Shopkeepers in this pine-covered mountain region easily recite the list of "protection" fees they pay to La Familia drug cartel to stay in business: 100 pesos a month for a stall in a street market, 30,000 pesos for an auto dealership or construction-supply firm.
First offense for nonpayment: a severe beating. Those who keep ignoring the fees — or try to charge their own — may pay with their lives.
"Every day you can see the people they have beaten up being taken to the IMSS," said auto mechanic Jesus Hernandez, motioning to the government-run hospital a few doors from his repair shop.
Mexican drug cartels have morphed into full-scale mafias, running extortion and protection rackets and trafficking everything from people to pirated DVDs. As once-lucrative cocaine profits have fallen and U.S. and Mexican authorities crack down on all drug trafficking to the U.S., gangs are branching into new ventures — some easier and more profitable than drugs.
The expansion has major implications as President Felipe Calderon continues his 2 1/2-year-old drug war, which has killed more than 11,000 people and turned formerly tranquil rural towns such as Ciudad Hidalgo into major battlefronts.
Organized crime is seeping into Mexican society in ways not seen before, making it ever more difficult to combat. Besides controlling businesses, cartels provide jobs and social services where government has failed.
"Today, the traffickers have big companies, education, careers," said Congresswoman Yudit del Rincon of Sinaloa state, which has long been controlled by the cartel of the same name. "They're businessman of the year, they even head up social causes and charitable foundations."
Local officials say they do not have the manpower to investigate cartel rackets and refer such cases to the state, which hands them over to overloaded federal agents because organized crime is a federal offense. A federal police report released in April notes that often no one confronts the cartels, "not the police, because in many cases there is probably corruption, and not the public, because they live in terror."
After media reports questioned whether Mexico was becoming a failed state, Calderon insisted to The Associated Press in February that his country is in the hands of Mexican authorities.
"Even me, as president, I can visit any single point of the territory," he said. He has since sent 5,500 extra military and police officers to fight drug lords in Michoacan — his home state.
But in Ciudad Hidalgo and neighboring Zitacuaro, mayors have been jailed and charged with working for La Familia cartel, which controls swaths of central and western Mexico. Cadillac Escalades and Lincoln Navigators with low tires and chrome rims patrol the streets of Zitacuaro, even as trucks of army troops roll past.
In the Michoacan mountain town of Arteaga, La Familia boss Servando Gomez Martinez is revered for giving townspeople money for food, clothing and even medical care.
‘Almost like Chicago’
"He is a country man just like us, who wears huaraches," a farmer said of one of Mexico's most-wanted drug lords, pointing to his own open-toed leather sandals. He asked that his name not be used for fear of retaliation.
"It's almost like Chicago, when Al Capone ruled everything," said a senior U.S. law enforcement official who was not authorized to be quoted by name. "They control everything from the shoeshine boy to the taxi driver."
Mexican cartels gained their dominance in drug trafficking in the mid-1980s, when U.S. drug agents and the Colombian government cracked down on Colombian cartels and drug routes through the Caribbean. The vast majority of cocaine headed to the U.S. started going through Mexico.
In the meantime, trade in pirated and other smuggled goods in Mexico traditionally was carried out by small gangs centered around extended families or neighborhood rings.
In the last five to 10 years, Mexican cartels created domestic drug markets and carved out local territories, using a quasi-corporate structure, firepower and gangs of hit men to control other illicit trades as well. Federal prosecutors now call them "organized crime syndicates" and say their tactics — such as charging a "turf tax" to do business in their territory — mirror the Italian mafia.
"They adopt a business model as if they were franchises, except they are characterized by violence," according to a federal police briefing report.
In June, soldiers in the northern city of Monterrey caught members of the Zetas cartel producing and distributing pirated DVDs and controlling street vendors with protection fees.
Also in Monterrey, top Gulf cartel lieutenant Sigifrido Najera Talamantes ran kidnapping and extortion rings while trafficking migrants and crude oil stolen from the pipelines of Mexico's state-owned oil company, Pemex, according to the army.
Najera Talamantes, who was arrested in March, allegedly charged migrant smugglers to pass through his territory, took a cut from street vendors and oversaw trafficking in stolen goods, said Army Gen. Luis Arturo Oliver.
In Durango state, residents of Cuencame dug ditches around their town earlier this year to keep out roving bands of drug hit men kidnapping people at will.
"Even with the ditches, they still came in and kidnapped five people," said a Cuencame official who asked his name not be used for fear of retaliation.
In late 2008, almost all the betting parlors in the border state of Tamaulipas closed because of demands for protection money, according to Alfonso Perez, the head of the Mexican association of betting parlors.
In northern states such as Chihuahua and Tamaulipas, cartels also are blamed for businesses closing or burning if they don't pay protection fees.
Last year, mayors of more than a dozen towns throughout the state of Mexico received threatening phone calls demanding that $10,000 to $50,000 be deposited in bank accounts. State investigators say many of the threats mentioned links to the Gulf cartel.
Salvador Vergara, mayor of the resort town of Ixtapan de la Sal, received threats and was shot to death in October. State authorities believe that he didn't pay and refused to allow gangs to operate in his township.
Families in parts of the central state of Zacatecas went without cooking gas for several days in January, after gangs demanded protection fees of the gas-delivery trucks, and drivers refused to make their rounds. Deliveries resumed only after the state government increased security patrols on the local roads.
Extortion threats reported to federal police skyrocketed from about 50 in 2002 to about 50,000 in 2008, according to Public Safety Secretary Genaro Garcia Luna. Because of the spike, the Mexican government this year launched a nationwide anti-extortion program, creating a national database to track protection rackets and promising to protect even business owners too scared to file formal complaint.
While the results of the new complaint system are still meager, the government recently moved to go after cartel finances. In April, Congress approved a law allowing the government to seize properties and money from suspected drug traffickers and other criminals before they are convicted. In the past, suspects had to be convicted before their property could be seized, and trials often last years in Mexico.
A cut of almost every transaction
Still, the gangs have created elaborate systems to avoid property seizures and to move money quickly through store-front check-cashing and wire-transfer services, according to federal police. And they have become so omnipresent that they take a cut of almost every transaction in some areas.
Javier, the owner of a small video store in Ciudad Hidalgo, got so fed up with La Familia controlling his town, he decided to sell his house and sent his two daughters to live in another state. His business had withered from the competition of street vendors selling pirated DVDs for La Familia.
But when he put his two-story, 1930s-era home up for sale, he got a phone call from the cartel.
"Putting up a 'for sale' sign is like sending them an invitation," said Javier, who asked that his last name not be used for fear of retaliation. "They call and say, 'How much are you selling for? Give me 20 percent.' "