A pharmacy employee looks for medication as she works to fill a prescription while working at a pharmacy in New York December 23, 2009 (Lucas Jackson/Courtesy Reuters).
The U.S. Substance Abuse and Mental Health Services Administration recently released the findings of its 2010 National Survey on Drug Use and Health (NSDUH). The report draws on data collected from face-to-face interviews of 67,500 people aged twelve years or older across the United States (the U.S. government has been conducting this type of research since 1971). Of the many findings in the report, some of the most interesting include:
Over 22 million Americans used drugs in the month before the survey; about 9 percent of the population over twelve years old and a slight uptick from 2008 numbers. City-dwellers (9.4 percent) were more likely to use drugs than those residing in more pastoral settings (3.7 percent), and Westerners (11 percent) got high more often than Southerners (7.8 percent). Men were almost twice as likely to use drugs than women, and they liked to smoke pot. And perhaps not unsurprisingly, young people—aged eighteen to twenty-five—were more likely to use drugs (21.5 percent) than other age groups.
The most popular drug was marijuana—consumed by over 17 million Americans—and its usage is trending upward. An estimated three million more Americans were toking up in 2010 as compared to 2007. Cocaine, ecstasy and meth use stayed flat or fell over a similar time period.
The trends for the non-medical use of prescription drugs are perhaps the most interesting and challenging for current drug policies. An estimated seven million Americans got high on prescription medications in the month prior to the survey; over five million using pain killers. The popularity of prescription drugs is evident in the increasing number of people trying them for the first time each year (some two million), and the doubling of emergency room visits for pain killer abusers from 2004 to 2008. Prescription pain killer abusers seeking publicly funded rehab also tripled from 2002 to 2009.
While the conventional wisdom holds that America’s drugs come from Mexico and Latin America, the study shows this is not wholly true. Prescription drugs were almost exclusively created, bought, sold, and consumed north of the border. Over half of those using and abusing prescription drugs received them from a friend or relative. Fewer than 5 percent got them from a stranger or the internet. Just a fraction of these sales then can be linked back to international cartels. When policymakers debate thorny questions of drug use and international drug enforcement, it’s wise to remember that cartels, though formidable, are hardly the only suppliers in a vast American drug market.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Soldiers stand guard in their military vehicle outside a clandestine drug processing laboratory discovered in Zapotlanejo (Courtesy Reuters).
There are many theories out there about why we have seen a huge uptick in violence in Mexico – now running close to 25,000 homicides a year. An interesting academic paper by Melissa Dell, PhD candidate at the Massachusetts Institute of Technology (MIT), tests one particular theory – elaborated by Eduardo Guerrero among others — that the policies spearheaded by Calderón and the PAN more generally have actually caused the increase in violence. To do so she uses statistical models to examine how PAN victories in close mayoral elections affect violence locally, and whether they have “spillover effects”, causing traffickers to divert their routes to neighboring municipalities.
She finds that when a new PAN mayor comes in after a close election, homicides become 9 percent more likely, and drug traffickers are much more prone to have confrontations with the police. The movement of drugs also shifts to nearby towns — causing an increase in violence there — confirming the so-called cucaracha, or cockroach, effect. Dell argues that government’s policy is behind these statistically significant differences, and specifically that the PAN’s decisions — from top to bottom — to take on drug traffickers more aggressively than other parties is behind the surge.
This rigorous analysis is extremely helpful, and is the type of work that academics should be sharing with policymakers on both sides of the border. Yet we should also be mindful of the limitations. For one, Dell only considers locally produced drugs – marijuana, heroin, meth – leaving out the biggest cash cow, cocaine. Her analysis also exclusively focuses on drugs and not organized criminal groups’ other businesses such as extortion, kidnapping and human trafficking (she does nod to these, but finds no adequate dataset to use). As the business model has changed, so too have the targets, bringing these criminal groups much closer to the general population –as customers and as prey.
This leads to the third limitation – the assumption that “more than 85 percent of the [drug] violence consists of people involved in the drug trade killing each other,” a figure repeated a number of times without any footnotes. Though this has also been the mantra of the federal government over the last five years, so far neither the Mexican government nor outside sources have provided any proof that this is true. Of the nearly 50,000 drug trade-related deaths since 2006, the Attorney General’s office has investigated less than 1,000 (and solved less than 350). Given the shifting commercial interests of the criminals (bringing them closer to innocent civilians), it seems doubtful that the deaths are still almost all between the gangsters themselves, or that the percentage of bad guys killing bad guys hasn’t changed. Indeed, as a recent Human Rights Watch report points out, there are many cases of misclassification, where the authorities presume that murder victims are linked to drug traffickers until proven otherwise (which they rarely are, since the Attorney General’s office investigates less than 2 percent of the killings). The rise in extrajudicial killings by the military, also laid out in detail by Human Rights Watch, further questions these claims.
