Political Economics Prof

Tag: VOC

  • England in the 1600s: The Beginning of England’s Rise to Global Power and Wealth

     

     

     

     

    INTRODUCTION

     

    In 1600, England had been an insular and agricultural nation, trading primarily with nearby northern Europe. By 1700, England’s commerce was complex and global, as London competed successfully with Amsterdam for American produce and Asian luxuries.

     

    Alan Taylor,  American Colonies:  The Settling of North America, 258.

     

    A theme that runs through this essay is the global maritime rivalry with Holland. England and Holland became global trade rivals in the 1600s. They fought three wars that weakened Holland and eliminated it as a naval rival. 

     

    England’s main instrument in its rivalry with the Dutch in Asia was the English East India Company (EIC). In America and the West Indies, it was the Navigation Acts.

     

    By the end of the century, England was on its way to becoming a global maritime trading and naval power. The Dutch had lost out in North America but had established a vast trading network throughout Asia, centered in the Dutch East Indies (Indonesia). It was generally not competitive with the main Asian trade of the EIC or competitive with England as a European political power.

     

    This essay on the spectacular economic progress of England in the 1600s also provides background and context for three other essays on this blog. 

     

    American Colonial History, 1607-1775

     

    This background essay helps explain the changing relationship between England and her North American colonies in the context of England’s expanding global trade. It emphasizes the importance of England’s Navigation Acts to the American colonies. The objective was to reduce the role of the Dutch in the American colonies and the West Indies and monopolize all trade with the American colonies and the British West Indies.

    The Dutch were instrumental in financing early sugar production in Barbados. They also dominated early financing and shipping of the tobacco industry in the Chesapeake (Virginia and Maryland). Dutch shipping rates were lower than those of the English. 

     

    The English sugar islands in the West Indies, mostly Barbados, was the largest source of English imports in the 1600s and an important source of import taxes. In the North American English colonies, England was able to take over the Dutch settlement at New Amsterdam, renamed New York, and using the Navigation Acts, to eliminate Dutch shipping that dominated the trans-Atlantic tobacco trade from the Chesapeake.

      

    NAVIGATION ACTS

     

    As part of its maritime rivalry with Holland, England passed the Navigation Acts.

     

    First enacted in 1651 and strengthened in 1660 and 1663, the Navigation Acts were aimed at the Dutch. All exports and imports of the American colonies and West Indies had to go through England, on English or American ships. Even foreign goods bound for the Americas had to pay custom duties in England. The only exceptions were American exports other than the main exports of tobacco, rice, and indigo. As sugar production in the West Indies, exploded after starting in the 1600s, most other American exports went to the British West Indies.

     

    England imposed high taxes (custom and excise duties) on American tobacco exported to England. During 1660s, new Navigation Acts regulations forced American tobacco growers to ship all their tobacco to England on English ships. Before that, Dutch ships controlled much of the tobacco trade because their rates were lower than English ships. This hurt the tobacco growers because this caused a tobacco glut in England, fewer ships competed for the tobacco trade, and now all tobacco had to go to England and pay high import taxes.

     

    The Navigation Acts were an important part of the mercantilist policies of England. According to mercantilism, the government had the right and the power to shape trade in the political interests of the country. This meant economic war, especially with the Dutch. 

     

    The Dutch and English waged three wars, in 1652-54, 1664-67, and 1672-74. The second war was triggered when an English fleet in 1664 conquered Holland’s American colony New Amsterdam, renaming it New York.

     

    ENLAND AND HOLLAND IN THE AMERICAS

    England’s main instrument in its rivalry with the Dutch in Asia was the English East India Company (EIC). In America and the West Indies, it was the Navigation Acts.

    This rivalry was part of the wider political and economic environment of the American colonies in the 1600s.

    In the 1600s, the West Indies became the most valuable part of the English colonial empire. Sugar from the West Indies was far more valuable than tobacco from the Chesapeake.

    In 1686, London imported West Indian produce worth £674,518, compared with £207,131 obtained from all the North American mainland colonies.  Sugar constituted £586,528 of the West Indian total, while tobacco accounted for £141,600 of the mainland produce.

    Taylor, 205

    In 1650, the main sugar island of Barbados had a greater white population than the Chesapeake and New England combined. 

