The Independent Institute


“El Chapo,” Cartels, and the Consequences of the War on Drugs

The drug kingpin Joaquín Guzmán Loera, more commonly known as “El Chapo,” (“Shorty”) was finally captured. That is, he was captured again. For more than six months, Mexican authorities have been tracking Guzmán after he escaped from Mexico’s most secure prison through a tunnel in his cell. Reports state that the tunnel was not a subtle undertaking. In fact, it was more than two feet wide and five feet tall. Guzmán could walk upright as he escaped through the tunnel, which was also equipped with lighting, a ventilation system, and a motorcycle on rails.

El Chapo’s reputation as a notorious drug lord is well deserved. Every year between 2009 and 2011, Forbes ranked him as one of the most powerful men in the world. In 2014, the magazine estimated that El Chapo’s Sinaloa cartel was responsible for a quarter of all illegal drugs entering the U.S. from Mexico. Conservative estimates placed the cartel’s annual revenue at more than $3 billion. His reputation even earned him a sort of perverted honor; he was named “Public Enemy No. 1” by the city of Chicago. Such a distinction has not been made since Al Capone.

Since Guzmán’s capture, many media outlets, public figures, and others have discussed what his arrest signifies. Some have focused on Chapo’s potential extradition to the United States to face trafficking charges. Mexican President Enrique Peña Nieto stated that El Chapo’s arrest “confirms that [Mexico’s] institutions have the necessary capacity to confront and overcome those who threaten the tranquility of Mexican families.”

I’m not at all confident that Guzmán’s capture will have any significance whatsoever. The Sinaloa cartel will continue to operate, drugs will continue to flow into the United States, and Mexico will continue to see high rates of drug-related crime.


It all comes back to the economics of prohibition. I’ve written elsewhere about the effects of prohibition on drug-related illnesses, overdose, and corruption, but El Chapo’s capture highlights another unintended consequence of the U.S. War on Drugs. That is, drug prohibition leads to increased violence and the cartelization of the drug industry.

While El Chapo is a major figurehead in the Mexican drug trade, it’s important to note that he is just one member of a complex network dedicated to earning their profits from the illegal drug market. This cartelization is a “textbook” consequence of drug prohibition. The reason why is easily understood. As law enforcement in the United States and elsewhere (note that the U.S. has substantial counterdrug operations all over the globe), smaller producers are driven out of the market for drugs. Your “mom and pop” drug producers and sellers see that their chances of getting caught, fined, or jailed have increased. For many, these potential costs are enough to push them out of the market. While this may seem to be a good thing, consider what happens next.

As smaller producers leave the market, the price of drugs is driven upward. This means that those remaining producers are going to reap larger profits. This big payoff, taken together with the fact that government is effectively eliminating a large chunk of the competition, means that cartels are more likely to enter and thrive in the industry.

This cartelization is particularly nefarious when one considers that violence is more likely in an underground or black market. Again, the logic is simple. In an illegal market, one cannot use typical mechanisms to resolve disputes. A simple example is illustrative. First, suppose we are in an above ground market for a good like Chipotle brand burritos. If Joe buys a burrito that makes him sick, Joe has a variety of ways to seek repayment. He may ask the store or company for a refund and to pay his medical expenses. He can take to social media to point out that the company’s product made him ill. Joe could also sue the company if all else fails, forcing the firm to hold up its end of the bargain—selling Joe food that won’t make him ill.

But suppose Joe is buying a black market good. Instead of buying a burrito, supposed instead he’s buying crack. If Joe’s dealer sells him a bad batch of crack, what can he do? He likely won’t take to social media to discuss his crack-induced illness. Likewise, he won’t go to the courts to file a complaint against his crack dealer. What Joe can do is threaten his drug dealer, assault him, threaten his family, or worse, in an attempt to rectify the situation. This type of violence in common in the market for illegal drugs. Combine this with the existence of a cartel and it spells big trouble.

In fact, between 2006 and 2012, there have been more than 60,000 drug-related homicides in Mexico. More than 26,000 people went missing in that same period. Some reports claim that the Sinaloa cartel is responsible for more than 80 percent of “narco” homicides.

So while the capture of El Chapo may be helpful in terms of public relations and offer a rallying cry for proponents of the War on Drugs, it’s unlikely his capture will have any true effect. The underlying incentives facing the market for illegal drugs remains the same.


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