The Invisible Hook: What Managers Can Learn from Pirates

WorkplaceDemocracy.com conducted an interview with Peter Leeson, economics professor at the University of Chicago and author of The Invisible Hook: The Hidden Economics of Pirates. The Invisible Hook is a fascinating book that explores why and how lawless and violent pirates organized themselves into what may have been the world’s first democratic workplaces.

The Invisible Hook shows how pirates’ search for plunder led them to pioneer remarkable and forward-thinking practices. Pirates understood the advantages of constitutional democracy–a model they adopted more than fifty years before the United States did so. Pirates also initiated an early system of workers’ compensation, regulated drinking and smoking, and in some cases practiced racial tolerance and equality. Revealing the democratic and economic forces propelling history’s most colorful criminals, The Invisible Hook establishes pirates’ trailblazing relevance to the contemporary world.

What is the “invisible hook” and how does it relate to workplace democracy?

The “invisible hook” is the piratical analog to Adam Smith’s “invisible hand” idea, which describes how individuals’ self-interest seeking guides social cooperation among legitimate persons. My argument is that, similarly, criminal self-interest seeking guided social cooperation among pirates. As my book describes, in pirates’ particular economic context, rational self-interest seeking led pirates to socially cooperate through a kind of workplace democracy in which pirates were more-or-less equal shareholders in their ship and its proceeds and democratically made important workplace decisions.

How did pirates’ organizational structure differ from that of law-abiding merchant ships?

On pirate ships, crewmembers democratically elected important officers, such as the captain, and enjoyed similar perquisites of crew membership. Further, power was divided among multiple officers, such as the captain and quartermaster, who checked one another’s authority. In this sense, pirates’ organizational structure was ‘flat.’ On merchantmen, in contrast, the organizational structure was much more hierarchical. The captain wielded the lion’s share of the power and the ordinary crewmembers were subjected to his largely uncontrolled authority. Authority was much more concentrated and ship-board governance mirrored governance in landed legitimate society in being much more autocratic.

Why did pirates organize their activities democratically?

Pirates organized their ships democratically becuase this organizational arrangement maximized profits in pirates’ particular economic context. Unlike crewmembers on merchantmen, where a very different economic context dicated a different profit-maximizing organizational  structure, crewmembers on pirate ships were owners and employees of the ‘firm.’ It therefore made economic sense for each man to have a say in the firm’s enterprise–to make decisions democratically. Democratic organization was ‘cheap’ for pirates to adopt (in contrast for merchantmen for reasons discussed in the book) and yielded large benefits in the form of effectively preventing officer predation, which plagued merchant ships.

What effects did the pirate organizational structure have on the crew?

Pirates’ democratic organization had at least two major effects on the crew. First, it empowered pirates to popularly elect and depose important officers, which gave pirates great control over their ‘leaders.’  This in turn created strong incentives for pirate ‘leaders’ to wield their power in the crew’s interest rather than against the crew’s interest for personal benefit. Second, since pirates’ democratic organization extended to their method of pay as well–each pirate received a roughly equal share of the booty–it created several “collective action problems” for pirates that they needed to solve. For instance, this method of payment encouraged crewmember shirking, which pirates overcame by instituting a system of social insurance and bonuses.

What lessons can today’s managers learn from pirates?

Among the most significant modern management lessons from 18th-century pirates is the importance of letting the pursuit of profit determine ideas about a firm’s organizational features rather than the other way around. It’s tempting to conclude from pirates’ success with workplace democracy that this highlights the desirability of this organizational form more generally. But that would be mistaken. In pirates’ particular case–a relatively small ‘workforce’ operating a firm that required no external financiers in which information about each laborer’s contribution to production was difficult to glean by observation–workplace democracy was profit maximizing. And for other firms that also satisfy these economic conditions this will also tend to be true. But for firms that don’t satisfy such conditions, for instance large firms, or those that require lots of external capital to function, or those in which it’s relatively easy to measure laborers’ contribution to team production–which is the vast majority of firms–workplace democracy won’t be a profit-maximizing form of firm organization. Workers would be better off under a different organizational arrangement. Thus what pirates teach us is the desirability of letting profit dictate the particular organizational features a firm adopts rather than the universal desirability of particular organizational features across firms.