THE POLITICAL ECONOMY OF NARCO-CORRUPTION IN MEXICO

The corrupting influence of the illicit drug trade is widely perceived as
an especially extreme example of the weakness of the state in many
developing countries. Although there is obviously much truth in this view
the Mexican experience of recent years reveals a more complex and
negotiated relationship between the business of drugs and the business of
policing drugs.

In his final state of the union speech on November 1, 1994, President
Carlos Salinas de Gortari declared that "Mexico has changed intensely."
Although he lauded the establishment of a new relationship between the
state and society "and Mexico's achievement of an advantageous position in
the new international reality," Salinas failed to mention that part of
these changes has been Mexico's rising place in the illegal drug export
business. Indeed, although the North American Free Trade Agreement (NAFTA)
- - the crowning achievement of the Salinas administration - does not
officially include them, drug exports are an integral part of Mexico's
comparative advantage in an expanding regional trade relationship.

While Mexico has long been enmeshed in the drug trade, its role has grown
significantly in the 1990s. According to Eduardo Valle, who resigned as
personal adviser to the Mexican attorney general in May 1994 Mexico's
leading drug traffickers have become "driving forces, pillars even, of our
economic growth." The United States State Department estimates that as much
as 70 percent of the South American cocaine bound for the United States
market enters through Mexico; Mexico also supplies between 20 and 30
percent of the heroin consumed in the United States, and up to 80 percent
of the imported marijuana. (Of course, any official drug statistics
represent at best rough estimates.) In addition, Mexican traffickers now
dominate much of the American market for methamphetamines.

The United States Drug Enforcement Administration (DEA) believes that
Mexico earns more than $7 billion a year from the drug trade, while
Mex-ico's prosecutor general's office calculates that drug traffickers
operating in Mexico accumulated revenues of about $30 billion in 1994. The
drug business is a significant employer: there are roughly 200,000 people
earning a living growing drug crops (the Mexican attorney general's office
calculates that the figure may be as high as 300,000). This number does not
include the thousands of other jobs directly or indirectly generated by the
drug trade in areas such as transportation, security banking, and
communications. This underground exit option has been especially important
during a time of falling wages and limited employment prospects in the
formal economy.

Ironically Mexico's prominence in the drug trade is partly an unintended
by-product of United States policy: American law enforcement pressure on
cocaine shipments through the Caribbean and south Florida in the 1980s
helped make Mexico the primary transshipment point for Colombian cocaine
bound for the American market. While this expensive interdiction campaign
provided political rewards for United States officials eager to show
progress in the anti-drug effort, the effect of such a Maginot Line-style
enforcement strategy was to create incentives for Colombian traffickers to
shift to Mexican smuggling routes. Thus, while the percentage of cocaine
entering the American market from Mexico was negligible in the early 1980s,
by the early 1990s Mexico was the route of choice for the majority of
Colombian cocaine shipments. Per-haps not surprisingly the Bush and Clinton
admin-istrations conveniently downplayed the profound consequences of this
geographic shift for Mexico in order to assure the smooth negotiation and
passage of NAFTA.

As drug trafficking in Mexico has expanded in the past decade, so too has
Mexican drug enforcement. Partly in an effort to pacify its northern
neighbor, Mexico tripled its federal anti-drug budget between 1987 and
1989, and tripled it again in the 1990s. The growth of Mexico's anti-drug
program is particularly striking given that it has occurred during a time
of deep cuts in overall government spending: drug control stands out as one
of the few areas where state intervention in the economy is increasing.
Drug control now domi-nates the Mexican criminal justice system, with the
majority of the federal budget for the administration of justice devoted to
the effort. The "Mexican attorney general's office," notes Mexican scholar
Maria Celia Toro, "has basically become an anti-drug law enforcement agency"

President Miguel de La Madrid Hurtado officially declared drug trafficking
a national security threat in early 1988. And this declaration was
reinforced by the administration of Carlos Salinas. President Ernesto
Zedillo Ponce de Leon has gone even further, repeatedly declaring that drug
trafficking is the country's number one security threat. Given that
invoking national security is rare in Mexican polit-ical discourse, these
calls mark a significant departure from the past.

For Salinas, classifying drugs as a national security issue was both a
rhetorical move to improve relations with the United States and an attempt
to provide the rationale for a revitalized national security apparatus.
Salinas created a national security council and a new intelligence agency
set up a unit in the attorney general's office for drug enforcement, and
developed new anti-drug units in the federal judicial police. He also
reinforced the anti-drug role of the military, designating a new army staff
section that focused on drug control. By the late 1980s about one-third of
the military's budget was devoted to the anti-drug effort, and some 25,000
Mexican soldiers were involved in drug control operations-compared with
only 5,000 in the 1970s.

