Registan.net

Via Dan Drezner I see the “legalize Afghan poppies” meme is gathering strength. After blasting past the relatively modest Senlis Council recommendation to license poppies for medicine, economist William Buiter summarizes:

So legalise, regulate, tax, educate and rehabilitate. Stop a losing war, get the government off our backs, beat the Taliban and deal a blow to al-Qaeda in the process. Not a bad deal!

And hence, confirmation of my firm belief to disbelieve anything an economist has to say about things that aren’t money. Aside from the creepy parallels to Dick Cheney’s assertion that Iraq’s reconstruction would be self-funded from oil sales, this presents many problems. For one, applying classical economics models to pre-industrial societies is a bit daft, at least on anything other than a broad, macro level. For another, looking at the specifics of the Afghan situation—with a weak central government, widespread anarchy, and an active insurgency with international support—the idea of somehow collecting taxes, enforcing regulations, and rehabilitating the most underfunded nation building exercise the United States has conducted in sixty years simply stretches my credulity to the breaking point. Let’s examine this step-by-step.

From an economics perspective, if the goal is ultimately to starve the Taliban “middlemen” of money, then simply buying up raw poppies won’t do much. There are several aspects to consider: the regulatory environment, the opium market, and Europe’s drug policies.

Most practically: Afghanistan does not have the capacity to tax and regulate much, and especially not a highly profitable illegal drug. The central government can’t get a handle on regular, legitimate agriculture, to say nothing of a crop with the criminal and terrorist baggage poppy has. The government itself is hopelessly corrupt, with many governors already receiving kickbacks and bribes from the poppy gangs; how this would change (if it would change) under an American-imposed regulatory environment is anyone’s guess—but I’d be surprised if it’s good. There is too little oversight and too many opportunities to game the system and keep the smugglers well-fed.

Beyond the puzzling assumption that Afghanistan has a normal regulatory environment (an economist without regional expertise—Buiter teaches European economics at the London School of Economics—wouldn’t intuitively realize this, though he should), we’re still very much in the dark about the actual world market for opium. In Afghanistan, production increases geometrically, the UN hasn’t registered an alarming increase in demand for heroin, and yet still the price goes up each year. Either the opium market responds totally differently than any other commodity market, or demand is being seriously miscalculated. I would assume the latter, but if we can’t even tell how much needs to be sold, how can we hope to properly regulate and tax it?

Beyond even that is the question of what you do once you legalize it. Harmless marijuana is nearly impossible to legalize in the U.S.; something that is legitimately harmful like heroin will never get through. The same can be said for many countries in Europe, which receive the lion’s share of Afghanistan’s opium. If the central government is to legally buy and tax the poppies, then destroy it, what is to stop the corrupt government officials who already take kickbacks from turning into secondary producers? You’d have a feedback loop in place, driving the price (and therefore the incentive to produce a now-legal, high-yield crop) even higher. We have no idea what that upper limit would be.

So while it’s pleasing and libertarian to assume that legalizing opium would somehow magically “fix” terrorism and do anything to stop the Taliban from strapping on suicide belts, that really isn’t the case. The Taliban receive significant support from Pakistan’s ISI, which itself receives a lot of money from the U.S. (That is its own complaint, and beyond the scope of what we’re discussing here.) Cutting off opium money wouldn’t necessarily starve them of support, not least because opium isn’t their primary funding source.

In sum, legalizing opium poses the same sorts of problems licensing would: impracticality and impossibility. My article in last month’s Pragati suggested a different course of action, one I think these lofty brains should seriously consider:

Why not do nothing? Focusing on on ways of replacing opium, misses Afghanistan’s real problem: poverty, insecurity and lack of infrastructure. And the overwhelming majority of the foreign aid that could address these issues flows outside the Afghan government channels and oversight. This undercuts Kabul’s legitimacy even among the people it is meant to help.

Indeed, the problem in Afghanistan is not the opium, or even the Taliban, but that Afghans don’t have any other solutions. They are literally stuck, and our deliberate underfunding and under-support of the mission has made those pressures worse by the year. Every time the Bush administration announces another cut in funding for Afghanistan, we make it that much more impossible to achieve something positive in the country. Afghanistan’s problem is not a non-libertarian drug policy, and it is not even security. Their problem is underinvestment and poverty. The less we invest in the place, the more we create an environment in which the drug and war lords can thrive, and the greater incentive we create for government officials to sell their services and approvals to the highest bidder. William Buiter has it totally wrong: we need not to legalize opium, but to do what we promised we’d do six years ago: invest in Afghanistan’s future, not it’s destruction.

Stumble it!