Pap.polit. vol.14 no.1 Bogotá Jan./June 2009
The political economy of Colombia’s cocaine industry*
La economía política de la industria colombiana de a cocaína
Dermot O’Connor**
Resumen
Este estudio proporciona estimaciones científicas de los ingresos anuales
generados por la industria ilícita de la cocaína en Colombia (1991- 2007), a
partir de los datos sobre la producción de coca recogidos por la Oficina de
las Naciones Unidas contra la Droga y el Delito. Mientras los productores
colombianos reciben solo una fracción de los ingresos globales de tráfico de
cocaína y de las ventas, el control de la producción y la apropiación de los
ingresos están altamente concentrados, lo que señala la gran capacidad de
las empresas de drogas ilícitas para afectar a la economía y sociedad
colombiana. Comparamos narco-acumulación de capital en el contexto más
amplio de la economía colombiana en términos de productividad, pautas de
empleo, crecimiento, concentración de la riqueza y poder. Así, la producción
de estupefacientes es uno de los más productivos y lucrativos sectores de la
economía. Si bien el potencial de ganancias es alto, la naturaleza ilegal de la
industria —las empresas son propensas a la violencia y el sabotaje de los
competidores y vulnerables a los intentos de represión de la producción por
el Estado— hace que esta sea muy volátil y arriesgada. El dinero ilegalmente
acumulado de las drogas puede servir como una fuente de financiación para
las actividades económicas legales; lo que se hace evidente en el
crecimiento económico en el sector formal, así mismo, hay que decir que
este se utiliza también para financiar los grupos armados ilegales que
contribuyen a la violencia y la inseguridad, en particular en contra de los
campesinos rurales.
Palabras clave autor
Colombia, tráfico ilícito de drogas, producción de cocaína, narcotráfico,
narco-capital.
Palabras clave o descriptores
Narcotráfico – Aspectos socioeconómicos – Colombia, Industria de la coca,
Colombia – Política económica
Abstract
This study provides up-to-date scientific estimates of annual revenues
generated by Colombia’s illicit cocaine industry (1991-2007), imputed from
data on coca production collected by the United Nations Office on Drugs and
Crime. While Colombian producers appropriate only a fraction of global
revenues from cocaine trafficking and sales, control over production and
appropriation of revenues is highly concentrated, suggesting a great
capacity for illegal drug-firms to impact Colombian economy and society. We
compare narco-capital accumulation within the wider context of the
Colombian economy in terms of productivity, employment patterns, growth
and concentration of wealth and power and find that narco-production ranks
among the most productive and lucrative sectors of the economy. But while
the potential for profits is high, the illegal nature of the industry means firms
are prone to sabotage and violence from competitors and vulnerable to
attempts at suppression of production by the state, making the industry
highly volatile and risky. If illegally accumulated drug-money can serve as a
source of financing for legal economic activities, thus propping up economic
growth in the formal sector, it must also be said that illegally accumulated
narco-dollars are used to finance illegal armed groups and contribute to
violence and insecurity, particularly for rural peasants.
Key words author
Colombia, illicit drugs, cocaine production, drug trafficking, narco-capital.
Key words plus
Narcotic traffic – Socioeconomic aspects – Colombia, Coca industry,
Colombia – Economic policy
Introduction
While relatively few Colombians are directly involved in narcotics production
and trafficking, political-economic scholarship suggests that illegal drugindustry revenues seep into virtually all segments of the Colombian
economy. To convert large sums of illegally accumulated cash into bank
holdings and financial capital, narco-firms invite popular investment in
pyramid schemes, create jobs through construction and commercial
investment, or provide opportunities for mass consumption of cheap
commodities imports.1 Drug money has been used to finance political
campaigns and set up private armies in the service of foreign and domestic
capital accumulation.2 The extent of narco-infiltration into state institutions
is illustrated by the growing power of paramilitary groups to permeate the
state’s coercive apparatus,3 despite official reports of demobilization (The
Economist, 2004, October 23, p. 53). In the countryside, rebel armies collect
rents from coca producers and traffickers which fuel political insurgency by
permitting rebel armies to pay for arms imports (Thoumi, 2002). Despite
being seen as an international security problem, and despite its nefarious
effects on political stability and domestic security, past-research has
suggested that illicit drug production actually boosts Colombian economic
growth (Pardo, 2005).
Indeed, as the global focal point for Cocaine production (but also to a lesser
extent marijuana and opium production) Colombia is home to a large
shadow economy lubricated by foreign currency and impacting domestic
liquidity (Arango & López, 2006). Understanding how forces within this
shadow economy compete and/or cooperate with both the powerful and the
marginalized within the broader context of Colombian capitalist accumulation
is of prime importance if political-economists are to accurately describe how
the Colombian economy fits into the contemporary global context in which
financial capital flows are key determinants of growth and crisis. Such a task
requires accurate quantitative data on the size of revenues generated by
cocaine production and the amount of illegally generated drug-dollars that
are available to potentially launder and convert into financial capital.
Therefore, in order to supplement valuable historical, sociological and
journalistic accounts, this paper provides some up-dated data on Colombia’s
cocaine industry. First we ask: exactly how much annual revenue does
cocaine production generate? How much of this revenue is appropriated by
Colombian producers and traffickers and how much by non-Colombians? A
review of previous attempts to estimate cocaine revenues reveals some
inconsistent and/or partial findings, as well as some large gaps in the
historical data record. Thus we provide our own, more recent time-series
estimate of cocaine industry revenue based on raw UNODC data. We then
use these estimates to compare employment, productivity, income
distribution and concentration of ownership within the cocaine industry to
figures from the formal economy. In addition, we provide figures which allow
us to speculate on the relative political-economic power of drug-lords
alongside the executives of legitimate capitalist firms by comparing the
profitability of the largest drug cartels to those of Colombia’s largest legal
firms, both private and state-owned. Providing up-to-date empirical data on
the relative importance of the cocaine industry to the Colombian economy
provides the necessary foundations for the development of a theoretical
framework to describe the dynamics of contemporary narco-capitalism. We
thereby hope to advance debate among scholars and activists on the
financial, economic, political and social impacts of underground economic
activity on Colombian society.
