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I would not feel so all alone…

28 August 2010

The Agonist asks this weekend “What will the impact be if California votes to legalize marijuana?” Despite the Agonist’s self-description as “Thoughtful.  Global. Timely”, and the discussion that follows is thoughtful and timely, they only look at legalization in the largest U.S. state as having an impact on their own country.  No mention is made of the probable impacts here.

I’ve heard, again and again, the “just legalize it” argument — from people in the United States — as an answer to Mexico’s narcotics-export violence.  I think that’s hopelessly simplistic.  If anything, legalization in California may create more problems than it resolves here.

Although there has been a lot of discussion lately of “laundered money” coming back into Mexico from the narcotics export trade, I’ve noticed that the assumption is that the only “corrupting” being done with the cash is on this side of the border*.  Considering we’re only talking about — at most — ten billion U.S. dollars coming back into Mexico annually, and Mexican marijuana an allegedly 40 billion dollar a year business, obviously we’re not earning our fair share of the take.  Given that Wachovia Bank, all by itself, laundered $378.4 billion . If the money earned in this particular business is “corrupting”, it isn’t here that people should be worried about.

Of the  relative pittance coming back into Mexico some certainly is going into various officials’ pockets … although they have to buy cars, and computers and pay school fees or throw parties (and pay the caterers and the cooks and the mariachis) or hire guards, or use it somehow to other people’s benefits.  And, although the income is supposedly “dirty” (and unreported on taxes), I don’t know how many degrees of separation it needs to go through before it becomes “clean”… if a gangster invests in a hotel project, is the realtor who sold the land, or the construction company that erects the building, or the architect, also “corrupted”?  Maybe they are… and is the construction worker who is paid by the builder who was financed by the gangsters also corrupt?  How about the teacher, whose salary is paid by the construction worker who sends his daughter to a private school?  Or the waitress who gets a tip from the teacher who eats his lunch at the local comida economica?

Or, is it more corrupt that Wachovia Bank hires “lobbyists” and finances politicians who will revise tax codes to benefit their officers?

One first needs to define “corruption” and — even using the standards of Transparency International (which was originally funded by Arther Andersen — for real!) — Mexico is not particularly “corrupt”, so I¿m not sure that cutting off a cash flow to Mexico would be necessarily good for us… or, for that matter, to the United States.

Secondly, I’m not convinced that California’s legalization will do anything positive for our own agricultural sector.  A commentator on the Agonist article, Lex, writes:

The big growers [in Califronia] who are against it have a few reasons. One is that the current situation is pretty wide open… The big problem of too much cash disappears. It really couldn’t get any better for them than it is right now. Second, the new law actually limits the amount of space that can be used for cultivation in a residential zoning. That’s a problem for the big growers. The standard in California is to buy a house and fill it with weed. The big growers own multiple houses and employ people to “live” in them. If the new law is enforced, the big growers of today will have to switch to commercial property.

There will be no precipitous drop in prices. They haven’t dropped (so far as i know) in the 13 years that marijuana has been all but legal in California. At first, prices will go up because of the taxation regime. How the market responds is hard to tell. Theoretically, it will force the cartels out; if it does that’s slack that can be picked up by others. But there will not be a glut that drives prices down. Excess will simply be shipped out of state, where the risks are higher but the monetary rewards are much greater too.

Of course, in California, much of the marijuana is being grown indoors, in residential areas… which does give the Mexican growers some edge at least as far as cost competition.  But, mentions another grower issue, one that would impact our market share much more.

… the blog for Stoners Against the Proposition 19 Tax Cannabis Initiative features Dragonfly de la Luz, the pen name for a roving marijuana correspondent and pot reviewer also known as “Ganja Girl” and the “Weedly World Traveler.”

Dragonfly writes that passage of Prop. 19 “reverses many of the freedoms marijuana consumers currently enjoy, pushes growers out of the commercial market, paves the way for the corporatization of cannabis, and creates new prohibitions where there are none now.”

