Closed Borders and Black Market Economics

In 2012, sixteen-year-old Jose Antonio Elena Rodríguez was murdered in Nogales, Mexico by a Border Patrol agent across the wall, on the U.S. side. The agent shot from behind the rusted iron slats, the existing border wall in Sonora, about 50 feet above the boy. The murderer claimed that the boy was “throwing rocks in a life-threatening manner” so he shot him with a rifle 10 times from behind. No agent was even hit with a rock. The agent who shot him was recently acquitted of homicide. The number of CBP (Customs and Border Patrol) agents in the Tucson sector (which includes Nogales) has grown 1000% from 1995 to 2016 with an accelerated rise through 2017. Currently, the Tucson sector has 8 stations and at least 4,200 agents.

While homicide rates oscillate rapidly and at mortifying levels in Mexico, they remain relatively stable (actually decreasing) on the U.S. side as the U.S exports the violence of its repressed demand. This discrepancy was most pronounced in 2010 when the ratio of the murder rate average in the borderlands (per 100,000 people) was 6:55, U.S. to Mexico.1 Since the arrest of Sinaloa Cartel boss, El Chapo, violence has soared nation-wide amidst inter and intra-narco warfare. Violence levels in 2017 were at an all-time high with 12,500 homicide cases from just January to June.

These statistics are representative of the crisis of violence in the borderlands caused by the drug war, border militarization, and the constant race for monopoly amongst a variety of both state and non-state actors. The reality of the borderlands black market is that nationalism and the militarized borders, coupled with the Mexican and U.S. American drug wars, have distorted the markets so perversely that monopoly is actually the safest thing for civilians. Being a one cartel town is a blessing– being caught in disputed territories is pure hell– and the incentive structures are in motion to exaggerate these tensions indefinitely.

A Timeline of Descent

From the time of Pablo Escobar on through about 1990, there was an allied mega-cartel called “the federation” that controlled all black-market trade through Mexico in a de facto monopoly. At its peak, the federation controlled the vast majority of the black markets in Mexico and supplied nearly 90% of the cocaine entering the U.S. economy. The federation was run by one man, Félix Gallardo, or “el jefe de los jefes”. During his reign the violence that later came to be seen as inextricable with the drug trade vastly decreased. With prescience, he predicted his demise and broke Mexico down into territories controlled by various cartels. This initial decentralization remained relatively peaceful through the introduction of the North-American Free Trade Agreement (NAFTA) and the throttling of migration up until shortly after the beginning of the Mexican drug war.

In 2006, under President Calderón, Mexico began to embrace its own war on drugs and has since received over $1.5 billion from the United States. This war began with the costly endeavor of Calderon sending 6,500 soldiers into his home state of Michoacán. The largest cost, however, has been in human lives with 200,000 people killed and another 28,000 disappeared. The real violence in the borderlands didn’t begin until after the launch of the drug war. As bosses went down, turf wars escalated. Although the Mexican government claims that this loss of lives was a necessary cost in curtailing the power of the narcos, their oligopoly remains structurally the same. In 2008, just two years after Mexico began their war on drugs, the largest borderlands narco alliance between the formally allied Beltran-Leyva and Sinaloa cartels, began to fall into active war. The U.S. has treated the Mexican government as a partner in the drug war and another front for our failed prohibition enterprise. Yet throughout this time, border militarization and closure remain a central facet fueling the cartels themselves. With the aid of the U.S., the Mexican government has captured 33 of the 37 major Mexican drug lords but, far from curtailing the incredible violence of this black market, these killings have only exacerbated it.

The uncomfortable truth of the border wars for many anarchist and libertarian economists is that monopoly, and for a short-time oligopoly, rather than competition, brought a kind of peace, even if at a high cost. As the Mexican drug trade became fractured through the inter-government crackdown, infighting and turf wars commenced. In a war zone, a monopoly of non-state actors can bring a sort of false peace, but that peace comes at a gruesome price. Many counter-economists and agorists are quick to see the drug trade as a panacea for siphoning resources from governments into the commonly held markets. However, these markets are far too corrupted for such non-violent idealisms to play out. The borderlands aren’t the Silk Road deep-web marketplace, it’s a war zone. In a war zone, even moral metrics and market structures develop perverted internal logics that feed into their continued distortion.

