The Impact of Globalisation on the UK Market for Illicit Drugs: Evidence from Interviews with Convicted Drug Traffickers Kevin Marsh, Laura Wilson,

Transcription

1 The Impact of Globalisation on the UK Market for Illicit Drugs: Evidence from Interviews with Convicted Drug Traffickers Kevin Marsh, Laura Wilson, Rachel Kenehan

2 Title: The impact of globalisation on the UK market for illicit drugs: Evidence from interviews with convicted drug traffickers. Authors: Kevin Marsh, The Matrix Knowledge Group Laura Wilson, The Matrix Knowledge Group Rachel Kenehan, The Matrix Knowledge Group Abstract It has been hypothesised that globalisation undermines the efforts of supply containment in the market for illicit drugs through a number of mechanisms, including: increasing levels of competition; increasing the supply of labour; reducing transportation, information, communication and finance costs; concealing trafficking activities in greater flows of people and goods; producing networks of entrepreneurial, flexible traffickers; and increasing the demand for drugs. This paper analyses interviews with convicted drug traffickers to determine whether there is evidence for any of these mechanisms in the UK markets for cocaine, heroin, and cannabis. The evidence in support of these mechanisms varied, and there was no obvious relationship between drug type or market level and whether these mechanisms are identified. The mechanisms for which some evidence exists include: the adoption of communications technology, such as mobile phones; increasing levels of competition; the emergence of flexible, entrepreneurial networks of traffickers; and the benefits of an increased movement of people, goods, and capital. However, the limitations of the study mean that is difficult to assess the extent to which these observations are representative of the UK drug market as a whole. 1

3 Key words Globalisation, illicit drugs, UK. Acknowledgements The author would like to thank the research team at The Matrix Knowledge Group who helped design and undertake the offender interviews, including Professor Jonathan Caulkins, Jamie Drysdale, Sophie Gurr, Professor Dick Hobbs, Vanessa Jones, Monika Kalyan, Trudy Lowe, Kerry McCarthy, Sarah Morton, Prinny Patel, Professor Geoff Pearson, Professor Peter Reuter, Andrew Richman, Colin Roberts, Miguel Sanchez Garcia, Edward Semple, and Jenny Ward. 2

4 Introduction Globalisation and illicit drug markets In the United Kingdom the heroin, cocaine and crack market is estimated to have a value in excess of 4 billion per annum (Pudney et al, 2006). Such drugs have a substantial social cost beyond this market valuation. It is estimated that crack and heroin users commit 16 billion worth of crime per year to fund their drug use and cost a further 8 billion per year in terms of their impact on health and social functioning (Pudney et al, 2006). In order to address the drug problem, the UK government developed the National Drug Strategy (Home Office, 2002), which identified four pillars of work: preventing young people from becoming drug misusers; increasing the number of individuals accessing effective drug treatment; reducing drug-related crime; and reducing the supply of illegal drugs. The impact of globalisation on the operation of the market for illicit drugs may hold important lessons for the likely effectiveness of the different pillars of the National Drug Strategy. Just as globalisation has improved the efficiency of markets for licit goods, it is argued that it has also improved the efficiency of markets for illicit goods, undermining the effectiveness of supply containment policies (Costa Storti and De Grauwe, 2008b). Costa Storti and De Grauwe (2008a, 2008b) identify a number of phenomena in the cocaine and heroin markets that they argue can be attributed to the forces of globalisation overwhelming the efforts of supply constrain policies. Efforts to limit the supply of drugs through law enforcement measures (seizures, incarceration) have intensified, which would have been expected to have increased retail prices and intermediation margins, as well as 3

