Porter’s “Numbers Tell of Failure in Drug War” points out the failure of US drug eradication efforts as witnessed by the comments of many, myself included, that while the ‘cost of doing business’ by the DTOs may be going up, their profits, or economic rent, have maintained a disproportionally high level in the face of federal and state interdiction (part of that cost of doing business) such that they have maintained, likely increased, their volume of product leading to lowered retail cost:

If there is one number that embodies the seemingly intractable challenge imposed by the illegal drug trade on the relationship between the United States and Mexico, it is $177.26. That is the retail price, according to Drug Enforcement Administration<http://topics.nytimes.com/top/reference/timestopics/organizations/d/d...> data, of one gram of pure cocaine from your typical local pusher. That is 74 percent cheaper than it was 30 years ago.

The balance of the article points to the dilemmas of what I call “Cure, kill, or contain,” a testing approach “to see where, and how far, a protagonist is willing to go in resolving an intractable issue.” Originally applied to possible solutions to the urban blight of inner cities, I continue to find equal application to other intractables such as narcotics and the human species’ penchant for self-medication:

If the protagonist is socialized and rational, he or she rarely has, or feels that they can muster, the sustained political will, human resources, and capital flow to enforce a Cure (solve root cause) or Kill (eliminate the problem) strategy and so reverts to the muddle of Containment.

Cure, kill, or contain
5/3/2004
http://spaces.icgpartners.com/index2.asp?NGuid=444C6D7EF9774C558D110B...

While Porter cites a factsheet<http://www.rand.org/content/dam/rand/pubs/research_briefs/2010/RAND_R...> drawn from a larger work<http://www.rand.org/pubs/occasional_papers/2010/RAND_OP325.pdf> by Kilmer, Caulkins, Bond, and Reuter, the larger item is more interesting (and itself draws from useful work on drug supply chain costs). Here is a snippet on revenues, prices and profits:

Revenues Versus Profits

Because drug trafficking does not involve many long-term capital investments, there is little gained from distinguishing between cash and accrual accounting principles. Nevertheless, net cash flow is different from (greater than) profits, at least as economists use the term. Much of drug dealers’ apparent cash or “accounting” profit is not pure profit or “rent” in the economic sense; rather, it is compensation for the real but nonmonetary cost of various risks, including the risks of arrest, imprisonment, injury, and death (Reuter and Kleiman, 1986).

For some purposes, it is useful to label a portion of net revenues as risk compensation and focus on the remainder as true profits. We do not do that here, partly because such distinctions would overtax available data, but more fundamentally because of our interest in DTO violence. Plausibly, what fuels trafficking violence, corruption, and other ills is total revenues, not just economic profits.

Prices Along the Supply Chain

Most U.S. users do not buy directly from smugglers. Rather, those who carry drugs across the border typically sell to importers, who sell to wholesalers, who may sell to midlevel wholesalers or to retailers, who sell to users (see, e.g., Natarajan and Belanger, 1998). Prices rise at each step along that chain. For example, the kilogram of cocaine that costs $2,000 in Colombia and is worth $10,000 within Mexico might sell first in the United States for $14,000–$18,000 per kilogram but retail for the equivalent of $100,000–$150,000 per kilogram when broken down in $5 and $10 rocks of crack (see Appendix D, available online at http://www.rand.org/pubs/occasional_papers/OP325/).

Since these prices differ so much, it is useful to introduce some jargon. We define the import price as the first price paid for a shipment of drugs into the United States, and the export price as the price in Mexico for that same shipment. At the other end of the U.S. distribution chain, we refer to the price paid by the user as the retail price. There are a few complications, because some users barter goods (often stolen) or services (e.g., prostitution) instead of paying cash, but we defer such issues for now.

Since the distribution network in the United States has many layers, in theory, we would like to refer separately to the first-, second-, and n-level wholesale prices. In practice, data limitations constrain analysis to a single wholesale price, which is generally understood to be the price paid per kilogram (cocaine or heroin) or pound (in the case of marijuana). Because of price markups, the price per kilogram paid when importing bundles of 200 kg or more at a time is less than the price of a kilogram sold wholesale as a single kilogram. In practice, data are generally not available on the import price per se, so we instead use the wholesale price (price paid per kilogram or pound) in states in the American Southwest.

