Summer Reading: How empires and corporations have evolved and what it has to do with Brexit and the Turkish coup attempt of 2016?

It has been a fascinating summer with the British elderly and uneducated voting for Brexit and Turkey’s military coup attempt morphing into the sitting president’s power grab by changing the constitution and purging political opponents from state institutions, all following EU’s structural problems, Russia’s new foreign policy built on hybrid warfare, and Middle East’s continued turmoil a hundred years after WW1 and the dismemberment of the Ottoman empire. I have spent my free time this summer with family in various parts the beautiful and peaceful Finland, while reading many books on history, both fiction and non-fiction, in order to try to understand better what is going on in the world around us these days. I defined this blog as my professional blog and I am not a historian, so this may be an odd topic, but I am an analyst and this is analysis albeit of the light-weight holiday variety. Soft landing back to writing mode after some time-off. Discussion welcome.

I didn’t read the books in any particular order, sometimes even several in parallel. To make sense of my narrative, we could start from Tom Holland’s Persian Fire, which describes Persia as the first world empire and its losing the sea battle at Salamis 480 BCE primarily against the Greek city states of Athens and Sparta as a defining moment for the West and its emerging idea of democracy, which was first experimented in Athens in those days.

Holland describes the formation of the Persian empire from nomadic tribes, who were able to defeat several city states in battles, subjecting the local kings to pay taxes in exchange for protection by the king of Persia, now the king of kings. The innovation of the Persians was a communication system based on a network of messengers in high locations with line of sight to their neighbors, able to relay messages much faster than the competing technology of a man on a horse riding between mountains and crossing deserts.

In this empire, the city states and their local kings continued life much as before, speaking their own languages and following their own traditions, so the Persian empire was not a nation state in the modern sense. This may explain, why most of the city states including Greek speaking cities around the Aegean and in Anatolia (nowadays Turkey) were fairly ready to trade having to pay taxes in exchange for securing peaceful life and commerce. The ancient empires facilitated trade by offering safe travel and rule of law. Trade facilitated exchange of goods as well as mixing of people and ideas.

The democracy experiment in Athens was short-lived, but the “king of kings” method of empire building continued in the following centuries, first by the Macedonian king Alexander and later by the Roman emperors, who in turn were defeated by the Arab caliphs in the 7th century in what later has been described as the “Islamic conquests” and which is the period current day Islamic fundamentalists seem to idolise.

Christianity differed from most other religions of the time in that it was not bound to one place or one tribe, but rather promoted growth by conversion. In modern business terms, it was a “growth business” and already the dominant “social network” by the time it was adopted as a state religion by the Roman emperor Theodosius I in 380 CE, arguably to influence the church doctrine and keep citizens better under state control. The Silk Roads – A New History of The World by Peter Frankopan, which gives our history a new narrative from the point of view of the interactions over the Silk Road over time, describes how the Romans consolidated the teaching and structure of the church in their territories, while the eastern Christian churches continued to evolve and co-exist with the Jewish, Buddhists, and other faiths in the east before and also after the advent of Islam.

Fred Donner is one of the modern historians, who has researched the earliest historical references to Islam. He found that during the Arab conquests of the 7th century, Islam was not yet clearly recognized as a separate religion. The tribal leaders from the Arabian Peninsula, who defeated kings formerly paying taxes to the Romans, acted in the name of The Believers, a common name for the Jews, the various Christian sects as well as the emerging Muslims, all of whom believed in the same God and built their holy books on the same traditional texts and myths. In those days, some Christian churches had a prayer room for the followers of Mohammed as an example of the co-existence, and both Jewish and Christian people held high offices in the court of the new Arab king of kings, the caliph. The new Arab rulers apparently gave the local kings a better deal than Romans in terms of taxation, which encouraged shifting of allegiances from Romans to Arabs.

