Independent Policy Report: Illicit Drugs and Crime. Part 1

Introduction: The Kansas Experience

A "drug war" was waged throughout most of the United States by federal, state, and local law enforcement agencies from 1984 to 1989. Relative to the rest of the country, however, it appears that some states were not major battlegrounds in this war. While those states did increase drug enforcement efforts during this period, many started at relatively low levels of drug enforcement and increased their commitment to drug control at relatively low rates. Indeed, while most of the nation's law enforcement agencies were increasing their efforts against drug market activity much faster than they were increasing their efforts against other kinds of crime throughout this five-year period, Kansas, for example, actually increased nondrug arrests more rapidly than drug arrests.

In hindsight, it appears that Kansas's relatively modest involvement in the nationwide drug war during the 1984-89 period has resulted in its citizens being relatively safe from crime. This assertion will come as a surprise to many people, but reality mandates that when scarce resources are used to do one thing, they cannot be used to do something else. Legislators face competing demands for the allocation of tax dollars and simultaneous pressure to hold down taxes. As a consequence, substantially fewer resources are available for law enforcement than would be necessary for solving even a majority of crimes reported or imprisoning most of the criminals caught and successfully prosecuted.

Because law enforcement resources are limited, decisions made within the criminal justice system regarding the control of illicit drug markets are part of a general resource allocation problem. This means that when a decision is made to wage a "war on drugs," other things that criminal justice resources might do have to be sacrificed. One of the consequences of using a large portion of the criminal justice system's resources to control drugs is that violent and property criminals are not caught until they have committed a relatively large number of crimes, if they are caught at all, and even after they are caught for some crimes, they can be forced out of prison relatively early due to the admission of increasing numbers of drug criminals, freeing them to commit new crimes. Thus, active participation in a drug war often means higher rates of property and violent crime. The fundamental fact of limited criminal justice resources means that getting tough on drugs inevitably translates into getting soft on nondrug crime.

The costs of a war on drugs for many states were very high because many of the law enforcement resources committed to the drug war were diverted from the control of property and violent crime. But what of the benefits? Drugs may create many harmful effects for the individuals who consume them. However, criminalization is rarely justified on the grounds of protecting people from their own actions. Rather, criminalization requires that an action has spillover effects creating costs for others in society. In this regard, there is a widespread belief that drug use causes other crime. Indeed, if drug users are responsible for many other crimes, a strong law enforcement effort against drugs should lower the rates of property and violent crime and simultaneously discourage drug use. The nation's experience with cyclical drug wars does not bear this out, however, and Sections III through V of this report explain why.

The trend toward increased law enforcement efforts against drug markets ended after 1989 in much of the United States, but Kansas and other states once again appear to be going against the trend. While drug arrests relative to total arrests fell from 1989 through 1991 in the nation as a whole, they rose in Kansas. If these trends continue in Kansas, the results are likely to be similar to those experienced in other states during the 1984-89 period: rising crime rates. This report provides a "generic" overview of the drug/nondrug crime relationship. The fact is that the 1984-89 drug-war period has inspired several studies exploring various consequences of drug enforcement in some major "drug-war" states, such as Florida, California, and Illinois, and several nationwide studies can also be brought to bear on this issue. The purpose is to examine in detail what has been learned in order to provide a clearer picture of what lies in store as states continue their increasing focus on drug enforcement.

Section III explores the coincidence of drug use and other crime, explaining that, in sharp contrast to the conventional wisdom, most users of illicit drugs do not commit large numbers of crimes against persons or property. Therefore, increasing enforcement efforts against drug offenders cannot be justified on the ground that these same offenders are inevitably also perpetrators of nondrug crimes. Even if there are other plausible reasons to attempt to control drug markets, restrained use of scarce criminal justice resources for this purpose remains advisable for two reasons. First, it is likely that the criminal justice system will be unable to effectively control these markets. Section IV explores how drug buyers and sellers react to law enforcement efforts in ways that regularly frustrate their intent. Second, even if the evidence in Sections III and IV is denied, implying that control of drug markets is both desirable and possible, alternative uses of scarce criminal justice resources may be more valuable. The scarcity of criminal justice resources means that when policing effort and prison space are devoted to the apprehension and punishment of drug offenders, these resources cannot be used to combat other crimes. The consequences of allocating scarce criminal justice resources to drug control are explored in Section V.

