Cocanomics: The Market Effects of the War on Drugs
- Braxton Fuller
- Nov 29, 2025
- 14 min read
Updated: 14 hours ago
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The general goal of the peculiar brand of conservatism that grew out of twentieth century America was to decrease the role of government by creating markets that achieve policy aims. While a strong public-private nexus is certainly important to the functioning of a modern state, the United States’ legislation during the ‘War on Drugs’ seemed to flip the script entirely, prioritizing market stimulation over completion of traditional Republican policy goals. American anti-drug policy is best understood in this context of comparison between its lack of effect on the international illicit marketplace and its creation of multibillion dollar domestic industries. This can be seen no clearer than in the steps the U.S. has taken in combating the ever-notorious cocaine trade.
Despite decades of effort and billions of dollars of taxpayer money, the cocaine marketplace has only grown more efficient in bringing products to market. The price has consistently fallen year over year for the last three decades. All the while, domestic industries spawned from the same ineffective anti-drug policies which saw outsized corporate returns to American shareholders. It’s clear from the contrast between the lack of damage to the drug marketplace and the rapidly growing domestic industries that support American anti-drug policy, that the War on Drugs has essentially benefited, and continues to benefit, private corporations far more than it hinders drug traffickers, manufacturers or users.
This paper will narrow its focus from the temporal and corporeal totality of the War on Drugs to specifically the cocaine marketplace between 1990 and 2005. To preface, American anti-cocaine policy has been further divided into two main strategies: Foreign Market Interventions (FMIs) and Increasing Jurisdictional Severity (IJS). FMIs are focused primarily on undermining the functions of the international cocaine supply chain through diplomatic, military, and economic agreements with foreign nations. Two FMIs occurred in the period being studied: The Andean Initiative and Plan Colombia. Both emphasized the delivery of military hardware to assist South American countries in directly combating traffickers, as well as herbicidal aerial fumigation to destroy coca crops in their fields. The plans also included insignificant investment in agricultural alternatives to illicit crops, much to their operational detriment. The latter strategy, IJS, is
based on the assumption that increasing the penalties for drug use and trafficking will lead to less users, or at minimum less users outside of prison. One significant investment in IJS occurred during the period of focus: The 1994 Crime Bill. This piece of legislation sought to expand correctional capacity in the U.S. while simultaneously increasing the punishments for drug use, possession, and distribution. The crime bill allocated billions of dollars to the construction of 125,000 new state prison cells, the expansion of the police force by 100,000 new officers, and the establishment of 70 new mandatory minimum drug sentencing guidelines.[1]
This paper will narrow its focus from the temporal and corporeal totality of the War on Drugs to specifically the cocaine marketplace between 1990 and 2005. To preface, American anti-cocaine policy has been further divided into two main strategies: Foreign Market Interventions (FMIs) and Increasing Jurisdictional Severity (IJS). FMIs are focused primarily on undermining the functions of the international cocaine supply chain through diplomatic, military, and economic agreements with foreign nations. Two FMIs occurred in the period being studied: The Andean Initiative and Plan Colombia. Both emphasized the delivery of military hardware to assist South American countries in directly combating traffickers, as well as herbicidal aerial fumigation to destroy coca crops in their fields. The plans also included insignificant investment in agricultural alternatives to illicit crops, much to their operational detriment. The latter strategy, IJS, is based on the assumption that increasing the penalties for drug use and trafficking will lead to less users, or at minimum less users outside of prison. One significant investment in IJS occurred during the period of focus: The 1994 Crime Bill. This piece of legislation sought to expand correctional capacity in the U.S. while simultaneously increasing the punishments for drug use, possession, and distribution. The crime bill allocated billions of dollars to the construction of 125,000 new state prison cells, the expansion of the police force by 100,000 new officers, and the establishment of 70 new mandatory minimum drug sentencing guidelines.[1]
This paper is not an in-depth discussion of the three anti-drug actions taken between 1990 and 2005. The details of the voluminous 1994 Crime Bill alone would require many more pages than the scope of research conducted would allow. Likewise, a study of every facet of the Andean Initiative and its impacts on each portion of the illicit supply chain that brings the drug to market, although illuminating, would be a book length endeavor. Instead, the broad strategies of each FMI and IJS initiative will be outlined and discussed as much as is relevant to their general impact on domestic industry and illicit markets. Only the end data point of the cocaine supply chain, the average price per gram in the U.S., will be used to illustrate each plan's effect on the illicit marketplace over time. The assumption here is that even if Plan Colombia’s allocation of military hardware to Colombia, for example, significantly hindered cocaine manufacturing, then the cartel would react by increasing the retail price of their product. The same goes for the theory that increasing legal penalties for drug use will result in fewer drug users; If any of these were effective in undermining the illicit cocaine marketplace, it would manifest itself in increased prices being passed to drug users in the U.S.
