The last fifty years has seen an ever increasing number of both intrastate wars and failed states. Although many explanations for this have been proffered few have attempted an international political economic (IPE) analysis, which given the impact of the illicit international economy on intrastate conflicts and failed states is a sad commentary on the focus of the resurgent subject of international political economy. This is especially true when one examines a situation such as Afghanistan; a state that has not experienced peace for nearly forty years, and suffers from a conflict spurred on by criminal organizations, and armed groups partaking in international drug trafficking.
But how can IPE assist in explaining these events? One way is through the application of Michael Porter’s theory of comparative advantage to various aspects of violence, including causes. Competitive advantage suggests that performance can only be created by creating a sustainable pricing advantage, as Michael Porter wrote in his book Competitive Advantage: “competitive advantage grows fundamentally from the value a firm is able to create…value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset higher prices.”
When applied to various security problems the significance of the idea becomes apparent. For example a country with natural resources has an obvious competitive advantage in that resource, a competitive advantage so great in fact that people are willing to fight over the disproportionately rich revenue streams derived from leveraging that advantage. This is in essence the resource curse often discussed in regards to oil producing countries engaged in intrastate warfare, such as in Angola. But it can be applied in other cases as well, for example diamonds can be found in many places through out the Democratic Republic of Congo, the country poses a natural competitive advantage in diamond production.
The result of this competitive advantage is a scramble by various armed groups for control over the resource, because, save the cost of labor, the country poses almost an infinite competitive advantage over countries that do not posses abundant diamond supplies. This in turn means that control of resource can earn armed groups a significant revenue source. In the case of the Democratic Republic of Congo this rush for control of the diamond supply has in part helped fuel intrastate violence for the last thirty years or so.
In today’s developing world a significant and growing problem is failed states. Failed states are states that can no longer provide their people with positive political goods. In many explanations of failed states transnational organized crime taking advantage of natural competitive advantages (such as diamonds and oil) are seen as a result of state failure, and not part of the cause of state failure, which is seen as primarily a political issue. This paper proposes instead that transnational organized crime is in fact one of the causes of state failure, not simply a result, and thus a primary cause of large scale interstate conflict. The reason for this is that the chaos and absence of rule of law within a failed or weak state is a competitive advantage in the illicit international economy for the operations of transnational organized crime. Thus organized crime can be seen as benefiting from not only operations within an already failed state, but also from propelling weak states into failure and preventing the re-organization of failed states into functioning states.
Afghanistan as a Failed State and International Political Economy
What causes states to fail? Often time’s state failure is argued to be the result of weak governance. In the case of Afghanistan weak governance is certainly an important factor in the states inability to successfully emerge from the chaos of forty years of intra-state war; but weak governance is an issue that plagues all new states, and not all new states become failed states rife with organized crime, drug trafficking, terrorism and insurgents. Thus to claim that failed states occur solely because of weak governance would seem a poor argument. Robert Rotberg claims in his article The New Nature of Nation-State Failure that criminal violence is an indicator of an already failed state, but in the case of Afghanistan it would seem that criminal activity went part and parcel with the process of state failure, it did not simply follow it.
More specifically it seems as if the growth of transnational organized crime, focused specifically on international drug trafficking, is directly related to Afghan state failure, especially following the collapse of the Najibullah regime in 1992. If transnational criminal organizations actively participate in the breakdown of state control and prevent the state from maintaining a monopoly on the use of violence within the state then transnational organized crime and the illicit international economy must be treated as proximate causes of state failure.
It is important to examine this question from the perspective of international political economy though because the drug business in Afghanistan is dependent not on domestic abuses, as, for example, organized crime during the 1920s in the United States was, but on the export of illicit goods out of Afghanistan to other countries. As Peter Andreas highlights in his essay Illicit International Political Economy: The Clandestine Side of Globalization, “at base, most transnational organized crime, involves some form of profit-driven smuggling across borders.” It is thus essential to situate the criminal activity in Afghanistan, and its failure as a state, within the context of the illicit international economy, and particularly given the extent to which it undermines the stability of the entire central-Asian region.
