Joe: Alright Lewis, I've got a book for you. It's called Narconomics: How to Run a Drug Cartel. What's your first guess? A self-help book for aspiring kingpins? Lewis: My guess? It's a LinkedIn guide for middle-managers who want to 'disrupt' the supply chain with 'synergistic violence.' Probably has a chapter on quarterly terror reports. Joe: You are shockingly close. It's actually a brilliant piece of investigative journalism by Tom Wainwright. And what's fascinating is that Wainwright isn't a crime reporter. He was the business editor for The Economist, sent to Mexico in 2010. He arrived expecting to cover corporate mergers and instead found himself in the middle of a drug war. Lewis: So he just applied his business toolkit to the cartels. That explains the provocative title. Joe: Exactly. And the book got a ton of praise, often compared to Freakonomics, for that very reason—it uses economics to explain a world we thought we understood, but really didn't. It argues that the ruthless, violent world of drug cartels can be perfectly understood through the boring, everyday lens of a business school textbook. Lewis: I'm both horrified and intrigued. Where do you even start with something like that?

Joe: Well, the book's first big punch is that drug cartels operate a lot like Walmart. Lewis: Hold on. Walmart? The place I go for discount socks and regret? How does that connect to a multi-billion dollar cocaine empire? Joe: It's all about the supply chain. Wainwright travels to the coca fields in Bolivia and finds that the farmers at the very bottom are getting squeezed, hard. The cartels are what economists call a 'monopsony.' Lewis: A monopsony? Break that down for me. Is that just a fancy word for being the only buyer in town? Joe: Precisely. A monopoly is one seller, a monopsony is one buyer. The cartels are the only major buyers of coca leaf in these remote regions. So, just like Walmart can dictate prices to a small T-shirt manufacturer because they're the biggest customer, the cartels can tell a farmer, "We'll pay you this much for your crop. Take it or leave it." Lewis: And the farmer has no other options. They can't exactly list their coca leaves on Etsy. Joe: Exactly. So when the government comes in and tries to eradicate the crops—the so-called 'war on drugs' supply-side strategy—who do you think bears the cost? Lewis: The farmer. The cartel just tells them, "Tough luck, your costs went up. Our price stays the same." Joe: You got it. The book shows research that even with massive eradication efforts, the price of raw coca barely budges. The cartels just absorb the disruption by pushing the risk down onto the poorest people in the chain. It’s a brutally efficient, Walmart-style business model. And when the government cracks down in one area, the production just moves to another. Wainwright calls it the 'cockroach effect.' You can't stamp it out; it just scatters. Lewis: Okay, the supply chain logic is grimly fascinating. But they can't possibly have other corporate problems. I mean, there's no way El Chapo was sitting around worrying about employee retention and HR complaints, right? Joe: Oh, but he was! Maybe not in those words, but the book argues that human resources is one of the biggest, most persistent headaches for any cartel leader. They have what economists call the 'principal-agent problem' in the most extreme form imaginable. Lewis: The what problem? Joe: The principal-agent problem. It's when an owner—the principal—hires someone—the agent—to do a job, but can't fully trust them to act in their best interest. Your boss faces this when you're scrolling social media on company time. But for a cartel, it's a million times worse. You can't use legal contracts. You can't call the police if an employee steals from you. Lewis: And your employees are, by definition, criminals. Not exactly the most trustworthy bunch to begin with. Joe: Exactly. And the book has this one story that is just the perfect, most absurd illustration of this. It's called the "Driver's Selfie Fiasco." Lewis: I'm already hooked. Please tell me everything. Joe: So, a UK drug boss is setting up a huge deal. He gives his driver a bag with £300,000 in cash to take to Belgium. A simple, crucial task. But the driver, overwhelmed by the sight of all that money, decides it's a great time for a photoshoot. Lewis: No. He did not. Joe: He did. He and his 17-year-old girlfriend are in a hotel room, money spread all over the bed, and they're taking selfies. Just grinning, surrounded by stacks of cash. Lewis: This is the dumbest thing I have ever heard. What happens next? Joe: It gets worse. The girlfriend, in a drunken argument, decides to show the photos to the driver's wife. Lewis: Oh, the drama! The wife must have been thrilled. Joe: Absolutely furious. So what does she do? She picks up the phone, calls the border police, and reports the entire drug smuggling operation. The driver gets arrested at the port before he even leaves the country. The whole deal collapses because of one employee's incredible stupidity and a messy love triangle. Lewis: Wow. That's an HR nightmare you won't read about in the Harvard Business Review. You can't screen for that level of incompetence. Joe: You can't! And that's the point. Cartels are constantly dealing with unreliable, untrustworthy people. Their solution? Often, it's extreme violence. But violence is messy and expensive. It draws attention. So, in a weird way, their biggest vulnerability isn't the DEA; it's basic, unsolvable human fallibility.