Bootleggers and Baptists

The only law that cartels do not break is the law of supply and demand. Increased security along the border will not change demand for the goods and services that the cartels supply. In fact, as new barriers along the border increase risks for the cartels, they will innovate smuggling operations, raise their prices to keep profits flowing, and stimulate new domestic markets in Mexico and on the U.S. side of the border. – Texoco de Mora, Borderland Beat– 2017

Despite all of the incomprehensible violence, drugs and other illegal goods still flow through the border. The market always finds a way and the brutal narcos are nothing if not innovative business people. The narcos are also incredible STEM innovators. Their tunnels are known for often being fully concrete paved with electricity, HVAC, and even rail lines. Additionally, they’ve made their own drone fleets for trafficking and intelligence and even created sophisticated methods to jam and “spoof” Border Patrol’s surveillance drones. They are also innovators in the field of intimidation and warfare. They use kidnapping, public displays of assassinations, torture, mass graves, and large-scale government infiltration (on both sides of the border) to maintain their economic edge despite heavy interference.

The narcos see themselves as crusaders against decades of racist and colonial U.S. policy and they see the drug war as the frontlines against empire. Obviously this isn’t a carte blanche for the harm they enact, but there is truth to it as well. No one else is willing to go to battle with the racist, nationalist, migra and U.S. drug policy in the same way. This anti-imperialist stance contributes to the rock star treatment many drug lords enjoy, as reflected in glorified Norteño ballads (called narcocorridos) and pro-narco hip-hop — or even in certain Santa Muerte sects that mythologize the narcos as spiritual warriors.

El Chapo, the kingpin of the Sinaloa Cartel who was only recently captured and extradited by the U.S., was also famous for elaborate stunts. One time he locked up a high-class restaurant in Mexico City for the evening with his small army of bodyguards to enjoy a meal while being chased by a multinational man-hunt. He paid for the drinks and food of all the trapped patrons. The Chapo mythos often surrounded his ability to escape or sumptuously bribe his way out of nearly every prison he was detained in — and the trail of blood he consistently left in his wake.

The black market trade in drugs and weapons across the U.S./Mexico border accounts for a huge portion of the borderlands economy especially for small towns on both sides. In addition to these movements, there is also a market for legal goods, moved illegally, as a response to wrongheaded regulations, taxes, and tariffs. The Borderland Beat reiterates this less considered aspect by writing, “Some cartels are deeply embedded in legitimate parts of the Mexican economy and have logistics positioned along the border to assist in the movement of legal goods smuggled through ports of entry to avoid high tariffs.” The black and grey markets in the borderlands are epitomized by incredible acts of violence from both the official state and the cartels.

That we use the phrase “cartels” to describe the narcos is no coincidence. In an economic sense, cartels are groups of businesses whose goal it is to increase profits and reduce competition by any tactic available to them such as price fixing, limiting supply, or eliminating potential competition. Since the fall of “the Federation”, the drug-underground in Mexico is not a monopoly, but an oligopoly, which is where a small number of sellers maintain control over the market, often through various forms of agreements of collusion, explicit or implicit, that allow them to act similarly to monopolies. However, a cartel situation is what game-theorists call a Prisoner’s Dilemma where, despite whatever collusion is happening, the cartels have a consistent incentive to cheat and initiate a price war. This makes it especially difficult for oligopolies to maintain anything like (Pareto) efficiency or ideal (Nash) equilibria. The more competition a market has, the less opportunity and incentive there is to collude. As a result of the market failure created by the perverse incentives of prohibition, drug entrepreneurs profit from increasing their brutality, competing for monopoly, and creating obstacles to entry for other actors.

The demand for drugs is relatively inelastic, which means people are willing to pay more and more for the same amount of drugs. As a result of this static demand, shutting the borders just raises the profit margin for cartels. This trade-off is a well-researched phenomenon. Border Patrol (BP) and the narcos often end up with ironically similar policy goals through something known as the “bootleggers and Baptists” effect. This phenomenon got its name by pointing out how both the bootleggers and the Baptists wanted bars closed on Sundays, even if for wildly different reasons. The more guns the narcos get, the more shiny toys BP can apply for — and vice versa. It’s a match made in hell.

