The Business Model of Somalian Pirates (audio)

NPR contributor Chana Joffe-Walt produced a great piece for Planet Money which analyzes the economic model behind the pirates of Somalia (and other locales.)

[I]ssues of criminality and the potential for violence aside, a closer look at the "business model" of piracy reveals that the plan makes economic sense. A piracy operation begins, as with any other start-up business, with venture capital.

J. Peter Pham at James Madison University says piracy financiers are usually ethnic Somali businessmen who live outside the country and who typically call a relative in Somalia and suggest they launch a piracy business. The investor will offer $250,000 or more in seed money, while the relative goes shopping.

"You'll need some speedboats; you'll need some weapons; you also need some intelligence because you can't troll the Indian Ocean, a million square miles, looking for merchant vessels," says Pham, adding that the pirates also need food for the voyage -- "a caterer." Yes, a caterer.

"Think of it as everything you would need to go into the cruise ship business," Pham says. "Everything that you would need to run a cruise ship line, short of the entertainment, you need to run a piracy operation."

Listen: PLANET MONEY - Behind The Business Plan Of Pirates Inc.