John Gaugin-Rosenthal and Matthew Mesisklis
Baja California has served as a tourist hub for decades – luxurious real estate, pristine beaches, and excessive (well-deserved) drinking characterize the area. Now, a year following the extradition of El Chapo, several factions are battling it out in hopes of claiming majority power over the fractured drug market. With El Chapo gone, an even playing field has emerged, leading to increasing violence.
Homicide rate data indicates that 2017 has been the peak of the drug war in Mexico, and its impact has proven detrimental to Mexico’s economic development. With 2100 homicide victims, Baja California is quickly losing travel appeal, putting hundreds of attendants, construction workers, and food servicers out of work. A downtick in tourism to Baja could be disastrous for the region, especially considering how sensitive tourism is to crime rates.
Local Businesses, Tourism, and Employment
The drug war takes a toll on local businesses. Bar and restaurant owners, retail shops, and family-owned tourist boutiques are often given a choice: “plata o pomo”. Either they pay a fee to the cartel and continue its operation, or suffer the consequences. This takes away from profit margins, thus impacting profitability. Furthermore, violence in the region harms larger sectors: “for every increase of 10 percentage points in homicide rates in Mexico, you see an increase in unemployment in that region of half a point,” Rios said at the Wilson Center. “Unemployment currently in Mexico is 5%, so for each 10 points of increase in the homicides rates, you see half a point extra on unemployment. That’s pretty significant.” Violence impacts firms’ productivity: staff tardiness, temporary halts in production, employee absences – all caused by drug activity and violence – severely impact productivity and overall production in major sectors. Theft, particularly in the oil industry, has impacted a once-blossoming sector. These effects pose problems to the quality of life for Baja California’s citizens as violence impacts tight-knit communities directly. The war on drugs also impacts these communities indirectly as economic struggles are far-reaching.
Note: the 9% increase (found in the article) in foreign travel can be attributed to the devastating Hurricanes which impacted Caribbean tourism and essentially eliminated a seasonal competitor.
The bar graph below displays ‘resilient’ and ‘sensitive’ sectors. Those on the left are more responsive to the increasing violence in the region. The more sensitive sectors tend to be labor-intensive. Given that Mexico’s economic production is predominantly labor-intensive, it is poised to struggle amidst the growing violence.
The brain drain dominates the Mexican economy, as it does most underdeveloped economies due to a lack of financial opportunities. The intensifying violence in the region attributed to the drug war has apparently amplified the consequences of the brain drain; now, students possessing significant amounts human capital – a truly valuable economic asset – leave the country not just due to scarce opportunities, but also due to the uptick in violence. Now, students also leave in hopes of finding a safe haven.
The cartel landscape has changed severely in recent times; the extradition of El Chapo has seemingly vacated a spot at the top of the order of power and it has several drug factions battling one another over territory and profit. As the issue intensifies and continues to develop, the Mexican economy – the oil, tourism, and retail industries in particular – will be negatively impacted and will face several challenges to growth. In terms of economic development, the increasingly struggling economy will severely impact the quality of life (access to schools, disposable income, safety, real estate value…etc.).
- How will the war on drugs impact FDI?
- How will the increasingly dangerous cartel activity impact economic development (education, health…etc.)?
- How will the drug war impact the political landscape of Mexico, and how will this translate to economics?
- Will 2018 see a new peak in cartel violence?
Decriminalization to aid anti-addiction efforts:
Rolling Stone: In an effort to curb violence which originally peaked in 2015, mexican legilators have pushed to make small amounts (up to 5 grams) not carry a legal repurcussion. Although this was marketed as a medical issue, meaning addicts should wean themselves off using small doses, this also means Wealthy Americans like can now use small amounts of narcotics while on vacation, which poses a problem that might entangle tourists in the drug war.