Increasing Jurisdictional Severity
The 1994 Crime Bill was aimed at increasing penalties for drug trafficking, possession, and distribution. Then Senator Joe Biden emphasized the overwhelming bipartisan nature of the 1994 Crime Bill saying, “The liberal wing of the Democratic Party is for sixty new death penalties. That’s what’s in this bill. The liberal wing of the Democratic Party is for seventy enhanced penalties. The liberal wing of the Democratic Party is for one hundred thousand cops and one hundred twenty-five thousand new state prison cells.”[2] IJS contributed significantly to corporate shareholder returns and had little to no impact on the international cocaine marketplace. It is important to note that the 1994 Crime Bill by no means constitutes the entire IJS investment over the period 1990 to 2005. Rather it defined the period of American politics in which it was passed, but dozens of other bills, budgets, executive orders, and court decisions contributed substantially to IJS during this period. The ‘94 Crime Bill is simply an easy shorthand for evaluating the success, or lack thereof, of the strategy that IJS represents.
The 1994 Crime Bill, officially the Violent Crime Control and Law Enforcement Act, is an example of how sentencing policies are employed to make America a less appealing jurisdiction for American drug traffickers and consumers. The bill stipulates mandatory minimum drug sentencing laws for a variety of crimes and even goes so far as to mandate life imprisonment in certain felony combinations common for drug users and traffickers. Due significantly in part to the ‘94 Crime Bill, between 1990 and 1997 the incarcerated population in America increased 7% year over year from 689,577 to 1,100,850.[3] To house an additional half million inmates, the 1994 Federal Budget directly allocated $771,000,000 for the construction of new facilities in the Federal Prison System, or a 67% increase compared with the 1992 budget.[4]
The Effect of IJS
The Netherlands is the most attractive jurisdiction for cocaine traffickers and users outside of South America. The Dutch have famously lenient drug sentencing laws and enshrined legal protections for the use of “soft drugs.” The problem for the European market of cocaine traffickers is the complex logistics involved in bringing the illicit product to market. The Netherlands, then, is an interesting comparison to the U.S. Low jurisdictional barriers combined with logistics of similar complexity in circumventing American anti-drug policing measures can help illuminate what portion of cocaine pricing is associated with fear of legal repercussions. It is clear from a comparison of Dutch and American average cocaine prices per gram that most of the pricing model of cocaine isn’t associated with IJS. The Netherlands, whose government pursued a policy of limiting jurisdictional severity, managed to maintain relative stability in average cocaine prices; only fluctuating from $66 per gram to $60 per gram. The U.S. on the other hand saw a drop in price from $184 to $75 over the same period despite investing billions in IJS.
Figure 1, compiled from two datasets from the United Nations Office on Drugs and Crime (UNODC), shows a comparison between average Dutch and American cocaine prices per gram between 1990 and 2005.[5] Cocaine prices in the Netherlands are predictably low and stable. The Dutch have not pursued a strategy of IJS, so it can be assumed that a substantial portion of Dutch cocaine prices are the group's profit margin and transportation costs. American cocaine prices per gram, on the other hand, see a consistent decline throughout the period. This despite considerable investment in making the American market a less appealing jurisdiction for traffickers and users of cocaine alike.
