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3 Measurement he phenomenon of transnational organized crime is real. There- fore, once definitional issues are settled, it must be susceptible to ~ measurement, although formidable conceptual and institutional barriers remain, even using a definition that is principally a list of activities, or one that is closely allied with operational definitions. Moreover, as Edgar Feige noted at the workshop, measurement is often the single most impor- tant way of focusing attention on the definitional issue; measurement re- quires conceptual clarity. This chapter briefly describes efforts to measure various aspects of transnational organized crime to date, identifying the sources of informa- tion and analytic techniques used. The discussion of research directions in Chapter 5 builds on this. ILLEGAL DRUGS By far the best explored of transnational illegal markets is that for drugs. The most recent estimates, those for 1995, give a total of about $60 billion in retail sales in the United States, the largest component being cocaine ($30 billion). Illicit drug expenditures equal about 1.5 percent of legiti- mate personal consumption expenditures in the United States. These esti- mates are the result of well-documented and sophisticated calculations sponsored by the Office of National Drug Control Policy (ONDCP) (e.g., 22

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MEASUREMENT 23 19971. Notwithstanding the carefulness of these calculations, which inte- grate numerous data sources, there remains very considerable uncertainty, as indicated by 25 percent adjustments between 1995 and 1997, in the totals for specific years (compare Office of National Drug Control Policy, 1995, 19971. We start by examining the consumption-based estimates, which are regarded as the stronger. They are of particular interest because of the richness and scale of the available data. The estimates build on a variety of datasets (primarily the National Household Survey on Drug Abuse and the Drug Use Forecasting system, now called Arrestee Drug Abuse Monitoring) to develop estimates of the number of people using each type of drug, categorized into two groups by intensity of use (heavy, occasional) and the dollars they spend. Total consumption is then deduced by dividing total expenditures by prices, 1 derived from a series maintained by the Drug Enforcement Agency (DEA). This apparently backward method of deducing quantity consumed from expenditure reflects the fact that drug users do not directly observe the quantity purchased and can thus only report expenditures. For ex- ample, a heroin user may spend $20 on two "dime bags," each of which contains white powder that he or she believes weighs 20 milligrams, includ- ing 10 milligrams of heroin. Analysis of actual purchases shows enormous variability in what is actually contained in such a bag (e.g., Weatherburn and Lind, 19971. The estimate includes no adjustment for underreporting in expendi- tures by survey respondents, although in other expenditure surveys the to- tals produced for legal items are substantially less than what is known from other sources to be spent on the category of items. For example, for alcohol it is difficult to produce, from self-report surveys, an estimate even two- thirds as large as expenditures shown by tax records. Manning and col- leagues (1991), in a recent and sophisticated analysis ofthe National Health Interview Survey responses, estimate that they were able to account for only half of actual total alcohol consumption.2 Caulking (1995) notes that the price referred to in these calculations is a "reference" price, based on a standardized purchase of 1 pure gram and that this may not reflect the average price actually paid if there is a change in the size composition of purchases. 2The underestimation may be the consequence of many factors: an incomplete sam- pling frame (e.g., omission of the homeless, many of whom are heavy drinkers), nonresponse within households, and underreporting by respondents.

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24 TRANSNATIONAL ORGANIZED CRIME Further doubt about these estimates is raised by other work done by the same research organization (Abt Associates, 1997) in Cook County. Using a more elaborate set of filters for observing frequent users of cocaine and heroin, the researchers produced prevalence estimates for weekly con- sumption in the county that were almost three times higher than those previously estimated. Since prevalence of heavy use is an important driver of both quantity and expenditure estimates, these findings, if replicated in other areas, could substantially raise the totals. None of this is to fault the ONDCP-sponsored work. It does, how- ever, point to the frailty of the enterprise of measuring illegal drug market activity. The systematic and random errors are large enough and so little understood that even the direction of year-to-year variations is in question. For example, the ONDCP estimates show a decline in heroin consumption between 1990 and 1991 of 17 percent (from 11.8 to 9.8 tons), yet prices were almost unchanged ($ 1,476 in 1990 and $ 1,470 in 1991), and other indicators of heroin use (e.g., emergency department mentions involving heroin) showed no decline. With a stable population of heroin addicts, it is difficult to account for large one-year interruptions to consumption that are unrelated to price. Estimates of supply, using information about the areas under crop cul- tivation, production efficiency, and trafficking losses, have even less author- ity. For example, the ONDCP/Abt supply series for cocaine shows little change from 1988 to 1992; a sudden one-time drop, from 1993 to 1995, further reduces confidence, since no event occurred in 1992-1993 that might explain this. Moreover, there is a 1990-1991 decline in estimates of consumption (presumably related to the crackdown on the Medellin cartel in Colombia) that is not shown in the supply-side series. The series closest to the consumption estimates, "cocaine available for consumption in the United States," is consistently about one-third higher than estimated con sumption. In this instance it is not the lack of access to agency materials that seems to be the problem. The ONDCP estimates were developed with the full cooperation of U.S. federal agencies, which are thought to be the most well informed even for many producer countries. The U.S. estimates are cited in other national and international documents as the most authorita- tive sources. This points to the inherent difficulties of quantifying illegal market size, particularly from the supply side. The United Nations Drug Control Program (UNDCP) has used these estimates and other data sources to generate an estimate of $400-500 bil