Previous research on colombian cocaine revenues
Varying laboratory techniques of producing cocaine, seasonably-variable
coca crop yields, shifting levels of success in government-suppression and
seizures, as well as different measurement methods on the part of scholars,
are all sources of variation in estimates of cocaine revenues. In this section
we will briefly present a sample of previous studies reporting Colombian
cocaine revenues in US dollar figures. Figure 1 charts previous estimates of
the value of the cocaine industry to Colombia in contemporary US dollars,
not adjusted for inflation. The earliest figures we present are found in
MacGregor (represented by a thin solid line), who estimates export values of
Colombian cocaine rising from around 1 billion USD in 1976 to about 3,5
billion USD annually in the mid-1980s, peaking at around 4,5 billion USD in
1987-1989 after which point the series stops (MacGregor, 1993, pp. 59-60).
MacGregor’s estimates are based on the production value of Colombian
cocaine HCl including cocaine produced in Colombia with Peruvian and
Bolivian coca paste, discounting for seizures by government forces.
However, MacGregor does not name the source of his data (whether it was
gathered from newspaper accounts or provided by government agencies),
nor does he mention whether he subtracted the value of imported Bolivian
and Peruvian coca paste from the estimated value of Colombian cocaine
exports.
Steiner uses a complex mixture of methods to estimate the value of
Colombian cocaine production by imputing from quantities of contraband
seized by authorities, estimates of the extent of consumer use
internationally, and the Colombian share of the value of wholesale
distribution in the United States (1998 p. 1.027).4 His figures are similar to
MacGregor’s only for the mid-1980s; from 1987 they are substantially lower.
After a peak of about 4 billion USD in 1983-1984, the series spikes again in
1989 at 2,5 billion USD, before hovering around 1,5 billion USD annually
until the series stops at 1995. In a 1997 study, Rocha provides a much more
conservative minimum estimate of cocaine revenues at 2 billion USD in
1981, which steadily diminished to around 200 million USD by the early
1990s.5 Additionally, Rocha provides a maximum estimate that would put
the mid-1980s export value on par with that of both MacGregor and Steiner,
at around 4 billion USD in 1984, but his maximum estimates of late-1980s
values are much higher than both MacGregor’s and Steiners’s, at over 6
billion USD annually between 1988 and 1990. The maximum range drops
below 3 billion USD after 1993. There is thus a great degree of variation in
the existing estimates of the value of the cocaine industry to Colombia.
In addition to methodological and technical explanations, another reason for
such wide variations in estimates of revenues in Colombia’s cocaine industry
is the problem of estimating accurately how much of a share of the US
wholesale market Colombians manage to appropriate. A substantial share of
the US wholesale market would increase dramatically the share of global
cocaine revenues appropriated by Colombian citizens – thereby increasing
dramatically the size of Colombian cocaine revenues. For example, Steiner
cites a 1982 study by Junguito and Caballero which he states “estimated a
gross income for all those involved in the trade in a range of $16-28 billion,
of which 1% went to the producer, 1,7% to the middleman in Colombia,
17,5% to the wholesaler and 79,7% to the retailer” (Junguito & Caballero,
1982, cited in Steiner ,1998, p. 1.015). And in another source, (although he
does not provide a time-series), Vellinga reports that in the 1990s, the total
wholesale value of Andean cocaine could have been as much as 8-12 billion
USD, with a street value of as much as 74 billion USD (2004, p. 7). He also
suggests that as much as half of the export value of Andean cocaine made it
back to the producer countries, although the growing participation of
Mexican, Brazilian, Venezuelan, US American and European traffickers is
substantially reducing the Andean share. Even if the lion’s share of total
cocaine revenues are generated, laundered and reinvested after further
wholesaling, trafficking and retailing beyond Colombia’s borders; Vellinga
emphasizes that, consistent with Steiner’s findings from the early 1990s,
“still, income through the drug industry for Colombia alone has been
estimated at an average of 2.5 billion US dollars per year in the 1990s”
(2004, p. 320). Unfortunately, because of the differing methodologies of
older studies and a lack of more recent scholarship, we do not have an upto-date picture of the value of Colombian cocaine revenues and therefore
the significance of the drug industry relative to the rest of the Colombian
economy.
Methodology and data
Our estimates of cocaine revenues are based on the potential quantity of
cocaine HCl produced in a given year imputed from estimates of the number
of hectares dedicated to coca production and the potential yield per hectare
of dry coca-leaf in the Andes.6 To determine the value-added and therefore
revenues available to producers or traffickers of a particular country of origin
at each step in the production process, once we have data on the quantity of
coca products, we will also need information on their prices. Our task is
made somewhat straightforward thanks to the UNODC’s 2007 World Drug
Report. According to this source, between 150.000 and 200.000 hectares of
land per year are used to cultivate coca bush in Peru, Bolivia and Colombia.7
The UNODC’s country-by-country hectare estimates of coca cultivation allow
us to estimate coca leaf yield.8 Based on regional and national averages of
dry coca leaf yield per hectare from the Bolivian, Colombian and Peruvian
country reports, multiplied by the number of hectares in cultivation, the
UNODC has estimated a total yearly quantity of dry coca leaf produced in
the Andes (broken down by country). From around 100.000 mt of dry coca
leaves per year in 1980, throughout the 1980s production increased
steadily. Since 1990, between 300.000 and 350.000 mt of dry coca leaves
have been produced each year in the Andes region.9 Using scientific
estimates of coca yields per hectare, multiplied by hectares of coca
cultivated, multiplied by factors representing the quantity of coca paste,
cocaine base and finally cocaine HCl that can be refined per unit of coca leaf,
the UNODC has provided estimates of quantities of potential cocaine HCL
production for each of the Andean countries between 1990 and 2007.