The American strategy of IJS did achieve some of its policy goals; namely, increasing domestic American corporate returns. Although anti-cocaine policy failed to hinder the illicit marketplace, it did prove to be a boon for American corporate shareholders. Two of the largest recipients of federal construction contracts in the 1990s were the Corrections Corporation of America (CCA) and the Wackenhut Corrections Corporation (WCC). Their financial performance in the wake of the 1994 Crime Bill and later history of corporate mergers is illustrative of the calcification of shareholder interest in the War on Drugs strategy. WCC described its position in a 2002 financial filing:
“We have a leading share of the privatized correctional and detention facilities management services market for the states of California, Florida and Texas, the three U.S. states with the largest inmate populations. As of July 31, 2003, we operated a total of 47 correctional, detention and mental health facilities and had over 36,000 beds under management or for which we had been awarded contracts. We maintained an average facility occupancy rate of over 97% and 99% for the fiscal year ended December 29, 2002 and the thirteen weeks ended March 30, 2003, respectively. For fiscal year ended December 29, 2002, we had consolidated revenues of $568.6 million and consolidated operating income of $27.9 million.”[6]
In the previous four years, WCC saw an increase in earnings per share from $0.54 to $0.96, or a 56% increase between 1997 and 2001.[7] Likewise, CCA earnings per share doubled from $0.34 to $0.74 between 1999 and 2000.[8] The nascent private prison contractor business model proved itself attractive to institutional investors during this period and the marketplace rapidly consolidated. CCA earnings per share were $5.64 due to an acquisition by a large private prison conglomerate, CoreCivic, in 2001.[9] Likewise, WCC was acquired by the GEO Group, a large security and correctional conglomerate, in 2004. GEO would go on to be purchased by a group of institutional investors, including BlackRock and Vanguard Investments, in 2008. Both companies’ performance in the immediate aftermath of the 1994 Crime Bill overperform the wider American market during the same period.
Foreign Market Intervention
The U.S. pursued two FMIs during the period of focus: The Andean Initiative and Plan Columbia. Both prioritized the delivery of military aid to combat traffickers in producing regions and aerial fumigation to destroy coca crops in their fields. The Andean Initiative was a collaboration between the U.S., Bolivia, Colombia, and Peru to address the international drug trade. As a result, this effort was widely criticized in hindsight by historians and intellectuals of the War on Drugs for its emphasis on the delivery of military hardware over economic incentives for alternative agricultural material production in lieu of coca. The scale of military hardware deliveries under the plan is almost difficult to comprehend. Just in the first year of the plan's implementation in Peru, twenty A-37 ground attack aircraft, twelve UH-1H Huey helicopters, rifles and light infantry equipment for six new infantry battalions, dozens of patrol boats, and a classified number of Blackhawk helicopters were delivered. In totality, the Andean Initiative would dispense $250,000,000 in military aid and $129,000,000 in economic aid.
Plan Columbia placed a heavy emphasis on military aid as well. Between 2000 and 2006 military hardware deliveries never dipped below 72.6% of annual Plan Colombia aid packages. In 2001, the first complete year of Plan Colombia implementation, the proportion of military to non-military aid was 97.2% or $1,263,000,000 of $1,300,000,000.[10] Even proponents of the plan such as Michael Shifter acknowledge that, “In framing and defending Plan Colombia as an anti-narcotics and security policy initiative, both countries focused too narrowly on military and police aid—with a resulting cost to human rights and the rule of law in the short term, and to the sustainability and consolidation of security over the long term.”[11] There was even a tacit understanding that vast amounts of humanitarian funding needed to be allocated, but the political environment in America would make such funding infeasible. There was an expectation that European partners would fund the humanitarian half of the operation, but this never materialized.[12]
Both plans failed to address the root socioeconomic causes of the drug trade. This makes evaluating the success of Plan Colombia and the Andean Initiative by their own metrics unworkable. Reported statistics such as hectares of coca destroyed, successful prosecution of cartel members, or number of cocaine labs destroyed, fail to capture a picture of operational success because they lack any connection to the factors that drive the drug market. Violent and draconian market interventions have repeatedly failed in controlling marketplaces throughout history and these two are no different.
The Effect of FMIs
The two FMIs pursued during the period of study are the Andean Initiative beginning in 1990 and Plan Colombia in 2000. In total, these plans cost the U.S. a combined $8,379,000,000 between 1990 and 2005. Both interventions prioritized aerial fumigation strategies and military aid while marginally supporting alternative agricultural development. To each plan’s credit, the land devoted to coca cultivation between 1990 and 2005 decreased by 52,100 hectares, from 211,700 to 159,600.[13] Although they achieved desired metric goals, both plans failed to increase the price of cocaine in American markets. In fact, the price of cocaine decreased between 72%[14] and 40%[15] in the period of study. Both UNODC datasets show a substantial decrease in the price per gram of cocaine between 1990 and 2005. In total, the $8,379,000,000 spent by the U.S. on FMIs in the region between 1990 and 2005 breaks down to $76,871,559 per dollar the price of a gram of cocaine decreased.
