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Another Capitalist Racket

America’s Illegal Drug Complex

by DAVID ROSEN

American capitalism consists of a constellation of rackets.  The Occupy Wall Street movement has focused a spotlight on the banking and financial-services racket.  Others have exposed the military-industrial complex, the extraction industries, the insurance, pharmaceutical and healthcare system, the agriculture and food combine and the communications trust.

Each racket is distinguished by the self-serving, intimate interrelation of private corporate interests and the public government, whether at the federal, state or local level.  Each racket consist of a host of distinct businesses elements, organized through both vertical and horizontal operations, no matter whether the business is conducted “legally” or not.  Each is charged with maximizing profit.

Rackets succeed by enabling private corporations to exploit the power and wealth of the public trough, the state.  Rackets do this in different ways, combining direct contracts, subsidies and tax breaks that further engorge the corporate bottom line.

One racket involves direct federal contracts to private companies, often with cost-plus agreements; in 2010, an estimated $180 billion went to the top 20 contractors.  This is the model of the military-industrial complex.

A second racket is characterized by the transfer or “externalization” of the social costs associated with a company’s product to consumers and taxpayers.  This is most evident in role of government subsidies and lax breaks associated with the (indirect) health-related costs that underwrite the extraction (e.g., air & water pollution) and food (e.g., obesity) industries.

A third type of racket involves the use of the legal system to maximize private gain and exemplified by the prison-industrial complex.  The criminalization of “illegal” drug taking as an unacceptable practice, like alcohol during Prohibition, has enabled many third parties, including government agencies, banks and private contractors, to profit from other people’s suffering.

Shedding moral pretenses, one needs to look at the illegal drug business in America as just another capitalist racket.   No better, no worse.  The street dope dealer is just another version of the day stock trader, the only difference is their legal status, although their social status, clothing and marketing message might be the same.

* * *

Pres. Richard Nixon declared war on illegal drugs in 1971; Nancy Reagan launched her fateful “War on Drugs” campaign in 1982; and Pres. Ronald Reagan signed the National Security Directive 221 in 1986 that transformed the drug war into a major, national conflict.

A recent article laid out the topography of America’s “drug” culture.  [see Drugged Out America:  The Failed War on Drugs.CounterPunch, September 2, 2011.]  In it, the line between the legal and the illegal, like that between the moral and immoral or the licit and illicit, is acknowledged as a terrain of social conflict, one that changes over time through popular struggle and social conditions.  This characterized the 1920s, the era of alcohol prohibition; we are amidst such a period today.

While it is impossible to tabulate the full costs of U.S. drug use, even the most conservative estimates are staggering.  Millions of Americans (some estimates run as high as 20% of the population, 60 million people) either regularly abuse or are addicted to “drugs,” whether “legal” (i.e., prescription) or illegal (e.g., marijuana, cocaine, etc.), whether a commercial or underground product. And this does not include alcohol, a legal intoxicant.  America is a drugged out nation.

One estimate places the costs associated with drug addiction/abuse in the U.S. at “over $484 billion per year.”   This includes the costs for policing, healthcare, crime and lost earnings.  Two academic experts, Jeffrey Miron and Katherine Waldock, estimate that de-criminalizing (i.e., regulating and taxing) currently illegal drugs would save Americans approximately $41 billion a year in federal and state government expenditures relating to drug enforcement.

According to the Global Commission on Drug Policies, “Drug Policy and the incarceration of low-level drug offenders is the primary cause of mass incarceration in the United States.”  The U.S. has the largest prison population on the planet with more than 2.3 million people currently incarcerated; between 1987 and 2007, the federal prisoner population nearly tripled from nearly 600,000 to 1.6 million.  Currently, one out of 100 adults is in jail or prison and one out of 31 adults is in jail, in prison, on probation or on parole.  The report points outs that 40 percent of drug arrests are for simple possession of marijuana.

Going further, the Commission estimates that, in 2006, the federal and state governments spent $68 billion on incarceration, up from a meager $6.9 billion in 1980.  During the ten-year period between 1985 and 1995, new prisons opened at a pace of one facility a week.

According to a recent ACLU report, “Banking on Bondage: Private Prisons and Mass Incarceration,” for-profit companies are responsible for approximately 6 percent of state prisoners and 16 percent of federal prisoners.  It points out “in 2010, the two largest private prison companies alone received nearly $3 billion in revenue, and their top executives, according to one source, each received annual compensation packages worth well over $3 million.”  The war-on-drugs racket has turned out to be very profitable for some.

