Although there exists a significant corpus of literature describing how urban gangs can be involved in various forms of illegal economic activity (e.g., Bourgois 1995; Contreras 2012; Hagedorn 1988; Padilla 1992; Sánchez-Jankowski 1991; Spergel 1995; Venkatesh 2000), one of the most important recent contributions is undoubtedly Steven Levitt and Sudhir Venkatesh’s (2000) famous analysis of the finances of a drug-dealing gang in Chicago. This study, an interdisciplinary collaboration between an economist and a sociologist published in The Quarterly Journal of Economics, is notable both for its uniquely detailed data and for empirically blowing apart commonly held notions concerning the universal profitability of selling drugs. In particular, Levitt and Venkatesh (2000: 757, 771) were able to calculate that most of those involved in the drug trade in Chicago during the late 1980s and early 1990s earned little more than “roughly the minimum wage,” with only a few privileged individuals at the top of the gang pyramid receiving anything in the way of substantial returns, as a result of which “gang members below the level of gang leaders live with family because they cannot afford to maintain a separate residence.” This particular observation provided the basis for a well-known chapter in Levitt’s coauthored, best-selling book Freakonomics (2005) drolly entitled “Why Do Drug Dealers Still Live with Their Moms?” in which he argued that “the problem of crack dealing is [that] … a lot of people are competing for a very few prizes [and] … an immutable law of labor [is that] when there are a lot of people willing and able to do a job, that job generally doesn’t pay well” (Levitt and Dubner 2005: 105).

At the same time, however, as Venkatesh (1997: 107–108) highlighted in a previous article published in the American Journal of Sociology, a gang’s “turn toward systematic involvement in drug economies … is a multifaceted social process that cannot be reduced to its economic dimensions” alone. This becomes particularly evident when the economics of drug dealing are explored in a comparative perspective, and this article therefore juxtaposes the dynamics of drug dealing in Chicago as described by Levitt and Venkatesh with those that have emerged in Managua, Nicaragua. It particularly highlights how drug dealing in the latter context occurred within a highly segmented labor market in which only a few specific individuals could participate. As a result, although drug selling in Managua was organized in a hierarchical manner and earnings were unevenly distributed, even those individuals associated with the lowest tier of the drug-dealing pyramid earned between three and five times more than the median local wage, something that contrasts strongly with Levitt and Venkatesh’s findings. These disparities can be partly related to the different internal structuring of drug trafficking in these two contexts, but ultimately, they also reflect the fundamentally different broader political economies within which they respectively occur.

The economics of drug dealing in Chicago

Levitt and Venkatesh’s (2000) landmark study of the economics of drug dealing in Chicago is based on a unique data set, namely, formal accounting ledgers containing detailed financial information concerning the drug-selling activities of a local-level Black Disciples gang, which Venkatesh obtained during the course of his PhD fieldwork on the experience of poverty in a Chicago housing estate during the early 1990s (see Venkatesh 2000, 2006, 2008). These provided them with a complete record of four years’ worth of the gang’s financial transactions—sales, wages, dues, profits, and so on. The data was collected and maintained by the leader of the Black Disciples gang—whom Venkatesh calls J.T. in his writings—as a “management tool for tracking the gang’s financial activities and for monitoring the behavior of gang members” (Levitt and Venkatesh 2000: 757). This information is contextualized within a broader description of the general organizational dynamics of the Black Disciples gang. This was pyramidal in nature, with an overall citywide central leadership of four to six individuals, who “managed” approximately a hundred local leaders with specific territorial responsibility for smaller gang subunits. Each local leader had three “officers”—an “enforcer,” a “treasurer,” and a “runner”—who helped distribute drugs locally and manage sales and profit collection. In particular, the enforcer managed between 25 and 75 “foot soldiers” who were “official” Black Disciple street-level drug sellers. At the bottom of the pyramid were 60 to 200 “rank and file” who paid dues to the gang in return for protection, status, and a reliable supply of drugs to sell on nongang turf but who generally aspired to becoming “foot soldiers.” Levitt and Venkatesh note:

The structure of the overall organization is [therefore] similar to that of a franchised company. [Local] Gang leaders pay a fee to the franchisers (central leadership), but are the residual claimants on the profits accruing to their franchise. In return for those tribute payments, higher-ranking leaders ensure that a local gang has sufficient protection (both on their turf and in prison), stable alliances with other gang sets such that gang members can travel to other areas of the city with relative safety, access to reliable sources of wholesale drugs, and the possibility for members to rise up the hierarchy into the upper echelon, where personal revenue and power are considerably enhanced. The individual, local gang units, like separate franchise owners, have relatively little interaction with one another.

