Could Profit Motive Put an End to Piracy?

A Little Free-Market Muscle Might Be Just What's Needed to Send Pirates Packing


May 8, 2009

After the recent rise in Somali piracy, politicians began to consider ways to prevent future attacks. Some want to spend tons of money for naval escorts in the region, others prefer sanctions and military force against Somalia.

But George Mason University's Peter Leeson, economist and author of "The Invisible Hook: The Hidden Economics of Pirates," suggests a more economically practical solution: privatize the Gulf of Aden.

Economists have said "what nobody owns, nobody takes care of," and "no one washes a rental car." These adages apply to the oceans, too.

Because no one owns the valuable oceanic passageway off the Somali coast, Leeson said, no one has the proper incentive to effectively protect the water from activities like piracy that destroy its value. A private owner of these waters would have the profit motive driving the need to suppress piracy on his property, all while maintaining a safe, efficient navigational passage for ships.

"Rather than trying its hand at Somali state building, the international community should try auctioning off Somali's coastal waters," Leeson said. "The international community can use the proceeds of the auction for humanitarian assistance in Somalia, or put it in a trust for Somalia's future government, if one ever emerges."

The firm that purchases the territory would own the rights to charge ships a fee to fund the gulf's maintenance and security.

Privatization Shown Effective in Other Cases

The company wouldn't be able to monitor an entire gulf at all times, but because it would mean better profits, the company would monitor the areas where security precautions are most needed.

Isn't it just like a pirate's ransom to charge ships a fee to move through what used to be a free passageway? No, said Leeson, because the user fee would certainly be much less than all the enormous risks and costs associated with arming, insuring and fighting against piracy and potential death when the water is "free" to travel upon.

Privatization has been shown to work in many areas, from the farming of endangered species to telecommunications. "Establishing property rights where they don't currently exist has been the most effective solution to many of the world's problems," said Leeson. "Piracy is no exception."