387: Tom Wainwright | How to Run a Drug Cartel
Coming up on the Jordan Harbinger show when a Mexican cartel goes rose five seven heads onto a disco floor in Mitchell kind. You know it's unavoidably dramatic thing which is not used to thinking about these organizations as being like companies. My arguments is just really if we want to defeat these guys, we've got to understand how they work and the key to understanding how they work is recognizing what they are, and that is profit motivated businesses. Welcome to the show. I'm Jordan Harbinger on the Jordan Harbinger show, we decode the stories, secrets and skills of the world's most fascinating people. If you're new to the show, we have in depth conversations with people at the top of their game astronauts and entrepreneurs, spies, and psychologists. Even the occasional emmy nominated comedian. Each show turns our guests wisdom into practical advice that you can use to. To build a deeper understanding of how the world works and become a better critical thinker and today another one from the vault, we're talking with Tom Wainwright author of narcotics. He's a writer at the economist loved that. Rag. And we're looking at the parallels between drug cartels and regular businesses. I. Just found the concept. So interesting and compelling that I wanted to do a show on this. This should listen to this episode if you're interested in how ideas of economics and business apply to any entrepreneurial or business venture, how cartels engage in corporate social responsibility, which has made laugh and just thinking about branding and even pr campaigns, how cartels franchise regulate Labor branch out on lines and even diversify into markets that produce and transport products that we all consume in our daily lives. Lives if you're wondering how I managed to book all these great authors, thinkers and celebrities every single week, it's because of my network and I'm teaching you to build your network for free over at Jordan Harbinger, dot com slash course by the way, most of the guests on the show already subscribe at the car. So come join us. You'll be smart company now. Here's Tom. WAINWRIGHT. Tom This is interesting because I heard the title of book and I thought. All right time is good. Right? Because we're fresh off narcos season two and I thought, wow, economics and drugs. Where do I sign up? It sounds just like college for me sort of and you've done a really interesting book here. You were a GPS device to meeting with drug cartel leader and it didn't work. So that was kind of what hooked me into this and I thought this guy, this guy is crazy. This is the craziest economists that I've ever heard of, because economics generally afield not known for its wild child type of outlook. How did you get interested in drugs? Well, I got sent back to Mexico in two thousand, ten with the economists in. You're right. This wasn't kind of natural territory for me. It wasn't the kind of story that I was expecting to follow bed You know I got there. It was just at the time that the drug war in Mexico was really taking off in the murderer that was going through the roof and I've been expecting. Expecting to write stories about regular kinds of business, you know thought, I'd be writing about the car industry Arrow, a tourism, that kind of thing. But arrived in found very quickly that the only thing people really were interested in talking about was different kind of business namely, the drugs business. So I find myself writing a lot about and the more I did the more I covered this industry and. And the more I spoke to the people involved whether they were the cartel leaders of the traffickers of the consumers or the rest. The more I realized that actually this business was really a business like any other and it had various things in common with other kinds of business. So I started thinking. Well, what would it be like if we wrote about the drugs business as a business because most. Most of the coverage that you read in the newspapers and the items that you see on the TV about the drug wool treats as a war is a crime. You know the coverage is very dramatic, but I thought how would it be if we wrote about these cartels as if they ordinary companies and analyzed midnight way what will be learn. So I started doing that and gradually found that. If you do think of them as being companies than you learn things about the POPs wouldn't previously been obvious. Why do you think the coverage is just based on the criminal element of it? Do you think it's just that we're addicted to drama on? That's more exciting or is there something else going on I think the drama is definitely a positive I mean when a Mexican cartel goes roles five seven heads onto a disco slower in Mitchell Con-, you know it's Unavoidable dramatic thing, and that doesn't surprise me that that's the thing that the detail journalist Gopher, but we just not used to thinking of it as being a business partly because they mean very obvious point to make. But you know the very fact that it's illegal means that we're not accustomed to thinking about these organizations being like companies don't be fleet I, don't file on your accounts you know and they don't give press conferences and so on. So covering them as businesses isn't completely straight foods by any means. I think our holes with the culture is geared towards writing about the drug war is of dramatic criminal thing, and it is all of these things I'm not trying to claim that it's not criminal and that it's not immoral. I think it's both of those things. But my argument is just really if we want to defeat these guys, we've got understand how they work. Work and the key to understanding how they work is recognizing what they are, and that is profit motivated businesses. So that's the key thing that we've got a bear mind when we write about them, and until now I think we've failed to do that our coverage of cartels is being very, very sort of black whites in the hasn't bothered to look very closely at. At. The numbers behind the business hasn't bothered to liberate closely at the real motivations of these guys. We writes about them as if they're purely motivated by a kind of blood lust and there is some of that. But above all what makes these guys tickets money and if you follow that, then you understand more whether coming from, they might do next. Yeah. Exactly we. We gotta hit him in the Wallet for sure because to get rid of anything like this, we can't really treat the symptoms which are people who've already been affected after a lifetime of using this for years of using this stuff, we gotta get to the real reasons that this is happening in economics is interesting and correct me where I'm wrong because you're an. An economist and I am not. I have an undergraduate degree that included some classes in this. So you're slightly more qualified than me, but economics is more or less a science. Right? There's a lot of numbers sure. You can spend them in whatever way that you want just like science, but on the other hand, it's really hard for the actual data to lie, right? Right, 'cause if you're looking at things through in either that tries to mitigate bias as much as possible. You end up with a certain set of conclusions that I would imagine most economists would agree with. So this is an interesting take on the subject because it's not done for political reasons. It's not done for moral reasons. This is just here's what's happening with. With the numbers, here's how the numbers can be corrected in order to correct the problem that we're facing, and that's what you sought to take a look at with this book from my view of it. Well, I. Guess That's part of it. Yeah. I mean. You've always got to be a little bit careful with statistics numbers because coast people can do lie with cystic. CYSTIC numbers you know you can use them in a misleading way and statistics to do with business a different in that sense. But I think that if you do apply the numbers properly new bring it kind of rigor to analysis. The sometimes is lacking I'm people just don't used the right numbers. I'll give you one example just seen after I, arrived in. Mexico. This event when the Mexican forces had just made a a huge seizure marijuana on the edge of Tijuana. It was about one hundred tons of the stuff and it was widely reported that this was all