A wide range of estimates for the size of the illicit drug market have
been made. Following are three examples, after which we present a more skeptical analysis.
"Mexican drug traffickers have shoved aside their counterparts in Colombia to take control of the $4 billion illegal drug trade in the United States.
"Mexican drug traffickers have pushed aside their Colombian counterparts and now dominate the U.S. market in the biggest reorganization of the trade since the rise of the Colombian cartels in the 1980s, U.S. officials say.
"Mexican groups now are behind much of the cocaine, heroin, marijuana and methamphetamine on U.S. streets, the officials say, with Mexican law enforcement agencies viewed as either too weak or too corrupt to stop them.
"Mexico's role as a drug-trafficking hub has been growing for some time, but its grip on the $400-billion-a-year trade has strengthened in recent years."
Source: "Mexico Now Top Supplier of US Drugs," by Pablo Bachelet, Miami Herald,
July 31, 2005
"[T]he value of the global illicit drug market for the year 2003 was estimated at US$13 bn [billion] at the production level, at $94 bn at the wholesale level (taking seizures into account), and at US$322bn based on retail prices and taking seizures and other losses into account. This indicates that despite seizures and losses, the value of the drugs increase substantially as they move from producer to consumer."
Source: United Nations Office on Drugs and Crime (UNODC),
World Drug Report 2005 (Vienna, Austria: UNODC, June 2005), p. 127.
"In 2000, Americans spent about $36 billion on cocaine, $10 billion on heroin, $5.4
billion on methamphetamine, $11 billion on marijuana, and $2.4 billion on other
substances."
Source: Abt Associates, "What America's Users Spend on Illegal
Drugs 1988-2000" (Washington, DC: Office of National Drug Control,
December 2001), p. 2.
Analysis:
The value of the illicit drug market is extremely difficult to estimate. The
few serious attempts which have been made have resulted in widely varying
figures. In the
first excerpt above, from the Miami Herald, the figure of $400 billion
was given. That estimate can be found in a United Nations publication issued in 1998,
"Economic and Social Consequences of Drug Abuse and Illicit Trafficking,"
and was until early in 2005 cited in
Drug War
Facts.
According to the UN in 1998:
"With estimates of $100 billion to $110 billion for heroin,
$110 billion to $130 billion for cocaine, $75 billion for cannabis and
$60 billion for synthetic drugs, the probable global figure for the
total illicit drug industry would be approximately $360 billion. Given the
conservative bias in some of the estimates for individual substances, a
turnover of around $400 billion per annum is considered realistic. This
figure can be compared to estimates of more than $500 billion which are
based solely on the average of minimum and maximum prices in the United
States."
Source: United Nations Drug Control Program, "Economic and Social Consequences of Drug Abuse and Illicit Trafficking," Technical Series No. 6, 1998, p. 55
The UN's 1998 figures were more wild guesses – probably politically
motivated – than solid estimates.
As Francisco Thoumi noted in the Journal of Drug Issues:
"The first United Nations’ World Drug Report (UNDCP, 1997a) published in 1997
states: 'Many estimates have been made of the total revenue accruing to the illicit
drug industry – most range from US $300 billion to US $500 billion. However, a
growing body of evidence suggests that the true figure lies somewhere around the
US $400 billion. …a US$400 billion turnover would be equivalent to approximately
eight percent of total international trade' (UNDCP, 1997, pp. 123-124).5 The history
of these estimates is interesting, if very frustrating. Naylor (2002, p. 33) traces the
origin of the $500 billion to the late 1980s: 'The $500 billion figure was the result
of 'research' attempted by the United Nations agency responsible for coordinating
the global assault on drug trafficking – when the boss was desperate for a quick
number before a press conference' after which that figure received widespread
publicity and put UNDCP in a delicate position since it had to justify it.6 Carlos Resa-
Nestares found an earlier source for the $500 billion figure: 'The global drug trade
may run up to $500 billion a year, more than twice the value of all U.S. currency in
circulation. The American market, the world’s biggest for these drugs, producess
annual revenues of a least $100 billion at retail – twice what U.S. consumers spend
for oil' (personal communication from Resa-Nestares citing Kraar, 1988)."