    After failing to raise tobacco and cotton, Barbados struck it rich with sugar, starting in the 1640s. By 1660, Barbados accounted for more trade than all other American colonies combined.

    The sugar planters developed a strong lobby in England, partly because many wealthy sugar planters retired to England. They protected sugar imports from high import taxes. The tobacco growers along the Chesapeake were not so lucky. 

     

    In 1668-69 the West Indian sugar crop sold for about £180,000 after it paid about £18,000 in customs duty – compared with the £50,000 reaped (netted) by Chesapeake planters over and above their customs duty of £75,000.

    Taylor, 216

    This suggests a number of things about the Virginia tobacco growers. It was probably one reason the Barbados planters were wealthier than the Virginia planters, and why Virginia planters went into debt to buy luxuries and expand production (buy land and slaves). It is also intriguing to speculate that this was one reason American tobacco growers complained about being “slaves” to the English crown and merchants who lent them credit. Some of Virginia’s largest planters supported and led the American Revolution.

     

    By 1775, the American colonies were England’s largest trading (imports and exports) partner. 

     

    The new set of Navigation Acts in the 1660s made the economic situation worse for Chesapeake tobacco growers. One aim was to eliminate Dutch ships from buying and transporting Virginia tobacco. This drove down prices and worsened the tobacco glut in England.

     

    England and Holland became global trade rivals in the 1650s and 1660s. In the Americas and West Indies, the Dutch captured most of the carrying trade because they charged less than the English. England passed the Navigation Acts to prohibit American exports to use Dutch ships. In addition to being forced to use English and American ships, almost all produce had to go to England and, in the case of tobacco, pay high excise taxes.

     

    The English East India Company:  Trade with Asia

     

    THE START OF EUROPEAN TRADE WITH ASIA. PORTUGAL IN THE 1500s

     

    Spices and luxury goods from Asia were limited and prices went up after the Ottoman Turks conquered Constantinople in 1453. The last leg of trade with Asia was dominated by Venice.

     

    Before the seventeenth century, trade across Eurasia was mostly conducted in short segments along the Silk Road and maritime routes through the Indian Ocean. Business was organized by family firms, merchant networks, and state-owned enterprises. Trade was dominated by Chinese, Indian, and Arab traders. 

     

    In 1492, Catholic Spain, after a 400-year crusade, finally conquered the last Muslim area. Spain then bankrolled Columbus’ voyages, expecting he would bring back gold and silver from Asia. The national government expected to use this wealth to finance a continuation of its crusade by conquering Muslim North Africa. 

     

    After more than 80 years of trying, in 1497-8 a Portuguese fleet went around the bottom of Africa (Cape of Good Hope) and reached India. And returned laden with spices. It was a very profitable trip. Following voyages established Portuguese trading positions in India and links with Asia east of India. Portugal discovered and conquered the Spice Islands, which were the major source of Asian spices exported to Europe.

     

    Portugal had shown in the 1500s that long-distance voyages from Europe around Africa to India and beyond were both possible and profitable.

     

    But Portugal was a small and poor country. It had a small merchant class. Portugal, relying on a combination of state support (with political objectives) and charted private shipping (much of it foreign), was not able to fully exploit the profit potential of the trade. The number of trips were small, partly because financing was sporadic and inadequate. 

     

    Portugal’s Asian trade and Spain’s conquest of Latin America meant that rivalry among Europe’s nation-states was no longer confined to Europe and the Mediterranean. It was now global. Trade and conquest outside of Europe brought new wealth to European countries; the wealth could finance increased national power.

     

    The spice trade from Asia to Europe was both highly profitable and risky. By 1600, both England and Holland were ready to try.

     

    THE ENGLISH EAST INDIA COMPANY:  TRADING WITH ASIA

    England had defeated a Spanish attempt at invasion in 1588 and was thinking about how to become a colonial power. The country began thinking about colonies in North America and the West Indies. 

     

    The merchants of both countries realized that the traditional way to finance trading voyages – merchants and ship owners raising capital for each voyage separately and distributing profits and capital after the voyage – would be inadequate for the huge capital requirements of a sustained, large scale, risky trading venture in Asia. Merchants, investors, and shipowners would have to solicit outside investors to raise enough capital.