At the current time Afghanistan is one of the largest growers of illegal poppy plants in the world, it is reported to supply roughly 90% of the worlds market. Additionally, and perhaps most importantly transnational organizations operating out of Afghanistan have a significant competitive advantage in the drug trade, which is most easily demonstrated by the reported sevenfold price advantage growers in Afghanistan are said to have in producing illicit opium, but this price advantage is derived from the lack of production friction, which in this case takes the form of government attempts at stopping the drug trafficking.
The European market for heroin is reported to be around $12 billion dollars a year, the Afghan farmers that grow the poppy and refine it into the heroin precursors are said to earn approximately $56 million, the difference is pocketed by Afghan middle men, politicians/officials that needed bribing and of course the transnational criminal organizations that sell the final product in Europe. The price advantage can be envisioned another way as well, the further away from the largely lawless Afghanistan drug traffickers take heroin the more valuable it becomes. Inside Afghanistan 1kg of heroin is said to be worth between $2,000 and $2,500, as the heroin travels towards Europe its value increases, along with the penalties for possession and the difficulties involved in transportation. At the Afghan-Iran boarder 1kg is worth $5,000, at the Iran Turkey boarder 1kg is worth $8,000 and on the streets of the Europe 1kg of heroin is worth approximately $44,300.
As the UN has highlighted this earnings differential comes from the fact that the “the opium trade in Afghanistan did [does] not have a risk premium,” and thus transnational drug trafficking organizations leverage a tremendous competitive advantage derived from the failed state chaos in Afghanistan. This competitive advantage was only possible because the government is so inept, incapable or busy with other problems as to be unconcerned with drug trafficking. Thus for transnational drug trafficking organizations supporting state failure and preventing state formation in the first place are a primary interest.
How Transnational Drug Trafficking in Afghanistan Works
The drug of choice for traffickers in Afghanistan is either opium or the more refined heroin. Afghanistan transnational drug traffickers supply the world with roughly 85% of the global heroin and morphine supply. The majority of that supply is transported from Afghanistan to either Europe or Eastern Asia, generally heroine and morphine are shipped to Europe and opium is shipped to Eastern Europe. The two largest consumers of poppy derived drugs are the Russian Federation and China, although Iran and Pakistan have very high per-capita use as well, likely as a result of the low costs due to Afghan proximity.
The majority of the poppy grown in Afghanistan is refined in country; this is because of the ease which drug traffickers can operate free from government and law enforcement interference, which is the chief source the pricing advantage Afghan traffickers poses over drug traffickers in other countries. This is a significant point because unlike in traditional economics, in which chaos like that occurring in Afghanistan would be considered an impediment to firm success, in an illicit businesses traditional friction costs are competitive advantages, and typical advantages – the rule of law for example – are friction costs. Approximately a third of the heroin produced is then shipped to Europe, a quarter to Russia and the remainder to Pakistan, Iran, Africa and China. Drug traffickers generally transport either through Central Asia into China and Russia or through Iran and Turkey into Europe.
The majority of the drug trafficking out of Afghanistan appears to be dominated by five major crime organizations. These organizations appear to be comprised of a mixture of warlords and government officials, as well as smaller regional organized crime organizations and some form Mujahedin. In addition there are many Russian, Pakistani and Iranian/Turkish drug trafficking organizations involved, some with support of European organized crime. There appears to be little or no participation of transnational drug cartels from South America, who generally cultivate poppy for refinement and sale in the Americas.
Violence in Afghanistan Spurred on by Transnational Criminal Organizations
In order to support their competitive advantage transnational drug trafficking organizations within Afghanistan must promote further domestic failure of the Afghan state. Economic models of conflict, such as those presented in Dietrich Jung’s book Shadow Globalization, Ethnic Conflicts and new Wars emphasize that illicit trade, such as drugs or diamonds, plays a major role in this process, both financing armed groups and sustaining conflict by exporting these goods around the world, especially exporting them from zones of conflict to zones to peace. If it is indeed true that transnational criminal organizations derive a significant competitive advantage from the chaos of a failed state, the evidence of this should be in the cash flows from international drug trafficking to anti-government organizations, and in the reorientation of transnational criminal organizations activities to include domestic political manipulation.
