Cocaine capitalism: part one

Fight Racism! Fight Imperialism! no 92, January 1990

'Cocaine capitalism' examines the cocaine trade in two parts. In part one TREVOR RAYNE examines the economic conditions that have generated the most profitable industry in Latin America. Part two looks at its political consequences, links with counter-revolution and impacts on US cities and the banks.

President Bush redeclared ‘War on Drugs’. The British government dispatched a frigate and 50 military and police officers to Colombia. Police are raiding downtown Los Angeles and Tottenham. It is captivating headline stuff – for a fortnight. Three months after Bush signalled his intent to crush the drug trade, his ‘drug czar’ William Bennett is denying rumours that he is threatening to resign because of the lack of progress made.

The world’s illegal drug trade is valued at $500bn. Cocaine is the world’s most profitable item of trade. Its worth, at wholesale prices, varies between five and seven times its weight in gold. Annual cocaine production generates approximately twice the revenue of the world’s output of gold. Colombia alone produces sufficient for five billion dosages a year which would retail at between $20bn and $100bn, depending on the degree of purity and markets used. Los Angeles’ Federal Reserve Bank reported a $3.8bn cash surplus earlier this year as money laundering diversifies out of Florida. The House of Commons Home Affairs Committee issued a report describing Britain as an ‘off-shore banking centre’ for drug traffickers, who are circulating an estimated £1.8bn through the British financial system.

Drug money courses through every vein, supplies every organ of capitalism, right into its financial heart. Those who aspire to its fortunes could do little better than to deal in drugs. In a system where money is power, those who control the drug trade have to be reckoned with. Imperialism has never lost control of the global heroin business (see FRFI 58), but in the case of cocaine it has generated the social conditions in Latin America (where it is produced) and the USA (where most of it is consumed), to create a multinational whose organisation and ambitions reach beyond the boundaries imperialism specifies for it. This is the real significance of the Financial Times', the Economist’s and Milton Friedman’s call to legalise it: they want to ensure the profit remains within the fold of their own ruling class and they fear the economic and social destabilisation that these massive profits bring when unregulated. Legalisation would allow the scale of the profits and their distribution to be controlled.

However, the ‘War on Drugs’ is more than an attempt to reappropriate profits; it is a war against the consequences of imperialism itself: revolutionary liberation movements in Latin America and racially oppressed peoples within the heartlands. It is also ‘war’ waged against the very life blood of capitalism and as such it is a phoney war. Cocaine and its crack derivative are capitalist drugs par excellence. In them you can see all the destruction that the domination of money over humanity brings. Crystalline, glittering; the short rush and euphoria followed by paranoia and depression, are metaphors for the facade and the substance of capitalist society.


‘The only raw material whose value has increased is cocaine. The only successful transnational based in our countries is drug trafficking. The most successful efforts towards Andean integration have been made by drug pushers.’ (President Alain Garcia of Peru at the United Nations in 1985.)

Imperialist exploitation of Latin America has made cocaine a thriving business. Its debt to the transnational banks was $426bn in 1988. In the five preceding years Latin American countries paid out approximately $150bn in principal and interest. A 3% rise in US interest rates adds a further $10bn to the bill. The debt burden is made more unbearable by the collapse in Latin American commodity prices which resulted in a $50bn drop in revenue between 1976-86. For Bolivia and Peru, the two major countries growing coca (the leaf from which cocaine is produced), the purchasing power of their legal exports fell 39.9% and 26.2% respectively between 1981-86. Since the 1960s the agricultural sectors of the Bolivian, Peruvian and Colombian economies have all shrunk. They have not been replaced by a significant industrial growth.

Prices of the legal exports of these countries are controlled by a handful of transnational corporations and determined in London, New York, Tokyo etc. Nestle, General Foods, Procter and Gamble, Unilever and fourteen other companies control 85% of consumer countries’ imports and 90% of the world’s coffee trade. Coffee amounts to a third of Colombia’s export earnings. Its prices are now at their lowest level since the 1920s. 75% of bananas are marketed by just a handful of companies: Geest and Fyffes dominate. The price of tin, formerly Bolivia’s main export earner other than cocaine, is set on the London Metal Exchange. A dozen transnationals – Rio Tinto Zinc, Amax, Anglo-American etc – control 75% of this market.

The consequences of their price manipulations are a profound indictment of capitalism. In 1988 Latin America recorded 0.6% economic growth. Under and unemployment in Bolivia, Peru and Colombia are 67%, 60% and 55% respectively. With traditional commodities unable to sustain the rural work force, so the exodus to the cities accelerates and food production declines. Those who remain in the countryside had better grow coca: an Andean peasant can earn $150 an acre a year growing maize, $500 growing coca.

Cities are exploding. Lima, capital of Peru, population seven million, expands through rural migration by a thousand people each day. Bogota, capital of Colombia, has 4.5 million people and an extra 500 peasants every day; Sao Paulo’s 17 million a further 2000.

