Paying the Pirate's Price

Do the economics of piracy demand the privatization of the sea?

Veronique de Rugy from the July 2009 issue

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There are deeper reasons why companies should secure their own ships. After all, their boats, their crews, and their profits are at stake.

In an ideal world, we would leave protection up to the owner of the water in question. But today no one really owns the waters where pirates operate. And if no one owns them, no one protects them. Usually governments exercise an implicit ownership of the waters off their coast, but the absence of credible government in Somalia bars that possibility. What’s more, today’s pirates also operate far from any coasts, in water that nobody claims.

If possible, it would be productive to find ways to privatize those pirate-infested seas. There are obvious difficulties, though not insurmountable ones, in the Somali case, where there’s no central government capable of conducting an auction. The alternative, a bottom-up homesteading approach, might end up granting the waters to the pirates themselves, but the best way to pacify the pirates may be to allow them formal ownership rights. In the long run, privately controlled waters would generate new solutions to the piracy problems. Former pirates, for example, could serve as escorts to commercial ships, not unlike the way retired hackers often emerge as computer security consultants.

No matter what solution emerges, shipping companies, not taxpayers, would bear the costs of their own protection. That in itself is enough reason to start thinking creatively about privatization.

Veronique De Rugy is a senior research fellow at the Mercatus Center at George Mason University.

Comments

Mike|6.15.09 @ 12:20PM|#

Well, here's a perfect test for any anarchists wanting to see if anarchy actually works. Set aside certain parts of the ocean as "undefended territory" where laws don't apply and navies won't help you or hinder you. Then see if ships end up preferring this or waters subject to regular maritime law.

|6.15.09 @ 12:22PM|#

Letters of Marque and Hanging on the High Seas are all we need. All merchant ships should be armed. And any merchant ship should be empowered to shoot any pirate on sight or hang/shoot on the high seas any pirates they capture. It is strictly economics. Right now the risk is low and the reward high so people become pirates. Change that equation and piracy goes away.

|6.15.09 @ 12:26PM|#

You don't even need Letters of Marque. Those of for empowering your people to raid the commerce of other nations.

You just need to legalize self-defense on the high seas. Let the merchants go armed, and empower the captains to dispense summary justice on pirates. Problem solved.

The Navy can get involved if it wants; I got no problem with the Navy's historic role in suppressing piracy.

|6.15.09 @ 12:28PM|#

"All merchant ships should be armed. And any merchant ship should be empowered to shoot any pirate on sight or hang/shoot on the high seas any pirates they capture."

You left out Keel-hauling.

Kreel Sarloo|6.15.09 @ 12:41PM|#

"You left out Keel-hauling."

Not to mention sodomy and the lash.

Lashing sodomite|6.15.09 @ 12:46PM|#

Kreel, you say that like those are bad things.

|6.15.09 @ 12:47PM|#

Retail outlets in the inner city face, and live with, the threats of armed robbery and shoplifting. They hire private security, install cameras, place merchandise and cashiers behind bullet proof glass barriers to minimize the losses. Often they arm themselves. They of course can't eliminate the losses and those extra precautions and inventory shrinkage raises the prices for anyone who shops there.

I don't propose they quit their efforts and I certainly don't propose that the cops just say, "You're on your own. It costs too much to protect businesses that choose to locate in crime ridden areas".

Merchants should arm themselves and there exists plenty of ex gunner's mates to provide shipboard defense (they have shipboard firefighting and basic seamanship skills as well) if a company wishes to pay them what they are worth.

One of the reasons that navies have existed for thousands of years is to plunder the enemy and protect their own from being plundered. I've no problem with the Russian or Iranian navies intervening to protect their own shipping from piracy and I demand that the U.S. government protect U.S. flagged shipping from piracy as well.

For those merchants registered in Panama or Liberia, they are free to call on Panamanian or Liberian navies as appropriate.

Some of the rescue attempts will result in the death of merchant sailors and some property losses are to be expected.

C'est la vie.

|6.15.09 @ 12:57PM|#

"You left out Keel-hauling."

...and monkey knife fights.

"Ain't so pretty now. Are you?"

|6.15.09 @ 12:57PM|#

J Sub D,

You are correct, navies should also deal with pirates. In the end we have taken a simple problem and made it insolvable in the name of the rule of law. Amazing.

|6.15.09 @ 1:27PM|#

I think it would be great if the merchant fleets of the world would cover their own security costs instead of leeching off the tax payers for their own protection.

International trade is subsidized by the governments of the world and makes a mockery out of free enterprise.

Let's see how cheap it is to make iPods in China when Apple and Maersk have to pay for their own protection.

mark|6.15.09 @ 1:36PM|#

David, you're on the right track but the main subsidy is in the form of the Fed/Treasury monopoly on money. I wonder how much manufacturing would have gone to China if the U.S. had to settle its accounts in gold.

SpongePaul|6.15.09 @ 1:39PM|#

a few 50 cals on each merchant ship with 4-5 armed gaurds outta end the piracy

gimlet|6.15.09 @ 1:50PM|#

"You left out Keel-hauling."

Just geld every captured pirate and then throw them back.

Bob Barker\'s Ghost|6.15.09 @ 2:33PM|#

"Just geld every captured pirate and then throw them back."

And remember to spay or neuter your pirate.

|6.15.09 @ 2:48PM|#

Good article, the piracy problem is certainly an interesting one. It is easy to say 'arm the ships' and much more difficult to actually implement it. Training would be the main issue, you can't just hand someone a machine gun and tell them to defend the boat.

