Globalization has accustomed American consumers to regular doses of low-priced joy from their local retail megamart -- like the news that 32-inch flat-panel TVs made in China can now be purchased at Wal-Mart for under $600. Now comes a paper by two European economists arguing that globalization is also responsible for astonishing price drops for hard drugs over the past two decades. (Thanks to the Globalization and the Environment blog for the tip.)
At first glance, the laws of supply and demand seem to be seriously out of whack. Since 1990, trends in the worldwide supply and demand for cocaine and heroin have been more or less flat, but prices have dropped 50 to 80 percent. In "Globalization and the Price Decline of Illicit Drugs," Claudia Costa Storti and Paul de Grauwe explain: The "intermediation margin" -- the difference between producer prices and retail prices, has collapsed. The cost of getting the product from Afghanistan or Colombia to New York or London has plunged.
And you can thank the awesome efficiency of global markets for that:
Transport costs have been reduced and the use of the new [information technology] IT has allowed to dramatically improve the efficiency of the distribution of drugs and made it possible to cut on the number of intermediaries. This new IT has also made the communication between demand and supply safer and quicker, leading to better stock management, and has much improved communication among dealers. In addition, the explosion in the size of international trade flows has made it possible to better conceal the transport and the distribution of drugs. Finally, the sophistication of the international financial markets has greatly increased the scope for money laundering to remain undetected. All this has led to a decline in the cost of distributing drugs.
The authors also suggest that the "risk premium" -- the danger associated with getting involved in the drug business, and which consequently results in high prices, has declined because of the flood of new participants in the global economy as a result of the opening up of the economies of China, India and Russia.
The theory that globalization makes criminal activity easier is not new. And sadly, the authors offer little in the way of real detail as to how exactly the drug trade is being made more efficient. (If you have a subscription to the Atlantic, however, you can apparently get a grittier rundown of exactly that, reports econoblogger Felix Salmon.) But, as Salmon notes, the really interesting question is why consumer demand hasn't jumped in response to lower prices. I know that as flat-screen TVs get cheaper, I'm ever more likely to purchase one. So why hasn't an international coke bingeing, heroin shooting-up party broken out?
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