     

    They succeeded. For 200 years, the EIC and the VOC were the two largest private companies in Europe, based on book value (total capitalization).

     

    The instrument of England initiating trade with Asia in 1600 was the English East India Company (EIC), a government sanctioned trading monopoly. The goal throughout the century was to reduce or eliminate the competition from the Dutch East India Company (VOC). 

     

    Eventually, the EIC evolved into a quasi-state that ruled most of India. The EIC brought great wealth to England’s merchant class and helped develop new financial institutions.

     

     

    THE ENGLISH EAST INDIA COMPANY (EIC) AND DEVELOPMENT WITH TRADE WITH ASIA

     

    Why England and Holland both decided to make very large investments in the long-distance Asian trade at this time.

     

    • Both countries had a poor chance of becoming continental powers in Europe. 
    • Both countries had small populations compared to France, Spain, and Austria.
    • Both countries were Protestant, often at war with the larger Catholic countries of Europe.
    • Neither could compete with the Catholic countries in European continental wars.

     

    In contrast, both countries were maritime countries with a strong merchant class growing rich on maritime trade and finance.

     

    • ·      Holland was a republic dominated by its merchant class. 
    • ·      England was a constitutional monarchy where Parliament had to approve taxes.
    • ·      Both had a shipbuilding industry and experienced sailors, the basis of strong navies.
    • ·      Both were capable of building large merchant ships that were often armed.
    • ·      Financing trade made Amsterdam the financial capital of Europe.

     

    ADVANTAGES OF A PRIVATELY-FINANCED, LONG-DISTANCE TRADING MONOPOLY

     

    The merchants of both countries realized that the traditional way to finance trading voyages – merchants and ship owners raising capital for each voyage separately and distributing profits and capital after the voyage – would be inadequate for the huge capital requirements of a sustained, large scale, risky trading venture in Asia. Merchants, investors, and shipowners would have to solicit outside investors to raise enough capital.

     

    They succeeded. For 200 years, the EIC and the VOC were the two largest private companies in Europe, based on book value (total capitalization).

     

    THE EIC AND VOC IN ASIA

     

    The English East India Company (EIC) was founded in 1600 and the Dutch equivalent (VOC) in 1602. Both had charters that gave them a monopoly on trade between their home country and Asia. They almost immediately became rivals. 

     

    In Asia, the EIC suffered defeats at the hands of the competing Dutch East India Company (VOC). The Dutch, led by a very aggressive director, defeated and replaced the Portuguese in the Spice Islands. Then the VOC was able to repulse attempts by the EIC to capture the islands. The Dutch eliminated English attempts to establish entrepots in the Dutch East Indies (Indonesia). The VOC also was the only foreign country allowed to trade with the isolationist Tokugawa shogunate in Japan. The VOC sold the Japanese desired products from all over Asia in exchange for the silver needed to finance the inter-Asian trade and products exported to Holland.

     

    The EIC early centered their operations on the entrepot trade in western India. The EIC’s first ships arrived in India in 1608, received permission to establish a factory (trading center) in 1613, and was granted permission by the Mughal emperor in 1615 to establish factories throughout the Mughal Empire.

     

    A historical look at the early evolution of global trade and how this led to the creation and dominance of the European business corporations English East India Company (EIC) and Dutch East India Company (VOC).

     

    Both countries saw an opportunity to become rich using their merchants, merchant capital, and shipping.

     

     

    The Beginning of the Industrial Revolution in England

    This essay describes the most immediate causes of the Industrial Revolution starting in the late 1700s, including some of the reasons it happened in England. But England had undergone changes in the prior two centuries that increased the chances the Industrial Revolution would start there. Economic growth had depended on England developing a global trading system partly based on its imperial empire. Trade (importing raw materials and exported finished goods), shipping, increased wealth, and a rising merchant class prospering from trade were key to this change. This transformation began in 1600.

     

    THE RISE OF ENGLAND AS A NAVAL AND MARITIME TRADING POWER IN THE 1600s

     

    Except for the Dutch, no other European nation depended on foreign trade for such a high proportion of its employment and gross national product.

     

    English merchant shipping more than doubled, from 150,000 tons in 1640 to about 340,000 in 1686.