Sections III through V demonstrate that unrestrained use of the criminal justice system to combat illicit drugs does not produce the results that many of its advocates predict, and that the unanticipated costs of a drug war are quite high. Issues of drug policy in Kansas are discussed at the end of Section V and in Section VI, emphasizing that this policy must be analyzed in the context of a broader view of the criminal justice system, recognizing the inevitable tradeoffs that arise because criminal justice resources are limited. Before turning to the issues of why drug control has failed to live up to its promises and how a more rational drug policy might be devised, however, a brief overview of drug policy in Kansas and the United States is provided.

Fighting Drugs

Opiates were legal until passage of the Harrison Act in 1914, and marijuana became illegal in 1937, although both of these federal statutes were primarily tax acts rather than criminalization laws per se (some state laws regarding these drugs preceded the federal statutes). The criminal justice system has been an increasingly important tool in the fight against illicit drug consumption since the passage of these statutes. Table 1 shows a dramatic increase in this effort since 1960. Drug arrests per 100,000 population reached a peak level of 538 in 1989, a twenty-fold increase from the 1960 level of 26. The drug arrest rate did not increase steadily, however. Indeed, two "drug wars" have been waged by the criminal justice system since World War II. The first escalation occurred between 1965 and 1970, when the drug arrest rate rose from 34 to 228, a 114 percent average annual increase. Following this burst of antidrug activity, the drug arrest rate grew slowly between 1970 and 1984, averaging about 2.6 percent per year. Renewed escalation of drug enforcement during the 1984-89 period saw arrests per 100,000 population rise from 312 to 538, an average annual increase of 14.5 percent. Although the growth rate of drug arrests in this latter period is dwarfed by the 114 percent annual growth of the 1965-70 period, the absolute increase in drug arrests per capita was largest during the 1984-89 period. Together the 1965-70 and 1984-89 periods account for over 80 percent of the increase in the drug arrest rate from 1960 to 1990.

Table 1. Growth of Drug Enforcement in the United States, 1960-1992

The 1984-89 increase in the drug arrest rate was followed by a period of marked retrenchment in most of the country. Drug arrests per 100,000 population fell 16.5 percent in 1990 and another 8.5 percent in 1991, from 538 per 100,000 population in 1989 to 411 in 1991. The decline in the drug arrest rate in 1990 alone is larger in absolute terms than its increase in the 14 years between 1970 and 1984. However, this retrenchment may be short lived. The national drug arrest rate was back up to 431 per 100,000 population in 1992, a 7 percent increase over the 1991 figure. Furthermore, drug arrests remain very high relative to the pre-drug war period: the 1992 rate is 57 percent above the 1983 rate.

National data conceal enormous variation in drug enforcement among state and local jurisdictions. The 1984 and 1989 drug arrests per 100,000 population for the states are shown in Table 2. In 1989, the peak year of the recent drug war, they range from a low of 88 (West Virginia) to a high of 1,060 (California). Kansas ranked 37th, with 233 drug arrests per 100,000 population (1).

Table 2. Drug Arrests per 100,000 Population, by State, 1984 and 1989

Kansas's drug arrest rate increased 66.4 percent during the 1984-89 period, a figure only slightly below the national average of 72.4 percent. Nonetheless, Kansas started this period 55.1 percent below the national average of 312 drug arrests per 100,000, and because its increase was also slightly below the national average, it ended the period 56.7 percent lower than the average. This is only a modest difference, of course, but it does suggest that while Kansas was an active participant in the 1984-89 drug war, its drug-war efforts were relatively restrained.

Figure 1 shows that Kansas's relative behavior has changed since 1989, however. Most of the nation has reduced drug enforcement efforts, but Kansas has increased its efforts quite markedly. The 1992 drug arrest rate for the nation was almost 20 percent below its 1989 level, while Kansas increased its efforts against drugs by 31 percent. Indeed, Kansas's 1992 drug arrest rate of 305 per 100,000 population is only 29.2 percent below the national average of 431. Clearly, Kansas is rapidly gaining on the rest of the nation in terms of its status as a drug-war battleground, for two reasons: (1) most of the rest of the country appears to be withdrawing some resources from drug control and reducing drug arrests, but (2) Kansas appears to be devoting more criminal justice resources to drug control and increasing drug arrests (2). The consequences of these trends are explored in Section V below, but before discussing this issue, we must consider some of the consequences, real or imagined, of drug use itself.

