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Drugs, the informal economy and globalization

Toby Seddon
School of Law, Regulation, Security and Justice Research Centre, University of Manchester, Manchester, UK
Abstract
Purpose The purpose of this paper is to review the literature on the connections between illegal drugs and the informal economy and consider this in the light of the increasing levels of global interconnectedness in recent decades. Design/methodology/approach This is a review of the empirical drugs literature with a primary focus on British-based research and analysis of the impact of different aspects of globalization. Findings Patterns of heroin and crack-cocaine use need to be understood in their social, economic and cultural context, particularly in relation to their location in the informal economy. Globalizing processes have profoundly shaped local drug problems over the last 30 years. Practical implications The governance of the drug problem needs to be reframed to take account of its social economic nature and global character. New ways of thinking are required to advance future research and policy. Originality/value The focus on the impact of globalizing processes is original and leads to some important new insights for future research and policy. Keywords Drugs, Globalization, Regulation, Market economy Paper type General review

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Introduction The drug problem that is, the constellation of issues and difculties associated with the production, distribution and consumption of illegal drugs is perhaps the archetypal contemporary social problem: cross-cutting, globalized and seemingly intractable. For many politicians and policymakers, explanations and solutions are best articulated using the language of morality. For others, the drug problem is fundamentally a matter of public health. For yet others, the discourse of crime provides the most appropriate framework for considering and dealing with the issue. One of the most obvious characteristics of drugs, that they are commodities with economic value, is rarely placed at the forefront of debate, yet it is arguably one of the most fundamental dimensions of the problem. As Pearson (1987a, p. 117) put it 20 years ago, drugs like heroin are a currency in a vast economic system [. . .] which stretches around the world. It is to this economic dimension, and its global span, that this paper addresses itself. In common with many other commodities, the buying, selling, distribution and exchange of drugs need to be understood not only as economic transactions but also in a wider social and cultural context. Going back to pioneering North American studies in the 1950s and 1960s (Feldman, 1968; Preble and Casey, 1969) and later British research in the 1980s (Auld et al., 1984, 1986; Pearson, 1987a), the importance within local drug economies of lifestyles, social status, networks, friendships and subcultures

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has been repeatedly emphasised. The focus in this paper will thus be on looking at these social, economic and cultural dimensions together. In this body of work dating back now more than 40 years, it has been shown that illegal drugs feature within what have been termed variously informal, shadow or underground economies, that is, those sectors of economic activity which lie outside the bounds of ofcial recognition, measurement and regulation (Ferman and Ferman, 1973; Ferman et al., 1987; Schneider and Enste, 2000). More specically, they tend to circulate as commodities within the more unambiguously illegal parts of informal economies which provide multiple conduits for the distribution and exchange of drugs, and for a variety of other goods and services, prostitution, the disposal of stolen goods (Auld et al., 1986, p. 172). The rst section of this paper will set out what we know about these connections between drugs and the informal economy. In the British context, much of our knowledge here dates back to a series of important studies conducted in the mid-1980s (Auld et al., 1986;Pearson, 1987a, b; Parker et al., 1988). The world in the rst decade of the twenty-rst century is, however, in many quite relevant respects rather different. For many economists and social scientists, the set of processes referred to as globalization have become the most salient and signicant feature of our times. In the second section of this paper, the impact of these globalizing processes on the position of drugs within the informal economy will be explored. In the short concluding section, some implications for policy and future research will be outlined. Drugs and the informal economy From the perspective of the early twenty-rst century, it is quite difcult to imagine that prior to the 1980s, Britain had no drug problem of any signicance Pearson (2001, p. 55) has described the pre-1980s period as Britains slumbering, almost non-existent encounter with drugs. This was in marked contrast to North America, where cities like Chicago and New York had experienced heroin outbreaks as early as the late 1940s and early 1950s (Chein et al., 1964). Britain was a late developer in its drug habits. Levels of heroin use on the eastern side of the Atlantic remained very low from the 1920s right through to the 1970s and the small post-war heroin scene was essentially a London-based bohemian phenomenon, involving mainly middle-class drop-outs, hippies and students (Seddon, 2007a). All this began to change in 1979. Rumours started that year of a novel heroin problem, appearing for the rst time outside London in towns and cities of northern England and Scotland which had little or no previous experience of heroin. It soon became evident that the rumours were well-founded. Cheap brown heroin had rapidly become available in places like Liverpool, Manchester and Glasgow. In sharp contrast to their 1970s predecessors, the new heroin users were typically young and unemployed and lived in the most deprived neighbourhoods and housing estates (Pearson, 1987b), with many becoming involved in lifestyles involving drug dealing and property crime (Parker and Newcombe, 1987). Consequently, neighbourhoods experiencing a heroin outbreak, tended also to suffer from a clustering together of other social difculties like high crime rates, unemployment and poverty (Seddon, 2006). The early 1980s was also the period when Britain experienced a steep rise in youth unemployment and the perceived connection with the new heroin problem came to be highly controversial, as some felt that the new drug problem was a result of the

