by Richard C. STEVENSON

GREAT BRITAIN - Professor of Economics at the University of Liverpool , and the author of many articles on economy, including "The Benefits of Legalising the Heroin Trade".

ABSTRACT: The drug repression policy is so expensive and inefficient that we must try to evaluate the costs of the effects of legal drug distribution and commercialisation. Today we have little objective information with which we might compare the actual costs of prohibition with those incurred through legalisation. However, certain estimates exist that lead us to believe that "depenalising" would result in a considerable global decrease in the present costs.

("THE COST OF PROHIBITION ON DRUGS", Papers of the International

Anti-prohibitionism Forum, Brussels 28th september - 1st october 1988; Ed. Radical Party)

INTRODUCTION

When Western leaders met in Toronto earlier this year, they agreed on a series of measures for intensifying the 'War on Drugs'. The main candidates for the Presidency of the United States compete in the vehemence with which they condemn the drug trade and Mr. Bush has claimed that "we can win this terrible war". This may be true, but none of the drug warriors has ventured an estimate of the likely length of that war, or the price of victory.

So far, supply-side policies which attempt to eradicate crops, seize supplies and apprehend dealers, have been countered by increased power and sophistication in the illegal drug trade. The drug industry already has at its command greater resources than many governments, and high profits enable criminal firms to protect and extend their monopoly power.

Experience shows that supply-side policies are expensive as well as ineffective. They do not curb the demand for drugs and are actually counter-productive through their effect on drug prices. Present policies increase drug prices far beyond the level which would prevail in a legal market. The result is that users are forced into anti-social life-styles which impose large social and economic costs on innocent third parties, which include the taxpayer. The better approach is to try to reduce the demand for drugs by educating, persuading and frightening users and potential users, but demand-side policies are in their infancy. Time may show them to be effective, but the campaigns against alcohol and tobacco suggest that twenty years may be too short a period in which to expect decisive results.

The problem arising from illicit drugs, such as the effects on unborn children, the spread of AIDS, and the threat to legal and political institutions, are urgent and require policies which will take effect rapidly. Prohibition is useful mainly as a public statement of moral disapproval. Its effect has been to harm those whom it seeks to protect, while imposing heavy social and economic burdens on the rest of society. Since the present situation is so serious, legislation of the illicit drug trade deserves consideration as a radical alternative.

SUPPLY AND DEMAND IN A LEGAL MARKET

The economic case for legalisation depends on a comparison between the present illegal market and the market as it would operate, if drugs could be bought and sold legally. It must be admitted immediately that the information which an economist would need to make this comparison does not exist and there is an urgent need for research into many aspects of the drug culture. Even the most basic dimensions of the market, such as the number of users and the price of drugs, are not known with any degree of certainty. Still less is known about the incomes and tastes of drug users and their likely response to changes in prices.

Despite the data deficiencies, a few predictions can be offered with a reasonable amount of confidence. In a fully legal market, drugs would be available from the usual sort of retail outlets, such as pharmacies. They would bear a Government Health Warning, and sales would probably be restricted to adults, with the expectation that this would be highly ineffective (as it is with alcohol and tobacco). Prices in the legal market would be dramatically lower than they are at present.

The costs of doing business in an illegal market are much higher than in a legal market. The risk of arrest and conviction operates like a probabilistically incurred tax which imposes costs on individuals and a threat to the whole organisation. Researchers have reported that the illegal drug trade is organised in long distribution chains made up of single person firms. In New York City, there are said to be six distribution stages between importer and final consumer. Along these chains, information flows are carefully restricted so that each operator can contact only one stage above him. This form of organisation is efficient in an illegal activity because it limits the damage to the organisation which follows the arrest of one of its members. In a legal market, fewer distribution stages would be needed and, if economies of scale exist, as they do in most sorts of retailing, firm sizes would be expected to increase.

