War for profit: English corsairs, institutions and decentralised strategy

Abstract

In this study, we propose that in states with relatively weak central authorities, decision-makers had to develop market-oriented organisation solutions to successfully face a grave external threat, and these solutions proved to be efficient. Using an interdisciplinary approach that combines institutional theory, history and strategy, we analyse a case study, the use of corsairs (privateers) by England in the late sixteenth and early seventeenth centuries. We have found that the development of partnership companies went hand in hand for commercial and military purposes. English privateers proved to be economically efficient and superior to the centrally planned war operations of the Spanish empire.

Keywords:

• Institutions
• Partnership companies
• Privateers
• Coordination and cooperation mechanisms
• Sixteenth–seventeenth-century England

JEL Codes:

• H70
• N23
• N40
• N43
• P16

Acknowledgements

The authors wish to thank Nicholas Rodger, Henning Hillmann, the Editor and the referees for their useful comments that led to the significant improvement of this paper. The usual disclaimer applies.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We are focusing on the case of England while we have to acknowledge that similar institutional mechanisms were developed also in the UP.

² For a detailed analysis of the UP political and economic system, see De Vries and Van der Woude (1997), Halkos and Kyriazis (2005), Kyriazis (2006), Davids and t’ Hart (2012) and the additional references provided there.

³ Privateers and corsairs are synonymous, the first term coming from ‘private’ denoting ownership of the ship by the captain or the company (as against English royal ships owned by the state-queen). Corsair comes from the French ‘course’ meaning booty (Rodger 1997). As we show, in some cases, piracy and privateering was indistinguishable. Corsairs could cross over the ‘red line of legality’ and become pirates. Privateering, as piracy has long historical antecedents, going back to the ancient world, and certainly to the Middle Ages. The Knights Hospitallers of Rhodes and Malta may be seen as a ‘privateering state’, since they waged a continuous war against the ‘infidel enemy’, e.g. the Ottoman Turks and their dependents. But the English and Dutch were the first to use privateering on such a large scale and over the vast expanses of the Atlantic, Indian and Pacific oceans. Drake’s first capture was in the Pacific. Furthermore, the American Civil War produced some of the most renowned corsairs, as the Confederate’s ‘Alabama’. During the two World Wars, Germany made extensive use of commerce raiders, in the form of auxiliary merchant cruisers (ex-merchant ships, armed with concealed guns), although they were navy ships and were not operating with a profit motive. Famous among them were ‘Atlantis’, ‘Komet’, ‘Kormoran’, ‘Penguin’, etc. In this study, we are focusing on the early period of privateering, late sixteenth to mid-seventeenth century, because it was the first time privateering was used so extensively and with such decisive results.

⁴ To be more precise, Elisabethan and Dutch overseas trade led to the granting of state monopolies to companies such as the East Indian Company (EIC) and the Dutch East Indian Company (VOC). But the difference with Spain and Portugal is that in England and the UP, the initiators were private investors (as against state sponsored, like Columbus), the diffusion of ownership was higher, (also because shares would be traded in the London and Amsterdam stock exchanges) and monopoly privileges were never absolute and were challenged by competitors, an argument underlined by Acemoglu and Robinson (2012, chapters 4, 7). Even servants of the EIC and the VOC had the right to trade in parallel on their own (Sgourev and van Lent 2015).

⁵ To be more precise, in the beginning, privateering partnerships were not chartered joint-stock companies but simple share partnerships based on their ‘letter of marque’ license. But very soon, chartered companies like the Dutch West Indian and VOC, functioned also as privateering companies, so that the distinction became blurred. We owe this clarification to a comment by Prof. Hillmann.

⁶ Erikson (2014) deals explicitly with cooperation and coordination in the EIC.

⁷ The interpretation we offer here concerning the English privateering activities is an extension of Simon’s (1982, 1991) ‘bounded rationality’, which states that the human mind has limitations, for example, in its capacity to absorb and use new information. In real life, instead of searching for an ‘absolute ideal’ (as for example, utility maximisation according to microeconomic theory), we try to reach a solution that satisfies us, even if it is not the best possible one. Simon calls this behaviour ‘satisficing’. This enables us to find acceptable solutions with minimal expenditure of time and effort, thus reducing transaction costs. Satisficing behaviour diffuses known solutions and problem-solving rules to new problems, since this reduces again time and effort. Thus, a tried organisational solution, the joint-stock company, is transferred to a new problem, that of organising privateering expeditions and even seventeenth to early eighteenth century piratical enterprises. Only if satisficing does not lead to solutions of new problems, we have an incentive to search for new ones, thus also increasing the stock of knowledge. We have analysed this in detail in Kyriazis and Metaxas (2010) and Kyriazis and Economou (2013).

⁸ As Rodger (2014) writes, private or commercial naval warfare was a normal aspect of the use of the sea at all times. In the Middle Ages and the early modern European period, there were few non-combatants at sea. During the Middle Ages, redress against an attack by a foreign vessel could be sought at courts, but often this did not result in compensation by the nation of the attacking vessel. As a last resort survivors of attacks at sea might have resource to the legal device known as a ‘letter of marque’, this being a document issued under species of international law called ‘marcher law’ (e.g. the law of the marches, the lawless frontier lands reminiscent of nineteenth-century Far West) by the sovereign of a traveller or shipmaster who had been robbed by the subjects of a foreign prince and had been unable to obtain redress in the foreign prince’s courts. Under the principle of, as we would consider it nowadays, ‘collective responsibility’, the letter authorised the victim to make up his losses by seizures from subjects of his attackers. This was called later a ‘letter of reprisal’ and could be issued only in peace-time, when the courts of the foreign country were open to the aggrieved party (Rodger 2014, 7).

⁹ Exquemelin ([1689] 1992) gives information about the contracts among the French and Dutch ‘buccaneers’ in the Caribbean. Leeson (2009) considers them to be the predecessors of late seventeenth-, early eighteenth-century pirates, a type of ‘proto-pirates’. For a short history of the buccaneers, see Konstam (2000a)

¹⁰ Many privateering contacts, regulating behaviour on board ships, distribution of plunder and incentives are extant. For example, one contract stipulates an indemnity of £1000 for a crew member for the loss of an arm or leg and £100 for ‘whoever first discovers a sail that proves to be a prize, shall receive £100 as a reward for his vigilance and whoever enters an enemy ship after boarding orders are issued, shall receive £300 for his valour’. These data come from articles from a Salem Massachusetts privateer of 1780, during the American War of Independence (Konstam 2001b, 20).

¹¹ As Ferguson (2003, 8) puts it: ‘Elisabeth I took the eminently sensible decision to license what was happening anyway’, e.g. give a ‘mantle of legitimacy’ to the private military entrepreneurs.

¹² In this study, the authors analyse English–British privateering operations for a later period (1689–1815) than our focus here. They show that privateering was a ‘successful’ business enterprise. The expansion of overseas trade and the rising naval power of Britain during the nineteenth century resulted in the decline of privateering.

¹³ For gunnery and tactics development, see Rodger (1996, 1997).

¹⁴ The last phrase has been attributed to Sir Walter Raleigh, a famous corsair, admiral and poet.