Lewis: That makes so much sense. If your employees are that unreliable, and your supply chain is constantly under threat, how on earth do these organizations even grow? Joe: That's where the second business concept comes in, and it's even crazier: franchising. Think of the Zetas cartel as the McDonald's of organized crime. Lewis: Okay, you're going to have to walk me through that analogy. McDonald's sells burgers and a vague sense of happiness. The Zetas are infamous for being one of the most sadistic, violent groups on the planet. Joe: Right, but the business model is surprisingly similar. A McDonald's franchise is a turnkey operation. You pay a fee, and you get the brand name, the recipes, the supply chain, the training—everything you need to open a restaurant. The Zetas did the same thing. Lewis: How? Joe: They would go to a local gang in a new town and say, "You can now operate under the Zetas name. You are now 'Los Zetas.'" In exchange for a cut of the profits, these local thugs got to use the Zetas' brand. And what was that brand? Lewis: Absolute, unadulterated terror. Joe: Exactly. The Zetas brand was so powerful that a local extortionist no longer had to prove he was dangerous. He could just walk into a shop, say "I'm with the Zetas," and the owner would pay up immediately. The brand did all the work. The book tells this story about the Roxy Ice Cream Parlor in Mexico City. Lewis: An ice cream parlor? This is getting more surreal by the minute. Joe: A beloved, family-owned place. One day, they get a demand for a huge sum of money from someone claiming to be from La Familia Michoacana, another cartel with a fearsome reputation. The power wasn't in the man who delivered the message; it was in the brand name he used. It was an instant, credible threat. Lewis: So the franchise model allows them to scale rapidly without having to manage every single operation on the ground. They just license out their reputation for violence. Joe: Precisely. But it's not just franchising. They also engage in public relations. Wainwright calls it the "Mad Men of Sinaloa." Lewis: A narco-PR campaign. What does that even look like? You can't buy a Super Bowl ad. Joe: No, you use what the book calls 'narcomantas.' These are large banners hung from bridges or buildings in public places. During the brutal war for control of Ciudad Juárez, El Chapo's Sinaloa Cartel started putting up these banners. Lewis: What did they say? "Now with 20% less kidnapping"? Joe: Unbelievably, yes. One banner literally said, "I WANT TO CLARIFY THAT I DO NOT ORDER THE KILLING OF CHILDREN AND WOMEN. I DO NOT SUPPORT EXTORTION OR KIDNAPPING. THOSE RESPONSIBLE... ARE 'LA LÍNEA' [the rival cartel]." Lewis: That is insane. It's brand positioning! He's trying to market his cartel as the more ethical, family-friendly choice of violent narco-trafficker. Joe: It's a public relations war fought in the streets. He's trying to win the hearts and minds of the public by painting his rivals as the truly evil ones. It's a desperate, dark form of marketing, but it's marketing nonetheless. They're managing their public image to make it easier to operate. Lewis: This is blowing my mind. The level of business acumen, twisted as it is, is undeniable. It's like they're following a playbook, but the playbook is written in blood. Joe: And that's the core of the book. These aren't just chaotic thugs. They are rational, and often innovative, economic actors.

