Leeson is fascinated by pirates because they flourished outside the state—and, therefore, outside the law. They could not count on higher 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 as remarkably diverse as in the “Pirates of the Caribbean” films. Nor were they held together primarily by violence; while pirates did conscript some crew members, many volunteered. More strikingly, pirate ships were governed by what amounted to 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.

Gold Star

The pirate system was based on an important insight: leaders who are great in a battle or some other crisis are not necessarily great managers, and concentrating power in one pair of hands often leads to bad decision-making.

Pirate governance, peculiar as it may sound, offers an intriguing example of how limits on executive power can actually make an enterprise more successful and, because workers are convinced they’re being treated fairly, can deepen their commitment.

While pirates were certainly cruel and violent criminals, pirate ships were hardly the floating tyrannies of popular imagination. As a fascinating new paper (pdf) 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, even with this untraditional power structure, pirates were, in Leeson’s words, among “the most sophisticated and successful criminal organizations in history.”