Tyler Cowen at Marginal Revolution points to an interesting article about how the large inflow of ransom dollars into Somalia as a result of piracy is leading to all sorts of changes in the social and economic structure of various coastal communities, not all of it good according to many residents.  Many of these are quite predictable given the longstanding poverty of the communities and the massive sums obtained by pirates over the last year.  A few highlights:

Substance abuse and promiscuity:

“The use of drugs such as cannabis and the drinking of alcohol, sex and other obnoxious misconduct are now becoming common within the pirates, causing social problems,” said Sheikh Ahmed, a mosque leader in the town of Galkayo.

Price inflation for consumer goods:

The price of clothes, shoes and cosmetics is climbing, said Anshur Kamil, a businessman.

The pirates pay in dollars and don’t bother to haggle, said Khadra Abdullahi, a shop owner in Bossaso, a coastal town on the northern edge of Somalia across the Gulf of Aden from Yemen. “Sometimes they leave change behind, which shows that money is nothing to them.”

The closer to the pirate dens one gets, the higher the prices go. In the nearby town of Eyl, a cup of tea costs three times as much as in Bossaso. In Eyl, pirates pay $5 for a shoeshine, compared with 50 cents in Bossaso, said Hashim Salad, a store owner.


Marriage has also been affected by pirates with pockets full of cash. Thousands of dollars are paid to brides’ families as a dowry. “Pirates do not waste time to woo women, but instead pay them a lot,” said Sahro Mohamed. “They did this to several girls I know.”

None of this is terribly surprising, however. First, you have the introduction of massive sums of money into a perpetually poor and destitute area. Many of the actions of the pirates (rampant drug and alcohol use, profligate spending, the conspicuous use of money and consumption to signal their status) falls in line with what we would expect in such a situation (in fact, it sounds like the story arc of most Behind the Music episodes). Second, the difference in cost for goods is also predictable. Corporations do this all the time–trying to suss out which consumers are willing and able to pay a higher price for similar goods is a common practice, and explains why many firms have both branded and generic versions of the same product.