Since Nancy Reagan’s campaign, Americans have spent an estimated $1 trillion in this losing war.  Its been a war in which the battle has only gotten worse over time.   In 2010, the Associated Press acknowledged the following cautionary concern: “This year, 25 million Americans will snort, swallow, inject and smoke illicit drugs, about 10 million more than in 1970, with the bulk of those drugs imported from Mexico.”

* * *

In line with the business model of many American industrial rackets, the illegal drug racket depends on the tribute collected at its retail outlets.  These commercial transactions are conducted anywhere and everywhere, be it on a deserted street corner or at a local store, at a dealer’s apartment or the customer’s home.

Like the legal alcohol consumer, the illegal-drug customer base can be divided between “hard core” and “casual” users.  Teresa Novellino, writing in “Portfolio,” estimates the causal base at 13 million people, including Americans who “think nothing about occasionally buying a gram of cocaine, a few hits of ecstasy or a quarter ounce of weed to party with their friends on the weekends.”  She estimates the hard-core user base, those having “more serious drug habits, and may spend $100-$500 dollars a week on purchasing their drugs,” at between 5 and 6 million.  Referring to U.S. government data (which she does not specify),Novellino estimates that “these two groups – hard core users and casual users – spend approximately $60 billion dollars a year.”

In addition to old-fashion illegal drug dealing, a new “legal” drug industry now flourishes.  According to Ethan Nadelmann of the Drug Policy Alliance, medical marijuana is legal in 16 states and the District of Columbia.  In addition, more than 1,000 medical marijuana “dispensaries” operate throughout the country; efforts are underway in Arizona, Maine, New York and Rhode Island to set up similar clinics.  Recalling the gory days of Prohibition, the manufacture, transport, sale and consumption of marijuana is illegal under federal law.

Nevertheless, “legal” marijuana sales are becoming a viable specialty business.  In seven of the nine territories where “clinics” operate (excluding DC and NJ), an estimated 730,000 people have “shopped” at one of these dispensaries.  In California, for example, medical marijuana clinics generate an estimated $1.3 billion in sales and $105 million in taxes.  For tax-hungry state and local governments, a marijuana dollar is no different than revenue garnered from any other sales transaction.

In late September, federal agents arrested 37 people for operating an illegal prescription-drug ring at a Boeing Co. plant in Ridley Park, PA, where the Chinook military helicopter is manufactured.  Of those charged, 23 were indicted for distributing drugs including Actiq, OxyContin and Xanax.

IMS Health, pharmaceutical industry research firm, estimated that in 2009 prescription drug sales in the U.S. topped $300 billion. The U.S. Department of Health and Human Services’ Substance Abuse and Mental Health Services Administration (SAMHSA) found abuse of prescription painkillers in the increased 400 percent between 1998 and 2008.  The abuse of prescription medications ranks second to marijuana in terms of frequency of illegal drug use.

The Centers for Disease Control notes that over the last 10 years the percentage of Americans who took at least one prescription drug in the past month increased to 48 percent from 44 percent; the use of two or more drugs increased to 31 percent from 25 percent; and the use of five or more drugs increased nearly doubled to 11 percent from 6 percent.  In 2007-2008, 1 out of every 5 children and 9 out of 10 older Americans reported using at least one prescription drug in the past month.

Scarier still, the Florida Medical Examiners Commission found that the abuse of prescription drugs has outstripped illegal drugs as a cause of death.  In 2007, three times as many people died taking a legal drug then by cocaine, heroin and all methamphetamines put together.  “The abuse [of pharmaceutical drugs] has reached epidemic proportions,” said Lisa McElhaney, a sergeant in the Broward County Sheriff’s Office. “It’s just explosive.”

Crossing the line to conventional “illegal” drugs, traditional business rules of production and distribution operate but with a different cost-of-goods model.  According to an analysis by Abt Associates, “What America’s Users Spend on Illegal Drugs,” “like any commodities business the closer you are to the source the cheaper the product.”  It estimates that processed cocaine in Colombia sells for $1,500 per kilo and is sold in the U.S. for as much as $66,000 a kilo.  A similar pattern is in effect for heroin; a kilo in Pakistan costs $2,600 but retails for $130,000 in the U.S.