Despite government suppression through eradication efforts, due to
improvements in crop rotation techniques, fertilizer use, improved
refinement techniques and favourable growing conditions that make per
hectare yields higher, total Colombian cocaine output has consistently
increased since the early 1990s and indeed remains around year 2.000
levels of 600 metric tonnes per year. Figure 2 presents in graphic form the
UN data on potential cocaine production, alongside which we have included
data on government seizures. The chart demonstrates that while production
levels are growing, so is the rate of success of international authorities’
suppression of the cocaine trade.
What potential cocaine output per Andean country provides us with is an
estimate of the quantity of cocaine HCl that would be produced in each
country if all of its coca products were to be refined there. However, we
cannot determine exactly the share of cocaine revenues attributable to any
given country due to transnationalized production and refinement of coca
products. As Thoumi puts it, we cannot know precisely “the share of the
Bolivian and Peruvian paste and base that is controlled and internationally
marketed by Bolivians, Colombians and Peruvians; and the share of each
country’s traffickers in the value added generated by smuggling drugs within
the Andean countries and outside the region” (2003, p. 143). This problem
is akin to trying to determine which share of revenues from one firm’s
automobile production and sales should be attributed to each country’s GDP
when the tires are produced in Japan, the electrical components in China,
the parts in Canada and the body assembled in Detroit. Likewise, cocaine
production involves transnational linkages. According to Grosse, “the basic
business of drug trafficking in Colombia involves purchasing and transporting
the coca leaf and/or cocaine base from growing regions in Peru and Bolivia,
as well as domestically, and manufacturing cocaine hydrochloride in
Colombia” (2001, p. 172). To calculate revenues from this business, then,
we must have estimates for quantities and prices of coca products (leaf,
paste or base) imported into Colombia to subtract from the export value of
finished cocaine products leaving the country (i.e. cocaine HCl). This means
that “two price series are required: that at which Colombians purchase base
from Bolivia and Peru and the one Colombians obtain from their sales in
consumer markets” (Steiner, 1998, p. 1.021). We can impute revenues
appropriated by producers and traffickers in particular regions if we make
our assumptions clear about where particular stages in the production
process occur and hence where value is added.
While we have quantity of production estimates from 1987 onwards for Peru,
Bolivia and Colombia, we only have complete factor-pricing and value-added
estimates for all stages of the cocaine production process for Colombia, and
only for the year 2005 (UNODC, 2006, p. 49). Thus we will use these values
as proxies in order to construct price series from which we can impute
revenues from the Andean drugs business dating back to 1991. As we can
see from estimates offered by UNODC in Table 1, if dry coca leaf sells for 1
USD per kilo, at an average annual yield of 6.300 kg/ha, a farmer could
generate 6.300 USD per hectare of coca planted. However, once those
leaves are transformed into coca paste, the price rises to 879 USD per kg. If
10,2 kg of coca paste are yielded per hectare of planted coca, the annual
revenue per hectare planted generated from the sale of coca paste becomes
8.966 USD, for a gain of 44% over the value of dry coca leaf. Combine this
gain with the convenience of transporting a much lighter product, there is
incentive for primary producers to grow and process coca leaves into paste
at the site of production. If the farmer has the resources to process paste
into cocaine base, there is a 57% per unit gain in revenue (value-added),
which rises to over 107% for those who can produce the finished cocaine
HCl.
Whether farmer or renegade chemist, based on 2005 data from Colombia,
we can state that whoever can turn the coca leaf into pure crystal winds up
with a product that is worth twice as much as a field of dry coca leaves
(13.039 USD versus 6.300 USD) and weights almost a thousand times less
(6.300 kg versus 7,4 kilos), making transportation of the product more costeffective and more difficult to detect, reducing some of the risk. However,
due to the high costs and local scarcity of materials necessary for refinement
(such as acid or acetone), it is unlikely that small-scale farmers could afford
to refine their dry-leaves beyond the paste-stage. Since they have access to
the expertise and resources, large drug-cartels can make use of economies
of scale to perform more cost-effectively the transformation of coca paste to
cocaine base to cocaine HCl. Thus we will suppose that all of the world’s
finished cocaine HCl is produced in Colombia, but it is produced using a
combination of Colombian, Peruvian and Bolivian paste (and not cocaine
base).10 We also know that Colombia rather than Peru or Bolivia has been
the primary centre of cocaine HCL manufacture since the 1970s even if
paste and base are imported from these other Andean countries,11 so
historical evidence and economic rationale support our assumption.
In any case, the available data makes our methodological choices for us: we
do have a time series of Colombian wholesale prices in USD and COP for
cocaine HCL for 1991-2007 (see Figure 3); and we do have wholesale prices
for Bolivian and Peruvian coca leaf for (1991-2007). From this latter series
we can estimate the value of coca paste imports from those countries using
the average of 44% mark-up per unit price from the Colombian data
(UNODC, 2006, p. 49). Thus we calculated the value of coca paste imports
into Colombia by multiplying by a factor of 1,44 the unit cost of dry coca
leaves at Peruvian and Bolivian market prices.12 This of course assumes,
once again, that it is far more likely that paste is imported to Colombia from
the other Andean producers and not dry leaves considering their price to
volume ratio as noted above. Finally, we calculated the value of Colombian
cocaine revenues by multiplying the total potential Andean cocaine yield in
tonnes by 1.000, multiplied by the current Colombian wholesale market
price per kilo of cocaine HCL. This gave us an estimated total value of
Andean cocaine production from 1991-2007 in USD. We then subtracted the
value of Peruvian and Bolivian coca paste imports (price times quantity of
coca leaf times 1,44). In addition to subtracting the price of Peruvian and
Bolivian imports from Colombia’s gross cocaine revenues, we also subtracted
the value of government seizures of cocaine HCL.13
Thus:
Colombian Cocaine HCL revenues
Equals: Total Andean Cocaine Production (quantity in kg *
Colombian wholesale
price)
Minus: Peruvian coca paste imports (coca leaf price per kg *
quantity * 1.44)
Minus: Bolivian coca paste imports (coca leaf price per kg*
quantity * 1.44)
Minus: Colombian Government Seizures (quantity*Colombian
wholesale price).
