By Tom Thompson, seattlepi.nwsource.com

BOGOTA, Colombia -- America's drug war is such a spectacular failure that a visitor from another planet might conclude that it's intentionally that way.

Suppose that we asked President Bush if, for $8 billion or so each year (plus another $12 billion in state and local enforcement), he would be willing to finance a system that would ensure a violent black market network extending from virtually every U.S. urban neighborhood all the way to Mexico, Colombia and other parts of the world? Meanwhile, an additional goal would be, at least in the United States, to crowd our courts and prisons with people having health problems and those who prey on them.

The drug war is designed to raise prices and discourage use, mostly through a strategy of tough enforcement. What in fact has happened is that black-market prices are far higher than the price would be in a legal market, but not high enough to discourage millions of drug users from shopping in the black market. It's an insane scheme in the sense that it is both an enormous expense and an enormous failure. Colombia, for example, now supplies as much as 80 percent of the $50 billion American market.

But despite the war rhetoric from Washington, D.C., the enemy in the supply-side drug war, which is, after all, the U.S. focus, is not Colombia, or this cartel or that drug lord, but rather an entire market system.

Drug prohibition policies in the context of stubborn demand have had the "price-support" result that drugs sell in the United States for more than 10 times the cost of production in Latin America.

Throughout the market system the enormous profitability finances criminal organizations, spurs often-violent competition for market share, provides billions of dollars to bribe ill-paid law enforcement and security forces and ensures that new producers and traffickers will readily step forward to replace those who are taken down.

No wonder that it's difficult to choke off supply. The barrier to entry, as an economist might say, is just not very high. Coca, for example, is a relatively easy crop to produce. It grows in marginal soils, needs little investment or cultivation and earns peasant growers a greater return than any other crop. Even the production of coca paste is economical. From a cost-of-goods perspective, crushed coca leaves mixed with gasoline, cement and ether (which is then dried in ordinary microwave ovens operated by generators in jungle locations) are a bargain.

This is not to say that the drug industry benefits the producer country. The effects are surprisingly negative, as the situation here illustrates. Drug-related violence has had a chilling effect on foreign investment all over Colombia. More important, the booming cocaine industry has literally deformed civil society. Riches, no matter how ill-gotten, have become the goal of too many Colombians. And respect for civic rights, education and honest work have declined. The judicial system and other government institutions have crumbled as the narco-trafficers have carved out a sphere for their illicit business through corruption and violence. The result has been the progressive "deligitimation of the government."

Drug barons do not invest in the industrial sector, but instead regularly choose less value-added investments. Some analysts are now speaking of the Andean disease -- a loss of competitiveness of those sectors of the economy that produce legal goods for export or goods that substitute for imports, largely because of the tendency for the Colombian peso, for example, to be overvalued by the distorted "oversupply" of dollars.

Drug barons here have also shown a marked preference for the purchase of some of the best land in the country. This process has translated into a general displacement of positive agricultural activity, because the lands in question are now devoted to pasturage or recreational farms.

As Colombian economist Mauricio Reina explains, "the rise in demand for land has increased land prices exorbitantly in the affected regions so that often it is better business to sell than to continue to farm. The overall result is less prospect for land reform and overall limited economic growth."

An effective drug policy should not be a policy of denial. And yet the Bush administration has retreated to the same tired, ineffectual, unilateral certification process whereby the United States looks to drug-producing nations to demonstrate that they are making major progress in the fight against drugs or face sanctions. Seizures and arrests may increase, prices may fluctuate, but the supply-side battle is a losing proposition. "It's like hitting mercury with a hammer," one U.S. State Department expert said.

Not surprising, the escalating drug war in southern Colombia is simply spreading production elsewhere. There are reports of coca cultivation being restarted in areas of Peru that had been eradicated by fumigation. And Brazil is bracing to meet the threat of drug production and trade in its border regions.

Unless we attack the $50 billion American appetite for illegal drugs at home, I'm convinced that our drug war strategy is fatally flawed. It might be a good idea if the United States agreed to certify its own efforts. Otherwise we're going to continue losing this war.

Tom Thompson of Seattle is president of Analytics Inc., a trade analysis and consulting firm, and travels frequently to Latin America.

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