As a result of its anti-drug role, the military has become the "supreme
authority, or in some cases the only authority" in parts of some states,
such as Oaxaca, Sinaba, Jalisco, and Guerrero, according to Mexico watcher
Roderic Ai Camp. While the military has traditionally concentrated on crop
eradication, its anti-drug mission has significantly expanded in recent
years. "In the past, there was always a reluctance to allow the military to
play a stronger role," notes one United States official. "But with the
Zedillo administration, that mind-set has dissolved." As a consequence,
military ties between the United States and Mexico have deepened in recent
years through military assistance and training for anti-drug programs.

THE LOGIC OF NARCO-CORRUPTION Increased Mexican drug enforcement has
gener-ated a growing number of arrests and seizures and a rise in crop
eradication levels (Mexico boasts that it destroys more illicit crops than
any country in the world). These measures of policy progress are
high-lighted in the annual political ritual of the certification process,
in which the United States determines whether Mexico and other
drug-exporting coun-tries are fully cooperating with American anti-drug
objectives. While these "body count" statistics are politically necessary
to maintain good relations with the United States and avoid the stigma of
being "decertified," the reality is that the drug trade has not only
survived but has thrived in the face of intensified Mexican drug control
efforts. United States and Mexican officials alike place much of the blame
on the corrupting power of the drug trade. Yet corruption is a two-way
relationship: it reflects the influence of drug smuggling over the state
and the state's influence over drug smuggling-and greater drug control
capacity has arguably only deepened this influence. Corruption involves not
only the penetration of the state but also penetration by the state. Drug
smugglers must purchase an essential service monopolized by government
offi-cials: the non-enforcement of the law. Those in charge of enforcement
must be bribed because they cannot be entirely bullied or bypassed.

The extent of drug-related corruption in Mexico is revealed by the series
of high-profile murders and scandals in recent years (including the arrest
of Raul Salinas, the brother of Carlos Salinas) that have profoundly shaken
the political system. The primary purpose here is not to focus on the
mystery and intrigue that necessarily surround these controversial events
(the complex and often speculative details about who did what, when, and
why), but rather to try to make sense of the underlying logic of drug
corruption. Perhaps more than any other state regulatory activity, drug
enforcement provides extraordinary incentives to use public authority for
private gain. And these incentives only increase under conditions of fiscal
austerity, economic uncertainty and low wages.

At its core, drug corruption is a cost of doing business. While corruption
in the form of bribes and payoffs has long been a part of the relationship
between business and the state, it plays a more vital role in the case of
drug smuggling because of the illicit nature of the activity The enormous
profits from drug smuggling (inflated by the drug's criminalized status)
provide the financial means to corrupt. In the case of Mexico, a study by
the Autonomous National University in Mexico City has found that cocaine
traffickers spend as much as $500 million a year on bribery, which is more
than double the annual budget of the Mexican attorney general's office.
(These calculations are derived from a widely used model that assumes
$1,000 in payoffs for each kilogram of smuggled cocaine.)

TAXING THE DRUG TRADE A useful way to make sense of drug corruption is to
view the act of corruption as the equivalent of paying a tax. Levels of
corruption-the tax rate-often depend on the intensity of the drug
enforcement effort. As enforcement increases, so does the drug smuggler's
need to corrupt those who are doing the enforcing (the tax collectors). As
Gianluca Fiorentini and Sam Peltzman suggest in their 1995 book The
Economics of Organized Crime, the greater the deterrent effort, "the more
[it creates] incentives to invest in corruption and manipulation of the
deterrence agencies them-selves." This general observation is certainly
appli-cable to the Mexican drug control experience. Even though increased
drug enforcement capacity has failed to significantly deter the drug trade,
it has increased the capacity to tax the trade in the form of corruption.

Smugglers who pay the "corruption tax" are less pressured by "tax
collectors" than those who do not. One senior Mexican official described
the pro-cess this way: "[Drug enforcement agents] receive money from one
group of traffickers and they can-not act against people from that group.
But they have their hands free to arrest people from other groups." This
type of selective enforcement allows officials to do their job-seizing
drugs and arresting smugglers-while also collecting taxes from the drug
trade. This dynamic favors large, well--connected smuggling organizations.
Those smug-glers with the greatest resources and contacts can most afford
the corruption tax and pay it to the most appropriate tax collectors, while
the smaller smuggling entrepreneurs are treated as tax evaders. Not
surprisingly it is the small-time smugglers who are most often "audited"
and penalized.

