Drug bans are bad economics

Last updated 13:37 17/07/2009

The most convincing evidence of the harm caused by the criminalisation of party pills in April last year comes from a recently convicted drug dealer.

This man, whose name is suppressed, admitted smuggling 100,000 ecstasy tablets in just three months. He told media that his small operation became massive almost overnight after  the government banned  party pills, which contain the active ingredient benzylpiperazine (BZP).

The ban was instituted despite an investigation showing BZP caused little harm to users. BZP is not like methamphetamine, which in its crystalised form is called P, and ecstasy. The criminal acts and damage caused by P addicts have filled news pages for months. Ecstasy, while less harmful, has been implicated in several deaths.

When the ban became law, people switched from taking safer party pills to the much more dangerous methamphetamine and ecstasy.

 "I went from selling 5000 pills a month to 5000 pills a week," the 52-year-old drug dealer explained to a weekend newspaper about the financial impact to his operation of the ban, which he estimated had generated up to $12 million in revenue.

Even the medical profession concedes the BZP ban is fanning greater recreational use of more dangerous drugs. There's an argument that all drugs should be decriminalised because criminalisation generates more harm than good by handing control of a desirable commodity to organised crime. When criminal elements are involved, it is argued, the damaging effects of drug use are amplified.

Think of the growth in popularity of bootleg liquor during prohibition in the United States.

A regulated and restricted system of laws surrounding drug use would remove violent criminal elements and allow better access to treatment, is how the argument goes.

This contention is particularly compelling in the case of BZP because it was a proven safe drug servicing a large market, as evidenced by its ubiquitous presence on shelves in corner dairies and liquor stores.

People desire intoxicants. The history of alcohol, cannabis and drugs extends three millennia. Drugs are a commodity and are traded the world over. Supply is meeting demand and economic theory holds that when that demand is denied by a ban, it creates unintended consequences; in this case, a massive source of income for transnational crime organisations and gangs.

Some of the most alarming reportage on this subject of late comes from economists such as Loretta Napolioni, who writes about the massive global reach of criminal empires trading in drugs and people, two of the most pernicious and lucrative trades.

Lev Timofeev, a Russian expert on drug economies, believes drug prohibition gives transnational operations not just market-moving power, but the ability to influence whole societies and nations.

In his view, it is prohibition that enables such far-reaching power. New Zealand doesn't suffer the predations of drugs, prostitution and people-smuggling to the same extent as eastern Europe, Russia and parts of the Middle East. Part of the reason is its geographical remoteness but also this country's relative liberality to restrictive social legislation.

But, as the BZP ban shows, authorities can and do make the same policy mistakes as their international equivalents. The Law Commission will soon  deliver a report recommending a raft of changes to the sale of liquor. On the table are restrictions on age and even the number of outlets in any given area. If they follow through on the latter, you can bet shops will be restricted in poorer districts and not in more affluent suburbs.

Damning evidence from the US shows the prohibitive legislative hammer falls hardest on the poor and vulnerable. Leaving aside the interesting issue of why drug and alcohol use is higher in this socio-economic sector, the American experience suggests enforcement of bans cause greater social damage than the drugs themselves.

It was pleasing to see Roger Kerr, the Business Roundtable's executive director, wade into the liquor debate recently, particularly his evisceration of the self-serving economic analysis of the economic cost from alcohol use. The commission will rely on a Business and Economic Research Ltd (Berl) report showing the net external cost to the country from drinking booze is $4.8 billion, a ludicrous sum. An independent university study reviewing Berl's work puts it at $146.3 million, less than 5 per cent of the initial estimate.

Kerr also put in a word for the social benefit of drinking, a rarely heard view in these censorious times. He emphasises enforcement of existing regulation as a better mechanism for dealing with unwelcome social outcomes from boozing rather than more restrictive laws or a ban.

Banning drugs, whether BZP or alcohol, is bad economics; economists of the Right and Left agree a rare consensus. Hopefully, the Law Commission will see it the same way when it publishes its liquor law recommendations.

Post a comment
Alan Wilkinson   #1   02:23 pm Jul 17 2009

Spot on, Nick. Brain-dead fearmongering exported by the USA created a global social and economic disaster via idiotic drug policies.

The Trickster   #2   04:30 pm Jul 17 2009

Alan Wilkinson #1 02:23 pm Jul 17 2009


Field Marshal   #3   08:11 pm Jul 17 2009

If NZ economists cannot come up with one good alturnative regarding such a large sum of money . Then their input is about as valuable as the law commision agreeing that drugs are productive.