     

    Taylor, 259

     

    The explosion of imports from the West Indies was one reason for the large increase in English shipping in this period. A related reason was the Atlantic slave trade, which England came to dominate. Barbados needed a large number of slaves to harvest sugar cane and produce sugar. The port of Bristol became wealthy by specializing in this trade. The town later put up a statue to one of its wealthiest slave traders. It was pulled down in 2020 in a Black Lives Matter rally.

     

    Shipbuilding remained a major industry in England into the 1900s.

     

    By 1700, England was the leading naval power in Europe, with the largest fleet. The English navy was twice as large as the Dutch navy.  London was Europe’s most important center for commerce and finance, passing Amsterdam. England’s power and wealth now depended on overseas trade and commerce. 

     

    In 1600, England had very little trade outside of Europe. By 1700, about 40% of English shipping tonnage carried American and Asian goods. 

     

    England had developed a global trading system. It would begin to assemble a global imperial system. Holland could not match England but continued to own a very lucrative colony in the Dutch East Indies and carried out extensive intra-Asian trade.

     

     INTO THE FUTURE

     

    The main point of the essay on the EIC is that the creation of the modern corporation and the extension of long-distance international trade developed together. These created great wealth in England, especially in its trading, shipping, and merchant class. Unlike wealth in land, this wealth was liquid (mobile) and would later be invested in railroads and manufacturing.

     

    Like the EIC, railroads and manufacturing companies were able to raise large amounts of capital, partly because the companies were limited liability companies and shareholders could sell their shares on the stock exchange. The “railroad mania” of the 1840s was the first stock market speculative bubble of the industrial age. It didn’t end well but it didn’t discourage widespread ownership in new companies.

     

    Also suggests reasons why England was in the best position to start the Industrial Revolution. England was manufacturing goods to be sold in the new English colonies; these markets, especially America, would expand in the 1700s. By mechanizing cotton textile production, England opened up a new, major source of trade revenue. England imported cotton from India and exporting cotton textiles to India and rest of the world.

     

    Later, in the 1800s, America would become the dominant source of cotton for English textile mills. Also the basis for America’s cotton textile industry. Sadly, this rescued slavery from possible extinction. 

    In both countries, the production of cotton textiles was the first industry of the Industrial Revolution. Cotton textiles were England’s largest source of exports throughout the 1800s. Cotton was the main export of the United States in the 19th century. Export earning helped pay for importing machinery and other industrial inputs.

     

    For a description of the EIC’s structure and strategy, see

    The English East India Company:  Trade with Asia

    For a conjecture that the EIC might be a model for future multinational corporations, see

    The English East India Company (EIC):  Model for Future Multinational Corporations?

     

    For an excellent survey of colonial America and the historical context, see

    Alan Taylor,  American Colonies:  The Settling of North America.


    For all posts in this blog, including links, see 

    List of Posts by Topic

    There are essays on colonial American History, American Economic History, and why England and America were the countries that started the Industrial Revolution. Also essays on;

    China.

    Information, innovation, and how markets work. 

    Business, finance, and economics. 

    Global and national demographics, population projections, and how they interact and influence economies. 

    Rome.

     

  • The English East India Company (EIC): Trade with Asia

    The English East India Company (EIC): Trade with Asia

    The Mughal emperor Shah Alam hands a scroll to Robert Clive, the governor of Bengal, which transferred tax collecting rights in Bengal, Bihar and Orissa to the East India Company. Illustration: Benjamin West (1738–1820)/British Library

    INTRODUCTION

     

    The English East India Company (EIC) was an innovative new type of corporation. It is a model for the modern limited-liability, stockholder-funded modern corporation.


    The EIC also illustrates that the prototype of the modern multinational corporation was created to develop global trade.

     

    HISTORIC BACKGROUND

     

    The creation of the English East India Company (EIC) and its Dutch equivalent (the VOC) were part of the 400-year expansion of European power, trade, and influence. Much of the rest of the world became colonies, part of imperial empires.


    By 1600, both England and Holland had a wealthy merchant and shipping class, bankers, substantial liquid capital (wealth) not tied up in land, and risk-takers. These categories overlapped.


    Both countries had limited monarchies. In England, the king and Parliament were about to begin a long struggle for power. In Holland, the monarch was mostly subservient to Holland’s powerful and wealthy merchant class.


