Printers' stock cuts such as this one from 1857 or 1858 were used for political banners and placards. Source: Library of Congress, Prints and Photographs Division

How Pirates Led Struggle for Free Markets and Open Trade

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May 29 (Bloomberg) -- Kim Dotcom, the accused online pirate who founded the cloud-storage service, recently made a surprising statement to the Guardian newspaper: “I respect copyright. What I don’t respect is copyright extremism. And what I don’t respect is a business model that encourages piracy.”

Before dismissing his comments as disingenuous, consider that pirates have long been strong supporters of free markets, fighting monopolies and other restrictions on commerce.

The rise of piracy coincides with the international trade revolution. In 1498, Vasco da Gama sailed from Portugal around the Cape of Good Hope and opened the route to the East Indies. Over the next 15 years, Portugal sent armadas to the Indies to eliminate the competition from Muslim traders.

This marked the beginning of a new form of economic organization: the establishment of trade monopolies by European states. The Portuguese crown wanted to capitalize on the new trade opportunities that were opened by da Gama. To do this, a royal charter was granted to Carreira da India, a trade organization, giving it the exclusive right to import spices to Europe.

State Monopolies

At the beginning of the 17th century, other European powers entered the race to set up monopolies with the support of the Indies companies. This is how, in 1602, the United Provinces granted the Dutch East India Company a 21-year monopoly on trade east of the Cape of Good Hope.

This led to the ruin of well-established merchants and triggered two reactions: Some companies stood up to monopolies by establishing a parallel, illicit trade route; others tried to take over, by force, areas controlled by a monopoly.

States considered both actions piracy. For example, pirate organizations operating in the late 17th and early 18th centuries supplied the island of Manhattan with slaves, circumventing the Royal African Company, which held a monopoly on the trade. The historian Marcus Rediker estimated that, at the beginning of the 18th century, incessant pirate attacks led to a crisis for the British Empire and threatened the stability of international trade.

Admittedly, sea pirates weren’t motivated by some high-minded idea of free markets. Rather, they were independent merchants who had become outlaws as a result of the monopolistic practices of European states. And many resorted to violence after being deprived of their right to trade.

In his treatise “The Free Sea,” the 17th-century legal scholar Hugo Grotius wrote that waters and navigation are “free” because the sea is a public good that doesn’t belong to anyone. Iberian and English sovereigns, however, claimed that the parts of an ocean that linked their territories could be legally appropriated.

Grotius’s viewpoint eventually won. Freedom of the open seas -- now more than 50 percent of all water surfaces on Earth -- was achieved through a series of treaties, starting with the 1856 Declaration of Paris, which also abolished privateering. As the historian Anne Perotin-Dumon put it, to eliminate piracy, “trade monopoly had to be given up altogether.”

In many respects, the battle over freedom of the seas in the mid-19th century was echoed by the debate about the freedom of the airwaves at the beginning of the 20th.

BBC Charter

In the 1920s, the U.K. government issued a royal charter granting a monopoly to the British Broadcasting Corporation -- the same kind of charter it gave the English East India Company more than 300 years earlier. This allowed the government to appropriate the airwaves, and to prevent free radio broadcasting.

Soon after, however, Leonard Plugge set up the International Broadcasting Co. and began to buy airtime from pirate radio stations on offshore platforms outside territorial waters. Plugge contested both the BBC’s monopoly and the underlying principle that British sovereignty extended to the airwaves. He, too, was considered a pirate.

Overwhelmed by the phenomenon, the U.K. government ended the BBC’s monopoly in 1967, freeing both radio broadcasting and the airwaves. “As of 1967, the BBC became one among many,” the historian Adrian Johns wrote. “The irony is that it then found the critical and skeptical voice it had been missing.”

Similarly, as telecommunication technologies improved, companies with a dominant position, such as AT&T Inc., became increasingly interested in expanding their control into cyberspace. Many consider AT&T to have controlled the first monopoly in the history of cyberspace, and around 1970, it was the preferred target of “phone phreaks” who illegally hacked phone communications.

The interconnected histories of capitalism and piracy shed new light on the economic tensions that now surround the regulation of the Internet. Many of today’s pirates oppose monopolies in all forms, from dominant positions in emerging industries, such as online search optimization, to “copyright extremism” in the cultural and media industries.

Activists who identify with organizations such as Wikileaks and Anonymous are calling for “a free and open Internet,” starting from the premise that “information wants to be free.”

By defying the rules in many industries, pirates have demonstrated that they play a key role in the evolution of capitalist societies.

Success will sometimes turn pirate ventures into dominant players. One phone phreak who despised AT&T’s monopolistic practices as a teenager famously swore, 30 years later, that he would defend his proprietary software and wage “thermonuclear war” on an open-source alternative called Android. His name was Steve Jobs.

(Jean-Philippe Vergne is an assistant professor of strategy at Western University’s Ivey Business School in Canada. This essay is adapted from his book co-authored with R. Durand, “The Pirate Organization: Lessons from the Fringes of Capitalism.” The opinions expressed are his own.)

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