The war against cocaine rests on a simple idea: If you restrict its supply, you force up its price, and fewer people will buy it. Andean governments have thus deployed their armies to uproot the coca bushes that provide cocaine’s raw ingredient. Each year, they eradicate coca plants covering an area 14 times the size of Manhattan, depriving the cartels of about half their harvest. But despite the slashing and burning, the price of cocaine in the U.S. has hardly budged, bobbing between $150 and $200 per pure gram for most of the past 20 years. How have the cartels done it?
In part, with a tactic that resembles Wal-Mart’s. The world’s biggest retailer has sometimes seemed similarly immune to the laws of supply and demand, keeping prices low regardless of shortages and surpluses. Wal-Mart’s critics say that it can do this in some markets because its vast size makes it a “monopsony,” or a monopoly buyer. Just as a monopolist can dictate prices to its consumers, who have no one else to buy from, a monopsonist can dictate prices to its suppliers, who have no one else to sell to. If a harvest fails, the argument goes, the cost is borne by the farmers, not Wal-Mart or its customers. […]
The raw leaf needed to make one kilogram of cocaine powder costs about $400 in Colombia; in the U.S., that kilogram retails for around $150,000, once divided into one-gram portions. So even if governments doubled the price of coca leaf, from $400 to $800, cocaine’s retail price would at most rise from $150,000 to $150,400 per kilogram. The price of a $150 gram would go up by 40 cents—not much of a return on the billions invested in destroying crops. Consider trying to raise the price of art by driving up the cost of paint. […]
A dollar spent on drug education in U.S. schools cuts cocaine consumption by twice as much as spending that dollar on reducing supply in South America; spending it on treatment for addicts reduces it by 10 times as much.