It is not possible to predict the structure of the legal drug market with certainty, but at the point of production it would probably be highly competitive. The supply of land suitable for cultivating most drugs is highly elastic and synthetic drugs are equally cheap and easy to produce. Since drug production does not depend on any scarce resource such as special land, technology or patented information, monopoly power is not likely to be an important feature of the market at the production stage.

At the retail level, it is possible that economies of scale in bulk purchasing, distribution and advertising could produce large firms, similar perhaps to the tobacco companies. In general though, there seems to be no reason why the market should not be 'competitively workable'. Profit rates would approximate to some norm for the type of trade, and without question, the price of drugs would fall. In the United States, it has been claimed that the price of legal heroin would fall to l/60th of its present street level. An average heroin habit would cost no more, and probably a good deal less, than an average cigarette habit. Drugs and drug company profits could be taxed. Some governments might regard this as morally unacceptable, but a case could be made for an 'optimal tax' which would raise sufficient revenue to finance drug education and rehabilitation programmes.

Legalisation would also alter the quality of the product. The user finds it difficult in an illegal market to gauge the purity of the drug and the nature of the substance with which it is adulterated. The extent to which quality can be guaranteed depends on a fragile personal relationship between the user and his dealer which cannot be enforced in law. In a legal market, drugs would be of certified purity, guaranteed by brand name and subject to consumer protection laws.

The effect of legalisation would be to make drugs more attractive to users and potential users in at least three ways. Workable competition and increased efficiency in the production and distribution of drugs would lower market prices relative to those of other goods. The full cost to the user would be reduced further by the removal of the risk and associated costs of apprehension in an illegal activity. Finally, certifiable quality in drugs would remove the risk of a 'bad trip' and reduce the health risks associated with drug use. The important question is whether drugs would be so attractive in a legal market as to bring about an 'epidemic' of drug abuse.

Certainly, it is to be expected that some users would react to the reduced price by increasing their dosages, and others might be drawn into the habit by the lower price and improved quality. In addition, for some, legalisation might remove an inhibition which previously had prevented them from using drugs. The magnitude of the increase in drug use cannot be estimated without some measure of the responsiveness of demand to changes in prices. Ideally, some measure of the economist's concept of the price elasticity of demand is needed. As far as I am aware, no good estimates exist, but against the alarmist view that legalisation would turn us into a community of addicts, it can be said that:

1. It is often supposed that because drugs are addictive, users are not very responsive to changes in prices - i.e. demand is inelastic over a wide range of prices. If this is the case, legalisation will increase the amount of income which users have available for non-drug expenditure such as food and shelter. This argument will apply best to habitual users who constitute an unknown proportion of the population. The greatest concern would be for infrequent and new users whose demand is likely to be more responsive to a large fall in prices.

2. If part of the demand for illegal drugs is derived from a desire on the part of the young to test authority, legalisation could reduce demand.

3. In modern times, the highest addiction rate which has been reported is 3% for heroin in Hong Kong. Many would regard much lower rates as highly unacceptable, but some of those with competence and experience in medicine and pharmacology would be prepared to argue that a substantially higher population of addicts could be sustained with less hardship in a legal drug market than in an illegal one. Heroin habits can be managed without serious damage to health. A high proportion of the evils of addiction derive not so much from the drug itself as from the method of ingestion (injection) and the association between drug use, unemployment, ill health, poverty and crime. Legalisation would reduce substantially these 'side-effects' of drug use.

4. It would always be supposed that legalisation would be accompanied by an intensification of drug education programmes, financed perhaps by a drug tax. These programmes would continue to try to dissuade new users and would educate habitual users in harm reduction techniques of drug use.

COSTS AND BENEFITS

In the United States, studies have attempted to measure the costs of prohibition. No attempt is made here to place even orders of magnitude on these costs (which are equivalent to the savings to be expected from legalisation), although work is proceeding along these lines at Liverpool University. There is no doubt that they will be large.

