Opinion: A Sure-Fire Cure for Pirate Hijackings
CNBC Chief International Correspondent
There should be no military action by any nation to assist cargo ships hijacked by pirates. Why? Because that would be using a nation’s resources to assist an industry that invites and encourages pirates to do what they do by paying them ransom money.
The shipping and insurance industries are to blame for the sharp increase in hijackings. There have been at least 90 pirate hijackings since 2005. And here’s the key: ABC’s Nightline reported in every single instance the pirates got paid ransom money.
Want an end to piracy? STOP PAYING THEM.
This is a classic case of moral hazard. The pirates know they will get paid, so they keep on doing it.
Why do the insurance companies keep paying it? Simple. The amount they get paid in pirate-premiums is obviously more than what they pay out in ransom. Until that changes, they will keep insuring, and pirates will keep pirating.
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So what would bring about that change? Here’s one way: A big enough increase in the volume of ransoms paid out so that it is no longer profitable to keep insuring against it. That is what happened with terrorism insurance. Most companies no longer provide it—because they can’t charge enough to offset the potential outlays. If the insurance, and hence, the ransoms go away, the pirates go away.
But here’s an even better option. Executives who run shipping companies should take all that money they pay in pirate premiums, and instead pay their employees more, with the caveat that they face danger, even death, on the job. Sound immoral and horrible to ask someone to put their life on the line in exchange for money? Individuals make that choice freely all the time. Sometimes for patriotic reasons—think the military, police officers, and firefighters. Sometimes for monetary reasons—think Blackwater employees who go to Iraq.
At least that way, the money would go to the individuals who face danger, and not the pirates, and the insurance companies.
Instead, the industry wants military assistance? Why? So they can keep making profits even as they help create the very problem?