(762)

Focusing on one particular local gang unit, Levitt and Venkatesh describe how its “revenues are broken down into three sources: proceeds from drug sales (almost exclusively crack cocaine), dues from gang members, and ‘street taxes,’ i.e. money extorted from individuals (and occasionally companies) conducting business on the gang’s turf” (766). The operational costs of these different activities generally amounted to about 15 percent of the gang’s total revenue, which still left a substantial profit margin. The distribution of this profit was highly skewed, however. The local gang leader retained between $4,200 and $10,900 a month as profit, for an annual wage of $50,000 to $130,000—tax free, of course—which was well above what he could hope to earn in the legitimate sector given his education and experience, according to Levitt and Venkatesh. Officers, on the other hand, each earned roughly $1,000 per month, only slightly higher than what they might be able to expect with a legal full-time minimum-wage job. Foot soldiers earned a flat wage of about $200 a month, and based on a rough estimate of the hours they worked, Levitt and Venkatesh note that “the hourly wage earned by the typical foot soldier was [therefore] below the federal minimum wage” (771).

In a companion piece to their Quarterly Journal of Economics article published in Theory and Society, Venkatesh and Levitt (2000: 430) contend that the particular drug-dealing dynamics they describe was in fact the result of a specific “dialectic of articulation between a local system and its encompassing context” (see also Venkatesh 1997). In particular, they contend that the Black Disciples’s drug dealing came to be imbued with an “aura of corporatism” that was “reflective of shifts in the social and economic order of American society in the 1980s. … The gang and its evolving corporatist mien could not be … divorced from a number of critical social developments taking place in the Reagan era. The Black [Disciples] had seized upon corporate ideology … at the time in which free market ideology and the romance of the ‘bootstrap’ mentality had produced a new phenomenal form of late capitalism” (Venkatesh and Levitt 2000: 429). As Venkatesh and Levitt (457) further go on to contend, “it is hardly ironic that the gang’s new proto-business guise coalesced during the era of Reaganomics, when the fetters of corporate advancement were being removed for legitimate corporations, whether this manifested as overhauling governmental regulation or an ideological embrace of self-interested gain.”

Such an analysis is certainly supported by other studies of drug dealing in US cities such as those by John Hagedorn (1988), Martín Sánchez-Jankowski (1991), Felix Padilla (1992), Phillipe Bourgois (1995), or Randol Contreras (2012), for example. This is further supported by research outside the United States—more specifically in Managua, Nicaragua—despite the fact that the dynamics of drug dealing there are significantly different than those reported by Levitt and Venkatesh. As the next section describes, not only did Managuan drug dealing occur within a highly segmented labor market, in which only a few individuals could participate, but moreover the drug economy itself was extremely static, and there was little mobility between different levels of the drug-dealing hierarchy, very much in opposition to any sense of participation being perceived as a “tournament.” The reasons underlying these critical differences lie on the one hand in the different organizational nature of drug dealing in Managua compared to Chicago, but perhaps more importantly on the other hand in fundamental differences between the broader political economies of the United States and Nicaragua.

Drug dealing in Managua

I draw my information about drug dealing in Managua from longitudinal ethnographic research I have been carrying out since 1996 on the evolution of youth gang violence in a poor neighborhood I pseudonymously call barrio Luis Fanor Hernández (see Rodgers 2006, 2007b, 2007d, 2013, 2014, 2015, 2016). Two major differences with Venkatesh’s research in Chicago are that the gang I studied was not initially involved in drug dealing, and the drug trade in barrio Luis Fanor Hernández has changed dramatically over the past decade. Drugs only became a major feature of the urban scene in Managua from around 1999 onward, and gangs became involved because of a “contingent compatibility” with the emergent drug trade. This fundamentally altered their underlying dynamics in a way I have broadly described as a movement from “primitive socialism” to “primitive accumulation” (Rodgers 2007c)—that is, from socially motivated, identity-based vigilantism to profit-oriented economic entrepreneurialism. The drug trade subsequently professionalized and from around 2006 onward began to involve youth gangs much less, becoming organized around more shadowy adult groups locally referred to as cartelitos, although these are not cartels in the Mexican or Colombian sense of the term but rather local organized crime groups. I will focus my attention mainly on the drug trade as it existed around 2002 to 2003, when it involved the local youth gang, although I shall make some comment about the significance of subsequent evolutions.

