Harish Puppala | Rakesh Sharma
Welcome to a new series on Moneycontrol: Companies That Changed The World. In this series, we take a deeper look at the businesses and corporations, and the people, that left an impact on the world.
These were the large companies that built business empires (sometimes even actual empires) and shaped the geography, politics, history and cultures of the world. In fact, their spectacular, and consistent, success resulted in legacies that lasted well into the future. And, of course, the fabulous wealth they earned, albeit on the back of slavery, indentured labour and other sundry methods of dehumanizing the people they conquered so they didn’t have to pay fair wages. And the monies were staggering.
For instance, did you know that the Dutch East India Company, a megacorporation that existed from 1601 to 1799, is estimated to have been worth 7.9 trillion dollars in today’s money? That was in 1637 at the height of something called the Tulip Mania, probably the first financial bubble in the world. That’s more value that the top 20 companies of our times combined.
To put that into a modern perspective, Japan’s GDP, the third largest in the world right now, is between $4.8 and $5 trillion. Add Germany’s GDP and you arrive at the value of VOC or the Dutch East India Company. A business concern with that much wealth and power would, without a doubt, have held sway over large swathes of the planet, and in some powerful places as well. Now you know how the Dutch financed all those pretty canals and houses in Amsterdam and elsewhere.
Closer to modern times, Standard Oil, Ford Motor Company, and newer giant corporations like ExxonMobil, Walmart, Microsoft, Apple, SaudiAramco etc helped shape our world.
In this episode, we take a look at a candidate for the title of ‘most powerful company in history.' Towards the end of the reign of Queen Elizabeth I - arguably one of the most powerful monarchs in world history - a company emerged that would go on to be one of the most powerful in the world - The British East India Company (EIC). At one point in time, the East India Company had the largest military in the world and effectively owned in entirety a piece of land that we now know as India, Pakistan, Bangladesh and Myanmar. Owned. Writer and commentator Gurcharan Das, said, “The modern corporation is...a child of the East India Company.” It essentially caused two Opium Wars that led to the opening up of China as a market, on the back of Britain’s military prowess. It established most of the major cities in India, as well as ports like Penang and Singapore and its footprint stretched all the way to Japan. It played a central role in Britain's rise to commercial promninence, the creation of the British Empire, and the integration of global markets. Has any company ever influenced the lives of some many people and so many nations across the earth like the East India Company has, while being pretty darn broke? To think it was a company that came to trade but stayed to rule.
Let’s take a look.Origins
The British East India Company was incorporated in England on December 31, 1600. 102 years after Vasco da Gama discovered the sea route to the Indian Ocean, the group of merchants led by Sir Thomas Smythe petitioned Queen Elizabeth I to grant them a royal charter to trade with the countries of the eastern hemisphere. William Dalrymple wrote in The Guardian about the origins of this company - “On 24 September, 1599, 80 merchants and adventurers met at the Founders Hall in the City of London and agreed to petition Queen Elizabeth I to start up a company. A year later, the Governor and Company of Merchants trading to the East Indies, a group of 218 men, received a royal charter, giving them a monopoly for 15 years over “trade to the East”.”
Its full name was - Honourable Company of Merchants of London Trading with the East Indies. Yep, honourable. Their conduct in India would, in time, come to define colonization as a concept. But on that December 31, there was little to indicate that a tumultuous part of modern history was to unfold. The company was formed to, ostensibly, share in the East Indian spice trade, which had been monopolized by Spain and Portugal. (1000 percent profits were not unheard of.)
The defeat of the Spanish Armada by England in 1588 gave them a chance to break the monopoly. Until 1612 the company conducted separate voyages, separately subscribed.
As Elizabeth I was signing that charter, her counterpart in India – Mughal emperor Akbar – was the overlord of an empire that spanned nearly two million square kilometres, stretching from Afghanistan in the northwest to the Deccan plateau in central India, and skimming the borders of the highlands of Assam. By 1600, the Mughal empire had become firmly established, and was embarking on a century of strong centralised power, military dominance and cultural productiveness that would lead to the moniker ‘Great Mughals’. The Mughal court possessed wealth and magnificence that outstripped anything Europe could produce at the time, while India’s natural produce, and that of its artisans, was coveted all over the world. Mind you, this was Europe before the dawn of full blown industrialization.
We are now well acquainted with the past glory that is restated regularly on political Twitter - in the words of William Dalrymple, India accounted for around a quarter of all global manufacturing while Britain contributed less than two percent to global GDP. There was good reason for the great Mughal cities of Jahangir’s empire being shown to Adam as future marvels of divine design in Paradise Lost.
