The Pirate Organization: Lessons From the Fringes of Capitalism (13 page)

What matters is the long-term change brought about by pirate organizations and the variations they introduce to the heart of capitalist code. Pirates claim a right to expand or redefine the concept of property, and they challenge monopolies or unfair oligopolies. They force states to take into account the public cause as they rethink business norms to avoid the exclusion of even more economic actors, which would push them aside further to the fringes and turn them into pirates. Norms of exchange and competition are thus constantly redefined as the sovereign decides to keep in or out elements of the public cause defended and embodied by pirate organizations.

Chapter Twelve

IS THE PIRATE ORGANIZATION A FAIR COMPETITOR?

Agreements and cartels, because they protect against the destructive impact of financial concentrations, allow small and medium-sized businesses to survive. Now, it is because of these small and medium-sized businesses that economic and social relationships remain reasonable and avoid becoming unbearable and inhuman
.

—Auguste Detoeuf, CEO of Alsthom, 1938

An industry that has to suspend civil liberties to make money is an industry the world needs to be without
.

—Ryan Moffitt, founder of the Florida Pirate Party

Each capitalist revolution brings about its local and contextual opposition. Today, cyberpirates defend the right to access and reproduce digital files freely. Trolls claim the right to property regardless of whether that property is used in practice. Just as capitalism expands into partially uncharted territories in multiple ways, so do pirate organizations that use a large variety of tactics to decode the norms of capitalism.

Normal Capitalism and Free Competition

There is a Darwinian vision of capitalism that claims the best and most powerful organizations will always prevail. According to this “ecological” perspective, the selection constraints on competing firms apply uniformly to each of them.
¹
Instead of a specific firm being retained, the pressures of competition and legitimacy eliminate entire populations of firms.

Let’s think about agricultural cooperatives, credit union banks, or independent gas stations. Each of these populations of firms, akin to species in biology, has specific features: a distinct capital ownership, specific relationships with suppliers or clients, and its own rules for the management of resources and the allocation of investments and profits. Competition opposes rival populations rather than particular firms. The agricultural co-op system is challenged by profit-seeking agrochemical companies. Credit union banks must regroup to face the pressure from new global bankers. Independent gas stations offering a single service cannot compete with the twenty-four-hour superstores for which gas is but one of the many products offered to customers.

Another illustration of this phenomenon can be found in the history of the East India Companies. For more than two centuries, they prospered in Europe, but then they gradually disappeared within a period of fifty years, until they ceased to exist in 1858. Stable establishment of trading posts and military bases in the nineteenth century around the world progressively made the use of the “Indies companies” obsolete, as well as the reliance on hired mercenaries and corsairs. Permanent establishments, which soon became territorial colonies, replaced the temporary bases upon which modern-age international trade had relied.

The international convention of Paris in 1856 heralded a new conception of maritime territory, which was henceforth recognized by the main powers as
res omnium communis
, or “property as a common heritage of all mankind” (the proximity in time between the death of the last East India company and the signing of the Paris convention is telling). This new norm favored the strongest states that had the largest number of trained troops and the securest trading posts. But it also allowed everyone to freely navigate the seas without piratical threats as long as they remained in international waters (which now account for more than 50 percent of all navigable water surfaces).

In a similar fashion, it is the advent of new normative features that explains the growth and decline of troll organizations. At the turn of the twenty-first century, the strengthening of industrial property rights enforcement, orchestrated by the state, facilitated the emergence and increased the viability of troll organizations. In turn, from 2007 onward, new norms have emerged as a response to the troll threat, and the renewed guidelines for industrial property rights protection have forced trolls to retreat.

According to this Darwinian vision of economic selection, the most legitimate and most resistant form survives. Comparatively, organizations of the milieu spawn more and die out less often than pirate organizations do. So, despite its historical permanence, the pirate organization is less resistant to established economic and legal pressures than legitimate organizations. Yet, in partially uncharted territories, pirate organizations can benefit from an advantage they hold over legitimate organizations. They are mobile, their rivals not yet established lack credibility and resources, and they can voice their public cause loud enough to influence the writing of the capitalistic code. Because the normalization process continually extends itself, the pirate organization constantly decodes the sovereign’s maneuvers and subsequently adjusts its claims based on the current conditions within the gray areas of capitalism.

Forms of Competition and the Selection of Organizations

In light of this Darwin-inspired analysis, competition is a natural force, which, like natural selection, eliminates the weakest and less able, and keeps only the fittest competitors. This ecological analysis definitely helps clarify concrete realities; for example, why the East India Companies, which generated annual profit rates around 30 percent throughout the seventeenth century, easily outlasted independent buccaneers, who for the most part struggled for survival. However, Darwinian models of competition are relatively nearsighted when it comes to explaining large capitalist movements or the recurrent motif of pirate contestation from era to era, since they assume that the major waves of normalization are exogenous to economic phenomena.

We hope to propose an alternative vision. The historical and institutional context is essential in understanding why profit is seen as legitimate and when it is acceptable or not to dismantle organizations (the Indies companies, the BBC, Microsoft, or Anonymous). The free market version of competition inspired by neo-Darwinian interpretations serves as a point of departure for reflection. It is in no way a finishing point, just a theoretical draft, an extreme case that rarely materializes. The state never ceases to intervene, to overcode, to separate the precisely viable from that which can disappear, to declare what is legitimate profit and what is bankruptcy. Digging its claws into partially uncharted territories, the sovereign state maps out the conditions for competition, which varies from place to place and time to time. During this process of normalization, some organizations of the milieu seek to impose their views, to protect their assets, and to expand their influence. For instance, the first epigraph at the beginning of the chapter illustrates the ideological conflicts that occurred in the circles defining industrial policy in France during the 1930s, opposing free market advocates and proponents of controlled economic expansion. Detoeuf is a typical representative of the latter movement. Before the war, he acted as the CEO of Alsthom, a huge industrial conglomerate, and as the vice president of the commission establishing the French accounting plan during the war. He wrote the famous speech on the end of free market economics in 1936, when he promoted an organized economy, wishing to define a protective “neo-capitalism” for small and medium-size firms that would shield them from free-for-all competition.

