Drugs and Dollars

The Economic Implications of the Mexican Drug War

By Sonny Stephens


[dropcap]S[/dropcap]ince the Mexican Drug War began in 2006 with Operation Michoacán, well over 100,000 lives have been lost. The United States (US) has intervened forcefully in the conflict, helping the Mexican government combat the cartels and cooperating with the Mexican Army. However, Mexico remains fraught with violence as both organized crime and government corruption run rampant throughout the nation. The current American-Mexican strategy is too militant, and should be rejected in favor of a more nuanced approach that combines military force with economic development.

The economic effects of the Mexican Drug War can be observed through the direct and indirect costs of violence. The Institute for Economics and Peace has found that in 2011, during the peak of the Drug War, the combination of violent crime management costs, medical costs to victims, and lost productivity costs totaled $213 billion. The number has dropped since then, totaling $154 billion in 2015. However, this still comprises nearly 20% of Mexico’s GDP.

Critically, some of the tactics used to combat the trade of illicit drugs have had troubling macroeconomic consequences. Recently, the rise of black tar heroin addiction in the US has propelled Mexico to become the world’s third-largest producer of the drug. As a result, the Mexican Army has used its troops to destroy the poppy fields of poor farmers in what is known as the “pentagon of poppy,” located within the state of Guerrero in southern Mexico. In this region, troops simply burn the fields in a practice referred to as “eradication.” But in this region there are unfortunately no government services or ways for these farmers to make a living outside of the production of opium poppy – they produce this crop largely because they have no other choice. A concerted effort to incorporate rural farmers into the formal economy therefore must be an essential step towards halting the drug trade.

Mexico as a whole is also suffering from “brain drain,” as many Mexicans go to the US for higher education. In 2014, an Americas Quarterly report observed that over 5% of Mexicans with bachelor’s degrees live in the US. A study from Mexico’s National Autonomous University found that 76% of high-skilled workers living abroad cited violence as a factor involved in their departure.

As a result of this brain drain, the Mexican economy is likely to continue along a producer-model of growth, depending on capital-intensive manufacturing industries with workers who do not have the option of moving abroad. Many companies, both foreign and domestic, have been making huge investments to increase output in Mexico. However, Mexico’s economy actually shrank in the second quarter of 2016, contracting by 0.2 percent. The combination of both reduced GDP and increased costs of drug violence paint a picture of economic malaise for the country. At this point, perhaps the only “sector” of the Mexican economy that is thriving is the drug cartels, who make billions in profits from illicit trading.

As such, it becomes evident that Mexico’s economy is buckling under the strain of the ongoing drug war. But the current solution implemented by both the US and Mexican government takes a far too militant stance: destroying crops, providing weapons, and training police does nothing to solve the underlying economic causes of the drug trade. Instead, it mostly adds to the instability and leaves rural farmers without work. Trafficking guns instead of trafficking drugs is simply not a sustainable solution.

I stopped going to Mexico City with my family in 2009. While the economic crisis played a major role, so was fear of violence. That year, The Wharton School reported that international tourism revenue went down 15%. While the drug trade does buttress certain industries, such as private security, it tears down others. I hope that I go back to Mexico soon, but more importantly I hope that meaningful solutions are found in regards to the drug trade – ones that focus on economic inclusion rather than just militant action.


Sonny Stephens is a sophomore in Silliman College who blogs about Latin America. You can contact him at mariano.stephens@yale.edu.