What We Discuss with Tom Wainwright:
- The parallels between the drug trade and regular businesses.
- How ideas of economics and business apply to any entrepreneurial or business venture.
- How drug cartels engage in corporate social responsibility, branding, and even PR campaigns.
- Why drug cartels franchise, regulate labor, branch out online, and diversify into legal (and ubiquitous) industries.
- How an economist gets discovered wearing a GPS device to a meeting with a drug lord and lives to tell the tale!
- And much more…
Like this show? Please leave us a review here — even one sentence helps! Consider including your Twitter handle so we can thank you personally!
If you’re a fan of the Netflix-backed series Narcos and Narcos: Mexico — which detail the exploits of slippery drug cartels and the law enforcers who have risked everything to bring him down — then you’re going to love this episode of The Jordan Harbinger Show. Narconomics: How to Run a Drug Cartel author Tom Wainwright joins us to explain how such an illicit trade thrives, why staying the course in the War on Drugs is failing, and what can be done to correct that course.
This episode might give you nightmares, but you’ll never complain about economics being boring again! It’s not our typical fare, but it’s a story too compelling to keep to ourselves. Listen to this episode of The Jordan Harbinger Show to learn more about how cocaine and coffee are worth about the same from the source — it’s the criminalization that raises prices 30,000 percent by the time it gets to the United States, why farmers plant drug cash crops on land that would otherwise be growing food in spite of the risks involved, why it makes more sense to focus on diminishing demand rather than supply, the kind of slang you pick up on the job when your job is interviewing people involved in the drug trade, how a cartel operates a PR campaign, how local governments have employed social media to dispense information without fear of cartel intimidation, how a cartel franchises, how the drug trade has adapted to the Internet, what “legitimate” merchandise indirectly supports cartel finances, and lots more. Listen, learn, and enjoy!
Please Scroll Down for Featured Resources and Transcript!
Please note that some of the links on this page (books, movies, music, etc.) lead to affiliate programs for which The Jordan Harbinger Show receives compensation. It’s just one of the ways we keep the lights on around here. Thank you for your support!
Sign up for Six-Minute Networking — our free networking and relationship development mini course — at jordanharbinger.com/course!
Mercari is the fast and easy way to sell or buy almost anything. List your item in minutes. Got something you don’t use, never used, or just outgrew? Sell it by going to mercari.com and downloading the app!
Don’t let a botched below-the-belt trim snag your summer plans — Manscaped has precision tools for your family jewels! Go to Manscaped.com and get 20 percent off with free shipping by using code JORDAN20 at checkout!
Great protection. Fair prices. Easy to use. SimpliSafe is the right way to protect your home at half the size and double the range — go to SimpliSafe.com/jordan to learn more!
NetSuite by Oracle allows you to manage sales, finances, accounting, orders, and HR for your business instantly on the cloud from anywhere! Download your free guide — Seven Key Strategies to Grow Your Profits — at netsuite.com/jordan!
Miss the episode we did with Habits Academy’s James Clear? Catch up by listening to episode 108: James Clear | Forming Atomic Habits for Astronomic Results!
THANKS, TOM WAINWRIGHT!
If you enjoyed this session with Tom Wainwright, let him know by clicking on the link below and sending him a quick shout out at Twitter:
And if you want us to answer your questions on one of our upcoming weekly Feedback Friday episodes, drop us a line at email@example.com.
Resources from This Episode:
- Narconomics: How to Run a Drug Cartel by Tom Wainwright
- Tom Wainwright | The Economist
- Tom Wainwright | Twitter
- Narcos | Netflix
- Narcos: Mexico | Netflix
- Kiki Camarena | Wikipedia
- Sons of Notorious Mexican Cartel Leader El Chapo Take to Twitter to Brag About Their Girls, Guns, and Fast Cars | Daily Mail
Transcript for Tom Wainwright | How to Run a Drug Cartel (Episode 387)
Jordan Harbinger: [00:00:00] Coming up on The Jordan Harbinger Show.
Tom Wainwright: [00:00:02] When a Mexican cartel goes and rolls five, seven heads onto a disco floor in Michoacan, you know, it's an unavoidably dramatic thing. We're just not used to thinking about these organizations as being like companies. My argument is just that 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.
Jordan Harbinger: [00:00:28] Welcome to 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 guest's wisdom into practical advice that you can use 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 Narconomics. He's a writer at The Economist, love that rag. And we're looking at the parallels between drug cartels and regular businesses. I just found the concepts so interesting and compelling that I wanted to do a show on this. You 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 when I'm just thinking about it, branding and even PR campaigns, how cartels franchise, regulate labor, branch out online, and even diversify into markets that produce and transport products that we all consume in our daily lives.
[00:01:36] 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 how to build your network for free over at jordanharbinger.com/course. By the way, most of the guests on the show already subscribed to the course. So come join us, you'll be in smart company. Now, here's Tom Wainwright.
[00:01:57] Tom, this is interesting because I heard the title of the book and I thought, "All right, time is good." Right? Because we're all fresh off Narcos Season Two. And I thought, "Wow, economics and drugs. Where do I sign up?" I mean, it sounds just like college for me, sort of. And you've done a really interesting book here. You wore a GPS device to meet with a 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 economist that I've ever heard of," because economics is generally a field not known for its wild-child type of outlook. How did you get interested in drugs?
Tom Wainwright: [00:02:35] Well, I got sent out to Mexico in 2010 with The Economist. You're right. This wasn't a kind of natural territory for me. It wasn't the kind of story that I was expecting to follow but, you know, I got there and it was just at the time that the drug war in Mexico was really taking off and the murder rate there was going through the roof. And I'd been expecting to write stories about regular kinds of business. You know, I thought I'd be writing about the car industry there or tourists and that kind of thing. But I arrived and found very quickly that the only thing people really were interested in talking about was a different kind of business, namely the drugs business. So I found myself writing a lot about it and the more I did — the more I covered this industry, and the more I spoke to the people involved in it, whether they were the cartel leaders or the traffickers or 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.
[00:03:30] So I started thinking, well, what would it be like if we wrote about the drugs business as a business because most of the coverage that you read in the newspapers and the items that you see on the TV about the drug war treat it as a war or as a crime. And the coverage is very dramatic but I thought, how would it be if we wrote about these cartels as if they were ordinary companies and analyzed them in that way, what would we learn? So I started doing that and gradually found that if you do think of them as being companies, then you learn one or two things about them that perhaps wouldn't previously have been obvious.
Jordan Harbinger: [00:04:03] 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 and that's more exciting or is there something else going on?
Tom Wainwright: [00:04:12] I think the drama is definitely a part of it. I mean, when a Mexican cartel goes and rolls five, seven heads onto a disco floor in Michoacan, you know, it's sort of an unavoidably dramatic thing. And it doesn't surprise me that that's the thing, the detail that journalists go for. But we're just not used to thinking of it as being a business, partly because I mean, a 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 as being like companies. And obviously, they don't file annual accounts and they don't give press conferences and so on. So covering them as businesses isn't completely straightforward by any means. So I think our whole sort of culture is geared towards writing about the drug war as a sort of dramatic criminal thing. And it is all of those 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 that 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.
