Why Brazilian Drug Dealing Monopolies are better … for now.

A report passed by me close to 4 months ago but recent violence in Brazil returned my mind to this topic. Brazil is prepping like mad for the 2016 Olympic Games. Much of this prep no doubt will be centered on getting violence under control in the country’s most popular city, Rio de Janeiro. A big part of the problem at least in Rio has to do with a poor public administration which has resulted in a corrupt police force. However, another interesting wrinkle in Rio at least compared to Brazil’s other large metropolis, Sao Paulo, is Rio lays claim to 3 prominent competing drug factions compared to Sao Paulo’s 1.

What this boils down to is Rio dealers need to work harder, longer hours, and gain competitive advantages in order to clear marginally small break-even points with regard to revenue and expenditures. The report I’m referring to quoted the following:

Total Annual Drug Sales = $182M

Total Expenditures = $167M

Total Profit = $15M

What we’re looking at is an 8% profit split among three rival competing gangs. Moreover, the wage structure appears to be quite flat which is ironically not the case among Brazilians in general – a country marked by wide gaps in income inequality. What this boils down to is to gain an edge over a competitor each of these three gangs needs to pilfer clients from the other while simultaneously weakening the other. This is achieved through violence.

One could argue, if they’re killing each other what’s the big deal. Well, not only are law-abiding citizens being killed as well but with such small margins gangs have had to branch out into other areas of business, the most popular being shaking down local politicians in the areas of the illicit provision of electricity and other local utilities. This fuels an already corrupt public administration and keeps the vicious cycle turning.

The knee-jerk reaction from Sao Paulo is thank goodness we have one controlling drug family. Indeed, getting citizens hooked on crack is not an ideal situation, but a monopoly in this respect keeps the violence down which for Brazil and the world community come 2016 might be an ideal short-term recipe.

2 Comments

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2 responses to “Why Brazilian Drug Dealing Monopolies are better … for now.

  1. Daniel

    Hmm. A high-margin, inelastic-demand market, with at least a stable and possibly growing customer base, all served by a monopoly. So what are the barriers to entry? Oh, right — bullets…

    Perhaps the Rio government should simply officially backing one of the 3 gangs, and help them permanently eliminate or at least substantially weaken the 2. After enough of the competitors and dead or in jail, the violence will come down…

    • Ha, yes, the bullets part tends to dissuade many. Your response reminds of an episode in “The Wire.” If you haven’t seen the series, it’s the best television series I’ve ever seen. I’m 34 and have lived through the Cheers, Seinfeld, Law & Order years as a reference. This beats it.

      Anyways, in the show a cop intent on cleaning up the drugs and violence plaguing his beat informed the dealers that they could deal with impunity if they kept their activity confined to a 5 block radius. He essentially sought to “red light” them into one area. What happened was violence went way down, and although this 5 block area turned into Mogadishu within a matter of days, it was simply this 5 block area. Of course, once the news outlets got word of this and photos were snapped and distributed, the whole thing went up in shambles.

      Bottom line, there are trade-offs in life. Public policy many times seeks to make everything rosy but this isn’t realistic. Why not as you say make the best of a bad case and weaken 2 of the 3 gangs knowing that you’re not going to elimate all 3 as demand is just too high. Problem is, what politician is going to admit that we have some lost souls out there that will never be saved.

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