The resulting data-series is of the total value of annual revenues
in Colombia’s cocaine
industry at Colombian wholesale prices industry from 1991-2007.
Results
Cocaine revenues that can be attributed to Colombian producers and
traffickers fluctuate between 600 million USD to 1,2 billion USD, depending
on annual yields, confiscations, factor prices (including the cost of imported
Andean coca products), and the success of eradication programs. In fact,
revenues fluctuate so drastically from year to year that the industry can only
be characterized as extremely volatile and risky as a business sector, even if
one puts aside the additional risks posed by competitors with a penchant to
use violence and state authorities looking to suppress the entire industry.
We display our findings in Figure 4.
In terms of the validity of our findings, we can see from Figure 1 that our
findings fall within the general range of estimates on Colombian cocaine
revenues. The early part of our series is consistent with Steiner’s findings
and falls midway between Rocha’s minimum and maximum thresholds.
However, since we calculated the revenues likely attributable to Colombian
producers at Colombian wholesale prices (not at US wholesale prices), our
estimates of revenues from the cocaine industry can be considered low
compared to some previous findings from the early 1990s.
However, if we were to take into account the share of profits accrued to
Colombians involved in trafficking cocaine beyond Colombian territory,
Colombians’ cocaine revenues would increase since the action of
transporting cocaine across international boundaries alone increases
dramatically the value-added of cocaine HCl.14 We will not speculate on
exactly how much Colombians appropriate of the global trafficking revenues
or the global wholesale market. But we can get an idea of the revenues up
for grabs from cocaine trafficking beyond the Andean producer countries. We
calculated global cocaine revenues broken down into shares accrued to
producers, traffickers and retailers based on Colombian and US American
wholesale prices, and US retail prices, subtracting of course the quantity of
global seizures from data obtained from UNODC. Since we already have the
share of production revenues in the Andean data, we calculated traffickers’
revenues using US wholesale prices per kilo from 1991 to 2005 using data
from the UNODC World Drug Report, 2007 & 2008. Further, we calculated
the additional value added of street level retail sales in USD per gram in
order to estimate the global revenues of retailers (street-level dealers).
These estimates might be low-balled as the growing Eastern European
market dictates that cocaine sells for more in Europe than in the United
States, however we use the US retail prices as we have no way of dividing
up the share of the global Cocaine product accurately by country or region.
We present our findings in Figure 5.
We can see from Figure 5 that the global revenues from the cocaine industry
have been in decline for traffickers and retailers. With governments seizing
an increasing share of the product at border stings or in raids, overall profits
are diminishing and the industry would appear to be getting more dangerous
for participants risking jail-time or violent death at the hands of competing
firms. Further, as other drugs such as ecstasy, Crystal Meth, heroine, and
marijuana become cheaper and more readily available, the American street
value of cocaine HCl is in decline. While the gross retail value of cocaine still
suggests massive global revenues, in the range of 20 to 40 billion USD
annually, profits are widely distributed among a great number of street-level
retailers and regional traffickers. And as we are going to see, since the
control over cocaine production and export in Colombia is concentrated, far
fewer players share in the revenue pie, making the potential for huge profits
extremely high. And, if our findings are accurate, despite yearly fluctuations,
the production value of Colombian cocaine has remained fairly constant (on
average) since the early 1990s.
Discussion: the cocaine industry & the colombian
economy
Our goal from the outset of this paper has been to provide some empirical
grounding upon which to construct a theoretical framework that places the
underground economy within the overall context of Colombian political
economy. Because the cocaine industry is part of the underground economy,
revenues from production are not directly accounted for in calculations of
the country’s gross domestic product. Nevertheless, since a portion of
revenues are laundered, banked and either directly invested in other sectors
such as construction or real-estate, or reinvested in the stock market,
joining global financial circuits, cocaine revenues eventually show up in the
national accounts, listed as other sources of revenue. Pin-pointing exactly
where cocaine money turns up in the formal economy is perhaps impossible,
and certainly we will not attempt it here. But we can use our findings from
the previous sections to provide a sketch of the relative size, productivity,
profitability, and level of concentration and power in the cocaine industry
compared to the rest of the Colombian economy.
By our calculations, cocaine revenues were worth between 600 million USD
and 1,2 billion USD to Colombia alone each year from the early 1990s to
2007. In relative terms, how does this value compare to other sources of
revenue for the Colombian economy? In Figure 6 we plotted our estimate of
cocaine revenues as a percentage of GDP using current US dollar figures
obtained from the World Bank. Cocaine revenues hovered around 1 % of
GDP throughout the 1990s with a high of 1,61% of GDP in 1991, dropping to
a low of 0,56 % of GDP in 1995 and peaking again at 1,38% of GDP in 1999.
Since 1999, there has been a gradual decline in the relative importance of
the cocaine industry to the over-all economy as over-all growth intensified
while cocaine revenues remained on the average stable (if volatile).
We also plotted Industry value-added as a percentage of GDP in Figure 6.
Industry (including manufacturing and extractive industries) as a percentage
of GDP dropped from around 37% in 1991 to a low of 28% in 1998-1999,
gradually rising again to about 35% of GDP by 2006 (before dropping off
again in 2007). Further, value-added from agriculture, also plotted in Figure
6, declined from around 15% of GDP in the 1990s to 11% by 2007. While in
absolute terms, the cocaine industry amounts to only a small portion of
Colombian productivity, considering it is concerned with the production of
just one type of commodity (and an illegal one at that), it is significant.
Further, despite large yearly fluctuations, the value of cocaine production as
a share of GDP has remained fairly constant on average since the early
1990s while agriculture is in decline and industrial output prone to long
cycles. While this is likely due to an overall intensification of economic
growth due to a rise in productivity in the service sectors and in resource
extraction more than an absolute decline in agricultural productivity, it does
point to the consistency and resilience of the cocaine industry. Despite being
illegal, facing the efforts of the international security system to suppress it,
and taking place within the terrain of battle between armed factions, the
cocaine industry continues to persevere and produce significant revenues.
