Business Council for Prosperity and Safety

A Businessperson's Guide to the War on Drugs

Eric E. Sterling, J.D.
U.S. House Judiciary Committee
Counsel, 1979-1989  

We have paid a heavy price for mass incarceration and could benefit by reversing this trend.”
-- Charles G. Koch

Summary

The War on Drugs hurts our kids:

• Prohibition makes drug use much more harmful.
• Prohibition is less effective at reducing use than regulation.
• Regulation does not “send the wrong message” about drug use.

The War on Drugs hurts our businesses:

• Prohibition fails to reduce workplace drug use.
• Prohibition costs our economy roughly $166 billion per year:

Note: To see the financial model behind these estimates, click here.

The War on Drugs hurts kids: 

Prohibition is less effective at reducing use than prohibition

• Youth use of marijuana, cocaine and heroin has remained roughly constant over the last 20 years.
• Meanwhile, youth use of tobacco has dropped by 50%.
• High school kids report that it is easier to buy marijuana than alcohol because drug dealers don’t card for age.
• Who would we rather have in control of the market, the government or the gangs?

Prohibition makes drug use much more harmful

• Alcohol Prohibition caused gang violence, raised consumption of hard liquor, and increased alcohol poisoning by 600%.
• Putting gangs in charge of today’s drug market increases the potency and contamination of drugs, causing overdose as well as gang violence.
• Making drug users into criminals prevents them from seeking medical help, encourages needle-sharing, pushes them to commit crimes to get drug money, and prevents rehabilitation by blocking them from college loans, public housing, and other social services.

Regulation does not “send the wrong message”

• Does regulation of cigarette sales and advertising encourage kids to smoke? Of course not.

The War on Drugs hurts businesses:

(0) Prohibition fails to reduce workplace drug use

All of us want to reduce workers’ alcohol abuse, but none of us want to return to alcohol prohibition. When an employee is struggling with alcoholism, do we want to incarcerate him? We have effective legal ways to deal with alcohol problems in the workplace. We would use similar employer protections when regulating currently illegal drugs. Drug prohibition has failed to reduce drug use. Illegal drug use by American workers has not declined over the past 20 years, while their tobacco usage has been cut in half through education and legal control.

(1) Our tax bill is higher because prohibition wastes taxes

According to the Department of Justice, federal, state, and local governments are spending roughly $60 billion a year on law enforcement personnel and resources to fight the war on drugs. This includes $56 billion in police, court, corrections and probation costs for drug offenders plus $4 billion in international drug interdiction costs. Over the past forty years, this spending has totaled over one trillion dollars, an enormous tax bill for individuals and businesses.

(2) We have fewer customers because the War on Drugs reduces purchasing power

According to Charles G. Koch, “incarceration leads to a 40 percent decrease in annual earnings, reduced job tenure and higher unemployment.”  In addition to the 600,000 Americans who are currently incarcerated on drug-related charges, 2.9 million are living with drug-related felony convictions. Ten million more have criminal records due to drug-related misdemeanors. Those who are incarcerated do not shop at our businesses. 42 states allow employers to force job applicants to disclose prior convictions, obstructing reentry into the economy, their community and their families. Studies have shown that a conviction reduces one’s expected salary by roughly 16%. We estimate conservatively that American businesses lose $33 billion per year in revenue as a result of drug-related convictions.

(3) Property crime caused by drug prohibition costs us billions in damages, insurance premiums, and security expenses

30% of all property crime offenders in state prison committed their offenses to get money to buy drugs. Today, drug users are branded with criminal records for their drug use, so they have nothing to lose by stealing. Regulation of drug sales would stop most of this theft, since clinics would provide drugs to those who are addicted. Preventable drug-linked thefts cost us approximately $3.1 billion per year, plus shoplifting estimated at $2.4 billion that goes unreported. Businesses and homeowners would save roughly $3.6 billion in operational security costs. We estimate total losses due to drug-linked property crime at $9.1 billion per year.

(4) Our health insurance premiums are higher because drug prohibition fails to protect public health

Prohibition creates health risks for drug users that translate into higher health insurance premiums for all of us. The largest of these drug-related health costs stem from HIV/AIDS, Hepatitis C and Hepatitis B. Injection drug users know that these diseases spread by sharing syringes. They also know that they can be arrested for having a clean needle in their pocket because it constitutes possession of drug paraphernalia. As a result, injection drug users share needles to minimize the risk of arrest. Health care costs from blood-borne disease transmission should be credited to the criminalization of drug and needle possession rather than to drug use itself. Since a single infection causes hundreds of thousands of dollars in lifetime treatment costs, we pay roughly $6.6 billion per year to treat patients who contract diseases because prohibition makes clean and safe injection drug use a crime.

(5) Businesses pay for the war on drugs with every large cash transaction

Illegal drug sales are cash transactions. Money launderers convert $5 billion in cash each month into monetary instruments and conceal the criminal origin and control of the assets. To fight money laundering, the government requires that cash transactions of more than a trivial amount be subject to identification and reported to federal law enforcement. The number of financial transaction reports filed annually has grown from 8,000 in 1985 to over 17,100,000 in 2011. The annual cost to U.S. banks, just for filing these reports, is now at least $427 million.

(6) Urban property values are depressed by drug-linked crime

Drug-linked property crime also causes indirect financial losses by lowering our real estate value. Studies have shown that a 10% reduction in urban property crime adds about 1% to the selling price of real estate. A 20% decrease in property crime in the worst-affected 1% of American real estate alone would increase property values by at least $9.6 billion.

(7) We would gain tax revenue and jobs if the government began to regulate currently illegal drugs

The large criminal enterprises now producing illegal drugs would be replaced by legal businesses, as beer companies have replaced Chicago gangsters. Like the businesses producing and distributing prescription drugs, tobacco, and alcohol, the new legal drug businesses would generate substantial tax revenue. The industry would generate legal jobs, from marijuana growers and retailers to medical staff at safe injection facilities. In Colorado, since legal marijuana sales began in 2014, the industry has earned $700 million in revenue and the government has collected $76 million in taxes and fees. Harvard economist Jeffrey Miron estimates that regulating currently illegal drugs would bring in $46.7 billion in annual tax revenue and fees.

Conclusion

Our ineffective drug prohibition policies cost us over one hundred billion dollars every year. These costs range from high tax bills for law enforcement and health care to lost customers, increased property crime, and forgone tax revenue.

The American system of private enterprise balances incentives and regulatory tools that rely upon the rule of law. Those tools – legal markets, courts, insurance, professional ethics, licensing, regulation, and proper taxation – work for every aspect of the American economy.  It is time to use these tools to take the profits of the drug trade away from organized crime and street dealers in order to protect public safety and control these dangerous drugs.

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To view the financial model used to estimate the comprehensive costs of the War on Drugs explained above, click here.

For more information, contact:

Eric E. Sterling
8730 Georgia Ave, Suite 400
Silver Spring, MD 20910
Ph: 301.589.6020
Fax: 301.589.5056
www.business-council.org
info@business-council.org

Please contact us if you would like this information in a booklet form, or if you know business or economic leaders that would benefit from this information.