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Bolivian President Evo Morales with a coca leaf

Based on a new paper by Brookings conceptualizing the aftermath of a breakdown in the international narcotics control regime, InSight Crime considers the profound impact the legalization of cocaine could have on Latin America's organized crime landscape.

In a paper recently published by Brookings (pdf), author Jonathan Caulkins counsels a forward-looking approach to drug policy that includes planning for a world in which cocaine and opiates such as heroin are no longer universally prohibited throughout Latin America.

Caulkins does not hazard a guess at when, or even if, cocaine or heroin in the region will be put on the legal market. However, the gradual shift away from the prohibitionist model that has dominated drug policy in the Americas for the past century means governments should at least begin to map out how these different scenarios could play out.

“10 years ago, it was okay for serious governments not to think about them, because they really weren't going to happen. Now even if they're not probable, they are possible,” Caulkins said in an interview with InSight Crime.

In his paper, Caulkins notes how legalized cocaine in a transshipment country such as Honduras would have different effects on the region than the regulation of cocaine production in a coca-growing country (Colombia, Peru and Bolivia). Below, InSight Crime considers some factors that could lead a country to legalize cocaine production, and the potential ramifications this would have on organized crime groups throughout Latin America.

Bolivia: The Lead Suspect

For a host of reasons, Bolivia is the coca-producing country that has the most to gain and the least to lose from regulating the production of cocaine.

First, as pointed out by Caulkins, the economic boost would likely be felt much more in Bolivia than in the larger economies of Colombia and Peru. Caulkins estimates the legal cocaine production industry would generate between hundreds of millions and a few billion dollars annually. Bolivia currently only has one export product that exceeds $1 billion dollar per year, according to the Observatory of Economic Complexity. For comparison, Colombia has seven such products and Peru has nine.

Bolivia would also probably be the least affected by potential US sanctions as a result of cocaine legalization. The Andean nation exports twice as much to Brazil as it does to the United States, with the US ranking fourth on sending imported goods to Bolivia. In Colombia, the United States is first for both imports and exports.

As one of the US' principal security allies in the region, Colombia would risk forfeiting large amounts of bilateral aid if they were to legalize cocaine production. Bolivia on the other hand receives a much greater percentage of its aid from European countries. Bolivia also has a tense diplomatic relationship with the United States, and expelled the US Drug Enforcement Administration (DEA) from the country in 2008.

SEE ALSO: Coverage of Bolivia

Despite these circumstances, it is worth stressing that InSight Crime is not suggesting that Bolivia will in fact legalize cocaine production, but simply that it would entail less costs and greater benefits than it would for Colombia and Peru

Nor is this to say Colombia wouldn't benefit in certain respects from legalizing cocaine production. The illicit drug trade has helped finance the operations of many of the illegal armed groups involved in Colombia's 50-year armed conflict, including left-wing guerrillas and right-wing paramilitary organizations. The successor groups to the paramilitaries, known as BACRIM (for the Spanish, "bandas criminales") are now considered the biggest players in the country's drug trade. Bringing coca crops and cocaine production under the auspices of the state would likely devastate the financial structures of these illegal armed groups, and undercut the black market prices for the drug. 

Legalized Cocaine: Chaos and Calamity, or Calm and Prosperity?

In all likelihood, the legalization of cocaine production would irrevocably alter Latin America's organized crime landscape. Predicting what those changes would be is much less certain, but considering some possible scenarios could prove useful for lawmakers, security analysts, and drug policy advocates. 

According to Caulkins, it is possible that Bolivia could ship cocaine to ports of entry in the United States via front companies in third countries such as Brazil, which would hide the drugs within shipments of legal commerce. In this scenario, Caulkins argues current transshipment countries -- such as Guatemala, Honduras, and Panama -- would be “cut out of the drug distribution network and their problem solved,” since “there would be no more need for go-fast boats, drug drops from private airplanes, or any of the other paraphernalia of today’s international trafficking industry.”

However, this would simply shift the biggest price jump -- and profit -- for cocaine further down the drug supply chain -- not eliminate it, as Caulkins insinuates. This huge price gap currently resides at the US-Mexico border, or in whichever country is the final point of departure for cocaine smuggled into the United States.