worth about half a billion dollars and the struck me as a huge huge amounts of money, and so I had to look at how they done it, and what they've done was they take in the retail price of cannabis in the United States and they'd gunfire kind of conservative estimates of five dollars a gram, and they'd multiplied his out one hundred tons and arrived at. At this figure of billion dollars and that sounds beverly sensible in you might think k., that's the kind of economic approach. But if you apply that to any of the business, it's clear that thoughts a crazy thing to do imagine if you did not say we'd coffee and use that. Okay. Here we've got kilo of coffee in. Colombia? How much is that worth while a cup of coffee in starbucks and the United States costs two or three dollars Annandale, you got couple of grams of coffees and let's say it's about dollar gram therefore kilo coffee in Colombia with thousand dollars. No right I mean, that's fairly obviously wrong and yet that's exactly what we do with drugs. We constantly do this thing of calculating the price of drugs seized in Mexico using retail prices and states, or in Europe, and that's why we get these very very inflated numbers and it just made me think that's just one example, but it made me think if we're getting basic stuff like that. Wrong, what else are we getting wrong in our understanding if the war on drugs and where else are we? We overestimating the effectiveness of our current policies. So I think bringing some numerical inside and applied statistics and so on. It's important. But you've got to use the right ones and part of the arguments of my book is that at the moment using numbers in a kind of enumerate way that would really stand out at this were any other business, but we tolerates it because in the war on drugs we used to about this as a real business, right? We're used to looking at the propaganda. Propaganda. Involved on both sides and and that makes sense. Right. So instead of looking at the street value of drug haul, we have to look way down the supply chain and look at where this has created and what it's worth over there, and I recall from the book that you've written something that actually surprised me quite a bit which that cocaine's not any more valuable than coffee at its source. But law enforcement caused smuggling criminal organizations, that kind of thing that raises the price by thirty. Thirty thousand percent once it gets to the United, states we're looking at the raw material itself. It's not worth much more than any other crop that you could grow in the exact same place without exactly right, and that's because it is just a plants. The Coca Bush, which is the main ingredients of cocaine is pretty easy to grow, and if you go down to South America as I didn't go to the places where that growing at, you can see that it's just an ordinary cash crop. You're right. It's not worth very much a tool to make kilo of pure cocaine powder. You need about ton of fresh coca leaf in Columbia. For instance, that turn is worth probably about five hundred dollars or thereabouts, which is nothing, and of course, by the time that kilo cocaine makes it's the United States. It's worth probably more than one hundred. Thousand dollars is a huge huge increase in the price at the stuff as it makes its way along the supply chain that leads us to A. A an important insight, which is that at the moment, a lot of our efforts to stop the supply of cocaine a focused at the very beginning of the supply chain and that kind of sound sensible. You know nipping the thing in the bud sounds if it makes sense you know going really early on and stopping a thing at its source sounds like a sensible policy, but it doesn't really make sense because if you consider the increase in the price of the thing is it makes. makes its way along the supply chain interrupting early on means that you're not really hitting the cows very hard tool. Let's see. You managed to double the cost of grabbing coca leaf in Columbia by Sprang weedkiller on the crops by but breaching ads, Dingley's other things that they do. You're going to double the cost of the coca leaf from say, five hundred dollars a tonne to thousand dollars ton. But if you pass that increase in price on the final product, you only increasing the price of. Of. A key left cocaine from say a hundred, thousand dollars, two, hundred, thousand, five, hundred dollars I reading anything and the comparison that I make in the book. Imagine if you're trying to increase the price of paintings, works of odds and you say to yourself, okay. The main ingredients at a painting paints and say what we're GONNA do is we're going to try to drive up the cost of a box of paints from fifty dollars to one hundred dollars and we hope on that basis. Basis that we're going to double the price of this billion dollar painting to two million dollars fairly obviously. That's ridiculous. Right? Even if the artists did pass on the increase in the price of paint to the buyer, you be talking about difference of fifty dollars, and that's exactly what we're doing with business where to drive up the price of coca leaf. Hoping that this will have a dramatic impact on the price of Cain in the states or in Europe, and it's not an you know when. When you just look at the economics of it, it's not remotely surprising that this is failing. So my arguments is if you look at the numbers, it's clear that we're focusing our efforts really in the wrong place. This is a huge bummer because what this essentially means that all of our interdiction efforts that happened before the US border are not doing nearly as much as we would like them to do because cocaine again is not that valuable until it gets to the US border, right? Right. So we almost have to wait until it gets right there and then go up. We got everything right, and that's really hard to do kind of like if you're playing a game where you have to catch a ball, it's like saying, well, I, need to catch the ball right at the peak of the arc instead of where it lands, which is really really really really hard to do. You'd have to time it in basically, I would say almost impossible to try to do that every. Every time reliably. So we can't hit supply is the conclusion here. We have to hit demand while I'm not saying Yukon supply tool. But yeah, I think you're gonNA focus your limited resources in one area then yeah, it makes more sense to focus on demand you get more bang for your buck. If you like if you focus on the demand side of things I, don't supply I mean the people who are involved in this that brave people doing good work earlier, you mentioned the Narcos. And you see the incredible risks, the surface people both Americans and Colombians take in order to try and stop these guys. You know I admire them for what they're doing. But I do think that they're focusing their efforts in their own place. Because as you say, if you try to interrupt supply, you're gonNA, find that if you do early in the Jane, you have very little effect, and if you late in the chain, you have more of an impact, but by that stage is very, very difficult because by the time the. The. Product makes its way to the states. It's dispersed into tiny quantities of just a few grams here and that, and you can look up those dealers. But by then you know he'd try and look up every dealer shifting grandma's the of cocaine you're going to end up looking at, you know very, very large number of people, which indeed is exactly what has happened in the US. So for those reasons, yeah. I think the demand side is wetter, focus our efforts, and if he spend the money on trying to reduce the The amount of these drugs by educating young people to take drugs to treat addicts so that they can reduce that consumption. You do end up having a much bigger impact and they're all kinds of studies. The pre. If there was one that was done if he is ago, which compared the impacts of spending a million dollars at different points in the supply chain and I believe the impact, they calculated spending a billion dollars on interception. Kane in south. America. was a reduction in the amount consumed in the states of about ten. Ten kilos with Arabs, and if you spend that million dollars instead on treating addicts in the states, you can reduce the amount consumed by about two hundred kilos. So you get ten times