    THE EIC: STRUCTURE AND STRATEGY


    The East India Company (EIC) was chartered in 1600 by Queen Elizabeth I to promote and monopolize English trade with Asia. England, a poor country in the 1600s but with colonial ambitions after defeating the Spanish Armada in 1588, outsourced its colonial ambitions to the East India Company and other private companies. 

     

    The East India Company was originally privately funded by 218 merchants and other investors. It was the first modern multinational corporation. The EIC was a joint stock company, that is, a company with publicly traded stock bought and sold in a secondary stock market. Like modern companies, the EIC issued financial reports, held annual meetings for stockholders, and had quarterly meetings of the Board of Directors.


    It was also a limited liability corporation. Stockholders’ potential personal financial loss was limited to their investment in the company. Creditors could not go after their personal assets.

     

    The EIC was vertically integrated. The company designed, built and repaired its own ships, built its own docks and warehouses in London and in India. It had a large corporate headquarters in London. The company held sales auctions of its imports in its headquarters. It was a major employer in London. It was an “enlightened” employer, offering fringe benefits, including pensions. It provided a retirement home in London for sailors.

     

    The EIC designed and built a new type of ship, called East India Indiaman. They were built for long-distance trade. Because of commercial rivalry with other European states and local hostilities in Asia, EIC merchant ships were heavily armed and often contained marines.


    East India Company Indiaman Armed Merchant Ship

     ©National Maritime Museum


    The EIC had to build forts to protect its warehouses and trading stations. It hired a mercenary army and develop a navy (Bombay Marine) to protect property and trade routes. It negotiated with local rulers and signed treaties. 

     

    In short, the company built its own self-contained infrastructure and pursued its independent strategies. 

     

    The company ran its own management training programs and military academy. The selection process of employees was highly competitive, including written exams. Many of its recruits were ambitious young men from the lower and middle classes who were barred from the traditional paths of upward mobility and status. It employed “foreigners,” Scots and Anglo-Irish. Later, the EIC employed Asians and Anglo-Indians in secondary positions.

     

    Economists have a warm spot in their hearts (yes, economists do have hearts) because the EIC was the first organization to employ and pay economists – Thomas Robert Malthus, James Mill, and his son John Stuart. John Stuart Mill was effectively the CEO for many years. Contrary to their economic writings, they did not support free trade with Asian countries. 

     

    EIC “officers” and employees were loyal to the EIC. They saw personal opportunities and advancement within the company. They had opportunities for personal power and wealth that were not available at home. Because of their lower class origins and nationality, wealthy returning EIC officers were often resented as upstarts.

     

    The EIC created a powerful lobbying group in England. The company attempted to get the English government to continue to support its monopoly on English trade with Asia. Important politicians and royal officials were bribed.

     

    Unlike other private trading and colonization corporations established in England at about the same time, the EIC was set up as primarily an importing company. The company had the problem of how to pay for products bought in Asia. English exports to Asia such as English woolens were in limited demand. Asian sellers wanted silver. This created a drain of silver out of England, which was a source of friction between the company and the government.


     

    CORPORATE STRATEGIES AND POLITICAL ENVIRONMENT

     

    Besides the English-Asian trade, the East India Company was willing to trade anywhere in Asia, looking for profitable opportunities. Its resources, both ships and men, were highly mobile.

     

    The EIC operated in a violent, insecure environment in Asia. Beside pirates and local conflicts with Asian rulers, England was usually at war with one or more European countries. The conflicts extended to trade rivalry in Asia. The EIC had to fight battles with other national trading companies, foremost of which was the Dutch East India Company (VOC, the initials of the Dutch name of the company). The EIC could not expect much support from England, which was unable to consistently project power in Asia until the 1800s.

     

    The EIC lost out to the Dutch East India Company in its attempts to control the Spice Islands, the source of much of the profitable spice trade. The EIC also lost its footholds in Java and nearly islands, which became the Dutch East Indies (later Indonesia) controlled by the VOC. 

     

    Many early trading stations failed in other parts of Asia. Eventually, operations were centered on trading ports (entrepots) and stations in India, the traditional transit area for Asian products bound for the Middle East and Europe. India was also an important source of pepper.

