Another great hidden gem of a paper about one of my favorite topics. I also really perked up on the conclusions of the paper. That privateering did not go away because the concept sucked. Nope. It went away, because of competition with government owned Navies who wanted to do it all. It kind of reminds me of the ridiculous fears that popped up when privatized mail and shipping companies came on to the scene.
The post office (government) folks actually had to compete with private industry for the business of the citizenry, and despite the early fears of those folks thinking they will lose their good deal government job, that competition only helped invigorate the innovation and business processes of both groups. And best of all, the PO and private industry are still around and still slinging it out for that business. If you also look at the PO, they are continuing to look more and more like UPS and Fedex all the time.
I also like the lighthouse example listed below as well. I think private naval and military companies can exist along side the militaries and navies they are serving just fine. Hell, we are seeing that right now with the war, with thousands of contractors being used. So to take that one step further with issuing LoM’s to companies, to help even further in the war effort, would not be a bridge too far. It would also provide a pretty nice cost savings for the government, and the military and navies of those governments would now have competition.
That competition would be healthy in my opinion, and with carefully constructed LoM’s and today’s technological advances, it would not be a problem at all to keep tabs on companies issued LoM’s. And like Matt Armstrong mentioned, issuing LoM’s to today’s PMC’s would be a quick fix for keeping them in line. Either abide by the wishes of a congress and their issued contract (LoM), or instantly be turned into a criminal organization for crossing the line. That would be some serious legal control if you know what I mean. It would also cut out inefficient contracting offices and weak laws that fall short of keeping companies under control. Just some thoughts on a different way of doing business.-Matt
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Privateering and the Private Production of Naval Power
Gary M. Anderson and Adam Gifford, Jr.
The early history shows that, contrary to the belief of many economists, a lighthouse service can be provided by private enterprise. The lighthouses were built, operated, financed, and owned by private individuals. … We may conclude that economists should not use the lighthouse as an example of a service which could only be provided by the government. —Ronald Coase (1974)
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Introduction
Privatization and the “contracting-out” of services traditionally provided by means of governmental monopoly continue to attract increasing interest from both politicians and scholars. Many studies have found that private provision of certain goods and services tends to be more efficient than comparable arrangements provided directly by the government.
One of the very few areas relatively untouched by the recent attempts at privatization, or contracting-out, of governmental services is the military. Although some economists have argued that the priva-tization of major elements of the provision of national defense would be both feasible and efficient, in modern times military forces are essentially a pure governmental monopoly. Not only are private military forces illegal, but the military force maintained by the govern-ment is invariably wholly owned and operated by the government. National defense, like lighthouses, frequently serves as a stylized illustration of the need for governmental provision of “public goods” in economics textbooks.
However, just as in the case of lighthouses, the “monopolization” of military force production by the government is a fairly recent historical trend. During wartime, nations have long depended on hired private contractors for a portion of their military might.’ At sea, until the 19th century, a significant portion of the naval power of many countries was provided by privateers.
Privateers were privately owned and operated vessels that were granted licenses to seize the shipping assets belonging to the citizens of enemy states and to sell the “prizes” at auction. Privateers preyed on the seaborne communications of enemy nations. The granting of licenses to privateers to legally attack and seize enemy ships during wartime appears to have constituted an effective means of waging war and had many advantages from the standpoint of the licensing government. Privateering played a significant role in the history of naval warfare for many centuries. During some wars, licensed privateers provided the bulk of the naval power employed by one or all of the belligerent powers.
Our intention in the present paper is to examine interesting examples of the private production of military power and the complex system of international law that emerged to regulate the practice. We will then proceed to consider possible explanations for the eventual demise of a seemingly efficient military institution.
Read the rest of the paper here.
Conclusion
Privateering appears to have been profitable, and it represented a means of projecting national force during wartime that was cheap to the sponsoring governments—indeed, it sometimes generated net revenue to the licensing governments. It was also less wasteful than other forms of naval “combat” because it did not destroy, but merely reassigned ownership rights to, property. Privateers sought to dam- age their prizes as little as possible so as to protect their resale value. Yet for all those seeming advantages, privateering gradually ceased to exist. The extinction of privateering was at least partly the result of rent seeking by established government bureaucracies. National naval
bureaucracies recognized privateers as competitors who threatened their mission and budgets, and the bureaucrats often vented their hostility. That was a rational, albeit self-interested, response on the part of the professional navies. But the result was the legal abolition of privateering. Privateering was not a market that can be shown to have “failed”; rather it was one that was eliminated through political means.
The record of the private provision of naval power belongs along-side Coase’s lighthouses as an example of the successful provision of a public good—in this case, national defense—by private enterprise. The private provision of naval power was proven feasible by its long history of use. It was apparently efficient from the perspective of licensing governments. The question of the efficiency of privateering from the standpoint of the global economy is more difficult to answer. However, the government monopoly naval force that replaced privateering almost surely has had a still more detrimental impact on the world economy.
PDF for paper here.