The use of drugs to finance armed conflict in Afghanistan dates all the way back to the Mujahideen struggle against the Soviet Union in the 1980s. According to Ahmed Rashid, author of Taliban: Militant Islam, Oil and Fundamentalism in Central Asia, Opium is not even a traditional crop of Afghanistan and its cultivation was started purely to help finance the fight against the Soviet Union, but during the civil war of the 1990s taxes on the producers and organizations engaged in drug trafficking became an important source of income for different political and religious groups fighting for power. It could be argued that the opium economy in Afghanistan is thus only a symptom of state failure, wherein transnational criminal organizations took advantage of the chaos, which provided a competitive advantage in transnational narcotics trafficking. This is a simplistic perspective though, and ignores the dynamics created by the illicit international economic flows that served to sustain conflict and contributed to the continued failure of the Afghan state long after the Soviet withdrawal.
Furthermore, the international support of multiple factions within the Afghan anti-Soviet fighters allowed warlords to develop drug trading contacts and businesses that are largely responsible for preventing any centralized control from taking over the country until the success of the Taliban in the late 90s. In both the presence and absence of rich Western funding many of these warlords converted all or part of their activities to direct involvement in or support of the drug business. In some ways the departure of foreign economic assistance can also be credited with bringing about Afghan state failure. As greed based economic models of war suggest Afghan criminal organizations/warlords helped create chaos along trading routes and in cities that enabled them to continue to control over the drug economy. The Taliban’s initial success in 1996 appeared to signal the end of a criminalized/warlord controlled failed state, but this quickly proved incorrect.
The emergence of the Taliban signaled neither an end to the corruption of Afghan politics nor an end to the aspirations of transnational criminal organizations to use Afghanistan as a free economic zone. Despite the widely reported disdain for drugs, resulting from the strict Deobandi interpretation of Islam espoused by the Taliban, drug production and trafficking continued in many part of the country until international outrage forced the Taliban hand. In fact, the UN claims that opium production under Taliban doubled between 1996 and 2000 largely as a result of agreements between the Taliban and criminal organizations. Additionally, the UN reports that the Taliban ban on poppy cultivation following 2000 only occurred because of international threats to aid and transit trade, which amounted to a larger source of revenue for the Taliban then their share of the opium/heroin trade.
The events of the 1996 to 2000 period do raise some issues for the argument that transnational organized crime is not simply the result of a failed state but a cause as well. One might argue that given that poppy cultivation increased during Taliban rule, a period when fighting had not stopped but violence did decrease, that criminal organizations are not a variable in the continued failure of the states, because if they were the violence would have remained unchanged as transnational criminal organizations sought to unsettle the Taliban regime. This is a rather poor interpretation of events in Afghanistan though, suggesting the Taliban actually maintained a monopoly on the use of violence in country. In reality, the Taliban proved wholly incapable of exerting control over all the far flung locations transnational narcotics trafficking organizations operated.
As a result the Taliban responded by coming to terms with these organizations, in essence turning a country enmeshed in civil war into a feudal state based on the corroboration of criminal fiefdoms paying tithes to the government. The Taliban in essence formalized the illicit drug based economy in order to both finance and exert a limited political control over the country. Rather then fight state failure the Taliban embraced it as a form of radical decentralization, criminal federalism if you will, selling off political control of parts of the country in exchange for revenue and the right to impose religious rules. The competitive advantage derived from chaos, the ability to grow poppy and transport it without interference from the government, a friction cost, was still a competitive advantage, but now derived from central government acceptance of illegal activity. Transnational organizations still did not need to worry about the friction cost associated with illegal action (security, product seizure, maintaining operational secrecy etc) because illegal action had become legal action.
Transnational organized crime and the narcotics trafficking not only financed continued violence on the part of the Taliban though, they also financed violence on the part of the Northern Alliance, the Taliban’s main enemy. According to Drugs, Oil and War: The United States in Afghanistan, Colombia and Indochina by Peter Scott, the Northern Alliance initially financed its war against the Taliban by mining emeralds, when this cash stream slowed they took up the Taliban model of supporting criminal organizations cultivating poppy in exchange for drug taxes. This move resulted in as much as an 83% growth in poppy cultivation in parts of Northern Afghanistan that fell under Northern Alliance control. It is clear that the civil war in Afghanistan during the 1990s was fueled on both sides by money derived from transnational criminal organizations cultivating drugs, all of which had a vested interest in the conflicts continuation.