[00:05:14] So that's the sort of key thing that we've got to bear in mind when we write about them. And until now I think we've failed to do that. Our coverage of cartels has been very, very sort of black and white, and it hasn't bothered to look very closely at the numbers behind the business. It hasn't bothered to look very closely at the real motivations of these guys. We write about them as if they're purely motivated by a kind of bloodlust. And there is some of that, but above all, what makes these guys tick is money. And if you follow that, then you understand more where they're coming from and what they might do next.
Jordan Harbinger: [00:05:44] Yeah, exactly. We've got to hit them 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 stuff or years of using this stuff, we've got to get to the real reasons that this is happening and economics is interesting. And correct me where I'm wrong because you were 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 spin 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. Because if you're looking at things through. In, I, 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.
[00:06:30] So this is an interesting take on this 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 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.
Tom Wainwright: [00:06:49] Well, I guess that's part of it. Yeah, I mean, you've always got to be a little bit careful with statistics and numbers because, of course, people can and do lie with statistics and numbers. You can use them in a misleading way and statistics to do with drugs business and no different in that sense. But I think that if you do apply the numbers properly, then you do bring a kind of rigor to the analysis that sometimes is lacking and people just don't use the right numbers.
[00:07:14] I'll give you one example. Just soon after I arrived in Mexico, there was this event when the Mexican Armed Forces had just made a huge seizure of marijuana on the edge of Tijuana. It was about a hundred tons of the stuff, and it was widely reported that this was all worth about half a billion dollars. This struck me as a huge, huge amount of money, so I had to look at how they'd done it. And what they'd done was they'd taken the retail price of cannabis in the United States. And they've gone for a kind of conservative estimate of five dollars a gram. And they'd multiply this out over a hundred tons and arrived at this figure of half a billion dollars. That sounds perfectly sensible and you might think, "Okay, that's a kind of economic approach." But if you apply that to any of the business, it's clear that that's a crazy thing to do. Imagine if you did that — say with coffee, and you said, "Okay, here we've got a kilo of coffee in Colombia. How much is that worth? Well, a cup of coffee in Starbucks in the United States costs two or three dollars, and in there you get a couple of grams of coffee, so let's say it's about a dollar a gram. Therefore, the kilo of coffee in Colombia is worth a thousand dollars." No, right? I mean, that's fairly, obviously wrong.
[00:08:17] 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 in the States or in Europe. And that's why we get these very, very inflated numbers. 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 of the war on drugs? Where else are we overestimating the effectiveness of our current policies? So I think bringing some numerical insight and applying statistics and so on is important but you've got to use the right ones. And part of the arguments in my book is that at the moment we're using numbers in a kind of innumerate way that would really stand out if this were any other business, but we tolerate it because, in the war on drugs, we're not used to thinking about this as a real business.
Jordan Harbinger: [00:09:04] Right, we're used to looking at the propaganda involved on both sides. And that makes sense, right? So instead of looking at the street value of a drug haul, we have to look way down the supply chain and look at where this was created and what it's worth over there. And I recall from the book that you'd written something that actually surprised me quite a bit, which is that cocaine is not any more valuable than coffee at its source, but law enforcement costs smuggling, criminal organizations, that kind of thing that raises the price by 30,000 percent once it gets to the United States. And 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.
Tom Wainwright: [00:09:44] Well, that's exactly right. And that's because it is just a plant, the coca bush, which is the main ingredient of cocaine, is pretty easy to grow. And if you go down to South America, as I did and go to the places where they're growing it, you can see that it's just an ordinary cash crop. And you're right, it's not worth very much at all to make a kilo of pure cocaine powder. You need about a ton of fresh coca leaves. And in Colombia, for instance, that tone is worth probably about $500 or thereabouts, which is nothing. And of course, by the time that kilo of cocaine makes it to the United States, it's worth probably more than a hundred thousand dollars. There's a huge, huge increase in the price of the stuff as it makes its way along the supply chain.
[00:10:25] That leads us to an important insight, which is that at the moment, a lot of our efforts to stop the supply of cocaine are focused at the very beginning of the supply chain. And that kind of sounds sensible, you know, nipping the thing in the bud sounds as 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 it makes its way along the supply chain, interrupting it early on means that you're not really hitting the cartel as very hard at all. Let's say you managed to double the cost of growing coca leaf in Colombia by spraying weed killer on the crops, by uprooting and doing all these other things that they do, you're going to double the cost of the coca leaf from say $500 a ton to a thousand dollars a ton. But if you pass that increase in price on the final product, you're only increasing the price of the kilos of cocaine from say $100,000 to $100,500 and you're hardly doing anything.
[00:11:18] And the comparison that I make in the book, imagine if you're trying to increase the price of paintings works of art, and you say to yourself, "Okay, the main ingredients in a painting is paint. And so what we're going to do is we're going to try to drive up the cost of a box of paints from $50 to $100. And we hope on that basis that we're going to double the price of this million-dollar painting to two million dollars." Fairly, obvious, that's ridiculous, right? Even if the artists did pass on that increase in the price of paint to the buyer, you know you'd be talking about a difference of $50. And that's exactly what we're doing with the cocaine business. We're trying to drive up the price of coca leaf, hoping that this will have a dramatic impact on the price of cocaine in the States or in Europe and it's not.
[00:12:00] You know, when you just look at the economics of it, it's not remotely surprising that this is failing. So my argument is, if you look at the numbers, it's clear that we're focusing our efforts really in the wrong place.
Jordan Harbinger: [00:12:09] This is a huge bummer because what this essentially means is 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. So we almost have to wait until it gets right there and then go, "Ugh, we got everything," right? And that's really hard to do. It's 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. And basically, I would say it's almost impossible to try to do that every time reliably. So we can't hit supply is the conclusion here. We have to hit demand.
Tom Wainwright: [00:12:53] Well, I'm not saying you can't just hit supply at all but yeah, I think, if you're going to 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. And on supply — I mean, the people who are involved in this, the brave people doing good work — earlier you mentioned the show, Narcos, you know, you watch that and you see the incredible risks that service 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 the wrong place.
[00:13:23] Because as you say, if you try to interrupt supply, you're going to find that if you do it early in the chain, you have very little effect. And if you do it late in the chain, you'll have more of an impact. But by that stage, it's very, very difficult because, by the time the product makes its way to the States, it's disbursed into tiny quantities of just a few grams here and there. And you can look up those dealers, but by then, you know, if you try and lock up every dealer who's shifting a gram or two of cocaine, you're going to end up locking up, a very, very large number of people, which indeed is exactly what has happened in the US.
[00:13:51] So for those reasons, yeah, I think the demands side is where to focus our efforts. And if you spend the money on trying to reduce demand for these drugs, by educating young people, to take fewer drugs, to treat addicts so that they can reduce that consumption, you do end up having a much bigger impact. And there are all kinds of studies that prove this. There was one that was done if you years ago, which compared the impact of spending a million dollars at different points in the supply chain. And I believe the impact they calculated on spending a million dollars on intercepting cocaine in South America was a reduction in the amount of consumed in the States of about 10 kilos or thereabouts. And if you spend that million dollars instead on treating addicts in the States, You can reduce the amount consumed by about a hundred kilos. So you get 10 times more for your money than you would otherwise. And this is taxpayers' money, you know, it's tax dollars and tax euros and tax pounds that have been wasted, flying helicopters around in Colombia, when we could be spending that money doing other stuff, which would actually do more and it's proven to do more. So the demand side focusing on the consumers is where we should be focusing, not so much on the supply side, chasing people around in Colombia.