Conservative governments social and economic policies (Peck and Plant, 1986; Pearson, 1987b). Popular understandings at the time of the heroin-unemployment link revolved around the idea that heroin provided relief from the pains of economic deprivation. In other words, young people living on the dole with bleak prospects for the future were seeking oblivion through heroin, a variation on Robert Mertons concept of retreatism (Merton, 1957). A rather different account emerged from research in the middle of the decade, beginning with a landmark essay by Auld and colleagues (1986) in which the concept of the informal economy was at the centre of the analysis. They summarised the nub of their argument as follows:
Our argument is very simple. Social security benets and youth training allowances are at too low a level for satisfaction of basic needs for housing, clothing, heating and food let alone much in the way of intoxicants. It is partly in order to secure a standard of living better than mere survival that people get involved in aspects of the irregular economy, and it is through their involvement in this partially petty-criminal economy that they may come to buy, exchange, sell and consume heroin. There is a sense, then, in which crime can lead to heroin use: the very opposite of the conventional view (Auld et al., 1986, p. 173).

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Rather than passive oblivion-seeking or escapism, Auld and colleagues painted a picture of young people actively engaging in activities in the informal economy and through those engagements encountering heroin. This emphasis on activity echoed the classic North American account by Preble and Casey (1969) in which they described the relentless hustler lifestyle of the drug addict, continually concerned with taking care of business and generating money to buy the next bag of heroin (Seddon, 2006). In Pearsons research in the north of England, he observed how individuals involved with heroin in the context of the informal economy could generate quite signicant cash-ows, certainly when compared to their peers in the same deprived neighbourhood, even if their actual prots were only able to sustain lifestyles not too much above subsistence levels (Pearson, 1987b, pp. 82-3). At this local level, he noted how the the wheels of the heroin economy are oiled by this prolic economic activity thieving, hustling, dealing (Pearson, 1987a, p. 140). Involvement in the informal economy was not simply an economic matter in which young people were solely motivated by the need to generate income in the absence of legitimate opportunities to do so, important though this was. As Pearson (1987b, p. 83) suggests, becoming a successful user-dealer could also be a means for some to achieve a level of status and identity in the neighbourhood, as somebody worth knowing and with real local standing. More than this, he argues that the highly active hustler lifestyle could in addition provide a solution of sorts to some aspects of the social psychological burden posed by unemployment. By giving a meaningful daily structure, based around this prolic activity in the informal economy, some of the emptiness and disorientation sometimes associated with the absence of the daily routines of work could be avoided:
Heroin use within the contexts of unemployment can take on a new signicance, as an effective resolution of the problem of de-routinised time-structures. Dependence on heroin, quite literally, imposes its own rigid time-structure involving a necessary cycle of events [. . .] The rhythm of a heroin users day was often described as if it were dictated by the beat of a metronome, of getting up, hustling for money, buying heroin, smoking it, and then hustling for the next bag (Pearson, 1987b, pp. 87-8).

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In this view, the relationship between drugs and the informal economy can only be fully understood by viewing it in its social, economic and cultural context, an insight eloquently and denitively captured by Preble and Caseys (1969, p. 3) pioneering study in the ghetto areas of New York in the late 1960s:
The quest for heroin is the quest for a meaningful life, not an escape from life. And the meaning does not lie, primarily, in the effects of the drug on their minds and their bodies; it lies in the gratication of accomplishing a series of challenging, exciting tasks, every day of the week.