more for your money than you would otherwise, and this is tax payers money united tax dollars, tax euros, and tax pounds that are being wasted flying helicopters around in Columbia when we could be spending money doing other stuff, which would actually be an is proven stable. So the demand side I focusing on the consumers is where we should. Should be focusing not so much on the supply side I, chasing people around in Columbia. So if the price of coca, for example, is the same as coffee at its source. Why don't farmers in Bolivia and Mexico grow coffee instead of coca because they can make more by selling it to the cartels. It's still worth a bit more than coffee. It's very, very cheap compared to what eventually fetches in the United States or in Europe, but the price that they can get is somewhat higher than coffee. There isn't a huge difference. Difference I, remember I spoke to a guy in Bolivia. Who grew the stuff you calculate and I said well, what you do other stuff there lays crops out that either gripe and he said well, you know raising chickens was something that he'd be interested in doing, but he didn't have the money to start up a chicken business in he said the overall he wouldn't make quite as much and there are various programs that go on there in South America designed to try to get farmers to grow other stuff. So the European. European Union's bonsor something to try to get farmers to grow tomatoes instead tomatoes, as you might say, and similarly in countries like Afghanistan, the programs to try to get opium farmers to grow the stuff, and I think that's probably a mood humane way to go about things than spraying crops with weed killer and reaching the Tripolis Day you find that, it's pretty easy for cows actually to just offer a slightly higher price agaist the coca because the profits involved in the coca leaf associate grades that it's pretty easy for the call. Call towels to up the price they bid. So ultimately, I think trying to out price the outbid the cartels and get farmers onto growing other crops. It may be a better way of going about things than sprang coca leaf Weedkiller, but it's pretty tough because the mockup involved in the drugs businesses such that the cartels can outbid pretty much any other crop that you tried to direct farmers T.. So again, I think the supply side trying to fix things in Columbia, the source of the problem though it sounds very sensible. The evidences that has a pretty limited effect, right, and of course, the demand for this that creates all the profit creates new technology and ways to grow things like that. Just because there is a push on that side, it's almost like they're getting subsidies at some level rent. A lot of people who know what they're doing being hired down there to help grow this stuff that aren't just farmers, experts helping people grow even more making it more resilient, hiding it from the air and making it grow fast all these different things that you get when a crop is actually worth money are now happening with coca down there. So it really does sound like. Like a losing battle and I think everybody knows that we are losing the war on drugs at least from this end as well. It's really disturbing to me that you end up with essentially what are like the Mexican navy seal type forces us going and starting essentially a wing of a cartel that becomes a cartel in itself and you end up with these crazy pseudo. Pseudo legendary figures like El. Chapo whose escaped from prison multiple times in sounds like something out of a television drama that ran out of storylines Let's just have mesquite from prison. Again, let's have escaped again. It's just it's ludicrous and the popularity of of shows like narcos are bringing more attention to this subject by the way when you are interviewing farmers people involved in. In the drug trade, do you speak Spanish or do you have a translator I speak Spanish with them on the hall? I mean. It's funny. Some of them actually spend a Lotta time in the states. One Guy I was interviewing in a prison in San Salvador, we were speaking in Spanish. Then be referred to the fact that he lived many years in Los Angeles. English was probably much better than my Spanish. But now usually I to them in Spanish. That's the easiest way on the whole to communicate with people down that. He I figured I was just wondering if you had a translator because that's a job that I don't know if I would pick up if I saw an ad for it, I denied, it'd be interesting. You'd get some interesting vocabulary wouldn't. When I arrived? Mexico. My Spanish was limited and I actually lend bit more in the kind of words that you Lana. Intriguing words for people who are found blocks in the trunks of cars and people. He'd be shut with machine guns and that kind of thanks. I. Yeah. VOCAB was kind of different. So what I learned in England. Yeah interesting stuff way. What are these words you can leave us hanging on this? There's different names for people that have been found locked in the trunk of a car that just have a term for that Oh, God. Yeah. No, you're asking me now. Sorry, it's. It's a few years being as a Mexico. So I can't remember it was his. Particular words that he is the people he way found in the boots. 'cause people who I different, what's people who'd be next used in different ways, people have been just wrapped in tape to suffocate of the slang terms, go to these different forms of execution, which a very unpleasant. That's really gross though it's almost like they're doing it so much needed shorthand for this. That's really disturbing. Yeah. It has a vocabulary. All of its iron says pretty grim stuff. You wore a GPS device to a meeting with a drug cartel leader. Leader first of all, what was your wife thinking when you were doing all this research I, mean your family must have been like, are you crazy? They must not have slept for the years that you were down there and doing this book. Yeah. They were a bit of a change from my usual kind of work in length I. Think they were kind of intrigued by the whole project. My wife was them very good at kind of tracking my whereabouts using this GPS thing, and I'd check it with her now to get. Is Still. Alive, it was interesting. You know I Kinda Roam around bits of Mexico and Central America and South America meeting these interesting guys getting into these the one really an exactly like the kind of injuries I've been doing before. But you know when you speak to these guys about the businesses that I run the companies that they run some of the things I say, do kind of echo the comments that you hear from middle managers and other companies you know they would like to complain about that employees in the way that manages always do they complain about the treatment they got from the government's low. With took, you pat, slightly different on complaints from the ones that ordinary fans my half. But yeah, it was kind of exciting growth. Have I. Guess It was pretty frightening. Sometimes going to places, lights dot whereas in places like San Salvador where the level of violence is extremely high, but I guess one thing I always remind was that the real high risks are really faced by. By the Mexican journalists are the ones who often a place at greatest risk because they're the ones you actually have to live in these cities permanently. You know I was based in Mexico City. So I'd fly into semi likewise demands of us, and then make sure that I was on the flight back to the different situation for the local journalists who live in these fifties. After reports on crimes, the people writing about very often know where they live and where their families live in the levels of violence against Mexican journalists really through the roof. So the kinds of risks taken by foreign like me really nothing compared with the ones faced by local reporters. You're listening to the Jordan. With our guest Tom Wainwright we'll be right back. 