And a homegrown synthetic drug like methamphetamine, which costs between $300 to $500 per kilo to produce, has a retail street price of up to $60,000 per kilo.  CNN Money estimates the street vs. retail price for a single tablet of some commonly trafficked drugs as follows: Oxycontin: $50 to $80 on the street, vs. $6 when sold legally; Oxycodone: $12 to $40 on the street vs. $6 retail; Percocet: $10 to $15 vs. $6 retail; and Vicodin: $5 to $25 vs. $1.50 retail.

* * *

Since Pres. Nixon launched the war against “illegal” drugs in 1971, opportunities politicians, police departments, think tanks and innumerable private corporations have shared in the multi-billion dollar anti-drug gravy racket.

Those who have paid the harshest penalties in this war are those imprisoned in the government’s round-‘em-up and three-strikes campaigns.  Between 1980 and 2006, the number of people incarcerated for drug offenses in state and federal prisons increased 1,412 percent to 361,276 from 23,900; today, the drug-related prison population is estimated at around 500,000.  Most of those arrested are nonviolent offenders.  In 2010, approximately $40 billion in taxpayer dollars were spent in fighting the war on drugs.

Making matters worse, there is little evidence that imprisonment or harsh sentences has had any noticeable affect on the drug trade.  Drug sales have not significantly fallen; drug use has not declined; public safety has not improved.  Mexico, the great supplier of drugs to the U.S., is a nation at war – and the war spills over with dreadful consequences.

The only winners in the war on drugs has been the drug cartels, the prison-industrial complex and the U.S. banks and other middlemen who facilitate the “washing” of illegal drug money.

The profiteering by the financial sector in the drug trade often goes overlooked.  Antonio Maria Costa, head of the UN Office on Drugs and Crime, argued in 2009 that the proceeds of the illegal drug trade were “the only liquid investment capital” available to some banks on the brink of collapse during fiscal crisis of 2007-2009 period.  He estimated that a majority of the $352 billion (£216 billion) of drugs profits was absorbed into the economic system as a result.

In March 2010, Wachovia (which had been absorbed by Wells Fargo in December 2008) copped a plea for laundering some $378.4 billion from Mexican-currency-exchange houses from 2004 to 2007.  “Wachovia’s blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations,” said Jeffrey Sloman, the federal prosecutor of the case.  (Sloman did not provide an estimate of the bank’s fees generated from its illegal practices.)

In keeping with the federal government policy of coddling the nation’s biggest banks, the Wachovia/BofA fine was for $160 million, less than 2 percent of the bank’s 2009 profits of $12.3 billion; also in 2009, Well Fargo secured a federal bail out of $25 billion. Crime pays.

Other U.S. banks that have been implicated in questionable money laundering schemes include Israel Discount Bank of New York, Harris Bank in Chicago and J.P. Morgan Chase.

In the face of the mounting recession, both the federal and state governments are being forced to cut back on the staggering amounts of money dolled out in the failed war on drugs.  In California, New York and a dozen other states, nonviolent offenders, most often those arrested for illegal drug possession, are being pushed out of the prison door in an effort to save money.  In New York, for example, prison closings are projected to safe the state $184 million over the next two years.

Equally revealing, in 2010, after nearly two decades of enforcement of the Anti-Drug Abuse Acts of 1986 and 1988, which established excessive mandatory penalties for crack cocaine, Congress passed and President Obama signed the Fair Sentencing Act that normalized mandatory minimum sentence for crack and powdered cocaine.  Federal officials still enforce anti-marijuana polices with occasional raids on “clinics.”

A somewhat more rational drug policy may be taking shape as evident in efforts to decriminalize “medical” marijuana, to adjust crack penalties and to remove from prison those incarcerated for nonviolent drug crimes.  The fact that “public” monies are too tight to keep funding the failed “war on drugs” has forced policy makers to acknowledge that forced prohibition does not work – something the public has known for a long time.

Four decades ago, Nixon launched America’s modern prohibition movement, this one out to ban all non-alcohol intoxicants.  Nixon’s policies have been continued (and, in many ways, made harsher) by all subsequent presidents.  They are a failure.

A new, rational and radical approach to “illegal” drugs is in order.  What most “experts” seem to acknowledge but can’t say is simple: like with rationalization of the alcohol industry that followed the ending of Prohibition, the illegal drug “business” needs to be rationalized.  In this way, drugs production would be regulated, sales taxed and its “abusers” (i.e., addicts) seen as patients as opposed to criminals.

David Rosen is a contributor to Hopeless: Barack Obama and the Politics of Illusion, forthcoming from AK Press. He can be reached at drosennyc@verizon.net.