The Development Impact of the War on Drugs

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Basic messages: 

  • Broadly defined, the “war on drugs” consists of various mechanisms to enforce the prohibition of the illegal drug trade.  It has a military connotation because it has been based on the use of force and coercion –through eradication, interdiction and criminalization of the drug trade.  Afghanistan, Colombia, Mexico, and Peru are just a few examples of the many countries where this war has been waged and suffered. 
  • While the war on drugs has not achieved its intended objectives, it has triggered a long train of unintended negative consequences.  It is plausible that the war on drugs causes more damage than the drugs themselves. The most harmful of the unintended consequences of the prohibition of the drug trade are violence and organized crime, and the social instability these can unleash, particularly in developing countries.  
  • A change in the paradigm to fight the detrimental effects of drug consumption may be necessary, from the current approach that emphasizes criminalization and penalization to a new public health approach that prioritizes prevention and treatment.1

Drug traffickers now openly advertise for hit men on the streets of Nuevo Laredo, Mexico. Growing populations of drug addicts have overwhelmed drug transit countries from Guinea Bissau to the Kyrgyz Republic. From Latin America to Central Asia, the struggle for rents from illicit drug markets has shaken political institutions. These unexpected effects of efforts to limit the pernicious effects of narcotic drugs by proscribing their trade and consumption should prompt renewed discussion of policies towards drugs. 

Countries have invested enormous resources to enforce these prohibitions. The United States spends about $40 billion annually on the war on drugs, up substantially from $10 billion in the mid-1980s (Reuter 2001).  The number of adults incarcerated for drug law violations in the US increased by more than ten-fold between 1982 and 2002, with the result that one in every four prisoners is in jail for drug-related offenses (Caulkins and Chandler 2005). The Mexican government has increased its expenditures to $9 billion per year to fight drug trafficking; this is more than three times the amount the U.S. spends relative to GDP. The substantial increase has financed the expansion of the federal police from 9,000 officers in 2006 to 26,000, and the mobilization of 45,000 military troops to fight drug-trafficking gangs. In Colombia, with the goal of combating drug trafficking and the insurgency backed by drug traffickers, the government committed the country to raise defense expenditures from 3.6 percent of GDP in 2003 to 6 percent by 2006 (Colombian Government 2003). The opportunity cost of these resources is particularly large in a country where public expenditures on health were only around 5 percent of GDP in 2000. 

Despite these efforts, the drug trade has flourished and drug consumption shows no signs of abating. Opium cultivation in Afghanistan (which is responsible for 80% of world production) reached one of its highest points historically in 2004 and has almost doubled since then. In the case of coca, aggregate cultivation in Bolivia, Colombia, and Peru in the mid and late 2000s was similar to the level observed in the end of the 1990s, despite the fact that reported eradication is supposed to have risen substantially during these years (Mejía and Posada 2010). 

It is possible that increases would have been larger in the absence of policies based on interdiction and eradication, but the evidence suggests otherwise. Eradication and interdiction strategies, no matter how well-implemented, are unlikely to succeed because drug producers and traffickers can shift the areas of cultivation, the inputs of production, and the method of transportation at low cost, particularly when compared to the final retail price of the drug (Reuter 2010). That is why, despite all the supply control efforts, heroin and cocaine prices in the US and Europe have declined steadily since the early 1980s. There is no indication of declining demand: Figures reported by the White House confirm that, from 1988 to 2001, self-reported use of drugs was essentially unchanged.2  And while the proportion of users is likely to have been fairly constant, harm per dose may have worsened: drug-related hospital admissions have more than doubled in the period between 1990 and 2002 (Grossman 2004). 

While the war on drugs has not achieved its intended objectives, it has triggered a long train of unintended consequences, raising the possibility that the war against drugs causes more damage than the drugs themselves. Moreover, the costs of prohibition seem to be borne disproportionately by developing countries that traditionally grow crops associated with the production of drugs or that serve as trade routes to drug consumers in rich countries. Three unintended consequences stand out. 

First, criminalization can exacerbate the negative public health effects of drug use. Prohibition drives drug traffickers and drug consumption to countries where it would otherwise not be prevalent, and where governments are significantly less able either to curb consumption or to treat drug users. Iran and Turkey –in the case of opiates-- and the Central American countries of El Salvador, Honduras, and Guatemala –for cocaine-- are clear and current examples. Moreover, prohibition undermines the usual vehicles of quality assurance upon which legal markets rely, making drugs more dangerous due to uncertain strength and adulteration. Likewise, prohibition impedes efforts to treat drug users and to prevent the spread of disease via drug use, such as the spread of AIDS among intravenous drugs users. 