In 1612, James I, the king of England, instructed Thomas Roe to visit the Mughal emperor Jahangir to arrange for a commercial treaty that would give the company exclusive rights to reside and establish factories. In exchange, the company offered to provide the Emperor with goods and rarities from the European market. This mission was highly successful. The company had tried to force its way into the lucrative spice markets of south-east Asia (in particular, Indonesia), but proved no match for the dominance of the Dutch. After EIC merchants were massacred at Amboyna (in present day Indonesia) in 1623, the company turned its attention to India.
With Jahangir’s permission, they built small bases, or factories, on India’s eastern and western coasts. From these toeholds, they began a profitable trade in spices, textiles and luxury goods that would lead to the commercial success they had hoped for. They dealt with Indian artisans and producers primarily through native middlemen. Meanwhile, the ‘joint stock’ organisation of the company (in which ownership was shared between shareholders) spread the cost and risk of individual voyages between investors.
One analysis drew up a rough estimate that in 1600, when the East India Company came into existence, the rents of all the lands and houses of England was estimated at 6 million pounds per annum and at 12 years purchase the total value would be 72 million pounds. At the same time, the stock of England including silver and gold coin, bullion, wrought plate, mines, jewels, furniture, stock of trade and cattle was estimated at 17 million - the total being 89 million pounds. Around 1770, yearly rents of lands and houses was estimated at 25 million pounds and at 25 years purchase amounted to 625 million pounds, and the country’s stock of other assets was estimated at 262 million pounds.
The analysis deduced that England had gained 798 million pounds over a period of about 170 years by means of trade and commerce only because the country at that time had no other source of increasing wealth. In this increased wealth the East India trade had a major share, although the analysts claimed it was difficult to estimate the contribution precisely. By another rough calculation, it is assumed that the total profit from the East India trade per annum was one million pounds before the two companies were united in 1708 and after that the profit increased to two million pounds per annum. Taking into account the whole period, total profit from the East India trade came to figure 220 million pounds.The EIC business model
A joint-stock company was a new type of business in the early 17th century - one that could issue tradeable shares on the open market to any number of investors, which meant it was capable of realising much larger amounts of capital. Dalrymple writes that the first chartered joint-stock company was the Muscovy Company, which received its charter in 1555. The East India Company was founded 44 years later. No mention was made in the charter of the EIC holding overseas territory, but it did give the company the right “to wage war” where necessary.
Nick Robins wrote in his book The Corporation that Changed the World, “In its financing, structures of governance and business dynamics, the Company was undeniably modern...All corporations will use political as well as economic ends to promote their interests. Today, that’s called lobbying.” And it was a popular employer, not unlike the Facebooks and Google’s of today. Margaret Makepeace wrote in the book The East India Company’s London Workers, “Applications for admission always greatly exceeded the number of vacancies. Unsolicited petitions to the Court of Directors were routinely rejected.”
From 1600 to 1657, the Company operated with terminable stocks, issued for a single or a series of voyages. At various points in the life of a particular stock or venture, available proceeds were divided pro rata and distributed to the adventurers (or shareholders). The distribution of proceeds was actually liquidation of invested capital as well as distribution of profits. From very early on, the East India Company attracted a wide circle of investors—dukes, judges, knights, clergymen, and merchants. The number of investors, which was around 220 at the start in 1600, rose to nearly one thousand by January 1617, when the subscription books for the Second Joint-Stock were closed.
India’s appetite for gold
Under Mughal patronage, the British gradually ousted the Portuguese trading venture of Estado da India, which had a massive control of trading in India.
According to Robins’ book, “By 1620, the Company was managing a ﬂeet of 10,000 tonnes, operated by over 2,500 sailors and maintained by 500 ships’ carpenters.” The company set up its first factory in Surat. The English were allowed to trade in the port paying a duty of 3.5 percent. By 1625, 220,000 pieces of cloth were being exported by the EIC from Surat. One analysis showed that between 1601 and 1612 cargo worth £200,540 was carried on in nine East India voyages of which 69 per cent consisted of bullion.This was also evident from Thomas Mun's estimate which showed that the value of the East India Company's exports in the first two decades of the seventeenth century was £292,286 of which 65 percent was in bullion.
English trading activity in India spread from the Western to the Eastern Coast and finally to Bengal by the mid seventeenth century, when Shah Jahan was the Emperor of Delhi and his son Shah Shuja, a sibling of Aurangzeb and Dara Shikoh, was the Governor of Bengal. The East India Company was permitted to trade in Bengal in return for an annual payment of 3000 rupees.To give you an idea of this time period, the mid-1600s was the time when the Taj Mahal was completed in Agra. 1653, to be precise.
The EIC acquired Madras in 1639, Bombay in 1668, and Calcutta in 1690. Any tourist brochure about Mumbai will tell you proudly that the settlement of Bombay was gained as dowry to Charles II from his bride who received it from the Portuguese crown in 1661 and was handed over to the East India Company. In 1687, Bombay would become the headquarters of the west coast, taking over from Surat.
