No. 3, Year 4
Third Quarter 2006

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How Economic Research on the Drug Problem Strengthens Institutions in Developing Countries: The Experience in Latin America and the Caribbean

by Marya Hynes Dowell, M.H.S.*
CICAD's Inter-American Observatory on Drugs

Marya Hynes Dowell  

In 2001 CICAD embarked on an ambitious project to develop a methodology that would permit countries in Latin America and the Caribbean to develop reasonable estimates on the costs that the drug problem imposes on their economies and, hence, on society as a whole. The impetus for this project began with Recommendation 20 of CICAD’s Multilateral Evaluation Mechanism (MEM), Hemispheric Report 1999-2000, and also the Summit of the Americas in Quebec City in May of 2001, where CICAD received a mandate to "develop within the framework of CICAD, a mechanism to measure to human, social and economic costs of drug abuse."  

The program was met with both a great deal of interest and mild skepticism from experts in the field of cost research, policy-makers, and even the technicians who would perform the study, as to whether it would be realistic, or even useful, for any developing country to carry out a complete study on the costs of the drug problem.  When the final results from the program were presented to the heads of state at the Summit of the Americas in Mar de Plata, Argentina in November 2005, the program was lauded and CICAD received a further mandate to continue to expand the program to the other member states.

As the Cost Program progresses, it is important to consider what were the benefits, drawbacks, and lessons learned from this process.  One of the outstanding lessons learned from the CICAD Cost Program is that not only is it feasible for countries in different levels of economic development to carry out costing studies using the same methodology, but in fact there were many gains, above and beyond the mere acquisition of data.    

An international working group that developed the International Guidelines for Estimating the Costs of Substance Abuse highlights four major reasons for carrying out studies on the cost of substance abuse:

1. Economic estimates are often used to argue that policies on alcohol, tobacco and other drugs should be given high priority on the public policy agenda.
2. Cost estimates help to target appropriately specific problems and policies.
3. Cost studies help to identify information gaps, research needs and desirable refinements to national statistical reporting systems.
4. The development of improved substance abuse cost estimates can provide baseline measures to determine the effectiveness of drug policies and programs.

We would like to add to this list some additional reasons that, in our view, are especially relevant to data-poor, or developing countries:

1. Because cost studies, by their nature, require aggregate data from a variety of sources, they lend themselves to strengthening institutions by obligating agencies to build strategic alliances with other governmental and non-governmental agencies.
2. Cost studies strengthen research protocols by highlighting the importance of verifying information and information sources.
3. Cost studies create conditions that support the development and maintenance of reliable, stable, and centralized research information.
4. Not only data gaps and information were discovered, but countries realized the value of data that was previously considered irrelevant.

The methodology applied in the CICAD Cost Program was based on the International Guidelines for Estimating the Costs of Substance Abuse, developed by an international working group under the auspices of the Canadian Centre of Substance Abuse.  Although the methodology shared the same basis, there were some striking differences in the findings from the countries in the CICAD program.  Cost studies carried out previously by Austria, Canada, the United States, New Zealand, among other countries, shared some common elements.  For example, in most of these countries the largest economic costs were associated with lost productivity while the greatest direct costs to the government were in the area of healthcare costs.  Most of the Latin American countries found that the largest direct costs to the government were related to supply control activities.  In fact, in most cases these costs far outstripped those of healthcare.  Loss of productivity was a significant cost to most countries, but was not necessarily the highest cost. 

As we review the findings, it is important to keep in mind that none of the countries participating in the CICAD Cost Program were able to fully measure lost productivity associated with drug use, and the cost calculations for each country would certainly be higher if they were able to refine their studies in the future.

Although it is difficult to draw comparisons between countries given their differences in size, infrastructure, demographics and available data sets, it is worthy to note some of the differences and similarities among countries at least in terms of GDP.

Key Country Findings from the Cost Program Pilot Study:

Barbados: 

Barbados carried out a small but informative study focusing strictly on the costs associated with demand reduction.  This is a perfectly legitimate approach, particularly for data poor countries and countries that do not have the human resources to carry out a single large study all at once.  According to Barbados, during the year 2000, the costs associated with drug demand reduction totaled US$2.1 million, translating into a 0.004% impact on GDP.  A great deal could still be done to refine Barbados’ estimates, in several areas, but this study represented a good start to addressing the economic impact in their country.

Chile:

Chile carried out the most complete cost study among the pilot countries, utilizing data from a broad range of sources for a single year, 2003.  Chile estimated that the direct costs to government were approximately US$81.5 million; yet when costs associated with healthcare, non-governmental demand reduction activities, lost productivity and other costs are taken into account, this figure leaps to US$149 million dollars, 0.22% of GDP.  According to their economic analysis, 36%, or US$53.4 million dollars are due to losses in productivity alone.