Drugs and Crime: Myths and Reality

The fact that many persons who commit violent and property crimes are also drug users is well documented; for example, during 1988, 72.2 percent of male arrestees in 20 U.S. cities tested positive in a urinalysis for the use of any illicit drug (National Institute of Justice 1990). Similarly, a Bureau of Justice survey of 12,000 inmates indicated that over 75 percent had used drugs, 56 percent had used drugs in the month prior to their incarceration, and one-third admitted to being under the influence of drugs at the time of their offense (Wexler, Galkin, and Lipton 1989). Findings such as these appear to support the claim that drug use is a primary cause of nondrug crime, which in turn has led to increasing emphasis on the control of illicit drugs as a means of general crime prevention. However, by asking "Do a substantial portion of known violent and property criminals use drugs?" such research misses the mark. To make the "drugs-cause-crime" link, research must answer a different question: "Do a substantial portion of drug users commit non-drug crime? (4)

In this regard, consider a 1992 Bureau of Justice Statistics report on recidivism of felons on probation from 1986 to 1989 (Langan and Cunniff 1992). Table 3 summarizes some of the key results from this study, which found that drug offenders are far more likely to recidivate for a drug offense than for a violent or property offense (5). Furthermore, violent offenders who are re-arrested tend to recidivate most often for a new violent crime, and property offenders are most likely to recidivate for another property crime. Consider the property offense row, for instance. It suggests that 43.4 percent of the probationers in the sample who had committed property offenses had recidivated at the time of the study; furthermore, 7.4 percent were rearrested for a violent crime, 23.7 percent for another property crime, and 7.3 percent for a drug crime, suggesting that property criminals were over three times as likely to commit another property crime as to commit a drug crime. Similarly, drug criminals apparently were more than two and a half times as likely to commit another drug crime as a property crime.

Table 3. Felony Probationers Who Were Arrested
for a Felony Offense While on Probation

Other research supports this conclusion and suggests that the set of people who are drug offenders only partially overlaps with the set of people who commit Index I crimes (homicide, sexual assault, robbery, burglary, aggravated assault, larceny, and auto theft). The simple diagram in Figure 2 helps visualize the implications. Two distinct types of drug users apparently exist. First, a substantial portion of drug offenders apparently do not commit property or violent crimes. Second, many offenders arrested for violent and property crimes also use drugs. Furthermore, Florida data suggest that there are relatively few "habitual" offenders who are heavily involved in both drugs and other crime (Rasmussen and Benson 1994:60), so many people arrested and convicted for drug offenses are not hardened criminals.

The apparent fact that many drug consumers are not active in nondrug crime is really not surprising. Indeed, there are fundamental reasons to suggest that most consumers of drugs do not rely on predatory crime as a means of financing drug consumption. Three of them are discussed below.

a. Addicts and Crime

While the argument that drugs cause crime generally involves an explicit statement to the effect that drug addicts are driven to commit crimes to finance their habits, the fact is that not all drug users are addicts. Indeed, there is a large population of regular heroin users who are not addicted, just as there is a large population of nonaddicted drinkers, and "these users bear the same relation to heroin addicts as normal drinkers do to problem drinkers or alcoholics" (Kaplan 1983:33). Variation in the pattern and intensity of use is also found among consumers of cocaine. The NIDA National Household Survey of Drug Abuse (National Institute on Drug Abuse 1988) indicates that most cocaine users are not regular consumers of the drug. Among young adults (ages 18 to 25), fewer than one in four "lifetime" users (that is, individuals who indicate that they have ever consumed the drug) report use in the previous month. More strikingly, among adults over the age of 25, only 1 in 11 "lifetime" users reported use of cocaine in the previous month. Thus, use-frequency usually declines with age, suggesting that many users are not addicts.