5 reducing consumption and production. However, exactly the opposite seems to be happening. Consumption and production of cocaine and heroin have increased, retail prices are declining, producer prices have increased, and margins in the business of dealing drug have declined. Costa Storti and De Grauwe argue that this suggests that the forces of globalization more than offset the effects of supply containment policies (2008a: 36). Similar trends are observed in the UK. Murphy and Roe (2007) identify a four-fold increase in the number of people having used powder cocaine in the past year between 1996 and 2006/7 1. Pudney et al s 2006 analysis of street drug prices from the National Criminal Intelligence Service demonstrates consistent price falls across all drugs between December 2000 and December 2004, with the exception of amphetamines. Costa Storti and De Grauwe (2008a, 2008b) hypothesise that three effects of globalisation can account for these phenomena: 1. The market structure effect: the increasing level of competition resulting from the opening up of markets; reducing retail prices and the profit margins earned by dealers. 2. The risk premium effect: the influx of both high-level and low-level traffickers into the market; reducing the risk premium component of wages, and in turn reducing the margins earned in the market. 3. The efficiency effect: the reduced cost of operating in the market for illicit drugs associated with the lower transport, communication, information and financial costs, 1 These estimates are derived from the British Crime Survey (BCS). There is no equivalent data available for heroin, as the sampling methodology for the BCS uses private residential addresses (households) as sampling points. Therefore, it is likely that this method will systematically undercount opiate and crack users. 4

6 and the increased ability to conceal trafficking activities as a result of the increased international trade, travel, migration and capital flows. The evidence for the existence of these effects is limited. There is little data on the organisation of markets for illicit drugs. Caulkins and Reuter (1998) suggest that the market is characterised by monopoly power, but point out that the evidence is inconclusive. The evidence on the organisation of the illicit drug market in the UK is similarly limited. The evidence that is available is derived from locally specific case studies. Gragg Ross Dawson (2003) describes the UK crack market as comprising many street and middle level dealers; Hales and Silverstone (2005) describe the increased competition in the cocaine markets with the arrival of Jamaican dealers in the 1980s; and Pitts (2007) describes how four crime families in a London borough came together to force the Jamaican Yardies out of the market. INCB (2001) utilise intelligence data to support the notion that traffickers exploit new technologies to improve the efficiency of their operations. Communications technology, such as prepaid telephone cards, restricted-access internet chat rooms, and cloned cellular phones (employing the identity codes of legitimate customer), allow traffickers to communicate safely and to launder money by electronic transfer. Encryption technology allows traffickers to securely store information on shipments of illicit drugs, bank accounts, and associates. Paoli and Reuter (2008) describe the role played by immigrants in drug dealing and trafficking in Europe. They point out that, while the overrepresentation of immigrants in criminal justice statistics may be a manifestation of the priorities and biases of law 5

7 enforcement agencies, there is empirical research that demonstrates that the open drug markets in most large Western European cities are dominated by ethnic minorities. In support of the efficiency effect hypothesised by Costa Storti and De Grauwe, Paoli and Reuter (2008) argue that one reason for the predominance of such minorities in the drug trade is that they are part of diasporas, which allow dealers to effectively hide their illegal operations. However, it is important to note that Paoli and Reuter point to a number of other reasons why ethnic minorities are overrepresented in drug trafficking, including: their low social and economic position, which reduces their options for alternative employment; the strength of their family ties making their operations impermeable to law enforcement activities; and their proximity to source countries and major trafficking routes. There is also evidence that ethnic minority group play a role in the UK market for illicit drugs. Turkish groups dominate the supply of heroin (Pearson and Hobbs, 2001; SOCA, 2007), while Columbian and West Indian traffickers dominate the supply of cocaine (Pearson and Hobbs, 2001; SOCA, 2007). Hales and Silverstone (2005) describe how groups with links to Jamaica became key players in the UK crack market. The criminal groups responsible for the spread of crack cocaine in the UK had links with both Jamaican and UKbased Caribbean communities that were first established in the 1950s. Superterritoriality: illicit drug markets as flexible social networks The account of the effect of globalistion on illicit drug markets described in the previous section presumes what Scholte (2007: 8) refers to as a continuity in the underlying character of social geography. That is, this description of globalisation is based on an increased rate of exchange between pre-existing social and territorial spaces, or a shrinking world occur[ing] 6