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I if I want to hear how you did that because it's not easy to move people around in that way, you don't. We did it through the Darien gap that Oh. seriously. Wow. Yeah. You picked a difficult. Yeah. Well, we figured that it was probably one of the best ways for him to disappear without dying, but then also had a high risk in and of itself, but it was kind of like, do you want jump off this five story building or do you want to swim across this shark-infested Bay? Like it was just one of those kind of situations for this guy. But see that Juarez where you were is dangerous because it's one of the gateways for drugs. The US seventy percent of traffic is what you'd estimated, and at one point had the highest murder rate in the world, and so you're kind of. Of hanging out here, where are you conducting these interviews? I'm interested. It depends on really on on the person. But in Juarez I remember speaking to, let's see business people who had had problems with the cartels. I mean that was one of the most interesting actually interviewees the extortion business in choir was a big deal when I was that because at the time, though is a big big bottle gang on between the local scuttle, the Lower Kotel, which at the time was trying to take over the city that and to raise funds for the battle they were having between each other. Both consoles were Levian, will they? Kind of extortion money on local. FEM. So often I would speak to business people in their places of business. You know it could be bars or wherever shops and speak the people that I spoke to govern people in their offices. Police. Officers went to kind of community projects. In some of the slums. There is not a complete safety to be in I. Thought. But the main thing I tried to do is just to stay off the streets by the time and go. Go, from appointment to appointment and stay inside rather than just kind of strolling aimlessly around looking like a tourist. So I tried to make sure that I had a pretty full diarrhea, the guy from appointment. Yeah. I mean the violence that you described. There is so vicious. It was the stuff of nightmares. Really. There's no getting around it. Do you ever think about stuff in Canada? Wake up with a shiver, some of the stuff you read about his is really graphic and. And Gross Yeah, it's pretty test I. Guess not now I'd I'd just leave reasonably well to be honest I think part of the thing appeals me about writing about the cartels in the way that I did you know as an economist or is business journalist was you can kind of get around the drama of it and just spoiled the business down to its basics. You know there's always so much emphasis on the drama on on the kind of gruesome details and if. If, you get completely lost and not than I think you can lose sight of the more points. But yeah, you're right. I mean, there's no getting away from the kind of levels of violence. They're just excruciating when ye videos of the thoughts are Isis Islamic state's put out. Now, united, some of that stuff is nothing compared with what's going on in Mexico and was being funded by people he by drugs in in my country and the news, one of the things that. That I read in your book was something about Kiki Federal Agent that is referenced actually in the beginning of narcos where they said Kiki. died for all of us and I was like, what does that mean? So I looked it up. We'll link to it in the show notes, but don't read it. If you are because like it's you just can't stop thinking about how gross what they did to this federal agent was. It's just like it's really it's inhuman at every. Every level really kind of insane and so what? Yeah. When you're this close to it, it just seems terrifying. But I understand that you're looking at this drug cartels, their global conglomerates, they're massive businesses and fact you'd written that cartels would be one of the top forty countries in terms of economics if they were a country instead of a business, right? So we're talking like Walmart style. Yeah. Absolutely. Businesses Very Opaque oversleep by night shift, but the UN reckons the worldwide every. Every year is with something like three, hundred, billion dollars a year. So in country economy terms, it's I, think it would be just ahead of Israel know if the trucks business were country, it's a pretty serious economy. They really use the economic power, and if you look at some of the countries where they operate particularly ones in central, America, where in many cases, the state's government is very, very weak. The cartels just off the upper hand and I, remember going to interview. Interview the Security Minister in Belize, which is this tiny tiny country with a population of I think asked about four, hundred, thousand people. So Unites Really really small at the time believes the government believe didn't own a single helicopter between them and they're up against these towns which have not only helicopters, but they've got their own primitive submarines they they've got with basic tank. They've got all kinds of things and that power to Outgun outspend governments in parts, the world is in. And that power corrupts as well. They do a lot of work corrupting police officers and soldiers, many cases even corrupting senior members of the government's Mexico. Some years back discovered that the guy date named that drugs czar, the main guy sites in the cartels was in fact himself working for at the cartels and when you see the profits, the east cartels make, it's not surprising that they have the budget to bribe these guys even at the very highest levels. So we're really facing a very, very serious advisory in at the moment worried that we're not terribly good job beating. Yeah, it's terrifying. It really is and looking at some of the same problems that cartels have you're looking at some of the same problems. Entrepreneurs have multi national have. I'd love to explore some of the parallels that we see here because yes, we have things like systematic police murder, which is sort of like dealing with a regulatory agency, which is kind of a weird way to sugarcoat that. But. Cartels. Even do things like pr campaigns and it's just really really interesting to see how the problems have to be handled in the same way. Let's talk about the PR. This is something that I was really surprised by the cartels are campaigning with locals doing pr to get local villages and cities to support one cartel over another typically by painting one as worse or more criminal than the other, which to me just that just was to Meta. I had to wrap my head around that and it took a second and you end up with. With other cartels, naming themselves. Things like the outer defenses, which is basically like the self defense. Brigade, they're supposed to be this anti-cartel militia and their fricken trafficking organization. Yeah. Yeah. No I mean, the hypocrisy is just incredible, but you're right. They do go into these surprising PR exercises. You wouldn't have thought the public relations was high on the list of priorities for a drug cartel, but actually they seem to take it very seriously and in northern Mexico. Sometimes these signs a payoff in hung up from freeway bridges accusing other cartels being very immoral. It will say something like El Chapo never kidnaps people. He just gulped the drug trade. He never commits violence against others and that kind of thing, and of course, it's type of rubbish, but it helps to persuade as people in one car tyler's bathroom worse than the other I think the kind of heights of this PR activity is a form of what really looks like corporate social responsibility and it sounds crazy, but it can if you watch that show Nakai's or if you read. Read. About Pablo Escobar. One of the interesting things about him is that despite the fact that he brought stunning levels of violence to Columbia, he remained in many areas. A popular figure. You know his funeral was attended by thousands of people and it was because he sprinkled a few pesos here and there on community projects, you know he paid for housing projects, he paid for sports, facilities, and similar things go on now in Mexico in Mexico. Occasionally find churches which have plaques on the. The outside saying this church was kindly constructed with funds from Sanyo assigned. So and it turns out send your phone. So is the leader of a drug cartel and these guys by spending that many here in that, they managed to secure a kind of basic level of support among the public and without basic level of support is much hotter than to remain at large because the police rely on the public give tips to let them know where these guys on on the Kotel kingpins. Kingpins. In fact, managed to stay at large through a mixture