Does banning drugs work? Fearing the moral downfall of society, the Chinese government prohibited the sale of opium in 1729 and in 1799 forbade the importation of opium for smoking purposes. After 129 years of prohibition and under threat from the British government, China legalized opium in 1858, hoping an eight percent tax would help solve financial woes. Using export data from India to China, Jeffrey A. Miron and Chris Feige find trends in Chinese opium consumption. They find that prohibition was not successful in reducing consumption.
Originally, the British East India Company had a stronghold over the Chinese opium market, but fearing British influence in China, the Chinese government pressured the British to end direct importation. Wishing to continue the lucrative trade, the British used indirect manners, selling to India who in turn smuggled opium into China. The data contains records of the prices and quantities of opium exports from the British East India Company to India from 1801-1902. This data was found in various books.
Miron and Feige compare pre-legalization numbers and post-legalization export records to see the effects of legalization. Using a regression for exports per Chinese population, the authors look for the consumption trends. The regression shows some increase in consumption but when controls for legalization, war times, price of rice (used as a proxy for income), population and trend are included, there seems to be little increase in opium consumption after legalization. A chart of exports per population over time confirms the insignificant effect of legalization.
It is possible the exports did not increase because of a new domestic market for opium and a regression on price is run to check this hypothesis. If China created a new domestic market, the increased supply would depress the prices of opium. Yet, the regression results suggest an increase in prices, not a decrease. This provides evidence that the India export data is a good estimate of Chinese opium trends.
The authors point out that this conclusion may not apply to other prohibitions. While declaring opium the downfall of the people, the Chinese government didnít place heavy resources behind the enforcement of the laws within China. Yet, China did engage in two costly Opium Wars, in which China lost Hong Kong, to the British. This could be a warning about prohibitions with weak law enforcements.
In the US, similar laws exists, e.g. against drugs such as marijuana. Living on a college campus I hear students talk about the legalization of marijuana and have seen the economic pros and cons in class. How much does prohibition stop the use of a drug? In the case of marijuana, prohibition does not seem to work.
I am donít know if data exists on illegal marijuana, but I would like to see a similar study for the US. Similar to the Opium Debatesí arguments in China, some feel legalizing marijuana would allow for better policing and would create revenue through taxation. Prohibition creates dangerous drugs because no organization is regulating the quality. If one believes people will smoke marijuana either way, legalization could be beneficial.
I have a few problems with this paper, the data being the largest of them. The accuracy of the data I question. Whether records from 150 years ago are accurate is not the only question. I also wonder whether the smuggling theory is 100% true. Because the Chinese tax on the opium was the highest tax, the authors claim that people would not lie about the destination of the opium. Yet, before the tax was introduced and opium was prohibited, the final destination of the opium from India wasnít necessarily China.
Secondly, the authors discuss how the information describes Chinese opium trends and even try to control for possible domestic market creation. However, it seems unlikely that the British East India Company had a complete monopoly over the opium trade into China. It seems possible that other companies exported opium into China. If more than one company existed for opium trade, the numbers from just one of those companies might not be representative of the trends.
In addition, the authors contend that if China started an interior opium trade, the prices would be depressed. This is not necessarily true. If demand for opium remained at the same levels, the prices would go down with increased supply. Yet, the demand could have gone up, thus creating an equilibrium with more quantity at the same price.