[Continued from yesterday’s Part 4 and the preceding Part 1, Part 2, and Part 3.]
By: David A. Smith
Whereas Marxist historian Marcus Rediker, interviewed by Rebecca Onion for a feature in the Boston Globe (August 24, 2014), saw in piracy a reformist or egalitarian movement, I see it in much more business-related terms – as a secondary and informal/ unlawful business exploiting the transitory ecosystem of a disruptive technology (ocean-going sailing ships) and a privately built and underused infrastructure (seaports) that has run ahead of regulation and governance (navies).
Though similar to the other ocean-going merchant banking businesses (India/ China trade and whaling), piracy’s value chain suffers from major competitive disadvantages and counterparty risk both in acquisition (robbery risks force to repel boarders) and disposition – and that is its Achilles heel.
Down goes Achilles
Sources used in this post
Rebecca Onion, Boston Globe (August 24, 2014)
Burying Treasure (January 15, 2010; gray font with blue inset quotes)
Daniel Defoe (attributed), A General History of the Pyrates, 1724; blue italics
6. Unlike other ocean-borne merchant banking models, piracy has a problematic liquidity/ exit strategy
Despite all the glamor associated with the acquisition model, all forms of global travel in the pre-governmental sailing era faced significant pelagic risks; no, for pirates, the biggest business-model chain was the unreliability of the final value-chain link – monetizing the goods for future spending.
The preferred booty – but what to buy with it?
There’s no point being a pirate if you cannot spend your money and then retire from piracy.
It’s a great business, but where’s the exit strategy?
William Goldman of The Princess Bride must have done his homework, for he came up with this brilliant pirate-retirement strategy:
Westley: Roberts had grown so rich, he wanted to retire. He took me to his cabin and he told me his secret. ‘I am not the Dread Pirate Roberts’ he said. ‘My name is Ryan; I inherited the ship from the previous Dread Pirate Roberts, just as you will inherit it from me. The man I inherited it from is not the real Dread Pirate Roberts either. His name was Cummerbund. The real Roberts has been retired 15 years and living like a king in Patagonia.’
Four and a half years ago, well before the Captain Phillips story, in Burying Treasure I wrote about the Somalia pirates and their investments in real estate:
Aside from a supply problem, pirates also have a capital problem, in that whatever they steal – usually small and portable, like cash, gold, or gems – is valuable only if monetized – and once again, that drives the pirates backs into the realms of law. These, however, must be different from their equipment bases – the base must be hidden, while the place one spends money has to be part of a lawful society.
Hence the myth of pirate treasure – huge sums of specie circling the globe, or buried for later retrieval, just waiting to be found.
X marks the spot … of what?
To curtail piracy, attack their value chain at its end – the pirates’ investments:
Pirate capital flows in an underground river of remittances: smuggle it into Kenya, then use stooges and front men to buy property on your behalf. Result: asset transfer and asset legitimization.
In a neighborhood of Nairobi now called “Little Mogadishu” because of its Somali community, large business and apartment buildings have sprung up. A similar explosion of real estate development can be seen in higher-income areas of the city.
Our ransom money at work?
Bellow Kerrow, a former member of parliament and a Kenyan national of Somali descent, said it is high demand, not money from piracy, that is behind the rise in property values. But Pius Khaoya, a real estate agent, said factors outside the economy are influencing property prices.
“The prices have gone through the roof and it does not tally with the performance of the country’s economy,” said Khaoya, who works for Crystal Real Estate.
Nor are the price rises generally distributed; instead they concentrate in Somali neighborhoods. Occam’s Razor says it’s piracy money being repurposed.
The money has to land somewhere
The pirates’ real estate problem is that, conducting their business in a place of no law – and hence no monetary or economic resources – they must nevertheless equip and base themselves in a place of monetary and economic resources – and hence of some law. As James Blish put it in Cities in Flight:
The pirates eventually died out when sailing ships were replaced by fueled ships. The fueled ships were faster than the sailing vessels – but they couldn’t themselves become pirates because they had to touch civilized ports regularly to coal up. They could always get food off some uninhabited island, but for coal they had to visit a real port.
– Earthman Come Home, page 292
I’ve changed my mind on Blish’s quote, because I think he misread the history; piracy was dying a hundred years before the coal ships came, and the Barbary Pirates were an extension of the Ottoman Empire who were controlled by 1815, before the invention of steamships.
Real estate and homeownership have the essential benefits necessary for retirement: security of tenure, improvability, and economic appreciation.
Somali pirates have been paid more than $100 million in ransoms the last two years (great map here), said Roger Middleton, a piracy expert at the London-based think tank Chatham House.
Nothing to buy in Haradeere
A real estate agent who spoke only on condition he wasn’t identified so as not to draw the wrath of Somali customers said some Somali businessmen pay double a property’s worth just to easily and quickly complete the sale.
Preferably in cash.
It’s cash and carry
Once a pirate has made his money, his risk-reward profile changes. Aside from being older, he has more to protect, and in fact he wants now to avail himself of the property law that, as John Locke said, is the central function of government: “Political power, then, I take to be a right of making laws … for the regulating and preserving of property.” (Book II, Chapter 1, Section 3.)
“Regulating and preserving of property”
For the pirate to enter society with his booty, he must convert it into legitimate forms of income-producing property – and in this time there were basically four such: Land, land rents, aristocratic titles, and marriage into good families. All of them depended on the pirate assuming a new identity – either of a stranger from distant lands with no history, or a new name, or some form of amnesty.
7. The promise of legal employment must a key part of ending piracy
I have not known a Man of War commission’d for several Years past, but three times her Compliment of Men have offer’d themselves in 24 Hours; the Merchants take their Advantage of this, lessen their Wages, and those few who are in Business are poorly paid, and but poorly fed; such Usage breeds Discontents amongst them, and makes them eager for any Change.
– Daniel Defoe (attributed), A General History of the Pyrates, 1724
By now it should be apparent that where Rediker was wrong, Chesterton was right – thieves respect property, they just want more of it – and they turn to piracy because it offers a better economic prospect than legal domestic employment.
Needs an exit strategy
As Defoe put it:
I cannot but take Notice in this Place, that during this long Peace, I have not so much as heard of a Dutch Pyrate: It is not that I take them to be honester than their Neighbours; but when we account for it, it will, perhaps, be a Reproach to ourselves for our want of Industry:
The Reason I take to be, that after a War, when the Dutch Ships are laid up, they have a Fishery, where their Seamen find immediate Business, and as comfortable Bread as they had before. Had ours the same Recourse in their Necessities, I’m certain we should find the same Effect from it; for a Fishery is a Trade that cannot be overstock’d; the Sea is wide enough for us all, we need not quarrel for Elbow-room: Its Stores are infinite, and will ever reward the Labourer.
[Continued Monday in Part 6.]