Joe: So we've seen how they copy big business to build their empires. But the book's final, most powerful point is about the one thing that can actually destroy their business model. And it's not the police or the army. Lewis: What is it then? A rival cartel with an even scarier brand? Joe: A legal, regulated market. Basically, a bunch of entrepreneurs in Colorado. Lewis: You're telling me the biggest threat to El Chapo is a guy in a fleece vest named Chad who runs a boutique cannabis dispensary? Joe: In a nutshell, yes. Wainwright dedicates a whole chapter to the legalization of marijuana in places like Colorado and shows how it's a catastrophic disruption for the cartels' business. Lewis: How so? I would think they'd just try to get into the legal market themselves. Joe: They can't compete. Think about it. What is the cartels' main product? For marijuana, it was low-quality, compressed 'brick weed' smuggled across the border. It's inconsistent, there's no quality control, and buying it is risky. Lewis: Right, you don't get a customer service hotline if your weed is bad. Joe: Exactly. Now, what does a legal business in Denver, like the one in the book called Denver Relief, offer? They operate in pristine, lab-like conditions. They control humidity, light, and nutrients. They have horticulturists with degrees. They send their products to another company, CannLabs, to be tested for potency, pesticides, and mold. Lewis: So you know exactly what you're getting. The THC content is printed right on the label. Joe: Precisely. And they innovate. They create new products: edibles, drinks, oils, vape pens. The book talks about Dixie Elixirs, a company making cannabis-infused beverages. Can a cartel in the Sierra Madre mountains compete with that? Can they offer a gluten-free, 10-milligram THC-infused sparkling pomegranate soda? Lewis: Absolutely not. Their entire competitive advantage is built on the fact that the product is illegal. The illegality creates the high prices and barriers to entry. Once you remove that, they're just selling a subpar agricultural commodity. Joe: And the numbers back it up. The book cites a study estimating that Mexican cartels were making around $2 billion a year from marijuana sales in the US. After states began legalizing, the price of Mexican weed plummeted because it was being outcompeted by superior, legal, domestic products. Farmers in Mexico literally stopped planting it because it wasn't profitable anymore. Lewis: Wow. So the most effective anti-drug policy wasn't a raid; it was a business license. Joe: That's the devastating conclusion. The free market is a more ruthless and effective enemy to the cartels than any government agency. Legalization introduces competition, quality control, innovation, and taxation—all things that cripple an illegal monopoly. Lewis: But what about the other drugs? Cocaine, heroin? Joe: The book argues the principle is the same. Prohibition is what makes these substances so profitable and what gives cartels their power. While the path is more complex, the economic logic holds. The book doesn't necessarily advocate for legalizing everything tomorrow, but it forces you to see that prohibition itself is the source of the cartels' immense power and profits.

Lewis: So, after all this, what's the big takeaway? That we should all go to business school to fight crime? Joe: In a way, yes. The ultimate insight of Narconomics is that the 'war on drugs' has been a colossal failure because it's a war fought against the basic laws of economics. We've spent over a trillion dollars and countless lives trying to defy supply and demand, and it hasn't worked. Lewis: Because as long as there's demand, someone will find a way to supply it. And prohibition just ensures that the suppliers will be violent, unregulated monopolies. Joe: Exactly. Prohibition creates the perfect market conditions for a group like the Sinaloa Cartel to exist. By treating these criminals not as monsters, but as rational, profit-seeking businessmen, we can start to see their weaknesses. Their HR problems, their branding challenges, their inability to compete on quality in an open market. Lewis: It shifts the entire framework. Instead of asking 'How do we arrest more people?', the question becomes 'How do we bankrupt their business model?' Joe: That's the revolution in thinking. The book makes a compelling case that economists might just be the best cops we have, because they understand how to dismantle a market, not just fight a battle. It forces you to ask a really profound question. Lewis: What's that? Joe: What other massive social problems are we trying to solve with brute force, when we should be thinking like an economist? Lewis: That's a heavy one to end on. It applies to so many things. We'd love to hear what you all think. What's another area where a 'Narconomics' approach might work? Let us know on our socials. It’s a fascinating thought experiment. Joe: It really is. This has been Aibrary, signing off.