Kind of mostly illegal some places.

Photographer: JACK GUEZ/AFP/Getty Images

When Drugs Are Legal, Gangs Will Diversify

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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I’ve long supported drug legalization for many reasons, but like many other advocates, I consider the reduction of violent crime to be the main benefit. Deprived of the ability to enforce contracts through the relatively peaceful legal process used by other markets, black markets are accompanied by high levels of violence: Gangs fight for territory, enforce business agreements and try to defer defections.

The more profitable the black market is, the more incentive there is to use violence to protect your profits, which may be one reason that the introduction of crack cocaine was accompanied by such a huge increase in violent crime. Legalizing drugs cuts into the profits and gives industry players legal means to settle their disputes, so in theory, this should reduce the prevalence, and the brutality, of violent gangs.

But while in theory, theory is the same as practice, in practice, it often isn’t. Will legal marijuana, and the accompanying decline in profits, really mean the demise of the gangs -- particularly the Mexican cartels -- that trade in it?

We seem to have a handy test case: Prohibition. Starting around the end of World War I -- a period that roughly coincides with the Volstead Act -- homicide started to spike in America. Probably some of that was because of the demobilization of large numbers of soldiers at once, rather than the black market in alcohol, but a significant portion of the homicides were driven by gang wars over bootlegging profits. How can we be sure of that? Because right around 1933, when Prohibition was repealed, the homicide rate begins a rapid collapse.

That’s good fodder for today's legalizers. On the other hand, we should be modest about how much the end of Prohibition achieved. Because the Mafia did not simply disappear along with the source of its biggest profits. Instead, like any business, it sat back, took stock, and opened up new lines of business. Labor racketeering, gambling, extortion -- these things might once have been sidelines, but they became the main show.

In other words, policy outcomes have a lot of path dependence. The Mafia was not created by Prohibition; it seems to have been an outgrowth of post-feudal Sicily, and it made its way to America along with Sicilian immigrants. But the advent of Prohibition greatly increased their profits and power, and by the time Prohibition ended, they were far too big and well-organized to simply slip softly and silently away into the night.

Had we never passed the Eighteenth Amendment, the Mafia might have remained a local problem in Italian neighborhoods, and slowly died along with the ethnic enclaves where it had its foothold. But repealing Prohibition was not the same thing as never having had it in the first place. We created a monster, and the monster outlived its initial habitat.

It’s too early yet to know what effect marijuana legalization will have on the gangs that got rich on marijuana prohibition. But given the scale and ferocity of the violence that has convulsed Mexico in recent years, it’s hard to imagine that the gangs will simply fold up if they’re deprived of their revenue. Indeed, they are already moving into other drugs. They may also try to take over currently legal operations, as the Mafia did with many labor unions.

This offers a lesson for policymakers -- and not just those who focus on drug policy. Often in policymaking there are no backsies; undoing some policy mistake gives you very different outcomes from the ones that you would have gotten if you’d never tried it in the first place.

That’s not an argument for never experimenting, but it is an argument for caution. You break it, you own the outcome.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor responsible for this story:
Philip Gray at philipgray@bloomberg.net