Finally Dell makes the assumption – repeated in the press and elsewhere – that drug-related violence picked up with Calderón and his “war against narcotraffickers.” But the data show that the uptick started earlier, under president Fox, increasing some 40 percent from 2004 to 2005, and another 25 percent from 2005-2006. This doesn’t necessarily disqualify a PAN-ista effect (given both Fox and Calderón hail from the same party), but it needs to be explored more, as the security policies of the two differed in some respects.
The paper provides some policy suggestions, particularly regarding how to best use scarce law enforcement resources (for starters, don’t set up roadblocks). But the other more ominous implication is that if drug traffickers are rational economic actors, and PAN victories are so costly for them (in terms of relocating their routes or bringing in competitors), it makes sense for them to invest up front – and buy more local elections. As we head into 2012, all should be worried about this conclusion.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Mexican President Calderon tours Dorval Challenger Plant with Bombardier Inc. president Beaudoin in Montreal (Christinne Muschi/Courtesy Reuters).
Over the past two decades China emerged as a manufacturing powerhouse, dominating production in industries ranging from textiles to solar panels, semiconductors to wind turbines. Among the countries hardest hit by China’s rise – and ascension to the WTO in 2001 — was Mexico. In its wake, Mexico’s maquila industry shed thousands of jobs. On factory floors and the halls of government alike everyone talked about the possibility – and in many cases actuality – of plants leaving for the Far East.
But the decade long status quo seems to be shifting again, this time back in Mexico’s favor. More and more plants are opening in Mexico – a mix of new businesses as well as some returnees. One reason is the rising cost of labor in China. Where once China’s wages undercut countries such as Mexico several times over, today the differential is much lower. With China’s strong economic growth and rising per capita incomes, wages too have risen — increasing 22 percent in 2011 alone. When combined with an ever more competitive Mexican peso, many analysts estimate the labor differential between China and Mexico at just 15 percent today.
This much smaller difference no longer offsets Mexico’s geographic advantage. Particularly in a scenario of high oil prices, the long plane or boat ride away from American shores – still the world’s largest economy and consumer — is a drawback. Mexico’s maquila industry too transformed in the last decade, making the most of its strengths. Where once most of the factories lining the border were purely labor arbitrage — sewing blue jeans and crafting Converse sneakers — today an increasing number run highly sophisticated, customized manufacturing operations. Aerospace companies, including Goodrich and Bombardier, have opened operations in Mexico in the last few years, as have many other high tech manufacturers that depend on fast, efficient, technically advanced responses and that create high value added products.
This shift bodes well for Mexican growth, if it continues and expands. To do this, Mexico will need to tackle a few stubborn issues. The most obvious is security. While foreign investment continues, nearly all executives think twice before opening new facilities near the border. One can’t measure the counter-factual, but a safer Mexico undoubtedly would bring more investment, more jobs, and higher economic growth.
A second challenge is the still antiquated and at times overwhelmed border crossings. Many of the current crossings need major renovations or upgrades to help shoulder their part of the now $1 billion dollars of goods and thousands of trucks that cross each day. Waits are not only at times quite long, but also often unpredictable, throwing the delicate just-in-time delivery dance of modern manufacturing into turmoil. The new U.S.-Mexico trucking agreement should alleviate some of these costs, but only if it becomes a full-fledged, permanent – as opposed to pilot – program. With the current mandate still limited, most trucking companies are holding off on the technological investments needed to enter the U.S. market, uncertain about the future payback.
Resolving these issues should give Mexico an edge over China. But in addition, it would strengthen North America vis-à-vis its competitors in the global marketplace, benefiting the United States in the process.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Mexican Gov. Enrique Pena Nieto answers reporters' questions at the National Press Club in Washington (Molly Reilly/Courtesy Reuters).
It seems the campaign book so popular in the United States has headed south of the border. After a recent tour through Washington, DC, and New York, former governor and likely PRI presidential candidate Enrique Peña Nieto just released Mexico, the Great Hope. An efficient state for democracy with results.
Arguing that the successive PAN administrations have left the country worse for the wear, Peña Nieto lays out his vision for a government based on guaranteeing citizens’ basic rights (such as security), getting the economy growing at its full potential, and reaffirming Mexico’s leadership as an emerging power on the world stage. He calls for a number of economic reforms, including opening Petróleos Mexicanos (PEMEX) to private investment (still maintaining state ownership), as well as widening the tax base and simplifying the tax code. On security, he favors a more comprehensive strategy geared first and foremost to reducing the violence.