Jordan Harbinger: [00:14:57] 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?
Tom Wainwright: [00:15:06] Because they can make more selling it to the cartels. It's still worth a fair bit more than coffee. It's very, very cheap compared with what it 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, huge difference. I remember I spoke to a guy in Bolivia who. grew the stuff. He grew coca leaf. And I said, "Well, look, why don't you do this stuff? There are loads of crops out there that you can grow." 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. And 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 it's a European Union Sponsor or something to try to get farmers to grow tomatoes — instead of tomatoes, as you might say — and similarly, in countries like Afghanistan, there are programs to try to get opium farmers to grow other stuff.
[00:15:57] And I think that's probably, it's a more humane way to go about things than spraying their crops with weed killer and uprooting them. Trouble is there you'd find that it's pretty easy for the cartels actually to just offer a slightly higher price again for the coca because the profits involved in the coca leaf are so, so great. That it's pretty easy for the cartels to up the price that they bid. So ultimately, I think trying to outprice the or outbid the cartels and get farmers onto growing other crops, it may be a better way of going about things than spraying coca leaf with weed killer but it's pretty tough because of the markup involved in the drugs business as such that the cartel is going to outbid pretty much any other crop that you try to direct farmers to you. So again, I think the supply side, trying to fix things in Colombia or the source of the problem, though it sounds very sensible, actually, the evidence is that it has a pretty limited amount of effect.
Jordan Harbinger: [00:16:48] 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. I mean, there's a lot of people who know what they're doing, being hired down there to help grow this stuff that aren't just farmers. There are experts helping people grow even more and making it more resilient, hiding it from the air and making it grow faster. All of 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 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 — or essentially what are like the Mexican Navy Seal-type forces, the Zetas going and starting essentially a wing of a cartel that becomes a cartel in itself. And you end up with these crazy pseudo-legendary figures like El Chapo who's escaped from prison multiple times and sounds like something out of a television drama that ran out of storylines. "Ah, let's just have him escape from prison again." "Ah, let's have him escape again." It's just — it's ludicrous and the popularity of shows like Narcos are bringing more attention to this subject. By the way, when you are interviewing farmers and people involved in the drug trade, do you speak Spanish, or do you have a translator?
Tom Wainwright: [00:18:05] I speak Spanish with them on the whole. I mean, it's funny. Some of them actually have spent a lot of time in the States. One guy that I was interviewing in a prison in San Salvador, we were speaking in Spanish. And then he referred to the fact that he lived for many years in Los Angeles. So his English was probably much better than my Spanish, but no, usually I spoke with them in Spanish. That's the easiest way, on the whole, to communicate with people down there.
Jordan Harbinger: [00:18:26] Yeah, 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.
Tom Wainwright: [00:18:32] I don't know — well, it'd be interesting. You'd get some interesting vocabulary. Wouldn't you? When I arrived in Mexico, my Spanish was pretty limited. And I gradually learned a bit more and the kind of words that you learn are intriguing. You know, words for people who are found locked in the trunks of cars and people who'd been shot with machine guns and that kind of thing, so yeah, vocab was kind of different from what I'd learned in England, but yeah. Interesting stuff.
Jordan Harbinger: [00:18:54] Wait. What are these words? You can't leave us hanging on this. There are different names for people that have been found locked in the trunk of a car. They just have a term for that.
Tom Wainwright: [00:19:01] Oh God. Yeah, no, you're asking me now. Sorry. It's a few years since I've been out of Mexico. So I can't remember what it was. It was particular words that he used for people who were found in the boots of cars, people who had different words, people who'd been actually used in different ways. You know, people who've been just wrapped in tape to suffocate them. There are these slang terms, sort of all of these different forms of execution, which are very unpleasant.
Jordan Harbinger: [00:19:23] That's really gross though. It's almost like they're doing it so much. They need a shorthand for this. That's really disturbing.
Tom Wainwright: [00:19:29] Yeah. It has a vocabulary, all of its own, and it said it's pretty grim stuff.
Jordan Harbinger: [00:19:34] You wore a GPS device to a meeting with a drug cartel leader. First of all, what was your wife thinking when you were doing all this research? I mean, your family must've been like, "Are you crazy?" They must not have slept for the years that you were down there and doing this book.
Tom Wainwright: [00:19:46] Yeah, they were — it was a bit of a change from my usual kind of work in London. I think they were kind of intrigued by the whole project. My wife was very good at kind of tracking my whereabouts using this GPS thing. And I'd check in with her and let her know that I was still alive. It was interesting, you know, I'd kind of roam around all these bits of Mexico, Central America, and South America. Meeting these Interesting guys getting interviews that weren't really exactly like the kind of interviews that I've been doing before. But you know, when you speak to these guys about the businesses that they run, the companies that they run, some of the things they say do kind of echo the comments that you hear from middle managers in other companies. They all like to complain about their employees in the way that managers always do. They complained about the treatment they get from the government, although we're talking about slightly different kinds of complaints from the ones that ordinary firms might have but, yeah, it was the kind of exciting role to have. I guess it was pretty frightening sometimes going to places like Juarez and places like San Salvador, where the level of violence is extremely high.
[00:20:44] But I guess one thing I always bore in mind was that the real high risks are really faced by the Mexican journalists. They're the ones who often are placed at greatest risk because they're the ones who actually have to live in these cities permanently. You know, I was based in Mexico City, so I'd fly into somewhere like Juarez and do my interviews and then make sure that I was on the flight back. It's a different situation for the local journalists who live in these cities and have to report on crimes and the people that writing about very often know where they live and where their families live and the levels of violence against Mexican journalists are really through the roof. So the kinds of risks taken by foreign journalists like me are really nothing compared with the ones faced by local reporters.
Jordan Harbinger: [00:21:29] You're listening to The Jordan Harbinger Show with our guest Tom Wainwright. We'll be right back.
[00:21:34] This episode is sponsored in part by Athletic Greens. This is an all-in-one daily drink that supports better health and peak athletic performance for those of you interested in that. Even with a balanced diet, it's difficult to cover all of your nutritional basis. That's where athletic greens can help. Their daily drink is like nutritional insurance for your body that is delivered straight to your door. And what I like about Athletic Greens, one of the things I like about it anyway — aside from their travel packs that I find super convenient back when we were allowed to leave the house — they're NSF certified for sport, meaning that — well, first of all, the FDA, as y'all probably know, does not regulate supplements. So it's like the wild West, you can basically put anything you want in a box and sell it as a supplement. If you've never heard of the NSF, it's a large non-profit organization that certifies companies when it comes to safety standards. They've been around for a long time. They're trusted by governments and municipalities all over the world and you can use it in sport. Basically, it says that what's on the label is actually in the pouch.
