Government bailouts. Rogue traders. Bought-off politicians.These are not only the headlines that have dominated since the Great Recession. They were also major developments in the history of what was for 274 years the world’s most successful multinational corporation: the East India Company.
Author Nick Robins provides an excellent and exhaustive look at the legendary company in his book: The Corporation That Changed The World.
255 years ago this month, the Company recaptured Calcutta, a decisive development in securing the company’s — and Britain’s — dominance over Eastern trade routes.
But all of its success came at a price, borne by the lives of millions of Indians caught up in the country’s profit machine, writes Robins.
The company’s mark on Britain and the Asian subcontinent remains indelible.
Here are some of the fascinating lessons we learned from Robins’ book.
The English East India Company received its charter from Queen Elizabeth on Dec. 31, 1600. Though not the first chartered company in England (the Muscovy Company predated it by 45 years), it pioneered the concept of joint stock ownership as a way of raising the massive amount of capital needed for successful overseas trade, as well as managing the risk inherent in the enterprise. At first joint stocks were constructed for each voyage, but by 1657 the company was formalized as a “continuous unlimited investment taking place without reference to individual voyages.”
Photo: Wikimedia Commons
Prior to the arrival of the English, Asian trade was controlled by the Portuguese, and to a lesser extent the Dutch. And the main trade target was Indonesia, not India. Still, the company was an instant success, generating returns of 155% in its first decade, mainly by eliminating the need for an overland passage.But the company was ultimately out maneuvered in the “Spice Islands” (as Indonesia was known) by the Dutch, who in 1667 gave up some American backwater called New Amsterdam as a consolation prize.
But by then the company had already turned its gaze to India and, a different set of commodities.
In 1635, after a series of skirmishes, the company signed a treaty with Portugal giving it access to a large swatch of the coast of eastern India, including Madras (now Chennai). It added Bombay in 1668, a gift to Charles II from his Portuguese wife.
By 1684, the company had imported 1.76 million pieces of Indian textiles, representing 83 per cent of its entire trade.
As ever, the company’s share price was its “heart beat,” broadcasting its current and future prospects, Robins writes. By 1693, company shares were worth nearly 150 pounds.
The company’s founders, according to Robins, had been “a band of merchants;” there does not appear to have been a central figurehead lobbying for trading rights.
Rather, the first chairman to make international headlines was Josiah Child, a career merchant who served as either a board member or governor (a name that also applied to the heads of England’s American colonies…) for 17 years.
It was Child’s idea to raise a proprietary army and navy to turn the company from a “parcel of mere trading merchants” into a “formidable martial government in India.” While the force’s initial incursions against Indian forces did not lead to significant gains, it set a precedent for how far the company would be willing to go to maintain dominance over the subcontinent.Child was also the first to open a line of bribery with the crown. Upon his election as governor in 1681, he “awarded” Charles II 10,000 guineas to help smooth the company’s charter renewal. This sum would become an annual “gift” from the company for the next seven years. After the Glorious Revolution in 1689, Child gave the government a 1.2 million pound loan at zero interest to again secure an exclusive trading charter.
An inherent tension in the company’s operations was the relationship of its overseas executives with the home office. The salaries paid by the company were barely enough to cover living expenses. Yet nearly executive joined the company in the hopes of adopting the conspicuous consumption habits of the British landed gentry.
So to reconcile this dilemma, an executive frequently used his privileged position overseas for what Robins calls private “adventurism.” Executives accepted “presents” from local merchants in exchange for the company’s business. The phrase “a lass and a lakh a day” — a “lakh” being 100,00 rupees — was coined to describe the lifestyle Bengal executives came to enjoy.
Insider trading was also common. Overseas executives would write agents at home to buy as much stock as possible to capitalise on favourable developments in the subcontinent. At one point the company set up what Robins describes as a “special purpose vehicle” was set up to conduct side trades with local merchants.
Still, by 1740 its stock price had reached 200 pounds, and it had supplanted the Dutch as the dominant mercantile force in the East.
The company’s business model should sound familiar: keeping supply and production costs low while maximizing the price of goods sold in England. It ended up outsourcing as much as it could, including manufacturing, shipping and retailing. The value it added was in the selection of goods and in keeping the supply chain humming.
As Robins writes, “In a situation characterised by extremely poor information, the Company’s strength lay in its ability to achieve an equilibrium between supply and demand on opposite sides of the planet.”
A Decisive Victory
Despite the company’s dominance, the rest of Europe had not yet given up. In particular, the French still commanded an important trading fortification near Calcutta. Plus, local Indian rulers were still seeking to retake control of local trade. In June 1756, the Nawab, or regent, overwhelmed poorly prepared company forces and captured Calcutta, which the company had controlled since 1690. As a result, the company lost 2.25 million pounds.
But already, the company had been preparing a counteroffensive. Led by Robert Clive, a commander of a nearby company fort who’d started out his career in India as a young writer, a small but focused expedition was able to retake the city in February 1757.