8 within territorial geography (Scholte, 2007: 11). This description of globalisation, Scholte argues, can be captured within existing concepts such as internationalisation (a growth of transactions and interdependence between countries), liberalisation (a removal of officially imposed restrictions on the movement of resources between countries), and universalisation (a process of dispersing various objects and experiences to people at all inhabited parts of the earth). Scholte (2007) proposes a different conception of globalisation, the spread of transplanetary or supraterritorial connections between people. That is, globalisation cannot be explained simply by blending the existing notions of internationalisation, liberalisation, and universalisation. An explanation of globalisation requires a break from the territorialist geography implicit in these notions. It is the reduction of barriers to transworld social contacts [and the] shift in the nature of social space (Scholte, 2007: 8) that is the novel characteristic of globalisation. The manifestations of Scholte s notion of globalisation include those described above the increase exchange of information, the movement of people, global production by multinational corporations, global consumption of similar products, and increased international capital flows. However, the difference with the superterritorial notion of globalisation is that it takes social relationship substantially beyond territorial space (Scholte, 2007: 11). That is, this conception of globalisation incorporates the changing nature of the social space in explaining the effects of globalisation. The implications of the superterriorial notion of globalisation for the illicit drug market is described by Hobbs (1998) in this study of English drug dealers. Hobbs argues that unlike 7

9 previous eras, contemporary organised crime [...] simultaneously occupies both the local and global. [...] criminal career trajectories no longer are limited to specific, often stereotyped geographic locations of some urban underworld. Drug networks in particular constitute:... continuous paths that lead from the local to the global, from the circumstantial to the universal, from the contingent to the necessary (Hobbs, 1998: 419). Hobbs describes how the process of the fragmentation of traditional working-class neighbourhoods and local labour markets has made it difficult for family-based units to establish the parochial dominance previously enjoyed by the feudal warlords of the 1950s and 1960s (1998: 409). In turn, this has led to the dissolution of those traditional forms of organised crime that were so reliant upon this milieu (1998: 409) along with their traditional criminal territories. In place of this traditional, territorially-specific, family-based organised crime have arisen new networks of criminal entrepreneurs. These networks are comprised of small, flexible firms that do not limit themselves to specific neighbourhoods or pledge allegiance to some permanent structure (Hobbs, 1998: 412). Hobbs describes one such network: there are no key players in this network, no ring leaders, bosses or godfathers. It is a co-operative, a series of temporary social arrangements that enables a constantly changing group of actors to make money from predominantly criminal opportunities (413). Hobbs rejects explanations of the global nature of organised crime that rely heavily upon transnationality, cross border, international or other metaphors of globalisation at one end of a spectrum and local street gangs at the other. Such a model fails to embrace the complexity of local contextualities. [That is] it makes no good sense to define the global as if the global 8

10 excludes the local... defining the global in such a way suggests that the global lies beyond all localities, as having systematic properties over and beyond the attributes of units within a global system (Hobbs, 1998: 418-9). Na im (2005) also describes how illicit trade is trade first and crime second, by which he means that illicit trade follows many of the same rules as trade in licit goods. Just as trade in licit goods has taken advantage of the global economy, so has illicit trade. Mirroring Hobb s description of the impact globalisation on drug markets, Na im describes an illicit trade being carried out through decentralised networks, which change with every transaction. Just as Scholte s notion of globalisation as superterritoriality was defined as taking social relationships beyond territorial space, so the new networks are the media through which individuals and groups move between the local and the global (Hobbs, 1998: 419). The relations that make up these networks will vary with differentiation in demographic dispersion, familial composition, ethnic distribution and integration, commercial practice, trading patterns, the economic backcloth of the legitimate culture and the particular use of space (Hobbs, 1998: 419). The flexible social networks described by Hobbs can be observed in a number of recent studies of the UK market for illicit drugs. NCIS (2003, 2006) describe how white British crime groups have developed contacts that have enabled them to by-pass British-based Turkish organised crime groups and purchase heroin closer to the source. Pearson and Hobbs (2001) interviewed convicted drug traffickers who were involved in the middle market. They describe how much of this traditional middle ground between importers and retailers is increasingly now played out in mainland Europe. Middle market drug brokers, regionally 9

