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Home Grown: An Economic Examination of the Origins and Effectiveness of Radical Drug Policies

2006 Student Essay Contest Winner

September 1, 2006


Michael Fahey St. Thomas Academy

Home Grown: An Economic Examination of the Origins and Effectiveness of Radical Drug Policies

Navarat Maykha, the devoutly religious Thai mother of two children, sat praying in her jail cell, nervously awaiting her execution. She was to be hanged for her crime: trafficking heroin into Singapore. Up until the very moment of her death, she swore she had been unaware of the heroin hidden in the lining of a suitcase given to her by a friend.1

In Singapore, a nation with one of the world's strictest drug policies, trafficking of more than half an ounce of heroin is punishable by death.2 Meanwhile, in the Netherlands, one who is found in possession of amounts of heroin less than half a gram is charged only with a misdemeanor, and often the seized illicit drugs will be returned to the individual later by police.3 The negative externalities of drug use affect every nation, so naturally national governments enact policies in order to try to curb the impact of these externalities and reduce the social cost of drug use. Governments tend to exhibit one of two main brands of drug policy: "harm-reduction" and prohibition. Throughout the majority of the 20th century, governments attempted to control the use of certain drugs through criminal law enforcement systems, and so the idea that drug problems "are fundamentally law enforcement problems is deeply embedded in political, social and cultural life."4 This is exactly the case in nations like Singapore. Recently, the efficiency of this classical approach of deterrence has been challenged on the grounds that prohibition "creates a tension within society that society cannot long bear."5 In other words, prohibition actually creates crime by forcing drug markets underground. As an alternative, some nations, the Netherlands being the most forthcoming example, have accepted a policy of "harm-reduction," which views drug use as a health issue rather than a criminal one. U.S. drug policy falls somewhere in between that of Singapore and the Netherlands. No policy has succeeded in eliminating the negative externalities of drug use, but they all have their own trade-offs.

In 1975, in accordance with the Misuse of Drugs Act of 1973, drug trafficking was made a crime punishable by death in Singapore.6 An individual may face a death sentence for trafficking as little as half an ounce of heroin, an ounce of morphine or 18 ounces of cannabis.7 By 1997, 190 drug traffickers had been hanged. Singapore's drug policy mandates harsh punishments on users as well, including mandatory imprisonment, as long as 10 years, and a six- to 18-month term (as long as three years for repeat offenders) of compulsory drug treatment.8 Singapore's laws are a far greater deterrence to drug use than U.S. drug policy, which typically mandates five to 40 years of imprisonment with opportunity for early release on parole in most instances of trafficking less than a kilogram of heroin. Additionally, U.S. laws prescribe no minimum punishment for possession of controlled substances.

Conversely, the Netherlands has adopted a policy of "normalization," which seeks to integrate illicit drug users into society for more efficient "removal of deviance."9 Because of relatively harsh drug laws in nations like Singapore and the United States, addicts "are isolated from the general population."10 This isolation prevents ex-users from ever being fully reintegrated into society and leads to the loss of many opportunities for employment and education. Such lack of alternatives often urges users to return to their old habits and may account in part for the 70 percent recidivism rate among illicit drug users in Singapore who have undergone treatment.11 Despite nonpunitive law enforcement regarding hard drug use, lifetime prevalence of heroin use in the Netherlands remains at 0.4 percent, less than a third of the 1.4 percent in the United States, where conviction for possession results on average in a 2.2-year prison sentence.12 As stated by Dutch Vice Prime Minister Hans van Mierlo during a speech at a United Nations drug summit in 1998, "For young people in the Netherlands, heroin is for losers."13 When marginalized drug addicts are more readily visible in society, it offers others disincentives to use drugs.

Both extremes of drug policy have significant costs and benefits. One benefit of strict drug policy is the retardation of the spread of HIV among intravenous drug users. Singapore's AIDS prevalence rate, at 0.2 percent, is one-third that of the U.S. rate. Only 1.9 percent of Singaporeans infected with HIV are intravenous drug users,14 as opposed to the Netherlands, where 10.5 percent of HIV positive individuals are intravenous drug users, or 26 percent in the United States.15 The obvious benefits of strict drug policy and enforcement in Singapore must be weighed against its costs, including the immense cost of housing 9,000 illicit drug users in treatment facilities at any given point in time, as well as the incalculable cost of those executed under Singaporean drug policy. This includes opportunity cost of the addicts, which can be quite great, as shown by the success of several active drug users in Amsterdam in forming "a functioning, politically powerful union."16 Dutch drug policy allows a relatively large supply of heroin, which, when combined with the stable demand provided by Amsterdam's relatively affluent and constant addict population, results in prices as low as $30 a gram. This affordable price makes it possible for addicts to maintain their habit while earning a low income without resorting to crime or prostitution.17 However, the low price also led to the migration of 2,000 German heroin addicts to Amsterdam each month throughout the 1980s, bringing with them the negative externalities of their addictions.18

A nation's culture in large part defines the effect a given policy will have. "The law can be used to reinforce socially accepted values and make marginal people conform."19 Although Sweden's drug policies are comparable to those of the United States, that country has greatly reduced drug use rates because of the prevalence of the temperance movement there in the 19th century.20 If culture determines optimal policy, then policy must change as cultures do. Recognizing that the emigration of German addicts to Amsterdam was the result not of the pull of liberal Dutch drug policy but of the push of its own, Germany underwent significant reform in the late 1980s "from strict drug prohibition to a multifocus approach."21 There is no perfect solution to the drug problem, a one-size-fits-all approach to eliminate the negative externalities of drug use altogether. All policies have trade-offs, and what best suits one society may not suit another as a result of differing demographics or culture.

