Wednesday, January 28, 2009

Baltimore's Billion dollar "Shadow Economy"

The Baltimore City Paper recently ran a great in-depth article called "Shadow Players" about Baltimore's shadow drug economy and how it permeates throughout the city. The shadow economy is as big or bigger then the city's hotel & restaurant trade which provides thousands of jobs to the city. The article points out that the shadow economy also provides jobs dealing with drug enforcement and ironically help funds non-profits groups and city development agencies.

To quote the great character Lester Freeman from "The Wire" a show about "fictional" Baltimore police wiretaps on city drug dealers, " follow the drugs, it leads to the major drug players. You follow the money, you don't know where it will lead."

Here are a couple quotes from the article, which everyone should read:

"Three years ago Baltimore Health Department Commissioner Joshua Sharfstein estimated the number of Baltimore addicts at 50,000...Assuming he's in the ballpark, and assuming each drug-dependant individual must raise $50 each day to pay for drugs...Baltimore's heroin and cocaine market would be worth $912 million annually. The U.S. Census Bureau estimates that in 2002 "accommodation and food service sales" in Baltimore were worth about $1 billion."

"In other words, the drug trade generates a revenue stream comparable to the city's hotels and restaurants, an industry so important politically that the city government pledged $305 million in revenue bonds to build a downtown hotel that opened last year."

To put 50,000 addicts in context, the total city population is 650,000. So that means 7% of all residents are addicts. The number of people trafficking drugs in the city is unclear but if you included the number of dealers and addicts together and they would probably represent over 10% of all city residents. Add in related activities such as prostitution, con-man, and thieves and legal businesses such as bail bonds man and the percentage of residents in the shadow market grows larger.

The article also shows that those who control the market or the shadow economy want order instead of violence. In a strange but very practical twist, dealers will assist cops with information to take down rival crews to preserve order for the sake of business. The article quotes:

"...using a hypothetical example, 'the question in Baltimore is, if Joe Blow takes over 40 percent of the market, why is that significant? And it's significant if it's actually having some impact on the supply of drugs in the city . . . or if this person actually has some impact outside the drug market. Does this person have any influence on the legitimate world of business and politics? That would be interesting.'"

Operators at that level, Nadelmann says, have an interest in ratcheting down the violence and working with police to shut down rivals. 'If you have anyone who's in a big enough position to think like a businessman, he wants to reduce the likelihood that people are dying," Nadelmann says. "It goes back to the idea of why were the cops working together with the mob in the old days--there was a payoff, but they also had similar interest in public order.''

The flip side to the violence, destruction and decay that the shadow economy brings to city neighborhoods is the amount of funding that the city of Baltimore receives from the Federal government to combat the war on drugs which in return creates hundreds of city jobs. This is not to imply that the ends justify the means but it does show how much impact the shadow economy has on the standard economy. Over 10% of city residents are either contributing or dependent on the shadow economy but this same economy produces even another segment of residents who work to combat it.

"This is perhaps not surprising in a city so dependent on the money generated by drug sales--and the money allocated to counteract drugs. Charitable foundations and the federal government spend $1 million per week in Baltimore on drug treatment programs, creating hundreds of additional jobs--many of them for recovering addicts--which depend on an amorphous, uncountable addict population. City police draw overtime and seize millions of dollars worth of cars, real estate, and cash every year, leaching wealth from the city's drug economy but never really wounding it."

I encourage everyone to read the whole article because the shadow economy does not just affect those who are within it but everyone in the city and it's surroundings. The 10% of residents involved in the shadow economy are not just state and numbers but family members, friends, classmates and even co-workers. Their impact can potentially affect every person and almost any family across all social and class lines.

The other important aspect of this article is the money generated by the shadow economy. The social cost that drugs cost cities is immeasurable...but if drugs went away tomorrow, how would more than 10% of city residents support themselves? The unemployment rate in Baltimore City is well over 7% and is probably higher since most of the people involved in the shadow market have been out of the job market for so long that they no longer count when calculating the unemployment rate. If drugs went away tomorrow, potentially 10% of city residents who most likely lack any traditional skill and formal education would need employment.

How would Baltimore city combat that? How could Baltimore city help it's residents. Almost everyone wants the end of the cycle of drugs and violence in our inner-city communities but have we gone so long with allowing this shadow economy to exist that cities can no longer afford to live without it?

What are your thoughts?


Lori said...

I don't have a full answer for how Baltimore should combat it, but I do wonder whether or not the 7% unemployment would go up. I mean, I'm assuming that many people who are labeled as unemployed are actually financing their lives through the drug trade but they can't put that on their census sheet as "employed." So in the hypothetical world where drugs were no more, that 7% might not get much larger.

Drugs is so hard to know what to do because there are so many entry points and how to deal with the "market" it serves. I mean, the consumers drive the market, but the question is whether or not those consumers would still be there if supply was totally cut off? Would an approach that reduced the number people addicted to drugs be effective (demand-side strategies) or would an approach that reduced the amount of drugs coming in be effective (supply-side)? It's a tough call -- I think I should sit in on those Econ classes that Stringer Bell was in to know more about how to deal with this.

The other MAJOR issue that the article highlights is the number of profiteers there are. I mean, so many people get side money that leaks through the drug pipeline -- city officials included. So when the people in power are profiting from what's happening, there's no incentive to change.

I think what people really need to see is that, beyond any money they get from this, they are damaging themselves by damaging the fabric of society. But when people can't see a direct link to drug dealing and how it negatively impact their lives or communities, that's a hard message to sell.

BC Planning said...

I think the unemployment rate would dramatically go up because after a year of being unempleyed, the census no longer counts you as unemployed, they count you as being out of the job market.

Ive done studies in inner city neighborhoods where the unemployment rate was around 8-9% but the actual percentage of people working over 16 was only the other 55% had no formal job.

As for your other point, I think we have to go and reduce the amount of addiction in our cities. As long as their addicts their will be drugs. And the addicts ruin communities as much as the dealers do. No one feels that safe walking past drug dealers but you really feel unsafe walking past a group of addicts on a dark street.

I think what is great about this article is that it shows how drug money is propping up the city. Drugs are not just giving a side income to the hood but it is funneling throughout every segment of society some how, soome way.