Even for addicts, the drive to maintain a particular level of consumption is much weaker than popularly believed. Consider heroin, long viewed as the most addictive drug. Kaplan's (1983:38) examination of studies of heroin indicates that there is a striking analogy between alcohol and heroin use. Many heroin addicts or "problem" users voluntarily abstain from use for substantial periods for any number of reasons, just as do problem drinkers. Indeed, addicts' consumption patterns exhibit considerable variability (Moore 1977; Roumasset and Hadreas 1977). The average addict consumes well above the amount of heroin needed to avoid withdrawals roughly 70 percent of the days in a year and actually suffers withdrawals the other days. Some go without for several days and actually detoxify themselves.

An addict's demand for the drug of choice therefore appears to be flexible, even at the low level needed to avoid withdrawal. This should not be too surprising since the withdrawal pains for addicts are remarkably mild relative to popular perception (Nyswander 1956:121-24; Kaplan 1983:35; Moore 1990:114). They are not extremely painful for most addicts, in part because of the low quality of many drugs available in the black market, but "even in its classic form, heroin withdrawal is not that serious. Pharmacologists compare it to a bad case of one week flu" (Kaplan 1983:35). In the case of cocaine, withdrawal pain is even less severe than for heroin; cravings for cocaine stem from the drug's euphoric effects rather than from avoidance of withdrawals, and on balance, it is less addictive than heroin (Gould 1990:11) (6).

b. Financing Drug Consumption

Even drug addicts, who may have relatively fixed demands for drugs, may not need to turn to crime to support their habits. Officials often contend that when faced with higher money prices, drug addicts face a choice: "either quit the drug and go through withdrawal, or turn to criminal methods of acquiring the necessary money" (Canadian Government's Commission of Inquiry 1973:321). But this assumes that the addict has no other source of funds. Indeed, the report just quoted also pointed out that affluent persons with low-risk access to drugs, such as physicians, pharmacists, and perhaps police, generally do not turn to property crime as a consequence of drug consumption, reinforcing the idea that decisions to commit property crimes actually involve economic choices based on prices and income rather than drug cravings (7).

Drug consumers need not specialize in one method of income generation, and it is apparent that many have legal jobs. Indeed, studies report that use of illicit drugs is associated with higher wages among young adults (8). Similarly, in a 1986 survey of state prison inmates, almost 50 percent of those who reported daily drug use had been employed full time in the year prior to their offense. Another 10 percent reported that they had been employed part time. These incarcerated regular users of drugs also reported income from other sources: 22.8 percent had income from welfare; 30.5 percent, from family and friends; and 47.6 percent, from illegal sources (9).

Similar findings come from a 1989 Bureau of Justice Statistics survey of jail inmates (Harlow 1991). For example, while 77.8 percent of those who reported never having consumed a major drug listed wages or salaries as one of their sources of income, 65.6 percent of the daily major-drug users also had wages or salaries as a source of income. On the other hand, while 69.1 percent of the nonusers were employed at the time of their incarceration, only 49.8 percent of the daily users were employed. Furthermore, while 4.7 percent of the nonusers reported illegal sources of income, 29.4 percent of the users did so. These results indicate that as the frequency of drug consumption rises, the likelihood that an individual can maintain legitimate employment falls and the probability that the individual will turn to criminal activities as a source of income increases. However, the data also illustrate that illegal sources of income are by no means the only source from which drug consumers obtain funds. Addiction tends to enhance the possibility that as the price of the drug rises, more effort will be devoted to income generation; but it still does not follow that addicts will commit more property crimes in order to maintain their consumption (10).

c. The Temporal Sequencing of Entry into Nondrug Crime and Drug Use

An important question that those who claim that drugs cause crime have failed to consider is: "What happens to drug demand as illegally obtained income rises?" In other words, instead of asking, "Does drug use lead to crime?" we might ask, "Does crime lead to drug use?"

The fact is that studies of the temporal sequencing of drug abuse and crime suggest that criminal activities generally precede drug use (11). For example, a Bureau of Justice Statistics survey of prison inmates found that approximately half the inmates who had used a major drug, and about three-fifths of those who used a major drug regularly, did not do so until after their first arrest for a nondrug crime, that is, "after their criminal career had begun" (Innes 1988:1-2). Similarly, more than half of local jail inmates who reported they were regular drug users in the survey discussed above said that their first arrest for a crime occurred an average of two years before their drug use (Harlow 1991:7). Indeed, as Chein et al. (1965:64-65) concluded, delinquency is not caused by drug abuse, but rather, "the varieties of delinquency tend to change to those most functional for drug use; the total amount of delinquency is independent of drug use."

