The Economics of Drug Policy

The Economics of Drug Policy: Why Systemic Reform is Urgent

Source: UNODC World Drug Report, 2010

The market for illicit drugs is unusual in that there exists a set of UN conventions and a parallel set of national laws in most countries that regulate their production, sale and use. This system has been operational more or less unchanged for some 50 years and although there are increasing demands for it to be loosened or reformed, maybe even abolished, it seems unlikely that much will be changed in the short term while the USA remains committed to the status quo. This is in spite of evidence that existing policies have severe negative outcomes, outcomes described as ‘unintended consequences’ by some commentators, although as we will see they are not so obviously ‘unintended’ but perhaps the main aims of the drug policies. 

What is odd about the present policy regime is that it has not been subjected to rigorous analysis by economists since what is at issue is the regulation of the market for a particular set of substances on the grounds that their production and use imposes social and economic costs. Costs that are so self evidently severe that using the full weight of the legal and judicial systems in the enforcement of market controls in respect of production, trafficking and use does not require justification through the application of standard economic analysis. Nor are the usual principles of empirical measurement applied to such policies – i.e. are the costs [financial and human] of the application of drug policies justified in terms of the social and economic benefits. To be able to answer this question one would need a full social and economic cost benefit analysis in which all of the costs and benefits were identified and measured including many that are not usually integral to such analysis, such as the costs of the drug wars in destabilising political systems in Central America at the present time.

It is feasible to apply standard economic analysis to the market for illicit drugs and the following is an attempt to trace some of the effects on users [households possibly], enterprises [both financial and non-financial] and the public sector. These are the usual distinctions between the private and public sectors and between the micro- and macro effects of the policy regime. Not much attempt is made to distinguish between the specific differences in the application of the regulatory regime in different countries since the broad principles are more or less the same everywhere. Except to note the policy shifts in those countries where the regime has been modified [such as Switzerland, the Netherlands and Portugal] and to argue that these are clearly preferable to what went before.

Key Propositions: Supply Side Issues

It can scarcely be a surprise to anyone that if you prohibit the production, trade and use of a product, the resulting disruption of markets will have effects on prices and on profits, will lead to shifts in the sources of supply, lead to product innovation and where demand is price inelastic and income elastic have little effect on levels of consumption of illicit drugs. Let’s look at each of these effects in turn.

If one prohibits the supply of products such as cocaine, heroin or marijuana and imposes severe penalties on those producing and supplying these products then one would expect prices to rise. This is more or less inevitable, as any economic analysis based on supply and demand would support. Thus a reduction in market supply not matched by an equivalent and offsetting reduction in market demand will cause a rise in market prices. Scarcity causes prices to rise. Furthermore since the risks involved in producing and supplying the product are raised by the enforcement of prohibition and the imposition of potentially severe legal penalties then those involved in the markets for drugs will demand higher monetary returns.

Proposition 1: A regime of control based on prohibition will disrupt markets and lead to an increase in prices and profits.

But it is less than obvious who benefits the most from the disruption of markets although the common assumption is that the higher monetary returns accrue to producers of illicit drugs. Evidence from producer countries [Colombia, Afghanistan, Bolivia, Myanmar and others] supports the proposition that although prohibition may raise the returns to a small degree [to partially offset the risks from local enforcement of the prohibitionist system] that most of the profit accrues to those who control later stages of marketing the product. It has been estimated that although the value of the Colombian cocaine production is currently $300billion, a mere $7.8billion remained in the country- that is 97.4% of the profits were kept by criminal syndicates and laundered through the international banking system.

Proposition 2: Most of the profit from the market for illicit drugs accrues not to producers [and to producer countries] but to those organisations that control market supply and market access. There is usually a huge gap between the farm gate prices of drugs and the final prices paid by consumers. In part these rents [profits] reflect the market scarcity that is the outcome of the restriction of market supply, and in large part the risks imposed on suppliers by the prohibitionist regime and penal penalties for those convicted of trafficking and using drugs.

If it follows that most of the profits from illicit drugs accrue to those who are managing the supply to final markets [overwhelmingly in third – richer – markets such as the USA and Western Europe] then if the present system has any chance of succeeding in its primary objective of reducing consumption the control efforts need to be focused on the market supply chain. This is where profits are highest and most concentrated and this is where the impact of the system could be greatest. But instead policies have been focused on producers and producer countries where the profits from production have generally been minimal and where alternatives to drugs are often extremely limited.

Proposition 3: Since the market returns are concentrated within enterprises which manage market supply [traffickers and others] then control efforts should be focused at this level. But in general they are not, so it is not surprising that drug supplies are scarcely affected by the actions of police forces and others. But the possibility of market suppliers being apprehended and convicted certainly raises risks and both the profits and prices of illicit drugs. 

These extremely high returns to trafficking drugs sustain enterprises involved and attract other suppliers to such markets. Prices and profits as in all markets will act efficiently in signalling to other potential suppliers that despite the risks there are huge amounts of money to be made from controlling access to the market for drugs. Hence the struggle for control in such markets that is observed both in producer countries, countries that are conduits for drugs and countries of final demand.

Proposition 4: The struggle for market control that is currently so costly in terms of its impact on individuals, families and society in many countries in Latin America has its origins in a struggle for market share which follows inevitably from the high profits created by the prohibitionist regime. Such profits are reflective of the higher risks and higher prices for illicit drugs which are caused by the same control system. In at least one respect – the competition among suppliers for market dominance - the process is identical to that to be found in other oligopolistic markets. What is different is the use of deadly force to establish market control. Reforming the prohibitionist system is thus a sine qua non for eliminating the armed struggle for market control.

Furthermore there are other externalities [costs] which are often imposed on poor producers and poor countries that arise from the policies and programmes imposed by the prohibitionists. Thus policies and programmes relating to crop substitution, which have had decades of popularity with donors, have proven to be typically massive failures. This is unsurprising since in most countries where these programmes have been applied, alternative crops [to poppy for example] are generally less profitable and market access for other crops uncertain and more costly. Thus attempts to persuade Afghan poppy producers to switch to other crops have generally failed.  In part because of continued insecurity and thus market uncertainty and in part because farmers require additional inputs [such as irrigation and credit] that are unavailable. Opium and coca are in effect low risk products for high risk environments.

Proposition 5: Most programmes of crop substitution fail because existing products generate higher and more certain returns so why would farmers switch production. For alternative development to be feasible and successful there is a need for donors and governments to have a totally different set of objectives, and a willingness to see beyond the simple aim of reducing the output of poppy or cocaine or marijuana. But such longer term programmes would require much more resources and these are generally not forthcoming.  If the aim in the longer term is to reduce the production of drugs then development objectives and programmes need to be a lot more sophisticated and better resourced.