11 based and operating in the UK, liaise with systems of drug brokerage and warehousing in the Netherlands and elsewhere [including the Iberian Peninsula], and are directly involved in importation (Pearson and Hobbs, 2001: 17). The fragmentation of traditional social bonds with globalisation also influences the demand for drugs. Yi-Mak and Harrison (2001) argue that through the weakening of traditional society in Hong Kong, globalisation created both a collective crisis of identity, as well as the means through which this crisis might be resolved participation in an internationalised consumer culture that was oriented toward, among other things, drug use. This argument is mirrored in Fransico Thoumi s analysis of drug use in the US. Thoumi (2005) argues that a lack of social capital is the reason why certain groups in the US have a tendency to take drugs. Further, this lack of social capital is related to the breakup of the traditional nuclear family. Summary A number of authors have hypothesised mechanisms by which globalisation may explain the changes in prices in the market for illicit drugs and undermine the efforts of supply containment policies. However, there is little direct evidence to support these hypotheses. This paper attempts to add to the evidence in this area by analysing interviews with convicted drug traffickers to identify evidence of the following effects of globalisation: 1. The market structure effect: increased competition, reducing retail prices and the profit margins earned by traffickers. 10

12 2. The risk premium effect: an influx of traffickers into the market, reducing the risk premium component of wages, and in turn reducing the margins earned by traffickers. 3. The efficiency effect 1: reduced transport, communication, information and financial costs. 4. The efficiency effect 2: the ability of traffickers to conceal their activities as a result of the increased international trade, travel, migration and capital flows. 5. Superterritoriality 1: the break down traditional social groups, creating international networks of entrepreneurial, flexible traffickers. 6. Superterritoriality 1: the breaks down of traditional social groups, increasing the demand for drugs. Method Data Collection Process Interviews with convicted drug traffickers and dealers were conducted by The Matrix Knowledge Group as part of the study The Illicit Drug Trade in the United Kingdom, performed for the UK Home Office 2. The final report (Matrix Knowledge Group, 2007) contains a complete description of the data collection, but the key attributes are reported here. Twenty-two UK prisons holding most prisoners serving seven years or more for drug related offences agreed to participate in the research. All offenders sentenced to seven years or more 2 While trafficker tends to be used to refer to those who move drugs between locations generally those at the higher end of the market and dealer is used to refer to those who operate at the lower end of the market, the fact that some observations are relevant to all market levels means that these two terms have been used interchangeably in the remainder of this text. 11

13 for drug offences in these prisons were invited to take part in the project. A total of 1,390 offenders were invited to take part, 263 volunteered to be interviewed. The research team successfully interviewed 222 offenders between 2005 and Not all volunteers were successfully interviewed as a small number of offenders changed their mind on the day of the interview, and some offenders had been moved to different prisons or released before the interviews could be conducted. An informed consent approach was adopted, and a letter was sent to each respondent in advance outlining the project and its confidentiality protocols. The interviews were conducted in private rooms, and data were documented in a manner that maintained anonymity. The only incentives offered participants was that they received a letter documenting this participants. It is possible that this letter may have benefited the participants should they become eligible for parole. The offenders were asked a range of questions relating to their experiences of operating in the drug market, including: their entry into the market; the drugs they bought and sold; their role and methods of working; the people they worked with; whether they had ever exited the industry; the costs of operating in the market; their customers; their competition; what they did with their money; the risks they faced; their knowledge and perception of law enforcement activities; and how they came to be arrested. While the resulting dataset represents a large number of detailed and consistently conducted interviews, with an emphasis on business and organizational aspects of drug dealing, there are four key limitations with the data (Matrix Knowledge Group, 2007): 12

14 1. Sample selection bias: There is the possibility of sample selection bias as respondents had to volunteer to be interviewed. 2. Sample Size: The 222 interviews cover a range of drugs, time periods, and market levels. When grouped by these characteristics, the sample sizes are small. 3. Gaps in the data: As the interview protocol was semi-structured, and as participants had varying levels of knowledge of the trafficking industry, the same questions were not always asked of every interviewee. 4. False reporting: It is possible that some information provided by the interviewees is not genuine. False reporting could result from either exaggeration or because subjects were still maintaining their innocence. These limitations mean that it is difficult to assess the extent to which observations made in the interviews are representative of the UK drug market as a whole. Analysis The 222 interview transcripts were reviewed for examples of drug transactions, so that they could be coded by drug type, market level, and date. All interviews which could not be coded this way, as well as those that related to the trafficking of drugs other than cocaine, heroin or cannabis were excluded from the analysis. Once this process was complete, 105 interviews remainder for analysis. The interviews were coded by the following market levels: importers; national level traffickers who would buy and sell in different locations in the UK; wholesalers who bought 13

