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New LSE research examines the business of high level drug dealing in the UK

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Illegal drug trafficking organisations are no longer the preserve of 'hardened' criminals, but are more likely networks of individuals from across society playing key roles. Legitimate businesses often readily co-opted and used by trafficking and dealing organisations to cover and expand their operations. And drug dealing organisations are often networks of friends and colleagues sharing profits amongst themselves, rather than mafia-esque career criminals.

These are some of the findings published this week by researchers at the London School of Economics and Political Science (LSE) and Matrix Knowledge Group and published by the UK Home Office this week (Tuesday 20 November). The Business of High Level Drug Dealing in the UK, led by Professor Dick Hobbs, LSE, and Andy Richman, Matrix, provides a unique insight into the drug dealing world.

The research combined sociological, economic, and business techniques and interviewed over 200 high level dealers and traffickers in prison for more than seven years in the largest study of its kind ever undertaken.

The report's findings are discussed under three headings. Among the key findings were:

Market dynamics

  • Four key market levels within the supply chain were defined in completing the analysis: international, national, local and retail.
  • Across these different market levels it was identified that:
  • there was high and stable demand for illegal drugs;
  • there was a tendency for dealers of heroin and cocaine to specialise;
  • there were very large mark-ups along the supply chain, from production to street level for cocaine (circa 15,800 per cent) and heroin (circa 16,800 per cent);
  • there were higher mark-ups for heroin than cocaine at all stages of the supply chain, with the possible exception of importation into the UK;
  • there was a decline in prices over time;
  • there was a perception among dealers that law enforcement activity impacts on price; and
  • there was price variation among different geographical areas in the UK.
  • The market can be characterised as fragmented, where those involved, even at high levels, have only a 'partial sight' of the overall market. In the main they were only knowledgeable about their own operations and had limited knowledge about the activities of others.

Enterprise structures

  • Over three-quarters of dealers began dealing through contacts with friends and family.
  • The level of market entry (e.g. retail or wholesale level) was largely determined by the level of the personal contact they entered through.
  • Barriers to entry for people with contacts operating in the market were small. No special skills were required other than a willingness to break the law.
  • Trust was of critical importance in dealers deciding who to work with. Often this meant dealers worked with closefriends, family or people they had grown up with.
  • Drug dealing enterprises exhibited huge diversity in their structures and operations.
  • One fifth of dealers interviewed could be described as sole traders, while the remaining four-fifths of the enterprises could be described as small or medium sized.
  • Some enterprises made use of salaried staff; others had more co-operative and collaborative approaches.
  • Dealers' profits primarily came through revenue generation (sales) rather than cost control.
  • It appeared that dealers of heroin and cocaine generally did not require detailed knowledge of profit margins and costs as the revenues were so large and the operational costs and unskilled staff wages were small.
  • Where market fluctuations did lead to increased purchase prices, dealers maintained margins by passing these increases on to customers.
  • Although very profitable on paper, cash flow was identified as a challenge for drug dealing enterprises.
  • Limited information was gathered on what dealers spent their profits on. However, large proportions of income appeared to enter the legitimate economy, both in this country and abroad.

Strategic responses of dealers

Growing a successful drug dealing enterprise presents a related but different set of challenges to growing a legitimate business. In particular the research identified the following:

  • Approximately three-quarters of dealers attempted to grow their operations
  • Growth was dependent on finding alternative sources of supply. 18 dealers reported having multiple suppliers compared with 31 who reported reliance on one supplier.
  • There was some evidence of competition leading to reduced prices at all the defined market levels.
  • Price fixing, indicative of restricted competition, was rarely reported. Collusion, in relation to dividing up geographical areas or customers was more common.
  • Substantial proportions of dealers at all levels and for all drugs suggested they used actual or threats of violence to protect their customer base.
  • Dealers took the risk of informants very seriously and mitigated this risk by working only with known contacts.
  • There was evidence of poor risk trade-off and decision making, when dealers had been operating for some time, and considered themselves "untouchable".
  • There were risks associated with working with other criminals. Dealers mitigated the reputational risks of not enforcing business contracts through threats of or actual violence to customers or suppliers.
  • Dealers viewed prison either as an occupational hazard or an unlikely risk. There were some instances of established enterprises being handed to employees or colleagues when the interviewees were caught.
  • Asset recovery appeared more troubling for dealers. Dealers who were subject to confiscation orders described potentially losing significant sums of money that they had assumed would not be taken from them.

Professor Dick Hobbs, professor of sociology at LSE, said: 'Most individuals enter drug dealing through their family and/or friendship groups. This implies that drug dealing spreads contagiously from dealer to new dealer. This, combined with the barriers to entry being minimal for individuals who know someone in the trade, has disappointing implications for policy and law enforcement. It implies that, although law enforcement activity does impose limits to dealers operations, dealing networks have the potential to grow exponentially. Although not proven, this additional competition may help to explain why prices for illegal drugs have declined over time despite increased law enforcement activity.

'Our findings demonstrate that it is feasible to gather new and insightful information about the conditions of the illegal drugs market by interviewing convicted high-level dealers. It will be important to develop improved methods of targeting the individuals performing key roles, who can best provide this information, and accessing more robust sources of information for validating the results of the interviews if we are to effectively start to understand this business.'

The full report can be downloaded at http://www.homeoffice.gov.uk/rds/pdfs07/rdsolr2007.pdf|


Contact: Professor Dick Hobbs, LSE, on 020 7955 7076, email: r.hobbs@lse.ac.uk
Or Jess Winterstein, LSE Press Office, on 020 7107 5025 or email j.winterstein@lse.ac.uk|

Press Cuttings

Guardian (21 November)
From foreign fields to UK streets - the anatomy of an £8bn industry
The study, the Illicit Drug Trade in the United Kingdom, undertaken by the Matrix Knowledge Group and London School of Economics, is the first large-scale interview programme with drug traffickers and dealers inside prison. The estimate that 70,000 street dealers are active in the British drug economy is based on previously unpublished Home Office calculations. The report says the £7bn-£8bn estimate of annual turnover implies that the average street dealer does £100,000 worth of business each year.