Taxing the drug trade sometimes takes the form of seizing a drug shipment
and then reselling all or part of it. Thus, confiscated drugs often
disappear while in custody In such cases, those charged with policing
smuggling actually become smugglers themselves. This reflects the larger
difficulty in Mexico of distinguishing between the police and the
criminals. An internal report from the Interior Ministry estimates that by
1995 there were about 900 armed criminal bands in the country-of which more
than 50 percent were made up of cur-rent or former law enforcement agents.

Police often double as drug enforcers and as drug-smuggling protectors.
When Sinaba drug car-tel leader Hector "El Guerro" Palma was arrested by
the military in June 1995, he was at the home of the local police
commander; the majority of the armed men protecting him were federal
judicial police. Subsequent investigations revealed that Palma had bought
off the senior federal judicial police commanders in Guadalajara with
several $40 million payments.

The lucrative payoffs from the drug trade mean that there is intense
competition within and between law enforcement agencies-for example,
between local and federal police, who sometimes end up shooting at each
other. Violent conflicts often erupt between police operating as law
enforcers and police operating as law breakers. In one incident on March 3,
1994, members of the fed-eral judicial police came under fire from the
judi-cial police of Baja California as they were attempting a drug bust.

There is also enormous competition within law enforcement agencies to be
assigned to key posts along major smuggling corridors. Eduardo Valle claims
that while he was in office, the top Mexican drug enforcement posts were
auctioned off to the highest bidder. The price of a law enforcement
posi-tion, he said, depends on changes in drug smug-gling routes: "In
Coahuila, for example, there are four or five entrances into the United
States. If one crossing point is closed, the price of the federal police
chief's position in that area goes down because the post is irrelevant, but
the price of the police chief positions in other places goes up. This is
openly discussed inside the federal police."

The case of Mario Ruiz Massieu, Salinas's top anti-drug prosecutor between
March and Novem-ber 1994, provides a glimpse into how the system of drug
corruption can be organized. During his tenure in office, cocaine seizures
plummeted. Fed-eral prosecutors and police commanders allegedly paid Ruiz
Massieu as much as $1 million to be assigned to profitable posts along the
border and in other major drug areas. Officials regularly brought him
suitcases with up to $150,000 in kickbacks. One official familiar with Ruiz
Massieu's operation described it as a 'franchising system." Ruiz Massieu
apparently inherited rather than created this system of selling lucrative
posts and receiving large kick-backs.

Payoffs are made at each level of enforcement-the higher the position, the
higher the payoff. For example, a notebook recovered from the smuggling
organization run by Juan Garcia Abrego included this list of payoffs: $1
million to the national commander of Mexico's federal judicial police;
$500,000 to the forces' operations chief; $100,000 to federal police
commander in the city of Matamoros. Abrego's cousin, Francisco Perez,
testified in a federal trial in Texas in 1994 that he had delivered
$500,000 to Javier Coello, Mexico's deputy attorney general, between 1988
and 1991. Coello was eventually dismissed but never charged.

The particular shape and form of drug corrup-tion in some ways mirrors the
structure and character of the Mexican state. As Peter Lupsha argues,
"because of the institutionalized authoritarian clien-telism and
centralization built into the national dominance of the Institutional
Revolutionary Party or PRI, transnational groups like the Colombians must
work with and through Mexican organized crime groups who have corruptive
and collusive support of national institutions. . .for protection.

In other words, Colombian traffickers must operate in Mexico on Mexican
terms. In practice this means that the Colombians have become increasingly
reliant on their Mexican business partners, who have the necessary
political connections and long-established trafficking networks.
Conse-quently the power and wealth of Mexican traffickers has dramatically
increased in a relatively short period of time. Mexico's comparative
advantage in the cocaine trade is based on its access to the United States
market-and such access has only grown as economic barriers between Mexico
and the United States have fallen. Mexican traffickers and their protectors
within the state apparatus collect a sizable fee from their Colombian
counterparts for entry into the North American free trade zone.

As more cocaine is shipped through Mexico to the United States market by
way of legitimate commercial channels, drug payoffs reach beyond
law-enforcement to other regulatory agencies. The Mexican Office of
Communication and Transportation, Lupsha notes in his article, "is as
critical to the evolution of the Cali cartel's drug trans-portation system
as it is to NAFTA. Its portfolio includes the administration of airports,
seaports, highways, communications lines, and the Federal Highway Police."
Lupsha contends that "Cali's new transportation methodology requires
commercial airports, business fronts, the use of ports, free trade zones,
container facilities, trailer trucking firms, and railroads. In short, it
requires access, information, official forms, and seals that only an Office
of Communication and Transportation can provide."