     

    The EIC was caught up in the Seven Years War (1756-1763) between England and France for dominance in Europe, North America (called French and Indian War in America), the West Indies, and India. The EIC, under the leadership of Robert Clive, was able to defeat the French in India and expand alliances with many local rulers. The company’s well-organized military assets with superior firepower made the company a prized ally for local rulers. In exchange, the company was given extensive privileges including the right to collect taxes.

     

    At the same time, the company was developing what would be its most important trade – importing Chinese tea to England. To support this trade, the EIC established new stations that would grow to be Singapore and Hong Kong.


    They immediately ran into an old problem – China didn’t want any English imports. Chinese merchants only wanted silver, which led to a major drain of silver out of England. The EIC solved the problem by growing and selling opium produced in India to private traders who smuggled it into China. Some of the financial transactions were handled by a bank that eventually became HSBC.  (One the traders was Franklin D. Roosevelt’s grandfather.) 

     

    Chinese attempts to ban this trade resulted in a war between China and England (the Opium War, 1839-1842). China was defeated by superior English warships; the subsequent treaty was the first of many that opened up China to foreign influence and then domination. This would have important long-run consequences.


    The demand for tea exploded in the 1700s. The EIC had trouble fulfilling the demand with tea from China. Growing and processing tea was a closely guarded secret in China. But the company smuggled out plants to start new tea plantations in northern India (Assam). These plantations were successful and an increasing source of tea for the EIC. By 1770, EIC exports of Indian tea to England reached £800,000.



    ORGANIZATION STRUCTURE, CONTROL, AND GOVERNANCE





    Besides the EIC’s legal, financial, and governance structures which were innovative, the EIC had an internal management and control structure very much like a modern multinational corporation. It had to find a balance between home office control and branch management initiative. Given the problems of long distances, slow communication, and changing local operational information, the company was forced into a decentralized structure. 


    The Board of Governors combined the oversight of corporate managers with the setting of governing rules and regulations. Much of their control was financial. There was also detailed supervision and control of the voyages sent out from England.


    While officers of the company often sent detailed instructions about policy to local managers, direct operational control was difficult. It often took over two months for a letter from London to reach India. Local managers had discretion to react to local problems and trading opportunities. They had their own staff and resources. They were similar to “divisional” managers of early railroads and large industrial corporations. Even more similar to corporate presidents and their local staffs of national subsidiaries of multinational corporations.


     

    THE EVOLUTION OF THE EIC FROM A GLOBAL TRADING COMPANY TO A VIRTUAL SOVEREIGN STATE

                                        

    The painting above shows the moment when the EIC began its evolution from profit-making global trading company to de facto sovereign state. The year was 1765. The Mughal emperor was forced to turn over tax collection in Bengal and two other states

    to the EIC.


    It was at this moment that the East India Company (EIC) ceased to be a conventional corporation, trading in silks and spices, and became something much more unusual. Within a few years, 250 company clerks backed by the military force of 20,000 locally recruited Indian soldiers had become the effective rulers of Bengal. An international corporation was transforming itself into an aggressive colonial power.


        William Dalrumple, The Guardian, “The East India Company:  The Original Corporate Raiders,” March 4, 2015.


    The EIC was profitable in its early years. The EIC started its evolution from a purely private commercial company to an organization with its own substantial political and governmental responsibilities. For almost 100 years after the Seven Years War, it governed much of India from Bombay (Mumbai), Calcutta (Kolkata) and Madras (Chennai). The large areas around company headquarters in Calcutta, Bombay, and Madras were also effectively ruled by the company, often through “concessions” offered by regional rulers.

     

    The company performed the major functions of a government – collected taxes, funded a military, made laws and regulations, and established a national bureaucracy. Many of its officers became rich because of IPOs (Indian Political Opportunities – aka bribes, private deals, kickbacks on contracts). Stockholders back in London just wanted profits but EIC officials in India saw the personal possibilities as tax collectors and political administrators.

     

    As the EIC evolved from a commercial venture to ruling much of India, it became unprofitable almost from the beginning. By 1773, low tax revenue partly due to famines contribute to £1.5 million in debt and a £1 million unpaid tax bill owed to the English government. The company asked for a large loan, over £1 million from the Bank of England, but received only £200,000. 