15 and sold in the same location but who did not deal directly to the street; and retailers who dealt directly to the street. The contents of the remaining 105 interviews were coded by the following categories: profit margins, level of competition, labour supply, wages, the use of technology, access to information, the role of ethnic networks in trafficking, the use of trade and travel to conceal trafficking, the demand for drugs, and international financial investments. The data identified in each of these categories was analysed and key themes identified. Results The market structure effect: increasing competition reducing prices and margin Most of the interviewees who discussed profit margins suggested that they made a consistent return on their trafficking activities during the period they operated. Interviewees were aware of a number of factors that could influence price, including temporary droughts, and location (prices in London and Liverpool were identified as relatively low, those in Glasgow and Guernsey were relatively high), but few individual traffickers reported variations in margins. This may be partly the result of margins being so high that slight variations go unnoticed. However, there was evidence that some traffickers compete on price and that increases in the level of competition had caused prices to reduce. A number of interviewees, representing a range of drug types and market levels, indicated that they competed on price. DG_04, who operated in the heroin wholesale market in , described the market as just like a supermarket, some customers are loyal but others would 14

16 sniff out drugs anywhere if they cost less. GA_25 was a retail dealer of heroin and cocaine between 1990 and He was aware of numerous other dealers in the areas, and would do special deals to beat the competition, keeping the price constant but making his bags a little bigger. Price competition was also described by importers of both heroin and cocaine. GA_02 was importing cocaine from Europe in He identified ten other traffickers selling in similar quantities. Customers would claim they could get cocaine cheaper from his competitors, thus forcing down prices. TM_02 imported heroin from Europe between 1997 and He talked about a price war among him and his competitors, though pointed out that his was unusual. Those traffickers that identified increases in the numbers of competitors causing reductions in drug prices all operated at the wholesale level. WS_04, a heroin dealer, said that gangs targeting the market post-1990 had caused the price to fall from 21,000 in 1994 to 15,000 in This reduction in price meant that WS_04 s profits declined over this period. SU_09 described how cocaine was difficult to get hold of in Leicester in the 1990s, as there were only a couple of dealers. Identifying this gap in the market, he started dealing in 1994, at which time he knew three other people operating at the same level as him. By 1996 there were more than 20 people in the market, causing prices to drop towards the end of the 1990s. LH_08 was a wholesale cannabis dealer between 1988 and He described how there were few competitors in the market until a local car plant closed down and some of those that had been laid off entered the drugs trade. The resulting fall in prices meant that he was making no profits at this stage. These descriptions of a competitive market for drugs populated by many dealers support the accounts of Gragg Ross Dawson (2003) and Hales and Silverstone (2005). However, the 15

17 interviews also revealed examples of markets where dealers have more control, as per the accounts of Caulkins and Reuter (1998) and Pitts (2007). A number of traffickers did not think they faced much competition, and there was evidence that a number of factors limited the level of competition in the market. First, dealers use violence in an attempt to control the market. While a number of interviewees thought that violence was confined to the retail level, the interviews contained examples of traffickers at all levels, dealing all drug types, who had experienced violence. Furthermore, there was some evidence that the level of violence being used was increasing. DV_08 dealt cannabis at the national level in the 1980s and 1990s. She describes how the trade has become more violent in the 1990s: [It was] different when I used to do it, in the 1970s and 1980s, you know, well different. Like, we used to -- we're looking at parties, put drinks on the table and they'd stay there, just help yourself. Right? Now, it would go, pulling out guns and, you know, robbing you. Wasn't like that in them days, you know. But nowadays, I know it is, people get shot, don't they? God knows. They'd be gangsters now, do you know what I mean? They'd be going for God knows what. You know, you could be one minute sitting in this chair and they can take you off and there's no more -- no more me, you know? Disappeared. You know? Concrete coat or blooming, like, what was it? Davy thingies' locket, you know, gangsters with his feet tied up. You know? Second, traffickers co-operate to reduce the impact of competition. A number of interviewees from different market levels indicated how they shared information on law enforcement activities with their competitors, and would lend drugs, transport or money to them when they were short. However, there was variation in whether traffickers were willing to share 16