The victory proved decisive for the company’s fortunes, which rose 12 per cent when news of the victory reached London.It was a conspiracy engineered by India’s own merchants that the company an ironclad monopoly over the subcontinent for another hundred years.
Believing they could control the “foreign barbarians” to their own ends, three Indian aristocrats offered to help the company overthrow Bengal’s Nawab in exchange for exclusive business deals. But one of the aristocrats, Amir Chand, demanded a 5% cut of the company’s earnings.
Outraged by Chand’s audacity, Clive drew up two treaties, a real one for a separate conspirator that promised to install him as Britain’s Bengal puppet, and a fake another for Chand pretending to agree to his terms. The operation went forward, and in the summer of 1757 the Nawab was overthrown and Plassey, then capital of Bengal, was taken.
The plot cemented the company’s hold not only in Bengal but the rest of the subcontinent. Clive won an immediate 2.5 million pounds for the firm, to be followed by enhanced revenues in the future. The victory also sent shares climbing to nearly 275 pounds.
Robins sums up the event thusly:
“In the space of less than a decade, the Company had rerouted the flow of wealth westwards. Yet, this was a corporate revolution, designed to acquire the riches of an entire people for the benefit of a single company.”
The Cost of Doing Business
Plassey would prove the high point of the company’s powers in the subcontinent. Yet it also triggered what might be called the company’s brutality era.
Robins writes that Bengal weavers were subsequently forced into a position of near slavery, forced to sell exclusively to the company at whatever prices the company dictated. This was achieved through fines, imprisonments and floggings. The company’s practices led to desperation among the weavers, some of whom allegedly cut off their thumbs to prevent their being forced to wind silk.
It was during the drought and famine of 1769-1770 that the company’s actions provoked worldwide outrage. To keep prices from skyrocketing, Company agents began hording grain and ramping up revenue collection. The result was scores dead from starvation. A recent history has pegged total casualties at 1.2 million.
(Incidentally, the drought also indirectly caused the Boston Tea Party, when parliament caved to demands to Company demands to offset falling revenues by removing the company’s export duties, undercutting American tea traders).
The drought caused the company’s share price to crash, falling below 150 pounds. It struggled to pay its annual dividend and was sent into a decade-long spiral. In 1784, the company got the equivalent of a bailout that allowed it to continue bond auctions. The East India Company was thus the first corporation to pay a dividend out of debt.
A New Product, And A New Market
The company was eventually able to regain its footing by tacking to another commodity, opium; and a new market, China.
Led by Warren Hastings, who took over as Governor of Bengal in 1772, the company established a monopoly on the seed that gave merchants a new currency to pry open the Chinese market. While it was illegal to import opium to China, porous borders and widespread corruption allowed the company to grow opium in India and exchange it for tea in China.Although the company was only allowed to trade through a single port at Canton, by 1828 the company was generating enough revenue from opium sales to cover the entire cost of purchasing Chinese tea. Robins adds that with one-tenth of British revenues derived from tea duties, “the entire imperial edifice” was by the 1830s resting “on a mountain of opium.”
End of an Era
The company’s demise was engineered by Britain itself, as factories in the north of England turned the country into an industrial powerhouse. In addition, the rising standard of living the company helped create produced a whole new class of merchants who began lobbying parliament for equal access to foreign markets. Even the Church of England contributed to the company’s downfall by successfully lobbying for a bishopric in India; previously, the company had banned missionary activity there.
In 1833, shareholders approved the company’s nationalization by parliament. In exchange, the company’s dividend was guaranteed for another 20 years, and it continued to serve as proxy rulers in the subcontinent. As the historian Thomas Babington Macaulay wrote, a commercial body was now “exercising sovereignty over more people, with a larger revenue and a larger army” than the British state. In 1858, this arrangement ended when the crown became direct rulers of India in the wake of the Sepoy Rebellion challenging company rule. On June 1, 1874, the East India Company was dissolved.
Photo: Ben Sutherland via Flickr
The costs and benefits of the company’s reign are best captured by the most well-known economist during the company’s rule, Adam Smith. While he approved of the company’s foray into Indian markets and recognised the necessity of a temporary monopoly, he would go on to write that the company’s exclusive trading rights had turned it into a “nuisance” that amounted to “an absurd tax upon the rest of their fellow citizens.” He also blamed the company for the plight of India’s inhabitants, suggesting company officials would be “perfectly indifferent” even if “the whole country was swallowed up by an earthquake.”Robins writes that since the company’s dissolution, India has experienced a somewhat bizarre relationship with managing the memory of the company. Jawaharlal Nehur pointed to the company’s role in India’s oppression during his campaign of independence. But the company’s governing house in Calcutta is now the seat of the governor of the state of Bengal. The company’s main fort in Calcutta is now a base for the Eastern Command of the Indian Army.
In London, too, there’s been a strange erasure of the company’s history, with few plaques marking the country’s former offices or warehouses, though a statue of Robert Clive remains near St. James’s Park in Westminster.
The final legacy of the company is perhaps this: in terms of 21st century purchasing power, Robins estimates the company contributed 40 billion pounds to the British economy. For such a large sum, it exacted a fairly nasty price.