I occasionally see libertarians who advocate the decriminalization of marijuana and other illegal substances as being preferable to outright legalization. The logic is one to which we might be sympathetic: decriminalized substances cannot be taxed, while legalized substances are more easily subjected to sales or excise taxes, as well as a panoply of other regulations. Therefore, according to this argument, decriminalization would represent a freer market than the tax-and-regulate environment of legalized sales.
There is certainly room to critique any tax and regulation on vices (or anything else). Many libertarians simply oppose any additional revenue streams for government, but putting this aside, there are still regulatory consequences for the product. As Mark Thornton demonstrated in The Economics of Prohibition , excise taxes on cigarettes produce the same fundamental consequence as outright prohibition – the increased potency – with the difference in this effect being merely a matter of degree. Any regulation restricting sale, such as licensing or quantity restrictions, would lead to similar consequences.
But while this critique may be a valid basis for opposing any such impositions on vices, they fail to provide an adequate defense for seeking decriminalization as an alternative to legalization, even from a radically libertarian perspective. The failure to recognize this, as far as I can tell, comes from a misunderstanding of what decriminalization means.
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In a legal environment, business owners are permitted to produce and sell the product in question. In the case of marijuana, this inevitably means obtaining a license, just as any business requires a license in the modern age. In the Netherlands, marijuana is legally sold through regulated “coffee shops.” In Colorado, licensed retailers face significant regulation and taxes, as well.
However, by contrast, we can look at places like Portugal, which decriminalized all illegal drugs, and therein we can see the important differences between the two concepts. Decriminalization means that the substance is still technically illegal, but the person in possession of the substance will not be criminally prosecuted. The manner in which decriminalization is legally tolerated might vary according to the country, of course. Drug dealers may still face prosecution (usually for carrying legally specified quantities, which simply has the regulatory effect of limiting the supply a dealer carries at a given time) and if a user is caught with the nominally illegal substance, they may be subject to rehabilitative measures, as is the case in Portugal. Decriminalization, strictly speaking, just means that people will not face criminal charges.
Economically, though, the significant distinction is in the fact that the person selling the product is not able to have a legitimately recognized business. They have no shop, no ability to establish brand recognition, and limited competition. In other words, where outright legalization leaves the sellers subject to government regulation, it also leaves them subject to market regulation. There are in-built incentives to maintain a standardized, high-quality product in order to attract and maintain customers. The customers are able to know what they’re getting, and this information is conveyed through branding, with the concomitant pressure to ensure honesty and reliability in the branded product. In the case of fraud or other ethical issues that can be subject to torts, customers have the right to bring suit against a dishonest seller with their grievance accepted as a valid basis for adjudication.
Decriminalized sellers, because they are not recognized as legitimate by the state, may not be subject to the exoteric regulations and taxes imposed by the government, but they are also not fully subject to the esoteric regulations of the market. Simply put, the illegitimate status of the sellers is, itself, a government imposed regulation with its own set of consequences. In Portugal, for example, drug users still have to obtain their product from some disreputable merchant operating on a street corner. Levels of purity, potency, or composition are likely unknown, and if the seller does fraudulently market the product, there is no avenue for recourse in a legal system that will not recognize lawsuits for decriminalized substances.
Given this, we may categorize drug markets according to four general environments: the prohibitory black markets, the decriminalized black markets, the regulated legal markets, and the unregulated free markets. In terms of negative consequences, the unregulated free market may be the most preferable from a libertarian point of view (ethically, consequentially, or both), but in the current political economy, the unregulated free market is not a realistic political goal.
When moving from the prohibitory black market, the realistic alternatives are, thus, the decriminalized black market or the regulated legal market. Both environments are effectively regulated by governments, but the decriminalized market – by not allowing legally recognized sale and production – is inarguably the more regulated. In fact, this should be most evident in the fact that when the taxes and regulations on the legal market heavy enough to exceed the decriminalized market, a black market emerges as a consequence, as has been observed in the market for cigarettes in New York City.
From a libertarian perspective, then, decriminalization is still a noble goal, but outright legalization is still preferable. Like any other product, we may argue for lower taxes and less regulation, but the mere presence of taxes and regulation should not be used to justify arguments for decriminalization as a preferable alternative to legalization.
