Pirates: Rational Profit Maximizing Entrepreneurs of the Sea
January 24, 2012 9 Comments
Pirates are awesome. Economics: also awesome. The combination?
Check out this report: The Economics of Piracy. It uses data from 1500 Somalian pirates to look at the future of international piracy. An excerpt:
Pirates would appear to be the very essence of rational profit maximizing entrepreneurs described in neo-classical economics. Expected profits determine decisions based on the information available. The supply of pirates, therefore, is closely related to the expected benefits of being a pirate and the associated risk adjusted costs.
Yep. You read that right. Pirates are economics bad-asses.
The paper, which looks primarily at Somalian pirates, explores piracy in several arenas, and concludes that incidents of piracy will substantially expand in the coming years, primarily due to the rising income disparity betwen pirates and non-pirates.
How big a problem is piracy? In 2010, the cost of piracy to the international community was between $4.9 and $8.3 billion. Off the coast of Somalia, the total income to pirates, from piracy, was between $75 and $238 million in 2010.
Thinking about hitting the high seas as a Somalian pirate? You can expect to earn between $168,630 and $394,200 over a five year career. If you choose the next best legal alternative, you’ll probably make $14,500 – over your entire working life. At those prices, piracy doesn’t look so bad.
To combat piracy, the paper recommends the formation of a Global Contract Group, as well as new developments to asymmetric law and law enforcement.
Check it out. Worth a read.
I tell people we have a lot to learn from illegal immigrants. We learn how to set a goal, figure out how to achieve that goal and then find a way to finance achieving the goal. We also learn that sometimes you have to make sacrafices such as leaving family or moving to achieve that goal.
Pirates teach us that it is better to live life than to sit and starve.
On the flip side both teach us that violating the law or the rights of others to achieve your goals doesn’t always work out. In my non-politically correct vocabularly the word for this is WRONG.
So the trick in life is to learn the good lessons and avoid the bad ones.
The British taught us how to combat piracy: kill them. (Hmm, didn’t Jackson/Gingrich express that same sentiment?)
Well more accurately the solution is to make the downside worse than the upside. We have the ability to do that but unfortunately we are whimps and are not willing to accept the risks of actually solving the problem through force. We’d rather sit around and talk about it in resort towns on someone else’s money or study it for years while millions starve or find some way such as violating the rights or taking the lives of others to fill their bellies.
We also learn from pirates that humans, no matter what our perception of them is, are much smarter than we give them credit for. That includes our ancestors. That said, this report teaches that we need to work harder to learn from others and the past.
The pirates, despite (or because of) a lack of government regulation have found success through economic freedom. Too bad Obama’s speech writers didn’t read this before writing a State of the Union address calling for MORE government control of individual and corporate lives.
No analysis of piracy is complete without a mention of the reasons for Somali piracy: the invasion of Somali waters by criminal elements whom the pirates have sought for years to take down so that the world’s governments can hold them accountable, only to be ignored and labeled criminals themselves. The waters are only international because the Somali government is in pieces.
Huh? Would you reference an article explaining this?
Here’s one: http://www.imcsnet.org/imcs/docs/somalias_twin_sea_piracies_the_global_aramada.pdf
Mendez – thanks for the link. As usual there is more to the story of pirates than we read in the Main Stream Media.
A quick summary: In Somalia there are two types of piracy occurring.
First, the taking of ships by pirates seeking ransom as a source of income.
Second, the taking of fish in Somali territorial waters by those who are not Somali or authorized by the government of Somalia.
The first is clearly illegal and needs to be stopped. Unfortunately the international community doesn’t have the cajones to do it.
The second should be stopped, but “follow the money.” There is a lot of money to be made from fish and most countries are trying to REDUCE the take from their waters so the draw of unregulated fishing is just too great and too profitable since there are no fees to be paid to a sovereign nation.
Somalia is a failed state. It needs someone to do “nation building” to it, but who? I guess you could argue that it doesn’t need someone to build it into a nation since it already has Al-Shabaab (is that the right terrorist group) and the warlords to do it. The common citizens are certainly in no position to create a sovereign nation for themselves.
So how should the international community deal with the fishing piracy? I guess you could ask “Should the international community even be involved?”
The African Union (is that the right organization?) certainly isn’t going to be able to do anything about stabilizing Somalia. Just check out their record in the other countries they’ve tried to help. They are no more effective than the UN. Now America’s record isn’t much better, but I think most people would prefer an American solution to a communist (Vietnam, Cambodia, Cuba, Venezuela, etc.) or terrorist (Taliban, Al-Shabaab, etc.) solution where thousands to millions are killed or enslaved (women, children).
If someone rants and no one hears, does it make a difference?
A few years ago a ransom story got my attention and led me to discover K&R Insurance.
Businesses who have representatives in high-risk parts of the world routinely purchase kidnap and ransom insurance… just in case.
It’s a double opportunity, one for insurance companies, the other for hostage takers.
http://hootsbuddy.blogspot.com/2009/04/kidnap-and-ransom-insurance.html
Reblogged this on westsideluxeliving and commented:
You have to love a good Pirates/Economics story.
is that supposed to be 140,000$?