Most of his positions are quite sensible. Mexico needs to (and is already starting to) focus on lowering the escalating levels of violence, as opposed to concentrating on taking down drug kingpins. Economically, opening up PEMEX would increase foreign investment and improve Mexico’s overall competitiveness, boosting jobs and growth in the process. Reforming the tax code would also go a long way to enhancing and diversifying government revenues and hopefully make it easier to start up businesses. But these two reforms are also politically difficult — having been on the legislative table for years now, and repeatedly stymied by Peña Nieto’s own party. If he wins, perhaps the former governor will be Mexico’s equivalent of a “Nixon in China” – able to change the dynamics precisely because of his party’s ties to PEMEX’s union – but that remains to be seen.
Much will also depend on the United States. For Mexico to reach its economic potential, the United States will have to grow as well, as the economies today are indelibly intertwined. A U.S. immigration reform – if it happens — also could change things for Mexico. For all its big vision, the book makes clear that there is much that needs to happen during the next presidential term in Mexico to fulfill this “great hope.”
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
The Council on Foreign Relations just released a great conversation on the Latin American lessons for the European debt crisis. With panelists Adam Lerrick, Chairman of Sovereign Debt Solutions Limited, Ernesto Zedillo, former President of Mexico (1994-2000) and William R. Rhodes, President and Chief Executive Officer of William R. Rhodes Global Advisers (and head of Citibank during the 1980s), and moderated by Roger Altman, Founder and Chairman of Evercore Partners, it provides wide-ranging insights on the issues the European Union faces.
Though a different time and place, much is reminiscent of the early 1980s in Latin America. Over a year later, Europe can barely contain, much less resolve its problems. Contagion is a growing threat, with worries over the last six months about Ireland, Portugal, Spain, and most recently Italy. The IMF struggles to play its traditional role – establishing the rules of the game, evaluating Greece’s progress, and (so far) certifying its compliance. The ever mounting costs of dithering too are there.
But, as the Europeans will quickly remind you, there are big differences that matter (though perhaps not the ones they are emphasizing – such as levels of development, culture, and institutional strength). The problem is, if anything, much worse today in Europe than it was in Latin America in the 1980s – debt to GDP ratios in Greece (160-170% of GDP) – Italy (roughly 120%) and Belgium (90-100%) are higher. Markets too are much more interconnected than thirty years ago, making it both harder to resolve problems, and more painful globally if you don’t. And with the Euro, Greece or others can’t devalue their way back to growth – a viable option for Latin American nations.
Latin America’s “lost decade” of the 1980s also holds cautionary tales for Europe. In searching for solutions the powers that be — governments, banks, the private sector, and the IMF — have to devise a plan that provides some sort of hope for the people that must live with it, otherwise it will be doomed to fail. They also can’t – or at least shouldn’t — wait seven years to resolve the problem, the time between the Mexican default and the launch of the Brady plan.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Shoppers carry an electronic item outside a store in Caracas (Jorge Silva/Courtesy Reuters).
As journalists, policymakers, and activists of various stripes and interests focus on the rise of the global middle class, scholars struggle with how exactly to define this category of people worldwide. The method matters, as differences can make one exceedingly optimistic or pessimistic as to today’s reality, tomorrow’s promise, and of what people, governments, companies, and markets should and should not be doing to encourage this growth.
One way of measuring the middle class is in relative terms, by looking at who is within the middle range of incomes in any given country. Scholars such as Lester Thurow, Nancy Birdsall and William Easterly have done this in various formats. But it is often unclear exactly what their results mean for emerging economies, where the middle of the country is not necessarily one and the same as the middle class. It is also hard to use this approach comparatively, as the “central” income range differs widely from country to country.
Another approach is to use absolute thresholds, which has the advantage of getting at attributes that are more universally acknowledged as middle class. The question here becomes how to define this “fixed band.” The most expansive calculation – used by Martin Ravallion at the World Bank — classifies a middle class person as anyone who makes between $2 and $13 a day in PPP terms. Intended to measure the expansion of the middle in emerging markets, this definition includes those who have just made it across the World Bank $2 poverty line. By this measure, China and India have made incredible strides over the past fifteen years, developing a true middle class. But to those in advanced Western economies many of these people would almost certainly be considered abjectly poor, questioning the comparative value, and universality of this scale.