What appears to have happened next, in the 8th century, was that the caliph Abd Al-Malik (Al-Walid I) started the consolidation of his new empire and, taking a leaf from the playbook of the recent Roman emperors, codified Islam to build a new identity for his new empire, justifying its rule by his Arab tribe. Islam was the state religion and Muslims enjoyed tax breaks and privileges in the army, but the empire was multicultural and relatively peaceful. It wasn’t before the crusades that the Islamic and Christian people began to be seen as enemies, resulting in prejudice against the Christians, who had become a large multi-ethnic minority within the caliphate. The Ottomans, a Turkish speaking tribe which had recently arrived into Anatolia from modern Turkmenistan, took over the caliphate piece by pice from the 14th to 17th centuries, inheriting taxation of the trade along the Silk Roads as their business model, but didn’t really innovate anything until their fall during World War I.

While the Ottomans enjoyed life as before, the seafaring Spanish acquired seemingly unlimited gold reserves in the 16th century from the kingdoms they conquered in South America thanks to superior European war technology. The other European naval powers of England and the Netherlands had to invent something new and revolutionary to compete. This innovation is described in Philip J. Stern’s The Company-State: Corporate Sovereignty and the Early Modern Foundations of the British Empire in India. The English (later British) East India Company and the Dutch East India Company were the prime examples of the 17th century corporation, which employed private investors to complement the king’s national reserves to fund ships and settlements in India, elsewhere in Asia, Africa, and North America.

These corporations defended their settlements with their own armies, pressed their own coins, collected taxes, and made their own treaties with neighboring states, all the while paying taxes to their homelands in exchange for trade monopolies. In other words, they behaved much like the old vassal kingdoms within empires of the past. It wasn’t until the 19th century, before these corporations were restructured into their modern form, whereby their only duty is to make a profit to their shareholders and the nation states take care of law, order, currency and taxation. By this time, Britain had become the world’s leading empire thanks to the riches of India brought to it by the work of the East India Company over a couple of hundred years. Britain was also home for the industrial revolution, which enabled to reversing the direction of trade of textiles and ideas over the modern Silk Roads. With new sea routes open, the Ottomans were able to tax less, becoming poorer.

This brings us to this summer’s issues. The Arab Awakening and The Fall of the Ottomans describe, how 19th century European forms of nationalist ideals along with the commercial interests of the 20th century superpowers and their biggest corporations influenced the division of the Middle East into the present day borders and conflicts. Now:

  • Turkey tries to evolve Kemal Ataturk’s post WW1 nation state defined by Turkish language, Islam, and a European nation state ideal by looking into an idealised Ottoman past, but ignoring the traditional plurality of the population inhabiting its current geographic area, roughly the traditional Anatolia on the Silk Road, and also ignoring the speeds at which information flows in the Internet and people now travel, which is quite different from the times of the Ottomans.
  • Syria and Iraq are breaking up under the conflicts created by tribal leaderships. Britain and the US supported these and other autocratic tribal leaderships in the region to get stability and cheap access to natural resources by the oil companies, which were needed to fuel their industries and way of life. Like Turkey, they ignored the other ethnic groups that have lived in the same lands for centuries – now unable to come up with ways out of the impacts of their policies over the past 100 years.

In the meantime, European Union is becoming a museum for American and Chinese tourists, while the US and Chinese companies dominate world economy and innovation.

  • EU’s home market is still fractured. It is typically easier for European startups to scale in the US than in Europe.
  • EU’s security still relies on the US military spending, which Donald Trump and Vladimir Putin are happy to emphasize.
  • Europe’s population is aging, while the pool of young people in neighboring countries live in failed states without hope for advancement.

So the British elderly and uneducated got scared of the refugees and migrant workers, deciding to vote for a return to presumably happier times in the British empire of the 19th century, while the Turkish president decided to go back to the Ottoman empire of the past… Neither of which is feasible today, because neither the British nor the Turks can use their old business model of taxing the trade within their former empires and both British and Turkish companies need competitively priced access to foreign markets.

As an analyst, who has been working on the competitiveness of technology companies, I see all of these huge structural problems within and around Europe. As an entrepreneur, I see the problems as huge opportunities for innovation.

I’ll return to competitiveness and innovation opportunities in later posts.

P.S. For a glimpse on what life may have felt like along the Silk Road in various times, I recommend the entire bibliography of Amin Maalouf (historical fiction). I read everything from him that I could find from my local library.