One of the favourite programmes in many producer countries has been that of crop eradication. If market instruments and threats are insufficient to reduce market supply then why not use military force allied to modern technologies to destroy crops? On the face of it this seems to relieve governments from the need to address economic forces – simply use military force to destroy the crops and hey presto market supply is reduced as per the key objective of the prohibitionist regime. This is scarcely the way to gain the support of producers and their families who see their livelihood destroyed without effective alternatives being on offer. Such programmes also suffer from being socially and economically divisive since the well- connected often manage to escape their imposition as is only too evident in Afghanistan. There is also of course the longer-term environmental cost of such activities which have impacts that are rarely if ever costed when eradication programmes are planned and implemented.

Proposition 6: Crop eradication as a strategy for controlling supply has generally failed not least because of the balloon effect whereby restrictions in supply in some areas simply leads to substitute production in others. This is evidently what has happened in Colombia where one of the effects of Plan Colombia has been to simply shift the location of production of cocaine both within Colombia and also to Bolivia and Peru. Market supply is sustained as also are prices and profits for those engaged in production and trade in illicit drugs as could have been predicted from any simple economic model.

Where there are associated investments in production such as heroin, increased levels of interdiction and control will also lead to changes in location [as with production of poppy or cocaine]. Nothing has happened to reduce the profitability of refining poppy into heroin and the kind of chemicals needed for this purpose seem to be more readily available in Pakistan than in Afghanistan. Enterprises controlling this stage of production are as with other industries/producers footloose and will relocate when costs are significantly changed [as a result perhaps of interdiction efforts by governments and others].

Proposition 7: Decisions on where to locate production will as with all products be determined by relative costs and changes in these costs will lead to the establishment of new production facilities. This is another balloon effect where tightening controls over production in one location simply shifts it to another place with little or no effect on aggregate supply and price. While production of the basic product [poppy or cocaine] may be more determined in location this is certainly not the case for later stages of production. In neither case are controls affecting supply likely to be effective – nor have they been.

So producers of illicit drugs have weak incentives to switch production given the alternative choices that are available and given market and resource constraints. Attempts to force them to do so have generally failed and these conditions seem unlikely to be significantly changed in the short and  medium term in the countries accounting for most of the global supply. Production alternatives are few and generally less profitable than drugs. Producers in many cases will have become part of a system in which they receive credit and other support from those who control later stages of supply and will thus have few degrees of freedom in relation to what to produce. They have become as with many other farm products part of a supply chain in which resources are advanced in exchange for later delivery of specific quantities of a product. Producers thus will have few degrees of freedom and little alternative to continuing to produce poppy or cocaine.

Proposition 8: It is common practice across many industries for later stages of production and marketing to engage in backward as well as forward integration. Thus locking suppliers of essential raw materials into contracts is common among many industries where firms processing coffee or tea or copper integrate backwards as well as forwards. One would expect those who control access to final markets for illicit drugs to behave similarly and this is precisely what one observes. What is important for cartels and others is controlling the supply of drugs and everything will be focused on achieving this objective. While some of the methods they use for this may be different from other industries they will have the same basic objectives – exclusive supply allied with market controls over the final products supplied to customers.

One of the features of all markets is product innovation and drugs are no exception. Not only do suppliers seek out new markets for existing products, eg in Africa, but in the face of sluggish demand and increasingly restrictive policies in key markets they deliberately create new products. The objective is always the same – to generate profits from new drug sales and in this they are generally successful.  Thus we have seen the planned development and supply of synthetic drugs which are supposed to be less dangerous and non-addictive and meeting the demands of expanding and youthful markets. But in addition we are witnessing product innovation in respect of a whole new set of drugs produced in laboratories which aim to stay ahead of regulation and product controls.

The development of new psychoactive drugs is not new and has been common for the past 2 decades. There is however some evidence that the rate of product innovation has increased in the past few years.  The UN Office of Drug Control  [UNODC} has estimated that in 2014 that 348 new synthetic drugs have been developed in the past 5 years alone [of which 100 within the past year] and that their use is found in 90 countries in all regions of the world. None of these new drugs has come under international control. There is also the encouragement by traffickers of the personal consumption of drugs such as ketamine which is intended for other [legal] uses but which is proving popular with drug users. In the coming years synthetic drugs look as if they will increasingly substitute for more traditional drugs such as heroin and cocaine and are already doing so in Central and South America. Undoubtedly synthetics are where market growth is going to come from in the coming years and that demand for drugs will also increase in coming decades with the most dynamic markets probably located in urban populations in developing countries.

Proposition 9: Increasingly drug suppliers are shifting towards pharmacological substitutes for traditional drugs in a response to changing market conditions. In this respect suppliers are simply investing in new products and productive capacity and opening up new markets in the same way as producers of other legal goods. In doing so they stay a step ahead of legal controls in respect of new products and they also reduce their dependence on traditional sources of supply for traditional drugs. It seems much more likely that the flow of new drugs will increasingly dominate markets and for production to be re-located closer to market demand. The EMCDDA in its Annual Report [2012] noted that between 2005 and 2011 that new psychoactive substances identified in the region were 164. The number of new drugs is clearly accelerating with 49 new substances in 2011. Interestingly most of these new substances are produced outside Europe [mainly in India and China].

Marijuana is unusual amongst the range of drugs that is generally prohibited in various respects. It is widely used both in rich and poor countries and is not considered by many users and by most pharmacologists to be addictive nor dangerous although there is some dissent about this. While production is concentrated in traditional supplier countries such as Afghanistan it is also widely produced nearer to markets - eg in the USA and Canada. Production is possible on a micro-scale although there are producers who are effectively industrial in their operations. What is also unusual about this product is that it is held to have properties that are medicinal and that its use is especially beneficial for those with certain illnesses and health conditions. The pressure for changes in market regulation are such that in 23 States in the USA medical marijuana is now legal and can be supplied through regulated outlets.  In other countries marijuana is also treated as if it is a drug with few harmful effects on users and personal use is effectively de-criminalised [eg. in Portugal].

Proposition 10: It now seems inevitable that the market for marijuana in rich countries will be legalised and that this will permit more research both into the impact of the drug and into other conditions related to drug use. It is one of the arguments of those who favour the existing prohibitionist regime that use of soft drugs inevitably and generally leads to hard drug use [eg. of heroin and cocaine]. The evidence for this belief is slim at best and the freeing of the market for marijuana will permit effective testing of this proposition, as well as allowing many consumers to get the health and other benefits of legal consumption. Legalisation of marijuana, especially in the USA, will of course provide an opportunity for the re-examination of the whole prohibitionist regime and open up the possibility of moving to regulated markets for all drugs.