Once an individual has decided to turn to crime as a source of income, he or she may discover that drugs are more easily obtained within the criminal subculture and perhaps that the risks posed by the criminal justice system are not as great as initially anticipated. Furthermore, criminal activity generates the income with which to buy goods that previously were not affordable, including drugs. Thus, crime leads to drug use, not vice versa. Of course, if the individual later becomes addicted, his or her preferences may change and at that point the "drugs-cause-crime" relationship might well come into play. But the fact is that the portion of the drug-consuming population for which this relationship might hold is quite small, so an indiscriminate war on drugs will not be a very effective general crime control policy.

Why Drug Wars Do Not Work

(12) Drug enforcement policies are based on the proposition that buyers and sellers in drug markets respond to incentives. Greater enforcement against suppliers presumably will reduce the amount of drugs supplied at any given price; efforts against drug users similarly are expected to lower the net benefits of drug use so the quantity of drugs purchased at any price will be lower. Furthermore, evidence suggests that drug offenders do in fact respond to incentives. Kim et al. (1993) report the results of empirical studies of recidivism among drug offenders, using Florida data. After controlling for individual and socioeconomic factors, they find that an increase in the number of police in a jurisdiction reduces the probability of recidivating, supporting the hypothesis that an increase in the probability of arrest reduces drug crime. Furthermore, drug criminals sentenced to probation are more likely to recidivate than drug criminals sentenced to prison. Assuming that prison is a "more severe" punishment than probation, this result also suggests that drug criminals respond to the severity of punishment. However, given a prison sentence, an increase in the length of that sentence does not impact the likelihood of recidivating. This implies that increasing the length of prison sentences for drug offenders may not be an effective deterrent. While this is a limited sample, and apparently the only sample of drug offenders that has been used to study the deterrent hypothesis, the results are strikingly consistent with the much larger empirical literature on nondrug crime deterrence (13).

The fact that drug market participants respond to incentives suggests that a strong enforcement effort should reduce the consumption of drugs. In obvious contradiction, however, the "drug problem" is not demonstrably smaller as a result of the 1984 89 drug war. It is not the expectation that individual drug users respond to incentives that is flawed. The mistaken expectation in drug policy is the belief that people can respond to increasing enforcement only by curtailing sale and use.

The desires for short-term pleasure and profit are so powerful that many react to the constraints imposed by drug laws and enforcement efforts in ways that allow them to continue their drug market activities. Rather than passively accepting the effects of increasing enforcement as inevitable, drug entrepreneurs attempt to "beat" the police by adopting new production techniques, offering new products, and developing innovative marketing strategies. Users change their buying habits and use different drugs to maintain their pleasures in the face of rising police interference. The reactions of buyers and sellers of drugs that reduce the effectiveness of enforcement efforts are the focus of this section.

a. "The Drug Market" Is a Misnomer

Law enforcement efforts may be relatively more effective against some kinds of drugs compared to others. For example, marijuana is much bulkier and harder to conceal than cocaine or heroin, so it is more difficult to raise, smuggle, and distribute. Furthermore, even frequent users of marijuana are probably more responsive to changes in the risk posed by law enforcement than regular users of cocaine or heroin (e.g., those who are addicted). Thus, it is actually inappropriate to speak of "the drug market." Instead, there are several distinct but interrelated markets for illicit drugs, which may be differentially affected by drug enforcement and/or education efforts. They are interrelated on the supply side because drug entrepreneurs often can supply more than one drug and substitute among them depending on availability. They are interrelated on the demand side to the degree that consumers find different drugs to be substitutes or complements. Let us briefly consider the evidence regarding changes in the two largest illicit drug markets.