In Figure 7 we present the value of revenue in the cocaine industry as a
percentage of revenue in both agriculture and industry. Cocaine production
equals on average around 8% of agricultural value added (with a high of
10% in 1999 and a low of 4% in 1995). Cocaine production would be worth
around 3% of value-added from industry to the Colombian economy in the
average year between 1991 and 2007, with a low of 2% in 1995 and a high
of 5% in 1999. Nevertheless, eyeball analysis of the long-term trends
suggests that cocaine production is becoming less important as the formal
economy grows considering that cocaine production has been less than 1%
of GDP every year since 2002. But in absolute terms, the fact that just one
product, cocaine HCl, could account for the equivalent of 8% of agricultural
output and 3% of industrial output suggests the enormous size and
profitability of this sector of the shadow economy.
Further, in considering the productivity of the cocaine industry, it is
important to sketch out employment patterns and wealth distribution within
this sector of the shadow economy. Estimates of the numbers of people
employed in the cocaine industry vary widely, on the one hand due to the
insecure nature of working conditions in this illegal industry which employs
many migrant and seasonal workers in precarious and often dangerous
conditions, but also due to difficulties in accurately measuring illegal activity.
According to estimates made by the Colombian government and UNODC,
there are perhaps 68.000 households that rely primarily on coca cultivation
as a source of income (2006, p. 6).15 Grosse characterizes the class
structure and division of labour within the cocaine industry as a pyramid at
the top of which rest 10 core organizations (Grosse, 2001, p. 174). These
are what we typically call cartels, really crime syndicates that pool their
resources in order to improve the efficiency of production, distribution and
protection.16Grosse estimates that in all, these core firms would employ
around 500 people. Below these firms in the hierarchy are a number of
smaller but more numerous (around 100 or so) specialized firms providing
transportation services, money laundering, protection and enforcement of
contracts, and laboratory operations. Below these would be perhaps another
1.000 freelance workers with varying skills including pilots, chemists,
financial advisors, brokers, assassins, lawyers, accountants and paramilitary
commanders. Below that would be another 1.000 part-time workers
performing various tasks such as security, running messages and packages,
doing surveillance, operating radio and telecommunications equipment,
operating machinery, performing manual labour, and working as smurfs
(those who break down large amounts of cash into smaller bundles that can
be deposited in bank accounts). Finally, there are the 100.000 to 135.000
coca growers, agricultural workers and primary producers at the base of
Grosse’s pyramid (2001, p. 174).
In a country of 44 million people, then, between 0,2 and 0,3% of the
population produces the equivalent of 1 to 1,5% of the country’s total
production, all of it unaccounted for by the institutions that control the
formal economy, leaving it untaxed, un-regulated and often expropriated by
both legal and extra-legal force. Now, consider that in 2005, 22% of
Colombian workers were employed in agriculture, producing only 12,5% of
GDP according to World Bank’s Development Indicators. Further, within the
industry wealth and power are highly concentrated. Consider that a handful
of strong-men sit atop a rigid hierarchy of perhaps 500 to 2.500 employees,
who, after having bought the factors of production and paid the primary
producers of coca paste and cocaine base can then manufacture and export
a product that generates them revenues worth at least twice what they paid
for the inputs. If the 100.000 or so primary producers took in half of
Colombian cocaine revenue (based on estimates of value added in the
production process presented above), then that leaves still between 0,5 and
1% of their country’s GDP to the traffickers. Even if there were 10 big
cartels employing 2.500 people, that would mean that 25.000 people, or
0,05% of Colombia’s population would earn the equivalent of 0,5 to 1% of
its GDP in just one sector of the shadow economy. This figure would likely
be much larger considering the potential for a larger Colombian share in the
overseas wholesale cocaine market than we are assuming here, not to
mention further revenues from investments of laundered money in other
sectors such as construction, real-estate, retail goods imports, and
entertainment.
In terms of productivity (revenue generated per worker), then, the cocaine
industry is highly profitable but also highly risky for producer and trafficker.
Nevertheless, despite the risks, because of the exclusion of many rural
workers from opportunities within the formal economy on the one hand, and
the exploitation of cheap labour within the formal economy on the other,
many peasants continue to be driven into coca production, and urban youth
continue to seek employment with drug-cartels.
What does it mean for the Colombian economy that there would be a highly
profitable illegal industry overwhich control is highly concentrated in the
hands of a small segment of the population. How does the quantity of wealth
controlled by drug-firms compare to other large sums of money in the
economy. How does this effect the economy at large? The answers to this
question are suggested by another comparison. The cocaine industry is so
big that in the early 1990s it represented more than half of the value of net
direct foreign investment in the country. As we can see in Figure 8, while
foreign investment rose substantially during the first years of Plan Colombia,
and more recently as the government has continued to welcome investment
by multinational corporations, if FDI is any benchmark, the cocaine industry
still remains an important potential source of finance for economic
development.17
So big perhaps is the cocaine industry, that it might actually boost over-all
economic growth. Indeed, this is the point made by Camila Pardo in a 2005
article suggesting a positive relationship between growth in narcotics
production and economic growth in the Colombian economy.18 Not only does
it appear that increased illicit drug production correlates with economic
growth, but solely in terms of economic growth figures, the economy also
benefits from foreign aid aimed at addressing the problem (even despite the
negative effects of political instability) (2005, p. 464). The implications are
rather astounding: indeed, while illicit drug trafficking is seen by most
governments as a source of instability in the international system, the
inconvenient reality is that a small but powerful elite manages to benefit
from narco-capital accumulation both directly, as it provides a direct source
of liquid investment to finance the business activities of domestic and
multinational corporations in control of Colombian capital accumulation; and
indirectly, as the continuation and persistence of narco-production and
trafficking strengthens the resolve of international policy-makers
(particularly those in the United States) and ensures that they provide a
steady flow of international military aid into the coffers of the Colombian
armed forces.