Most of my information derives from a mixture of participant observation and interviewing, although like Venkatesh, I have had access to detailed written records of drug-dealing finances, in my case those of a mid-level drug dealer whom I shall pseudonymously call Bismarck,¹ who kept detailed accounts of his business over a two-year period. Contrarily to Venkatesh, I cannot put this data into the public domain, as Bismarck is still alive and the statute of limitation period for his criminal activities is not yet over, although he is now no longer involved in drug dealing. Venkatesh’s research was carried out in the early 1990s, the gang he studied was defunct by the time he published his coauthored article with Levitt in 2000, the person who gave him the ledgers had died, and the Robert Taylor housing development where he carried out his investigations had moreover been destroyed and its inhabitants relocated all over Chicago, which made tracing any of them difficult, hence his being able to put his data in the public domain.

Drug selling in barrio Luis Fanor Hernández was therefore a much smaller operation than the Black Disciples gang Levitt and Venkatesh analyzed and moreover was organized not on a franchise basis but as a decentralized commodity chain, with different tiers of the pyramid linked not by payments of dues or salaries but rather through upstream monopoly supply relations. Each level of the drug-dealing pyramid thus enjoyed autonomous profit margins, since their economic activity was independent of each other. This partly explains the most striking difference between drug dealing in Managua and Chicago, namely, that even those at the bottom of the drug-dealing pyramid made substantial amounts of money. Certainly, in terms of respective revenue levels, and based on triangulated interviews with all of them, the muleros in barrio Luis Fanor Hernández earned on average between $350 and $600 per month from their drug dealing, equivalent to between three and five times the average Nicaraguan wage at the time.⁵ According to the data contained in Bismarck’s ledgers, and also based on conversations with three other púsheres, this level of the drug-dealing pyramid generally earned between $1,050 and $2,400 per month, mainly depending on whether they bought one or two kilos of cocaine from the narco. I have no detailed information about the narco’s income, although it was clearly much higher. He owned two houses in barrio Luis Fanor Hernández, at least two in other neighborhoods—one of which had two stories, something that was relatively rare and a sign of conspicuous affluence in earthquake-prone Managua—two motorbikes, and a fleet of eight cars, six of which were taxis. This generalized affluence explained why, like their Chicago peers, drug dealers in Managua often still lived with their parents. Contrarily to the former, however, the latter did so not because they were too poor to move out but because they were rich and could afford to take care of them—a behavior pattern that was by no means common in a contemporary Nicaragua that has suffered the ravages of neoliberal economic crisis for the past 25 years and has seen traditional patterns of familial cohabitation fundamentally altered, with youth often leaving early and the elderly frequently left to fend for themselves (see Rodgers 2007a).

Part of the reason drug dealing in Managua generated significant wealth for dealers in stark contrast to the situation in Chicago clearly related to the particular nature of drug selling as an economic activity. Contrarily to Levitt and Venkatesh’s findings in Chicago that drug selling was an economic activity that occurred in an open and competitive labor market, in Managua it was very obviously part of a highly segmented labor market, and there were major requirements for entry, to the extent that it was a highly exclusive occupation. In particular, all those directly involved in drug dealing in the early 2000s were either former or current gang members. To a certain extent, this was logical, insofar as the illicit nature of the drug trade means that drug dealers do not have access to legally enforceable contracts or property rights, and violence rapidly emerges as a primary tool with which disputes are resolved. Gang members represented local instances of a special category of individuals that Charles Tilly (2003) has labeled “violence specialists,” and were positioned in a privileged manner to engage in drug dealing by virtue of their unique ability to be violent. At the same time, the exclusive nature of drug dealing contributed to the activity’s profitability, insofar as even if profits were distributed unevenly within the drug-dealing pyramid, the fact that for the most part they were shared among a restricted group of individuals meant there was more of the cake to go around—so to speak—in a manner that contrasts sharply with Levitt and Venkatesh’s findings in Chicago. (Although another reason drug dealing in Nicaragua generated significant wealth for dealers in contrast to the situation in Chicago clearly related to relative differences between the wider US and Nicaraguan economies, insofar as the purchasing power of dealers was obviously much higher in Nicaragua, where generalized levels of poverty are extremely high.)