On the more restrictive end, a study by Branko Milanovic and Shlomo Yitzaki sets the the upper and lower bounds of the global middle at the average incomes of Brazil ($4,000 in 2000 PPP terms) and Italy ($17,000) as, and counts anyone earning between $12 and $50 a day as middle class. These may not be the right threshold incomes either, however, particularly because this bottom line leaves out the millions in India and China who earn less than $12 a day and yet still, as households, lead quite comfortable middle class lifestyles. This definition puts Mexico’s middle at less than half the population, in contrast to those that count Mexico as now majority middle class.
Finally, a Brookings report by Cárdenas, Kharas and Henao takes a slightly different approach to the issue. Based on an earlier study by Kharas, they use the poverty line in Portugal and Italy – the lowest among advanced European countries – as the lower limit and twice the average income in Luxembourg, the richest European nation, as the upper limit of the global middle. As the authors note, their calculation “excludes those who are considered poor in the poorest advanced countries and those who are considered rich in the richest advanced country.”
Source: Cárdenas et al., "Latin America's Global Middle Class," Brookings (2011).
By this definition, the Latin American countries with the largest middle classes are Mexico (60%), Uruguay (56%), and Argentina (53%), while Bolivia (13%), Honduras (16%) and Paraguay (19%) fall on the lower end of the spectrum. As a whole, the region cannot be called middle class, but it is moving in the right direction, and may qualify in the near future. The model predicts that by 2030 over half of Latin American countries will have a majority middle class. It contrasts with China and India in this regard, where, despite great progress, a true middle class as a substantial percentage of the overall population is still decades away.
Recognizing the enormous expansion of the middle class in Latin America and worldwide does not deny the destitute poverty in which hundreds of millions, even billions, still live. But ignoring the progress of recent years also has its perils for the poor. Better measuring and understanding the rise of the global middle is vital precisely because it suggests paths for those still less fortunate to follow.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Young people rest on a sidewalk as a man cleans in Mexico City (Henry Romero/Courtesy Reuters).
An OECD report released this September shows that seven million young Mexicans between the ages of fifteen and twenty-nine are neither in school nor in the labor force. Among OECD countries, Mexico has the third largest “inactive” youth population, behind only Turkey and Israel. Mexico has been increasingly concerned about the security implications of the vast number of these “idle” youths — dubbed “Ni-Nis” (Neither-Nors). NiNis are thought to be especially vulnerable to recruitment by organized criminal groups, acting as lookouts, dealers, smugglers, or even hit-men.
Overall, the number of NiNis has decreased by more than 10 percent since 1990, questioning at first glance the ties to rising violence. But a more detailed breakdown of this rootless youth suggests these worries aren’t totally misplaced. Most of the decline reflects the changing prospects for young women – who are much more likely to work or study today than they were twenty years ago. For urban men – the population most likely to be recruited by gangs and organized crime groups – not as much has changed, as their share of the total NiNi population has only decreased by one percent over the past two decades.
A recent study conducted by investigators from CIDE and the Colegio de México shows too that NiNis are concentrated in Central and Northern states — including some of Mexico’s most violent ones. The largest proportion of inactive youths are in Chihuahua, Durango, San Luis Potosí, Guerrero and Zacatecas (and in cities such as Ciudad Juarez). In municipalities in these five states the numbers have remained stubbornly high over the last twenty years. Also, while NiNis aren’t concentrated in the poorest states, they do come predominantly from poorer families. Seven in ten NiNis come from households earning below the national average. Their parents are also less educated than the average Mexican, suggesting a vicious cycle as they too spend less time in school than their occupied counterparts.
Some factors are working in Mexico’s favor. Demographics should lessen the challenge a bit – as going forward each year fewer youths will hit the streets. A rebounding economy can help too – as unemployment levels fairly strongly affect the number of (particularly male) NiNis. But Mexico’s government and society still will have to find ways to engage these young people, to help them see beyond the next few years and offer them real alternatives to a life of crime.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Here are some excerpts from my interview with Mexico Today about how the rise of the middle class – now a majority of the population – is transforming the economic reality on the ground in Mexico.
Peña Nieto, outgoing Institutional Revolutionary Party governor in the State of Mexico, is silhouetted against the national flag before delivering his sixth and final state report in Toluca (Courtesy Reuters).
I had the pleasure of speaking at and moderating a panel last Thursday at the Council of the Americas/Americas Society with Claudio X. González, Chairman of the Board of Kimberly-Clark de Mexico and on the board of a number of top Mexican corporations, as well as Alberto Ardura, Managing Director and Head of Capital Markets for Latin America at Deutsche Bank. Some of the most interesting issues raised were the relationship between security and the economy, and the future of the energy sector.
