The Afghan government just announced a new crackdown on opium production. That country now produces 90 percent of the world’s output. Opium reportedly is the largest single component of Afghanistan’s gross domestic product. Though laudable, history and economic theory tell us the government’s campaign will have only limited success.
The problem with trying to limit the growing of such crops is that any success in restricting output pushes up the price of what is produced. This increases profitability for the remaining producers. The greater the effort put into eradicating production, the greater the incentive for producers to somehow keep on producing.
There is much history here. For four decades, the United States has prodded various South American countries to eliminate marijuana and coca growing. Such programs usually emphasize sticks — arrests and forcible eradication. Some also included a small carrot of providing poor peasant growers with some alternate crop.
I worked on a U.S. foreign aid project in Peru in 1980-1982 and saw such efforts firsthand. Our project, funded with a couple hundred thousand dollars, helped livestock production at high altitudes. A drug-control project, funded with tens of millions, tried to curtail coca production 40 miles further east and 8,000 feet lower down.
But it was spitting into the wind. Huánuco, the regional center of coco production, was booming. Stores were full of TVs, VCRs, and Honda generators to power them. Thousands of people buzzed about on Japanese motorbikes. Most people looked well fed. U.S. and European cokeheads were lifting thousands of Peruvians out of poverty.
The U.S. drug-control project hired agronomists and ag economists to find alternative crops. The problem was that there was no alternative crop that was even a fifth as profitable as coca. Any coca grower who shifted to watermelons or rice was a chump.
And so squads of Peruvian army and police were ferried around in U.S. helicopters to grub out coca bushes here and there. U.S. airplanes sprayed herbicides on coca and food crops alike. To the extent such efforts cut coca production at all, prices for cocaine paste rose in response and rational peasants sought even more secluded places to establish new plantations.
The same will happen in Afghanistan. Opium poppies are the best way for Afghan farmers to feed their families. As long as U.S. and European drug users are willing to shell out billions to support their habits, poor growers somewhere will produce the raw material.
In week two of any introductory econ course, students learn that reducing supply raises prices. Reducing demand lowers prices. For various reasons, including an unwillingness to acknowledge our own society’s role in drug abuse, we spend many times more on curtailing supply rather than demand. Prices rise, and producers respond just as the textbooks say they will. Nothing much will change until we curtail demand.
© 2007 Edward Lotterman
Chanarambie Consulting, Inc.