The elephant in the room is the inestimable cost –personal, economic, social, and political- of the destabilisation directly caused by drugs and existing drug policies. Everyone is now aware of the mayhem associated with the conflicts over the control of drug production, over the dominance of trafficking routes and of market access. There have been years of conflict in Colombia as dissident groups battled with Government over control of cocaine production and supply, and the costs of Plan Colombia are a mere fraction of the total costs imposed on the country. Similarly with other countries in Latin America such as Mexico where many 000s of people have been killed as a consequence of the struggle between criminal cartels for market control. The most recent estimate is that narco-wars in Mexico have led to 80,000 deaths in the past 5 years many of these horrendous in their nature. More or less the whole of Central America is now caught up in the same struggle with an intensification of personal risk and increased levels of drug-related bloodshed.

 In Afghanistan the financing of the Taliban is directly related to opium production with the cost of the ongoing war being largely met from opium sales. It is ironic that NATO countries were not only paying for the drugs in the marketplace but were  also funding the costs of the war in Afghanistan – costs which must have run into billions of $. Of course most of the costs of the ongoing conflict in Afghanistan are being borne by its people who have more or less no say in the process.

Proposition 11: Most of the economic costs of the present prohibitionist system fall on populations in producing countries who have suffered for decades as a result of the struggles for market dominance between rival networks. Governments in many such countries have been collusive in supporting such networks and it is no exaggeration to think of these as Narco States. In the short to medium term many producer countries and increasingly those that offer trafficking routes for drugs are destabilised with unknown negative impacts on their economic and social development. In the longer term in part as a consequence of the often donor funded policies of crop destruction there will be environmental costs that are impossible to estimate. It is unsurprising therefore that the Presidents of most of the countries in Latin and Central America have said enough is enough and have called for the decriminalisation of drugs and that Uruguay has become the first country to legalise both the production and consumption of marijuana [2013]. Nevertheless most of the economic and social costs of drug prohibition have fallen on their populations- and often on the poorest.

Key Propositions: Demand Side Issues

In standard economic analysis it is utility or satisfaction that is believed to be the source of the demand for goods and services. People acquire goods, usually by buying these, because of the satisfaction that is derived from possession. There is an underlying process operating in which we go to work and earn a wage so as to be able to acquire goods and services. According to economists there is an equilibrium between the utility we derive from the purchase of a good and the price we are required to pay in order to purchase it.  Of course we may be mistaken and the flow of utility we get from use of a good may turn out to be less than expected but with repeat purchases we can rectify this error. With one-off purchases of capital-consumption goods this process of error correction may be less feasible.

Underlying this traditional analysis of demand is the assumption that consumers are from experience able to judge what goods yield what levels of satisfaction and thus can make a well-founded judgement as to the value [utility] for them personally. Of course this assumption can and has been questioned by many social scientists who have monitored consumer decisions and observed purchases which seem to be contrary to personal self-interest.  What is also missing from classical demand analysis is the formation of preferences, how are these determined and to what extent are they inter-related [do my preferences and choices depend in part on those of other comparators]. It may be this inter-dependence of preferences that largely explains group demand behaviour, and this is undoubtedly important in the case of drug use especially by youth where peer pressure and example play important roles.  In the cases of goods that may be addictive [such as heroin or tobacco] it must still be the case that consumption yields utility for otherwise why would a person demand such a product. In the case of other drugs such as marijuana and cocaine, and more obviously in the case of other pharmacological products such as ecstasy, which is possibly even less addictive, the driving force in consumption [purchase] is presumably pure satisfaction.

Proposition 1: The notion that drug use provides satisfaction to the user seems to have been lost in the public discussion of policy and yet it is obvious that drugs do provide high levels of utility to most if not all users. This would be equally true for marijuana used for medical purposes as it would be for other drugs such as cocaine used either traditionally [as in Bolivia] or for recreation by city workers in London and Wall Street. The notion that drugs are always addictive and that users have lost the power to make rational choices is very far from the case.  In general drug use is a perfectly rational act undertaken by persons who aim to make optimising decisions in how to allocate their income between alternative uses as predicted by standard economic theory. The representation of drug users as addicts is very far from the case – although of course a small proportion of users are addicts and may require treatment. UNODC estimates that in 2013 the number of problem drug users at 27 million [1 in 10 drug users] out of 246 million adult drug users worldwide [UNODC World Drug Report].   Particular behaviours, for example of commercial sex workers, may be driven by the need to earn the money needed to purchase drugs but will also be determined by other factors such as the need to buy food and support a family.

Now if the argument above is correct and consumers of drugs are engaged in a process of demand optimisation such that drugs yield high levels of personal utility then it is inevitable that the demand will be price inelastic. That is that consumption of a drug will not be sensitive to changes in its price and that consumers will be prepared to pay a high price in order to acquire it. It is also the case that for most consumers of drugs that the share of income spent on the drug is small and thus increases in the price of drugs has a negligible income effect. Given the array of drugs available at differing prices a rational consumer will also weigh the different levels of utility relative to price in making purchase decisions. For some drugs the cross elasticity of demand will be high but for others the substitution possibilities will be low and the levels of demand largely uncorrelated.

Proposition 2: For many reasons the price elasticity of demand for most drugs will be extremely low and the quantity that is demanded will thus be very insensitive to price. Those supplying drugs know this to be the case and also understand basic economic principles. A % increase in price generates a less than equivalent % fall in the quantity purchased and thus revenues from sales actually increase. It follows that disruption of supply of drugs with the aim of choking off demand simply leads to an increase in prices and higher rewards to traffickers in drugs [those who control markets]. Higher prices in general have not reduced the consumption of drugs but have acted as signals for resources to be drawn into this industry.

Thus the prohibitionist regime although it may well have raised prices through restricting supply and through raising producer risks has not as far as one can tell reduced the size of the global market for illicit drugs. Some policy makers argue that the prohibitionist regime has reduced the global market but the counter factual is simply impossible to prove. What is evident is that the global market is huge. It is estimated by UNODC that the global opiate market in 2009 was $68billion of which heroin accounted for $61billion. In the case of cocaine UNODC estimates the global market at $88billion in 2008 with 40% of total consumption in North America and worldwide users about the same as for heroin [16/17million]. UNODC has recently [2012] estimated that the global market for illicit drugs is $330billion per year, which makes it one of the largest commodity markets.