b. Marijuana

Increasing drug enforcement can affect the demand for drugs in two ways. First, the added risk of arrest and punishment for possessing drugs directly discourages consumption. Second, if prices rise as a result of efforts to limit drug supply, the amount of illicit substances consumed will fall. In the case of marijuana these two effects have worked together to reduce consumption. The price of marijuana rose continuously from 1974 to 1984, although a simultaneous eight-fold increase in potency (THC content) may have actually caused the price per unit of THC to fall over this period (14). During the 1984 89 war on drugs, however, marijuana prices rose sharply with relatively small changes in potency (15). These data, coupled with Reuter's (1991) estimate that the severity of punishment per marijuana transaction rose between 1979 and 1988, suggest that the war on drugs may have played a significant role in reducing the demand for and supply of marijuana, the net effect being rising prices.

c. Cocaine

The story for cocaine is quite different. Estimated use of this drug started rising in 1979, and growth of consumption accelerated after the onset of rising enforcement efforts in 1984. Prices did not rise as a consequence of enforcement, and there is no discernible trend in purity (16). In fact, 1989 cocaine prices in nominal terms were less than half their 1979 level. Nor did enforcement increase effective punishment for cocaine. Admittedly rough estimates of the user and seller populations led Reuter (1991) to speculate that the risk of arrest for cocaine users declined between 1979 and 1988, while the change in expected punishment of sellers was less certain. Even though total arrests rose sharply, they were rising at a slower rate than the increase in users, and perhaps sellers, so the probability of arrest fell. Furthermore, surveys of high-school seniors indicate an increase in their access to cocaine. While perceptions of the availability of marijuana among high-schoolers was virtually unchanged from 1984 to 1990, the proportion of students saying it was "fairly easy" or "very easy" to get cocaine increased by about 20 percent. It appears that the drug war did not have enough impact to reduce cocaine supply. Some of the reasons for the differing consequences of the drug war on these two illegal drugs are discussed below.

d. Input Substitution

Drug suppliers react to increased drug enforcement in order to reduce its impact on their activity. By changing combinations of inputs, these entrepreneurs can mitigate the effects of law enforcement on their profits and the supply of drugs. Production and distribution of a drug may require the combination of several inputs, each of which must be rewarded with an acceptable return.

The price that owners of inputs require to supply their inputs partially depends on the risks involved. Rising law enforcement efforts, and/or more severe punishment of a particular input, make supplying that input more risky and raise its price. Profit-seeking drug suppliers will replace the relatively high-priced inputs, and in the process ameliorate the impact of enforcement. For instance, if a change in enforcement policy makes punishment of adult dealers more severe while leaving punishment of juvenile dealers unchanged, then adult dealers will want higher compensation, and juvenile dealers may be substituted for adults.

Drug entrepreneurs diffuse the risks they face by employing others to make street sales, and the relative wages that must be paid to potential employees determine the makeup of the group. As the risk of arrest increases, the entrepreneur has incentives to lengthen the distribution chain, thereby personally dealing directly with a smaller number of individuals. Thus, drug entrepreneurs will be willing to pay relatively more for a few intermediary brokers who in turn set up their own network of contacts, rather than deal directly with a large number of users. Law enforcement policy may actually make production of drug distribution more labor intensive and encourage the use of juvenile pushers, who face relatively less risk, at least in terms of the severity of punishment. Thus, even if drug enforcement pushes the prices of drugs up and the quantity traded falls, the number of people involved on the supply side of the drug trade can rise. This suggests that increased enforcement can cause one measure of the drug problem, the pool of people to be arrested, to rise even as another measure, the quantity sold, falls. Indeed, as Moore (1990:137-38) emphasized, "there is no scarcity of human capital prepared to enter the [drug] business. The supply is not limited to those with prior criminal records or with a taste for violence and corruption. Laborers and specialists are easily recruited."

Other substitution effects are also likely. As drug enforcement efforts become effective in one geographic area, drugs will be shipped to destinations where the risks are lower. Similarly, one way to avoid the risks of shipping a drug across national borders is to increase domestic production. The success of interdiction efforts with regard to marijuana has created strong incentives to develop domestic supplies. As a result, it is now estimated that marijuana is the largest cash crop in California, the largest agricultural state in the United States in terms of the value of output. Substantial marijuana crops are grown in many other parts of the country as well. The increase in domestic sources may not have completely offset the impact of interdicted international supplies, given the price trends already noted, but it did reduce the effectiveness of law enforcement efforts by diversifying the sources of supply. A long history of drug enforcement efforts suggests that elimination of supplies coming from one area will soon lead to increased cultivation elsewhere (Reuter 1985:13-16) (17). The fact is that the total U.S. demand for drugs can be supplied by crops grown on a very small amount of the total world acreage that is suitable for growing opium poppies, coca shrubs, and marijuana plants (Reuter and Kleiman 1986:306 15).

