"But being right, even morally right, isn't everything. It is also important to be competent, to be consistent, and to be knowledgeable. It's important for your soldiers and diplomats to speak the language of the people you want to influence. It's important to understand the ethnic and tribal divisions of the place you hope to assist."
Thursday, November 29, 2012
Notes on Kraska's Freakonomics of Maritime Piracy
Notes on Kraska's The Freakonomics of Maritime Piracy
BONUS LINK: My entire (so far) grad school notes collection can be found here.
The issue of incentives is important because it addresses the root cause of why people make the decisions that they do. Freakonomics is in many ways the study of behavioral economics—how people respond to incentives.
Shipping: 90% of world trade travels by sea.
Initial and conventional responses have addressed the problem at at sea—where the incentives are NOT. They did this through 3 separate task forces and the IRTC—all of these things only served to dampen slightly the piracy problem. Piracy is a balloon and these conventional measures only serve to push the problem to other parts of the Indian Ocean.
The author delves at length into the many incentives for Somali piracy to exist and thrive. Namely among these things is the money. Aside from the millions entering Somalia from pirate ransoms—there is no other economy in Somalia. This economic and stability vacuum is at the center of it all. Piracy is the economy. While the number of perpetrators is relatively small, the number of those who benefit is huge.
Those who benefit runs from the pirates themselves to the everyday citizens to tribal chiefs to the Kenyan real-estate market (unintended consequences of sky-rocketing real estate prices) to those that are now providing security for the transit shipping to the insurance companies that can charge higher premiums to the Yemeni navy that charges for escorts. The cost-benefits of one piracy raid yield a take home for the pirate worth a decade of work in other industry.
This means that piracy has caused a development boom in parts of Somalia but has also shot up inflation.
While often cited in its origins as a means of combatting illegal fishing and dumping (IIU), the piracy has actually brought a revival to the fishing industry and its stocks since perpetrators now find stealing its fish too risky a venture. These has lowered the price for fish—good for the fishermen and the people.
The key to crafting good governmental economic policy lies in using incentives to guide behavior toward the desired outcome while accounting for individuals behavioral economic choices.
Most money that reaches TFG is wasted on corruption and ineptitiude.
Utility of approach?
Yes, The key in using incentives in conjunction with policy is to guide behavior toward the desired outcome while accounting for individuals behavioral economic choices. One must be careful with incentives as to the law of unintended consequences though.
Versus Conventional approach?
This is largely dependent on one’s definition of success. If success is completely eradicating piracy off the Somali coast, then this is a resounding no. If one’s goal is to reduce the piracy then this has been successful—BUT not in a sustainable manner. That is the key. Conventional at sea approaches require a sustained presence and economic commitment. When these aren’t present the piracy will return.
The freakonomics of piracy are on shore and here they must be addresses with policing and governance but also through incentives. Prosecution and jail time (means building judicial capacity and jail infrastructure, and international legal infrastructure) are incentives but an economy must also be built in its place.
Author advocates for supporting a stronger Puntland for enforcement.
Kraska espouses the “Freakonomics” assertion (and common assertion for economists) that incentives matter. Paying close attention to incentives can provide useful insight into the problem of maritime piracy in Somalia. The author traces the problem of piracy by first examining global trade—90% of which is carried out by sea. With such a high volume, even proportionally small effects (e.g., hijacked or destroyed merchant vessels) can have amplified results across the entire industry.
Discarding the common claim by Somali pirates that they only started piracy to combat the rampant illegal fishing and dumping taking place off their nation’s coastline, Kraska delves into piracy as a business. Practically this means examining the flow of money. With a stability and economic vacuum, the pirate economy IS the economy in Somalia—with bleed over effects into its neighbors. Thus the incentives for piracy to continue flows through every facet of society. For the pirate himself, one raid can net him a payoff worth what he could make otherwise in a decade of work. The pirate, however, is only receiving a small portion of the ransom money. The rest flows to the warlords running the increasingly complex operations and from them into the local economy—this means to the tribal chiefs, local officials, businesses etc. This influx of money has sparked a development boom along the Somali coastline but has also created rampant inflation that grows unchecked by an impotent Transitional Federal Government (TFG) without any means to control it. This money has also driven up the real estate market in Kenya where Somalis with hundreds of thousands of dollars to spend and invest have driven the price for homes up to such a level where middle class Kenyans can no longer afford homes. One unexpected side effect of the pirates’ success has been to aid the Somali fishermen. With less illegal fishing off their coast, there has been a boom in the fishing industry—providing more fish and making the fish themselves more affordable.
Unfortunately, since the piracy began to spike the majority of the conventional efforts to counter and quell it have ignored the incentives of it. Instead they have sought to contain it or reduce it at sea. This approach ignores the root causes of Somali piracy. To date there have been 3 task forces (CTF 150/1, NATO’s Operation Ocean Shield, UN’s OPERATION ATALANTA) all working parallel efforts to defeat the pirates at sea. The majority of this is done through protective convoys and through the establishment of the Internationally Recognized Transit Corridor (IRTC)—a dedicated route patrolled and monitored by Naval Vessels. The Yemeni Navy has even monetized the process charging millions of dollars for escort by its naval vessels. While in recent years these efforts have driven down the number of successful hijackings they haven’t come even close to stopping them. Instead a balloon effect occurs—the pirates are squeezed along the coast line and Gulf of Aden so they just expand elsewhere—in most cases further and further out into the Indian Ocean.
This is not to say there have not been successful measures taken at sea. Perhaps the greatest success story has been the employment of Private Maritime Security Companies (PMSC) aboard merchant vessels. While this tactic is shunned by much of the international community, not a single US merchant vessel with a PMSC aboard has been hijacked. Furthermore, standardized operating procedures and evasive maneuvering has lessened much of the impact of the piracy. All of this however, ignores the central problem. All of these tactics require a sustained and constant presence. Once they leave—the piracy will return. Thus one must be cautious in labeling these efforts as successful since the definition of success is a tangible thing.
The author points out the true success with come by addressing the problem ashore. This means investing in better governance and policing capacity. He points out the efficacy of using stable semi-autonomous regions like Puntland (or Somaliland) as investment points to drive out and crush the pirate networks. This approach is best as it addresses the incentives. An increased presence and investment ashore can decrease the benefits for one to risk piracy. This is being done through advances in the international legal infrastructure as well as the physical infrastructure (i.e., much needed jails in Somalia and neighboring countries). Only through this type of approach can piracy be quashed.