When we think about the great technical innovations of our time we tend to think to the invention of the World Wide Web, the invention of anti-bio tics or even DNA. We never think about innovation that is not for a legitimate cause.
However crack-cocaine was one of the greatest underground
innovations of our time which lifted income in the slums of New York
drastically.
Before crack cocaine in the early 80’s a gang had a very
limited business plan in terms of making money. They had the power in terms of
beating people up, people being afraid of you and ultimately had a lot of
respect, without the fast cars and gold jewellery as we see today. However they
were only able to sell marijuana which had very low returns, they were unable
to sell cocaine due to the fact that young poor black men didn’t have a rich
white customer base and petty crimes such as robbing/stealing was a high risk
low return option. Until the invention of crack cocaine.
Crack cocaine was a cheaper way to wreak the highs from
cocaine as smoking it was a much more efficient way of getting high than it was
to snort it. At the same time being a very short high of around 15 minutes,
which lead to many consumers become quickly and aggressively addicted. This was
good news for gang leaders that could buy the crack cocaine that went into a
splif for a dollar and sell it for $5, and at the same time a very high number
of returning customers which made their business plan very low risk. A great
way, for the people at the top of the gang to make a lot of money.
It’s amazing how quickly these gang enterprises turned very
quickly into efficient running business, like we see today in the legitimate
economy. These gangs were very hierarchical starting from the board of
directors, to the leaders of different territories (Area managers), to the
local leaders (Branch managers) to the foot soldiers actually selling the crack
(The minimum wage sales assistants).
But what is surprising is that despite the very high risks
involved with being in a drug enterprise non-dependent upon what your pay grade
was, the pay for your role was around the same if not less than that of a
legitimate firm which had no risks to the employee’s liberty or personal
safety.
Here are the average wages of a drug enterprise in a study
taken in 2004 by Steven Levitt of ‘Freakonomics’.
- - Foot soldiers: $3.50 p/h
- - Local leader: $100,000 p/a
- - Regional leader: $200,000 p/a
- - Board of directors: $400,000
Here you can see that for the board of directors (the gang
leaders) the pay is around the same as a medium/large legitimate business, and
more shockingly the foot soldiers actually earning less than the minimum wage
in the USA in 2004. That’s right dealers on the street were earning less than
people working in McDonalds.
Even though the money was around the same, the risks
associated were not. At peak years of the crack cocaine epidemic, the deaths
per head for a young black American in a gang was 7%. Meaning in any 4 year
period, you have a 25% chance of being dead. Despite earning less that minimum
wage.
This made deaths rates per head higher than inmates on Death
Row, inner city black teens during the crack peak and even US military forces
in Iraq.
- - Foot soldier: 7%
- - Inmates on Death Row 2%
- - Inner city black teens during crack peak: 1%
- - US military forces in Iraq: 0.5%
The harsh reality is that despite these shocking statistics
for most gang members, this was there only option. Their career options were
almost non-existent, and their potential reputation within their community was
also non-existent unless they lead to a life of drug crime.
Despite this highly intelligent invention of crack cocaine
not only scientifically but economically leading to better status and better
financial lives for young black Americans in the slums of the inner cities. This
illegal but free market idea led effectively to a war zone run by drug gangs,
which ultimately lead to crazy high death rates, and hundreds of thousands of
crack addicts with lives in tatters.
Post inspired by a speech
by Steven Levitt: Freakonomics.