The most widely used drug is cannabis but there are no reliable estimates of the value of world production/consumption. If anything the impact of the present system has simply been to raise returns to those producing and supplying drugs and as noted above attracted additional resources into this sector. The present regime has also had deleterious effects on the quality of drugs provided to users since traffickers have an incentive to adulterate drugs when faced with variability in supply in largely unregulated markets. This variation in the quality of drugs can have potentially disastrous impacts on users who will find it hard to judge the product being purchased and consumed.  Indeed one of the undesirable effects of active law enforcement is to disrupt local markets and in the process reduce both the reliability of supply and assessment of the quality of the drugs on offer.

Proposition 3: Users of drugs are unnecessarily exposed to dangerous adulteration of substances directly as a result of the prohibitionist regime. There can be no doubt that a significant % of deaths from drug overdose is directly the result of product adulteration and that suppliers have an incentive to engage in this practise so as to raise profits. In a regulated system of drug supply the practice of product adulteration could be prevented [as with the marketing arrangements for marijuana in the Netherlands or medical prescription of heroin in Scotland] thus largely avoiding drug overdosing . It is also the case that in a regulated system that services and products [such as naxoline] could be readily and legally be available and thus save many lives currently at risk from overdosing. UNODC estimates that about a half of all deaths due to drugs are caused by overdoses.

It was noted above that the share of income taken by expenditure on drugs is in general small and this is especially true in the case of rich country markets such as Europe, Australia and North America and certainly also the case for better-off drug users more or less everywhere. So the effect of rising prices on expenditure on drugs is minimal given the smallness of the income effect. What is also important for the development of drug markets is the relationship between the growth of real income and the demand for illicit drugs – what economists call the income elasticity of demand. With an income elasticity of demand greater than 1 the share of total expenditure rises as real income increases and so does market demand for a product. It is clearly the case that for drugs such as marijuana and cocaine and for many synthetic drugs [ATS- amphetamine type stimulants] that income elasticities are greater than 1, and this is reflected in the growth of market demand [and of market supply as well].

Proposition 4: The growth in real incomes globally since 1945 and especially in industrial countries has led to an increased demand for illicit drugs despite the existence of the prohibitionist regime. With an income elasticity for drugs greater than 1 there have been rising opportunities for those producing and trafficking drugs and rapidly increasing financial returns. This has been especially the case for drugs such as cocaine which is widely perceived as less addictive and the drug of choice of those working in highly paid, high pressure jobs such as banking and finance. But the income effect has also massively increased the market for industrially produced new drugs which are consumed in large amounts by the young in many countries – rich and poor alike. That this is the case is evident from drug surveys which report on regular use of drugs among youth, eg the reports of EMCDDA relating to drug use in Europe.

Now one of the consequences of the enormous profits to be made from illicit drugs is the impact on financial markets as money is laundered through banking systems [formal and informal]. Clearly those engaged in producing and distributing drugs have to find a way of laundering the enormous flows of funds so that these can disappear into the legal system of production and ownership. This they have done with more or less impunity in most countries given that until relatively recently those responsible for tracing the origins of money [financial regulators] have been scarcely interested. It was only after 9/11 that the financial regulators in the USA and Europe began to seriously address this issue and the primary focus has been terrorism rather than drug money laundering. The amounts of money generated by drugs have been enormous and these funds have been laundered through existing financial enterprises into the formal [legal] system of production and ownership.

Proposition 5:  What we have globally is a total disconnect between a system that supposedly prohibits the production, distribution and use of illicit drugs and one where drugs are widely available in most countries. With the result that drugs generate immensely profitable opportunities and associated enormous flows of funds which are laundered into the legal systems of production and ownership of assets worldwide. The scale of the injections of drug-related flows of funds into the legal financial system have been huge and have accounted for a significant proportion of the profits of many of the world’s biggest banks.

UNODC has concluded that the scale of drug –related money entering the global financial system is difficult to estimate but money laundered annually is somewhere in the range of 2 to 5% of global GDP, ie $800billion to $2 trillion. That the drug-related flows are huge is indisputable given the recent [2012] UNODC estimate of global trade in drugs being $330billion per annum. In the case of Wachovia Bank [USA] for example some $376 billion was brought into the USA over 4 years through small exchange houses in Mexico. Although the US authorities finally took some action against the Bank no one so far has been found culpable of any offence. Wachovia [which has now been absorbed by Wells Fargo Bank] is a typical example of what has been happening more generally. Wachovia persisted with the transfers of drug money from Mexico despite repeated warnings from its London office.

 ING [a Dutch bank] paid a US fine of $619million in June 2012 for its role in permitting massive money laundering.  HSBC has admitted  in July 2012 not having in place tough enough money laundering controls during the period 2004-2010 and has been fined by $1.9billion by the US monetary authorities [December 2012]. HSBC is reported in a US Senate Report to have engaged in extensive money laundering activities in many countries including moving $7billion from its Mexican operations into the bank’s US operations. Again there were warnings that the internal compliance processes were failing but HSBC failed to respond. The regulatory authorities in the US also knew what was happening but also failed to take any action. It is worth noting that HSBC is Europe’s largest bank with a global outreach and immensely important in the international financial system. Standard Chartered Bank has also been fined by the US and has admitted failures of compliance primarily in relation to transactions with Iran some of which were clearly related to drug money laundering. In this case the fine was more than $650 million [December 2012].

Given the lax national and international regulation of banks and other financial companies drugs have become a major source of profits. Such financial enterprises have thus had no incentive to undertake the effective control of money laundering. Indeed compliance efforts in most large banks are purely window-dressing whether we are talking of the USA, UK, Italy, Mexico or wherever. Nor have bank regulators in the main financial centres been much if at all interested in controlling money laundering. Financial institutions know this and so make little or no effort to control the process. How convenient for those engaged in drugs that the profits can be so easily ‘disappeared’ into the formal [legal] system of production, trade and investment. But of course the flows of drug-related money when laundered into the economic system have significant impacts on ownership structures and on asset prices. Not least, of course, in the prices of expensive residential property in Manhattan or Paris or London.

What we have in many countries is the collusion of the criminal class and the highest political and institutional office holders, including the military. In effect these are mafia states [Russia, Ukraine, Belarus, Mexico and so on] in which criminal networks have infiltrated all areas of commerce including finance, TV and newspaper ownership and are indistinguishable from the political and business elites. In many countries the criminal networks have effectively captured governments and have every incentive to see the continuation of a global drug regime which is the foundation of their influence and power.