18 information on suppliers, though there was not obvious relationship between their willingness to do so and drug types, date or market level. Third, information asymmetries mean that customers remained loyal to dealers as they trusted them to supply good quality drugs. RH_08, a national-level heroin dealer between 1991 and 2000, described how competitors would try to poach his customers, but his customers remained loyal as they knew what to expect. LH_01, a wholesale-level dealer of cannabis, cocaine and heroin in , described how he did not follow competitors when they cut their prices as he was confident he would not lose customers due to the quality of his drugs. The risk premium effect: increase labour supply reducing wages The money to be made in trafficking meant that there was always a steady supply of labour. WE_01 described how dealers could easily be replaced as it was a lucrative trade that meant many young men wanted to get involved. LH_11 described how he took few precautions, as his footsoldiers were easily replaced. The motivations of a number of dealers for entering the market support this notion. For instance, LG_13 described how he decided to become a dealer after comparing his own basic wage against that of his dealer friends who had designer clothes, good cars and ate out at expensive restaurants. Only one interviewee provided an example of how globalisation opens up the pool of labour available to the drug markets. DG_10 described how he preferred to hire Croatian drivers, as they were reliable and cheap. They were reliable as they were desensitised to the illegality of the trade and they had less fear as their lives are quite poor so they ve less to lose. 17

19 However, the entry of labour into the market is limited by the requirement for trust. A number of interviewees indicated that the importance of trust meant that they only recruited employees largely through their existing social networks (WE_09, WL_03) and limited the number of people they worked with at one time to small groups (FS_01). Other techniques employed to verify the trustworthiness of potential recruits included checking whether they were known to existing contacts (LH_09), and the use of probationary periods within which the levels of responsibility given to new recruits were gradually increased (FS_01). The efficiency effect 1: lower information costs The few interviewees that discussed accessing information suggest that traffickers rely on three sources for information on the market: their own observations; other traffickers; and law enforcement insiders. There was some evidence that mobile phones are improving access to these sources. Mobile phones were described as crucial, everyone uses them and the business cannot operate without them (TM_01). They ensure that traffickers do not have to meet face to face when organising a deal. GA_15 received text messages from other traffickers warning him of police presence in the area. The efficiency effect 2: concealing trafficking activities in flows of goods, people and capital The interviews provided a number of examples the involvement of ethnic minorities in the drug trade, in particular members of the Turkish community (supporting the observations of Pearson and Hobbs, 2001; and SOCA, 2007). DG_01 describes how someone from Turkey controlled the heroin trade in London and trafficked heroin all round the country. MA_12, a member of the Turkish community in London, describes his introduction to the trade by other 18

20 members of the community, and how there were many other people in the Turkish community involved in the trade. However, it is important to note that this predominance of Turkish dealers in the responses of the interviewees may well be the result of bias introduced into the sample by the priorities of law enforcement activities to the extent that law enforcement activity focuses on dealers in the Turkish community at the expense of other dealers, they will be overrepresented in the sample. The interviewees also provided a number of examples of the advantages that those from ethnic minorities had in the market for illicit drugs. In particular, in support of the observations of Paoli and Reuter (2008), the fact that some ethnic minorities have contacts both in the UK and with those in producing countries facilitated their entry into the market. WS_04 arrived in the UK in 1992 from Turkey as an asylum seeker. He was employed in a Turkish social club in North London. He described how the traffickers who frequented the social club were always on the lookout for people to work for them who had not previously had contact with the police. M-15 was from Ghana. In 2000 he was approached by a Ghanaian friend to manage his drug business in the UK. He was trusted by those he had to manage as they knew his family in Ghana. Transportation of licit goods was seen as crucial to the drugs trade. LAT_06 s family owned a transport company through which he met people involved in drug trafficking. This provided him with access to heroin from Pakistan or Turkey, which he sold out of his newsagents. He described how transport is the key to trafficking drugs. The heroin would arrive in special compartments in trucks in Liverpool or Dover. The drivers would bring in a load of 100kg every three months, for which they would receive 20,000-25,000. K_02 owned a large haulage company in Liverpool that would send wagons to Spain each day. He 19