The particular nature of drug dealing in Managua meant that its dynamics were not a question of time allocation and opportunity cost judgments, as was the case in Chicago, but rather hinged around the fact that it was necessary to belong to a specific social group in order to be able to participate. At the same time, however, in addition to the limited possibilities for entry into the drug trade, there was also very limited mobility between hierarchical levels of the drug-dealing pyramid, although there was plenty of rivalry between individuals belonging to the same hierarchical group, as these jostled for internally dominant positions.⁶ Certainly, there was no process of “graduation” from being a mulero to becoming a púsher, for example, and there was similarly no question of a púsher setting up as a narco. Indeed, the one occasion in which a púsher attempted to rival with the narco led to a confrontation that became almost mythical in quality, as the tale of the event was often retold in barrio Luis Fanor Hernández in a way that symbolically confirmed the immutability of the drug-dealing hierarchy, always ending with a comment to the effect that “there can only be one poderoso.” In brief, the confrontation occurred in 2001, after a púsher called Chico Ful attempted to challenge the narco’s position as monopoly supplier of cocaine in the neighborhood by using his own family links with the Caribbean coast of Nicaragua to access a steady supply of cocaine, and tried to set himself up as a rival top-level supplier. Chico Ful, an ex–gang member, had been among the narco’s first clients in 1999 and had rapidly become a major crack addict, to the extent that by 2001 he had developed a lung condition requiring him to regularly use oxygen canisters in order to be able to breathe properly. Despite this condition, however, he made a similar deal with the narco to Bismarck’s and had set himself up as a púsher, cooking cocaine into crack and selling it to muleros with the help of his wife and mother (this obviously also ensured him a constant supply of crack at cost price). The narco rapidly realized that Chico Ful was no longer buying cocaine from him, and had furthermore began to supply other púsheres, and arranged for Chico Ful to be beaten up and shot in the legs by local gang members. Chico Ful ended up in a wheelchair, but this was not enough to deter him, and he attempted to bribe some corrupt police officers to arrest the narco. This failed when the narco simply paid them more and had them arrest Chico Ful’s wife and mother instead. The narco then had Chico Ful brought to him and personally tortured him, holding a vigil until his oxygen tank ran out, and then watched him choke to death, reportedly laughing manically in the process.

This hierarchical stability among barrio Luis Fanor Hernández drug dealers is another major difference compared to drug dealing in Chicago as described by Levitt and Venkatesh, which suggests that drug dealing in Managua was not conceived as a “tournament” by those involved and that the motivations for becoming a drug dealer in Managua were different than in Chicago. Having said this, one comparable element between Chicago and Managua is the risks associated with drug dealing. Between 2000 and 2006—at which point the organization of the drug trade changed in barrio Luis Fanor Hernández—two muleros were killed, two died of overdoses, and two were imprisoned for, respectively, three and five years. One púsher was killed, and another was arrested, as was the narco, in 2006. These risks were clearly well understood by the muleros and the púsheres I interviewed, however, and many explicitly saw their drug dealing as a finite economic activity. Bismarck, for example, stopped in 2006, taking advantage of the narco’s arrest, which, as he explained to me during a conversation in July 2007, changed the dynamics of drug dealing in barrio Luis Fanor Hernández:

“So you’re no longer selling drugs?” I asked him.

“No, no, I stopped about a year, a year and a half ago,” Bismarck replied.

“Why?”

“Well, el Indio viejo got arrested, and so it became more difficult to buy cocaine in the barrio. This was only for a few months, until he managed to get his affairs sorted out from prison, and he’s started selling again through his wife and mother, but I took the opportunity to get out of the business, you know, I was able to say that because of the break I didn’t have any money to buy regularly anymore, because I’d spent my savings. In any case, he sells much less now, and there’s only a few expendios [drug dispensaries] left in the neighborhood, it’s no longer a big drug-dealing neighborhood like it was in the past. Most business has moved to other neighborhoods, including especially barrio Nosara next door, which is where el Indio viejo’s wife and mother run his business from. And he’s more into transporting the drugs than selling it now, there’s much more money in that.”

“I heard that the narco was arrested in possession of drugs, but I never understood why, because I thought he never had any at his home, and that he never actually did anything himself, and had loads of people working for him.”

“He did, but this was exceptional. Somebody had ordered 20 kilos of cocaine at the last minute, and he was all alone because he’d sent all his workers on a paid holiday to Montelimar.”

