(FORTUNE Magazine) – AMERICA'S so-called war on drugs is looking more and more like the real thing. Troops invade Panama in part to bring Manuel Noriega to justice for his alleged crimes as a drug trafficker. On the Mexican front, U.S. Marines, deployed for the first time in border patrols, engage marijuana smugglers in a firefight. And in mid-February, President Bush flies to Cartagena, Colombia, for an unprecedented antidrug summit aimed at rallying the governments of Colombia, Bolivia, and Peru to escalate their military struggle with the powerful cocaine cartels. Will all this saber rattling make much of a difference? Don't bet on it. Despite record seizures, the supply of cocaine on America's mean streets -- as well as the many not-so-mean ones -- has never been more available or less expensive. In a persuasive study conducted for the Defense Department, Peter Reuter of Rand Corp. concludes that even a vastly more stringent interdiction program would at best reduce U.S. cocaine consumption by a mere 5%. Admits Jack Lawn, chief of the federal government's Drug Enforcement Administration (DEA): ''Our enforcement efforts will continue to build statistics and fill prisons, but they won't turn around America's love affair with drugs.'' Is the answer, then, to raise the white flag and legalize the stuff? Yes, say a small but influential number of professors and politicians, and at least one big-city judge. They argue that legalization would reduce violent crime and divert money from crooks to the government. But they're probably wrong. The drugs popular today are so cheap to produce -- a vial of crack cocaine selling for as little as $3 costs just 35 cents to import and manufacture -- that a black market would continue to thrive alongside the legal one. Nor would legalization stop addicts from stealing to support their habits. What it would surely do is swell the use of substances far more dangerous than alcohol. While 10% of drinkers become alcohol abusers, 20% to 30% of cocaine users wind up addicted. Since 1986 at least 100,000 infants have been born to drug abusers. The intensive care they require is costing several billion dollars a year. Moreover, not all the battles in the drug war have been losing ones. Heroin use, which in the early 1970s threatened to become epidemic, has stabilized at roughly half a million addicts and attracts relatively few new recruits. Casual use of marijuana and cocaine also seems to be declining. The number of Americans who acknowledge using illicit drugs declined 37% between 1985 and 1988, according to household surveys conducted by the government's National Institute on Drug Abuse. The main reason the U.S. is experiencing what federal drug czar William Bennett describes as ''the worst epidemic of illegal drug use in its history'' is crack, the new plague. The U.S. can gain further ground in the 1990s -- but only by waging a more effective fight against illegal drugs at home. That doesn't mean policymakers ought to abandon longstanding efforts to curb the supply from abroad. But it does mean acknowledging that any new fiscal firepower should be targeted at reducing demand in the U.S. Under President Bush, annual federal spending on the antidrug fight will have climbed 68%, to $10.6 billion, in two years. In a welcome reversal from the Reagan era cutbacks, Bush is increasing spending on prevention and treatment. But he still devotes only 30% of the budget to attacking the demand side of the problem. Instead, Bush is pouring $2.4 billion -- a billion dollars more than Reagan -- into the effort to interdict drugs before or as they enter the U.S., mainly by relying more on the armed forces. FORTUNE would reverse those priorities. We would also invest a few billion dollars more in the struggle than the White House has proposed, though most of that new money will have to come from states and cities on the front line. Treating every one of the country's drug abusers, for instance, would cost $5.6 billion a year -- more than half Washington's total spending on the drug war. Happily, much can also be achieved by simply spending and reacting smarter. Here's what we suggest:

TREATMENT -- Provide more medical help for addicts. The toughest challenge is curing the roughly four million Americans who are serious substance abusers. Only about 20% currently get medical help. Many shun it, but most cannot find it. While expensive private treatment centers have plenty of room, public centers -- the only ones most addicts can afford -- typically have long waiting lists. Says Robert Stutman, a veteran DEA agent in New York: ''Imagine if I had cholera and walked into a city hospital and the doctor said, 'Come back in seven months.' It would be a scandal, but that's exactly what happens every day to addicts seeking help.'' Though it has increased spending in this area, the Bush Administration is hardly acting like a government faced with an epidemic. Bennett's strategy, shaped more by budgetary constraints than hard evidence, is to focus on the half of the four million addicts whom he deems most capable of being helped. Another million, he argues, can help themselves. The remaining million are ''hard-core addicts or career criminals'' whom existing methods of treatment can't change much. Doing better requires new medical techniques as well as more money. Only about half of cocaine addicts stay drug free for up to two years after treatment. Part of the problem is that some 70% of drug users also have an alcohol or mental disorder. Says Dr. Frederick Goodwin, head of the federal government's Alcohol, Drug Abuse, and Mental Health Administration: ''We need more effective matching of individuals with particular treatments.'' A centralized registry of programs and openings in them would be an inexpensive first step. Drug addiction can be cured, as successful treatment centers such as Phoenix House demonstrate (see box). Says Frank Gough, a former heroin addict and director of an adult treatment center for Daytop Village in New York State: ''We return to society productive, responsible people.'' The big problem is getting those whose judgment has been spiked by drugs to enter and stay in treatment. Most are pushed into it by their family or the threat of imprisonment. -- Use local laws to allow courts to commit hard-core addicts to treatment. Few states do this now. But California courts, for instance, can send convicted drug offenders to a special prison that includes a rehabilitation center. This so-called civil commitment program entails frequent drug testing after release and recommitment for those who resume the habit. Says Dr. Mitch Rosenthal of Phoenix House: ''If the country wants to get serious, like a good family it has to demand that drug users stay in treatment.'' -- Convert surplus military bases to drug treatment sites. As Nancy Reagan learned in trying to set up a rehabilitation center for adolescent drug abusers in Los Angeles, many communities object to having one in their midst. < The Pentagon is supposed to identify surplus facilities but has not acted yet. With a glut of unneeded bases about to hit the market, this is an opportunity not to be missed. -- Expand research on medical treatments for addiction. The idea is to treat brain dysfunctions caused by habitual drug use and, by reducing cravings, make patients more receptive to therapy. Medication is already used to treat many of the nation's 500,000 heroin addicts. Democratic Senator Joseph Biden of Delaware proposes spending $1 billion on research over the next ten years, a realistic target. This is a clear-cut case where Washington must take the lead: Pharmaceutical companies are uncertain whether such products would make money and fret they would hurt the companies' image.

PREVENTION -- Do more to equip children to resist drugs. Surprisingly, only about half the nation's public schools provide comprehensive substance-abuse education. Less surprisingly, since the key is building character, it's a struggle to find methods that work. Merely providing information in a classroom does little to curb demand and may even stimulate curiosity to try drugs. Kansas City has proved that mobilizing parents and the community can make drug education more effective. Starting with sixth- and seventh-graders, schools discourage the use of cigarettes, alcohol, and marijuana, widely considered the path to more dangerous substances. Students get classroom training in skills for resisting drug use, involve parents in discussion sessions, and see their efforts covered in the local media. The result: These youngsters show only half the drug use typical among their age group. Bringing local police into the classroom helps too. The Drug Abuse Resistance Education program that Los Angeles started in 1983 uses specially trained officers as instructors for fifth- and sixth-graders. By appearing in full uniform, the teachers in blue immediately command attention. They maintain it by dealing with the real world of adolescents, presenting a course that aims at building self-esteem and teaches how to say no without losing friends. The L.A. cops' promising technique has spread to some 2,000 communities in 49 states. -- Do more to spot drug use early. Many public schools require a health examination for new students, an ideal checkpoint. The Los Angeles County district attorney's office focuses heavily on truancy, an early sign of drug use, and gets families into fighting it. -- Shout louder from the most bully pulpit around. The nonprofit Partnership for a Drug-Free America has created a starkly emotional series of ads now showing on TV all across the U.S. In one, a young woman snorts cocaine in the privacy of her home, while an offstage voice notes that