California's effort to thwart marijuana growers with aerial surveillance shows how the industry can respond to changing constraints. As the risks of outdoor cultivation increased, growers started indoor cultivation using marijuana strains that are particularly well suited for high performance under artificial light. Automated hydroponics are used to feed plants, diesel generators are required to conceal high energy use, and thick concrete walls mask the heat buildup that might be detected by infrared sensors on aircraft. The capital-intensive production techniques are placed beneath structures that look like ordinary houses and produce four crops a year that are more potent than the strains previously grown outdoors. Despite the higher costs of production, it was estimated in 1990 that a $1 million investment could generate $75 million in profits when the wholesale price is $3,000 per pound (18).

e. Output Substitution: Increasing the Supply of One
Drug in the Face of Effective Control of Another

Much of the law enforcement success against marijuana was due to interdiction efforts, which were considerably more successful than similar efforts against cocaine and heroin. For instance, in 1984 a drug task force dramatically increased its efforts to intercept drugs in the Miami area and virtually eliminated the incoming supply of marijuana. The marijuana smugglers responded by converting to cocaine smuggling because it was much more difficult to detect. So the local supply of cocaine increased, pushing the price down (Thornton 1991:109). Thus, while the supply of one drug declined, the supply of another increased. Indeed, the most important explanation of the increasing availability and use of cocaine may be the relative success that law enforcement has had against marijuana (Thornton 1991; Nadelmann 1993:45). After all, it has been estimated that as much as a third of the marijuana shipped into the United States in the early 1980s was being intercepted (Kleiman 1985, chapter 3).

Another reason to expect an increase in the supply of a drug is the potential increase in demand as consumers substitute among drugs, which tends to push price and profits up in the short run. This induces entry of new suppliers. The success of interdiction efforts with regard to marijuana means that its price is considerably higher in the United States than in source countries (Reuter and Kleiman 1986). Thus, a substitution effect led to increases in demand for cocaine and created incentives to develop more sources of cocaine supply even in the absence of any change in the relative costs of producing cocaine (19).

f. Increasing Supply by Technological Change

Entrepreneurs always face strong incentives to find ways to produce or distribute existing products at lower costs and to offer new products that will attract consumer demand. The result of such developments are broadly described as technological change, and virtually all legal markets regularly exhibit at least some technological advances. Drug entrepreneurs have even stronger incentives to look for technological change than entrepreneurs in legal markets because they have an added cost to consider and try to avoid: the arrest and punishment cost associated with illegal activity. If a drug entrepreneur can find a way to lower either production or distribution costs or to lower the probability of arrest, the business will be more profitable. Since reduced costs, including reduced risks of arrest and punishment, lead to an increase in output for a firm, a technological advance on any front will lead to an increase in market supply.

Perhaps the most dramatic change in recent years was the introduction of crack cocaine, which allowed drug suppliers to produce and sell cocaine at a much lower price than before the innovation (20). The increase in the supply and drop in the price of a "high" from consuming cocaine that resulted from this technological change may even be comparable with some of the more remarkable technological advances in computer or communications technology. Since the crack technology can be adopted fairly easily by new entrants into the cocaine market, the profitability of crack (due both to falling costs and perhaps to increasing demand, for reasons suggested above) apparently has attracted new sources of supply. Introduction of this innovation was also partially motivated by law enforcement successes against marijuana. Producers had incentives to provide a new drug at the low-price end of the drug markets, and crack served that purpose.

Other important innovations in supply are improved methods of transporting and marketing cocaine. These innovations could easily be swamping all the increased law enforcement efforts against cocaine. Increasing availability and falling prices of cocaine when law enforcement efforts to combat this drug are increasing provide strong evidence of the entrepreneurial abilities of drug suppliers.

g. Increasing Potency: Technological Change
Arising Because of Consumer and Producer
Substitution Effects (21).

