The Economics of being a Hostage

Wow.

Here’s an incredible inside view of the piracy business. What’s incredible is that NPR’s Channa Jaffe Walt managed to get a CEO of a shipping company on the phone and hear the inside story of the negotiations.

Here’s what’s really interesting. The first thing the CEO says is, “I never thought for a moment that I wouldn’t have to pay anything. The only question was how much, and when.” Channa asks him why and he says, “Look, there’s no one to turn to, we’re on our own out there and that’s all there is to it. You pay.”

I found it really interesting to compare that to humanitarian kidnappings, where paying a ransom is theoretically not allowed (though we know it happens sometimes), and even if it does happen it is a very very very last resort. For a shipping company, paying a ransom is the first resort! That’s the difference between water and land, between diplomacy and business. And how much safer and more pleasant it is for the hostages. I’m not making this up: I’ve read excerpts from a book by a former French pirate hostage, and I worked with a former MSF hostage. The hostages of the pirates have it easy, sleeping in their own beds, eating their own food, usually with constant communication to their families, and detention measured in weeks not months. Compare that to the story of Pilar Bauza (7 days sleeping under the stars, walking 100 km, little food and water) or Arjan Erkel (20 months of captivity with almost no communication).

Further, it would be interesting to know what the statistical measures are for survivability and psychological and physical comfort of hostages in the petroleum business versus humanitarians (both on land, but way more money at play for oil workers).

Finally, why is it the pirates manage to safely board ships without killing anyone, but humanitarians are sometimes killed before they are captured and ransomed?

All of which makes me wonder, what would it take, what fundamental change to put humanitarian aid hostages into the same relatively safer category as pirate hostages? Why do we get the shaft? (As usual, follow the money, and there you will find the answer.)

Other really incredible stuff from the story:

  • The ransom payers delivered an electric counter (complimentary, no less!) to try to speed the ship release process. Even so, the pirates counted and/or argued among themselves for 30 hours.
  • They keep timesheets so they know how much to pay each class of pirate!
  • There’s a supposition that the minimum wage for a unskilled guard on a captured boat is USD 1000, twice the average family income in Somalia. The attackers, who board the ship, make many thousands more.
  • The likely payoff for the underwriter is around 200% with a turnaround of less than one year. Try getting that from Wall Street!
  • There’s a delicate balance at work where the holder on the monopoly (the ship) needs to keep the ransoms in check lest they get too high and prompt the ships to defend themselves better such that the pirates lose their monopoly on the commodity.

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