one out of five users gets hooked, then asks, ''But that's not your problem. Or is it?'' In the last scene, she reappears driving a school bus. Space for this $150-million-a-year campaign is donated by newspapers, magazines, and TV. Surveys suggest that the ads do reduce consumption of marijuana and cocaine, particularly in markets that run them frequently. By slightly more than doubling the reach of its ads, the Partnership hopes to expose every American to an antidrug message at least once a day. -- Companies should join the drug war. Already, federal law requires those in fields such as transportation, nuclear power, and defense to maintain a drug- free workplace. With good reason. In 1987 a Conrail train ran through a restricted switch into the path of a high-speed Amtrak train, killing 16 people and injuring 174. The ''probable cause,'' according to the National Transportation Safety Board's report: The Conrail engineer was suffering from marijuana ''impairment.'' Now other corporations are getting interested in drug testing as a way to cut health insurance costs and productivity losses. According to a study by the Bureau of Labor Statistics, some 9% of corporate America's employees show up for work with illegal substances in their systems. The cost to the economy: an estimated $60 billion a year. IBM has a model program that protects both the company and its employees from drug abuse. Since 1984 every job applicant has had to undergo a urine test for illegal drugs. Any employee caught bringing drugs into IBM, including its parking lots, gets fired. Employees who act strangely or perform erratically can be referred to the company's medical department, but are not required to take a drug test unless their job is safety sensitive. Those who admit to having a drug problem, however, get counseling and medical attention. Says Dr. Glenn E. Haughie, the company's director of corporate health and safety: ''IBM considers drug use a treatable disease.'' Among his success stories is a manager who ran up big bills on a company credit card before admitting to a decade-long cocaine habit. After treatment the manager is back at work and drug free.

ENFORCEMENT < -- Unclog the criminal justice system. Crowded courts have taken much of the risk out of the drug business. Arrestees have a 15% chance of going to jail in New York City and face only slightly worse odds in Washington, D.C. Genuine deterrence requires not only more police but also more prosecutors, judges, and jails. The Administration is expanding the federal prisons, which house over 50,000 people, at a cost of $1.5 billion. But 85% of drug offenders are in state and local prisons. Many are so jammed that courts won't allow them to take in newcomers unless someone already there is released. As a result, drug traffickers convicted in state courts serve only 22 months on average, less time than for robbery or aggravated assault. State and local governments will just have to spend more on jails: $5 billion to $10 billion over the next few years. That's about half the costs of the jails they built in the past decade. -- Try alternative forms of punishment. Drug czar Bennett wants swift, sure penalties, but he's willing to see them take forms other than long prison terms. Punishment for recreational drug users, who are more influential than addicts in popularizing drugs, should fit their crime. Says Dr. Herbert Kleber, a Yale psychiatrist who is serving as Bennett's deputy for demand reduction: ''The casual user is saying, in effect, that you can enjoy drugs, keep your health and job, have it all.'' In Phoenix that kind of attitude can get the casual drug user a heavy fine and a night in jail. In Philadelphia a yuppie shopping at the local cocaine market risks having his BMW auctioned off if he is convicted. Denying teenage offenders a driver's license for a year is another promising deterrent. In Toledo the juvenile court can make parents answer for their children's mistakes by imposing fines or even a few days in jail. -- Get communities involved in policing troubled neighborhoods. Operation Clean in Dallas has enabled residents to regain control of areas once overrun by drug dealers. In a six-week operation, the city first pours in cops to put the heat on dealers. It then brings in the full range of services literally to clean up the neighborhood, and finally stations police foot patrols in the community. So far four such cleanups of inner-city areas have reduced violent crimes significantly. Says assistant police chief Sam Gonzales: ''We're displacing drug dealers. We can't allow them to take a foothold in part of the city and say, 'It's mine.' '' In Kansas City, the Ad Hoc Group Against Crime runs a hotline that people can use to report suspected drug dealers to police. The organization also provides $1,000 rewards for information leading to convictions. Says