Although the figures for Chile are small in comparison to countries like the United States and Canada, it has some similarities.  For example, the direct costs, which typically are the only known costs prior to carrying out a cost study, dwarf the other factors in the final figure.  Secondly, the loss of productivity represents a significant share of total costs, similar to other countries like the US, Canada, Australia among others. 

This analysis raises the question of whether Chile’s costs would be higher still if they were to refine their economic research further by carrying out a more in-depth analysis of the proportions of death, disease and crime attributable to drug use. 

Costa Rica: 

In Costa Rica, the total drug-related costs calculated for 2003 were US$84.81 million, with a clear evolution between 2000 and 2003 demonstrating an increasing impact on the GDP from 0.43% to 0.50%. 

Direct costs to the government showed the greatest economic impact.  It is important to keep in mind, although it cannot be seen on this particular chart, that almost 99% of direct costs in Costa Rica during 2003 are accounted for by supply reduction activities.  Treatment and prevention combined make up only a little more than 1% of Costa Rica’s direct costs.

Similar to countries with high drug prevalence rates, lost productivity represents a significant proportion of costs, more than a quarter of total costs in Costa Rica.

El Salvador: 

El Salvador estimates that the costs associated with the drug problem during 2004 totaled approximately US$43 million dollars, representing an impact of about 0.27% of their GDP.  Although the percentage is low in comparison with large countries, according to El Salvador’s estimates, there was a steep rise in drug costs between 2001 and 2004, from US$18.75 million to US$43 million.  El Salvador reports that this is due largely to an increase in treatment costs, which more than doubled during that period (US$2.93 per capita in 2001 – US$6.37 per capita in 2004).

One interesting aspect in which El Salvador stands out against other countries in the region is the large percentage of costs associated with healthcare.  These costs increased sharply between 2001, when they represented the smallest proportion of total costs, and 2004 when they became the largest proportionate costs.  According to El Salvador authorities, this shift reflects changes in drug policy during that period.  This spending pattern is more similar to Canada, Australia and New Zealand where investment in healthcare tends to be much higher.  However, even in those countries, healthcare rarely exceeds 50% as a proportion of total costs.

Direct costs, which made up only 11% of total cost, are heavily weighted towards supply control – as is the case in most of the other pilot countries.  However, once additional costs related to supply and demand reduction outside of direct government costs are included, such as hospital fees and private treatment, and non-governmental prevention programs are taken into account, demand reduction costs actually exceed those of supply reduction.  This result was surprising as it differs from the other countries in the region.

Mexico:

Mexico’s experience was quite different.  Costs in Mexico during 2003 totaled US$617.52 million dollars, about 0.1% of GDP for that year.  Direct costs to the government made up the greatest proportion of costs, which were weighed heavily toward supply control activities.

Mexico spent about US$11.9 million and US$14.6 million in drug treatment and drug prevention respectively, while spending over US$400 million in drug control during 2002.  Interestingly, as their direct government costs gradually increased between 1998 and 2003 (with a slight dip between 2002 and 2003), increasing by 73 percent during this period, losses to productivity increased almost 50 percent.  This means that despite a significant increase in supply control costs, lost productivity continued to rise as well. 

This may be important news for neighboring countries, particularly the United States which receives large numbers of immigrants and migrants on a daily basis from Mexico, and invests heavily in border drug epidemiology surveillance.

Uruguay:

Uruguay’s study focused entirely on the direct costs to the government.  They found that nearly US$2.6 million dollars in direct government expenses were dedicated to the fight against drugs, representing 0.02% of their GDP.  This impact appears small, but the figures will certainly change once indirect and non-governmental costs are taken into account.  As was the case in other countries in the hemisphere, supply reduction accounts for the majority of costs, outstripping all others multiple times. 

 Between 2002 and 2004, supply reduction costs remained relatively stable, while the direct government costs for treatment actually decreased.  Uruguay suggested that during this time period drug treatment was not considered a political priority, or policy makers did not believe that drug treatment has an effective impact.  In either case, it is up to Uruguay to investigate what this change means for the country.

Uruguay’s government changed during the course of the study, affecting their ability to carry out a more complete cost analysis.  This is an example of the type of challenge often faced in developing countries – changes in government can dramatically affect the continuity of programs, thus highlighting, once again, the importance of fully integrated systems that allow continuity of programs.  An Uruguayan official working on the Cost Program described this in the following way, “Participating as a pilot country in the CICAD Cost Program allowed us to begin to create for the first time a culture of inter-institutional collaboration, previously non-existent in this area.  It gradually increased the participation of other related organizations, slowly decreasing the resistance to supplying information.”  In addition Uruguay described how establishing research protocols through the Cost Program has helped them to develop, for the first time, research criteria and a common methodology for calculating costs.  These experiences resulted in a stronger and more stable drug research system within the country. 