Although most analysis of failed states sticks to the standard economic models, which suggest only that criminal organizations help continue conflict by financing further violence, criminal organizations can also exacerbate real political grievances. Although transnational criminal organizations have purely financial goals, they do need to venture into the political sphere, especially in the case of Afghanistan where the poppy growers they buy from need land to cultivate on. Control or securing of land is perhaps the oldest of political goals. Furthermore according to Robert Rotberg is his article The New Nature of Nation-State Failure:
In contrast to strong states, failed states…lose authority over chunks of territory. Often, the expression of official power is limited to a capital city and one or more ethically specific zones. Indeed, one measure of the extent of a states failure is how much of the state’s geographical expanse a government genuinely controls.
During the 1996-2001 period in which Afghanistan was under Taliban control the “need to exchange peace for drug production and its unwillingness if not inability to bring warlords fully under its control suggests an ability of drug barons and traders to independently control pieces of territory.” The inability to control territory outside the capital is also something that the Afghan government of Hamid Karzi has been accused of.
At this time the Government of the Islamic Republic of Afghanistan, under the presidency of Hamid Karzi, has been largely unable, even with the support of NATO/ISAF forces, to exert much control over the countryside. According to The Associate Press a recent Pentagon report claims that extending central government control outside of Kabul over the winter of 2010 (which is not fighting season in Afghanistan) was as successful as had been hoped. It appears that the presence of NATO/ISAF forces has not deterred transnational criminal organizations from using Afghanistan as a source of poppy cultivation. In fact 2008 to 2009 poppy production per hectare increased 15%, according to the UN this increased yield can only be attributed to more high tech farming methods, control of high quality more fertile land, and better irrigation. In essence more established maturing operations, with more financial backing, something criminal organizations would only do if they felt secure. It is clear that “the economic incentives for individuals to continue the drug trade, combined with the need to exert control over territory has provided a severe obstacle to securing the state’s territorial integrity.” Furthermore it appears as if the competitive advantage provided by chaos has created profit margins so rich as to draw insurgents away from their ideological causes and towards drug trafficking.
An IPE examination of drug trafficking, failed states and Afghanistan suggests that transnational drug trafficking organizations, recognizing a competitive advantage from their illicit operations, derived from the chaos of a failed state, are not only a symptom of failed states but have an economic incentive to encourage state failure. These organizations utilize their financial resources, derived from the sale of illicit products internationally, to undermine the state by fueling violence and by directly partaking in the political sphere, taking control of land from the government.
As a result these organizations have helped spur on violence and have not only been a symptom of state failure but have also been a cause. At this point transnational drug traffickers in Afghanistan supply the Taliban insurgency with as much as $125 million dollars a year, which the Taliban uses to further destabilize the government and fight ISAF/NATO forces. These powerful criminal organizations leverage their competitive advantage, derived from failed state chaos, to further infiltrate and corrupt the Afghan government possibly creating an endless cycle of destabilization and economic drug dependency.
Andreas, Peter. "Review: Illicit International Political Economy: The Clandestine Side of Globalization." Review of International Political Economy 11, no. 3 (2004): pp. 641-652.
Ballentine, Karen, Jake Sherman, and Peace Academy International. The Political Economy of Armed Conflict : Beyond Greed and Grievance. Boulder, Colo.: Lynne Rienner Publishers, 2003.
Brzezinski, Matthew. "Re-Engineering the Drug Business." New York Times, 23 June, 2002.
Caulkins, Jonathan, Mark Kleiman, and Jonathan Kulick. Drug Production and Trafficking, Counterdrug Policies, and Security and Governance in Afghanistan Center on International Cooperation, New York University, 2010. http://www.cic.nyu.edu/afghanistan/docs/sherman_drug_trafficking.pdf.
Costa, Antonio Maria. 2010 World Drug Report United Nations, 2010.
———. Afghanistan Opium Survey 2009: Summery Findings United Nations, 2009.
———. The Opium Economy in Afghanistan: An International Problem United Nations, 2003.
Jung, Dietrich, 1959-. Shadow Globalization, Ethnic Conflicts and New Wars : A Political Economy of Intra-State War. London: Routledge, 2003.
Oatley, Thomas H., 1962-. International Political Economy : Interests and Institutions in the Global Economy. 2nd ed. New York: Pearson/Longman, 2006.