It may be helpful to think of the current borderlands cartels as their own micro-states. They control private armies, are often completely untouchable by official state forces, and handle much of the issues of law and order and public resource distribution in their territories.

Even in northern cities flooded with federal agents and military personnel, the narcos continue largely unhindered. The cartels are deeply embedded in social affairs and as two narco investigators added, “They spend more time hangin’ than bangin.” They’re deeply patriotic — but to the people and culture of Mexico rather than the state — although they often influence or outright control political campaigns. Additionally, they are one ofthe biggest economic forces and job source in the black, grey, and white markets (they also own legal enterprises) especially in northern Mexico.

They have all of the violence and monopoly power of states, but with an increased risk of operation and decreased international accountability. The official Mexican and U.S. states took the worst parts of themselves and birthed it in exaggerated form in their borderlands. Like any other state, the cartels do things to survive, grow, and maintain monopoly control of their territories. However, since the markets are all so distorted, they lack much of the structural accountability of other states. Prohibition does nothing to curb demand, so these micro-states thrive in the only markets available to them: the black-market. In a sense, Calderon’s drug war was something of a civil war between competing states in areas where the government’s monopoly on violence and power was in question.

In addition to the state-building tendencies of the cartels, current Border Patrol, policy serves to exacerbate the brutality of both monopoly and competition in the illicit drug and migration economies of the Sonoran desert. Through these policy choices, the worst aspects of the war on drugs come out to play, all while fueling an exponential self-justification for the same failed policies. U.S. Border Patrol and drug war policy is deeply complicit in the rampant violence on both sides of the imagined, and yet bloody, border.

The arrival of the North-American Free Trade (sic) Agreement (NAFTA) in 1994 brought on the maquiladora system of extreme and inhumane labor conditions. Before NAFTA only 5% of manufacturing jobs were in the maquilas but by three years after NAFTA it was already about 25%. Now, 63% of above ground manufacturing is in the maquilas. Although many of these maquilas are themselves controlled by or in alliance with both the corrupt, violent, and unaccountable Mexican state and the cartels, the dismal opportunity they present is couched in monopoly and crony capitalism coupled with the heavy hand of cartel violence and exploitation with the promise of financial gain (“plato o plomo” as they say–“plate or lead”). I can almost hear the libertarians and capitalists writhing in their seats…. Of course, the maquilas create economic opportunity but if “voluntary slavery” or maquilas are your idea of a liberated society then you lack the integrity of wet spaghetti with even less by way of faculties of imagination. Because NAFTA was not a freed trade agreement, but rather a chance for multi-national oligopolists to exercise neocolonial extraction, laborer conditions saw sharp declines rather than the promises of international trade. The most vulnerable class of people impacted by the gruesome cases of violence (from the state or narcos) in cities like Juarez, Mexico are also the very same poor and often underage women and children that traveled to work in the maquilas. The irony being that the extreme violence faces only the employees and very rarely the maquilas themselves which are secured by both the state and the cartels. The flow of capital from the U.S. is centered in these areas which share the densest murder-rates and the highest concentrations of maquilas — which only serves to underline the ways in which U.S. foreign policy and its closed-border militarization create devastation and strange alliances in the borderlands.

Another example of the accidental policy partnership between the narcos and BP is that of the Prevention through Deterrence model that BP rolled out directly after NAFTA. This policy was a foreboding precursor to the subsequent disastrous Border Patrol hiring boom starting in the 90’s and through the early 2000’s. During the planning for NAFTA there was a consensus amongst the “free trade” barons that NAFTA would cause hardship and lead to increased migration so they coupled its inauguration with an influx of border militarization, vastly throttling centuries of basically free movement that contribute to the exchange that markets need.

The Prevention Through Deterrence model adopted in the immediate wake of NAFTA attempted to shut down migration only in the safer channels, assuming that the harshest and most dangerous desert climates in areas such as the Sonoran desert would prevent migration. Hot take– it didn’t. One effect it did have was making it so that the narcos no longer had nearly as much geographic border to control and were instead able to focus their attention on the areas that remained relatively unobstructed. The narcos control all undocumented movement across the borders. The ‘evil’ drug mules demonized by the anti-migration right are often little more than Central Americans who were robbed along the way and lost the money they needed to pay bribes and guides. As a result of the BP policy to restrict migration through things like urban landscapes and relatively safe channels, the narcos could focus their own counter-militarization efforts into these smaller crossing channels.