Robins noted that the Anglo-Dutch fight during the 1650s damaged the Company’s interests. To make things worse, Oliver Cromwell (the de facto ruler of England after its three civil wars) refused to renew the Company’s charter in 1653, which allowed its monopoly to lapse. Robins wrote, “This produced a brief window of open commerce, boosting trade and reducing prices, yet crippling profits – a result almost exactly the same as the Dutch experience before 1602. On 14 January 1657, the situation had grown so bleak that the Company’s directors voted to liquidate its affairs.This proved to be an effective ploy to force Cromwell’s hand. By October,
a new charter had been granted, and a permanent joint stock was established with capital to the tune of £740,000 – although only 50 percent of this was actually subscribed at the time.”
Robins notes that, “Between 1658 and 1688, the Company managed to complete 404 voyages between London and the East Indies, an average of 13 each season.”
Factories were established at Hooghly, Balasore, Kashimbazar, Dacca, Malda and Patna. Their ‘investment’ rose from £85,000 in 1674 to £150,000 in 1680 and reached £230,000 in 1681. The commodities exported to Europe consisted of silks and taffetas of fine quality and saltpetre. If funds were available the Company also purchased white sugar, cotton yarn, turmeric and beeswax. The Company's trade was always encouraged by the local governments because it stimulated the demand for native products and thereby helped to procure bullion for the country.
By 1670, cotton and silk textiles accounted for 56 percent of the EIC’s imports, pushing pepper into second place, followed by raw silk, indigo, saltpetre, coffee and tea. Indian textiles hit an all-time peak of 1.76 million pieces in 1684, making them 83 percent of the Company’s total trade. The 1680s were the peak of the boom, and EIC’s share price grew from £60–£70 in 1664 to £245 in 1677 and £300 in 1680. Robins writes in his book, “In all, from 1657 to 1691, proprietors received 840 per cent in dividends on their original investment. And for India, there was a steady inﬂux of bullion, stimulating growth in income, output and employment. Between 1681 and 1685 alone, the Company exported 240 tonnes of silver and 7 tonnes of gold to India. Financially, these were perhaps the best days of the company’s life.”
A shift in strategy
According to some historians, it was at this point that things began to change. Josiah Child, who had become a major player in the EIC, believed that profit and power must go together. For all his pretensions of nobility, Child was was not averse to venality. He was the first to open a line of bribery with the British crown. Upon his election as governor in 1681, he "awarded" Charles II 10,000 guineas to help smoothen the company's charter renewal. This would become an annual "gift" from the company for the next seven years. After what is known as the Glorious Revolution transpired in 1689, Child gave the government a 1.2 million pound loan at zero interest to ensure an exclusive trading charter.
This corruption was so reviled that even Karl Marx wrote about it in an article in July 1853 for the New York Daily Tribune. Marx noted, “So early as 1693, it appeared from Parliamentary inquiries, that the annual expenditure of the East India Company, under the head of “gifts” to men in power, which had rarely amounted to above £1,200 before the revolution, reached the sum of £90,000. The Duke of Leeds was impeached for a bribe of £5,000, and the virtuous King himself convicted of having received £10,000. Besides these direct briberies, rival Companies were thrown out by tempting Government with loans of enormous sums at the lowest interest, and by buying off rival Directors.”With regard to the EIC, Child wanted, in Robins’ words, “...the Company to become a sovereign power in India, forcing the Mughal Empire to trade with it on terms of equality.” Child pushed the British into conflict with Mughal forces which did not end well for them. The Mughals captured Surat and Bombay, winning that round of the rivalry. Aurangzeb eventually allowed the Company to trade again, but only after a penalty of Rs 150,000, plus damages was paid. He, however, allowed them to build a factory near a village named Kolikata. And thus was born the city of Calcutta.
While the English lost that round, it becomes clear in hindsight that Josiah Child’s aggressive vision for a formidable martial government in India by the English had taken root.There was another development that fed the ostentatious lifestyles of the English officers of the EIC in India. Nearly everyone that joined the company harbored hopes of adopting the conspicuous consumption habits of the British landed gentry. I suppose humans have always treasured status above everything else. To reconcile this dilemma, EIC executives would frequently use their privileged positions 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" — was coined to describe the lifestyle Bengal executives came to enjoy.
The three ports of Bombay, Madras and Calcutta allowed the East India Company to sustain a monopoly over the trade routes across the Indian Ocean. Although always volatile, EIC shares became an important bellwether of the British economy and the company emerged as one of London’s most powerful financial institutions.
The rise of the English in India
The East India Company, which had been hauled over coals back in England when the British parliament caught wind of their corruption and moved to dismantle their monopoly, was given a fresh lease of life. It saw off a difficult phase in 1697 when 5000 weavers marched on its office in London, protesting the EIC’s imports of Indian cloth that they claimed were threatening their own industries. Never let anyone tell you that the West always pushes globalization - they apparently hated it when they were at the receiving end of mass production. In any case, market forces overshadowed the cries of protesters, and textiles imports continued to be popular in England throughout the 18th century.
