Does it really need to be explained why a system where one or more people, most likely with no military backing, being in some sort of supreme control over all other players on the server would not work at all?

Well, for those of you who don’t already see the issue; the main problem would be with uncooperative people such as myself. Basically, if some person, lets use Texter in this example(god forbid) told me that I had to do something because he/she was president, my first reaction would probably be along the lines of “How about you come over here and make me.” And if they continued to go around telling people what to do, I would likely decide to spend a decent amount of time running my sword through them.

Until you can consistently beat the pirates(which probably wont happen for quite some time) you will be unable to make significant progress in areas such as trade, and diplomacy due to the simple fact that the people who make the laws are the ones who have the most military power.