Actually, not so arbitrarily: The World Bank and the United Nation Office of Drugs and Crime have just put out a brand-new and eye-opening report on the financial costs of Somali piracy to the world economy. Much like recent reports on the cost of Intellectual Property theft in cyber space, this report provides policymakers with some enormous dollar values to quote in Congressional/Parliamentary testimony: According to UN data, pirates operating off the coast of Somalia and the Horn of Africa received $400 million USD in ransom payments between 2005 and 2012, and the total costs of piracy to the global economy (in terms of trade costs and countermeasure spending) so far have reached $18 billion USD. Those are the kinds of "big scary numbers" that are meant to spur action, and naturally imply that anything and everything we're doing to stem the "piracy tide" right now is inadequate. In other words, garden-variety alarmism.
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| This fellow here earned $10 million USD by capturing this beached ship, armed only with his trusty (and rusty) AK. Oh, and tourism on this beach decreased 60% by the following month. |
The problem with studies like this - and numbers like the ones quoted above - is that one must always have a good idea of how the costs were calculated, and be ready to ask hard questions about where those numbers really originated. Whenever someone attempts to put a solid dollar value on the economic costs of some type of transnational criminal activity that's blowing up news headlines and Twitter feeds, it's not uncommon to find that there's a serious attribution problem going around. For instance, the Obama administration has been fond of claiming that cyber-crime costs the global economy $1 trillion USD, with intellectual property theft taking $250 billion USD out of the U.S. economy. As it turns out, those numbers came from misinterpreting a 2009 McAfee report whose authors have denied that they ever intended to make such an unsubstantiated claim. (And now an obscure cybersecurity consulting firm, which I discussed in another post, is playing the "big scary number" game in a desperate publicity stunt by claiming that cyber theft costs us $5 trillion per year.)
Then there are the methodology issues. Ostensibly, this is where my previously used cyber espionage cost analogy falls apart: It is, after all, much easier to count ships hijacked by pirates and tally up the cost of each ransom paid, whereas the costs of cyber IP theft is far, far more difficult to quantify for a whole litany of complicated reasons. But actually, calculating economic costs of piracy poses it owns challenges: Witness, for example, last year's report by Oceans Beyond Piracy, which has been harshly rebuked by analysts at SomaliaReport. As SomaliaReport points out, OBP already revised their scary number for the costs of Somali piracy twice: First they estimated the cost at $7 to $12 billion USD, and then revised that figure down to $6.6-$6.9 billion. And this was deduced by lumping together government costs for security (a bill footed by taxpayers), elective insurance costs (passed on to consumers), and opportunity costs (i.e. declining tourism in neighboring countries like Kenya). SomaliaReport points out that this approach has serious flaws:
- The counter-piracy industry, which includes the hiring of private security contractors and installation of safety counter-measures on ships, is now an industry that brings in $52 million per month. Talk about economic stimulus; that's money going into local economies that OBP is ignoring!
- OBP's estimates of the insurance costs are just that...woefully inaccurate estimates, which is a huge problem given that insurance brokers do not tend to give out this kind of information.
- The tourism costs claim is just flat-out wrong; SomaliaReport points out that in the case of Kenya, which was OBP's most specific example, tourism increased by 32% in 2011 alone.
- There's also a lack of contextualization in OBP's report: They ignore, for example, the fact that $10-$15 billion was stolen from U.S. ports in 2003 alone, and 10,000 shipping containers get lost at sea every year due to stormy weather - losses that far outstrip Somali piracy.
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| "Captain, we've got a huge problem!""You mean the fact that we're listing to starboard and about to dump $20 million worth of cargo in the drink?" "No, sir, worse than that: there's a Somali pirate ship approaching from port!" |
Given the controversy surrounding the Oceans Beyond Piracy report, I am inclined to approach this new study by the World Bank and UN with an equally skeptical eye, especially when I see their big scary numbers. Reading the methodology section of the report makes me suspicious about their findings because, as they admit, data is scarce, and their sources don't appear credible: Among others, they interviewed (1.) former Somali pirates, (2.) local law enforcement and military, (3.) piracy victims, (4.) local officials, and (5.) local banks. These are not sources I would expect to be either reliable or honest. They also use event data on piracy that also comes from the UNODC Counter-Piracy Programme, but I wouldn't trust them, either; they have motive to exaggerate the problem, given that the program reportedly has a budget of only $55 million.
Better analysts than myself will have to consider the new report on its merits, but as a rule, I think it's time that we admitted that big scary number studies of complex security issues are, by their nature, untrustworthy. Alas, we live in a policy-making world where sources are often not vetted for credibility, so I am expecting to hear some Senator or high-ranking military officer mention the $18 billion number in a future Congressional testimony within the next couple months. If I ever have a career as a management consultant or think tank analyst who puts out studies for government and public consumption, one of the cardinal rules of my work will be: "Thou shalt not make any preposterous claims backed by dubious big scary statistics."
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