Proposition 6: Many financial and non-financial companies are now effectively in the ownership of those engaged in trafficking drugs with economic and social consequences which are unmeasureable but nevertheless significant.  There are thus powerful interest groups with a direct economic  incentive not to change the existing prohibitionist regime for drugs. The basis of their wealth is the production and trade in illicit substances where prohibition creates enormous profits which would otherwise disappear if the system was reformed. In the process of laundering these monetary flows the global system and ownership of resources and assets are changed in ways that distort productive outcomes. What is also remarkable is that in the cases of banks such as HBSC, Standard Chartered and Wachovia, and others, which have broken the laws relating to money laundering over many years that not a single person from the senior management of these organisations has been prosecuted. There is clearly one law for the street trafficker and quite another for those making millions from drug laundering.

Many governments have in place national laws to implement the global conventions and although these vary between countries the structure of legislation is similar. The aim is to dissuade the population from consuming drugs – both soft and hard- on the grounds that their use causes both personal and social costs. There are thus legal penalties in many countries for those found in possession of prohibited substances, and those engaged in trafficking drugs are also subjected to legal processes with generally more severe penalties. In a small number of countries those found trafficking drugs can be subject to the death penalty. Some 32 states have retained the death penalty for drug offences and some even apply capital punishment [such as China, Vietnam and Iran]. Iran for example applied the death penalty to more than 1000 people for drug-related offences during the years 2010-2011. As we have noted above the prohibitionist system and associated implementation measures has the effect of increasing the risks attached to the consumption and trading in drugs and thus raises the market price without doing much [if anything] to reduce supply.

There are clearly economic and social consequences of such a system of regulation and the following is an attempt to identify those that are the most important. At the personal level there may be all sorts of infringements of the rights of the individual associated with the implementation of the drug laws up to and including prison sentences. These prison terms may be long- in some countries extremely long- and can have many adverse effects for individuals, their families and for society. There is the loss of the productive contribution that would otherwise have been made by those sentenced many of whom would have had jobs and would have supported their families. There is the cost in financial terms of keeping people in prison which has to be borne by the state [taxpayers]. There is the welfare support for the families of those who are in prison both when incarcerated and possibly afterwards which is also a drain on the resources of the state. There is the associated loss of employability of those released from prison where employers will look less favourably on those applicants for work who have a record of drug use. Again there may be costs in terms of the financial support for those who remain unemployed [and their families] and the loss of their potential contribution to GDP.

Proposition 7: The implementation of the prohibitionist system has major costs both for the individual, the family and for the state. Some of these costs are purely financial – the costs of policing, the resourcing of the judicial system, the construction and maintenance of the prisons, payments for prison staff, the costs of support for prisoners and also their families both while in prison and possibly afterwards. While these costs will vary between countries they can be extremely large. For example the costs of keeping someone in prison in the UK is estimated at £46,000 per year, which is twice average household earnings. UNODC estimates the annual global costs of law enforcement alone at $1billion and the overall financial costs must be extremely large. No calculus of the cost/benefit ratio would support the continuation of such a system with such a set of unproductive outcomes. There are clearly less costly and more effective solutions than that at present implemented both globally and nationally.

As we have seen the effect of the prohibitionist system is to drive up prices for drugs and also economic rents from supplying the products. Most consumers meet the costs of purchase from income and the higher prices must distort the pattern of consumption [and thus the pattern of trade and employment in non-drug related areas]. We have no idea of what these distortions are as a result of the shifts in consumption that are taking place. What we do know is that some at least of the users of drugs engage in criminal activities to finance their consumption. These practices clearly have economic [financial] consequences and are entirely predictable. Thus a significant % of criminal activity is directly related to drug use – in the UK it has been estimated by the Home Office that about 70% of all crime is related to drugs. The costs of drug-related criminal activity are partly borne by those affected [households for example who are burgled] and partly borne by enterprises [such as insurance companies] and partly by the Government [through policing and the judicial system].

Proposition 8: In so far as the use of drugs leads to a significant level of criminal activity by those using and trafficking drugs then these costs have to be borne by someone else – either directly or indirectly. Even where those affected are compensated through insurance it is still the case that the costs have to be met through premiums. There are other significant costs to the state caused by the high levels of [avoidable] crime which have to be met through taxation. None of these costs are necessary as is evident from data on reductions in crime in some areas associated with changes in drug policy. Not surprisingly where drugs are made available in pilot schemes through publicly controlled channels at no cost to users there is a significant reduction in criminal activity and thus an avoidance of all of the personal and public cost otherwise imposed on us all. There would of course continue to be costs associated with regulating criminal activity involved in trafficking drugs under a system of legalisation but these would be minimal.

The most egregious example of the social and economic costs of the implementation of the prohibitionist system relates to the USA. This is simply an extreme example of a case of avoidable costs analogous to those identified above but with important and significant other costs. It has been argued that the development and implementation of the draconian drug laws in the USA are the result of the changes in civil rights which effectively enfranchised African Americans in the 1960s. The drug laws were not only made more onerous in terms of the penalties that were applied to those found using or trafficking small amounts of drugs but the laws have been applied unevenly across racial groups. At the present time there are more young African Americans in prison than are enrolled in college, and during the first decade of the twenty first century one in 4 African Americans was or had been in prison.  It is remarkable that of the 2.2 million Americans in prison in 2014 –appalling in itself- that over 2 million are there as a result of plea bargains largely dictated by government prosecutors who effectively dictate the sentences as well. What kind of judicial system is this in which most of those in prison have not been tried in open court but have been sentenced as a result of secretive processes that are loaded against the defendant.

This is a hugely costly system both in terms of the financial costs noted above [of the police and judicial systems and of incarcerating millions in prison for minor drug related offences, welfare support costs for families and so on] but may have had the purpose of removing African Americans from voting rolls. In many States if a person has been found guilty of committing a felony [small scale possession of an illegal substance such as marijuana] then they are removed from the electoral roles for ever and cannot vote in elections. Thus in 3 States [Florida, Kentucky and Virginia] more than 20% of African Americans have been disenfranchised, and 11 States in total deny votes to some or all felons. Overall some 8% of adult African Americans are ineligible to vote because of a felony conviction compared to 1.8% of the rest of the population. Drug laws have thus been a form of social and political control with consequences both for levels of poverty and its concentration in minority groups. In 2010 almost a quarter of all African Americans were classed as living in poverty and median incomes were less than two thirds of the national level.