of your admittedly plenty of intimidation of one reason people don't report them, but it's also because they do have genuine support in some areas because they spent that money on the community have in some cases. Shinola supposedly a primitive form of social security that has been set by a Chapo Sinoloa cocktail and so many people that do actually think twice about riposting them. You know this isn't a country where the government is. As active as it should be providing opportunities for impoverished people is there when you've got a guy who's made a lot of money exporting some product to a foreign country, you know he's willing to spend his money on building good stuff in the local community weather at a clinic or a school or housing, or whatever. Some people actually think. Well, hang on, you know these guys will bad should we be reporting and so the cartels really put money into this corporate social responsibility and public relations is a very, very big deal for them. They take it very seriously. You Know Cross does this. Like Hezbollah where basically they start to like you said, build schools, build clinics, it puts the criminal organization, the Mafia in competition with the state to provide. So it's kind of a genius strategy because you get cautious acceptance of the local people especially when the state cannot provide, and of course, the states busy trying to fight cartels and deal with the criminal elements. So they they have to divert resources to. To that, so it's kind of this cycle that fulfills itself right out of the state's running out of money. 'cause they're fighting criminal gangs, they can't keep schools and other organizations up to snuff. Let me use them my illicit funds to help build the stadium instead, and now you end up with this, putting the people, the common people against the state with respect to his problem, which is a huge obstacle. Obstacle to eradicating this issue in the first place, and it's just fascinating to be cartels are actually brand-conscious. It just seems like something that wouldn't be necessary. But if you don't have to intimidate a certain wrong of people on the ladder here, you can end up with the base, right. You end up with a base and those people can protect you. It's kind of an extension of the plateau or Paloma. Paloma, which is led or silver essentially, which also sound straight Outta narcos where either you take the bribe and you take the money and you take the benefits or they just do something horrible to you like wrapped you up in duct tape or whatever was you'd mentioned earlier these cartels managing their image by making killing and violence either really public or by hiding it and dragging away the bodies banning. Banning the news stories and found really interesting that the most dangerous time to be outside in Mexico is five, forty, five pm because they'll often kill random people. Cartels will in an area in order to make the evening news and then promote army crackdowns in the area and they essentially, they do this on rival turf to get public eyeballs on how much violence is happening on some rivals turf and then. Then get the government to intervene so that they can get a leg up on a rival cartel. That's exactly right. Yeah. It's a clever strategy. Often the cartels did I best to convince the government to act in particular areas effectively said that they can use the government's forces against their own advisories and say, you often see this phenomenon where cartel will carry out some extravagant acts of violence in another cartels. Cartels. Patch. So that it could dump a dozen body somewhere in the middle of a busy shopping streets or something like that. Is Kinda back to violence that the government Konig Noel, and when they do that, you immediately find to greatly increased presence of soldiers and federal police that makes it much much harder to the business that's area heating up the plaza unit by that, they mean making it harder for. For the cartel to carry out his ordinary business transactions on its usual tough there. I think there's a lesson for the government in and other countries, which is that when you see a very big extravagant acts of violence carried out, say on the turf of, let's say disasters. For example, you can immediately seem that this was done by and therefore centiliter soldiers to this area. It's crackdown you perhaps. Maybe, this act of violence carried a pint is his arch rivals. Maybe you should send you soldiers to the place where they're active. Instead, that might mortar deter these sorts of public acts of violence. Fif- public consumption, but you're right. It's all part of strategy that the cartels have to try to direct to states resources for benefits because if you can make. Make the army, go to a you want to go. Then suddenly a lot of firepower that you've got your disposal absolutely free of charge, right? Exactly. Paid for by the taxpayer unfortunately cartels as well control the media message. Of course, a lot of news outlets won't report on certain battles or they'll make a big deal out of another battle or other violence. Violence and what you end up with the same thing that happens when media is corrupted or under central control and other places, which is you end up, was social media starting to play a larger role. So there's a city that its name escapes me from your book where they used twitter to keep safe and tell them what's blocked off where there's ongoing violence because the news outlets are just not reporting on this stuff accurately or in a timely manner because there's cartel influence. That's right. It's referring to his Rhino cernan stated Tamales bossy right on the border of the stays over there. The local press have found that they just can't report on the drug will a tool they started doing it but. But they found that anybody who writes a story about the local Kotel cone flakes very quickly found themselves being intimidated or worse, and what the local government has done. There is set up a twitter account and they just tweet these varies with political messages saying situation of risk in sentences Oh don't go here. It's just a very simple way of leading citizens. Citizens now to avoid particular areas and the United. States would say, these reports, he fighting who they didn't give details because they've learned from experience that that upsets the cartels, but they won't to give people just a very basic level of understanding of what's going on. So they do via twitter and e find also various websites being sets up to provide the. The kinds of details that odori newspapers or TV stations console went provide I. Mean. There are various blogs that provide very gruesome details about the latest tit for tat killings in the drug war, and that's where people get their news facebook groups or another one on these places provide a place for people to share stories about the drug war, which are not subject to the kind of censorship that the media have to us and not subject to the kind of intimidation. The cartels can employ because the very nature of twitter and facebook zone is that it's somewhat easier to retain your anonymity load. Some people have found that they haven't been able to do that in some bloggers. He thought they were anonymous. Ended up paying the price for that, but it's true. Social media is an increasingly both ways for people to share information about the war on drugs because the regular meter in Mexico has found, itself really muzzled by these guys why even El Chapo kid didn't he tweet about him hanging out with my dad and then they caught him because of that a moron? Well, supposedly, yeah. Some of these children of the knock as. As got these extraordinary twitter accounts where they tweets about that latest Ferraris or that gold plated guns or whatever it is. Amazing. The level of impunity. Some Mexico is such that these guys can really make no sense about where that money comes from and still get away with it. We found the twitter account of his son. Let's take a quick two seconds and Yvonne Archie Valdo. Goes Mon- followers one, hundred, sixty, seven, thousand. And yet his cover picture of him with a hat, and then the background is like a bunch of different sports, cars, crappy low Rez photo, a bunch of different sports cars. It's usually it's he's into Qasr, Kinda, very exotic guns as