Jen Harbinger: [00:22:32] So whether you're looking to boost your energy level, support your immune system, or address gut health, now is the perfect time to try Athletic Greens for yourself. Simply visit athleticgreens.com/jordan to claim our special offer today and receive the free D3 K2 wellness bundle with your first purchase. That's up to one-year supply of vitamin D as added value when you try they're delicious, comprehensive daily, all-in-one drink. You'd be hard-pressed to find a more comprehensive nutritional bundle anywhere else. Again, that's athleticgreens.com/jordan.
Jordan Harbinger: [00:23:06] This episode is also sponsored by Mercari. Everyone's got stuff they don't use, lying around the house, clothes you never wear, an old phone in a drawer somewhere. Personally, I've got one of those Apple displays, that's like from 2011, that has all the ports in the back. That thing was making my studio so hot. It was raising the temperature here by about seven degrees, which doesn't sound like a lot, but it is when you're standing in front of a microphone, freaking sweating. But guess what? People will pay good money to buy your stuff on the Mercari app. It's super-fast. It's easy. You can sell anything, make some extra money. In minutes, you download, take pictures of your stuff, add a description. Enlist it, boom, just like that. Once it's sold Mercari emails a shipping label. You stick it on a box. You ship it from your home. There's no meetups. There's no hassles. You don't have to worry about whether the person is pro-mask or against mask. You don't have to worry about any of that stuff. Mercari is just going to make it all easy for you. The app has over 700,000 reviews on the App Store, a 4.8-star rating. People love Mercari. Over 300,000 items get listed every single day on Mercari.
Jen Harbinger: [00:24:02] Try Mercari and make some extra cash. Sell almost anything from home on Mercari. Find it on the App Stores or mercari.com. That's M-E-R-C-A-R-I. Mercari, America's no meetup marketplace. Download today.
Jordan Harbinger: [00:24:17] And now back to Tom Wainwright on The Jordan Harbinger Show.
[00:24:22] A friend of mine a while ago, who's a writer, was doing something about the cartels as well. And one of the journalists that he was working with had to disappear. And so he asked me to connect him with certain people who can make that happen. It's very tough. It's very tough to get somebody out of a country without anybody knowing surprisingly. Like you would think, "Oh, everybody gets across this poorest border." It's really hard when the people looking for you are the people that run people across the border. It's really, really hard.
Tom Wainwright: [00:24:48] Oh, absolutely. Yeah. I'd be fascinated to hear how you did that because it's not easy to move people around in that way.
Jordan Harbinger: [00:24:54] You know we did it through the Darien Gap. Do you know what that is?
Tom Wainwright: [00:24:56] Oh, seriously. Wow.
Jordan Harbinger: [00:24:57] Yeah.
Tom Wainwright: [00:24:58] You picked a difficult one.
Jordan Harbinger: [00:24:59] Yeah, well, we figured that it was probably one of the best ways for him to disappear without dying, but then also had high risk in and of itself, but it was kind of like, "Do you want to jump off this five-story building? Or do you want to swim across this shark-infested bay?" Like It was just one of those situations for this guy, but with Ciudad Juarez, where you were, is dangerous because it's one of the gateways for drugs in the US, 70 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 hanging out here — where are you conducting these interviews? I'm interested.
Tom Wainwright: [00:25:33] It depends really 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 sources actually of interviewees. You know, the extortion business in Juarez was a big deal when I was there because at the time there was a big, big battle going on between the local Juarez cartel and the Sinaloa cartel, which at the time was trying to take over the city there. And in order to raise funds for the battle that they were having between each other, both cartels were levying what they call a peace offer, or a kind of extortion money on local firms. So often I would speak to business people in their places of business. You know, it could be bars or wherever shops and I'd speak to people there. I spoke to government people in their offices, police officers. I went to kind of community projects in some of the slums there. It's not a completely safe city to be in, but I thought that the main thing that I tried to do was just to stay off the streets most of the time and 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 diary and go from appointment to appointment.
Jordan Harbinger: [00:26:37] Yeah. I mean, the violence that you had described there is so vicious, it was the stuff of nightmares really. There's no getting around it. Do you ever think about this stuff and kind of wake up with a shiver? Some of the stuff you write about is really graphic and gross.
Tom Wainwright: [00:26:51] Yeah. It's a pretty great task. I guess not, no, I can't just sleep reasonably well, to be honest. I think part of the thing that appeals to me about writing about the cartels in the way that I did as an economist or as a business journalist, was that you can kind of get around the drama of it and just boiled the business down to its basics. There's always so much emphasis on the drama or on the kind of gruesome details. And if you get completely lost in that, then I think you can lose sight of the more important points. But yeah, you're right, I mean, there's no getting away from it. The kind of levels of violence out there are just excruciating when you see videos of these sorts that ISIS, Islamic state puts out now. Some of that stuff is nothing compared with what's going on In Mexico. And then what's being funded by people who buy drugs in my country and in yours.
Jordan Harbinger: [00:27:37] one of the things that I read in your book was something about Kiki, the federal agent. He was 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 sensitive because 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 level, really kind of insane. And so, yeah, when you're this close to it, it just seems terrifying. But I understand that, you know, you're looking at these drug cartels, they're global conglomerates, they're massive businesses. In fact, you'd written that cartels would be one of the top 40 countries in terms of economics if they were a country instead of a business. So we're talking like Walmart style.
Tom Wainwright: [00:28:22] Yeah, absolutely. The business is very opaque obviously by its nature, but the UN reckons that worldwide every year it's worth something like $300 billion a year. So in country, economy terms, I think it would be just ahead of Israel if the drug business, we're a country, it's a pretty serious economy. They really use that 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, the government is very, very weak. The cartels just have the upper hand. And I remember going to interview the security minister in Belize, which is this tiny, tiny country with a population of, I think it has about 400,000 people. So it's really, really small. And at the time, the government of Belize didn't own a single helicopter between them. And they're up against these cartels, which have not only helicopters, but they've got their own primitive submarines. They've got sorts of basic tanks. They've got all kinds of things and their power to outgun and outspend governments in that part of the world is immense and their power to corrupt as well. And they do a lot of work, corrupting police officers and soldiers. And in many cases, even corrupting senior members of the government. Mexico in some years back discovered that the guy who died named their drugs czar, the main guy who's fighting the cartels was in fact himself working for one of the cartels. And when you see the profits that these 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 adversary. And at the moment, I worry that we're not doing a terribly good job at beating them.
Jordan Harbinger: [00:29:53] 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, multinational businesses 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. I mean, this is something that I was really surprised by. That cartels are campaigning with locals, doing PR to get local villages and cities to support one cartel over another, typically by painting one is worse or more criminal than the other — which to me, that just was too meta. I had to wrap my head around that and it took a second. And you end up with other cartels naming themselves things like the Autodefensas, which is basically like the self-defense brigade. And they're supposed to be this anti-cartel militia. And they're a freaking trafficking organization.
Tom Wainwright: [00:30:59] Yeah. I mean, the hypocrisy is just incredible, but you're right, they do go into these surprising PR exercises. You wouldn't have thought that public relations was high on the list of priorities for a drug cartel but actually, they do seem to take it very seriously. And in Northern Mexico, sometimes these signs appear often hung up from freeway bridges, accusing other cartels being very immoral. It will say something like, "El Chapo never kidnapped people. He just is involved in the drug trade. He never commits violence against others," and that kind of thing. And of course, it's total rubbish but it helps them persuade some people that one cartel is better or worse than the other.