Proposition 9: The drug laws in the USA have been characterised by some as the new Jim Crow Laws which have had the intended purpose of social control and have led to the disenfranchising of African Americans through their removal from the voting rolls in many States where their votes would have changed the political balance. The incarceration of such a large % of young African American men [and women] imposes enormous financial costs both directly in terms of the police, judicial and prison systems which are more or less all avoidable through reform of the existing drug laws. There are all of the other indirect costs [loss of contribution to GDP, higher levels of unemployment, higher welfare support costs and so on]. But crucially the political balance at both State and Federal levels are both changed through the gerrymandering of the electoral rolls and the removal of many African American voters. With unknown but significant effects on the level and distribution of taxation and of public expenditure. 

Public budgets would look quite different in many countries, and especially in the USA, under a reformed system of drug laws, and because there are many vested interests which would lose out from any major reforms so there is resistance both nationally and internationally. Within the past decade California has shifted from a policy of incarceration of those found guilty of minor drug offences to compulsory treatment and this reform has proved to be extremely successful. But the change in the law was opposed by the prison officers union who were affected by losses of employment [fewer prisoners] and reduced levels of overtime. Thus vested interests can lead to open opposition to reform even where there is ample evidence that treatment is preferable to incarceration and will lead to significant savings to the public budget.

Incarcerating people for minor drug-related offences has nothing to commend it as has been demonstrated over and over again – not least in Portugal where drugs have been effectively decriminalised with highly beneficial effects. Treatment is now the customary requirement of the courts in Portugal and this has proven to be very effective with significant reductions in public expenditure. At the same time there have been large and measurable reductions in criminal activity. It can be easily demonstrated that treatment is cost effective, and that the returns from investment in treatment for those using drugs vastly exceeds those from incarcerating people in prison.

Of course there are examples of so-called treatment, especially in some South East Asian countries [Thailand, Laos and Cambodia], which are both infringements of human rights and are totally ineffective. Vietnam for example has set up drug detention centres that are effectively compulsory labour camps where detainees are confined for many years and compelled to work for private companies. Such compulsory treatment and detention without medical support for detoxification is ineffective, a threat to public health and an offence against the human rights of thousands of young people in South East Asia. Such centres should of course be closed and investment be made in more appropriate treatment. There is plenty of evidence in favour of treatment for methamphetamines and related substances, and plenty of empirical support for the use of methadone and buprenorphine for those addicted to heroin.

Proposition 10: Treatment is a much more effective way of addressing the needs of problem users of drugs and is also much less costly than incarceration in prison. It is also evident that opium substitution treatment [OST] is highly beneficial for many problem users and many countries have in recent years developed services. These include a massive expansion in OST in China, in Iran [where some 600 clinics providing OST have been established in recent years and an estimated half of all IDUs are in receipt of treatment], and in many countries in Western Europe. It cannot realistically be expected that treatment will be 100% effective nor that those who have had treatment will not occasionally relapse and return to the use of drugs. But in general treatment is effective and is much less costly in personal and economic terms than the usual alternative of incarceration. But such services need to be adequately funded and it is unfortunately evident that this is not the case in many countries.

There are an estimated 16 million injecting drug users worldwide distributed in 158 countries. With some 80% concentrated in Asia and Eastern Europe. The Russian Federation and Ukraine account for some 90% of all HIV infections in Central Asia and Eastern Europe with injecting drug use the leading cause of infection.  UNODC estimates that there are a total of 2.8million injecting drug users who are HIV positive – ie one in five of all IDUs. As is well known sharing injecting equipment is a very efficient way of transmitting HIV and also other infections such as Hep C and B. In the case of hepatitis C the prevalence level is estimated at 50% amongst IDUs.  Unsurprisingly those countries where injecting drugs are prevalent and where harm reduction services are more or less non-existent and health services are limited are also those where HIV infection and Hep C are overwhelmingly caused by sharing needles.

Again and again it has been demonstrated that harm reductions services [such as needle exchange programmes and safer injection facilities together with other HIV prevention activities] are extremely cost effective in reducing transmission of HIV, Hep C and other infections. A recent review of evidence relating to OST reported in the British Medical Journal [2012] concluded that the risk of HIV infection for individuals who inject drugs is reduced by a half, thus confirming one of the most important personal and social benefits from treatment.  Research reported in 2015 also confirms that opiate substitution therapy significantly reduces HCV transmission. But despite the evidence almost half of the countries where drug injection occurs have more or less no harm reduction services at all. The US Congress has recently re-established the ban on Federal funding of needle exchange programmes [NEP] in defiance of all of the evidence that these activities generate huge economic returns.

Harm reduction services are being scaled back even in countries where injecting drug use is a major cause of HIV infection. In the case of Russia NEPs have fallen from 70 in 2010 to only 6 in 2012 and in part as a result the level of HIV in the population has almost doubled between 2010 and 2014 [from 500,000 to 930,000]. Globally a mere $160 million are spent on HR services – some 3 cents per injecting drug user per day. UNAIDS has estimated that at a minimum between $ 2 and 3 billion is needed and this is without provision for ARV treatment and care.

UNODC has estimated that 1 out of 3 drug users are women but that only 1 out of 5 are receiving treatment. It is also the case that women who inject drugs are much more vulnerable to HIV infection than their male counterparts. The reasons for this disparity both in access to treatment and in HIV prevalence are difficult to explain but are likely to relate to behavioural differences in exposure [sex work in particular]. Women are much less likely to enter treatment due to ‘social and cultural barriers’ and systemic and structural factors [UNODC 2015]

Proposition 11: HIV/AIDS is a major cause of morbidity and mortality and in many countries transmission is caused by injecting drug use under conditions where harm reduction services are more or less non-existent.  HR services can relatively easily be expanded at low cost and are extremely effective in preventing infection with HIV and other blood borne diseases. The economic returns from expansion of HR services are only too apparent, empirically proven, and yet there continues to be resistance to their availability in many countries. It would seem self-evident that preventing morbidity and mortality amongst the age-group that mostly inject drugs would generate high investment returns and that this would lead to public and private provision. As it is some 187,000 people die every year from drugs and a significant proportion of this excess mortality is clearly avoidable [UNODC 2015]. However, despite general policy support for HR in the UN and EU it is still the case that HR services are under-provided.

