, paintings and films surely follows. Notwithstanding the internally contradictory position of the prohibitionists, they also fail to see the costs involved of pursuing such a policy.


The aim of prohibition is to reduce supply, and subsequently consumption; indeed every time a large haul of cocaine, or other drug, is caught it does indeed reduce the supply. Yet assuming a stable and an inelastic demand curve this leads to an increase in the price of the drug and higher profit opportunities. When the profit opportunity is higher than the risk (capture, fines, jail etc) involved then more of the good is produced. Thus every time drug enforcers have a huge success it is actually like taking drugs: it feels good at the time but produces more problems in the future. It is a self defeating policy.


The ineffectiveness of the law can be shown in that drug use in the 20th and 21st centuries has been far higher than the 19th century levels and is on the increase. In 1934, the first official statistic in the UK, the total number of addicts was only 300. In 1984 5,400 new addicts were registered.7 It is clear that legislation has failed to reduce drug use since it has risen pretty much since it was introduced. There must therefore be a reason for the increase in drug use which is independent of legislative environment; this is, however, outside the scope of this paper.


Prohibition creates a black market- a mutual voluntary action which is prohibited by the state- which causes manifold problems. It lacks enforceability of contracts. Unlike buying a chocolate bar one cannot take one’s drug dealer to court if your cocaine contains washing powder or it is a radically different strength than marketed. This, in general, prohibits the creation of branding which successfully solved the problem of impure goods in the 19th century; for example Cadbury and chocolate. Many deaths are caused by impure drugs.8 Also people have died in Glasgow and Bristol because the heroin they injected was exceptionally pure by street standards and thus overdosed (Stevenson, 1994 P31).


Further the lack of contact enforceability also creates a mutual distrust between consumer and dealer whereby the dealer wishes to defraud the consumer with the least pure good he can while the consumer wants the opposite. This mutual distrust has been cited as the cause of much of the violence between user and dealer. A study of heroin addicts seeking treatment found that of those who had died two thirds of them had been murdered mostly during or as a result of a deal (Inciardi, 1981 P113). As is well documented organised crime funds itself through drugs which allow them to continue their campaigns and also causes inter-gang conflict which leaves innocent civilians in the crossfire.9


Similarly the black market affects the potency of the drugs. During Prohibition the consumption of beer plummeted and the consumption of spirits and moonshine increased. The relative price of whiskey fell to that of beer- the price of beer increased by 600% while whiskey increased by only 310% (Thornton, 1991 P102). The severity of the sanctions against drug dealing depends on weight. This leads the traffickers to increase the potency of the drug and thus the value of the shipment to reduce the relative burden of the effective tax created by the judicial punishments. (Thornton, 1991 P96) Even if weight is neglected any increase in the sanctions against traffickers will lead to an increase in potency since they need to offset the risk with higher returns. Thornton speculates that if the sanctions against heroin were imposed on cannabis, cannabis would be as dangerous as heroin currently is (Thornton, 1991 P110).


The artificially high price of drugs leads to property crime. A study by the Liverpool Drug Dependency Unit found that between 1985-87 90% of heroin users financed their habit by shoplifting and burglary. One estimate of drug related theft was £2,000m in 1993 (Stevenson, 1994 P30). This does not include though the extra costs needed for extra security devices or the general perception of crime of the population. According to a government white paper 280,000 of problem drug users cause half the amount of recorded crime.10


Further, the high price leads users to inject over any other form of ingestion since it gives the most sensation per unit cost. And since 50% of users share needles this is major cause of HIV infections (Stevenson, 1994 P31).


The cost of drug related spending amounts to £1,483m in the 2005-6 period: £163m on services for young people, £380m on reducing the supply of drugs, £367m on reducing drug related crime; and £573m on drug treatment.11 As well as this huge cost, Benson argues that increased efforts to suppress illegal drugs have resulted in a decrease in the enforcement efforts against property crime and have thus resulted in an increase of it (Thornton, 1991 P120).


Prohibition creates a criminal problem on top of that of the medical one and does not reduce drug use. The costs of prohibition are so great that full legalisation of all drugs is necessary. It would take all the criminality out of the drugs trade and normal market forces would guarantee the quality and purity of the product. The deaths associated with drugs would fall as users could ingest without fear and with more information about the product. It would also cut the funding to many criminal gangs who fund themselves through drug money. Finally it would allow the police to use its scarce resources on what matters most to people: aggression against their person and property. The only conceivable problem with this is that drug use may increase. However since legislation has been ineffective and drugs, as a whole, almost certainly have an inelastic demand, this is highly unlikely; even if it did this would remain a purely medical rather than a criminal problem since the price would fall dramatically. Further voluntary exclusionary practices could mitigate the potential rise; the most powerful of these would be in the health insurance market, but this will not work at full effect while the State effectively controls the market.

3 For arguments against the legalisation of cannabis, which can be extended to all drugs, see “Going Soft on Cannabis” http://www.christian.org.uk/pdfpublications/gsoc.pdf accessed 18/12/07.

7 Ibid. Citing Edwards, G and Busch, C, Drug Problems in Britain- A Review of Ten Years and Home Office Statistical Bulletin: Statistics of the Misuse of Drugs in the United Kingdom 1985, Home Office, Issue 28/86, 25 September 1986, Table 5, Page 17

11 http://www.tdpf.org.uk/MediaNews_FactResearchGuide_EnforcementExpenditure.htm accessed 18/12/07

Books

  • Inciardi, James A. (Ed). The Drugs Crime Connection Sage Publication 1981

  • Stevenson, Richard. Winning the war on Drugs: To Legalise or Not? IEA 1994

  • Thornton, Mark. The Economics of Drug Prohibition University of Utah Press 1991

Websites

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