Overall, the political and economic outlook was quite positive, despite the formidable challenges the next administration will face. Mr. González highlighted that Mexico presents something of a paradox – despite increasing insecurity, the economy is picking up. He credited this in large part to orthodox economic policies that have kept deficits and inflation low, leading to GDP growth in the realm of 4-5 percent (outpacing current market estimates). Mr. Ardura echoed this view, saying that the fifteen plus years of fiscally responsible policies have made Mexico’s economy the healthiest in the hemisphere, with some of the best macroeconomic fundamentals in the world (certainly among emerging markets).
Still, both panelists remained concerned about Mexico’s future competitiveness and growth. Despite its macroeconomic prowess, it has fallen behind Brazil, Peru, Colombia, and even less orthodox Argentina. The main holdups are security, the closed energy sector, education, and the concentration within so many sectors of the Mexican economy. They felt that if the government could tackle a few of these major issues, it could pick up the speed of annual growth to five or six percent — transforming Mexico in the process.
The speakers were quite optimistic about the PRI, both on its ability to get things done if it wins the presidency (particularly if it wins a majority in Congress, ending legislative gridlock), and on substance — especially the possibility of opening the energy sector.
But some in the audience doubted the positive momentum, particularly the veracity of the new, more modern PRI that looks set to capture Los Pinos next July. Many (at the podium and in the audience) remained skeptical about whether the “dinosaurs” of the party would stand down, allowing these more comprehensive reforms to strengthen Mexico’s public institutions and jump-start its economy.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Bundles of confiscated drug money worth two million euros ($2.7 million) are displayed at a police headquarters in Madrid January 18, 2011. (Andrea Comas/Courtesy Reuters).
On Tuesday, the UN Office on Drugs and Crime (UNODC) released a new report on global money laundering, “Estimating Illicit Financial Flows Resulting from Drug Trafficking and Other Transnational Organized Crime.” The upshot? It is really hard to estimate. But, the report does provide some tangibles. Surveying numerous studies, it calculates that illicit global proceeds amount to over $2 trillion dollars every year (roughly 3.6 percent of global GDP), with some $1.6 trillion of this laundered. Within these staggering figures, roughly $870 billion of these revenues relate to drug trafficking and organized crime, and close to $580 billion of those illicit funds are laundered through financial institutions. The study drills down and looks specifically at the global cocaine market, estimated at some $85 billion. Most of this, again, is laundered.
The report provides some hints as to how this happens. Of the $85 billion cocaine market, most (estimated at $61 billion) stays in the retail markets – the United States and Europe primarily. Producers – mostly Andean farmers – receive in total $1 billion, or just over 1 percent of the gross profits. This leaves, by their estimates, roughly $23 billion for those processing and moving the drugs from the fields to the domestic wholesalers. Shipping cocaine from producing regions to transit locations generates at least $8 billion in profits.
When it comes to laundering this money, at least half occurs locally, and most of the rest in nearby countries. In South America, the report estimates that some $13 billion dollars of laundered cocaine money likely flows into and through local banks and local businesses, and roughly $7 billion is probably cleaned nearby, often in the Caribbean. The report also touches on the profound (and mostly negative) impacts of these flows on local economies, including corruption, real estate price distortions, large income disparities, and weaker growth (since criminals aren’t usually looking for long term productive investments in local economies).
The report ends on a fairly pessimistic tone. Drawing on a separate, heavily cited 2009 report from the U.S. Department of Justice’s National Drug Intelligence Center, the UNODC estimates that Mexican and Colombia’s drug-related money laundering may amount to between $18 and $39 billion each year. The authors argue that, unlike taking down kingpins (who are easily replaced), seizing illicit funds has much more severe and long lasting impacts on illicit trade. But, then the report goes on to show that our global ability to find and stop these financial flows is abysmal – estimated at far less than 1 percent – not much different than the fees brokers charge to clients to buy and sell stocks, and less than hedge funds take to manage your (legal) money. With the cost of doing business – at least in terms of money laundering – remaining low, the UN office points out the vital need for international law enforcement to truly step up and follow the money.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Latin America’s Economic Outlook On Tuesday, the UN Office on Drugs and Crime (UNODC) released a new report on global money laundering, “Estimating Illicit Financial Flows Resulting from Drug Trafficking and Other Transnational Organized Crime.” The upshot? It is really hard to estimate. But, the report does provide some tangibles. Surveying numerous studies, it calculates [...]
Changes in Mexican Migration On Tuesday, the UN Office on Drugs and Crime (UNODC) released a new report on global money laundering, “Estimating Illicit Financial Flows Resulting from Drug Trafficking and Other Transnational Organized Crime.” The upshot? It is really hard to estimate. But, the report does provide some tangibles. Surveying numerous studies, it calculates [...]
