20090521 peter leeson 18
Peter Leeson - 


Kai Ryssdal: In New York City today the Somali teenager charged with piracy in the Maersk Alabama case pleaded not guilty. The kidnapping of Captain Richard Phillips grabbed a lot of headlines and did nothing at all to change the image we all probably have of pirates as ruthless criminals.

Economics professor Peter Leeson offers a different take though. That they're really business men out for a profit. In his book on the pirate economy called "The Invisible Hook," Leeson says that goes for the Somali pirates of today and the ones back in the 18th century.

PETER LEESON: The first thing to note about the organizational structure is that it was extremely flat. Pirate crews were somewhere around 80 members, although you could have much larger crews, some of several hundred. They would typically popularly elect a captain and another officer called the quarter master. Around this system of democratic organization, there was this system of constitutionalism. Pirates wrote down, oddly enough, a system of social rules that governed how booty would be divided up, it regulated activities that were likely to cause conflicts on board such as gambling; it regulated smoking and drinking to make sure pirates were in tip-top shape for overtaking potential prizes. And these constitutions were drawn up in advance of a plundering expedition by all the members of the would-be crew.

Ryssdal: Is it possible, just as a way to understand this, to think of the pirate ship as company or corporation?

LEESON: It was a profit-maximizing organization. The individuals who got together were sorta of stock holders in the corporation, if you will. The pirate ship was owned more or less equally by each member of the pirate crew. And they divided up their plunder, the dividends if you will, according to a share-based system.

Ryssdal: Are there remnants of that 18th century system that we see today with these Somali pirates, for example?

LEESON: It doesn't appear that modern pirates are using a democratic form of governance. And I think the reason for that is that the crew members and the captain, if you will, of a modern Somali pirate crew is probably appointed by the landed financier. Kinda tribal chieftains who provide the seed capital for ships, who has an interest in making sure a captain of his choosing is in charge. With that difference aside, what you do see are the sorta rules of social organization emerging about how to divide up booty, and there's also a kind of judicial system.

Ryssdal: Can we trace the money that they get from, say, a ship's ransom? So the landed financier gets his certain kickback. The crew members divide their share. What's left over, and where does it go?

LEESON: It's been estimated maybe 25 to 30 percent of the ransom that a pirate crew receives is kicked by to the financier. Some remaining portion, which is probably where the vast majority of it goes, is divided up among the various pirates. Then you have a pirate economy, a network of cooks, for example, almost a kind of pirate catering system, if you will, and the people who provide pirates with various pieces of capital who need to get paid.

Ryssdal: What about the source of a lot of that income? These shipping companies. First you have to consider the real risk of harm that may come to the crews, or if it's a real risk?

LEESON: That's a really important question, actually. It seems that it's not a very strong risk at all. The reason that the hostages don't seem to be in any real danger is not because pirates are especially nice people, but again, because they're greedy, because they're profit seeking. And we know that a dead or even an injured hostage would fetch a very low or no ransom.

Ryssdal: You know, in the case of Maersk Alabama and Captain Phillips, what happened there was skewed because it was an American flag vessel, but in general what I hear you saying is it makes more sense for companies to pay the ransom and move on.

LEESON: Piracy still remains a very, very small problem. I mean, last year I think we had something slightly fewer than 300 pirate attacks, and we're on par this year to have roughly the same number, which is I think part of the reason why we see commercial ships not taking a whole lot of preventative measures to try to avoid pirate attacks. It might just be cheaper to simply take the low risk and if in fact you're overtaken, then ransom.

Ryssdal: Professor Leeson is an economics at George Mason University. His book is called "The Invisible Hook: The Hidden Economics of Pirates." Professor Leeson, thanks a lot for your time.

LEESON: Thank you.