How is the drug cartel economy better than most governments?

Believe it or not, most countries’ GDP heavily depends on the money from illegal substances and the drug trade.

 

In countries like Mexico, South America, and Central America, the drug cartels surprisingly use very streamlined and convenient business models similar to stores and franchises across the world.

 

From having an exclusive chain of suppliers that keep the price of the drugs steady even during any kind of production disruption to having distributors across different countries, these cartels right now are more organized than most countries.

 

Quoting Tom Wainwright from Narconomics, every cartel has a supply chain that still doesn’t disrupt even if the price of the raw material (coca leaf in this case) is raised or lowered. 

 

For making a kilo of cocaine, a ton of coca leaf is used. Once this kilo of the coca leaf is dried out, it roughly is estimated at $400. But the same kilo will fetch a price of about $100,000 in the United States.

 

Even if the price of the coca leaf is raised, and even if the extra cost is transferred to the consumer, the final cost will rise just by a little. In other words, the price of the coca leaf will still roughly fluctuate by just a single percent, which isn’t significant.

 

How these cartels work is that they are infamous gangs under popular names in local areas. These gangs reach out to the criminals in the local areas and offer them a crime, yet keep them under their wing. This includes providing them with merchandise like caps and T-shirts (for real) and teaching them how to operate in certain areas.

 

The money these gangs in the local areas make, a share of them goes to the top guys that operate these gangs. In return, the local criminals are offered regular benefits, protection, and power. 

 

If this sounds familiar to franchising, that’s because it is. Most drug cartels right now work on the model of franchising. Surprisingly, these businesses work better than most of the other franchises around the globe.

 

This also allows these top gangs to grow exponentially. However, the disadvantages could include quarrels within franchises, limited areas of operation, or regular safekeeping of the interest of these gangs.

 

The more franchises, the better benefits for the top guys in the chain, similar to that of KFC or Mc Donalds. 

 

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