If that final point of departure became Brazil, with the front companies shipping the cocaine directly to the United States, then transnational drug trafficking groups would abandon current transshipment countries and migrate further south. Indeed, there is already evidence that Mexican and Colombian drug trafficking groups are attempting to deepen its control over the South American supply chain. Under these conditions, countries like Brazil would likely become the new base of operations for transnational drug trafficking organizations. Meanwhile, violence related to the drug war in Mexico could drop significantly, since it would no longer be the principal point of departure for illicit drugs moving into the United States.

Caulkins notes another possibility is that the United States proves adept at seizing the cocaine being shipped to its ports by front companies. Under this scenario, he suggests the drugs would likely be sent to Mexico first and then smuggled by drug trafficking groups across the US border, as is the case today. So the price jump would remain at the US-Mexico border, and violent clashes for control over drug routes into the United States between Mexican cartels would likely look much the same as they do now.

Domestic Drug Policy Turned International Chess Match

Caulkins suggests forecasting the potential ripple effects of regulated cocaine production on Latin America's underworld should include how other governments in the region would respond once the new drug law takes effect in Bolivia (or Colombia or Peru).

“There is this interaction effect when country A changes its policy, that changes the incentives for country B, and that changes the incentives for country C,” Caulkins told InSight Crime.

For example, Colombia may be emboldened to legalize cocaine production once Bolivia does, even if it isn't willing to take the lead. Regulating cocaine production in Bolivia would likely have a similar impact on Colombia's illegal armed groups as it legalization in Colombia, since, according to Caulkins, state-run enterprises in a single country could easily supply the world's demand for cocaine. But perhaps Colombia would not be content with Bolivia having a monopoly on the cocaine profits and would consider entering the legal production market as well.  

Mexico's shifting drug policy stance would be especially worth watching if a coca-growing country were to legalize cocaine production. From the two possible scenarios outlined in the section above, Mexico could be tempted to legalize cocaine if the latter plays out (in which Bolivia regulated cocaine production but the drugs were continuing to be channeled through Mexico). Rather than continuing to bear the brunt of the violence associated with the drug war, Mexico may choose to democratize who has possession of the cocaine before it is sent into the United States. If Mexico's 122 million citizens were allowed to legally possess cocaine, small-scale drug trafficking operations across the border would likely skyrocket, thereby diminishing the power and influence of the cartels. 

However, if the former scenario occurs (in which front companies in countries such as Brazil ship cocaine to US ports as contraband, reducing drug-related violence in Mexico), the US' southern neighbor would have much less incentive to legalize cocaine, since some of the drug violence would theoretically disappear on its own. 

SEE ALSO: Coverage of Drug Policy

Nonetheless, even if Mexican criminal groups lost out on drug trafficking revenue, that wouldn't necessarily resolve all of the country's security issues. The atomization of Mexican cartels in recent years has led to the rise of smaller criminal groups diversifying their criminal portfolio into crimes that more directly affect the local population, like extortion and kidnapping.

“The idea that the moment this particular black market [for cocaine] disappears all of the thugs and soldiers instantly enroll in college [...] is naïve,” Caulkins told InSight Crime. 

The Cloudy Crystal Ball  

If you had to choose one word to describe organized crime in Latin America, "volatile" would be a pretty good choice. Predicting the future of criminal organizations is somewhat foolhardy even under current drug laws; factoring in a wild card like the legalization of cocaine makes that proposition considerably more difficult. But grappling with these unknowns now may help governments prepare for some of the possible unintended consequences of changes to the status quo. 

Likewise, Caulkins notes that his predictions should not be treated as gospel, and are meant to provoke more debate on a topic that doesn't receive enough attention when drug policy reform is considered. The difficulty in foreseeing how the legalization of cocaine or heroin would impact Latin America and the United States only elevates the need for this conversation to take place sooner rather than later at the regional level. 

“All countries who are substantially influenced by drug problems, and that includes all producer and transshipment countries and final market countries like the United States, ought to be spending more time trying to think through these dynamic games,” Caulkins told InSight Crime.

In 2016, the United Nations General Assembly will hold a Special Session (known as UNGASS) on the global drug problem. As world leaders prepare to discuss amending the priorities of the international drug control regime, it would behoove them to consider how both modest and radical reforms could impact security and organized crime, for better or for worse. 

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