What Is The Deal With Drug Reform?

October 4, 2018
Editor(s): Stefano Gunawan
Writer(s): Leena Phan, Megan Ortega, Sam Iacono

“This research is important because illicit drugs won’t go away, and there will always be a black market.”
– Liana Jacobi, Applied Econometrician at the University of Melbourne

An explanation of drug reform in 500 words:

When something is bad for the public, you simply outlaw it right? That’s what’s been done for hard drugs, and that’s also what’s also been done for other anti-social norms such as theft, murder and adultery. Over the centuries, instances of almost all types of vice have undergone a substantial decline. So why is it that drugs, amongst all these other social harms, is such a stubborn foe?

Figure 1  Downward trend in homicide since 1990

Figure 2  Upward trend in drug and alcohol abuse since 1990

Well, it’s all about supply and demand. The basic thing you need to understand about drugs is that they’re really likeable. It’s estimated that in 2013 Australia, 3 million people over 14 years old used illicit drugs in the last 12 months; that’s in spite of their illegality. Yes, some may attribute this to the forbidden-fruit syndrome, but there are more than enough testimonials highlighting the euphoric effects of some drugs to convince all of us of their general enjoyability. In economic terms, what this means is that drug usage is extremely price inelastic, which means that trying to stop drug supply by say, criminalising it, is only going to have the effect of majorly increasing prices (meaning more revenue for street-market vendors and smugglers), while achieving just a fractional decrease in overall drug use.

Figure 3 Basic economic theory explains why supply-based drug reform doesn’t work

What this also means is that criminalising drugs sends more money towards the people who are supplying it, and away from the central government trying to stop it. From any strategist’s point of view, sending more money to the public enemy you’re trying to stop doesn’t make a lot of sense. The counter-approach to mass-criminalisation is, of course, mass-legalisation. This is what has been done in Portugal since 2001, and the effects have been astounding. Drug usage has not increased, but in fact, decreased. How? Many experts say that it is a result of the treatment-based health and rehab programs, rather than the punitive approaches traditionally taken toward drug users.

In Australia, there have been rumblings about drug reform for a long time, particularly from the Drug Policy Australia group and the Australian Sex Party (now renamed Reason Party). The basic stance held by these pro-drug reformers is that drug abuse problems ought to be dealt with communicably and openly, rather than punitively and stigmatically. In the words of ex-Sex Party leader and now Reason Party Fiona Patten, “When someone’s addicted to heroin, I don’t think we should be sending them to jail for that, I think we should be helping them.”

What would legalisation look like in Australia? Well, the social implications are impossible to foresee, although many people have strident opinions. What is clear, however, is that it could enormous economic impacts. The legalisation of cannabis alone, in Australia, let alone the whole world, is calculated to increase government revenue by A$432.5 million per year to A$727.5 million per year.

If drugs are a real problem in Australia, as they’re made out to be, then what is the right approach here? The answer isn’t totally clear. But what is clear is that the current approach to drug abuse  – criminalisation and stigmatisation – is not working, and something ought to change.

Note: This article has not made comments on the goodness or badness of drugs in general. This is a well-trodden topic filled with a range of differing opinions and ongoing research (particularly drugs for medicinal use). For further reading on the rich literature of drugs and drug reform, see the resources below.

‘Legal Highs’ may be more dangerous than traditional drugs of abuse: https://bit.ly/2NTAD3U

Q&A: could Portugal’s drug reforms work in the UK?: https://bit.ly/2ymtIqn

‘Why The War on Drugs is a Huge Failure’: https://www.youtube.com/watch?v=wJUXLqNHCaI

Richard Nixon’s War on Drugs 1972: https://www.youtube.com/watch?v=bsrxpVUKUK0

The Economics Behind War on Drugs: http://bit.ly/1VOJiPk

World Drug Report: http://bit.ly/1QY97NU

Multidisciplinary Association for Psychedelic Studies https://maps.org/

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Stefano Gunawan

Stefano Gunawan is a 3rd year student pursuing an Honours degree in Economics. In the future he hopes to acquire a role in public policy and planning.

Leena Phan
Megan Ortega

Sam Iacono