Mary Weathers, director of the citizens' group: ''The police cannot always get there, so we try to give visible community support.'' An offshoot of Ad Hoc called Black Men Together, formed to provide virtuous role models for youth, holds frequent antidrug rallies where citizens (backed by police) use bullhorns to shout suspected dealers off the streets. Seattle is reclaiming drug-infested neighborhoods with bicycle patrols by pairs of officers who befriend local residents and sneak up on drug dealers. Officer Tony Little, who patrols a low-income housing project, says the technique definitely helps cut down drug trafficking. Riding a 21-speed mountain bike ''makes you more approachable than if you're driving a patrol car,'' he argues. Often acting on tips from residents, the bike cops surprise dealers, put them in handcuffs, and radio for a patrol car. The bikes cost around $500 each. The Drug Enforcement Administration has 2,800 agents, roughly the number of musicians in the U.S. Army. The Federal Bureau of Investigation has assigned 1,100 agents to drug cases. Given those limits, creative efforts by local police are crucial. -- Seize even more drug profits. The most vulnerable commodity in the narcotics trade is money. Drug sales in the U.S. generate more than $80 billion in tax-free profits a year. But traffickers must find ways to get their proceeds into bank accounts and legitimate businesses to disguise the source. Tracing and confiscating cash and assets deal drugsters a double blow: Money is much harder for them to replace than drugs, and the government can use it to help pay for the war against them. Says Charles O. Simonsen, chief of the currency investigations branch at U.S. Customs: ''We're having a bigger impact taking their money than their drugs. If we can attack the financial infrastructure of a drug organization, we can terminally damage it.''

Over the past four years the federal government has seized more than $1 billion in assets. To do more than skim the surface, states should strengthen asset forfeiture laws for drug proceeds. The Treasury, which acquires an enormous amount of data from banks on cash transactions of $10,000 or more, as well as on ''suspicious transactions,'' often still lacks the paper trail $ needed for convictions. Requiring more information on international wire transfers of money would help. Under prodding from Senator John Kerry of Massachusetts, the Treasury is also negotiating to get key foreign bank centers to maintain their own paper trails -- and make them available to criminal investigations.

INTERNATIONAL -- Recognize that the long-term solution is to attack the economic roots of the supply problem. Sure, there's always room for more military cooperation. But remember that farmers in Peru and Bolivia are hooked on coca as a cash crop, while in Colombia, which processes and exports the stuff, cocaine is one of the main earners of foreign exchange. Rensselaer Lee, a business consultant who has studied the South American cocaine trade, warns, ''Trying to eradicate the problem quickly may create worse problems by throwing people out of work and destabilizing governments.'' To help those economies go straight, the Bush Administration has promised $2.2 billion in military and economic aid over the next five years. That's not a bad start. But Washington could still show more sensitivity to the legitimate economic needs of drug-supplying countries. Recently the U.S. alienated Colombia by allowing the collapse of an international pact for stabilizing coffee prices. The cost to the Bogota government: several hundred million dollars a year in legal export earnings. In the struggle against drugs, what can we expect to achieve by the year 2000? Drug czar Bennett's goal is to reduce drug use in the U.S. by 55% in ten years. Sounds terrific, until you realize that's about what the U.S. has done since 1985. And who feels better off today? Moreover, who knows what cheap, new designer drug could come along to fuel the epidemic? Use of a smokable form of methamphetamine called ice, which gets users high for up to eight hours vs. 20 minutes for crack, could spread rapidly. Says Robert W. Burgreen, police chief in San Diego: ''Anyone with a chemistry book and the ability to experiment can make meth.'' Still, that's no reason to despair, as some do, that this fight is destined to prove another Vietnam. To the extent that it implies the U.S. can win a reasonably swift and clear-cut victory, as it did in World War II, today's drug war rhetoric is misleading. Think instead of another struggle that offered no quick fix but instead required patience, vast resources, bipartisan and international cooperation, but which America saw through successfully / -- the cold war. Policies based on containment may not stir the blood. Pursued long enough, though, they can ultimately prevail.