The largest single beneficiary of American anti-cocaine policy was Monsanto; the company that produced the herbicide used in aerial fumigation efforts for most of the period of focus. From 1990 to 2000, Monsanto owned industrial patents enabling sole commercial production of glyphosate.[16] From 2000 until well past 2005, Monsanto was the only company with sufficient industrial capacity to produce glyphosate at sufficient scale for herbicidal aerial fumigation. UNODC annual coca surveys in Peru, Bolivia, and Colombia track the total number of hectares aerially fumigated with glyphosate but the data is incomplete for the period of study. According to UNODC agricultural monitoring reports, 169,588 acres were fumigated in Peru[17], 204,400 in Bolivia[18], and 1,466,407 in Colombia[19] between 1996 and 2003. The State Department noted on July 9, 2001, that, “In aerial eradication of coca in Colombia, 3.35 pounds of glyphosate is used per acre sprayed, well within U.S.-approved application levels.”[20] When combined with historical price data for glyphosate collected by the U.S. Department of Agriculture, a low order estimate can be produced. In 1996, the average cost per pound of glyphosate sold in bulk to American farmers was $12.25.[21] This means that between the years of 1996 and 2003 the U.S. contracted Monsanto to the effect of $75,525,181. This is akin in size to the entire $129,000,000 allocated for nonmilitary application in the Andean Initiative alone. The total land fumigated in the plan, 1,840,395 acres, is well over ten times the total reduction in land devoted to coca cultivation, 128,741 acres. In summation, aerial fumigation cost the U.S. around $41 per acre sprayed, but over $500 per acre removed from the illicit agricultural marketplace.
There are a couple of explanations as to why a specific American FMI strategy failed to increase the price of cocaine in the U.S. The first is an analysis of the procurement structure of the cocaine manufacturers in South America. Tom Wainwright summarizes the seeming market incongruity in his book, Narconomics: How to Run a Drug Cartel by saying, “The armed groups that control the cocaine trade in Colombia act as monopsonies. Under normal market conditions, coca farmers would be able to shop around and sell their leaves to the highest bidder. That would mean that in times of scarcity, coca buyers raise their bids, and the price of the leaf goes up. But Colombia’s armed conflict is such that in any given region, there is usually only one group of traffickers that holds sway. That group is the sole local buyer of coca leaf, so it dictates the price… That means if the price of producing the leaf goes up - owing to eradication, disease, or anything else - it will be the farmers who bear the cost, not the cartels.”[22] This same monopsonistic environment exists in the cocaine manufacturing market across the Andes. In effect, sellers of bulk amounts of raw coca can only turn to criminal manufacturing groups to offload their product. In this analysis, it doesn’t matter how many hectares or tons of raw coca are burned or fumigated with glyphosate: the price to acquire the raw materials necessary to produce cocaine won’t change. The only people that the U.S. is hurting by perpetuating a strategy of crop eradication are the growers themselves, not the cartels, and certainly not the bottom line of illicit criminal groups.
Conclusion
American anti-Cocaine policy is effective from a perspective of increasing shareholder returns. The public has been indoctrinated to believe that undermining the drug trade looks a certain way. In reality, it presents itself as the rapid arming of police forces and overcrowding of prisons, planes spraying chemicals, and young men who look different from the idealized white American in handcuffs. It is a story of victimization by people in faraway places through the drugs Americans take by their own free will. This is by no means an effective strategy to combat the cocaine trade. It is, however, the most attractive to American institutional investors because it’s the most cost intensive to the American taxpayer. This strategy and this story have failed time and time again to undermine the illicit drug marketplace. In truth, the cocaine market became healthier and more efficient by America’s involvement in both IJS and FMIs. So too did America’s own domestic industries. The effects of American anti-drug policy are increased profits and more efficient business models for both sides of the War on Drugs.
The notion of whether intervening in foreign marketplaces or increasing penalties for participation in the drug economy are good ways to undermine transnational criminal groups is beyond the scope of this paper. However, the specific structure of FMIs and IJS that the U.S. has employed fails to place the social and economic costs associated with drug use on those who perpetuate the international drug trade from positions of power. The people whom American anti-drug policy hurts the most are those with the least power, and therefore they are the least likely constituency to have any influence in creating change in the system of drug use and manufacture. It has also continued to dispense huge quantities to corporations tasked with supporting the same failed policies. In effect, it benefits the people who need it least and hurts those who need help the most. In a good faith reading of American anti-drug policy, it is clear that this is a strategic error. The structure of interventions in the illicit marketplace should ensure that increased costs are passed as high up the supply chain as possible.
Braxton Fuller is a current master’s candidate for International Studies at the University of Denver’s Josef Korbel School of Global and Public Affairs.
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