Cost Research Supports the Development of Infrastructure and Institutional Strengthening

All of the countries involved in the CICAD Cost Program Pilot Study reported benefits above and beyond the data gathered.  In nearly every case the pilot countries were able to provide specific examples of how research capacity was strengthened as a result of the program.

Drug cost studies, by their very nature, require epidemiological researchers to look at information beyond their usual field of reference.  In the case of drug research, investigators must focus beyond the typical epidemiology-based studies in order to look at data that otherwise may have been considered unrelated to drug research.  For example, in order to develop estimates of healthcare costs per capita related to substance abuse, the researchers must gather a great deal of socio-demographic data in addition to data regarding hospital expenditures and healthcare costs.  In order to estimate costs to the judicial and prison system, drug epidemiologists must work closely with personnel from other ministries and secretariats to gain the appropriate information.

This process forced the creation of strategic alliances and new collaborative relationships in many countries across areas of government and the private sector that normally would not have worked together.  This practice opens the door to future collaboration, and makes other studies much easier as time goes on.  Mexico, and Uruguay in particular described how a great deal of time and effort went into building alliances and partnerships, and developing collaborative relationships with other governmental and non governmental entities. 

Because so much aggregate data from multiple sources needed to be acquired, countries discovered data gaps that were previously unknown.  Beyond this, countries also discovered the importance of data that was previously considered irrelevant.  Because countries needed to confirm the validity of this data, inconsistencies were brought to light.

Such benefits described by the countries eventually lead to the strengthening of research and data collection protocols across a variety of fronts.  Chile describes the example of recognizing the need to improve the data collection in their prison system.  El Salvador found inconsistencies in several data points from one year to the next, and carried out additional work to either correct mistakes or identify a reasonable explanation for the inconsistency.  New administrative procedures needed to be put into place in many countries in order to facilitate the process.

Through the course of the study, it became clear to many of the participating countries how important it is to have functioning systems that provide accurate and reliable data.  Although this point may be obvious to countries with long histories of accurate data collection, it is not a given in many developing countries.  Cultural changes are often needed to convince countries, particularly data-poor countries, of the importance of collecting reliable and consistent data, particularly when the benefits of that data collection may not be seen for years.  

What It Means in Terms of International Drug Policy

The diversity of the experiences of the countries involved in the cost program is a significant point when considering how to orient international drug policy.  The experiences of the countries in the pilot cost study were as diverse as the countries are themselves in terms of size, demographics, population, economics, and drug use patterns.

However, there are a number of common elements among the Latin American countries that participated in the CICAD Cost Program that make them stand out against other developed countries that have carried out drug cost studies in the past.  While most of the developed countries with a longer history of cost research find that the largest costs are associated with lost productivity, most of our Latin American participants found that the largest costs were associated with direct government costs, particularly as related to supply control activities.

This is significant for two reasons, firstly because loss of productivity is often used as an indicator for social costs since they are calculated based on information regarding lives lost or temporarily affected due to substance abuse.  Not all the countries were able to carry out complete analyses of lost productivity, highlighting this as an important data gap that almost certainly exists across the region.  Finally, it shows us that Latin American government investments and expenditures related to supply control activities dwarf those of all other drug related activities, at least in terms of GDP.  There are some exceptions to this, but overall it is the case. 

The relative cost of drugs is much lower in these countries than in the United States.  The US Government estimates that overall costs of drug abuse exceeded US$180 billion in 2002, which translates into around 1.74% of GDP, while most of the countries in the CICAD study showed an impact between 0.2% and 0.5% in terms of GDP. 

However, the results from the countries that carried out in-depth analysis of the costs to their healthcare system parallel the experience in the United States and other developed countries, indicating that this may be a source of greatest costs to society.  This implies that the consequences of the drug problem are universal, and countries that place greater weight on supply control must then ask themselves if they are indeed reaping benefits from this policy focus. 

Development indicators for South American countries correspond very closely to drug use prevalence – the more developed the country, the greater the drug prevalence.  The member states will need to move forward with open eyes they and their neighboring countries develop and grow.  Drug problems tend to transcend borders either in the form of drug trafficking or in the form of human beings who bring their illnesses and in this case addictions with them as they migrate.

The changes brought about in terms of strengthening institutions should not be taken lightly.  Even the countries that had comparatively longer histories of data collection and research lagged far behind countries like the US, Canada, France, Australia, New Zealand, among others, that are considered world leaders in cost research.  These countries too had to transform themselves to a certain degree in order to carry out their studies and convince the government and the public of their usefulness.

