Jeffrey Clemens has an excellent piece summarizing his work on the economics of opium production and foreign policy:
From the perspective of Eurasian heroin traffickers, raw opium accounts for a small share of the cost of reaching either their middle- or high-income consumers. Most of the cost is driven by the expenses and risks associated with trafficking itself—bribery, money laundering, document forgery, and, when attempts to evade the authorities fail, violence. As a result, traffickers’ demand for the opium produced by Afghan farmers is inelastic, meaning that even a substantial change in the prices required by farmers will have a modest effect on the quantity the traffickers choose to acquire. This meant that the government’s efforts to reduce poppy cultivation had a greater effect on prices than on the quantity produced—the government drove up opium prices without reducing the quantity demanded by and produced for traffickers.
While overall opium production did not decline, it did undergo an important shift. Predictably, opium production shifted out of the government’s most tightly held provinces and toward provinces in which the government struggled to exert control. This stemmed from a straightforward issue of targeting and state capacity. Prohibitions can only be enforced on territory that the state governs. As a result, opium suppression efforts reduced poppy cultivation in provinces in which the Taliban had historically been weak. Before the increase in counternarcotics spending, poppy cultivation was prevalent in districts across the country. By the late 2000s, however, it had consolidated in areas dominated by the Taliban in the country’s southwest provinces, in particular in Helmand province, which regularly accounts for half of the land cultivated with opium poppies.
Thus, not only did the war on opium fail to reduce opium production it increased the strength of the Taliban. There are general lessons:
When a policy impinges on people’s livelihoods, it risks alienating the very population on whose loyalty the government relies. When state capacity is low, pursuing such policies is thus likely to be unwise. And it is precisely those who oppose the government’s authority, and have the means to resist it, who will tend to thrive in illicit markets. By creating such markets, then, prohibition policies can create economic environments that enrich the government’s adversaries. Similar dynamics have long been at play in the conflict between the Colombian government, drug cartels, and assorted paramilitary groups, where US aid has historically been linked to efforts to suppress cocaine production
…Economic prohibitions can thus have the unintended consequence of enriching the government’s opponents. When a state is weak, it should thus forego, or at least deemphasize, the imposition of economic restrictions. The ability to enforce prohibitions is a luxury reserved for stronger and more stable regimes.
This piece and the underlying research make for excellent undergraduate teaching material as it show the power of simple economic principles to understand the world.
Addendum: On the last point about weak states foregoing the imposition of economic restrictions, see also my piece with Shruti Rajagopalan on Premature Imitation.
Picture Credit: “Poppy Field (Chollerford)” by wazimu0 is licensed with CC BY 2.0. To view a copy of this license, visit https://creativecommons.org/licenses/by/2.0/