July 22, 2016 12:57:28 am
Hyperbole surrounding Udta Punjab — the recent film highlighting the drug menace in that state, obscures certain realities. There seems to be a sense that we were surreptitiously ambushed by a few Pakistani drug peddlers conniving with corrupt Indian officials and politicians to bring Punjab to this condition. But that is not the truth. This is a systematic narco-terror campaign being waged against India. And like most complex issues, addressing this scourge requires a deeper understanding of its underlying dynamics.
Let us begin by understanding the business of narcotics using a framework like Michael Porter’s Five Forces. Porter’s framework explains the drivers of a business environment by examining the five distinct forces that influence the market place. These are: The power of the buyer and the supplier, the intensity of rivalry amongst market players, the barriers of entry into the business, and availability of substitutes for the product.
The power of the buyer refers to the ability of the buyer to either abstain from purchasing the product or obtaining it from sources other than the market place. In the case of addictive and illegal substances like narcotics, the buyer has virtually no power. Drugs, like heroin, can be addictive with just a single dose. This is why peddlers give “free samples” to first time experimenters. Once a victim is hooked, body physiology numbs every form of rational thinking other than the next fix.
As far as the drug cartels are concerned, poor farmers supplying them opium or coca base (for heroin and cocaine respectively) have no power either. Opium, coca or its less potent variants like cannabis, are hardy cash crops that grow under adverse circumstances in remote hinterlands, making them the crop of choice.
And while the processed product retails for billions of dollars, farmers producing the raw material sell tons of their produce at subsistence levels. Most drug farmers live totteringly near the poverty line and many work as bonded labourers, barely managing to make ends meet.
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The third force of “substitutes” also works in the favour of the drug lords. While alcohol is considered a substitute to narcotics, in the real sense it is not. This is one of the reasons that despite being an illegal and highly dangerous substance to trade in, drugs command their premium. Empirical data proves that drugs and alcohol don’t have inter-changeability of usage.
The fourth force — entry barriers — refers to the ease with which new entrants can enter the market place. For the incumbents, high entry barriers (like patents, government regulations or a very strong brand) are desirable. The narcotics market understandably has a very high entry barrier. New entrants risk getting killed!
The fifth force — intensity of rivalry — is counter intuitive. On the face of it, there seems to be intense violence amongst street pushers, but that is misleading. Drug cartel related rivalry causes a spate of killings, but at the strategic level the entire industry has been carved up amongst powerful gangs that focus on their core speciality of sourcing, processing, transportation and last mile distribution. At that level, there are collaborative agreements in place, which are essential for operations of any billion-dollar global enterprise.
So viewed through the prism of Porter’s Five Forces, narcotics is one of the most lucrative business to be in with an estimated rate of return upward of 7,000 per cent. What then, keeps the drug lords awake at night? No, it is not law enforcement. The seizures made by security forces are a drop in the bucket, proof of which is the fact that the street prices of drugs do not change regardless of the quantum of drugs confiscated. Also, law enforcement does a neat trick to bump up their efficiency by valuing the seized drugs at street prices instead of wholesale value, which is nothing short of cooking the books. The reason for that is the extraordinarily high differential mark up between the manufacturing and selling price. For example, a kilo of pure heroin sold for a few thousand dollars wholesale is diluted down with additives to achieve the street price of several hundred thousand dollars. Mark up of several thousand per cent is common for upmarket drugs and that’s why law enforcement chooses to use their street value while they announce drug busts.
What terrifies drug cartels is legalisation of narcotics. The colossal margins in the narcotic business and the accompanying social cost is largely because of its illegality, a fact that many countries are now realising. There is irrefutable data to prove that legalisation of even hardcore drugs like heroin (albeit administrated under medical supervision) is more cost effective than prohibiting it, which only serves to drive it underground with all its concomitant costs.
A second mistake is to focus on the supply side. Despite pouring millions of dollars in locating and destroying coca farms in South America, the US drug industry has kept increasing. In case of Punjab, this is not a viable option anyway because elements across the border will keep the flow steady. It would be wiser to invest in curbing demand by drug literacy and rehabilitation programmes. Unfortunately, societies view expenditure on addicts as wasteful.
Lastly, proliferation of drugs in Punjab must be recognised as part of an orchestrated offensive campaign by Pakistan. It is one of its thousand cuts. Undermining an entire state’s economic potential and stability, at a fraction of the cost of fomenting militancy, is an astute move. But the irony is that while our adversary has strategically coordinated various offensive instruments, ranging from druglords, terrorists, human traffickers, smugglers, organised criminal gangs to ISI agents, we are still responding with tactical ripostes and an alphabet soup of state and central agencies operating in silos.
The Punjab drug problem is a national security issue. The terrible social and economic devastation which accompany drugs will rapidly spill over from Punjab and scorch rest of the nation. The first step to solving any complex problem — including drug addiction — is acknowledging and accepting its full extent and gravitas. But when state apparatuses resort to steadfast denial as a response to an exacerbating situation, our future generations would rightly wonder — just what were we smoking during our watch.
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