[00:31:36] I think the kind of height of this PR activity is a form of what really looks like corporate social responsibility. And it sounds crazy but again, if you watch that show Narcos, or if you read about Pablo Escobar, one of the interesting things about him is that despite the fact that he brought stunning levels of violence to Colombia, he remained in many areas as 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. He paid for housing projects. He paid for sports facilities. And similar things go on there now in Mexico. In Mexico, occasionally you find churches which have plaques on the outside saying this church was kindly constructed with funds from Señor so-and-so and it turns out Señor so-and-so is the leader of a drug cartel. And these guys by spending their money here and there, they managed to secure a kind of basic level of support among the public. And without that basic level of support, it's much harder for them to remain at large because the police rely on the public to give them tips to let them know where these guys are.
[00:32:39] And the cartel kingpins, in fact, managed to stay at large, through a mixture of admittedly, plenty of intimidation. That's one reason people don't report them, but it's also because they do have genuine support in some areas because they spent their money on the community. They have, in some cases, in Sinaloa a lower there's supposedly a primitive form of social security that has been set up by El Chapo Sinaloa cartel. And so many people that do actually think twice about reporting them. This isn't a country where the government is always as active as it should be and providing opportunities for impoverished people. And so when you've got a guy who's made a lot of money exporting some product to a foreign country and he's willing to spend his money on building good stuff in the local community, whether it's a clinic or a school or housing or whatever, some people, "Well, hang on. Are these guys all bad? Should we be reporting them?" The cartel has really put money into this corporate social responsibility and public relations is a very, very big deal for them and they take it very seriously.
Jordan Harbinger: [00:33:34] You know, who else does this are organizations like Hezbollah, where basically they start to, like you said, build schools, build clinics. And 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 state is busy trying to fight cartels and deal with the criminal element. So they have to divert resources to that. It's kind of this cycle that fulfills itself, right? "Oh, the state is running out of money because they're fighting criminal gangs. They can't keep schools and other organizations up to snuff. Let me use some of my illicit funds to help build this stadium instead." And now, you end up with this, putting the common people against the state with respect to this problem, which is a huge obstacle to eradicating this issue in the first place. And it's just fascinating to me that 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 rung of people on the ladder here, you can end up with a base. You end up with a base and those people can protect you. It's kind of an extension of the Plata or Plomo, which is lead or silver, essentially, which also sounds straight out of 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 wrap you up in duct tape or whatever it was that you'd mentioned earlier.
[00:34:56] These cartels are also managing their image by making, killing, and violence either really public or by hiding it and dragging away the bodies banning the news stories. And I found it really interesting that the most dangerous time to be outside in Mexico is 5:45 p.m. 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 essentially, they do this on rival turf to get public eyeballs on how much violence is happening on some rivals turf and then get the government to intervene so that they can get a leg up on a rival cartel.
Tom Wainwright: [00:35:35] That's exactly right. Yeah. It's a clever strategy. Often the cartels do their best to convince the government to act in particular areas effectively so that they can use the government's forces against their own adversaries. And as you say, you often see this phenomenon where a cartel will carry out some extravagant acts of violence in another cartel's patch. So that, you know, they could dump a dozen bodies somewhere in the middle of a busy shopping street or something like that. It's a kind of act of violence that the government just can't ignore. And when they do that, you immediately find a greatly increased presence of soldiers there and federal police. And that makes it much, much harder to do business in that area. They call it heating up the plaza. By that, they mean making it harder for the cartel to carry out its ordinary business transactions on its usual turf.
[00:36:20] There, I think, is a lesson for the government in Mexico and other countries, which is that when you see a very big extravagant act of violence carried out, say on the turf of, let's say Zetas, for example, you shouldn't immediately assume that this was done by Zetas. And therefore send a load of soldiers to this area to crackdown. You should perhaps assume maybe this act of violence was carried out by the Zetas' archrivals, and maybe you should send your soldiers to the place where they're active instead. That might do more to deter these sorts of very public acts of violence for public consumption. But you're right, it's all part of the strategy that the cartels to try to direct the state's resources for their own benefits because if you can make the army go to where you want them to go, then suddenly that's a lot of firepower that you've got at your disposal absolutely free of charge.
Jordan Harbinger: [00:37:06] Right, exactly, paid for by the taxpayer, unfortunately. Cartels, as well, control the media message, of course. And 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. And what you end up with is the same thing that happens when media is corrupted or under central control in other places, which is you end up with social media starting to play a larger role. There's a city that — its name escapes me from your book — where they use Twitter to keep citizens safe and tell them what's blocked off and 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.
Tom Wainwright: [00:37:43] That's right. The city you're referring to is Reynosa in the state of Tamaulipas. It's a border city, right on the border of the states. And over there, the local presses have found that they just can't report on the drug war at all. They started doing it, but they found that anybody who wrote a story about the local cartel conflict very quickly found themselves being intimidated or worse. And so what the local government has done there is set up a Twitter account and they just tweet these various sorts of elliptical messages saying, "Situation of risk in certain zone. Don't go here." It's just a very simple way of letting citizens know to avoid particular areas. And, you know, they don't say in these reports, who's fighting who they don't give details because they've learned from experience that that upsets the cartels, but they want to give people just a very basic level of understanding of what's going on. So they do it via Twitter.
[00:38:30] And you find also various websites being set up to provide the kinds of details that ordinary newspapers or TV stations can't or won't provide. I mean, there are various blogs that provide very gruesome details about the latest tit for tat killings and the drug war. And that's where people go for their news. Facebook groups are another one, and 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 mainstream media have to use and not subject to the kind of intimidation that the cartels can employ because the very nature of Twitter and Facebook and so on is that it's somewhat easier to retain your anonymity, although some people have found that they haven't been able to do that. And some bloggers who thought they were anonymous have ended up paying the price for that. But it's true, social media is an increasingly important way for people to share information about the war on drugs because the regular media in Mexico has found itself really muzzled by these guys.
Jordan Harbinger: [00:39:23] Well, even El Chapo's kid, didn't he tweet about him? "Hanging out with my dad," and then they caught him because of that. What a moron?
Tom Wainwright: [00:39:30] Well, supposedly, yeah. I mean, some of these children of the Narcos have got these extraordinary Twitter accounts where they tweet about their latest Ferraris or their gold plated guns or whatever. It is amazing that the level of impunity in some parts of Mexico is such that these guys can really make no pretense about where their money comes from and still get away with it.
Jordan Harbinger: [00:39:49] I found the Twitter account of his son. Let's take a quick two seconds and Ivan Archivaldo Guzman, followers 167,000. And yeah, his cover picture is him with a hat and then the background is like a bunch of different sports cars. Crappy low res photo of a bunch of different sports.
Tom Wainwright: [00:40:08] He's into cars and kind of very exotic guns as well. You'll probably find some kind of gold plated guns if you scroll down his feed and diamond-encrusted weapons.
