Sometimes it is good to look back at history in order to look forward. Since long before the Apple judgment, I have been trying to figure out what could be the economic model for Ireland in a globalised world of free trade, large-scale movements of people and free capital flows. The Apple judgment simply brings the issue to the fore. It focuses the mind.
In addition, although not always appreciated, there is a strong link between Ireland’s position in this trading world and the strike at Dublin Bus, which I will examine in time.
But let’s kick off this week with a bit of history in the ancient coastal city of Ayas just north of another ancient place, the devastated city of Aleppo. Marco Polo stayed in Ayas and mentioned it glowingly in his travels. Have you ever heard of it?
It was the Ireland of the 13th century. It was a remarkable trading entity and its strategy in a world of trade between east and west is the key to understanding what might be Ireland’s next geopolitical move.
Ayas was the capital city of the Armenian kingdom of Cilicia. These were exiled Armenians who had been kicked out of their Armenian homeland years before. Although Armenia seems far away in a long forgotten part of the globe, it was once the centre of the world. The one problem with being at the hub of things is that people tend to invade you.
These Armenian refugees settled in this Mediterranean part of what is now Turkey, just north of Syria. Once safe, they had to figure out what they were going to do for a living and how they would provide an income for their populations.
Obviously, as subjects of a tiny city, they couldn’t live off their own produce. They had to trade and, as they hadn’t much to sell, they had to attract other people’s produce into the city and trade that material with someone who wanted it.
So the Armenians of Ayas set themselves up as the key port that would be the entry point and warehouse for Italian merchants coming from Genoa and Venice in the west and the Mongol empire in the east. Far from being the rapists and pillagers of myth, the Mongols were highly sophisticated commercial traders. Once they had viciously conquered territory, they set about holding the territory via commerce*.
This is why Genghis Khan’s empire lasted for centuries. Everyone had a stake, Mongols and conquered alike. Unlike other empires, the Mongols were tolerant of other religions and most interestingly they knew how to play the international tax game.
The Armenians of Ayas knew they had to play all sides off against each other, but they also knew that the taxes charged at other big ports on the eastern Mediterranean were exorbitant.
So the Armenians working with the Mongols kept taxes and levies for exports passing through their ports low – never exceeding 3-5 per cent.
In contrast, sources at the time indicated that in the great port of Alexandria taxes could be as high as 30 per cent and never below 10 per cent. In business, margin is everything and so the Italian merchants who were buying exotic produce from the east invested heavily in low-tax Ayas.
When we in western Europe think of 1300AD, we think of the Dark Ages, but in the east this was a bright period of hectic learning and commerce. This world was trading, selling, buying and moving all sorts of goods, from peppers and spices, to silks, Tartar cloth and dyes. Everything was on the move and low-tax Ayas was the centre of trade.
By keeping its taxes lower than the more acquisitive and much more powerful Alexandria, tiny Ayas flourished. The Venetians and Genovese set up little free trade zones within the city of Ayas from where they traded with the Mongols and others and the city became immensely wealthy in the process.
The Italians brought their money and knowhow to Ayas. The Mongols brought exotic goods from all over the east to trade with the Italians. In return, the Armenians kept their taxes low, which diverted Italian and Mongol trade through the city, throwing off enough cash to make the city a thriving metropolis on the Mediterranean.
It was a fulcrum of activity. All sorts of people and companies settled there, attracted by low taxes and access to the great markets of both east and west. Certainty about the ease of trade and the city’s reasonably tolerant attitude towards religions, minorities and foreigners made this place a hive of activity and immigration.
Obviously, neighbouring cities and regions became jealous of Ayas, particularly the Malmuks in Egypt, who were furious at the Armenians’ mercantile success and the fact that trade was being diverted to Ayas from Alexandria. However, the city stood its ground, kept its taxes low, did deals with Crusaders as well as Mongols and became the flourishing centre that Marco Polo writes so glowingly about.
This was their economic strategy. Now the local Ayas economy had an international trading platform off which to operate.
The money generated by the traders – the multinational companies of their time – paid for the municipal services in the city. The rubbish collection and urban lighting system were second to none, and of course the local tradesmen benefited from the demand that the new investors created. So cobblers, innkeepers, blacksmiths and the like were in clover.
Everyone benefited from trade, low taxes and the flow of goods.
Ayas should be our model. It was the Ireland of its time, an attractive place for foreign investment attracting capital and opprobrium in equal measure.
The key to the city’s success was to play all these competing sides – the Italians, the Mongols – the Malmuks and obviously keep the local Armenians happy.
The trade created the economic cycle for the city and as trade ebbed and flowed, the economic cycle would ebb and flow. When the city was jammed with merchants, prices would go up. The local people would push prices up a notch or two as local unemployment fell and things started to boom. Rents would rise and ultimately wages for workers in the port, the hotels, the city’s municipal services too.
Ultimately, the lads who lit the fires which kept the city streets bright at night, the local policemen and the lads who carried and transported stuff around the alleyways and streets got pay rises to reflect the vibrant economy.
Wage demands are the sign of a successful economy. Typically, workers only strike when they feel that they have a good chance of success, when they feel that they are being left behind by the rising cost of living around them. Typically, wage demands lag the economic cycle by a number of years and then they come all at once.
So expect more wage increases after years of wage moderation. It’s a sign of success. However, the big picture is to remain the Ayas of the 21st century. If we forget that we are goosed. If you think big, the little things look after themselves.
* If you want to learn more about the history of the east and trading, read The Silk Roads by Peter Frankopan