3 Business Lessons From The Sinaloa Drug Cartel (Revisited)

English: Money seized during "Project Cor...
English: Money seized during “Project Coronado” by the DEA. Going in “La Familia Michoacana” article. (Photo credit: Wikipedia)

An article posted by Devin Liddell on  Co.Design has a sub-title “Innovate Like a Syndicate”, but the conclusions of the article show a huge leap in the application of legitimacy to a business model that is wholly illegitimate.

To sum-up the articles main points:

  • There are cartels that have out-lasted traditional brick-and-mortar business for generations
  • Cartels have insanely high margins on products
  • Individuals working for cartels have a huge profit per employee when compared to traditional businesses
  • Profits happen despite efforts of governments and law enforcement to shut down cartels
  • Cartels achieve all the above due to a superior culture when compared to Fortune 500 companies

Let’s address these points using some basic economics and common sense.

Cartels, much like monopolies, are in business due to government participation, not in-spite of it. Were it not for the State restricting competition, as well as restricting the supply of products, prices and profits would plummet. Therefore it’s in the best interest of the cartels to persist the adversarial role of the State. The State restricts competition by making it extremely costly to get involved in illicit businesses, and winnows out the weak by raising the cost of entry into the marketplace through police power. This serves to maintain the established cartels position of power and prominence.

Cartels don’t have the compliance burdens imposed by the State, nor the tax burdens – giving them a much greater profit margin potential only dreamt of by most brick-and-mortar companies.

But lets talk about the main points of the article, ” these culture-driven brands have three key attributes”:

  1. Credo: “Actionable and authentic values” whereby these cartels “have distinctive rituals, symbols, and artifacts to express their credos”, giving them some kind of supposed “authenticity” (unlike corporate motivational posters). Like most hierarchical models of business, the corporate culture is designed to insulate those at the top from competition from those below, while at the same time concentrating wealth and power in the hands of the few at the top. It’s the same for cartels that exist outside of traditional law and cultural mores. Unlike traditional corporations, violation of these “Credos” is not just fatal to your career, but to you and your family. Very motivational!
  2. Improvisation: To sum up, find ways around impediments to your distribution network, then diversify your income streams. Sounds like basic business strategy to me.
  3. Small-but-big: While I agree that small and agile is good given my background managing software development and agile methodologies, the structure implemented by cartels is more likely due to risk mitigation. When the police show up and bust your operation, they only capture an isolated cell, leaving the vast bulk of the operation intact and productive. It’s merely a byproduct that this structure can also very efficient.

In  summary, Mr. Liddell makes the following statement, ” legitimate businesses wish they had the cultural clarity and business results of these underworld organizations”, and I’m sure some do. More to the point, it’s about results. To get similar results, but to do it in a fashion that does not use the illegitimate power of cartels (or the State) will require an environment for business close to what the cartels operate under. How about the following as a start:

  • Minimize or repeal all corporate taxes
  • Relieve businesses of the incredibly burdensome compliance requirements from all the alphabet-soup of state and federal agencies
  • Understand that cultural values are inculcated from society, not corporations, and good citizens and workers become so because they are raised that way – not at the point of a gun
  • Get the State out of business, as it creates massive economic distortion wherever it interferes

Oh, and there’s only one way to defeat those pesky cartels, and that’s to take away their government enforced monopoly.

The original article is here.