well. You'll probably find kind of place guns if he's called on his feet. Diamond, encrusted weapons. Hanging out with hot chicks at some bar that clearly live in like the Combo with no shirts on jumping up and down, and there's L. Line in my helicopter, and then his face blurred out with two random like Babes street racing hanging out as plane yet new Ferrari. You weren't kidding him in some boats and Oh. Yeah. Wow. All the car keys of either all his or him and all his friends in Mercedes Ferrari Bentley, BMW maserati Lexus in pretty much everything else. No. Tesla though not into the Tesla yet. No the challenging point Sir I think range anxiety is pretty big deal if you live in the desert so. Maybe. Maybe one day. Exactly. If only, it could run your car on cocaine and yeah, here's a gold plated forty-seven in the driver's seat of a BMW picture, and the rest of it is literally just that time thousand. If you can just keep scrolling down in, it's the entire. It's all it is. Is just that over and over and over again, pretty much what you would expect from a guy who owns a nightclub in Miami Kinda Guy? That's exactly what I can on here. Yeah. But. But yeah, that's I'm afraid that states play at the moment. I. Mean, you went to jails all Salvador, interviewed leaders of gangs like Mara Salvatrucha, eighteen, dot right I mean you're talking about the gangs deciding to collude and not kill each other and the statistics you give are just incredible. Seventy thousand lives lost in the nineties yet a ten percent chance of being murder, Nell, Salvador period plain and simple, and then they decided to collude not kill each other and violence falls by sixty six percent. Yeah. That's right. It's crazy and the change that you referred to that big drop in the violence. It happened Laura overnight. If you look at a graph showing the number of murders in El Salvador, it wasn't something that happened slowly over time. It was something that literally happened overnight and the reason was the two big gangs. The MARSOV. Through June Eighteenth Street gang signed an agreement who made an agreement with each other. They would form a kind of ceasefire an instantly the level of violence drought site that you know. It just shows how much of the violence these guys are responsible for, but it also shows that this. Behavior, of these gangs can have a big impact on the amount of violence. In these countries. It was economic decision by these guys that I thought, the colluding would probably increase that profits more than competition would. So they decided to go for that. Instantly, the country became a far far safer place. That's the kind of interesting story for people who think that economics can be away into this subject. It just shows that a thing go business decision by a couple of gang leaders can. Transform, the security situation in very troubled country like that. So the story about Salvador I think is one for people to look at, and since then the packs that has broken down, and as I understand, the country now has become a very violent place again. But lasted for I believe a couple of years or thereabouts that was kind of peace in the country or relative peace due to the changing dynamics between these two gangs. So I think it's worth a further study to see if the kind of these can be replicated because El Salvador shares that it can be done at least temporarily. This is the Jordan Harbinger show with our guest Tom Wainwright. We'll be right back. This episode is sponsored in part by man's gaped summer is in full action full swing. Here, we're thankful for our sponsor today manscaping for keeping US fresh sons out buns out, and hopefully you are appropriately shorn manscaping offers all the right tools to keep your hair grund above and below the belt. got. All, kinds of tools. They got the crap preserver. They've got the lawn Mower, the perfect package three point. Oh Kit comes with all of that stuff and let's just say my wife doesn't like to share her nail clippers I use the shears two point Oh, nail kit. 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We've got worksheets for today's episode as well. That link is in the show notes at Jordan Harbinger, dot com slash podcast, and now for the conclusion of our episode with. Tom Wainwright. These cartels even keep wages low because there's no competition for talent. In other words, it's very hard to go from one to the other in the way that they do. This is kind of grossly genius, the Tattoos, especially, the gangs like amas eighteen have on their face, they show allegiance to one side. So in Mexico bangers can switch based on who pays more has power, but in places like El Salvador. TAT's not only do they prevent you getting any kind of real job whatsoever, pretty much forever, but they're basically cattle branding their members, right? It's like if you've got that, you can't switch back to Windows. You've already got three Max, an iphone yet. The that's exactly right this to me when I went to meet the head of this cartel, the Eighteenth Street gang in his jail cell in Salvadoran. He was one of these guys who they look extraordinary united tattooed literally from head to toe, and I was interviewing him and just wondering where this tradition had come from the kind of ody's Hattie's and I thought about this labor market economics of it and I think the way you. You described it as exactly right. It does give these gangs. These cocktails are kind of ownership will most of their employees because imagine a regular employee. If you're good at your job, you may get an offer to work somewhere else you know you might try and get a job with a different company. You know if I get sick of working at the economist where I am at the moment, if I feel not paying me enough I could try and get a new job I time or something like that. But that would be somewhat harder. If I had the economist tattooed on my face, I find it a bit more difficult. Yeah. Yeah. Good. Luck. Getting rid of your. Bobbing logic is exactly what the gangs in El Salvador, united you've got Eighteenth Street Gang Tattoo you like your body going for a job interview with the Mar Saba, true Jay is going to be the mole bracing experience to say the least and say they retain a kind of ship that employees and it means that they're able to keep wages very low, and it's one of the great paradox of the drugs business. You hear about the billions of dollars that are made in buffets and true. It is a fantastically lucrative business, but you meet the guys who are working as part of this industry in a country like El Salvador and for the most part, not rich guys. Guys, you know they're making a few day and part of the reason for that is that the cartels exit this very, very powerful control over their employees cartels further than they do the same thing as other mafias do right in new. York for example sanitation, they've got what we would traditionally refer to economics as a cartel where they agreed not to lower the price for their bids to a certain level so that they can extort or at least in the past, they could extort the tax payers to get higher pricing for waste disposal and things like that. No. That's right. kind of price fixing something. You see it all kinds of regular industries and that's the point. Point web organized crime and legitimate business have sometimes mass in the past because the mafia's always played a role in many places of sorts. Full thing, these price-fixing agreements. So I read this one great study actually I think is just about the earliest study that anybody's ever done if the mafia it was done in Sicily sometime in the nineteenth century and it was a study of the, I believe the milling industry as in the flour milling industry and the millers that realize that if they fix that prices, they could make more money than by competing, but the problem was that they couldn't rely on each other to uphold disagreement. You know the worry was the one member would. Would break agreements, undercut the rest, and so they got a bunch of guys. He will basically the Mafia enforce this agreement. You know they all paid these guys on the understanding that if anybody the agreement than the Mafia would go. So the mouth, and so that was one of the very first roles that the mafia played. They were that to make sure that these legitimate businesses didn't