Even after putting $2.4 billion into militarization technology to close the borders through the failed Secure Borders Initiative (or more likely in part because of it), bootleggers and Baptists struck again, as evidenced in 2010 when the production of drugs continued to rapidly rise. The Department of State reported:

Production of methamphetamine takes place in clandestine labs. The two areas in the country with the highest concentration of labs are Michoacan and Jalisco. While it is difficult to estimate levels of production for the drug, it is believed to be large and growing.…  drug cultivation rose significantly in 2009 according to U.S. government agencies’ estimates. Opium poppy cultivation more than doubled to 15,000 hectares (ha) as of September 2009 from 6,900 in 2008 — the highest level of production ever estimated in Mexico and all of Latin America combined. Cannabis production increased 35 percent to 12,000 ha from 8,900 in 2008 — the highest level since 1992.

Border militarization is a finger trap. Fight it and you feed exactly what you want to destroy, even if you shouldn’t be trying to destroy it in the first place.

Open Border Agorists

In an agorist framework, bootleggers are understood as part of the black market, the counter-economy. Bootleggers provide goods that people have a natural right to purchase. They are entrepreneurs who route around the state to provide goods and services that have been unjustly criminalized. And yet because state intervention reduces the competition they face, these counter-economic entrepreneurs have incentives to support state intervention. Similarly, drug prohibition increases the profits reaped by drug cartels. Prohibition deters competitors from entering the drug market. This raises the prices of drugs. – Nathan Goodman, C4SS – 2016

People love drugs, guns, and cheap shit. These things don’t change. Only the conditions, sources, and means of transfer change. Agorism and counter-economics envision a voluntary marketplace outside of the control of the state as a revolutionary but gradualist means of creating a new society in the shell of the old. The reality, however, is that black markets are contorted by the dark underbellies of statist policy and militarized border closures and that we have to fight for methods of ethical exchange. In addition to the ethical and economic incentives behind an anti-nationalist and voluntary common market against prohibition, it is beyond time that we look deeply at the mess we have built. Although not without blame, the narcos occupy a position that the market demands and policy ignores. The parallel struggles to decriminalize and end the failures of prohibition, couple neatly with the need to create non-violent alternatives to the endless wars the U.S. currently exports for its demand.

Decriminalization of all drugs and open borders would drastically reduce the profit margins for the most brutal cartels, including those big corporate monster cartels such as the U.S. and Mexican militaries and Border Patrol but, it is not a panacea.

Narcos, like official state military business ventures, are exceptionally adaptive and self-propagating. However, with decriminalization, the market could at least start to correct itself. Zapatista style community defense initiatives could have a glimmer of hope at competing for community self-determination. The profit incentive for the mass bloodshed we see now would diminish. Non-violent, web-based, agorist technology could start to make greater inroads on both sides of the devastating but imagined border. Competition in the drug market would lead to greater quality and consumer control which would decrease accidental overdoses and poisonings. Local drug market entrepreneurs could escape from the violent shadows and put untold billions back in the Latin American economies possibly ending the brutal maquiladora systems and getting a real fighting chance against cycles of violence inflicted by neo-colonial trade deals. Who knows what’s possible then. Maybe, Spanish could become the United States first language. ; )

  1. The statistical evidence for this claim and the chart to follow in the next section is original research compiled from: El Instituto Nacional de Estadística y Geografía (1, 2, 3), Consejo Nacional de Población, FBI Uniform Crime Reporting Statistics, and the U.S. Census Bureau. I also drew from this and other pieces done by the Center for Global Development. The data proves that there is a clear relationship between the state’s drug war, closed borders (where the violence is more concentrated), and violence. The data that I gathered from the Mexican government about homicide rates in the borderlands (not counting police and federales murders of people) proved to be strongly correlated with each other (r^2 = .718, r=.816). What this proves is that the severe spike right when the drug war started in 2006 was not just some anomaly but that it was clearly reflected in all the borderlands states to a strong degree.
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