Second, even if supply eradication efforts associated with prohibition are unsuccessful in the aggregate, they still impose losses on farmers who cultivate poppies or coca. Since these farmers do not have access or means to insurance, ex post losses for “eradicated” farmers can be catastrophic. Prohibition also induces the concentration of profits in the hands of the organized criminal networks that traffic the drugs. The price structure of cocaine and heroine along the production and distribution chain is quite telling in this respect (Reuter 2010). One kilo of pure cocaine is worth $800 at farm-gate (in Colombia) and $122,000 at final retail (say, Chicago). Showing an even larger price difference, one kilo of pure heroin costs $900 at production (Afghanistan) and $239,000 at final retail (London). Proportionally, the highest jump in price is observed as the drug leaves the producing country and reaches the wholesale market in the destination country. In this step of the supply chain the price increases 25 to 30 times! This price structure indicates that most profits are appropriated by intermediaries. While the risks of trafficking could explain some of this price increase, a reasonable explanation for much of it is that incumbent traffickers, especially international drug cartels, enjoy considerable market power – precisely because barriers to entry are high in markets where organized violence conveys a competitive advantage. 

The third and arguably the most harmful unintended consequence of illegality is organized crime and the social and political instability it can unleash. The potentially large rents for the production and distribution of illegal drugs induce the formation of criminal organizations, which assert their power through violence, insurgency, and corruption. One immediate consequence of the usefulness of violence in drug markets is adverse selection into the drug business itself: individuals prone to or skilled at violence are more likely to enter the drug business. The escalation of violence in areas that have become a stronghold of illegal drug production and trade highlights these harmful effects. For example, 27,000 people died on average in Colombia in each year of the 1990s as a result of violence. This death toll due to violence implied a reduction of more than 2 years in the Colombian life expectancy at birth (Soares 2006). 

Much violence results from traffickers competing for market share. However, state efforts to fight traffickers also unleash substantial violence. Large-scale policy and army operations have resulted in high numbers of deaths throughout the world, from Mexico and Brazil to Thailand and Colombia. In Mexico, for example, the army has recently been deployed to combat drug gangs, and these have responded in kind. Since President Calderón launched a major offensive against drug-trafficking gangs in December 2006, more than 20,000 people have died in drug-related violence (at alarmingly increasing rates), including around 1,000 police and soldiers. Probably the most widely-known case of drug violence goes back to Pablo Escobar, the leader of the once powerful Medellin Cartel. Responding to the threat of extradition to the US, the Cartel was responsible for the murder of a Minister of Justice, a Supreme Court Judge, an Attorney General, a chief of the Narcotics Police, and a front-runner presidential candidate, to cite only a few. Sadly, the pattern is the same across countries: police and judicial forces are deployed to combat drug gangs, they respond in kind, many people die on both sides, but the drug trade continues unabated. 

Organized crime groups link with other opponents of state institutions, magnifying the negative effects of drug traffickers on social and political stability. In Colombia (Revolutionary Armed Forces of Colombia, or FARC) and Peru (Shining Path), guerrillas and drug traffickers exchanged money and arms for protection until they eventually became undistinguishable from each other. In Afghanistan, the Taliban-led insurgency relies on the production of poppy-related drugs to finance its operations (a remarkable irony since the Taliban had successfully banned poppy cultivation during its last year in power). 

The challenge that organized crime poses to the country also takes more subtle, non-violent forms. The petty corruption of police and customs officials and the grand corruption of political campaigns and judicial systems undermine the institutional stability of a country. In some Central Asian countries (such as Tajikistan, Uzbekistan, Kazakhstan, Turkmenistan and Kyrgyzstan), organized crime associated with the drug trade has become politically and economically influential (Reuter et al. 2004). In Colombia, paramilitaries involved in trafficking have exercised significant political power in vast areas of the country (Thoumi 2010). Most recently, in November 2008, Noe Ramírez, Mexico’s drug policy czar and chief liaison with U.S. anti-drug officials, was arrested and charged with taking bribes of $450,000 a month from the Sinaloa drug cartel. 

So, what options do developing countries have? Clearly, they cannot unilaterally relax their stance against narcotic drug cultivation and trafficking because of the threat of international sanctions. They can still raise the issues for public and international debate. They can emphasize the unintended negative consequences of the war on drugs, as outlined above. They can also open the discussion regarding the real consequences of relaxing the prohibition regime. It is undeniable that this would lead to an increase in drug consumption. But, would it be epidemic? Or would it be manageable and consisting mostly of non-problem users? Studies to assess these effects are scarce, but the available evidence indicates that drug liberalization would not produce an addiction epidemic. Comparison across countries with widely different drug prices and enforcement policies suggests that the relaxation of current prohibition policies would produce an increase in drug consumption that, albeit significant, would not amount to widespread or epidemic drug use (see Loayza and Sugawara 2010). 