stray from the price-fixing arrangement that they had made between them. Uneasy similar stuff going on in garbage collection industry in New York. Historically, that's an industry, which is had a big big involvement of the mafia, and again, the role that it has played, that has been to protect the. Contracts from competition, and it's interesting because when you get that kind of interaction between organized crime and regular business, it becomes a lot harder to stamp it out. You know if we're going to crime is something that all of society is against. Then getting rid is much easier when it's something that actually a lot of people in society have a stake in preserving when he find legitimate companies, actually find the mafia used in forcing bargains between the when he find that local people are in favor of the mafia because Mafia provides with public services in the way that problem ESCO bought. Did you find the actually summoning the kind? kind of popular pressure to get rid of these guys is much harder because they've made roots in science and they've got people on my side. So those kinds of links a very, very important to cut out because the more you can isolate organized crime groups from the rest of society. The easier it is to stop them out on the other hand, the more those groups embed themselves and get at ten schools into basic legitimate society whether it's the business community will just ordinary people. The hunter is going to be to get a kind of consensus that they have to go. So that should be a priority for we'll get. Cartels and extortionists are franchising as well. Can you briefly explain the concept of a franchise is in business and then explain how the cartels are also doing this? Oh. Sure. We'll just briefly at probably easiest way to describe your franchises picture Organiz ation like McDonald's or say like starbucks, you know any kind of change that. Very. Often you have a central headquarters which runs the operation and they will allow franchisees local business people to setup. Say at McDonald's restaurants, and the deal is that local business person guests to use the McDonald's brand, they use the McDonald's recipes and all the rest of it, and in return, the central organization takes a cuts of the revenues of that local business and it's been very successful in the fast food industry, for example. Example. It's a very, very quick way for companies to grow because it means that the company doesn't need to raise lots of money to set new branches because the Franchisee as much of the startup costs. It means that consumers all the country or life the world know what they're guessing. You know if you were a big Mac in London, it's the same one that you'll get in Los Angeles or the same when the get. Get in Beijing and so for consumers, it often helps to increase the branding power of civilization says being very successful and surprise surprise the drugs businesses condoms to this as well, and when I was in Mexico one of the big stories at the time I was there was the spread of this game called disasters and they spread very very quickly. You know within the space of just a couple of years it seemed that they. They managed to set up a branch in every city, and so I looked at the situation and thought well how they done this and I immediately. It reminded me of organizations like McDonald's, and so I looked into it and it seems that was actors are doing something very similar. They do is instead of sending their own employees to a city to go and set up a new group that they will send some agents. Agents there took to local criminals who runs the show down there and say look, Hey, how about this you can use Brian will lend you disasters brand, and in return, we want to cut your earnings and we can provide you with some training with weapons and with our logo and so on, and it's extraordinary. You find in some parts of Mexico is comps of being rated and they find these guys got branded battle caps. caps, t shirts, and that kind of thing. It really is like a franchise and help them to grow very very quickly. But the thing is the problem obviously for Mexico, because these guys are growing very fast, but is appropriate, will say the franchising business can create problems full disasters as it creates problem sometimes for McDonald's into. One of the things that you find with regular franchises is that sometimes franchisees will argue about the. The fact that there is supposedly t many franchises in in a particular area. Right? Encroachment is what they call it. That yet, that's exactly right and you find loads of cases about this in the states, and in Europe, you find franchisees claiming that there's being encroachment whether it's McDonald's or a hotel chain or whatever, and the problem that lies at the root of this is that the interest of the franchisees and interests of the. The main firm on very well aligned obviously from the point of view. The franchisee. It's great. If they've got the only, McDonald's franchise in one big city from the point of view of the firm. Equally obviously, it's good to have as many as possible because they take a cut of total revenues. They'd have particularly cares each individual Franchisee is less profitable, and the same thing happens in the world of towels you find the. Individual Franchisee possesses often find another xetra franchises opened up somewhere nearby and rather than issuing this problem through the coats, which obviously, they can't do because this is an illegal business day satellite differences using violence, which in the world of drugs is the only way to enforce contracts, and in many parts of Mexico, you find the some of the violence can be attributed to exactly that effectively encroachment battles between different Franchisees at the same. which found themselves situated a bit too close for comfort in that, fighting over the limited amounts of prophets available in a particular area in places like Acapulco. For example, is some evidence that some of the violence is caused by effectively different franchisees. If the Sinoloa Federation and so that it's something for these cartels to bear in mind as they do that franchising it. So very, very quick way to expand, but they may find the differential Z's actually argue amongst themselves more than they might bog until there's a lot in this book, the idea that some cartels relying territory. Territory others rely on products and smuggling. It reminded me of Internet business versus let's say brick and mortar. You end up with different cartel territories and things like that, and even online sales which I wasn't sure was the real thing. But it seems like now while Silk Road and websites like that. No longer exists. But of course have been replaced by something else. I. Assume now you're looking at it entirely different way an entirely different market and sort of pathway trade route for drugs sued does this mean you can buy cocaine online? Obviously, I'm asking for a friend. You can't you can bike again, you can buy more or less what you like online and it is amazing. If you get to these websites like as you say silkroad itself longer exists, but it's been replaced by a lot of other ones you go in there and you can see products to sail different varieties of cocaine of heroin crystal meth. You name it, you can find it on the dark web and alongside these products, he find reviews at the products by consumers and a lot of these sites have been set up to look like Ebay, you kind of. From, people who voted from the supplier and they can give a kind of sums up with down is extraordinary. It makes the business of buying drugs feel a lot more like businesses of buying regular products and I. Think for consumers. You know it gives them setlow more information about the product they're buying, and it also gives them more information about prices because one of the key differences between drug markets and. Regular markets is that intrigued markets? You don't have very much transparency about pricing. So let's say you're buying a products. You know the computer or something like that. If someone is trying to tell you, it's a more than the regular price. It's pretty easy to find out that someone else is selling it for last so. Much better, abusive. The same price in the drugs world. It's very, very hard to do that. Consumers might