NEW WAYS TO CRACK OPIUM

Australian Federal Police Commissioner Mick Keelty's trip to
Afghanistan throws the spotlight on the Taliban's drug trade.

Keelty is sending 12 AFP agents to join up to 1000 international
officers training the Afghan police in counter-narcotics. But the
Pentagon's first post-invasion assessment of conditions in Afghanistan
reveals that the Taliban killed 6500 people in 2007 (a post-invasion
record), its funding base, opium production, "increased substantially"
and that overall counter-narcotics efforts in Afghanistan have not
been successful.

Perhaps it's time to try another tack using incentives to attack the
Taliban's opium trade. Local, village-based Afghan factories should be
offered licences to use opium to produce painkillers for export (the
Senlis Council's "Poppy for Medicine" proposal). Hearts and minds
follow income-generating crops and access to pain relief.

But the US State Department favours the 4-96 solution, whereby about 4
per cent of the crop is eradicated and the Taliban is the major
beneficiary of the remaining 96 per cent.

There is a second alternative: the 100-0 cold Turkey solution. Turkish
poppies were targeted in an earlier war on drugs, but Turkish
politicians were reluctant to see rural income and their fragile
democracy go up in smoke.

In 1974, they revoked the ban and, with UN assistance, set up
poppy-processing factories. Killer heroin morphed into painkillers and
in 1981 the Reagan administration agreed to provide "special protected
market status" to Turkey (and later India) by agreeing to buy no more
than 20 per cent of its licit needs from other countries.

Before 1974, 80 per cent of the heroin flooding into the US originated
from Turkey, but after 1974 (according to the UN Office on Drugs and
Crime) "no seizures of opium derived from Turkish poppies have been
reported either in the country or abroad".

The State Department fears that Afghanistan might replicate not Turkey
but the third alternative: the 75-25 Indian solution in which 20-30
per cent of the poppy crop avoids licit channels and is diverted, not
for export, but "primarily for domestic consumption".

Even if 25 per cent of Afghan poppies were diverted, this still
represents a smaller target for eradicators (even if overall
production increased).

But there is an important difference. At present, one third of the
Afghan workforce is deemed -- by the NATO-led eradicators -- to be
criminals. If the licence (and the associated development assistance)
were predicated on the absence of diversion, a farmer who broke ranks
would have chosen to become an enemy of the village.

Also, the Taliban and their drug allies would have to declare war on
these local village industries to regain control over their trade.
They, not us, would become the enemy.

The State Department worries that licit market forces will undermine
this "carefully crafted international system" and damage the "poor
farmers" of Turkey and India, resting its case on deference: "We defer
to the internationally recognised body, the International Narcotics
Control Board, which states that the supply of opium for legal
medicines is sufficient, if there was unmet demand current producers
would have already fulfilled it."

The State Department should, instead, defer to economic
reasoning.

Demand is a price-quantity relationship (holding income, tastes and
other prices constant). At all points along a demand curve, demand is,
by definition, "fully met", at the associated price.

Monopolists, cartels and colluders will always attempt to pick a
supply point along a demand curve so as to maximise long-run profits.

But the State Department interprets supply fixing by India and Turkey
(stockpiling and de-licensing farmers) as conclusive evidence of the
absence of "unmet demand".

In poppy markets, supply restrictions benefit suppliers: the Taliban
benefits from eradication campaigns (which raise prices and increase
revenue) and Turkey and India benefit from State Department poppycock
(which protects incumbents by restricting entry).

Each year millions of sufferers (cancer, AIDS) receive no appropriate
pain relief and a separate humanitarian case could be made for
satisfying this widespread (non-market) demand. But elementary
economics suggest that the increasing purchasing power of the formerly
poor will focus disproportionately on necessities such as
painkillers.

Freeing markets creates losers as well as winners: India and Turkey
may require alternative diplomatic kickbacks for the loss of their
privileged market position. However, the cost would be a tiny fraction
of the $US300 billion ($310.8 billion) farm kickback bill that just
passed the US Congress.

So far, 867 coalition troops have been killed in Afghanistan. More
troops will pay the price for the market-fixing power that seeks to
deny a legal outlet for a crop that provides $US500 million in
combined annual farm income but also generates $US3.5 billion for
smugglers and refiners. We must urgently explore options that enlist
market forces rather than support futile attempts to outlaw them.