“He sent them where?” I spluttered.

“Montelimar, you know, the seaside resort.”

“I know what Montelimar is, but I can’t believe that the neighborhood narco sent his workers on a paid holiday there! It’s seriously luxurious!”

“Sure, what do you think? The narco was a good employer; he took care of his workers. He paid them well too, and this included paying for holidays and things.”

“I can’t believe this! It’s completely surreal! Anyway, so because of all his workers having a good time in Montelimar he had to transport the drugs himself?”

“That’s how it was, and the transport police caught him on the main road.”

“Do you think somebody tipped them off?”

“Not as far as I know, I think it may just have been bad luck that he was stopped. But el Indio viejo had it coming in any case, for sure. What happens is that when one reaches a certain point, when your business reaches a certain size, you can’t be a family enterprise any more, and you have to employ people whom you don’t know that you can trust. So you become vulnerable. Many people, including me, had been telling the narco to retire, that he had made enough to live comfortably for the rest of his life, and to pass on something to his children, but the thing is that it’s always difficult to stop. When you’re making good money, you always want more. That’s how it is. What ultimately made el Indio viejo fall was his greed, because he should have never taken the risk of transporting the drugs himself, but he did it because he didn’t want to lose out on the profits from selling 20 kilos. It would have been a lot of money, for sure, but you have to know how to stop before you fall, and he didn’t.”

Bismarck had invested his earnings from drug dealing into property and was now a local slumlord, obtaining rent from tenants in barrio Luis Fanor Hernández, as well as from leasing out a shop at a nearby market. His revenues amounted to about 60 percent of what he earned as a drug dealer, but he was very conscious that they were obtained in a much less dangerous manner and claimed he had no regrets about giving up drug dealing. This kind of attitude—along with the fact that drug dealing was not an activity in which anybody involved could rise to the top—clearly highlights how drug dealing in Managua was not conceived as a tournament. At best one could argue that those who had the opportunity to involve themselves in drug dealing saw this course of action as a high-risk speculative venture that if successful promised significant reward.

At the same time, another major element to consider is that the narco’s arrest precipitated a fundamental change in the structure of the drug trade in barrio Luis Fanor Hernández, as he reorganized things to be able to run his business from prison (where he only remained for three years). He also began to become increasingly involved in drug trafficking (i.e., moving drugs across Nicaragua rather than selling it locally) as he institutionalized his existing links with a Colombian drug cartel—supposedly the Norte del Valle cartel, according to my local púsheres sources—to effectively become their “man in Nicaragua,” so to speak. These developments led to the emergence of a more tight-knit, professional group associated with the drug trade in the neighborhood, one that involved individuals who were more than just local “violence specialists” but rather had skills and networks that enabled them to operate beyond the confines of barrio Luis Fanor Hernández. This completely changed the dynamics of the drug trade, although ultimately it clearly continued to respond to the same basic pecuniary concern as previously.

Concluding comments

This points to a major element that must be taken into account when trying to come to grips with the dynamics of drug dealing, namely, the articulation of endogenous dynamics with exogenous contextual factors. When considered more broadly, the barrio Luis Fanor Hernández drug economy can in many ways effectively be said to have mirrored much broader dynamics, and more specifically the fact that the contemporary Nicaraguan economy is generally based on processes of monopolization and exclusive dealing rather than open competition. Certainly, as I have described in more detail elsewhere (see Rodgers 2008, 2011), Nicaragua today is dominated by a small, oligarchic elite that is satisfied to promote a steady-state “hacienda capitalism” that generates only enough surplus to maintain this group’s exclusive lifestyle—both in the sense of luxurious and restricted to this elite. The exclusive nature of drug dealing in barrio Luis Fanor Hernández in the early 2000s very much reflected these broader dynamics in the same way Venkatesh argued the more competitive nature of drug dealing in Chicago in the late 1980s and early 1990s reflected Reaganomics. Ultimately, the importance of the interrelationship between endogenous and exogenous factors should not be surprising. As Sánchez-Jankowski (1991: 32) highlighted in his classic work Islands in the Street, understanding gangs inevitably necessitates an appreciation of the fact that they are always “integrated into both the local and the larger community,” and the dynamic of their economic activities will therefore logically always be determined by an articulation of both internal and external processes. What is clear from the comparison of drug dealing in Chicago and Managua presented here, however, is that this can be extremely variable and can change not only across contexts but also over time.