Reducing Drug Trafficking Revenues and Violence in Mexico: Would Legalizing Marijuana in California Help?
Beau Kilmer, Jonathan P. Caulkins, Brittany M. Bond, and Peter H. Reuter
RAND OP -325-RC, 2010, 72 pp., ISBN: 978-0-8330-5107-3.
http://www.rand.org/pubs/occasional_papers/2010/RAND_OP325.pdf

Numbers Tell of Failure in Drug War
By EDUARDO PORTER
July 3, 2012
http://www.nytimes.com/2012/07/04/business/in-rethinking-the-war-on-d...

Graphic: The Price of Failure
http://www.nytimes.com/interactive/2012/07/04/business/the-price-of-f...
When policy makers in Washington worry about Mexico these days, they think in terms of a handful of numbers<http://www.state.gov/documents/organization/187109.pdf>: Mexico’s 19,500 hectares devoted to poppy cultivation for heroin; its 17,500 hectares growing cannabis; the 95 percent of American cocaine imports brought by Mexican cartels through Mexico and Central America.
They are thinking about the wrong numbers. If there is one number that embodies the seemingly intractable challenge imposed by the illegal drug trade on the relationship between the United States and Mexico, it is $177.26. That is the retail price, according to Drug Enforcement Administration<http://topics.nytimes.com/top/reference/timestopics/organizations/d/d...> data, of one gram of pure cocaine from your typical local pusher. That is 74 percent cheaper than it was 30 years ago.
This number contains pretty much all you need to evaluate the Mexican and American governments’ “war” to eradicate illegal drugs from the streets of the United States. They would do well to heed its message. What it says is that the struggle on which they have spent billions of dollars and lost tens of thousands of lives over the last four decades has failed.
There is little reason to expect the elections this year will do much to address the challenges to the bilateral relationship. Enrique Peña Nieto, elected president of Mexico on Sunday, is a scion of Mexico’s Institutional Revolutionary Party, which was tainted by authoritarianism, corruption and fraud during seven decades in power, before it was booted out by voters 12 years ago. In the United States, neither President Obama nor his Republican challenger, Mitt Romney, has shown much interest in the nation’s southern neighbor.
Yet the presidential elections on both sides of the border offer a unique opportunity to re-examine the central flaws of the two countries’ strategy against illegal narcotics. Its threadbare victories — a drug seizure here, a captured kingpin there — pale against its cost in blood and treasure. And its collateral damage, measured in terms of social harm, has become too intense to ignore.
Most important, conceived to eradicate the illegal drug market, the war on drugs cannot be won. Once they understand this, the Mexican and American governments may consider refocusing their strategies to take aim at what really matters: the health and security of their citizens, communities and nations.
Prices match supply with demand. If the supply of an illicit drug were to fall, say because the Drug Enforcement Administration stopped it from reaching the nation’s shores, we should expect its price to go up.
That is not what happened with cocaine. Despite billions spent on measures from spraying coca fields high in the Andes to jailing local dealers in Miami or Washington, a gram of cocaine cost about 16 percent less last year than it did in 2001. The drop is similar for heroin and methamphetamine. The only drug that has not experienced a significant fall in price is marijuana<http://topics.nytimes.com/top/reference/timestopics/subjects/m/mariju...>.
And it’s not as if we’ve lost our taste for the stuff, either. About 40 percent of high school seniors admit to having taken some illegal drug in the last year — up from 30 percent two decades ago, according to the Monitoring the Future<http://monitoringthefuture.org/data/11data/pr11t16.pdf> survey, financed by the National Institute on Drug Abuse.
The use of hard drugs, meanwhile, has remained roughly stable over the last two decades, rising by a few percentage points in the 1990s and declining by a few percentage points over the last decade, with consumption patterns moving from one drug to another according to fashion and ease of purchase.
For instance, 2.9 percent of high school seniors admit to having tried cocaine in the last year, just slightly less than in 1992. About 15 percent of seniors said they abused a prescription drug last year. Twenty years ago, prescription drug abuse was not even consistently measured.
The only dimension along which the war on drugs might be conceived as a success is political. If you ask Americans<http://www.gallup.com/poll/1657/illegal-drugs.aspx> how concerned they are about drugs, they will give you roughly the same answer they have given for years: not so much.
In a Gallup poll, only 31 percent of Americans said they thought the government was making much progress dealing with illegal drugs, the lowest share since 1997. But fewer people say they worry about drug abuse than 10 years ago. Only 29 percent of Americans think it is an extremely or very serious problem where they live, the lowest share in the last decade.
But the government has spent $20 billion to $25 billion a year on counternarcotics efforts over the last decade. That is a pretty high price tag for political cover, to stop drugs from becoming a prominent issue on voters’ radar screen. It becomes unacceptably high if you add in the real costs of the drug wars. That includes more than 55,000 Mexicans and tens of thousands of Central Americans killed by drug-fueled violence since Mexico’s departing president, Felipe Calderón, declared war six years ago against the traffickers ferrying drugs across the border.