If the sale and use of drugs were legal, the resources currently devoted to the enforcement of drug laws would become available for other uses. Large savings would be realised in law enforcement, legal and penal systems and customs departments. Similar savings could be expected from a reduction in drug related acquisitive crime.

The taxpayer would benefit from legalisation as would those who live in fear of crime and violence. Habitual drug users and their families would benefit. Society would not longer be in the position of adding to the problems of addicts by defining them as criminals and then forcing them into further criminality to finance their habit. It would also be hoped, but not necessarily assumed, that many of the medical 'side-effects' and public health risks of drug use would be reduced.

The high price of illegal drugs gives incentive to the intravenous injection of heroin and also to prostitution as a source of income. The sharing of needles and prostitution are channels through which AIDS is spreading in the non-homosexual population. If drugs were cheap, addicts might be persuaded more readily to adopt safer but less 'efficient' means of ingestion, even though higher dosages might be required. If the financial pressure which leads some addicts into prostitution was removed, it might reduce the number of their sexual partners. Since it is generally agreed that AIDS poses a greater threat to public health than does heroin addiction, drug legalisation might be justified on these grounds alone.

A final benefit of legalisation cannot be quantified, but in importance it may rank above all the others. Prohibition contains a threat to the whole fabric of society. When the law is used to enforce that which is unenforceable, there is a danger that general respect for the law will be weakened. Legalisation would halt the spread of corruption and criminality which has already endangered political and legal institutions in many countries.

If, as seems likely, the social savings from drug legalisation were shown to be very large, it would remain for society to compare the costs against the benefits and to consider whether it would be possible to compensate those who would suffer as a result of the change in the law. Criminals would be the main losers, but greater concern would be felt for those who would be drawn into drug use as a consequence of legalisation.

One extreme reaction might be to say that society has no responsibility to compensate drug users for harm which is self-inflicted, and legalisation is justified in terms of social savings alone. At the other extreme, some would not countenance legalisation on the grounds that it is impossible to compensate adequately for lives seriously damaged by addiction. This strong moral position overlooks the fact that prohibition also creates drug addicts and, it is coloured by a view of the natural course of heroin addiction which is at variance with the known facts.

The popular media gives the impression that heroin is highly addictive and that its use leads, more or less inevitably and rapidly, to premature death. In fact, by some measures, heroin habits are easier to break than addiction to cigarettes. Many heroin addicts withdraw regularly and without great pain. The important phenomenon is frequent restarting by users who have previously gone through one or more periods of withdrawal.

The social sources of this common behavioural pattern are not well understood, but better medical care and social support could assist those addicts who wish to withdraw. The acute shortage of health care facilities for addicts gives an extra twist to the inhumanity to drug users which is embedded in prohibition. Part of the social savings which would be realised from legalisation could, and should, be used to finance education programmes and to provide greatly improved medical services for drug users.

Many professionals in the drug field believe that legalisation offers the best chance of success in the drug war, but many others will ask whether it is right to make 'dangerous drugs' freely available at a low price. The retort is easy. All drugs can be dangerous, and many things more deadly than heroin and cocaine are available at any hardware shop. Life is a risky business. Children and others have to learn not to drink ammonia and to drink port wine in moderation. Prohibition does nothing to encourage risk management. It is actually counter-productive to the extent that it generates a demand for that which is forbidden, and encourages the belief that substances which are not prohibited must be safe.

There is a final objection to legalisation which might be decisive in the short-run. It would be difficult for a single country to legalise unilaterally, unless it wished to become the drug capital of the world. For this reason, international co-operation is needed. A co-operative framework was established in Toronto. Perhaps when world leaders next meet, it could be used to promote legalisation rather than prohibition. The prospects are not hopeless because of a strange irony. Many of the leaders who are amongst the most vehement prohibitionists believe in the power, efficiency and general beneficence of the market economy. They know that it is difficult to 'buck the market' in foreign exchange and other commodities. Most economists would doubt still more seriously the possibility of 'bucking the market' in drugs.