Wellingtonian   #4   08:36 pm Jul 17 2009

It seems doubly ironic that (as I heard it) the US military were dishing out amphetamines to troops as early as in WW2, to allow soldiers to stay alert for longer periods. The US government presumably had no problem reconciling this with the later stupid "war on drugs".

One things bothers me a little - with legalisation and safer and much cheaper supply sources, surely the criminal fraternities currently engaged in the business would not take too kindly to the competition, and might stop at nothing in trying to keep dominance.

Comments please?

Chris09   #5   11:59 am Jul 18 2009

Economists rightly know drug prohibition will never work because it ignores the fundamental law of supply and demand.

Many ordinary, responsible adults choose to consume substances other than alcohol - for pleasure, relaxation, medical use, creativity or spiritual growth - but because they cannot buy them legally they are supplied illegally by criminals. The huge gulf between the cost of producing drugs (almost zero) and their grossly inflated retail price is a lucrative subsidy to increasingly powerful organised crime groups. The vast profits to be made encourage corruption and mean anyone caught is quickly replaced by another.

A 2005 study by Harvard's Jeffrey Miron (endorsed by over 500 economists including Nobel winner Milton Friedman) found replacing cannabis prohibition with taxation and regulation similar to that used for alcohol would produce savings and tax revenues of between US$10 billion and $14 billion per year.

Another economic analysis conducted by George Mason University professor Jon Gettman in 2007 found tax revenue from US cannabis sales could be even higher: according to the study the retail value of the total US marijuana market is now a whopping US$113 billion per year.

Responsible marijuana consumers like me want to pay tax. All we want in exchange for potentially rescuing the economy is that we be left alone and our privacy respected.

rocketman   #6   08:54 am Jul 20 2009

Couldn't agree more. Prohibition didn't work with alcohol and doesn't work with drugs. Nutters like Jim Anderton are supporting the drug trade, not restricting it. Much of the damage from drugs is from the rubbish that goes into them (as you would expect when a gang becomes a pharmacist). Making high qualifty pure drugs available woud remove the midle man (ie the gangs), create some market control and allow user to seek treatment without being classed as crims.

lucas   #7   07:16 pm Jul 20 2009

I believe that, the weekend after bzp pills were made illegal, a lot of bored teenagers made a visit to their local tinny house. marijuana is a whole lot more dangerous than these pills, and easy to obtain.

The Trickster   #8   09:15 am Jul 21 2009

lucas #7 07:16 pm Jul 20 2009

I think someone needs to look up the famous Bill Hicks quote.

I'd much rather have some kids sitting on a couch stoned giggling and tucking into a large bowl of icecream than getting pissed and then having a fight at 2am because they didn't get the bird they wanted at a party.

Rick Rowling   #9   02:41 pm Jul 22 2009

Wellingtonian #4 "the US military were dishing out amphetamines to troops" - if they used P they may have got a useful group of "berzerkers" (http://en.wikipedia.org/wiki/Berzerker) to boot...

Back on topic, "regulated and restricted system of laws" would surely be as ineffective as prohibition at limiting consumption.

If someone wants the substance and can't get it legally (because of prohibition OR regulation & restriction) and is willing to pay, there's still an opening for a black market. The (black) market supply will still meet demand, just maybe not all of it.

al   #10   10:04 pm Jul 22 2009

Official trials of BZP had to be stopped on ethical grounds because of the harmful effects being caused to those testing the stuff, which after all is a concoction of poisoness and dangerous chemicals (including one used as a cattle drench). Chch Hospital publicised the very serious effects on young people - seizures were reported - entering the emergency department having used BZP as a "recreational" drug. No responsible government can stand by and allow this to continue without some sort of intervention.

Alcohol and smoking are "decriminalised" and yet remain by far the two most harmful drugs in this country. It is not an arguement to say that some may move to other drugs - there are always those who do not have the necessary spark of intelligence to do otherwise. If governments decriminalised certain actions because of an element who do what they want to anyway then we may as well not have any criminal code, or for that matter much of anything else. Despite the modern fad for non-interventionist government, society would simply be unable to function. It doesn't work both ways.

The idea of deciminalising BZP or any other type of unprescribed drug, whether P, marajuana, cannibas, alcohol, opium, etc is about as fatuous as they come and would be a cop out and an unsustainable decision by any government. The real criminals in this world are those dealing with what are currently classified as illicit drugs. They don't need any encouragment to expand their malevolent trade and we shouldn't be so naive as to think they wouldn't, as it is with the unconscionable cartel that is the tobacco industry.

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