(There are spoilers here.)

By the end of episode 7 of Pirates, it's become obvious that the 'privateering' that the eponymous pirates are doing is in fact pretty much a stage show, admittedly a stage show that is sometimes conducted with live ammunition. This is rather odd, as noted by omonomono in Mouretsu Pirates Are Like Maid Cafe Maids. I was recently struck with a theory for why the privateers are still around in this odd way.

First, I'll run down some things that we know about the setting:

• the war for independence that spawned the privateers didn't come to a conclusion; it was suppressed by both sides being forcefully absorbed by (and into) the Galactic Empire.
• the privateers weren't shut down when this happened because the Galactic Empire respects each system's rights to self rule; the privateers fall under this clause (as long as they are privateers with a Letter of Marque instead of pirates).
• there is a bunch of bureaucracy and restrictions on the privateers, but at the same time there also seems to be a lot of assistance and good will from the government to the privateers.
• the Bentenmaru is said to be vastly more powerful than three escort warships combined.

My theory is that the privateers, or more exactly their ships, are a legal end run around limitations that the Galactic Empire imposes on the size and power of the Colony Federation's local naval forces (if it's even allowed to have any). Through the privateers, the Colony Federation has effectively managed to retain a bunch of battleships with a significant amount of firepower and keep them outside the authority of the Galactic Empire.

(This is not enough firepower to stop the Galactic Empire if the GE wants to put a big enough fleet together, but it may be enough firepower to make a difference in a lesser situation. And options are always good, especially when the Colony Federation probably doesn't really like having effectively lost their war for independence by being taken over by a third party.)

The Galactic Empire couldn't take the privateers over because they're private ships, not government forces, and they couldn't forbid them because as privateers they're a legitimate exercise of self rule. I'm guessing that the Galactic Empire can forbid issuing Letters of Marque to new ships and insist on a whole series of rules for keeping the privateer status valid in the hopes that it will winnow down the number of privateer ships over time. Meanwhile the local government is all for the privateer ships; it can't disobey the Galactic Empire or break its rules outright (because that would give the Galactic Empire the excuse it needs to shut down the privateers), but it can give the privateers all sorts of assistance in fulfilling those rules.

The privateering shows that the Bentenmaru puts on function as a way to funnel money to the privateers to keep the ships in operation and crewed and to satisfy the Galactic Empire's requirements for continuing the Letters of Marque. It also helps keep the privateers in something approximating fighting condition for genuine battles. (It may also make privateers seem romantically cool, instead of something that you might lobby the Galactic Empire to put a stop to somehow.)

This also sort of explains the Odette II, which we are told is one of the original seven pirate ships and is still being maintained in something approaching fighting condition. The government can't own the Odette II outright because then the Galactic Empire could take it away, but it can arrange for it to be owned by a school yacht club, maintained properly, and regularly taken out on cruises by a bunch of interesting people who could make up a scratch crew if it became necessary (drawing both from current club members and from past graduates). This is not as good as the Odette II still being in active service as a privateer but it's a lot better than being completely decommissioned.

(I suspect that when the Odette II stopped being a privateer, its ownership carefully never passed through government hands. I would not be surprised if it was owned by the school yacht club instead of the school itself as extra insulation.)