How to prevent piracy

The problem of piracy is much in the news these days. The freeing of American ship captain Richard Phillips from a band of Somali pirates recently has bought the problem to the attention of the media, and bloggers. One question that many commentators have turned their attention to is what can be done to control and prevent future piracy. This question also lets me bring together my discussion of the old school of piracy, my discussion of the new pirates and my discussion of the tragedy of the commons. It may not be obvious that these are connected to how to deal with the current piracy problem but according to Peter Leeson they are.

Peter T. Leeson is BB&T Professor for the Study of Capitalism at George Mason University and author the new book, "The Invisible Hook: The Hidden Economics of Pirates" a discussion of the old school of piracy, and why it wasn't all bad. In a recent article at nationalreviewonline, Leeson argues Want to Prevent Piracy? Privatize the Ocean. Leeson writes

One suggestion that isn’t being considered, but should be, is to privatize the seas — especially those off Somalia’s coast. As the old adage (at least among economists) goes, “What nobody owns, nobody takes care of.” This is as true for oceans as it is for anything else. Piracy is just one manifestation of nobody taking care of what nobody owns when that “what” is the sea.

So who "owns" the sea now? Short answer, no one, which is why you get the tragedy of the commons type problems. Leeson goes on,

Governments exercise a kind of de facto ownership over the waters off their coasts; states have jurisdiction over, and thus control, what goes on in within so many miles of their shores. But there’s no government in Somalia to control what goes in Somalia’s would-be territorial waters. And in any event, pirates have taken to plying their trade 200-plus miles off the coast — watery territories nobody owns.

Predictably, the absence of ownership of these waters means no one has had much incentive to prevent activities that destroy their value — activities such as piracy. The result is a kind of oceanic “tragedy of the commons” whereby, since no one has an incentive to devote the resources required to prevent piracy, piracy flourishes. In contrast, if these waters were privately owned, the owner would have a strong incentive to maximize the waters’ value since he would profit by doing so. That would mean suppressing and preventing pirates.

Property rights are the answer to the tragedy of the commons. Lesson concludes his article by saying,

Rather than trying its hand at Somali state building, the international community should try auctioning off Somali’s coastal waters. According to some Somali pirates, greedy foreign corporations are exploiting valuable resources in these waters, which is allegedly why they’ve resorted to piracy (the large ransoms earned from pirating are a happy but unexpected byproduct of pursuing social justice, I suppose). If this is right, Somalia’s coastal waters should be able to fetch a handsome price. 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 “high seas” should be similarly sold. It’s not so important where the proceeds go. The important thing is that the un-owned becomes owned.

Establishing private property rights where they don’t currently exist is the solution to about 90 percent of world’s economic problems. Piracy is no exception.

Leeson's suggestion isn't one you see being discussed as a solution to the piracy off Somalia's coast, its too radical for most people, but may be it should be. At least it would get the incentives right for protecting shipping in this area.