Jordan Harbinger: [00:40:17] Hanging out with hot chicks at some bar. Like clearly living like the Campo with no shirts on, jumping up and down, and there's like, "Oh, flying on my helicopter." And then his place blurred out with two random babes, street racing, hanging out at his plane. Yeah, a new Ferrari. You weren't kidding — him in some boats, and oh, yeah, wow, all of the car keys of either all his or him and all his friends, and there's Mercedes Ferrari, Bentley, BMW, Maserati, Lexus, and pretty much everything else. No Tesla though. Not into the Tesla yet.
Tom Wainwright: [00:40:50] No, the charging points there. I think range anxiety is probably a big deal if you live in the desert. So maybe, maybe one day.
Jordan Harbinger: [00:40:56] Exactly. If only you could run your car on cocaine and yeah, here's a gold-plated AK-47 in the driver's seat of a BMW picture. And the rest of it is literally just that times a thousand. You can just keep scrolling down and it's all it is, it's just that over and over and over again, pretty much what you would expect from a guy who owns a nightclub in Miami kind of guy. That's exactly what we're looking at here.
Tom Wainwright: [00:41:23] Yeah, that's I'm afraid the stakes at play over there at the moment.
Jordan Harbinger: [00:41:25] I mean, you went to jails in El Salvador and interviewed leaders of gangs like Mara Salvatrucha 18 or Dieciocho, 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. 70,000 lives lost in the '90s. You had a 10 percent chance of being murdered in El Salvador, period, plain and simple. And then they decided to collude and not kill each other and violence falls by 66 percent.
Tom Wainwright: [00:41:53] Yeah, that's right.
Jordan Harbinger: [00:41:55] It's crazy.
Tom Wainwright: [00:41:56] And the change that you referred to that big drop in the violence, it happened more or less overnight. You know, 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 that the two big gangs there, the Mara Salvatrucha and 18th Street Gang signed an agreement or made an agreement with each other, that they would form a kind of ceasefire. And instantly the level of violence drops like that. It just shows how much of the violence these gangs are responsible for. But it also shows that the sorts of economic behavior of these gangs can have a big impact on the amount of violence in these countries. It was an economic decision by these guys that they thought that colluding would probably increase their profits more than competition would. I decided to go for that. And then instantly the country became a far, far safer place.
[00:42:45] So that's the kind of interesting story for people who think economics can be a way into this subject. It just shows that a single business decision by a couple of gang leaders can instantly transform the security situation in a very troubled country like that. So the story of El Salvador, I think is one for people to look at. And since then the pacts there have broken down. And as I understand that the country now has become a very violent place again, but lasted for, I believe a couple of years or thereabouts. There was a kind of peace in that country or a relative peace due to the changing dynamics between these two gangs. So I think it's worth some further study to see if that kind of peace can be replicated because El Salvador shows that it can be done at least temporarily,
Jordan Harbinger: [00:43:29] This is The Jordan Harbinger Show with our guest Tom Wainwright. We'll be right back.
[00:43:34] This episode is sponsored in part by Manscaped. Summer is in full action, full swing here. We're thankful for our sponsor today, Manscaped, for keeping us fresh. Suns out buns out, and hopefully you are appropriately shorn. Manscaped offers all the right tools to keep your hair groomed above and below the belt. You know they've got all kinds of tools. They've got the Crop Preserver. They've got the Lawn Mower. The Perfect Package. 3.0 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 Sheers 2.0 nail kit. She's got to tweeze that ear hair, it comes with tweezers in there too. My audiologist, I was going to get some custom earbuds made and he said that I have the hairiest ears he's ever seen and this is an old guy. This is the guy who's seen a lot of people's ears and I had the hairiest ones — inside. There's hair inside, and you can manscape that. And as well, you should. I asked him what I could do about it. And he said, you just got to find someone who's going to be patient enough to tweeze it and I have. Love you, Jen. Subscribe to the Perfect Package. Get a new blade refill for your Lawn Mower trimmer delivered to your door every three months. And for a limited time, subscribers get two free gifts. The Shed Travel Bag and the patented high-performance reduced chafing Manscaped boxer briefs. Get 20 percent off plus free shipping with code JORDAN20 at manscaped.com. That's 20 percent off with free shipping at manscaped.com and use JORDAN20. Summer is here, it's time to Manscaped.
[00:44:56] This episode is also sponsored by SimpliSafe. Here's the thing about home security companies, most — all of them trap you with high prices, tricky contracts, crap, customer support, where it's all that automated phone chain stuff. I hate that stuff. While there are a lot of options out there, there's only one no-brainer, and that's SimpliSafe. Recently, some freaking creeper tried to jump our fence. They peeked into our front door. We were thankfully monitoring the situation using our SimpliSafe SimpliCam outdoor camera. Caught him in the act, such a weird scenario to have happened. We're really grateful. We have it on video. We could share it with everyone on those apps, where you share everything with your neighbors and speculate as to who the person is and what they're doing. SimpliSafe system itself has an arsenal of sensors. Keep watch day and night. Monitoring starts at 15 bucks a month and they've won all kinds of awards, US News and World Report, for example, Best Overall Home Security of 2020. You can't beat that.
Jen Harbinger: [00:45:49] Try SimpliSafe today at simplisafe.com/jordan. You get free shipping and a 60-day risk-free trial. There's nothing to lose. That's simplisafe.com/jordan.
Jordan Harbinger: [00:46:00] This episode is also sponsored in part by NetSuite. America's ready to get back to work, but in order to win in the new economy, you need every advantage to succeed. Smart companies run on NetSuite by Oracle, the world's number one cloud business system. With NetSuite, you got visibility and control over your financials, HR inventory, e-commerce, and more all in one place. Whether you're doing a million or hundreds of millions in sales, NetSuite lets you manage every penny with precision. And now that I've gotten all of those copy points out of the way — what this really is, folks? It's a dashboard that takes all your other sub-dashboards for like accounting, HR, inventory, whatever it is. Puts it all in one place, it works on your phone. We use that at one of the companies I worked at before, and I thought it was amazing. It really does take everything in your business, all those moving parts and puts them in one dashboard that you can see everything, all the different elements of your business in one place, no other software that I know does this.
Jen Harbinger: [00:46:55] Receive your free guide, Seven Actions Businesses Need to Take Now. Get your free guide and schedule your free product tour right now at netsuite.com/jordan. That's netsuite.com/jordan.
Jordan Harbinger: [00:47:08] After the show, we've got a preview trailer of our interview with an angel investor, Jason Calacanis. If you're a founder or interested in business or ideas, you're going to want to hear this. So stay tuned for that after the close of the show.
[00:47:20] Thank you for listening and supporting the show. Your support of our advertisers keeps the lights on over here. Check out all the links to those amazing sponsors at jordanharbinger.com/deals. And don't forget, we've got worksheets for today's episode as well. That link is in the show notes at jordanharbinger.com/podcast.
[00:47:37] And now for the conclusion of our episode with Tom Wainwright.
[00:47:42] 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 and the way that they do this as kind of grossly ingenious — the tattoos, especially the gangs like MS 18 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, these face tats, not only do they prevent you from 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 Macs and an iPhone.
