Robert Saviano’s book ZeroZeroZero, about the world’s cocaine trade, is a terrifying book. It is terrifying in its literal description of the violence that the cocaine business metes out–kidnapping, torture, and death are part of the business model. It is also terrifying in the metaphorical violence that it does to financial and political institutions. Meanwhile, the so-called “war on drugs” is regarded by the narco-criminals as a cost of doing business. It is a cost that they are well equipped to cover.

The book made me realise that I hadn’t paid enough attention to the political economy of the drugs market. Saviano, for his part, lives his life these days with a bodyguard of Italian carabinieri, constantly on the move. The book is dedicated to his bodyguard.

And it is worth adding that–given its detail and its complexity–this is a beautifully written book that has been well served by its English translator. In a prologue, Saviano references books in a similar genre of ‘the non-fiction novel’, such as Dispatches and In Cold Blood. ZeroZeroZero stands up well to such comparisons.

1. Demand is unsatiable

Saviano’s starting point is that cocaine is now widely used, especially in richer parts of the world. The reason: it is the perfect drug for capitalism.

Coke is a performance enhancing drug. On coke, you can do anything… Coke is the comprehensive answer to the most pressing concern of our day: the absence of limits. On coke, you’ll live more. You’ll network more–the first commandment of modern life. And the more you network, the happier you’ll be, the more fun you’ll have, the more emotions you’ll have, the more you’ll sell (p35).

Like capitalism, it is also a Faustian pact for the user. The highs from the drug are paid for by slow deterioration of brain functions, declining libido and a steadily weakening heart.

2. The profit margins are eye-watering

No-one, not even a software business, can generate the same sort of margins. Not even close.

No market in the world brings in more revenue than the cocaine market. No financial investment in the world gives better returns than cocaine… If you had invested €1,000 in Apple stock at the beginning of 2012, you would have €1,670 in a year. Not bad. But if you had invested €1,000 in cocaine at the beginning of 2012, after a year you would have €182,000 (p. 85)

Some of the numbers in the value chain also make this point. A kilo of cocaine in Colombia, where much is grown, costs $1,500; in Mexico, the largest distributor, $12,000 to $16,000 (these are probably 2013 prices, when the original edition of the book was published in Italy). By the time it gets to the US, that kilo price is $27,000, and more in most European markets. (For example, $54,000 in Italy and $77,000 in the UK).

But of course, cocaine is bought in grams, not kilos, and “on average 1 kilo of pure cocaine is cut to make 3 kilos that are then sold in single gram doses.” The (estimated) gram price, again in 2013 prices, ranges from $61 in Portugal to $87 in Germany to $96 in Switzerland. In other words, the margins between arriving in a market, and being sold on the street, are of the order of 300%. As Saviano notes, “if all this is true, it’s also true that whoever controls the entire chain of production is one of the richest men in the world” (p. 88).

3. The cocaine industry works like a multi-national business

It has a normal looking value chain. There are growers, there are processors, there are distributors, there are retailers. The distributors make most of the money, and tend to be closer to their markets. This is one of the reasons that the American distributors are now based in Mexico. One of the most interesting sections is about the skills of a new class of industry intermediary, the cocaine broker:

First of all, vast available funds… to dictate the terms of the deal. Formidable organizational skills. A broad vision combined with precision in defining every detail. They excel at mediation and have learned how to solve problems… They know its better to keep their distance from politics, and from violence… Last, they have intuition, a quality you can’t buy and can’t learn (p. 232).

The section where Saviano writes about an Italian under-cover policewoman, ‘Maria’, who infiltrates the operation of one of the most successful cocaine brokers in Italy, reads like a thriller.

As in any sort of consumer good, there are different sorts of retailers, depending on what sort of consumer you’re selling to and whether they are willing to pay for premium or not. The detail on the business model is rich. Some pushers get their drugs from ‘bases’, independent groups of four to five people who have strong links to organised crime (because that’s where the drugs come from). These are intermediaries, and their existence means that no-one knows too much about the supply chain.

The bourgeois pusher, instead,

has a direct relationship with an organization affiliate, but he doesn’t get a regular paycheck. He has a sort of deposit account instead. The more he sells, the more he earns (p. 128).

The book comes alive when Saviano talks to the footsoldiers in the drugs business. There’s the upmarket pusher in Milan, who likes the lifestyle but regrets the work. Or the drugs “mule” from Guinea Bissau who has now done 19 flights to Lisbon but knows he is expendable.

4. But with violence

I’ve written here before that capitalism is frozen violence. Cocaine is actual violence, and the violence tends to follow the distribution business. The stories that Saviano tells of abduction, torture, murder and the disposal of bodies are gruesome. To the point, you feel, that he is himself tired of repeating the detail.

When Colombia (where 60% of the world’s cocaine grows) controlled distribution, its society was wrecked by cocaine wars. Now that Mexico controls much of the distribution (see ‘Unintended consequences’, in part 2) its society has been destroyed by fights between the drugs cartels. One outcome is to destroy civil society. The judges or public officials or journalists who can’t be corrupted are threatened or killed instead.

The Mexican government estimates that 70,000 people died in Mexico in drugs-related violence during the six years of the Calderon Presidency. Amnesty International calculates this same total as being 136,000 people.

A whole swathe of African countries, especially west Africa, has emerged as a significant distribution hub because of its proximity to Europe. These include Senegal, Mali, Liberia, Sierra Leone, Cape Verde, Angola, and others.

5. Cocaine is catnip for gangsters

Pretty much every well-established organised criminal gang in the world is involved in the cocaine trade somewhere along the line, from the Italians (especially the ‘ndragheta, by Saviano’s account) to the Russian Mafija to the Nigerian gangs who run the African hubs. Not forgetting the vast Mexican gangs, or the Colombian cartels, who still exist.

One consequence is that the cocaine trade goes hand in hand with other forms of trafficking (e.g. of people), extortion, corruption and money laundering. The successful business strategy is winner take all:

If an entrepreneurial group manages to get its hands on coke, it holds a form of power impossible to achieve in nay other way. Which is why, whenever coke is traded, there is always a violent, ferocious clash. With cocaine, there’s no mediation. It’s all or nothing. And all doesn’t last long. When you traffic in cocaine… [i]f you’re the strongest, the cleverest, the most organized, the most armed, you win (pp. 86-87).

In the second half of this post, I’ll look at Notes 6-10, including some of the bigger public policy issues caused by the scale and profitability of the cocaine business.