And the domestic costs are enormous, too. Almost one in five inmates<http://bjs.ojp.usdoj.gov/content/pub/pdf/p10.pdf> in state prisons and half of those in federal prisons are serving time for drug offenses. In 2010, 1.64 million people were arrested<http://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2010/crime-in-t...> for drug violations. Four out of five arrests were for possession. Nearly half were for possession of often-tiny amounts of marijuana.
Harry Levine, a sociologist at Queens College of the City University of New York, told me that processing each of the roughly 85,000 arrests for drug misdemeanors in New York City last year cost the city $1,500 to $2,000. And that is just the cost to the budget. Hundreds of thousands of Americans, mostly black and poor, are unable to get a job, a credit card or even an apartment to rent because of the lasting stigma of a criminal record for carrying an ounce of marijuana.
Cracking down hard on drug users may sound great on the stump. But Americans who inject drugs are four times as likely to have H.I.V. as British addicts and seven times as likely as drug-injecting Swiss, mainly because the United States has been much slower in introducing needle exchanges and other measures to address the impact of drug abuse on public health.
The Obama administration acknowledges the limitations of the drug wars, and has shifted its priorities, focusing more on drug abuse prevention and treatment of addicts, and less on enforcement.
Still, many critics of the current policy believe the solution is to legalize — to bring illegal drugs out of the shadows where they are controlled by criminal gangs, into the light of the legal market where they can be regulated and taxed by the government.
Jeffrey Miron, an economist at Harvard who studies drug policy closely, has suggested that legalizing all illicit drugs would produce net benefits to the United States of some $65 billion a year, mostly by cutting public spending on enforcement as well as through reduced crime and corruption.
A study by analysts at the RAND Corporation<http://www.rand.org/content/dam/rand/pubs/research_briefs/2010/RAND_R...>, a California research organization, suggested that if marijuana were legalized in California and the drug spilled from there to other states, Mexican drug cartels would lose about a fifth of their annual income of some $6.5 billion from illegal exports to the United States.
A growing array of Latin American presidents have asked for the United States to consider legalizing some drugs, like marijuana. Even Mr. Calderón is realizing the futility of the war against the narco-syndicates. He asked <http://online.wsj.com/article/SB1000142405270230382220457746482169902...> President Obama and the United States Congress last month to consider “market solutions” to reduce the cash flow to criminal groups.
Legalization may carry risks, too. Peter H. Reuter, one of the authors of the RAND study, who is now a professor of public policy in the department of criminology of the University of Maryland, said he worried that legalizing drugs would vastly expand drug abuse, leading to other potential social and health costs. Supporters of the war on drugs insist that without it, consumption would have soared to the heights of the 1980s and perhaps beyond.
There are other options. The Global Commission on Drug Policy<http://www.globalcommissionondrugs.org/>, whose membership includes former presidents of Mexico, Colombia, Chile, Brazil and Poland, has called on national governments to “depenalize” if not necessarily legalize drug possession and sales.
This means stopping the arrest and imprisonment of people who use drugs but cause no harm to others, and going easy on small-scale dealers, whose arrest does nothing to dent the flow of illegal drugs. It means focusing enforcement efforts on reducing the violence of the drug trade, rather than eliminating the drug market itself. It may also entail giving drugs to the most addicted users, to get them into clinics and off the streets.
Such policies require a drastic change of approach in Mexico and the United States. Their governments could start by acknowledging that drug dependence is a complex condition that is not solved through punishment, and that numbers of addicts or dealers arrested, or tons of drugs seized, are hardly measures of success.
A war on drugs whose objective is to eradicate the drug market — to stop drugs from arriving in the United States and stop Americans from swallowing, smoking, inhaling or injecting them — is a war that cannot be won. What we care about is the harm that drugs, drug trafficking and drug policy do to individuals, society and even national security. Reducing this harm is a goal worth fighting for.
E-mail: epor...@nytimes.com
Twitter: @portereduardo
This article has been revised to reflect the following correction:
Correction: July 7, 2012
A chart with the Economic Scene column on Wednesday, about the costs and failings of the United States’ and Mexico’s war on drugs, referred incompletely to the retail price of cocaine; the numbers referred to the price per gram. And some figures on inflation were labeled incorrectly. A corrected chart can be found at nytimes.com/economy<http://nytimes.com/economy>.////