As with any other agricultural product in the United States, corporate growers are likely to drive out independent producers and control the market.  For Mexican farmers, this is likely to mean either the U.S. government will be “lobbied” (or, in the weird way the U.S. legalizes bribery, through “political contributions”) to limit foreign production and sale.  As with tomatoes and avocados, the import regulations would be written to limit sales of Mexican produce to corporate vendors which would not only control market prices — which is the proper definition of a cartel (which isn’t a bunch of competing gangsters, but a cooperative agreement among vendors to control a market).

It’s not like the marijuana growers are independent producers now, being at the mercy of their distributors (who are likely to kill them if they screw up), but  it isn’t any economic benefit to the farmers themselves.  Quite the opposite.

Admittedly, there may be alternative uses for marijuana (as bio-diesel or cheap fiber) but I sense that it would either require even more concentration in the agricultural sector (driving still more rural residents off the land) or would be, at most, a niche market not returning nearly the same profits that marijuana grown for narcotics does.

Finally, while the “drug war” is a proxy war to meet the U.S. demand for controlling the marijuana trade (among other narcotics, for which there is still a huge U.S. demand), and an excuse to militarize Mexico, legal consumption in California isn’t going to magically make it disappear.  The claim by supporters of the California initiative is that consumption won’t increase.  Perhaps that’s true (and, my sense is that regulatory pressures will push for “milder” marijuana being the most widely available… the same way commercially sold alcoholic beverages have a lower proof than moonshine, and packaged cigarettes less nicotine than “roll your own” tobacco products).  But, given (or so I’m told)  that Mexican grown marijuana isn’t nearly as rich in THC as that grown in California or British Colombia, and isn’t the first choice of consumers, what market it has is going to be for consumers without commercial options… the other 49 states.  In other words, a “drug on the market”  that will lead to even more cut-throat competition in an already cut-throat business.

And, while the California law eliminates a part of the rationale for the militarization of Mexico, the gangsters are not just going to become solid citizens.  With even less economically viable agriculture, there will be MORE incentive to turn to “alternative financial opportunities” in the campo… and among the displaced in the cities.  The gangsters are likely to turn to migrant smuggling or kidnapping or other forms of mayhem.

* Sidney Weintrab and Duncan Wood, in a Center for Strategic and International Studies report (“Cooperative Mexican-U.S. Antinarcotics Efforts“, August 2010) that has been making the rounds lately, spends three pages on  “Corruption” when talking about profits returning to Mexico, but only three sentences on “Shortcomings” when the issue is money in the United States… and two of them dismissing a single case of a bribed customs inspector.

Here’s some old hippie who seems to have mixed feeling about all this:

3 Comments leave one →
  1. Captain Tuna permalink
    28 August 2010 11:47 am

    Okay, let me see if I get this. First, the money laundering that is referred to took place over a three year period, which makes it about $126 billion a year. In some places it has been reported that the annual return to Mexico is as high as $19 billion a year to as low as $10 billion a year (as reported by the story referenced in this blog). Now, given a usual biz. model if the return to Mexico is considered as profit, after burden, and overhead (inclusive of anticipated losses), this isn’t a bad return on investment. Yeah, my math may be a little fuzzy, but still not a bad business model for any industry. Plus, there has to be a lot of profit taking, and skimming along the way by various participants (part of the B&A). Still, a lucrative enterprise.

    Yes, I am ignoring the human cost, and blood that is on the hands of far too many people in high, and low, places. How corrupt, shameful, cynical, oh hell one runs out of all but the vilest language to express outrage at everyone involved. On the other hand, aren’t greed and corruption wonderful things? Party On Dudes!

  2. Maggie permalink
    28 August 2010 8:02 pm

    That’s how the Agonist is Richard, it agonizes them to no end to think outside of the box, sorry but it’s true.

  3. Frank permalink
    30 August 2010 7:00 am

    “Given that Wachovia Bank, all by itself, laundered $378.4 billion.”


    Just a little correction not all of the 378,4 billion was laundered money, this was the total of all monies from exchange houses. Unless Richard is saying all the money immigrants send thru exchange houses are drug profits.

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