What is to be done about the Somali pirates, who have been working off the coast of Africa to threaten international shipping and who have recently hijacked private yachts and killed four Americans? The pirates have picked the pockets of shipping companies, producers, and (ultimately) their customers to the tune of several hundred million dollars (Daniel Akst puts it at $238 million). What should be done to stop them? Who should be responsible for stopping them? What can we learn from studying piracy?
Perhaps just as importantly, why arent we this worried about governments that pose far greater threats to the international flow of goods, services, labor, capital, and ideas than pirates?
My short answer to what should be done to stop them? is I dont know, and Im pretty sure most of the people talking about it on TV dont, either. This isnt a flippant dismissal. Its part of a broader point explored by economists like Adam Smith in the eighteenth century and Friedrich Hayek in the twentieth. In his classic essay The Use of Knowledge in Societywhich was recently selected as one of the top twenty articles published in the first hundred years of the American Economic ReviewHayek discussed the importance of the knowledge of the particular circumstances of time and place. He wrote:
It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can only be made if the decisions depending on it are left to him or are made with his active cooperation.
In short, if we socialize the costs of fighting piracy, we create both an incentive problem and an information problem. The incentive problem comes from the fact that shippers have incentives to be careless since they can expect a taxpayer-funded military to come to their rescue. The information problem comes from the fact that we forsake the social processes that tell us whether we are choosing wisely or not when we make these tasks the responsibility of the government rather than the responsibility of the firms in question.
The case for expecting the international shippers themselves to bear the risks of piracy rests not only on judgments about whether they have a right to expect taxpayer help. The case is stronger: letting people socialize their risks gives them perverse incentives and eliminates the information that would otherwise guide effective decision-making. Its more than an academic discussion. People have died at the hands of the pirates, so this is not something to be taken lightly.
It is clear that economics has a lot to teach us about pirates, but perhaps surprisingly pirates have a lot to teach us about social organization. In his book The Invisible Hook: The Hidden Economics of Pirates, Peter Leeson explores how cooperation emerges in pirate societies. This is especially interesting first because the international piratical order is much more complex than it might first appear. In addition, Leeson shows how voluntary cooperation emerges even among lewd and ill-disposed persons. At the very least, it shows that modern piracy isnt a problem that can be solved easily.
For all the worry over pirates, I wonder why there isnt just as much worry about governments that do practically the same thing. Governments embody threats of violence. They stand between people who want to trade and demand to be paid off with tariffs and taxes before they will allow the trade to occur. Indeed, I can do no better than St. Augustines report of an apt and true reply given by a pirate to Alexander the Great:
For when the kind had asked the man what he meant by keeping hostile possession of the sea, he answered with bold pride, What thou meanest by seizing the whole earth; but because I do it with a petty ship, I am called a robber, whilst thou who dost it with a great fleet art styled emperor.