Let’s look at another example. At the end of the Civil War, the economic conditions in the United States had seriously deteriorated. Yet during this bleak period, a generation of fearless entrepreneurs built industrial and financial empires. These figureheads of American capitalism remain in our memory: J. P. Morgan, Andrew Carnegie, and John D. Rockefeller. But after a few decades, the hegemonic empires created by these famous men were disputed by those workers who helped expand to the West, dug oil wells, laid railway tracks, and blasted mountains, looking for ores and gems. Farmers united, craftsmen came together in lobbies, and unions channeled people’s discontentment in the face of economic opulence. These rich entrepreneurs wanted to redefine the rules of competition, as sustaining success in this new territory was tenuous at best. Around 1880, more and more collusive behaviors appeared in order to stabilize the economic environment. Cartels and other agreements spread to the point where prices of commodities (iron, oil, coal, and so forth) and services (distribution, transportation) were fixed by private firms in a way that guaranteed them hefty profits that could not be competed away. In 1890, a famous law, the Sherman Antitrust Act, was enacted with the goal of eliminating such agreements.

The Sherman Act declared cartels illegal in order to protect fair competition between rival companies. However, collaboration and mergers between companies was legal within each state. During this time, New Jersey became the first state to authorize the creation of legal structures whose mission was to hold shares in companies. From this, holding companies were born. Ironically, although cartels between states were effectively being fought against (more than three hundred sensational court cases within a span of 30 years), the anticartel law was also the starting point for a wave of mergers and holding company development. This, in another way, jump-started a process that ended instituting many local or national oligopolies.
²
This example illustrates the way in which the rules of competition are occasionally redefined, and include or reject organizations from within the changing milieu. Some of the excluded organizations can be or become “pirate” and contest the validity of just-born norms.

Accordingly, some sociologists have shown that organization of firms and markets is affected by not only national history but also local context. Thus, in the United States, federal law encouraged from the start the fixing of prices between competing investors in the railway business by declaring the industry to be “naturally cooperative.”
³
According to Amasa Stone, a pioneer in the American railway industry, “the time ha[d] come when the possession of railroad lines [wa]s useless without a total cooperation between rival lines.”
⁴
However, after the Sherman Act, which banned these agreements between states, rate competition became all the rage, and mergers and acquisitions were encouraged by bankers who feared an erosion of the value of the assets they helped finance. Specialists in railway economy then qualified the industry as “naturally monopolistic” to justify these repurchases and the effective domination of a single operator per main line—a system that finally consisted of the juxtaposition of regional monopolies that nevertheless maintained the illusion of competition at the national level.

During this same period, AT&T began to expand into a monopoly as the normalization of the analog space of communications was under way. AT&T had made itself an indispensable service provider even before Bell’s telephony patent expired in 1894. By the time competitors could enter the telephony market, AT&T had used its monopoly rents to subsidize the construction of a national network. Armed with the largest customer base, AT&T kept attracting more new subscribers than any other competitor, owing to interoperability problems across competing networks (i.e., new subscribers had incentives to sign up with the company allowing them to reach the largest number of people across the United States). In a bold lobbying effort, AT&T pushed forward the idea that telephony was a “natural monopoly” by arguing that duplicating phone lines between, say, New York City and Chicago was a waste of capital, since it amounted to investing in redundant infrastructure. Competitors had to share the network of the organization that had first laid out the infrastructure, in exchange for a fee. Because of AT&T’s initial advantage and huge cash reserves, it was virtually impossible for competitors to gain market share. AT&T further reinforced its unfair advantage by imposing the use of AT&T-approved telephones that were leased to customers for a monthly fee and by managing a network of loosely connected subsidiaries that operated localized monopolies within an overall corporate structure designed to exploit every loophole in current antitrust law. Invoking the Sherman Act, the American government threatened to nationalize AT&T. But the company once again succeeded in convincing the government that the competitive situation in the telephone industry was a natural monopoly.

To circumvent the Sherman Act, AT&T adopted a strategy to sign local agreements with companies that had a stronghold in a given geographic area. This strategy allowed AT&T to work its way to the top of a lucrative cartel of price fixing. Before long, AT&T’s methods were challenged by thousands of telephone pirates, or “phone phreaks.” These pirates, whose history has been partially documented in Bruce Sterling’s work,
The Hacker Crackdown
, developed a series of techniques that allowed them to use AT&T lines free of charge without being caught.
⁵
Post-WWII, one of the most popular tactics among the pirates was to use a
blue box
. This simple electronic device reproduced a sound of the same frequency used by AT&T—2600 hertz—which enabled users to connect to the AT&T network. Steve Jobs and Steve Wozniak, the two cofounders of Apple, had built up a reputation as rebels on California campuses by selling blue boxes to a number of students who wanted to make free phone calls. The phone phreaks of the 1970s did not understand the illegitimacy of using the network without paying. In their minds, their wrongdoing did not cost anyone anything and did not exclude new users from benefiting from the same service. Another act of piracy involved the attack of telephone booths by increasingly inventive phreaks who circumvented the mechanism that connects the machine’s coin-operated device with the telephone network. In the New York area, more than 150,000 cases of pirated telephone booths were reported annually.