Power and capital accumulation in the cocaine
industry
We will finish off this paper by using our findings to speculate on the relative
power of Colombian cocaine firms within the context of Colombian
capitalism. Political economists Jonathan Nitzan and Shimshon Bichler have
developed a measurable concept of political power within modern capitalist
economies based largely on Israeli and US American data. The most
powerful firms operating within the core sectors of the economy are those
that consistently post profits better than the average of their competitors.
The executives of dominant firms are able to exercise power in their
societies not simply because of their net worth in absolute terms, but rather
in their relative share of the economic pie within their sector and within their
society. Nitzan and Bichler’s concept of differential accumulation measures
the growth rate of a particular firm within an industry, or a particular
industry within the wider economy as a whole, in relation to the average
growth rate of a firm or of the economy as a whole (2002, pp. 171-174). If a
firm can grow outwards (by expanding into green-field sectors of the
economy) or intensify production inwards (by increasing productivity per
employee) at a faster rate relative to its competitors, it can be said to be
more powerful and influential in the economy as a whole, enabling its
executives to enhance their share of social power in society at large.
We have already seen that the cocaine industry is productive in terms of
output per worker, and is likely to be highly profitable for firms that survivie,
creating the potential to accumulate huge sums of money that can be
invested as financial capital within the banking system. If we consider, as
Nitzan and Bichler put it, that “modern capital is finance and only finance”
(2002, p. 36) any firm able to bank and then invest large sums of financial
capital can count themselves among the core of the dominant capitalist
class.
Thus, once drug firms manage to launder their money and convert it into
bank holdings, they would be perfectly capable of controlling “legitimate”
investments within the wider economy worth a substantial portion of the
country’s bank holdings, or they would be capable of controlling investment
funds as large as those of many institutional holdings or pension funds. The
laundering and banking, that is, the financialization of accumulated drug
profits then, would give drug barons great potential to take “a share of
control over the social process,” as Nitzan and Bichler put it (2002, p. 36).
In other words, it would make them very powerful players in Colombian
society. Financialization occurs either through the Colombian banking
system or through foreign banks. Once legally banked, illegally accumulated
financial capital could be invested anywhere in the world. Drug lords, insofar
as they can launder and bank their money, are really narco-capitalists. As
Thoumi remarks, “Drug traffickers are good capitalists, and illicit drug capital
flows behave in a way similar to any other international capital flow: they
are influenced by macroeconomic conditions in the Andean countries, the
United States, and other countries, as well as by fiscal and monetary
policies” (2003, pp.145-146). While we cannot measure directly the power in
terms of capital holdings and differential accumulation of any particular drug
cartel in Colombia, as we have no way of opening up the books and
obtaining exact annual revenues per firm, nor estimating the total capital
holdings of illegal firms, we can still apply Bichler and Nitzan’s reasoning to
roughly measure the potential power of Colombia’s cocaine elite relative to
the most powerful legal firms in Colombia’s economy. This will involve a
thumbnail sketch of the revenues of cocaine firms relative to the market
value of large legal firms.
Let us say, following Grosse (2001, p. 174), that 10 core firms sit atop the
cocaine industry which brought in revenues of 856 million USD in 2005.
Even after paying half of these revenues to primary producers for production
costs, that leaves over 400 million USD in annual net revenue to be divided
among them (assuming that there are no further costs and having already
subtracted government confiscations). Financial Times of London data
reports that in 2005, Ecopetrol’s net income was 3’253.756 millions COP, or
1,4 billion USD at 2005 exchange rates (2009, Feb. 10). Bancolombia’s 2005
net income was 409 million USD (2009, Feb. 10). While Bavaria S.A
beverage group had total revenues of over 2,2 billion USD, after taking into
account operating expenses and taxes, net income was only 34,6 million
USD (2009, Feb. 10). These firms are the only Colombian firms to make it
onto the Financial Times Top 100 firms in Latin America in 2005. Considering
that one of the core cocaine firms could potentially take in 40 million USD
net income in a given year, cocaine firms would rank high among Colombia’s
most profitable corporations. And if a dedicated and prudent narco-capitalist
could manage to clean and bank a good share of his fortune, he could
translate illegally accumulated narco-wealth into a substantial sum of
capital. Thus narco-capitalists, should they succeed in cleaning up their
illegally accumulated fortunes, could potentially be among the most powerful
members of Colombian society, if indeed, as Nitzan and Bichler put it, capital
is finance and finance easily translates into social power.
But what about the dynamics of narco-capital accumulation in relation to the
wider Colombian economy; how does narco-capitalist accumulation perform
relative to the rest of the Colombian economy over time? As noted above,
Nitzan and Bichler’s concept of differential accumulation could be used to
measure the performance of a particular industry compared to some
measure of the economy as a whole (2002, pp. 171-174). And so, we
compared the growth-rate of the Cocaine industry expressed as an annual
percentage change in total revenues with Colombian GDP annual percentage
growth. While generally the cocaine industry has the potential to grow
dramatically year by year, it also can shrink drastically, due to government
seizures, crop failure, sabotage on the part of competitors, input shortages,
labour shortages, etc. As we can see from Figure 9, in the 1990s, growth
rates were dramatically higher in the cocaine industry than in the economy
as a whole, except for the years 1993, 1995, 1997 and 1998, when huge
declines in output put growth in the cocaine industry well below that of the
formal economy. After 1999, growth in the cocaine industry fell far below
growth in the formal economy in all but two years, 2004 and 2007. Once
again, while cocaine can still be wildly profitable and empower a small group
of people, as a productive sector it is prone to volatility and exposes narcocapitalists and workers to extremely high levels of risk.
