The parallel economy

The parallel economy

By Mónica Serrano, Special correspondent, BBC Mundo

Two years ago around this time, the town of Uruapan in Michoacán hit the headlines. It had nothing to do with the torrential rains or the aftermath of an earthquake, but rather with a macabre incident which took place in one of the town's bars "Sol y Sombra".

Seized guns and cash

Drug trafficking is more than just one aspect of an illegal economy, says Serrano

Narco Mexico

Out of the blue, the heads of five decapitated men were hurled onto the dance floor.

Until that night this Bella Vista neighbourhood bar on the Uruapán-Patcuaro road regularly had table dancing and was always very busy.

Michoacán and its neighbour Guerrero are two states that have been affected by violence associated with drug trafficking. Although both states have been prominent for decades on the map of Mexico's illegal drugs economy, when you read the crime pages about drug trafficking in these areas, it confirms the diversion of the cocaine routes to Mexican territory, in particular to the Pacific Ocean.

Michoacán and Guerrero have a long coastal strip along the Pacific.

Bordering the two states is the lively Pacific port of Lázaro Cárdenas and the point of entry and exit for goods, the movement of which has grown immensely in the recent past. In the period 1999-2008, the number of containers moving through the zone has increased from 4,475 to 197,149 per year.

When travelling along the highways, the traveller comes across all the obvious signs of an illegal economy boom and its increasing violence.

If you cast your eye around the little villages, you see the obligatory discotheques, parking lots selling second hand cars which appear and disappear in a trice as if by magic, motels with special promotions - US$10-US$15 a room for three hours - and of course a 24 hour funeral service.

Like so many other countries, drug trafficking is one of the many activities which form part of illegal entrepreneurial crime in Mexico.

A part of an economy in which goods and services exchanged are illegal - either by their very nature or by virtue of the means used - but one in which we find a good dose of acceptance.

But drug trafficking is much more that one aspect of an illegal economy. It is also a shareholder in many of the aforementioned "entrepreneurial" activities, as well as a multiplying agent for areas of impunity.

The cocaine era

In the history of drug trafficking in Mexico we can observe two principal phases.

The first stage came with the passing and enforcement of laws banning the consumption, production and sale of narcotics in the US, laws later adopted in Mexico.

The US legislation offered up an opportunity to those keen to make a profit from the sale of alcohol and narcotics to the other side of the border.

The sudden increase in the flow of tourists crossing the border in search of these goods - from 14,130 in 1919 to 418,735 a year later - laid the bases for a rise in a small but vigorous illegal economy.

From the 20s to the end of the 50s we see flourish an illegal, though relatively peaceful and geographically contained economy - organised around the cultivation of two crops, marijuana and poppies.

But by the end of the 70s and beginning of the 80s, the framework of another illegal economy is established, this time around the trafficking of cocaine.

The diverting of 60% of the white powder destined for the US market to Mexico marks the change to the next phase. It also marks the increase in an ever more forceful and violent economy in terms of service and transportation.

There are possibly two explanations for the eruption of an increasingly anarchic and violent illicit drugs economy in Mexico.

The first, most assuredly, is down to Operation Hat Tricks - a military operation where Washington attempted to seal off Florida and so stop the entry of cocaine into the state - and to the consequent diverting of the cocaine destined for the US market from the Caribbean and Florida to Mexico.

The second explanation: opportunities for the movement of illicit goods abounded once the TLC was implemented (Free Trade Agreement)

Land of opportunity?

Mexico, like many other developing countries, with its cheap labour, low priced land and half-hearted law enforcement, for decades had afforded ample opportunities for the production and movement of marijuana and opium.

However, Mexico's role - like that of Colombia or Nigeria - in the international drug trafficking circuit has come about as a result of three basic fundamentals: its geography, a long tradition of smuggling and the relative weakness of a central authority.

Although by the end of the 80's the traditional cultivation areas were still going, the geographical organisation of the market was fading and the cartels started dividing up the country and distributing lands.

In the new state of affairs, the already reduced capacity for law enforcement was further pared down.

Added to the precarious control of the new criminal economy was the lack of economic horizon open to the people.

The pressures unleashed by the debt crisis of the 80's and the constant economic sluggishness, condemned a sector of the population to be without permanent jobs.

In the 90's, the Free Trade Agreement seemed to offer glimmer of hope for economic recovery. However, a decade later we know that a notable increase in economic growth or job opportunities did not figure amongst its successes.

Under these conditions, unemployment was not only the driving force for the increasing flow of "illegals", but also for a sector which some describe as "informal" and consequently led to a significant reserve of manpower services for the illegal cocaine trafficking economy.

In other words, the participation of the population in these illegal activities increased gradually at a steady pace as it diversified.

If in previous decades the most characteristic feature of this participation was the presence of peasants in the cultivation areas of the producer states - estimated in 1965 at around 200 to 300, 000 workers -, by 1980 the new illegal economy had not only incorporated other activities, but it also required the service of professionals from the business world.

Professionals wanted

In the new, buoyant diversified illegal economy of the 90's - with its ramifications in the car theft industry, prostitution and people trafficking, kidnappings and other activities - we equally come across freight hauliers, porters, secretaries, accountants and administrators, pilots, lawyers and financial advisors.

At the start of the 21st century, added to these "professions" were those of vigilantes, hired assassins and private armies who fill the crime pages of all the main newspapers.

Only four decades ago, the cases of Mexico and Turkey were given a lot of publicity and hyped as a great success thanks to political goodwill.

At the beginning of the 70's, although by different methods, both countries had managed to contain and reduce their respective illegal economies and resolve the drugs problem with moderate success.

After carefully studying both cases, many researchers arrived at the same conclusion: success had been possible thanks to the presence of at least three ingredients which had come together.

Both in Mexico and Turkey, the drug control and eradication policies were deployed in such a way that the state not only maintained a firm monopoly on violence, but also it exerted solid central authority and enjoyed a relatively healthy economic independence.

In both countries, the presence of these three ingredients made possible the success of their respective campaigns. A very different picture from what experts report in Mexico today.

Anyone who has read the terrifying headlines in the Mexican press in the last three years can only wonder about the monopoly on law and order. Can we still say that it is in the hands of the state?

Political openness brought with it the weakening of executive power, until then the keystone to state central authority, added to that, the presence of a weak economy which for more than three decades has been unable to offer opportunities and alternatives to those who form part of an economically active population, or to those who wish to be integrated into it.

The fact that there are no clear indicators for measuring the problem exactly does not stop one imagining the reasons why many Mexicans have opted to swell the ranks of the informal and illegal economy.

Limitations, difficulties and uncertainty result in trafficking, violence and death. Whichever way you look at it, the cost has been terrifyingly high.

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Mónica Serrano is a lecturer at the Centre for International Studies, College of Mexico and Senior Research Associate at the Centre for International Studies, University of Oxford. She has written about Mexican politics, transnational crime and international relations in Latin America.