The distribution of resources in the so-called war on drugs seems to bear little or no relationship to socio-economic returns despite massive amounts of data that supports alternative uses of time and money. And yet one of the fundamental rules of budgeting is that under conditions of scarcity of resources these should be distributed as to maximise social benefits relative to social costs. Yet as we have seen above this is rarely the case in practise and public and private resources seem to be allocated in ways that bear no relationship to expected benefits. Huge amounts of resources are allocated to interdiction activities and subsequent incarceration of those found guilty of minor drug-related offences with little impact on the production, trafficking and use of drugs. Of course UNODC and Governments in some countries would like us to believe that the current distribution of resources has prevented a massive explosion in the use of drugs but this belief seems unfounded and also unprovable.

The key argument of this paper is that resources can be and should be redistributed and that the social returns from changing allocations are immense. None of this is news and there would be immense socio-economic benefits from reform of the existing regime of laws and conventions and the allocation of resources to education about the risks of using drugs and to the provision of services for those who need them. Precisely the opposite of what we find in many countries and regions of the world.  What in particular seems to be missing from most country’s programmes relating to drugs are effective activities of education and information for young people and supporting services.

This is remarkable in that the use of substances is typically initiated when people are young – and often at very early ages. That drugs are also widely used is demonstrated by the various European School Survey Project surveys [ESPAD] of as many as 36 countries in Europe amongst students aged 15-16 years. These Surveys demonstrate a widespread use of drugs with, for example, an average lifetime use of cannabis of 17% [2011], and with 13% having used cannabis within the last 12 months. Of course levels of drug use vary widely across countries. The trend in drug use has been generally upwards since the first Survey [1995] although in recent years the level of drug use seems to have stabilised with a lifetime use of around 17/18% for cannabis.

Proposition 12: There are large positive returns to investment in education and other services related to drug use by youth but in most countries this is a major neglected area of public policy. This is despite the fact that much educational research demonstrates the weakness of existing educational activities in schools and other educational institutions in many countries. It is also remarkable, for example, that UNICEF with its global responsibilities for children has been fundamentally uninterested in the issue of drugs, and this is the one area where it has still to produce a policy strategy. Indeed this is the only area where UNICEF has failed to generate a policy framework under the UN Convention on the Rights of the Child. One can understand why this may be the case given the sensitivities relating to drugs but it still represents a significant failure on the part of the key international children’s organisation. It is also worth recalling that all signatories of the UN Convention of the Rights of the Child [1989] are obligated under Article 33 to take ‘all appropriate measures...to protect children from illicit use of narcotic drugs....and to prevent the use of children in the illicit production and trafficking of such substances’. We are a long way from the implementation of the Convention despite the high returns to investment in appropriate measures for all children. 

It is a basic premise of taxation of goods in all countries that high rates should be focused on demerit goods which have low price elasticities of demand. This principle underlies the high rates of taxation on alcohol and tobacco in most countries since the consumption of such goods is assumed by policy makers to be associated with outcomes that are socially negative. Both goods are associated with negative health effects and in most countries with higher public expenditure on health services [sometimes preventative but mostly palliative]. The negative health impacts of tobacco use have been well documented for many years [at least since the late 1960s] although action to reduce smoking was delayed until the past decade or so in most Western countries and is still more or less absent in many developing countries [especially in Asia]. In the case of alcohol which also can have serious health impacts, the policies of most countries remain ambiguous at best and little serious effort is made through public policy to reduce consumption.

In part what lies behind the failures of public policy in relation to alcohol and tobacco consumption are the potentially large losses of revenue that would be entailed despite the savings of public expenditure [lower health expenditure]. There would also be gains, of course, from higher life expectancy as people lived and worked longer and were thus able to contribute to GDP and support their families. The scale of the personal and social costs from tobacco consumption can be gauged by the fact that an estimated 25% of the adult population [post 15 years] uses tobacco globally with enormous negative impacts on health. These estimates should be compared with those for drug use [all] where UNODC suggests that 246 million adults used drugs in the past year [5% of all adults] Tobacco and alcohol are both potentially addictive and there are vastly more people in this category than so-called problem drug users globally. As we have seen above the drug-related mortality is estimated by UNODC at some 187.000 per annum which is a fraction of that caused by alcohol and tobacco [especially the latter].

What we witness therefore is the odd situation that drugs are effectively prohibited in most countries while at the same time two products which have severe health impacts on a much greater scale are legally available. They are heavily taxed in most countries which reflects their low price elasticities of demand, and supply is regulated although less to protect customers from the negative impact of their use than to maximise revenue yield. Both goods also entail substantial public expenditure as we have seen in respect of public health provision together with other negative impacts. So why is public policy so resistant to legalising the use of illicit drugs which have much smaller social and economic costs that tobacco and alcohol? There is no convincing evidence that in general that they are more addictive than tobacco and alcohol. De-regulation would permit their taxation in exactly the same way so generating revenue and at the same time reducing public expenditure [on interdiction activities, the police and judicial system, and support through welfare of families and so on].

A set of estimates made by Miron in 2005 for the USA and relating only to the legalisation and taxation of marijuana at rates similar to alcohol and tobacco concluded that the public expenditure benefits were $7.7billion annually and the revenue enhancement was $6.2billion – an improvement in the public finances of almost $14billion per annum. A close examination of these estimates suggests that they are not comprehensive, and that the budgetary gains would undoubtedly be greater than predicted. Of course the financial gains to the State and Federal budgets would be much greater from a general legalisation of drugs than from just changing the law in respect of marijuana, and there would be enormous non-financial benefits to society from changes in the policy regime.

A recent [2013] study for the UK of the cost benefit impact of deregulating the cannabis market stresses the uncertainties involved in deriving quantitative estimates since the underlying data is highly imperfect and depends crucially on the precise form which de-regulation may take. Estimated effects also crucially depend on the demand response to de-regulation and the degree to which other competing products [alcohol and tobacco most obviously] are impacted. These substitution effects may well be greater than originally estimated given the scale of product differentiation relating to cannabis that is evident in Colorado where many new uses of cannabis are in the process of being marketed. Indeed recent estimates suggest that for the year 2014 that in Colorado the taxes on both the retail and medical marijuana markets will yield of revenues [net] of some $76 million. These are significant budgetary effects and market growth seems inevitable in subsequent years.

The estimates made for the UK by the ISER [Institute for Social and Economic Research, Essex University] are substantial with worthwhile savings on public expenditure [savings on police, the criminal justice system  and drug treatment ] of  £200- 300million annually, and indirect effects [crime reduction, better mental health, improved employment experience] modest at some £85million annually. Significant revenue would be collected from taxing cannabis but how much depends on the rates of taxation and the extent of substitution for existing highly taxed goods [primarily alcohol and tobacco]. ISER estimate that the revenue yielded might be some £400-900million with an overall positive impact of cannabis deregulation on the Government budget of £ 0.5 to 1.25 million. Even given the uncertainties involved in making these estimates and ignoring the private benefits to users of cannabis there are still worthwhile cost benefit gains to society from moving to a regulated market in the UKI for both supply and demand.