Porter, Michael E., 1947-. Competitive Advantage : Creating and Sustaining Superior Performance : With a New Introduction. 1st Free Press ed. New York: Free Press, 1998.
Rashid, Ahmed. Taliban : Militant Islam, Oil, and Fundamentalism in Central Asia. New Haven: Yale University Press, 2000.
Riecmann, Deb. "Afghan Taliban: Spring Offensive Starts Now." Associated Press, Forbes (04/30/11, 2011). http://www.forbes.com/feeds/ap/2011/04/30/general-as-afghanistan_8443500.html.
Rotberg, Robert I. "The New Nature of Nation-State Failure." Washington Quarterly 25, no. 3 (Summer2002, 2002): 85-96.
Scott, Peter Dale. Drugs, Oil, and War : The United States in Afghanistan, Colombia, and Indochina. War and Peace Library. Lanham, Md.: Rowman & Littlefield, 2003.
West, Jessica. "The Political Economy of Organized Crime and State Failure: The Nexus of Greed, Need and Grievance." Innovations: A Journal of Politics 6, (2006).
 Peter Andreas, "Review: Illicit International Political Economy: The Clandestine Side of Globalization," Review of International Political Economy 11, no. 3 (2004), 641.
 Michael E. Porter 1947-, Competitive Advantage : Creating and Sustaining Superior Performance : With a New Introduction, 1st Free Press ed. (New York: Free Press, 1998), 3.
 Karen Ballentine, Jake Sherman and Peace Academy International, The Political Economy of Armed Conflict : Beyond Greed and Grievance (Boulder, Colo.: Lynne Rienner Publishers, 2003), 83.
 Robert I. Rotberg, "The New Nature of Nation-State Failure," Washington Quarterly 25, no. 3 (Summer2002, 2002), 85.
 Ibid., 87
 Ibid., 87
 Andreas, Review: Illicit International Political Economy: The Clandestine Side of Globalization, 643
 Jonathan Caulkins, Mark Kleiman and Jonathan Kulick, Drug Production and Trafficking, Counterdrug Policies, and Security and Governance in Afghanistan, Center on International Cooperation, New York University, 2010), 5.
 Ibid., 7
 Matthew Brzezinski, "Re-Engineering the Drug Business," New York Times23 June, 2002.
 Antonio Maria Costa, 2010 World Drug Report, United Nations, 2010), 39.
 Antonio Maria Costa, The Opium Economy in Afghanistan: An International Problem, United Nations, 2003), 129.
 Information in this section comes from Costa, 2010 World Drug Report, Global Heroin Market
 Dietrich Jung 1959-, Shadow Globalization, Ethnic Conflicts and New Wars : A Political Economy of Intra-State War (London: Routledge, 2003), 3-6, 184-190.
 Ahmed Rashid, Taliban : Militant Islam, Oil, and Fundamentalism in Central Asia (New Haven: Yale University Press, 2000), 119.
 Ibid., 120-125
 Jung, Shadow Globalization, Ethnic Conflicts and New Wars : A Political Economy of Intra-State War, 1-6, 103, 109
 Rashid, Taliban : Militant Islam, Oil, and Fundamentalism in Central Asia, 120-125
 Ibid., 88-90 &
 Costa, The Opium Economy in Afghanistan: An International Problem, 93
 Ibid., 93
 Peter Dale Scott, Drugs, Oil, and War : The United States in Afghanistan, Colombia, and Indochina (Lanham, Md.: Rowman & Littlefield, 2003), 33.
 Rotberg, The New Nature of Nation-State Failure, 86
 Jessica West, "The Political Economy of Organized Crime and State Failure: The Nexus of Greed, Need and Grievance," Innovations: A Journal of Politics 6 (2006), 7.
 Deb Riecmann, "Afghan Taliban: Spring Offensive Starts Now," Associated Press, Forbes (04/30/11, 2011).
 Antonio Maria Costa, Afghanistan Opium Survey 2009: Summery FindingsUnited Nations, 2009), 6.
 West, The Political Economy of Organized Crime and State Failure: The Nexus of Greed, Need and Grievance, 7
 Costa, Afghanistan Opium Survey 2009: Summery Findings, 6
 Costa, 2010 World Drug Report, 48