Somali Pirate Haven Is the Ultimate Deregulated Free Market

Somali pirates are held captive by a French soldier.

Image: Getty Images

It's a sad state of affairs indeed when pirates pillaging off the coast of Somalia actually benefit from direct comparison with the Western capital markets. I say this in a half-joking sort of way, because I am also half serious. Yes, the pirates carry weapons, but "the pirates' treatment of the hostages is relatively humane, and their reputation for turning over the ship, cargo, and crew…upon receipt of the demanded ransom has been cited as a reason for their continued success in having their demands met." Bernard Madoff doesn't appear to have shot anyone, but the fallout from his Ponzi scheme hasn't been bloodless, either. And whose word is more reliable? That off Madoff, Alan Stanford, Scott Rothstein, or the pirates? I would rather walk the plank. (For more on pirates, please see this interactive feature.)

Yes, the pirates employ coercive tactics to extract large sums of money from victims whose only fault was to be in the wrong place at the wrong time. Their haul, however, is just a fraction of what AIG and Dubai World have extracted in recent days from investors who were caught in the crosshairs of their drive-by debt-for-equity swaps. Those hapless investors—which, in the case of AIG, includes the U.S. government—had little choice but to come to terms or risk unknown global financial and economic consequences.

Somalia is about as open and as deregulated as a market can be. There are no regulations. It is a "lawless Horn of Africa nation," in the words of a gripping dispatch filed by Reuters correspondent Mohamed Ahmed, who convinced the pirates to give him guided access to their home base in the port city of Haradheere. "Somalia's Western-backed government of President Sheikh Sharif Ahmed is pinned down battling hard-line Islamist rebels and controls little more than a few streets of the capital," Ahmed reports. The administration has "no influence" in Haradheere. What market could be freer than that? Certainly not the bailed-out markets of the West, where bank profits are private and catastrophic losses are passed along to the taxpayers.

The pirates have even their own forms of financial technology, as the astrophysicists driving Wall Street innovation like to call it. Left to their own devices, they have established a stock exchange so that pirate gangs can raise capital to finance their hijackings, Ahmed reports. One 22 year-old-woman bought shares using a rocket-propelled grenade that her ex-husband gave her as part of a divorce settlement. Talk about hard currency! Haradheere is a prime example of what people can do when the government gets out of their way.

I am sure that the pirates of Somalia are no angels and that their victims and the victims' families don't find them sympathetic or amusing. But Ahmed's reporting from Haradheere does a good job of explaining why hijacking seems like a reasonable career to people whose options include dying in Mogadishu or risking their lives trying to escape to a safer place. The money that they raise lines their pockets, but also helps pay for local hospitals and electricity, which is considered a luxury, Ahmed reports. Their motivations are certainly no worse—and perhaps, in some cases, a lot more understandable—than the pointless and mystifying extremes of greed on display in Ponzi USA.