East India Company: The original City firm judged too big for failure
FOR an institution that’s been defunct for over 150 years, the East India Company still evokes powerful reactions. This year in India, a move to liberalise the retail sector to allow investment by foreign multinationals was greeted with protests: “this is the return of the East India Company”. Meanwhile in the UK, Sanjiv Mehta has relaunched the Company as a luxury firm, arguing that it is “one of the most recognised brands in history”.
Heritage is not all the Company’s story has to offer, however. This was the original multinational – and the first business judged too big to fail.
When it was established by Queen Elizabeth I in 1600, with a monopoly over trade with Asia, the normal flow of wealth was from West to East. For the next 150 years, the Company had to ship out bullion to pay for Asian luxuries. Diversifying from spices into silks and cottons, it brought a lifestyle revolution to Britain, challenging domestic industry. Protesting against the flood of cheap Asian imports, Spitalfields’ weavers marched on Parliament in January 1697. They managed to pressure MPs to erect trade barriers behind which England’s industrial revolution would later take place.
This was a City firm par excellence, with its headquarters on Leadenhall Street, where the Lloyds’ building now stands. It was here that its famed quarterly auctions were held, with the howling and yelling of traders heard on the street outside. It was also here that its annual meetings took place, often the arena for fearsome battles between management and shareholders and also between rival management cliques. These boardroom battles intensified after the battle of Plassey in June 1757, when the Company used a combination of force and fraud to place its puppet on the throne of Bengal. It then loaded the contents of Bengal’s treasury onto a fleet of 100 boats and sent them downriver to its base in Calcutta. Robert Clive, who had engineered the victory, netted £2.5m for the Company and £234,000 for himself. Today, this would be equivalent to a £262m corporate windfall and a cool £25m success fee for Clive. The Company’s shares soared on London’s markets.
But after the boom comes the bust. When drought struck Bengal in 1769, the Company raised taxes and refused to intervene; as many as 7m died in the resulting famine. Back in London, the Company’s shares slumped and the government agreed to bail it out in return for deep reforms of its woeful governance. This was the original corporation that was too big to fail. For Adam Smith, who was writing his Wealth of Nations in the middle of the Company’s crisis, its monopoly model of business was “a great enemy of good management”. But he also warned of the speculative tendency of the joint stock corporation, arguing that “negligence and profusion” must always prevail.
The Company’s riches meant that it became a political football between competing forces at Westminster. When the statesman Charles James Fox proposed to remove its board of directors and replace them with parliamentary appointees, one of them – Sir William Jones – died of shock. But Fox’s bid for corporate accountability was foiled by the City, with a more hands-off system of parliamentary oversight established by William Pitt the Younger.
Tea would become the Company’s commercial swansong. But this glamorous trade rested on a deadly secret: its growth was paid for by the mass smuggling of opium from the Company’s Indian territories into China. In India itself, the Company switched its attention from commerce to conquest, using its private army to take over the bulk of the sub-continent. Its end came when its sepoys in north India rose up against its religious insensitivity in 1857. Its leading executive, John Stuart Mill, defended his employer against ferocious attack in Parliament, but he couldn’t stop the inevitable. It was effectively nationalised and the the British Indian Raj began. Yet its financial heart kept beating, paying out its last dividend in April 1874.
If you go to the site of East India House today, you will find no plaque outside to mark the fact that this was where the world’s most powerful corporation was headquartered. But with the global economy re-orienting back towards Asia, understanding its extraordinary journey is more important than ever.
Nick Robins is author of The Corporation that Changed the World (Pluto Press).