Policy change takes time, and although the direct benefits of an economic and social impact study may not be felt for several years, it remains clear that developing countries have much to gain by carrying out such research.  Countries not only developed concrete estimates of the magnitude of economic and social costs, but through that process, strengthened the infrastructure of the institutions that took on this enterprise.

The diversity of the experiences of the countries involved in the cost program is a significant point when considering how to orient international drug policy.  The experiences of the countries in the pilot cost study were as diverse as the countries are themselves in terms of size, demographics, population, economics, and drug use patterns.

Marking the Difference

However, there are a number of common elements among the Latin American countries that participated in the CICAD Cost Program that make them stand out against other developed countries that have carried out drug cost studies in the past.  While most of the developed countries with a longer history of cost research find that the largest costs are associated with lost productivity, most of our Latin American participants found that the largest costs were associated with direct government costs, particularly as related to supply control activities.

This is significant for two reasons, firstly because loss of productivity is often used as an indicator for social costs since they are calculated based on information regarding lives lost or temporarily affected due to substance abuse.  Not all the countries were able to carry out complete analyses of lost productivity, highlighting this as an important data gap that almost certainly exists across the region.  Finally, it shows us that Latin American government investments and expenditures related to supply control activities dwarf those of all other drug related activities, at least in terms of GDP.  There are some exceptions to this, but overall it is the case. 

The relative cost of drugs is much lower in these countries than in the United States.  The US Government estimates that overall costs of drug abuse exceeded US$180 billion in 2002, which translates into around 1.74% of GDP, while most of the countries in the CICAD study showed an impact between 0.2% and 0.5% in terms of GDP. 

However, the results from the countries that carried out in-depth analysis of the costs to their healthcare system parallel the experience in the United States and other developed countries, indicating that this may be a source of greatest costs to society.  This implies that the consequences of the drug problem are universal, and countries that place greater weight on supply control must then ask themselves if they are indeed reaping benefits from this policy focus. 

Development indicators for South American countries correspond very closely to drug use prevalence – the more developed the country, the greater the drug prevalence.  The member states will need to move forward with open eyes they and their neighboring countries develop and grow.  Drug problems tend to transcend borders either in the form of drug trafficking or in the form of human beings who bring their illnesses and in this case addictions with them as they migrate.

Changing Our Institutions

The changes brought about in terms of strengthening institutions should not be taken lightly.  Even the countries that had comparatively longer histories of data collection and research lagged far behind countries like the US, Canada, France, Australia, New Zealand, among others, that are considered world leaders in cost research.  These countries too had to transform themselves to a certain degree in order to carry out their studies and convince the government and the public of their usefulness.

Policy change takes time, and although the direct benefits of an economic and social impact study may not be felt for several years, it remains clear that developing countries have much to gain by carrying out such research.  Countries not only developed concrete estimates of the magnitude of economic and social costs, but through that process, strengthened the infrastructure of the institutions that took on this enterprise.

Latin America and the Caribbean have their own dynamics, which can not be easily compared to those in North America and Europe.  This makes it tricky to predict patterns and changes that might arise.  Nevertheless, it is important for us to observe how the drug problem continues to develop in the region.  In a globalized world, drug problems and the policies developed to address those problems have implications beyond country borders.  This places a greater burden on the countries carrying out cost research to develop their own interpretations of what social and economic costs of the drug problem mean in their countries.  Measuring costs is only a first step.  Effective programming and policy must be based on a comprehensive analysis within the context of each individual country.

 References

Collins, DJ and Lapsley, HM. The Social Costs of Drug Abuse in Australia in 1988 and 1992. Australia: National Drug Strategy Monograph Series No. 30, 1996

Single E; Collins D, Easton B, Harood H, Lapsley H, Kpp P, and Wilson E. International Guidelines for Estimating the Economic Costs of Substance Abuse. Canada: Canadian Centre on Substance Abuse, 2001

Single E, et al.; The Costs of Substance Abuse in Canada 2002: Highlights. Canadian Centre on Substance Abuse 2006

Office of National Drug Control Policy. The Economic Costs of Drug Abuse in the United States 1992–2002. Washington, DC: The Executive Office of the President of the United States, 2004.

Inter-American Observatory on Drugs (OID). Final Report of the CICAD Pilot Program to Estimate the Social and Economic Costs of Drugs in the Americas. Washington, DC: Organization of American States, Inter-American Drug Abuse Control Commission, 2005.

* Marya Hynes Dowell has worked at CICAD since 1996 and join the Observatory at it creation in early 2000. She has been the coordinator of the Costs Project since its inception.