Tuesday, July 10, 2007

The Most Sophisticated and Successful Criminal Organizations in History

No Economist's View:

Pirate ships as efficient, democratic, incentive compatible business enterprises:

The Pirates’ Code, by James Surowiecki, The New Yorker: ...While pirates were certainly cruel and violent criminals, pirate ships were hardly the floating tyrannies of popular imagination. As a fascinating new paper by Peter Leeson, an economist at George Mason University, and “The Republic of Pirates,” a new book by Colin Woodard, make clear, pirate ships limited the power of captains and guaranteed crew members a say in the ship’s affairs. The surprising thing is that, ... pirates were, in Leeson’s words, among “the most sophisticated and successful criminal organizations in history.”

Leeson is fascinated by pirates because they flourished outside ... the law. They could not count on ... authorities to insure that people would live up to promises or obey rules. Unlike the Mafia, pirates were not bound by ethnic or family ties; crews were ... remarkably diverse... Nor were they held together primarily by violence... [P]irate ships were governed by ... simple constitutions that, in greater or lesser detail, laid out the rights and duties of crewmen, rules for the handling of disputes, and incentive and insurance payments to insure that crewmen would act bravely in battle. ... The Pirates’ Code ... was not, in that sense, a myth, although in effect each ship had its own code.

But rules alone did not suffice. Pirates also needed to limit the risk that their leaders would put individual interests ahead of the interests of the ship... Some pirates had turned to buccaneering after fleeing naval and merchant vessels, where the captain was essentially a dictator... Royal Navy and merchant captains guaranteed themselves full rations while their men went hungry, beat crew members at their whim, and treated dissent as mutinous. So pirates were familiar with the perils of autocracy.

As a result, Leeson argues, pirate ships developed ... democracies. First, pirates ... divided and limited power. Captains had total authority during battle, when debate and disagreement were ... inefficient and dangerous. Outside of battle, the quartermaster ... was in charge—responsible for food rations, discipline, and the allocation of plunder. On most ships, the distribution of booty was set down in writing, and it was relatively equal; pirate captains often received only twice as many shares as crewmen. ... The most powerful check on captains and quartermasters was that ... the crew elected them and could depose them. And when questions arose about the rules..., interpretation was left not to the captain but to a jury of crewmen. ...

Interestingly, ... most corporations since the mid-nineteenth century have behaved more like the Royal Navy, with C.E.O.s who have close to unlimited power and employees who have no say in ... the organization...

This model of C.E.O. leadership is increasingly being questioned, with a greater emphasis being placed, at least rhetorically, on the need for executives to be more responsive to employees and on the value of dividing authority (although no one is seriously considering letting ordinary employees elect the boss). ... You can take this comparison only so far... But it may be only a matter of time before someone publishes “The Management Lessons of Captain Kidd.” I’d read it.

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