know that regular guy sells cocaine I price. They won't have any way of knowing if the some of the guy across the sales at much cheaper releases much harder for them to find out and similarly dealers don't have any very easy way of advertising staff. You know they've got a network of people to him. Him, they saw red drugs. But if someone else he lives nearby, he would be willing to pay more. They would necessarily know that they can't appetizer idea online. They can do all of this stuff. They that prices pretty openly. Consumers can decide between products based on price between products based on their reviews at the quality and so on, and so it starts to resemble much more irregular market is not the kind of. Of, hidden markets anymore as a regular competitive free markets and say what you would expect to find and I think we're probably already is the online, the kind of drugs that you will find a probably of higher quality. That's say greater purity and probably of lower price, and crucially, they tend to offer better you Michael Customer. Service and is very, very surprising. Easy. These guys drug dealers on the web offering things like. Like. If you shipment guys missing, we'll give you a fifty percent refund or if you're a loyal customer will give you a discount on your next offer and they have kind of happy hour and they have special promotions and one of the things that you dissociate with regular businesses, and so the online world of drugs I think really has the potential to change the industry quite a law, it has the potential to. Drive up the purity of drugs, drive down, prices, improve customer service, and. Make it an altogether a better experience consumers, and in some ways. That's good. But obviously, the worry is that it could make drugs much more appealing. You could ultimately see it increase in drug consumption. The I'm just I'm imagining you know fair trade cocaine and all inventory must go flash sale right online. There's lower barrier to entry. If you'RE GONNA sell online, there's lower risk. You don't have a need for any network of contacts as well because they're. They're coming through the website and yet the level of trust is handled by feedback in the market is like yelp cartels are moving not just cocaine and things like marijuana. But AVOCADOS, of course, human trafficking, oil petroleum, even cheese. So have you done the math? I mean what are the odds that we've eaten or used something handled or managed by drug cartels? That isn't drugs always so good question. I'm afraid I don't have an exact answer for. For you, but I mean it depends on where you live. So you mentioned the cheese business. This was something that happened in. Central America where there was at one point the feds cartel de Las Casas, which was the cheese towel and dot existed to overcome a ban on imports cheese from one. Central. American country to another safe you lived in I. Forget I think maybe it was El Salvador if he boots good cheese that it was a pretty Pretty good chance. It'd being smuggled in from I, think he was Honduras anyway with respect to regular products i. think it really depends what your definition is. If you're talking about, let's say I dunno Avocados that have been directly smuggled by the senator. Kyle the risk is probably fairly low, but I think where it's pretty likely that you may have indirectly contributed to cartels. Finances is through the fact that in areas like say Mitchell. Konin Mexico where. Avocados that you eat. The states may come from a lot of the businesses, their pay extortion money to organized crime, and that increases that cost. So Nasdaq Costco, they have to raise the prices and they raised their prices. The retailers in the states have to raise their prices to consumers. So insofar as it's the case that many many farmers, immature con, we'll pay extortion money to the Senate lower towel on. Insofar as it's the case, those farmers ultimately will postles of those extra costs to consumers. The United States, it's highly likely to some of the money you pay for your car in California will find its way back directly into the hands. Hands of Philo cartels I'm afraid. It's something you can never get away from entirely. I. Mean, of course in the business, you can be pretty sure that every sense of the money that you pay your Kane is going definitions, criminal economy and glorifies is making its way back to Mexico to fund the kind of horrible violence that we were talking about earlier. But even in something like the Avocado business, you can't rule out the idea that united a few cents in the dollar that you pay for your avocado may end up in the hands of someone rather unsavory Jeez. You might as well put cocaine and your Guacamole at this rate. Would that FOB. We, it's pretty privileged in Mexico. Yeah. You can say for sure. Yeah, oh. Wow. While the moral don't do drugs. But if you do just make sure that it's fair trade, this has been absolutely fascinating. Thank you so much. Tom NOCCO NOMEX will be linked. Of course in the show notes as well. It's a great read and it goes by quick and There's so many interesting parallels here between the cartels and quote unquote regular business here in the good old USA and the rest of the world. So thank you so much for your time. It's been super interesting. Thank you to tell them. Wayne Right. One from the vault, that book is called Narco. Links to that stuff was always in the website in the show notes, please use our website links. If you buy the book, it does help support the show worksheets for the episode in the show notes transcripts for the episode in the show notes I'm at Jordan Harbinger on both twitter and instagram or just hit me on linked in I'm teaching you how to connect with great people and manage relationships using systems and tiny habits over at our six minute networking course, which is free over at Jordan Harbinger, dot, com slash course, dig that well before you get thirsty. Guests on the show actually subscribe to the course of come. Join us. You'll be in smart company where you belong this show is created in association with podcast one, and of course, my amazing team including Gen Harbinger Jason Anderson fogarty in Milio Campbell, and Gabriel Mizrahi. Remember we rise by lifting others the fee for the show is that you share it with friends when you find something. Something useful or interesting. If you know somebody WHO's interested in business and maybe drug cartels well share this episode with him. Hopefully, you find something great in every episode of this show. So please do share the show with those. You care about in the meantime, do your best to apply what you hear on the show. So you can live what you listen and we'll see next time. As promised, here's a preview trailer of my interview here with Jason Canas. Zinc and eighteen months after we were growing up, we're at about one hundred and fifty K. in total revenue and AOL came and offered his thirty million bucks for it. I was negative ten thousand in my bank account. And I was walking my dog Torah recipes and smoking a cigar, my life, and we're sitting there in Santa Monica. We had a two thousand dollars a month apartment. And I said, they've offered us three million dollars. I can't keep up with our credit card bills. I'm GonNa take it, and she's like this is going to be crazy like we're GONNA have over ten million dollars in our bag again yet. I sat there and I just had to have this like really long conflict deep moment because I had a very complicated relationship with money and being poor because you. Wanting to be rid. Exactly. Yeah. And I wanted to be powerful and rich when I was a kid and looking back on it. The reason I wanted to be powerful, which was because, I was poor and ahead, no power. My Wife Remembers the story. In arab-israeli yesterday I was sitting there refreshing May Bank of America. Count. The corporate count. And nothing nothing nothing, and then Pool Twenty, seven, million bucks. And I start crying. Crimes, I spent the majority of my life broke. I don't have to worry about money ever again ever. For more with Jason Cal Canas including what venture capitalists are looking for startup founders, and how to make yourself more marketable whether you're a founder or an angel investor yourself checkout episode. One hundred right here on the Jordan Harbinger show.