Vast tattered armies camp in cardboard and corrugated-iron shanty towns. The ‘informal sector’ of the economy is growing: in Lima it is 60% of the work force, Bogota 54%, Sao Paulo 43%. Exposed to the most hideous forms of exploitation, they shine shoes and car windows, sell gum, rob, deal and kill on the streets to survive. A third of Latin America’s 434 million people are in hunger and poverty. The situation is degenerating.

The Continent has 40 million street children. ‘In Rio, every month, about 100 children under three years old are abandoned in the streets or in the hospitals. In Acre [an Amazon state] impoverished mothers sell their young daughters to lorry drivers or gold prospectors as prostitutes. In Sao Paulo there are 1,200 gangs of child criminals and between them they have 10,000 firearms.’ (Report from the Roman Catholic Bishops of Brazil). Only 13% of Brazilian children complete their compulsory eight years education. Child labour is common. Two thirds of working children in Brazil, not an exception but a standard for the continent, earn half the minimum wage: a 58-hour week for just £5. ‘When you go on the street, you know you’re in the middle of a war. If you don't kill you die.’

The cocaine trade has spread across South America. The disastrous debt repayments and terms of trade proscribe other means of accumulation for local aspirant capitalists. They have a ready-made work force prepared to risk the dangers of illegality to get out of crushing poverty. What is required is access to the US and European markets. Therein lies the pivotal role of the Colombian cartels. Colombia, with a long history of smuggling gems and marijuana to the north, is critically situated for the transit of produce from Bolivia and Peru to the USA and Europe.


Prior to 1972 Latin American cocaine production was a small scale, open-market business. In October 1972 the US Bureau of Narcotics and Dangerous Drugs held a conference in Bogota: ‘Fighting the drug menace’, ‘saving our youth’ etc. As a result the US intelligence services directed the Colombian police in a ‘clean up’ exercise. The small farmers and traders were shut down. Sections of the police and military established a monopoly production, processing and distribution industry. The Colombians were particularly helped by Cuban exiles based in Florida but located in most major US cities. They gunned rival distributors out of business. Dollar deposits in Colombian banks multiplied four fold over 1974-76. From 1978 to 1982 Colombia’s international currency reserves tripled to $6bn. The central bank supervised the massive transfer of dollars into pesos – no questions asked. By 1984 the Medellin drug cartel was offering to pay off Colombia’s $12bn foreign debt in exchange for the dropping of extradition charges against it.

Today Colombia’s foreign debt stands at $17.6 billion. Debt repayments consumed 48% of 1988 legal export earnings. Coffee, at $1.6bn, earned a third of these. Since then its price has halved after the USA rejected the International Coffee Agreement price formula. This will cost Colombia six times the $65m Bush emergency aid in the forthcoming year alone. Six million Colombians are dependent on coffee for their livelihood. Even at its highest prices coffee earned Colombia about a third of the revenue brought in by cocaine. ‘We need that money to keep the economy going. That’s a sad but unequivocal reality,’ admitted an official of the Banco de la Republica.


It is the same story in Bolivia and Peru. ‘Ironically the greatest threat to the Government’s 10% inflation rate target for 1987 would be the success of the cocaine eradication campaign.’ (Lloyds bank Economic Report for Bolivia 1987) In 1985 Bolivia’s inflation rate was 20,000%, the highest since the 1923 German inflation, foreign exchange reserves collapsed and the number of tin miners fell 80% in four months. The central bank began twice weekly auctions of pesos. Illegal cocaine exports were over 177% the value of legal exports. The country was flooded with dollars that were recycled and deposited in US and European banks. The auctions soaked up pesos and the government built up its foreign exchange reserves. ‘Private individuals face the minimum of enquiry when selling dollars to banks and exchange houses; it is thought that about 80% of the dollars acquired in this way derive from the narcotics trade.’ (Lloyds Bank Report.) The ‘eradication campaign’ did not ‘succeed’.

Peru’s current inflation rate is approximately 800%. During 1988 the economy’s output fell 8.5%. Between January-May 1989 it fell a further 22.8%. The foreign debt is $17bn and Peru is $5bn behind with repayments. It is cut off by the IMF and transnational banks from new loans. Over half the cocaine consumed in the USA originates in Peru’s Upper Huallaga Valley. Over half a million Peruvians are directly dependent upon the coca crop for their subsistence.

Were the ‘War on Drugs’ to be just that it would collapse at least three Latin American economies, trigger debt repayment defaults and bring imperialist client governments crashing to their knees.

Writing in the 15 October 1858 New York Daily Tribune on the cost to China of imported opium, forced on it by two wars waged by Britain to improve Britain’s trade balances, Marx predicted ‘the Chinese government will try a method recommended by political and financial considerations – viz: legalise the cultivation of poppy in China.’ With bitter irony the opium returned to Britain to waste working class lives. Now crack returns the new Empire’s crimes, but the victims, as before, are the working class – this time in US cities. 

(For part two click here)


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