That electorates in the USA can be persuaded that the existing drug control system should be reformed is reflected in the ballot initiatives calling for the legalisation and regulation of marijuana in November 2012 in the States of Washington and Colorado. These initiatives were supported by a majority of the electorate in both States and for the first time in the USA the market for marijuana will be legalised and regulated even though these changes in policy are contrary to Federal law. In the run up to the ballot initiatives a great deal of information was provided to the electorate on the costs of the existing policies- personal and financial-and the gains to the public budget of regulating and taxing marijuana at rates similar to tobacco.

 It was initially unclear what the implications of the decisions taken at State level will be for the USA but the Federal Government has changed its response and is now prepared to allow the legal changes in Colorado and Washington to go into effect. Two further states, Alaska and Oregon, have now also legalised marijuana as well as Washington DC.  In the case of DC some 72% of voters approved a ballot initiative in November of 2014 making it legal to possess and grow marijuana for personal use and stores can now be legally established in the nation’s capital. There are now 23 states which have legalised marijuana for medical use and there is now growing bipartisan support in Congress for reform of federal drug laws with the goal of reducing the number of people in prison.

As noted above Uruguay has become the first country to formally legalise both the production and consumption of marijuana, and the ballot decisions  in the US were immediately followed by a call from many leaders in Latin America for accelerated reform of the international system. In the light of the unravelling of the global consensus on drugs the UN has accepted a resolution for an UNGASS in 2016 where current international strategies and policies could be openly addressed.

Proposition 13: Legalising drugs would not only permit greater regulation of their supply and consumption thus avoiding many public policy problems but would also open up the possibility of substantial gains for the public budget. Taxing drugs at rates similar to those on alcohol and tobacco and regulating sources of supply through controlled outlets would mean that most of the existing  economic  rents which accrue presently to drug traffickers would now be received by the state. Such reforms would also enhance the ability of the state to control the quality of the drugs on the market and thus avoid many of the costs associated with adulteration of the product [and many unnecessary deaths especially from overdoses]. Indeed recent changes in New Zealand that legalise a pathway for the prior testing of new psychoactive drugs [‘legal highs’] are intended to reduce the risks associated with this massively  growing market.  Regulation of supply and use of drugs generally would also make it possible to expand and implement more effective educational and other services and to reach out to those using drugs – and especially to problem drug users who are most at risk.

Conclusions

Changing the present drug policy regime is one of those few cases which are Pareto optimal – the gainers undoubtedly exceed the losers and the latter are mainly those engaged in drug trafficking, criminal behaviour and money laundering. So why is public policy so resistant to evidence and to rational analysis? In part the answer relates to the political environment which governments have helped to create in which drug use is demonised and reform generally opposed by electorates. All sorts of misconceptions about drugs are strongly held by electorates that are generally misinformed about the issues and who feel threatened by proposed reforms. This situation often persists despite empirical evidence to the contrary and in the face of expert testimony about the socio-economic costs of the existing prohibitionist system.

There are also, of course, many vested interests which have a stake in the continuation of the present policies and who are close to the centres of political power. Even where it is easy to demonstrate the benefits from changes to the present regime through for example decriminalisation of personal possession of drugs there is often hysterical opposition. Nevertheless, change is feasible as is demonstrated by the reforms undertaken in Switzerland, Portugal and the Netherlands which support the general proposition that the present system can and should be reformed. Not that reform will be easy, and in the UK one has witnessed a reversal of the classification of cannabis in the past year against the advice of the Government’s own drug advisory group.

But there are deeper changes underway and especially in Latin America. The personal , social and political costs of the present set of policies have simply spilled over in recent years and are no longer sustainable. The struggle for market share and the associated conflict in Colombia, Mexico, Guatemala and other countries have demonstrated to the world that the costs are no longer worth bearing [if they ever were]. For the first time ever the US Government has been prepared to attend a meeting [in Colombia] where reform of the present drug policies were at least discussed even if no agreement was possible. It is now the case that most of the political leaders in Latin America are in favour of fundamental reform since the alternative is increasing political and economic instability together with rising numbers of gang-related deaths. The reforms in Uruguay which has effectively legalised marijuana are simply an indicator of the direction many other countries in the region seem bound to take in the relatively near future.

The pressures for reform are less intense in other parts of the world but the costs of the present system are nevertheless substantial and avoidable. As we have detailed in the main section of this paper there are economic and social costs that are unnecessary and where reform could be relatively easily be implemented. There are now 21 countries that have effectively decriminalised drug use including Belgium, Estonia, Australia, the Netherlands, Portugal and Spain [in the last case since the 1970s] without associated increases in rates of drug use.  However, it is still the case that underlying current policies in most countries are laws and practices which offend against the human rights of individuals and families. In many countries the death penalty is still imposed for small scale drug offences, such as in Iran and China, and others where people are sentenced to exceptionally long prison sentences for possession of small amounts of cannabis [and especially the USA]. In far too many countries in SE Asia people are sentenced to compulsory treatment under conditions that bear no relation to what is globally acceptable.

Millions are infected with HIV unnecessarily because of the absence of harm reduction services, and many thousands die of HIV-related illnesses each year because ARV drugs are disproportionately not made available by national health services to drug users. The failure to make ARV drugs available is especially prevalent in Asia and countries of the former Soviet Union where injecting drugs is the major driver of the HIV epidemic. This is despite evidence that those injecting drugs are as likely to be adherent to ARV treatment as others receiving this life-saving medication.

The litany of costs caused by the present prohibitionist system could go on, and on. But most of these costs, including the economic ones, are avoidable through policy reforms. We would all be better off under a system of regulated markets where services for those using drugs could be expanded and the costs of the present system largely be avoided. Many of these costs can relatively easily be identified and are not too hard to estimate empirically, and the empirical and other evidence should be presented to policy makers as part of the policy reform process. It is possible to get sensible policies as some countries have demonstrated but we urgently need to move to more general system reform – and the sooner the better for everyone.

Even UNODC has concluded that the money spent on law enforcement of the present system globally has been largely a failure- $1billion a year according to their 2012 Annual Report. To put this sum in perspective the WHO Global Polio Eradication programme is presently underfunded by $945million just at the point where there is a real chance of eradicating polio worldwide.  If economics is in large part about resource allocation then surely we can find better ways of utilising global resources than implementing a drug control system that has evidentially failed.