Then, Aurangzeb died in 1707, and was succeeded by ineffective rulers. The Mughal treasury was depleted. As the empire gradually unraveled over the course of the 18th century, the EIC, which had been a junior partner in the Mughal empire’s sophisticated commercial networks, became increasingly involved in politics and powerplay. They grappled to maintain trading privileges in the face of declining Mughal authority and the emergence of dynamic individual successor states.
Where business was concerned, Robins notes that ‘Trade, and trade only, was their business’. By the 1720s, the EIC was matching, and even beating, its Dutch rival VOC in terms of the Bengal textile trade. Overall, it started to compete with VOC’s share of the entire trade with Europe – a turnaround from the situation prevalent in the mid-1600s. In 1711, the company had established itself in China, and initiated commerce of tea in exchange for silver. By 1716, trading activities of the company established base and expanded trade around the Persian Gulf, Southeast and East Asia. By 1740, its stock price touched 200 pounds, and it supplanted the Dutch as the dominant mercantile force in the East.
In this crucial period, we must note that the EIC’s business model will sound familiar to us in 2019: They kept supply and production costs low while maximizing the price of goods sold in England. They outsourced as much as they could, including manufacturing, shipping and retailing. The value that the EIC mainly added was in the selection of goods and in keeping the supply chain humming. Robins surmises that “In a situation characterized 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.”
At this point in time, the Marathas were working towards establishing supremacy over India, challenging Mughal power frequently. In 1737, Bajirao conquered Delhi. In 1739, Nadir Shah invaded the Mughal empire, defeated the emperor Muhammed Shah and went back with the Peacock Throne as a part of his war spoils. The Sikh Empire had also been established in the early 1700s.
Meanwhile, the predominance of bullion in the export trade of the East India Company with India continued without any interruption until 1757 in spite of several controversies among the mercantilists themselves. Between 1708 and 1756, bullion comprised 74 percent of the East India Company's total exports to Bengal. Their other exports were silver, broad cloth and woollen goods, lead, iron, copper, quicksilver, stores and provisions. This massive volume of trade caused so much inflow of bullion into India that the danger of drain of treasure from the West became a nightmare and India would come to be regarded as a ‘sink of precious metals'.
The EIC’s dividends that it paid back home were a modest, but predictable 7 to 8 percent. This was a far cry from the massive returns of the 1680s, and lagged those of the VOC, which awarded dividends averaging 20 percent in the 1730s. However, steadiness was the key. The Company earned a profit of £30 million more from its sale of Asian goods in the three decades 1713–43 than it paid out in bullion and other goods.
In the meantime, India’s political landscape, riven by wars between the many smaller kingdoms and the Marathas and the remnants of the Mughal empire, was prime for a major change. That change would come in 1757 at the Battle of Plassey which would establish the East India Company as the most powerful force in India.
The start of English rule in India
Despite England’s dominance in subcontinental trade with Europe, the rest of Europe had not yet thrown in the towel. The French still commanded an important trading fortification near Calcutta. Also, local Indian rulers still sought to retake control of local trade. In June 1756, the Nawab of Bengal overwhelmed poorly prepared company forces and captured Calcutta, which the company had controlled since 1690. As a result, the EIC lost 2.25 million pounds.
But the company had been preparing a counteroffensive. Led by Robert Clive, a commander of a nearby company fort who had begun his career in India as a young writer, a small but focused expedition was able to retake the city in February 1757. The victory in the Battle of Plassey over Siraj-ud-Daulah proved decisive for the EIC’s fortunes, which rose 12 percent when news of the victory reached London.
That greedy-traitor trope? Its roots lie in something like this: Believing they could control the "foreign barbarians" to their own ends, three Indian aristocrats offered to help the company overthrow Siraj-ud-Daulah in exchange for exclusive business deals. But one of the aristocrats, Amir Chand, demanded a 5 percent cut of the company's earnings. Outraged at such a demand, 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 Plassey, the then capital of Bengal, the richest province in India, fell into the company’s hands. That strengthened the company's hold not only over 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 EIC shares soaring to nearly 275 pounds. Robins summarises what followed, in this manner: “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 win at Plassey was the zenith of the company's powers in the subcontinent. It also triggered a brutal era where the company’s rapacity would result in famines, wars with China, and culminate in the shocking violence of 1857 after which the colony of India was taken over by the British crown. To paraphrase Jawaharlal Nehru, there is a reason that the Hindi word loot was one of the first loan words in English from India. We will cover that in the part two of the podcast on the East India Company.The Great Diwali Discount!
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