Clearly, whatever drug policies the United States is currently employing do not optimally suit U.S. society, as evidenced by numerous statistical examples in which the United States fares worse than nations with more restrictive, more liberal or comparable drug policies. This may be due in part to the pluralistic nature of a diverse U.S. society. In establishing national drug policy, the United States must try not to compromise the ideals of its citizens, but also must not lose sight of greater issues. Too liberal a policy seems to send a signal to the people that their government does not feel that drug use is a public issue—a sentiment which, if the majority happens to disagree with it, may result in significant social conflict. However, from a prohibition standpoint, "drug addiction is the ideal social problem," because the problem creates its own scapegoats—drug addicts.22 Treating drug problems as a criminal issue, placing the blame solely on the heads of the drug users themselves, allows societies to ignore the social conditions (poverty, poor education) that give rise to drug problems in the first place.

Any drug policy, whether focused on prohibition or on harm-reduction, has its trade-offs. Ultimately, what decisions are best for any given nation is determined in great part by that nation's culture.

1 Bernstein, Dennis, and Leslie Kean. "Singapore's Blood Money." The Nation 20 (October 1997): 11-16.

2 "Singapore Canings Now Aimed at Hard-Core Users." Alcoholism and Drug Abuse Weekly 17 (October 1994): 7.

3 Boekhout van Solinge, Tim. "Dutch Drug Policy in a European Context." Journal of Drug Issues 29, No. 3 (Summer 1999): 511-28.

4 Elvins, Martin B. "Drugs, the State, and Global Change: A Contemporary European Perspective." Cultural Values 3, No. 4 (October 1999): 503-23.

5 Aldrich, Michael R. "Legalize the Lesser to Minimize the Greater: Modern Application of Ancient Wisdom." Journal of Drug Issues 20, No. 4 (Fall 1990): 543-54.

6 "Revisiting 'The Hidden Epidemic'—A Situation Assessment of Drug Use in Asia in the Context of HIV/AIDS: Singapore." Centre for Harm Reduction. 2002. Burnet Institute.

7 "Singapore Canings Now Aimed at Hard-Core Users."

8 "Revisiting 'The Hidden Epidemic.'"

9 Boekhout van Solinge, Tim, 512.

10 "Singapore Canings Now Aimed at Hard-Core Users."

11 "Revisiting 'The Hidden Epidemic.'"

12 "Factbook: The Netherlands and the United States." Drug War Facts. 10 February 2004. Common Sense for Drug Policy.

13 Mierlo, Hans van. 1998 Speech of the Netherlands vice prime minister and minister of foreign affairs before UNGASS on drug policy,
10 June 1998. New York City.

14 "Revisiting 'The Hidden Epidemic.'"

15 The World Factbook. 10 January 2006.

16 Aldrich, Michael R., 546.

17 Boekhout van Solinge, Tim, 514.

18 Boekhout van Solinge, Tim, 517.

19 Bakalar, James B., and Lester Grinspoon. Drug Control in a Free Society. Cambridge: Cambridge University Press, 1984.

20 Boekhout van Solinge, Tim, 520.

21 Bollinger, Lorenz. "Therapy Instead of Punishment for Drug Users—Germany as a Model?" European Addiction Research 8, No. 2 (2002): 54-60.

22 Daun, Ake. Swedish Mentality. University Park: Pennsylvania University Press, 1996.

2005-2006 Student Essay Contest

This spring the Minneapolis Fed held its 18th Annual Student Essay Contest, which is open to high school juniors and seniors in the Ninth Federal Reserve District. About 300 essays were received from schools throughout the district. Submissions were divided into two categories: standard and advanced economics classes. The overall winning essay was "Home Grown: An Economic Examination of the Origins and Effectiveness of Radical Drug Policies." (Read other winning essays.)

Fifteen finalists in each division received a $100 U.S. savings bond. First- and second-place winners from both divisions were selected, and they received additional savings bonds. A paid summer internship at the Minneapolis Fed was awarded to the overall winner, Michael Fahey of St. Thomas Academy in Mendota Heights, Minn.

Essay Question

What economic lessons can be drawn from an illegal drug deal?
In the United States, drugs like methamphetamine, cocaine, heroin, marijuana and LSD are deemed so dangerous to users and society that their possession, use or sale is a criminal offense. Making a product illegal, however, does not eliminate the market for it. Americans spent an estimated $65 billion on illegal drugs in 2000. Government spending on the "war on drugs" also reaches into the billions. Potential profits from selling drugs have led to violent crime, causing many to ask if there is a better way to address the problem. Some have proposed tougher law enforcement. Others have suggested moving away from a criminal law strategy toward a public health approach, and still others have proposed legalizing drugs altogether.

Students were asked to take the detached view of an economist to gain perspective on these emotionally charged and controversial issues. Essays were judged on the student's use of such fundamental concepts as externalities, cost-benefit analysis and black market economics to shed light on policies and individual behaviors related to illegal drugs.

See other essay contest topics.