Even if narco-capitalists do not succeed in turning illegally accumulated drug
profits into licit financial holdings, their power over the future of Colombian
society can be exerted in other ways. As the political adventures of Pablo
Escobar and his contemporaries,19 as well as recent allegations of drugmoney being used to fund political campaigns attest, drug revenue that does
not get laundered and legitimized as financial capital still allows drug-lords
to exert extraordinary influence over the formal political system and
governmental institutions through cash payments of bribes to corrupt
politicians, police, military officials and judges. Further, illegally accumulated
drug revenue that it is not legitimized and reinvested in the formal sector
can still be reinvested back in the cocaine industry itself, or in some other
sector of the underground economy which operates on the basis of cash
payments. Thus Drug-cash is used to open up further coca production and
cocaine manufacturing which spins-off into investment in materials, workers,
and armed protection. Drug money has provided the means through which
various business interests can foot armies, either to protect the interests of
landed capital as in the case of paramilitary armies, or to fund private
mercenary armies for hire to domestic and foreign capitalist firms (Melo,
1998, pp.79-81). This creates insecurity, social instability and drives mass
displacement out of the countryside into urban centres. According to Melo,
drugs money has also been cited by many politicians and observers as the
means through which the FARC and ELN continue to stage their existing
political struggles through violent means, thus suggesting that drugs-money
fuels armed conflict in the country on either sides of the political spectrum.20
Conclusion
We can conclude that while the cocaine industry is a risky business, it is also
highly productive in terms of output per worker if agricultural output and
industrial value-added serve as benchmarks. Nevertheless, the relative
importance of the cocaine industry to the Colombian economy as a whole
appears to be in decline, as GDP growth suggests productivity increases in
manufacturing and industry (particularly the extractive resource sectors)
and foreign investment is on the rise. However, this could change if the
cocaine industry has a few more highly productive years, and given the
volatility of the sector, this is possible. This illegal sector of the economy has
the potential to be highly profitable for those willing to take the risk and
success in this sector can endow narco-capitalists with extraordinary (and
extra-legal) powers. As Steiner puts it: “Even if the true economic dimension
of drugs in Colombia is smaller than what is generally suggested both in the
press and in political circles within the United States, it is still the case that
the drug trade provides resources to a very small group of outlaws, with
enormous power to corrupt the country’s social and political fabric” (1998, p.
1.013). In this paper we have tried to put a dollar value on the capacity of
powerful illegal capitalists to finance Colombian financial capital
accumulation and corrupt the institutions of the state.
Now that we have the empirical foundations for a framework in which to
theorize the place of the cocaine industry within the wider context of
Colombian capitalism, a number of lines of investigation open up. What
remains to be done through further empirical work is to investigate in more
detail the ways in which the highly profitable but highly dangerous cocaine
industry interacts with Colombia’s formal economy. For example, to what
extent does expansion of illicit drug production use arable land that could
otherwise be used for the production of legal crops?21 The relationship
between agricultural land-tenure, colonization, expansion of the agricultural
zone, forced rural displacement, agro-capitalist development and the coca
industry requires sustained scholarly attention. Who are the primary
producers of coca crops? Are they predominantly displaced rural peasants
colonizing new land, or are they small tenured land-holding peasants, or
migrant workers contracted by narco-capitalist firms seasonally to pick
leaves? To what extent is land seized by illegal armed groups turned over to
coca cultivation? How does illegal drug production feed into the process of
accumulation of land and property for the larger process of expansion of
agro-capitalist production?
From further empirical work on questions such as these we can begin to
accurately theorize how the illicit economy creates opportunities for those
marginalized by Colombian capitalism, how it allows criminals to compete
with institutionalized power brokers, and how cooperation between illicit
capital and some elements within the Colombian state corrupts both state
and society at large. This will involve further quantitative work on differential
accumulation within the Colombian economy to better tease out the net
economic impacts of the cocaine industry on Colombian capitalism; however,
it will also involve an historical sociological investigation into the social
forces (including a predatory global capitalism) that drive Colombians into
the cocaine industry in the first place.
Notas
*
Article of scientific investigation.
1 For a detailed treatment of this theme see Grosse (2001).
2 An historical account of the links between cocaine traffickers and groups
involved in armed conflict in the 1980s and early 1990s is to be found in
Melo (1998).
3 A rich and dynamic historical account of the paramilitarization of the
Colombian state is laid out in a forthcoming book by Hristov (2009).
4 Steiner questions the validity of some academic accounts of the size of the
cocaine industry which are based uniquely on estimates by journalists or
whose authors were less than explicit about their methods. Steiner’s highly
detailed and extensively researched account of some older studies of cocaine
revenue in Colombia, most notably a 1990 study by esteemed Colombian
political economist Salomon Kalmanovitz, is a must-read, so we avoid a
more detailed summary here.
5 Rocha’s 1997 data series is published in Thoumi (2003, p. 147). The
original source is Rocha, R. (1997). Aspectos económicos de las drogas
ilegales en Colombia. In Thoumi, F. (Ed.), Drogas ilícitas en Colombia: su
impacto económico, político y social. Bogotá: Dirección Nacional de
Estupefacientes and United Nations Development Program, Editorial Planeta.
6 Of all the clandestine cocaine labs discovered and destroyed by
government authorities worldwide, 99% of those were in Colombia, Bolivia
or Peru as reported by UNODC (2007 p. 12). This suggests that virtually all
of the world’s cocaine HCL is indeed produced in the Andes where raw coca
plants are harvested. UNODC reports that only a few tons of dry coca is
produced each year in Ecuador. The practice was apparently abandoned by
Indigenous tribes in the 1950s according to Leon (1952).
7 UNODC (2007b) provides estimates of global cultivation of coca bush in
hectares of land use (1990-2006) based on satellite images and local
reports. While the total land use in the three countries for coca cultivation in
hectares remained fairly constant between 1990 and 2002, (around 215-225
000 ha per year) there was a significant drop in production in Peru and
Bolivia from 1998 to 2002. This is likely due to government repression of
indigenous coca cultivators in Bolivia, a relative decline in the power of the
Sendero Luminoso in Peru, as well as a blight that affected coca plants in
that country (Vellinga, 2004, p. 5). Furthermore, the interdiction of air traffic
in Andean air space imposed by the US Airforce interfered with small plane
transports of coca products, see Friesendorf (2005, p. 46). At the same
time, the level of global coca production was maintained by increased coca
cultivation in Colombia after 1998. When production dropped in the coca
supply zones in the late 1990s, Colombian cocaine manufacturers sourced
domestic sources of raw coca leaf and base.