Tom Wainwright: [00:48:19] Yeah. Yeah. That's exactly right. And this was brought home to me when I went to meet the head of this cartel, the 18th Street Gang in his jail cell in San Salvador. He was one of these guys who — they look extraordinary, you know, they're tattooed literally from head to toe. And I sat there interviewing him and just wondering where this tradition had come from, the kind of full-body tattoos. And I thought about the sorts of labor market economics of it. I think the way you describe it is exactly right. It does give these gangs, these cartels, that kind of ownership almost 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 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 they're not paying me enough, I could try and get a new job — I don't know — at Time or something like that. But that would be somewhat harder if I had The Economist tattooed on my face. I would find it a bit more difficult.
Jordan Harbinger: [00:49:08] Yeah, yeah, yeah. Good luck getting rid of your —
Tom Wainwright: [00:49:11] Following that logic is exactly what the gangs in El Salvador have done. You know if you've got 18th Street Gang tattooed on the whole length of your body going for a job interview with the Mara Salvatrucha is going to be the more bracing experience, to say the least. And so they retained a kind of ownership of their employees. And it means that they're able to keep wages very low. And it's one of the great paradoxes of the drugs business you hear about the billions of dollars that are made and profits, and that's 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, they're not rich guys. They're making a few dollars a day and part of the reason for that is that the cartels exert this very, very powerful control over their employees.
Jordan Harbinger: [00:49:53] Cartels further though, 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 agree 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 taxpayers to get higher pricing for waste disposal and things like that.
Tom Wainwright: [00:50:13] That's right. The kind of price-fixing is something that you see in all kinds of regular industries. That's the point where organized crime and legitimate business have sometimes met in the past because the mafia has always played a role in many places of sorts of enforcing these price-fixing agreements. I read this one great study, actually. I think it's just about the earliest study that anybody's ever done of the mafia. It was done in Sicily sometime in the 19th century. And it was a study of, I believe, the milling industry as in the flour milling industry. And the millers that realized that if they fixed their prices, they could make more money than by competing.
[00:50:50] But the problem was that they couldn't rely on each other to uphold this agreement. The worry was that one member would break the agreements and undercut the rest. And so they got a bunch of guys who were basically the mafia to enforce this agreement. They all paid these guys on the understanding that if anybody broke the agreement, then the mafia would go and sort them out. And so that was one of the very first roles that the mafia played. They were there to make sure that these legitimate businesses didn't stray from the price-fixing arrangement that they had made between them.
[00:51:19] And you see similar stuff going on in garbage collection industry in New York, historically, that's an industry which has had a big, big involvement of the mafia. And again, the role that it has played there has been to protect certain 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. If organized crime is something that all of society is against, then getting rid of it is much easier when it's something that — actually a lot of people in society have a stake in preserving when you find that legitimate companies actually find the mafia useful in enforcing bargains between them, or when you find that local people are in favor of the mafia because the mafia provides them with public services in the way that Pablo Escobar did. You find that actually summoning the kind of popular pressure to get rid of these guys is much harder because they've roots in society, and they've got people on their side.
[00:52:15] So those kinds of links are 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 stamp them out. On the other hand, the more those groups embed themselves and get their tentacles into bits of legitimate society, whether it's the business community or just ordinary people, the harder it's going to be to get a kind of consensus that they have to go. So that should be a priority for all governments.
Jordan Harbinger: [00:52:41] Cartels and extortionists are franchising as well. Can you briefly explain the concept of what a franchise is in business and then explain how the cartels are also doing this?
Tom Wainwright: [00:52:51] Oh, sure. Well, I mean, just briefly, probably the easiest way to describe a franchise is to picture organization like McDonald's or say like Starbucks, any kind of chain like that, where very often you have a central headquarters, which runs the operation and then they will allow franchisees, local business people to set up say a McDonald's restaurants. And the deal is that the local business person gets 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 cut of the revenues of that local business. And it's been very successful in the fast-food industry, for 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 up new branches because the franchisee pays much of the startup costs. It means that consumers all over the country or all over the world, know what they're getting. If you order a Big Mac in London, it's the same one that you'll get in Los Angeles or the same one that you'll get in Beijing.
[00:53:46] And so for consumers, it often helps to increase the branding power of that particular organization. So it's been very successful and surprise, surprise that drug's business has condoned this as well. And when I was in Mexico, one of the big [00:54:00] stories of the time that I was, there was the spread of this gang called the Zetas. And they spread very, very quickly, you know, within the space of just a couple of years, it seemed that they managed to set up a branch in every city. And so I looked at the situation and thought, "Well, how have they done this?" And immediately it reminded me of organizations like McDonald's. So I looked into it and it seems that the Zetas are doing something very similar. What they do is instead of sending their own employees to a city to go and set up a new group there, they will send some agents there and talk to local criminals who run the show down there and say, "Look, okay, how about this? You can use our brand. We'll lend you the Zetas' brand. And in return, we want a cut of your earnings and we can provide you with training with some weapons, with our logo and so on. And it's extraordinary, you find in some parts of Mexico, Zetas have been raided and they even find that these guys have got branded baseball caps, t-shirts, and that kind of thing. It really is like a franchise. And it's helped them to grow very, very quickly.
[00:54:57] But the thing is, it's a problem, obviously to Mexico because these guys are growing very fast. But there's a problem, the franchising business can create problems for the Zetas just as it creates problems sometimes for McDonald's. And one of the things that you find with regular franchises is that sometimes franchisee we'll argue about the fact that there are supposedly too many franchises in a particular area.
Jordan Harbinger: [00:55:18] Right. Encroachment is what they call it.
Tom Wainwright: [00:55:19] Yeah, that's exactly right. You find loads of court cases about this in the States and in Europe. You find franchisees claiming that there's been encroachment, whether it's in 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 main firm aren't very well aligned. Obviously from the point of view of 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 don't particularly care if each individual franchisee is less profitable.
[00:55:51] And the same thing happens in the world of cartels. You find that individual franchisee — say of the Zetas — often find that another Zetas franchise has opened up somewhere nearby and rather than pursuing this problem through the courts, which obviously they can't do because this is an illegal business. They settled the differences using violence, which in the world of drugs is the only way to enforce contracts. And in many parts of Mexico, you find that some of the violence can be attributed to exactly that effectively encroachment battles between different franchisees at the same cartel, which have found themselves situated a bit too close for comfort. And that fighting over the limited amounts of profits available in a particular area. In places like Acapulco, for example, there's some evidence that some of the violence is caused by effectively different franchisees of the Sinaloa Federation.
[00:56:39] And so that is something for these cartels to bear in mind as they do their franchising. It's a very, very quick way for them to expand, but they may find that their franchisees actually argue amongst themselves more than they might bargain for.
Jordan Harbinger: [00:56:50] There's a lot in this book, the idea that some cartels rely on 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 a real thing, but it seems like now — well, silk road and websites like that no longer exist but, of course, had been replaced by something else I assume. Now, you're looking at an entirely different way, an entirely different market and sort of pathway trade route for drugs. So does this mean you can buy cocaine online? Obviously, I'm asking for a friend.
