By Shriya Chitale
Though he was “El Paisa Robin Hood” to the people of Medellin, Colombia, to others, Pablo Escobar is the world’s most notorious narco-terrorist. At the time of his death in 1992, Pablo Escobar was worth approximately 30 billion USD. In his quest to build the largest cocaine empire, Pablo not only wreaked havoc on the Colombian people, but also the Colombian economy. How Pablo Escobar built his empire continues to be one of the most shocking rises to power.
Prior to the rise of Escobar, throughout the 1970’s, Colombia relied on agriculture to sustain its economy — primarily through the exportation of coffee beans. In Colombia, the coffee bean industry has cultivated the groundwork for urbanization and economic growth. This industry connected rural Colombian farmers to metropolitan cities. Before the advent of modern technology, Colombia’s mountainous climate made it nearly impossible for transportation from rural towns and bustling cities. A country once divided by a seemingly insurmountable terrain was connected, by a transportation system driven by the collection of coffee beans. This urbanization was reinforced by the fact that the world’s largest coffee bean exporter, Brazil, experienced significant environmental damage. During this decade, Colombia’s GDP grew by nearly 5% every year.
Yet, when Escobar started capitalizing on the cocaine industry, he realized a crucial fact: the cost of approximately one cocoa leaf in producing a kilogram of cocaine is $800 Colombian pesos, and one kilogram of cocaine would reap a profit of $100,000. Colombian weather was perfect for growing this type of crop, and the inability of the Colombian government to enforce minimum wage laws to force farmers to produce cocoa leaves at increasingly lower prices. This was further complicated by the fact that it was impossible to track production of the cocoa leaf — particularly in Escobar’s early years. This enabled Pablo Escobar to isolate his product. While other drug dealers in the area continued to make use of marijuana, Escobar monopolized the cocaine market. Further, Escobar made use of an “unofficial patent,” claiming the product and its production for himself. In claiming that this product was manufactured by him, although in reality it was not, Escobar prevented any other competitors from even creating a chink in his newly created empire. Though this centralized approach was disastrous for other hopeful cocaine traffickers, it allowed Escobar to collect all the profits from the cocaine empire.
This was supplemented by Escobar’s distribution network. Though it was an untraditional business, Escobar made just as much use of distribution networks as Colombia’s bankers. Escobar applied monopolistic economic principles to his distribution network as well — rather than surrendering control of his drug trafficking routes to other drug traffickers, Escobar made the traffickers pay royalties to have access to his routes. Thus, Pablo Escobar was making daily royalties from individuals not in the cocaine business — individuals involved with the illegal exportation of animals, agricultural products, marijuana, etc. were forced to pay for using the same routes. Furthermore, as cocaine grew in popularity, these competing goods were forced out of the market. Workers such as the laborers used for marijuana became workers in Escobar’s cocaine empire.
What’s more, as cocaine grew in popularity, Pablo took an unorthodox approach to his business: rather than abiding by the simple supply and demand rule, Pablo opted to the strategy of never lowering prices. He believed that the quality of his product was fine enough for him to not lower prices. Simply put, Escobar believed that the cocaine spoke for itself.
The initial origins of Escobar’s empire were startling — Colombia was not ready for the usurpation of that nature. With his early monopolistic tendencies, Escobar managed to seize control of the world’s newest industry. □
Work Cited
- Image source
- Green, Peter S. “Sponsor Content: Cocainenomics.” The Wall Street Journal, Dow Jones & Company, https://www.wsj.com/ad/cocainenomics
- “The Business – Colombian Traffickers | Drug Wars | FRONTLINE.” PBS, Public Broadcasting Service, https://www.pbs.org/wgbh/pages/frontline/shows/drugs/business/inside/colombian.html
The Economics Review 