    This began many rounds of negotiation between the EIC and the English government. The company began borrowing large sums of money from the English government. In the early 1800s, the company exchanged loans from Parliament for government over-site and military support. Parliament stripped the EIC of its trading monopolies between Asia and England. Finally, after the 1857 Sepoy Mutiny, the English government took over overall management and supervision of the company and then annexed India as a British colony.  

     

    The EIC also came into conflict with the English government when the government tried to impose mercantilist goals on the company. The government, under pressure from its woolen textile industry and then the new English cotton textile mills, banned the company from exporting competing Indian cotton goods (calicos) into England. India cotton, not cotton textiles, was exported to England. India became a large market for the export of English cotton goods.

     

    The EIC start out as a profit-seeking trading company and ended up ruling much of the Indian subcontinent. The costs of administering India would eventually contribute to bankrupting the company; it was forced to turn over the rule of India to the English government.   

     

    The home nation-states such as England were becoming more powerful and were able to project power and influence globally. They did not need private trading monopolies to further mercantilist or economic goals.

    CONJECTURE

    This conjecture is a bridge to the next essay on the EIC :

    The English East India Company:  Model for Future Multinational Corporations?

     

    In 1765, the EIC took over the running of a large territory in India – policing, military, tax collection, and administration. By 1772, it would deeply in debt and needed a large bailout from the English government. They gave it. It was followed by subsequent bailouts until the English government finally took over the EIC after the 1857 Sepoy Mutiny.  Why? Why not take it over earlier?

     

    Subsidizing EIC was the least bad option.  In 1763, England completed its victory over France. It was the third war with France in the 1700s. England was deeply in debt. As a result of incredible stupidity, England had to commit naval and army assets to control the restless American colonies. The English navy also had to protect the sugar islands in the West Indies, and to its primary task of securing the English Channel. It did not have the military assets to commit halfway around the world to India. It was not necessary – The EIC had a private army of over 20,000 troops that grew to 260,000 in the early 1800s, plus a heavily-armed merchant maring, as the EIC took over governing most of India. This number was far larger than the English army.

     

    Ten years after the EIC became sovereign in Bengal, the American Revolution broke out. England sent a large part of its army and about half of its navy to quell the revolt. After a few years, when English officers realized the cause of subduing the colonies was hopeless, some of the assets were withdrawn but sent to the West Indies. England withdraw its armed forces from America in 1783. Ten years later England was at war with France; the war, mostly with Napoleon, lasted 22 years. At the end, England was deeply in debt.

     

    With the loss of the American colonies, India was the foundation of the British Empire. Although losing money, the EIC was responsible for generating nearly half of England global trade. India was a major market for English exports. Quite simply, the EIC was England’s surrogate colonial masters in Asia. It was cheaper to subsidize the EIC than to take over direct governing of India.

     

    Another reason was that the EIC have bribed government ministers and members of Parliament. Returning EIC personnel, often personally wealthy, also formed a strong lobbying group in England.

     

    But after four decades of peace in Europe and reducing its public debt, England was ready to begin governing India and projecting imperial power throughout Asia.

    ======================================================


    One starting point of reading about the East India Company is:

    K.N.Chaudhuri, The English East India Company:  The Study of an Early Joint Stock Company, 1600-1640, Frank Cass & Co Ltd, London, 1965.

    For the historical background and context on the EIC, and its role in helping England become a global economic and political power in the 1600s, see

    England in the 1600s:  The Beginning of England’s Rise to Global Power and Wealth

    For the argument that the EIC may be a model for future multinational corporations, see

    The English East India Company:  Model for Future Multinational Corporations? 

    Elsewhere in this blog, I argue that the main form of America’s economic competition, and probably geopolitical competition, with China will depend on the success of American companies in developing new technologies and global links. See

     

    American Tariffs and the U.S. Economic War with China

    For a case study of a country that became independent after World War II and illustrates the internal chaos of many countries, see


    Nigeria


    You might also be interested in

    The Stock Market Crash of 1929 and the Beginning of the Great Depression


    In the 1920s, the United States developed new technologies in virtual isolation from the rest of the world. It didn’t end well.

     

    For a list of all the posts on this blog, see List of Posts by Topic

    with links to all other posts. There are posts on Adam Smith, the Beginning of the Industrial Revolution, American Economic History, American History and even economics.