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Here, they emphasise a radical feature of these accounts, namely their downplaying of the signicance of the pharmacological effects of drugs on behaviour. Conventional explanations see, for example, the drug-crime connection primarily in terms of users being driven to steal to feed their habit out of a compulsive desire to avoid or alleviate withdrawal symptoms. Viewed through the lens of the informal economy, drug-crime links look rather different, more a result of the role of drugs like heroin as commodities in the more criminal corners of the hidden economy (Auld et al., 1986, p. 173). Equally radical is the notion, touched on by Auld et al. (1986) but more directly and explicitly explored by Ruggiero and Vass (1992), that illegal drugs not only circulate as commodities in the informal economy but also in certain ways penetrate into the formal economy too. In their study of drug economies in three Italian cities, Ruggiero and Vass (1992) show how in the trading and nancing of drug markets, the boundaries between the formal and informal economies become blurred. This idea will be explored further in the next section in the context of consideration of the impact of globalization. Our knowledge of the British drug problem after the 1980s is unfortunately more limited, as there were no real successors to the in-depth local studies by Pearson, Parker, Dorn and their collaborators. What is known though is that there was a second wave of heroin outbreaks in the mid-1990s which further extended the geographical spread and general availability of heroin (Parker et al., 1998). Crack-cocaine also arrived in the early 1990s and over the course of the next ten years has become slowly but steadily more prevalent (Brain et al., 1998). Today, the heroin and crack markets have to some extent come together and it is increasingly common for users to take both drugs alongside each other (Jones et al., 2007), although as always there are considerable regional and local variations in patterns of use. Perhaps, the single biggest change is in scale there are quite simply many more users of drugs like heroin and crack than there were at the start of the 1980s (Hay et al., 2006; Seddon, 2006). What seems to be unchanged though is the connection with socio-economic deprivation (Seddon, 2006). It clearly remains the case that it is in the context of involvement in sectors of the informal economy that much of this drug use takes place. A central question to ask, then, and one which does not appear to have been much considered, is why this new pattern emerged in the early 1980s and why it has developed since then in the ways that it has. Here, as will now be argued, the concept of globalization is of vital explanatory importance. The impact of globalization During the last 20 years, the concept of globalization has risen to prominence right across the social sciences. In a nutshell, it is argued by many that it is globalizing processes that

lie behind, and indeed have been driving, the enormous social and economic changes that have been reshaping the modern world in recent decades, including, it will be suggested below, the emergence and development of the British drug problem. Although the term globalization is widely used, conceptual and denitional clarity is in short supply. Starting from the simply-stated idea that globalization refers to the widening, deepening and speeding up of global interconnectedness (Held et al., 1999, p. 14), Held and colleagues offer the following helpful denition:
A process (or set of processes) which embodies a transformation in the spatial organisation of social relations and transactions assessed in terms of their extensity, intensity, velocity and impact generating transcontinental or interregional ows and networks of activity, interaction, and the exercise of power (Held et al., 1999, p. 16).

