Piracy off Somalia is not just organized crime, as an excellent Reuters report emphasized last week: It's venture capitalism.
Pirate entrepreneurs have organized a stock market in Haradheere, Somalia's busiest pirate nest, where local financiers can find promising pirate gangs to underwrite. "Four months ago, during the monsoon rains, we decided to set up this stock exchange," said Mohammed, a "wealthy former pirate" who served as a guide for Reuters correspondent Mohamed Ahmed. "We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking."
Reuters calls it a "sort of stock exchange meets criminal syndicate." The accompanying photograph shows a plaster shack on a dusty street, a former bank where locals with a financial interest in the Alakrana tuna-trawler hijacking — which netted a record-breaking estimated ransom of $3.3 million — hang around for their share of the loot.
Some bloggers have cited the exchange as evidence against "the line that piracy is carried out by poor, starving Africans, victimized by evil European fishermen." It's not evidence of that at all. A number of Somali pirate ventures probably did start as "coast guard" projects in the 1990s to defend their local fishing grounds, by demanding license fees from European trawlers like the Alakrana. But outside investors have been involved for years.
"Somali piracy was first put on the international agenda in 2004," writes Stig Jarle Hansen, a Horn of Africa expert at the Norwegian Institute for Urban and Regional Research, in a recent report on Somali piracy. He points to one mid-level Somali businessman who collected funds for a piracy group around Haradheere that year, selling the project to investors as "a very good business idea."
The idea was so good that other investors jumped in. Now the pirate business has fragmented into three ways of financing a pirate gang, according to Hansen: a loose cooperative of fishermen who own and run everything themselves; a wealthy local pirate who owns the boats and guns but hires "footsoldiers"; and a more familiar capitalist model, namely, the "fundraiser who collects money from investors and then funds the pirate mission."
This model should ring bells in America as well as Europe. It's the way piracy was organized in the colonial United States, for one thing, when New York was just a provincial center of trade on a major sea lane.
Early American governors and businessmen sponsored "privateers" for a share of their (stolen) return. "It is estimated that in 1695 alone," Douglas R. Burgess wrote in The Pirates' Pact, a book about piracy's role in the Atlantic colonies, "there were some sixty pirate captains sailing in and out of New York, each with crews numbering between seventy and one hundred men, and that each man's share averaged between £1,000 and £1,500 per voyage. This was an era during which the average laborer in England earned less than £100 per year."
Another precedent is Lloyd's of London. The famous shipping-insurance behemoth started as a 17th-century coffee shop, where ship captains could bring details of proposed voyages to potential investors and insurance men. Lloyd's is still an insurance bazaar — not an insurance company — with an "underwriting room" on London's Lime Street where shipping insurers compete directly with rivals sitting at desks only a few feet away.
Lloyd's has no doubt underwritten a number of privateers, as well as legitimate shippers, in its colorful day. But its days of funding piracy are not in the past, because the present Lloyd's underwriting room must be the single most important source of money for the unwanted shadow-exchange in Haradheere.
Western shipping insurance, after all, is what pays the pirate ransoms. Nobody likes it, but the current chairman of Lloyd's, Lord Peter Levene, sees no immediate end to the flow of cash. "At the end of the day, there is no alternative, if you don't want lives to be lost," he told a reporter for BBC Radio 4 late last year, seeming both defensive and wearily resigned. "We don't want ransoms to be paid, either."