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MEASUREMENT 25 lion for the global trade in illicit drugs (United Nations Drug Control Program, 19971. These figures, represented as international trade flows and comparable to trade in oil or automobiles, are hard to reconcile with estimates of the total number of drug users, most of whom are in poor countries, such as Iran, Pakistan, and Thailand (see Renter, 19981. It is difficult to justify a global total of more than $150 billion, given the U.S. figures. Furthermore, this is clearly a measure of total expenditure; the trade element is probably less than 20 percent of that figure, producing a figure no more than one-tenth that cited by UNDCP. The emphasis in these estimates (both U.S. and international) has been on revenues and, to a lesser extent, quantity. No attention has been given to estimating the number of sellers, certainly another important element of the harms arising from the transnational drug trade. There has been atten- tion, however, to the estimation of another very basic factor in drug mar- kets, namely the price elasticity of demand for cocaine, heroin, and mari- juana that is, the extent to which the demand varies with price (Saffer and Chaloupka, 1995; Grossman et al., in press). The finding has been that these elasticities are substantially higher than one might expect for dependency-creating substances and quite comparable to those for other legitimate goods. These estimates have used large population surveys, such as Monitoring the Future and the National Household Survey on Drug Abuse. Note, however, that these elasticities are with respect to prevalence of use of the drug, not quantity consumed. True price elasticities remain to be estimated. No effort has been made to estimate an equally important elasticity, namely the price elasticity of supply. Assumptions that it is generally very high have been embedded in simulation models (e.g., Kennedy et al., 1992) with general theoretical and anecdotal support, but they have not been validated empirically. The DEA collects data on prices at different points in the distribution chain; for example, in the cocaine trade from high-level wholesale (10 kilo- grams) to a retail sale (100 milligrams). These price data provide an impor- tant insight into the markets because they enable one to infer the allocation of revenues across levels of distribution; if the price for an ounce of pure cocaine is $700 ($25 per gram) and the street price is $80 for an 80 percent pure gram ($100 per gram), then the revenues to the low-level wholesaler and retailer account for 75 percent of the total (Caulking and Renter, 19981. This may have great policy significance, although there are major analytic issues to be settled about the relationship between high-level enforcement

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26 TRANSNATIONAL ORGANIZED CRIME ancl retail prices (Caulking, 19901. For those interested in transnational flows, it would be particularly useful to have figures on import prices, gen- erally involving sales in the Unitecl States at the 100 kilogram level for cocaine ancl 10 kilogram level for heroin; the available data are sparse be- cause such transactions are few ancl particularly difficult to monitor. In summary, we have a rough estimate of expenditures on illicit drugs (a few tens of billions of clollars), total consumption of specific drugs (e.g., the micl-hunclrecls of tons of cocaine), ancl decent estimates of who receives these revenues at different levels of the distribution system. Scale is best estimated from studies of consumption, whereas allocation comes from data on the supply sicle. OTHER MARKETS F, . . - . . or most transnatlona1 organlzec ~ crime activities, there are simply no systematic estimates of size. For example, although the Immigration ancl Naturalization Service has recently made attempts to estimate the number of illegal immigrants inside the Unitecl States (Immigration ancl Natural- ization Service, 1997), it has not attempted to estimate either the number entering as the result of organized smuggling activities or the revenues gen- eratecl by such smuggling.3 The International Criminal Police Organiza- tion (INTERPOL) estimates trafficking in animals at $5 billion globally, with $1.2 billion of that accounted for by U.S. purchases (Inter Press Ser- vice, July 21, 1995, cited in Williams, 19981; however, the estimate has no systematic, documented base. Even money launclering, generally thought to be the single most im- portant activity in terms of international money flows, has defied revenue estimates. The principal international organization clearing with these mat- ters, the Financial Action Task Force (1996) of the Organization for Eco- nomic Co-operation ancl Development, reported that "the vast majority of members lack sufficient data to support credible estimates" (p. 21. At best those countries could report seizures from narcotics transactions or money laundering transactions. One (unnamecl) nation offered an estimate, but only a very vague description was provided of the method used to generate it. Feige ancl others have used discrepancies in aggregate economic statis 3Chin (1998:25) reports, without citation, a senior immigration official's statement that Chinese organized crime groups make $3 billion from human smuggling operations.

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MEASUREMENT 27 tics to measure the extent of unrecorded economic activity, some of which is criminal (e.g., Feige, 19961. It has not proven possible to use these meth- ods to separate out the informal but legal from the wholly illegal activities or determine how much involves cross-border flows. Similarly, the ubiqui- tous payment of bribes to foreign officials by multinational corporations, although subject to investigation in numerous countries, has never been estimated.4 CONCLUSION Transnational organized crime may be susceptible to measurement, but very little is currently available to suggest how the measurement task should be approached. One conclusion that might be weakly inferred from the attempts to estimate the scale of drug importing is that consumption-based estimates are likely to be stronger than supply-based estimates. However, the large population surveys that exist for drug use do not exist for other illicit commodities and services. Moreover, measuring other markets that have little in common (i.e., the smuggling of illegal immigrants, endan- gered species, or weapons) with any specificity may prove challenging be- cause of low base rates of consumption compared with rates for drugs, for example. It seems clear that the measurement task will require very differ- ent data collection and analytic methods than have so far been available. These data problems are more fully discussed in Chapter 5. 4This statement is based on a review of Internet sites for the following organizations: Transparency International (, and the Organization for Eco- nomic Cooperation and Development (OECD) (