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This denition emphasises some key points. First, globalization is a set of processes rather than a description of the (xed) state of a system. Second, central to the concept is the idea of spatial transformations in patterns of interconnectedness. As Bauman (1998, p. 12) pithily puts it, distances do not matter any more. Conceptually and analytically, globalizing processes can be seen to operate in a number of different realms, four of which bear on the argument here: trade, nance, migration and culture. Trade Trade is a way of moving goods which links markets separated spatially. Globalized trade thus refers to the connecting of increasingly distant markets around the world. This involves not just the linking of essentially separate economies but rather the emergence of global markets for goods and services (Held et al., 1999, p. 149). Long-distance trade of course, has a long history, dating back in fact to antiquity (Sabloff and Lamberg-Karlovsky, 1975; Held et al., 1999, pp. 152-3). Indeed, some argue that the high-point of global trading was actually reached 100 years ago in the early twentieth century during the Gold Standard period rather than today (Thompson, 2000, pp. 97-102). Nevertheless, there is some consensus that in the second half of the twentieth century, and especially since the 1970s, the extent of global trade has risen to levels higher than ever before (Held et al., 1999, p. 176). How has this affected the drug situation? In simple terms, the infrastructural developments that have facilitated the trading of licit goods, namely the enormous improvements in transport and communications networks, have at the same time made it considerably easier to trade illicit ones (McGrew, 2000, p. 129). Opium grown in the elds of Afghanistan today ends up as heroin on the streets of cities right across the globe, from Paris to Berlin, to London and New York, to Cape Town and Lagos. The trading routes along which it travels so speedily and efciently are underpinned and facilitated by these infrastructural improvements (Friman, 2004). In the European region, the relaxation of border controls and attempts to create a pan-Europe free market have further facilitated trade. The impact on drug consumption patterns has been little short of transformative. Taking the British case, Pearson (1987b) observes how the unprecedented heroin epidemic there in the early 1980s would simply not have been possible without the opening up at that time of new trafcking routes from Iran, Pakistan and Afghanistan. Similarly, Parker notes that the second wave of heroin outbreaks that occurred a decade later in the mid-1990s was underpinned by the increasing availability of the

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drug in Britain which was, in turn, facilitated and enabled by the same mechanisms and systems for trade that were associated with the development of an effective global economy (Parker et al., 1998, pp. 46-50). In other words, the globalization of trade has greatly increased the availability within consumer countries like Britain of drugs that are largely produced in other regions of the world. The obvious, but often unstated, point is that without supply there can be no consumption. In Britain, it is only in the last 25 years or so that drugs like heroin have become available in sufciently cheap and plentiful supply that they have become important commodities within the informal economy. In this sense, the globalization of trade has underpinned the emergence and ongoing transformation of the drug problem in Britain (and elsewhere) over the last few decades. Finance The total value of the global trade in illegal drugs has been estimated at US$320 billion (UNODC, 2005). A global market of this size obviously requires the ability to hold, transfer and exchange money, both within and across nation-state borders. Furthermore, as an illegal and cash-intensive market, the ability to launder money to hide its illicit source and make it appear legitimate in origin is essential. How has globalization affected this aspect of the drug trade? It has been argued that starting in the mid-1970s there has been a dramatic expansion in global nancial ows and networks over the last few decades in which the sheer magnitude, complexity and speed of nancial transactions and ows is unprecedented (Held et al., 1999, p. 235). Advances in communications and information technology, coupled with the liberalization of national and international nancial controls, have created an infrastructure to support this globalization of nance. Real-time nancial transactions are now possible 24 h a day right across the world and at low cost (Held et al., 1999, pp. 213-4). This emerging infrastructure of global nance has facilitated the deployment of ever more complex money laundering techniques for cleaning the proceeds from the drug trade (Levi, 2002). As Johnson and Lim (2002, p. 7) put it, the problem of money laundering is greatly exacerbated by increased globalization and liberalization of the worlds nancial markets. At the same time, the banking system and other nancial institutions have been required to implement a raft of anti-laundering measures. However, whilst robust evidence about their effectiveness is in short supply ( Johnson and Lim, 2002), there are strong grounds for believing that the laundering industry continues to thrive (Levi, 2002, p. 191). By its nature, laundering also involves the enmeshing of legal and illegal commerce and nance, as the whole point is to make the illicit money appear legitimate. As Taylor (1992, pp. 190-1) suggests, when it comes to the global movement of capital and nance, distinctions between the legal and illegal become quite hard to sustain, such is the level of interdependence between the two. Indeed, echoing Ruggiero and Vasss (1992) Italian study, he goes on to argue that money laundering is in many senses a pre-condition for the survival of legitimate businesses (like banks or investment houses) as well as for illegitimate businesses (Taylor, 1992, p. 191). Without necessarily going as far as that, it is certainly the case that large-scale illegal economic activity like the drugs trade does end up providing valuable liquidity to the legitimate nance and banking system. It can be argued then that the globalization of nance has underpinned the expansion of the global drug trade in recent decades, particularly through the increased