If you are still reading, I suggest:

Risks and Prices: An Economic Analysis of Drug Enforcement; Reuter, Peter, and Mark A. R. Kleiman, Crime and Justice, Vol. 7, 1986, pp. 289–340.
http://www.publicpolicy.umd.edu/files.php/faculty/reuter/Risks_and_pr...

Abstract:
Marijuana and cocaine, two mass-market drugs, have been the object of a major campaign by the federal government over the past five years. That campaign apparently has not led to a significant tightening in the availability of the two drugs, though the relatively high prices of these drugs historically are a consequence of enforcement. The reason for this lack of response to recent law enforcement pressures may lie in structural characteristics of these markets rather than in a failure of tactics or of coordination of law enforcement efforts. The federal effort aims at importation and high-level distribution, which account for a modest share of the retail prices of these drugs. Increasing the risks to importers or high-level distributors is thus likely to have modest effects on the retail price and is unlikely to have any other effect on the conditions of use. Street-level enforcement is hindered by the sheer scale of the two markets and because so few of the final purchases occur in public settings. Many of the risks associated with drug trafficking come from the actions of other participants in the trades themselves, and this also limits the ability of law enforcement agencies to act in ways that will cause prices to increase or alter market conditions. Law enforcement efforts directed at heroin have been much more effective at restricting drug use.
http://www.jstor.org/discover/10.2307/1147520?uid=3739256&uid=2&uid=4...

Varieties of Upper-level Drug Dealing Organizations: A Typology of Cases Prosecuted in New York City, Natarajan, Mangai, and M. Belanger, Journal of Drug Issues, Vol. 28, No. 4, 1998, pp. 1005–1026.

Abstract: This paper examines a sample of 39 drug trafficking organizations prosecuted in New York City federal courts. Using a new two-dimensional typology based on organizational structure and tasks/roles, a considerable variety of organizational types was found. This result has important implications for future research. In particular it suggests the need for caution in generalizing from the findings of singlet:ase studies. These studies need to be located in the broader framework provided by the typology. The typology also permits the systematic sampling of trafficking organizations for detailed study. This is particularly important for policy since interventions must be closely tailored to the nature of criminal enterprises.
http://cel.webofknowledge.com/InboundService.do?SID=1D686%40p4afMe757...
UNDERSTANDING THE STRUCTURE OF A DRUG TRAFFICKING ORGANIZATION: A CONVERSATIONAL ANALYSIS
By Mangai Natarajan
John Jay College of Criminal Justice
The City University of New York
Crime Prevention Studies, volume 11, pp. 273-298
http://www.popcenter.org/library/crimeprevention/volume_11/12-Nataraj...

Flow
The organization of upper level drug dealing
After Dark Organizations and the Night Time Economy
Dr. Daniel Tschofen
Department of Organization and Learning
Innsbruck School of Management
Daniel.tscho...@uibk.ac.at
The Sixth International Critical Management Conference
July 13-15, 2009
http://mngt.waikato.ac.nz/ejrot/cmsconference/2009/Stream23/The%20org...