Drug statutes generally consist of three parts. First, the commodities that are declared to be illegal are described in terms of minimum potency levels. For example, a product containing any detectable amount of heroin is generally illegal. Second, given that a product contains at least the minimum statutorily defined potency, penalties are generally levied on the basis of weight. Third, different penalties are set for production, distribution, and possession, all based on weight, not potency. Smugglers caught with relatively heavy shipments face stiffer penalties, for example. Thus, punishment is clearly a function of the weight of the commodity possessed, sold, or transported. The probability of being caught is also likely to be a function of the physical volume that an individual is trying to conceal. This law enforcement focus on weight creates incentives to avoid holding heavy bundles of a drug; it also creates incentives to increase the potency of illicit drugs.

For consumers, punishment based on weight leads to stronger demand for a more potent drug variant relative to demand for a less potent variant, because smaller quantities of a high-potency drug variant are required to achieve desired effects and because they should be easier to conceal than the larger quantities of lower-potency variants, implying that the probabilities of arrest could be lower for the high-potency drug. An analogous argument applies to drug suppliers and drug smugglers. Illegality lowers the expected costs of dealing in high-potency drugs relative to the costs of dealing in low-potency drugs, due to the relative risks of detection. Furthermore, inasmuch as greater potency means that consumers will pay more for smaller weights, sellers and smugglers can reduce the sizes of their holdings and reduce their expected costs even more. Thus, as law enforcement efforts against a drug market increase, the production and transportation of a relatively potent variety of a drug become increasingly attractive at the same time that the demand for it tends to increase.

One way to increase potency is simply not to "cut" the drug at as early a stage in the distribution. Pure heroin and cocaine are both cut by adding nondrug substances that reduce potency before consumption. Cutting may be done at virtually any stage in the distribution chain, and several different cuts may actually be made (Thornton 1991:96), so incentives to reduce weight and increase potency may simply mean that the drugs are not cut as early in the chain. But beyond this, considerably more potent uncut drugs can also be produced. The average potency of marijuana increased by a factor of eight between 1974 and 1984, for instance, and methods currently exist that can increase the present average potency of marijuana by at least another five times (Thornton 1991:108).

Reliable data on cocaine and heroin potency are not available, although there is some evidence that the retail purity of both drugs has increased during the 1980s (Nadelmann 1993:45), and the introduction of highly potent crack cocaine suggests that this drug was made available at a lower price per dose. Furthermore, there is another piece of supporting evidence for the "law enforcement causes increased potency" hypothesis: during Prohibition a product containing more than 0.5 percent alcohol was illegal, and it is a "well known fact that Prohibition [was] more effective at suppressing the drinking of beer, than of whiskey" (Fisher 1927:29). Prohibition did more than simply create incentives to shift from low-potency beer to high-potency spirits, however. The spirits available also increased in average potency (22).

The evidence about increasing THC in marijuana and the consequences of liquor prohibition, coupled with the fact that most increases in potency simply involve implementation of known technology, led Thornton (1991:110) to conclude that the availability of increasingly potent illicit drugs is primarily the result of their illegality and increasing law enforcement efforts rather than the discovery of new technology. Supporting this interpretation is the fact that trends in potency are in the opposite direction in legal markets, where consumers do not have incentives to demand increased potency: the tar and nicotine content of cigarettes, the caffeine content of coffee and soft drinks, and the alcohol content of liquor consumed since the repeal of Prohibition have all tended to decline over time. Increasing drug potency is clearly a result of law enforcement efforts and entrepreneurial adjustments to avoid their consequences. Indeed, even if the amount of drugs supplied as measured by weight does not increase due to law enforcement efforts, the quantity of drug highs supplied could still increase with rising potency.

It should not be surprising to find that the overall results of drug enforcement policy are far different from the results policy makers expect. These expectations are formed in a political environment and are based on a less than complete understanding of the consequences of allocating scarce criminal justice resources to the incentives affecting individual choice and entrepreneurial behavior (23). Unanticipated consequences of drug enforcement policy also spill over into other criminal activities, further undermining the effectiveness of the criminal justice system.