capacity of the system to sustain large-scale money laundering (despite the introduction of laundering controls). Again, as with the opening up of global trade discussed above, this has had a direct and signicant impact on the nature of drug problems in consumer countries like Britain. It has provided the nancial infrastructure which has made possible the expansion in availability of drugs like heroin and crack-cocaine and their circulation in the informal economy. Migration The movement of people around the world has long been a feature of human life. Nevertheless, the scale and spread of movement appears to have increased in recent years. According to the Global Commission on International Migration, there are now nearly 200 million migrants moving between countries, a gure which has doubled since the start of the 1980s (GCIM, 2005). Again, within Europe, the free movement of people between European Union member states has been a fundamental policy goal which has facilitated regional migration in that area. Although the Schengen agreement, which allows passport-free travel across borders within participating European countries, has been accompanied by certain new controls, the general trend has been towards increased intra-European movement of people. In terms of drugs and the informal economy, these increasing ows of human migration have had two impacts. Firstly, it has served as a subsidiary but signicant adjunct to the expansion of cross-border trade. Drugs as a commodity have the great advantage (from the perspective of trafckers, at least!) that they can be secreted on, or indeed inside, a human body and taken across borders. A single individual can potentially carry bags or packets of heroin or cocaine of quite a high economic value. The increasing ows of people and the relaxation of border controls have made this much easier, further fuelling the expansion of drug availability which underpins growth in consumption. Secondly, and perhaps even more importantly, there is a signicant social and cultural dimension to human migration. As Held et al. (1999, p. 285) note, people move with their cultures and so the establishment of settlements and migrant communities creates a range of new social relationships between home and emigrant community, home and host societies that did not previously did not exist. In the British context, Pearson and Patel (1998) have explored some of the implications of these transformations in their study of Pakistani heroin users in Bradford in West Yorkshire (Friman, 2004). They consider what might be the implications for the Bradford drug scene of the fact that Pakistan is situated in a geopolitical region that constitutes one of the worlds major areas of opium production (Pearson and Patel, 1998, p. 213). In an insightful analysis, they examine how kinship and family ties back home shaped a complex unfolding of the relationship between drugs and the informal economy within the Asian community in Bradford in the 1990s. This is perhaps one of the best illustrations of how globalization can have a profound impact on local drug problems, a point which will be returned to later. As Giddens (1991) has observed, globalization is not an out there phenomenon but rather one which has signicant effects in our own backyards. Culture The homogenization of culture symbolized in the worldwide pervasiveness and ubiquity of consumer brands like Coca-Cola and McDonalds is perhaps central to

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popular understandings of what globalization means. As Held et al. (1999, p. 327) put it, there is no historical equivalent of the global reach and volume of cultural trafc through contemporary telecommunication, broadcasting and transport infrastructures (Mackay, 2000). Bauman (1998, p. 15) observes that advances in information technology, and above all the internet, have quite simply put paid to the very notion of travel (and of distance to be travelled) making information instantaneously available throughout the globe. But how is this relevant to the question of the links between illegal drugs and the informal economy? One of the central social and cultural shifts of the second half of the twentieth century has been the increasing emphasis on consumption (Bauman, 1998, pp. 80-5). Some have argued that we are justied in seeing this as an epochal shift from a socio-economic system based primarily around production to what might be called a consumer society (Bauman, 1998, p. 80; Hayward, 2004). Young (1999, 2003) has suggested that in economically deprived areas, rather than abandoning the cultural goal of consumption, those at the sharp end of social exclusion appear to embrace it with particular fervour. Collison (1996, p. 431), for example, describes how the young male drug-using offenders in his study wanted to be super-consumers. According to Young, there is, however, an anomic disjunction between this cultural inclusion in the consumer dream and the structural exclusion of certain groups from opportunities to achieve it. Participation and engagement in the informal economy, in which drugs circulate alongside other goods and services, becomes a means for some to resolve this conict. In this sense, the expansion in the global ow of consumer brands and symbols, from Nike trainers to Gucci watches, adds to the pressures in deprived localities to become involved in the informal economy and, consequently, in many cases with illegal drugs. New inequalities, new insecurities? One of the most important and controversial areas of the globalization debate concerns the question of whether globalizing processes have led to new patterns of inequalities. Are there new winners and losers in this changing world? The short answer here is yes! Whilst the full picture is complex (Held, 2000, pp. 174-5), it is evident that it matters now more than ever where one lives in terms of ones prospects for economic survival or prosperity. As noted above, and contrary to some claims, globalization has not led to the effacing of the meaning or signicance of place and locality (Loader and Sparks, 2007, p. 91). Bauman (1998, p. 105) notes that rather than homogenization, a direct effect of globalization is increasing polarization, what he terms the postmodern polarization of social conditions. It is exactly this socio-economic polarization that is connected with the urban clustering of problems of drugs, crime and poverty in deprived neighbourhoods and which underpins the relationship between drugs and the informal economy. A similar polarization can be seen at the level of nation states, where a new hierarchical world order is establishing itself with the gap between rich and poor countries widening rather than narrowing. It has long been recognised that some of the conditions for drug production are engendered by the poor positions of producer-countries in the world economic order (Stimson, 1987, p. 58), and this can be observed in the developing new patterns of producer and transit countries in the world drug market. Accompanying this global re-stratication has been the emergence of new weak

