Six Lessons from Mexico's War on Drugs

One thing is a certainty: when the global economy tanks, black/grey markets and smuggling networks will zooom.  This new commercial layer will suddenly be everywhere and you will interact with it constantly.  NOTE:  this contact less so if you are a) one of the lucky ones in the emerging global ne0-feudal financial aristocracy or b) in a networked resilient community. 

On that note, here's some unusual insight from Melissa Dell, a doctoral student in (Forensic) Economics at MIT.  She has written an excellent paper on Mexico's war on drugs.  Here are her insights into the business dynamics of the Mexican Drug War:

1. Black markets/smuggling networks make decisions like businesses in aggregate.  They hire, fire, compete, partner, and optimize.  The rules can be a bit different though (as you will see below).  
2. There will be a diverse mix of local and national organizations.  49% of Mexico's 320 drug producing municipalities were controlled by major organizations.  51% by local gangs.  Local gangs ally with major organizations for transhipment of product to the United States.  Most of the rest of the municipalities (90%) are either on a smuggling route or a market.
3. There will be lots of national/regional smuggling/criminal organizations and they won't be monolithic.  For example, in 2011, Mexico had 16 major trafficking groups.  This level of fluidity and diversity is the result of decentralized decision making.   Local gangs make many of their own decisions in order to compartmentalize failure.  However, this works against organizational integrity at the national/regional level since autonomous local gangs can switch affiliations easier.  
4. The election of "law and order" politicians/parties at the local level increases violence.  Here's why: Law and order politicians increase police activity.  Increased police pressure weakens the gang currently in control of a municipality.  It usually doesn't destroy the gang in charge (unless the police themselves become an informal militia that replaces the local gang's economic role).   A weak local gang is often attacked by new rival gangs intent on taking over the municipality.  This means:  gun fights/battles, lots of bodies, collatoral damage, kidnappings, etc..
5. Spillovers:  If a smuggling route can't traverse a town due to a crackdown or congestion (too much drug traffic), it will reroute to an optimized alternative.   The optimal path within a complicated road network isn't obvious without analysis.  Melissa found that Dijkstra's algorithm works well as a way of predicting the new route.  What this may mean to you?  Crackdowns in other municipalities may cause your municipality/town to suddenly become a node in a smuggling network.  Spillovers are an important dynamic worth studying (see the inset picture for a simplified example of it -- the PAN victory is a "law and order" disruption to a route).  
6. General effects.   When a town becomes a node on a smuggling route, informal sector wages fall 2.5% due to the ability of smugglers to extract protection money (primarily from poor people).  It also leads to a fall female workforce participation (fear).   

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