Drug corruption in Mexico thus reflects a paradox: the state's drug
enforcement effort is under-mined by the corrupting influence of the drug
trade, yet the drug trade cannot survive without the protection of
compromised elements within the state. Lupsha goes so far as to argue that
because of the centralized authoritarian nature of the Mexican political
system, drug traffickers must operate con permiso (with permission). The
trafficker must go beyond simply sharing drug profits and is "expected to
assist the police and the political sys-tem by providing grist for the
judicial mill, as well as public relations materials to give U.S. drug
enforcers. Thus, the trafficker could gain protection and warning
information; the police could gain credit, praise, and promotions; the
political system gained campaign monies and control; and the U.S.,
statistics, to justify a job well done."

Lupsha notes that this clandestine relationship between law enforcers and
law evaders is unstable, given the frequent changes in government
leadership, the transfer or promotion of key officials, and the often
violent competition between smuggling organizations over trafficking
routes. This instability is evident in the rise and demise of one of
Mexico's leading traffickers, Juan Garcia Abrego. Abrego's trafficking
operations, which had flourished in the Salinas years, lost high-level
protection after President Zedillo entered office, and soon also lost
market share to competitors based in Tijuana and Juarez. Having fallen out
of favor, Abrego became a hunted fugitive. By the time he was arrested in
early 1996 and extradited to the United States, his business was in
shambles. Nevertheless, Abrego's capture was applauded by the United States
and Mexico as a sign of official resolve in the anti-drug campaign.

THE STATE RESPONSE When drug corruption scandals have erupted in Mexico,
the official response has been to fire or transfer individual officers and
at times even disband entire agencies and create new ones. A report by the
attorney general's office indicates that over 400 agents of the federal
judicial police (more than 10 percent of total personnel) were fired or
suspended between mid-1992 and mid-1995 on drug-related charges. On August
14, 1996, 737 federal law enforcement officers were dismissed, including
Horacio Brunt, the celebrated police commander who had captured Abrego. An
additional 270 employees of the attorney general's office were fired
between December 1996 and August 1997. Such mass firings, however, only
begin to dent the prob-lem: in 1996, the attorney general estimated that 70
to 80 percent" of the judicial police force was corrupt. Moreover, many
fired police officers have simply been rehired in other regions of the
country and hundreds of other officers have been reinstated after
challenging their dismissals in court.

Although the Zedillo administration has demon-strated a new resolve, past
patterns suggest a lack of sustained high-level political commitment to
confronting corruption. Salinas, for example, appointed Enrique Alvarez del
Castillo, who had been the governor of the state of Jalisco, attorney
general. Under his governorship the drug trade had thrived and traffickers
had operated with little to fear from the authorities. Salinas also tried
to appoint Miguel Nazar Hurtado Mexico City police intelligence chief
despite the fact that he had been indicted in 1982 by a United States grand
jury in San Diego on car theft and conspiracy charges.

Institutionalized corruption within Mexican law enforcement has generated
growing pressures to turn to the military to take on more drug control
tasks. But while militarization is interpreted by American officials as a
sign of Mexico's heightened resolve to fight drug trafficking, a greater
military role in drug control (and thus proximity to drug smugglers) is
also likely to generate greater cor-ruption in the military. In late 1991,
in one of the most notorious cases of military corruption, ten federal
judicial police agents attempted to appre-hend smugglers delivering 800
pounds of cocaine from a small airplane on a remote airstrip in the state
of Veracruz. The bust was interrupted when members of the Mexican army
opened fire on the agents, killing seven of them. The traffickers escaped.
A videotape of the incident by a United States Customs surveillance flight
overhead indicated that the Mexican soldiers were protecting the
traffickers. According to Mexican press reports at the time, this was just
one of a number of incidents in which the military thwarted a police
anti-drug operation.

A series of high-profile drug-related scandals in 1997 further exposed the
depth of the corruption problem in the Mexican military In February the
head of the federal anti-drug agency, General Jesus Gutierrez Rebollo, was
arrested on charges of work-ing for Juarez cartel leader Amado Carrillo
Fuentes. The agency was quickly disbanded and is now slowly being rebuilt.
Then in March, General Alfredo Navarro Lara was arrested for attempting to
bribe the head federal justice official in Baja California on behalf of the
Arellano Felix brothers, the leaders of the Tijuana drug cartel. A recent
report by the United States Office of National Drug Con-trol Policy notes
that 34 senior military officers have been targeted for disciplinary action
because of drug-related corruption. In the face of such high-level military
corruption, Zedillo has remained firmly committed to the militarization of
law enforcement, putting the military in charge of fed-eral police
functions in at least eight states, as well as in Mexico City.