states and zones of conict which closely overlap with areas of poverty. As the example of Afghanistan grimly illustrates, issues of security, development and drug production can become closely bound up together (Dorn, 2004, p. 257; Chouvy and Laniel, 2007). For Bauman (1998, p. 69), the existence of weak states and political fragmentation, far from being an aberration in the new global order, is actually the other side of economic globalization, the two representing mutually complementary processes. Changing patterns of drug production and trafcking are clearly being powerfully shaped by globalizing processes (Auld et al., 1984, pp. 4-5). Conclusion Two basic points lie at the heart of the thesis in this paper. First, it has been argued that local drug problems need to be set in their social, economic and cultural context. In particular, an understanding of the place of certain drugs as commodities within sectors of the informal or hidden economy is essential. Second, it has been suggested that the acceleration of globalizing processes over the last 30 years has had, and continues to have, a profound impact on local drug problems. One of the central implications of this argument is that we need to rethink how we understand and address the drug problem. Neither local action nor national strategies can be enough as the matter also has a global character that spans across borders. Although supra-national bodies like the European Union and the United Nations have their own drug strategies, these are currently relatively limited and have little bite at the sharp end of local drug problems. Indeed, the last UN drug strategy was met with ridicule by many in the eld, with its strapline a drug-free world, we can do it!. The difculty and the challenge, both for researchers and policy-makers, is how to conceptualise and operationalize governance that needs not only to transcend national borders but also to sweep across levels from the global to the local. Two emerging bodies of innovative scholarship may be helpful here. The rst is the groundbreaking work by Benedict Kingsbury and colleagues at the New York University School of Law. This has explored how globalization is leading to the emergence of a global administrative space in which regulatory functions are performed in ways that move across and between levels in complex and dynamic ways (Kingsbury et al., 2005; Krisch and Kingsbury, 2006). They argue that distinctions between domestic and international law are breaking down across disparate elds, including many which go to the heart of the issues discussed in this paper banking regulation, administration of refugees, UN Security Council decisions, world trade within the WTO regime, money laundering standards and World Bank rule-making (Krisch and Kingsbury, 2006, pp. 2-3). It may be possible therefore to draw on this conceptual framework to reframe our understanding of the governance of the drug problem. The second body of scholarship is the work on regulation which has been led by the Regulatory Institutions Network (RegNet) at the Australian National University (Braithwaite, 2000; Braithwaite and Drahos, 2000). At the core of RegNets intellectual agenda is the attempt to understand transformations in contemporary governance in order to develop more effective and fairer approaches to regulation in diverse areas of social and economic life. The application of regulatory theory and perspectives may provide another fruitful new direction in drugs research and policy (Seddon, 2007b, pp. 152-4).

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Perhaps, then these two new ways of thinking about the drug problem may help us to move beyond the established policy and research frameworks which have yielded relatively little to date. One thing that is certainly clear is that at the centre of any radical alternative approach to this most challenging of social problems will need to be a full understanding of the social economic nature and global character of the issue.
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