However, an overall decline in world coca cultivation occurred between 2001
and 2003, likely attributable to efforts to eradicate coca fields by the Uribe
government as part of Plan Colombia. While the aerial bombardment of the
countryside with thousands of tonnes of herbicide, along with forced manual
eradication of coca crops by political prisoners, supported by US military aid,
may be making a dent in global coca cultivation, the nefarious side effects
include the eradication of subsistence food crops, livestock, and water
supplies upon which rural peasants and indigenous Colombians rely. Despite
such controversial actions, since 2003, global and Colombian coca cultivation
has remained constant with around 150 000 hectares of land planted with
coca (often lying beyond the agricultural frontier, but also to be found in
interstitial spaces between fields of legitimate crops well within the
agricultural heartland of Colombia). The geographic and politicaleconomic
dimensions of Andean coca cultivation are to be the subject of forthcoming
work by the author, particularly the repercussions to Colombia’s banking
system following the shift of coca production toward Colombia from Peru and
Bolivia in the late 1990s.
8 Variations in estimates at this stage are due to in Thoumi’s view to “the
type of coca plants and their age; weather conditions; coca plant density per
hectare; the amount and types of fertilizers and herbicides used; the
frequency of pruning; the skills of chemists and the type and quality of the
chemicals used; and the time between the moment leaves are harvested
and the actual refining process begins” (2003, p. 142). There is then, a
great room for error in any estimate of coca yield extrapolated from hectare
estimates of coca cultivation.
9 For data see UNODC (2000a, p. 40; 2000b, p. 24)
10 Which is consistent with Steiner (1998, p. 1.026)
11 Colombian traffickers were already established as marijuana exporters
before commercializing for mass consumption the traditional Andean coca
leaf, by importing coca products from traditional growing areas elsewhere
for manufacture in Colombia. See Melo (1998).
12 Because we are forced to use Colombian value-added estimates for the
transformation from coca leaf to coca paste on Peruvian and Bolivian
quantity estimates, we encounter a methodological problem. This ratio may
not apply to Bolivian and Peruvian paste due to regional differences in leaf
opiate concentrations and differences in refinement techniques and
materials. Further, using the 2005 data on leaf to paste value added is
problematic due to the likelihood of yearly variations in production yields
and local factor prices. As such, our estimates of Bolivian and Peruvian coca
products imported to Colombia can only be a proxy.
13 Quantities of Drugs seized were obtained from the UNODC’s website at
http://www.unodc.org/ unodc/en/organized-crime/bi-annual-seizurereports.html.
14 As Thoumi (2003, p. 149) and Steiner (1998, p. 1.021), both point out, it
is difficult to estimate how much of profits generated through wholesale and
retail cocaine sales in consumer countries are appropriated by Colombians as
opposed to foreign traffickers and dealers since it is unclear when and where
in the distribution chain sales take place and at what wholesale prices, those
of Colombia or those of the receiving country.
15 Estimating that producers who grew coca likely made paste out of leaves
before selling them, the UNODC puts household coca growing income at
around 843 million USD in 2005 and 683 million USD in 2006. If these
figures are accurate, the report goes on to estimate that the coca household
share of cocaine revenues would be at around 12 300 USD and 10 100 USD
respectively for 2005 and 2006 (2006), putting the coca growing peasant
substantially better off in purely economic terms than the average
Colombian who could expect just over 2000 USD GDP per capita in 2005.
This estimate puts the share of production given to primary producers close
to our total estimate of Colombian cocaine revenue and suggests that the
authors ignored concentration of control over trafficking and the use of
power and coercion in the distribution of revenues. Simply calculating the
value of the crop and dividing it by the estimated number of total producers
does not necessarily give an accurate picture of average cocaine revenue
earned by the producer; the UN estimate does not take into account class
hierarchies based on the division of labour between producer and trafficker,
nor the insecurity of person and property due to a concentration of power
and control over the productive process by an armed and violent few. Thus,
beyond bare-faced economic estimates of well-being based on income, the
UN estimate ignores the reality of the coca producing peasant who, while
waiting to sell the product of their labour to heavily armed and dangerous
narco-trafficers, is at risk of expropriation and attack by government forces,
of exploitation at the hands of armed paramilitaries and open to extortion
from rent-seeking guerrillas.
16 For a discussion of the way cartels operate, see Thoumi (2002, p. 108).
17 According to UNODC Secretary-General Antonio María Costa, speaking
with Austrian news magazine Profil during the current financial crisis illicit
drug money has become one of the only available sources of liquid
investment capital, and that there is evidence that interbank loans have
been financed with capital derived from drug trafficking and other illegal
activities, even to the point where Costa surmises that some banks have
been saved from bankruptcy in this manner way. In Profil (2009) (Thanks to
Julian Germann for pointing out and translating this reference).
18 Pardo does not provide specific dollar estimates for illicit drug production
revenues. Instead she measures narcotics production based on hectares of
land used to cultivate illicit crops (coca and marijuana) and finds a positive
relationship between this variable and GDP growth from 1994-2002. In
particular, see 2005 (pp. 460-461, 417-476).
19 On drug cartels involvement in institutionalized politics in Colombia in the
1980s and 1990s see Melo (1998, pp. 68-77)
20 However, according to Melo, the relationship between coca production
and guerrilla insurgency is complex and requires further investigation (1998,
pp. 80-82)
21 While coca production used to occur beyond the agricultural frontier, or
at the margins of the agricultural frontier, with only about 2% of arable land
used for coca cultivation, in recent years, more and more arable land within
the agricultural regions of the country is being used for coca cultivation,
somewhere in the region of 6% in 2002, according to UNODC estimates
(2006, p. 64)
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