In Mexico, a Call to Legalize Drugs

A record number of homicides is forcing Mexican President Felipe Calderón to discuss a new strategy in his country's war on drugs: legalization. Calderón said for the first time earlier in August that he was willing to rethink measures to fight trafficking after the death toll in the war he started against the cartels in December 2006 reached 28,000. In the latest atrocity, 72 bodies were found on Aug. 25 at a remote ranch near the U.S. border.

Calderón's remarks have prompted a sharp debate inside policymaking circles in both Mexico and the U.S. Former Mexico President Vicente Fox and other Mexican politicians say that legalization would cut funding to gangs and boost government revenue, while Director of the White House Office of National Drug Control Policy R. Gil Kerlikowske argues that legalization wouldn't solve anything.

The chances of legalization right now are slim. What's important is that a once-unthinkable topic is being discussed. "It's a major shift in the public discourse," said David Shirk, a professor of Mexican politics at the University of San Diego. "The government recognizes the current strategy is unpopular and there may be other options."

Calderón's willingness to consider legalization, even while saying he disagrees with the approach, shows the deep fatigue Mexicans are feeling over the struggle to eradicate the gangs. The increase in the pace of killings has drawn comparisons with Colombia in the early 1990s, when cocaine kingpin Pablo Escobar waged a war of terror on the state.

Local business is frustrated. On Aug. 18 business associations in the state of Nuevo León, which is home to the city of Monterrey, Mexico's commercial capital, took out an ad in the newspaper Reforma demanding that authorities act faster to stop the violence and urging that more troops be sent to the state. The business community was reacting to kidnapping and murder of Edelmiro Cavazos, a mayor of a town near Monterrey. Violence is the biggest threat to the Mexican economy, say 57 percent of Mexican executives surveyed in July by Deloitte Touche Tohmatsu. Earlier this year billionaire Ricardo Salinas Pliego, who controls broadcaster TV Azteca and retailer Grupo Elektra, urged the legalization of drugs in the U.S. and Mexico.

The government estimates that narcotics trafficking saps one full percentage point from gross domestic product annually. Fox wrote on Aug. 8 on his website that "radical prohibition strategies have never worked" and that legalizing the production and sale of drugs would curb violence, thereby bringing in more tourists and attracting investment. In August, Jesus Ortega, head of the Party of the Democratic Revolution, the No. 2 opposition party, and Fox's former Foreign Minister, Jorge Castañeda, voiced support for legalization as well. Several proposals to legalize drugs have been submitted to Mexico's congress, although none is up for debate. Calderón, while willing to consider the merits of legalization, has said it would be "absurd" for Mexico to act alone.

What happens in the U.S. could affect the direction the debate takes in Mexico. Marijuana is the primary source of drug revenue for the cartels because of the ease of cultivation and high American demand, according to the U.S. Drug Enforcement Administration. The U.S. State Dept. estimates that Mexico's marijuana output rose 39 percent between 2006 and 2008.

Fourteen U.S. states have approved laws allowing pot for medical use. In November, California, the nation's largest state by population, will vote on a referendum that would make it legal to possess an ounce or less of marijuana and allow local governments to regulate and tax sales. "If more U.S. states legalize, Mexico will take that step." says Gabriel Casillas, chief economist at JPMorgan Chase (JPM) in Mexico City.

Kerlikowske, who oversees U.S. drug control policy, says that even if drugs were legalized, Mexico's gangs would still wreak havoc through such activities as kidnapping, extortion, and theft. "The people involved in trafficking are engaged in horrific acts of violence," he says. "They're not going to suddenly turn around and apply [for jobs] at IBM (IBM) or Microsoft (MSFT) because they lost one part of their criminal enterprise."

Mexico, which spends about $8.2 billion annually on law enforcement, would save between 5 percent and 15 percent of GDP if narcotics were legal in all countries, says Luis Rayo, a finance professor at the University of Utah who studies the drug trade. Those savings fall to as low as 1 percent if drugs were legalized only in Mexico, he says. "The ultimate solution is for all countries to simultaneously legalize and regulate the drug trade. Mexico cannot succeed with unilateral measures."

The bottom line: Mexico is publicly debating the idea of legalizing drug use to weaken the cartels. It would be an effective step only if the U.S. did the same.

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