Thus, there is a strong argument for modulated drug policies that emphasize harm reduction, education, and treatment rather than outright prohibition (Miron and Zwiebel 1995). Modulation requires, as well, tailoring policies to particular circumstances, taking into account the differences in the harm posed by different drugs (e.g., high for heroine vs. low for marijuana), the responsiveness of their consumption to price changes (e.g., high for cocaine vs. low for heroine), and their level of entrenchment in society (e.g., high for marijuana vs. low for methamphetamines). If thirty years of tobacco policy have taught us anything, it is that effective control of addictive-substance markets can be achieved under legalization with strong but realistic regulations; they can be effective even when the substance consumption is initially widespread and socially acceptable. 

The lack of success of drug prohibition efforts raises questions about the wisdom of the substantial resources they have demanded. A change in the paradigm to fight the negative consequences of drug consumption may be necessary, from an approach that emphasizes criminalization and penalization to a public health approach that prioritizes prevention and treatment. Policy makers in developing countries are increasingly aware of the negative consequences of prohibition, and their calls for change are becoming louder and louder. In a Wall Street Journal article (“The War on Drugs is a Failure,” Feb. 23, 2009), three former Latin American presidents, Fernando Henrique Cardoso, César Gaviria, and Ernesto Zedillo, conclude, 

In this spirit, we propose a paradigm shift in drug policies based on three guiding principles: Reduce the harm caused by drugs, decrease drug consumption through education, and aggressively combat organized crime. To translate this new paradigm into action we must start by changing the status of addicts from drug buyers in the illegal market to patients cared for by the public-health system . . . Each country’s search for new policies must be consistent with its history and culture. But to be effective, the new paradigm must focus on health and education – not repression. 


Byrd, William and Christopher Ward (2004). “Drugs and Development in Afghanistan.” Social Development Papers – Conflict Prevention and Reconstruction, n.18. 

Caulkins, Jonathan P. and Sara Chandler (2006). “Long-Run Trends in Incarceration of Drug Offenders in the US.” Crime and Delinquency 52:4, 619-641. 

Colombian Government (2003). “Defense and Security.” Colombian Embassy, Washington DC (downloaded from 

Keefer, Philip, Norman Loayza, and Rodrigo Soares (2010). “Drug Prohibition and Developing Countries: Uncertain Benefits, Certain Costs,” in Innocent Bystanders: Developing Countries and the War on Drugs, edited by Philip Keefer and Norman Loayza, Palgrave Macmillan and The World Bank. 

Loayza, Norman and Naotaka Sugawara (2010). “The Prohibition of Drug Trafficking further Weakens Fragile Nations.” Mimeo, The World Bank. 

MacCoun, Robert and Peter Reuter (2001). Drug War Heresies: Learning from Other Vices, Times and Places. New York: Cambridge University Press.  

Mejía, Daniel, and Carlos Esteban Posada (2010). “Cocaine Production and Trafficking: What do We Know?” in Innocent Bystanders: Developing Countries and the War on Drugs, edited by Philip Keefer and Norman Loayza, Palgrave Macmillan and The World Bank.  

Miron, Jeffrey (2003). “Do Prohibitions Raise Prices: Evidence from the Market for Cocaine.” Review of Economics and Statistics, August, 85(3), 522-530. 

Miron, Jeffrey and Jeffrey Zwiebel (1995). “The Economic Case against Drug Prohibition.” The Journal of Economic Perspectives, 9 (4): 175-192.

Reuter, Peter (2001). “The Limits to Supply Drug Control.” Milken Institute Review (first quarter): 14-23. 

Reuter, Peter (2010). “Can Production and Trafficking of Illicit Drugs Be Reduced or Only Shifted?” in Innocent Bystanders: Developing Countries and the War on Drugs, edited by Philip Keefer and Norman Loayza, Palgrave Macmillan and The World Bank.

Soares, Rodrigo R. (2006). “The Welfare Cost of Violence across Countries.” Journal of Health Economics, 25(5), 821-846.

Thoumi, Francisco, E. (2010). “Competitive Advantages in the Production and Trafficking of Coca-Cocaine the Opium-Heroin in Afghanistan and the Andean Countries,” in Innocent Bystanders: Developing Countries and the War on Drugs, edited by Philip Keefer and Norman Loayza, Palgrave Macmillan and The World Bank.

 1 This essay is based on the authors’ article “Drug Prohibition and Developing Countries: Uncertain Benefits, Certain Costs,” in Innocent Bystanders: Developing Countries and the War on Drugs, edited by Philip Keefer and Norman Loayza, Palgrave Macmillan and The World Bank, 2010.  


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