I recently ran across this video, which is a good introduction to the situation and country:
http://www.newsy.com/videos/poverty_politics_and_pirates

Somalia needs to be re-built from the ground up; until then the piracy will continue. Too bad there aren't more Robin Hoods anymore; while piracy is wrong it would be nice to at least have something positive come out of this unfortunate situation.

Waterhouse|6.15.09 @ 3:51PM|#

If the idea of commercial ships paying for armed escorts manned by ex-pirates was successful, it would probably evolve into a system where the largest group of pirates levies "taxes" in exchange for not attacking ships and for protecting ships from smaller bands of pirates. That's basically how it worked with the Barbary corsairs, anyway.

And if it became organized enough, we could drop the scare quotes around "taxes", since the pirates would effectively be the government.

Kreel Sarloo|6.15.09 @ 4:22PM|#

"Kreel, you say that like those are bad things."

I didn't mean too. it's just hard to get the right nuance on the intertubular device.

It's probably because I left out the rum.

Sean W. Malone|6.15.09 @ 4:36PM|#

In a rare instance, that usage of "Robin Hood" would probably be correct... Always been a little pet peeve of mine that people fail to recognize the reason Robin Hood was good. He didn't rob anyone, he merely reclaimed what had been stolen. Somalians should do that too, but... alas.

|6.15.09 @ 4:41PM|#

First, merchants need to be able to arm themselves. Private security should also be allowed. Don't like mercenaries entering your port? Well, they can wait just outside the port. This will leave the merchant ship vulnerable, but they are still protected more than previously.

Then, reinstate the Letter of Marque and Reprisal. There is proof that some pirates are cooperating with and funding terrorists (if they aren't terrorists themselves). Send a couple carrier groups to the region and call it and expansion of the War on Terror. Issue a shoot on sight order for suspected pirates and watch the problem shrink.

|6.15.09 @ 11:03PM|#

The other week an Israeli private security team defended their private vessel by hitting the pirates with small arms fire (Israeli's don't take shit in any jurisdiction).

Its like 9/11, the attack could just have easily been stopped by a security guard with a glock than a huge war of liberation in the middle east.

Barry Parker / bdp1 Consulting|6.16.09 @ 6:57AM|#

These are excerpts from my article on piracy appearing in Lloyds Shipping Economist:


Anti-piracy efforts will present opportunities for entrepreneurs at the intersection of information technology and maritime security. The rhetoric about adding additional Naval assets to patrol impossibly large swaths of the Indian Ocean begs the question of how to harness requisite AIS and Long Range tracking (LRIT) devices on vessels. The strategy of transit corridors and organized convoys, has proven "successful" in reducing attacks in the Gulf of Aden with the Internationally Recommended Transit Corridor (IRTC). Perhaps industry associations might think how to mobilize their memberships to define additional corridors, handle the logistics of making up convoys, while liaising with insurance interests on economic incentives for participation.

In assessing the "cost" of piracy, the political rhetoric on shouldering costs suggests that fees for military presence (in the form of patrols or maintaining transit lanes) needs to be separated from the economics facing individual shipowners. Again, the information technology sector, which has changed the face of maritime security in recent years, can easily step into the breach, utilizing tools that provide interoperability between onboard tracking devices and information systems ashore. By interfacing with naval command centers instead of supply chain hubs, intelligence can be brought to the anti-piracy fight, making military capabilities far more efficient.

Schemes where user fees would be levied upon vessels, would also provide an opportunity for a savvy database tied to a tracking module and a state of the art billing system. If industry associations endorse the user fee approach, they would be the logical operators for such a system (perhaps in conjunction with War Risk underwriters). Where such fees are tied into the cargo interests, as advocated by the Nippon Foundation's Mr. Sasagawa., insurers of cargo would play a pivotal role.

James Christodoulou, an executive with Industrial Shipping Enterprises Corporation, owners of the Biscaglia (hijacked in November 2008 and released in January 2009) offered a personal perspective, in response to questions about the viability of user fees for correcting the situation in Somalia at the S & K seminar. He said, "When we go through the Suez Canal…charge me an extra 1%...to help clean up the problem."

Armed escort services are another potential business that could possibly flow out of the Piracy Crisis. At the S & K event in New York, a representative of a decades old maritime security consultant revealed that it was in the process of raising money for such a venture. One facet of his firm's proposed business model would be that use of an armed escort company, with refurbished oil crewboats, would be a condition for obtaining War Risk coverage.

And…new challenges:

In the background, a massive legal "bogie" is looming on the horizon. The very legality of paying ransoms is now coming under increased scrutiny. Though the subject is complex (and beyond the scope of this article), the inclusion of maritime piracy among activities defined as related to "terrorism" would make ransom payments illegal under several U.S. regulatory acts. S & K Partner Larry Rutkowski explained, "At present there are no regulations that prohibit payment of ransom to kidnappers or pirates operating in Somalia." Rutkowski, who was involved along with Bruce Paulsen in negotiations for release of the U.S. owned but foreign flagged tanker Biscaglia, then asked: "If we start bandying about the term 'terrorist' in the context of piracy, what is a U.S. owner to do?" Tough questions, indeed.

edna|6.16.09 @ 7:59AM|#

this is one of the few times when a sting operation would actually be useful. if one or more governments started sending decoy vessels with some real badass special forces, this also tilts the risk/reward ratio. "oops, that wasn't a good idea, rashid. rashid? rashid? what happened to your head???"

of course, arming crews and having a few badasses among them is still the optimum solution.