Tom Wainwright: [00:57:25] Yeah, you can, you can buy cocaine, you can buy more or less what you like online and it is amazing. If you go to these websites, like, as you say, silk road itself no longer exists, but it's been replaced by a lot of other ones. You go on there and you can see these products to sell different varieties of cocaine, of heroin, crystal meth, you name it, you can find it on the Dark Web. And alongside these products, you find reviews of the products by consumers. And a lot of these sites have been set up to look like eBay. You know, you find a kind of feedback from people who have ordered from the supplier and they can give a kind of thumbs up or thumbs down. It's extraordinary. It makes the business of buying drugs feel a lot more like the business of buying regular products. And I think for consumers, it gives them certainly a lot more information about the product that they're buying. And it also gives them more information about prices. Because one of the key differences between drug markets and other regular markets is that in drug markets, you don't have very much transparency about pricing. So let's say you're buying a regular product, a computer or something like that, if someone is trying to sell you it for more than the regular price, it's pretty easy to find out that someone else nearby is selling it for less or will sell you a much better conducive for the same price.
[00:58:35] In the drugs world, it's very, very hard to do that. Consumers might know their regular guy who sells cocaine for a certain price. They won't have any way of knowing if there's some other guy across the city who sells it much cheaper or at least it's much harder for them to find out. And similarly, dealers don't have any very easy way of advertising their stuff. You know, they've got a network of people to whom they sell their drugs, but if there's someone else who lives nearby, who would be willing to pay more, they wouldn't necessarily know that. They can't advertise obviously. And yet online, they can't do all of the stuff. They can advertise their prices pretty openly, consumers can decide between products based on their price, between products based on their reviews and the quality, and so on. It starts to resemble much more a regular market. It's not a kind of hidden market anymore. It's a regular competitive free market.
[00:59:19] And so what you would expect to find, and I think what we're probably seeing already is the online, the kind of drugs that you will find probably of higher quality that's to say greater purity, and probably of lower price and crucially, they tend to offer better what you might call customer service. And it's very, very surprising. You see these guys, drug dealers on the web offering things like, "If your shipment goes missing, we'll give you a 50 percent refund." Or, "If you're a loyal customer, we'll give you a discount on your next offer," and they have a kind of happy hour and they have special promotions and all of the things that you would associate with regular businesses. And so the online world of drugs, I think really has the potential to change the industry quite a lot. It has the potential to drive up the purity of drugs, drive down prices, improve customer service, and make it an altogether better experience for consumers. In some ways, that's good. But obviously, the worry is that it could make drugs much more appealing and you could ultimately see an increase in drug consumption.
Jordan Harbinger: [01:00:14] Yeah. I'm imagining, you know, fair trade cocaine and all inventory must go, flash sale online. And there's lower barrier to entry if you're going to sell online. There's lower risk. You don't have a need for an elite network of contacts as well because they're coming through the website. And yeah, the level of trust is handled by feedback in the market, just like Yelp. Cartels are moving, not just cocaine and things like marijuana, but avocados, of course, there's human trafficking, oils, 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?
Tom Wainwright: [01:00:54] Oh, that's a good question. I'm afraid I don't have an exact answer 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 feared Cartel de los Quesos, which was the cheese cartel, and that existed to overcome a ban on imports of cheese from one Central American country to another. So if you lived in — I forget, I think maybe it was El Salvador. If you bought some good cheese there, there was a pretty good chance to have been smuggled in from, I think, it was Honduras. Anyway, with respect to regular products, I think it really depends on what your definition is. If you're talking about — say, I don't know, avocados that have been directly smuggled by this Sinaloa cartel, the risk is probably fairly low. But I think where it's pretty likely that you may have indirectly contributed to cartel's finances is through the fact that in areas like Michoacan in Mexico, where a lot of avocados that you eat in the States may come from. A lot of the businesses there pay extortion money to organize crime and that increases that cost. And as the costs go up, they have to raise their prices. And as they raise their prices, the retailers in the States have to raise their prices to consumers.
[01:02:01] So far as it's the case that many, many farmers in Michoacan will pay extortion money to the Sinaloa cartel. And so far as it's the case that those farmers ultimately will pass on some of those extra costs to consumers in the United States. It's highly likely that some of the money you pay for your avocado in say, California, will find its way back indirectly into the hands of the Sinaloa cartel. I'm afraid it's something you can never get away from entirely. I mean, of course in the drugs business, you can be pretty sure that every cent of the money that you pay for your cocaine is going by definitions to the criminal economy. And a lot of that is making its way back to Mexico to 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 a few cents in the dollar that you pay for your avocado may end up in the hands of someone rather unsavory.
Jordan Harbinger: [01:02:47] Jeez, you might as well put cocaine in your guacamole at this rate.
Tom Wainwright: [01:02:51] I wouldn't go that far, but yeah, it's pretty prevalent in Mexico. Yeah, you can say that for sure.
[Jordan Harbinger: [01:02:58] Yeah. Oh, wow. Well, 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. Narconomics will be linked, of course, in the show notes as well. It's a great read and it goes by quick, and there's just 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.
[01:03:27] Thank you to Tom Wainwright, one from the vault. That book is called Narconomics. Link to that stuff is 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 @JordanHarbinger on both Twitter and Instagram or just hit me on LinkedIn.
[01:03:47] 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 jordanharbinger.com/course. Dig that well before you get thirsty. Most of the guests on the show actually subscribed to the course. So come join us, you'll be in smart company where you belong.
[01:04:05] This show is created in association with PodcastOne. And of course, my amazing team, including Jen Harbinger, Jase Sanderson, Robert Fogarty, Ian Baird, Millie Ocampo, 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 useful or interesting. If you know somebody who's interested in business and maybe in drug cartels, well, share this episode with them. 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 you next time.
[01:04:40] As promised, here's a preview trailer of my interview here with Jason Calacanis.
Jason Calacanis: [01:04:46] I built Weblogs Inc., and 18 months after we were growing it, we were at about 150K in total revenue and AOL came and offered us 30 million bucks for it. I was negative 10,000 in my bank account and I was walking my old dog, Toro — rest in peace — and smoking a cigar with my wife. And we were sitting there in Santa Monica. We had a $2,000 a month apartment, and I said, "They've offered us $30 million. I can't keep up with our credit card bills. I'm going to take it." And she's like, "This is going to be crazy. We're going to have over $10 million in our bank account." I was like, "Yep." I sat there and I just had to have this like really long look like deep moment because I had a very complicated relationship with money and being poor because —
Jordan Harbinger: [01:05:32] You grew up wanting to be rich.
Jason Calacanis: [01:05:33] Exactly. And I want it to be powerful and rich when I was a kid and looking back on it, the reason I want it to be powerful and rich is because I was poor and I had no power. My wife remembers the story and I remember the story like it was yesterday. I was sitting there refreshing my Bank of America account, the corporate account and nothing, nothing, nothing, and then boom, 27 million bucks and I started crying. My wife was like, "Why are you crying?" I spent the majority of my life broke. I don't have to worry about money ever again.
Jordan Harbinger: [01:06:01] Ever.
[01:06:02] For more with Jason Calacanis, including what venture capitalists are looking for in startup founders and how to make yourself more marketable, whether you're a founder or an angel investor yourself, check out episode 100 right here on The Jordan Harbinger Show.
Sign up to receive email updates
Enter your name and email address below and I'll send you periodic updates about the podcast.