Sunday, August 02, 2009

Piracy on high seas and on land

An article in Wired explains the soundness of the business model followed by the pirates of Somalia.

“The risk-and-reward calculations for the various players arise at key points of tension: at the outset of a shipment, when a vessel comes under attack, during ransom negotiations, and when a deal is struck. As long as national navies don't roll in with guns blazing, the region's peculiar economics ensure that most everyone gets a cut. …

An ordinary Somali earns about $600 a year, but even the lowliest freebooter can make nearly 17 times that — $10,000 — in a single hijacking. Never mind the risk; it's less dangerous than living in war-torn Mogadishu.”

If you look at the map in that article, Somalia’s location provides the nation with a competitive advantage for piracy. Very close to one of the busiest shipping lanes in the world. It doesn’t call for too much innovation to come up with the idea of piracy.

If you are one those puritans shocked that someone would attempt an economic analysis of piracy, a commenter provides a link to a story on a scheme called “High frequency trading’ practiced by reputed financial firms on Wall Street, and gently reminds you that such methods are nothing but thinly-veiled piracy.

Again, when a company bombards you with advertisements and convinces you to cough up a good percentage of your income in patronizing its brands (so as to avoid living a miserable life), it is an act of piracy. (“If you don’t use Brand XXX toothpaste which has ingredient YYY, your teeth will fall out, your gums will rot, your breath will smell of gutter….”) . What you pay out is a form of ransom. No less. The real pirates hold a gun to your head and state their intentions. The surrogate ones simply smooth-talk you out of your money and you appear to be parting with it on your own volition.

3 comments:

Shalini said...

I read both the linked articles. And yours too. I understand a simple - I earn, I spend, I save - type of naivety will not work any more in this world of super intelligent humans armed with advanced technology, ready to mow every thing else and move ahead. Much like the wildebeests. Unfortunately for the mowed down there are emotions and only Valium and Prozac as succor.

Shalini

Raj said...

Shalini, for a minute, view this purely as an economic question.If you bring in emotions and morality, the answers, of course, will be different.

The other point made is that we tend to view the real pirates with disdain, but let other forms of piracy be carried out with impunity.

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