September 6, 2019 / 1:15 PM / 16 days ago

Breakingviews - Review: The first global corporation was the worst

LONDON (Reuters Breakingviews) - Corporate excess is a common phenomenon these days. Chief executives whizz around in corporate jets while their giant salaries pile up in offshore bank accounts. Directors breezily approve multi-billion dollar takeovers that throw thousands out of work. Lawyers and lobbyists water down environmental standards and intimidate smaller rivals while making the most of tax loopholes.

Runaway corporate power is not new, however. America’s robber barons amassed vast fortunes in the 19th century. While globalisation has enabled companies to become more rootless and ruthless, cross-border capitalism behaved badly from the beginning. Indeed, one of the first joint stock companies became one of the biggest - and one of the worst.

That entity was the East India Company (EIC). Founded in the City of London in 1600 to pursue trade in spices, it was the disruptive startup of its day, with the benefit of a monopoly protected by royal charter. In the next 250 years it dominated the Indian subcontinent. As William Dalrymple lays out in gruesome detail in “The Anarchy: The Relentless Rise of the East India Company”, its employees killed, pillaged, bribed and stole in pursuit of shareholder value, providing a steady flow of dividends to its owners back in England.

British traders who established themselves on the Indian coast quickly spotted an opportunity to diversify: The Mughal empire that had ruled over most of India for two centuries was collapsing. The EIC stepped in, using private militias and military techniques imported from Europe. By 1764 “a body of merchants had been transformed into the de facto sovereign rulers of much of northern India”. At the time their company accounted for a fifth of Britain’s exports.

A rapid accumulation of wealth led to increased leverage and risk-taking. A financial panic in 1772 left the EIC on the brink of default, requiring a loan from the Bank of England, followed by a larger bailout from parliament. Like the crisis that toppled Britain’s banks 250 years later, a private enterprise had become too big to fail.

This led to scrutiny of the EIC’s leaders, the 18th century equivalent of bonus-hungry bankers. Enterprising officials who headed east had returned with vast fortunes which they spent on real estate and greasing their way into positions of power in parliament. Accused of improperly helping himself to Indian treasure Robert Clive, the former commander-in-chief of India, offered a defence worthy of a modern private equity baron: “I stand astonished by my own moderation”.

As in the aftermath of 2008, the cost of a public bailout was more rigorous public oversight. The state was no longer willing to outsource the enterprise as India’s importance to Britain grew, particularly after the loss of its American colonies. Aggressive expansion went on for a while. But following the bloody mutiny of 1857, when the EIC’s own soldiers rebelled, the company was dissolved.

Dalrymple, the author of numerous books on Indian history, recounts the skirmishes, sieges and battles in gory detail. He vividly recreates the lives of the emperors, sultans and princes who grappled with the EIC, and unpicks their rivalries and alliances. The result is an unusual history largely written from the perspective of the vanquished, not the eventual victors.

“The Anarchy” is less concerned with the financial mechanics of the early multinational corporation. The intriguing observation of how shares in the EIC were “almost a form of international currency” is left unexplained. Dalrymple’s focus on India and England also means he pays little attention to the consequences of the company’s opium trade with China, and its involvement in slavery.

Even so, the book is a blood-soaked warning of the dangers of unbridled capitalism. Dalrymple provides ample evidence to back up his assertion that the conquest of India was a “supreme act of corporate violence in world history”. For all their power, modern multinationals like Amazon and Facebook do not maintain standing armies, or directly rule over millions of another nation’s citizens. 

The lesson is particularly apt for the United Kingdom. British politicians have in recent years invoked the country’s trading history as inspiration for future triumphs. In 2016, former Prime Minister David Cameron said Britain could be a “swashbuckling, trading, successful, buccaneer nation of the 21st century”. Anyone knowledgeable about the Bengal famine of the early 1770s, when millions starved to death while the EIC shipped cash to shareholders in London, would think twice before invoking such an image.

Indeed, those who dream of reviving Britain’s trading past may have got it backwards. While some hope the United Kingdom can once again conquer markets beyond the European Union, others see the country as those 17th century English merchants once viewed India: a fragmented union ruled by an unstable government ripe for domination by a bold enterprise. As “The Anarchy” makes painfully clear, that is a fate no nation should ever suffer again.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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