Meanwhile, the incentive for the PRI-dominated political system to turn to
illicit revenue may be increasing as other sources of funding dry up. As
Nora Lustig observed in the spring 1996 issue of the Brookings Review, "One
facet of the PRI crisis is financial. Long dependent on contributions from
(or raised through) the government, the party is ill-prepared to find
alternatives." Some of the more militant officials may be tempted "to turn
to 'dona-tions' from unsavory sources, such as narco-traffickers." Concerns
about economic stability may also inhibit major anticorruption initiatives.
"Unfor-tunately the rule of law is to a certain extent hostage to Mexico's
financial vulnerability" Lustig explains. "The nation's leaders can
probably not afford to uncover the questionable or illegal activi-ties
[engaged in] by prominent members of the political and business elites. The
attempt to change the rules of the game too swiftly and prosecute peo-ple
for past wrongdoings could trigger a wave of capital outflows large enough
to threaten the frag-ile recovery"

FROM "CRISIS CORRUPTION" TO "NORMAL CORRUPTION" Clues as to how the
dynamics of corruption will eventually play out in Mexico's most important
ille-gal export sector may be found by looking at the past dynamics of
corruption in Mexico's most important legal export sector: oil. Drug
corruption in Mexico may be a particularly striking example of "crisis
corruption," in which there are "many sup-pliers trading in extraordinary
stakes."4 This highly disruptive form of corruption is not unfamiliar to
Mexico. In the late 1970s Mexico experienced a rapid influx of oil revenues
that, while not generat-ing the violence associated with the drug trade,
nev-ertheless shares some similarities with the more recent influx of drug
profits. Michael Johnston notes that "key figures in PEMEX (the state oil
cor-poration), the Oil Workers Union, and the domi-nant political party
(PRI) had long enjoyed a number of politically significant and mutually
prof-itable corrupt arrangements. But when oil revenues began to grow
rapidly in 1977, this corruption became particularly flagrant and
disruptive. Old arrangements' in the oil industry gave way to intense
competition over shares of the new wealth. The new abuses became matters of
considerable controversy and PEMEX, PRI, and union figures came under
political attack from several quarters."

By 1982, when the oil boom went bust, "it was evident that the nation had
been 'sacked' by more than one set of actors. . . According to the
govern-ment's own admission, the oil boom had whetted unsavory appetites in
the nation and had spawned a substantial increase in the level of
corruption throughout the nation. "6 The influx of oil revenue had,
Johnston notes, "thus placed extraordinary resources in many hands,
transforming formerly integrative forms of corruption into disintegrative
crisis corruption."

This may describe the current Mexican situation in relation to drug
profits. If Mexico's earlier oil boom experience is any indication, today's
drug-related crisis corruption will not necessarily pro-duce political
disintegration. Crisis corruption can be resolved in a number of ways. For
example, Johnston explains that a "leveling off in the influx of resources
might make the stakes of corruption more predictable, and thus less
extraordinary, with improved chances of repeated profits over longer
periods of time serving to moderate prices and to regulate terms of
exchange. Mexico's oil industry had gone through earlier phases of rapid
growth and flagrant corruption, reverting to more accus-tomed forms of
corruption during periods of more stable revenues." Alternatively he notes
that "a few suppliers of corrupt stakes might become suffi-ciently powerful
to impose a degree of order upon corrupt processes, perhaps producing one
or more systems of cronyism or patronage." Applied to the drug trade in
Mexico, either scenario suggests that the relationship between drug
smuggling and the state may eventually settle down, resulting in a more
stable, predictable, and less violent business environment.

Perhaps the best news for Mexico is that there are preliminary signs that
Colombian cocaine traffickers are starting to reduce their reliance on
Mex-ican smuggling routes by redeveloping routes through the Caribbean and
south Florida. It seems that the high cost of moving their product through
Mexico is scaring at least some of the illicit business away. A greater
diversification of smuggling routes may help to reduce corruption in
Mexico. Yet as long as America's seemingly insatiable appetite for imported
psychoactive substances persists, Mexico's close proximity to the United
States market assures that the logic of narco-corruption will remain
entrenched.

Checked-by: Mike Gogulski