Source: Francisco E. Thoumi, PhD, "The Numbers Game: Let's All Guess the Size of the Illegal Drug Industry!" Journal of Drug Issues, Vol. 35, No. 1, Winter 2005, p. 189.
Thoumi continues:
"After the $500 billion 'estimate' was divulged, the research section revised
in more detail the data it had available and concluded that such a number was
exaggerated and could not be used in the 1997 World Drug Report. It is apparent
THOUMI
that the original $500 billion figure was too high, and the UNDCP had to avoid
embarrassment. To avoid potential critics, the UNDCP decided to lower it somewhat
and came up with $400 billion. This author has questioned several UNDCP members
about the procedure that led to this figure, and the best explanation they could offer
was that they surveyed an array of estimates made in different parts of the world
and came up with approximately $365 billion, a figure that was rounded up to
$400 billion. If they had arrived at $335 billion, would they have rounded it down
to $300 billion?7
"The lower $400 billion figure is claimed to have been based on another UNDCP
(1997b) publication. This is a 60-page study, part of UNDCP technical series, that
covers a wide set of issues including drug production, seizures, consumption, and
the social and economic consequences of drug abuse and trafficking. These include
the effects on employment and productivity, determinants of illicit drug prices,
effects on balance of payments, on financial systems, on investment and savings,
on family and community, health, education, environment, crime, corruption, and
dangers for civil society. This is certainly not a document arrived at by a serious
effort to determine the size of the illegal drug industry, although it does puts together
the results of various studies to obtain a figure for the total world turnover of the
illegal industry. However, those studies do not follow a common methodology and
have been written by unrelated groups. The result is a total that includes not only
apples and pears but also bananas and an assortment of tropical and temperate zone
fruits, an aggregation of incomparable elements.
"UNDCP's statement that illicit drug trafficking accounts for 8% of world
international trade is yet more incomprehensible than its $500 or $400 billion figure
because it is clearly a comparison between apples and pears. The $400 billion figure
is turnover at the retail level, a much higher one than the value of illicit international
drug trade.8 Using the cocaine market as an example, one can say that the wholesale
cocaine price ready for export in 'Andinia' is about $1,500 per kilogram. The
wholesale import price in the United States is around $15,000 to $18,000, and the
retail value sold by the gram can reach $120,000. The question is which of these
figures should be used in the comparison with global international trade? It is obvious
that it should be one of the first two, but not the third one used by UNDCP.
"If one uses 'Andinia's' export price, the estimate should be about 80 times lower
than if one uses the last figure, that is, about 0.1% of global trade. If one uses the
United States import price, the figure would be about 1% of global trade. Apparently,
none of these two estimates were satisfactory to UNDCP, perhaps because they did
not show that illicit drug trade represented a large share of global international trade.
Furthermore, any serious estimate should study the difference between wholesale
export and import prices that is about 1,000%, compared to about 5% in licit trade."
Source: Francisco E. Thoumi, PhD, "The Numbers Game: Let's All Guess the Size of the Illegal Drug Industry!" Journal of Drug Issues, Vol. 35, No. 1, Winter 2005, pp. 189-190.
Thoumi finally cites what he calls "probably the most serious attempt"
to estimate the size of the illegal drug industry:
"It is also worth noting that by 1999, the UNDCP had not attempted to follow up its efforts to estimate the size of the world illegal drug market. That year, the Financial Action Task Force (FATF) [an inter-governmental body focusing on anti-money laundering activities and legislation] decided to begin work to assess the size of the world illegal economy and found it convenient to start with an estimate of the illegal drug market, a task that was considered easier than estimating other illegal activities, given the large work on drugs already available. FATF hired Peter Reuter, a well-known economist who has done extensive work on illegal drug markets, and produced an estimate. This job had the full cooperation of the UNDCP, which opened its data bank to the researcher. The resulting study is probably the most serious attempt to ascertain the size of the world illegal drug market and resulted in an estimated range between $45 and $280 billion."
Source: Francisco E. Thoumi, PhD, "The Numbers Game: Let's All Guess the Size of the Illegal Drug Industry!" Journal of Drug Issues, Vol. 35, No. 1, Winter 2005, p. 191.
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