The Corporation That Changed The World

A Review of the Book: “ THE CORPORATION THAT CHANGED THE WORLD: How the East India Company Shaped the Modern Multinational”
Authored by NICK ROBINS Published in 2006.

Review by Dr.V.S.Gopalakrishnan

This book makes for easy and compelling reading, and I give kudos to the author also for his objectivity. The Honourable East India Company was formed in London in 1600 and it played a historical role as the the first Multinational, more importantly creating a huge empire in the world. The author has, by thoroughly exposing the illegalities, tyrannies, immorality, rapacity, frauds and every kind of misfeasance practised by this Company in its inglorious history, has proved how this Company can be called anything but “Honourable”. It came to be popularly called “John Company”. In fact the real name of the Company at formation was “The Company of Merchants of London Trading into the East Indies”.

The author’s focus is almost entirely on India and the “changing of the world” is not clearly brought out. That apart, a proper link to modern Multinationals with suitable comparisons, is missing in the book. Even a bird’s eye view of the modern Multinationals has not been sketched in this book.


HISTORICAL

The John Company was founded in London in 1600 by a 15-year monopoly charter given by the Crown, with 24 Directors. As a joint-stock company, it had initially 125 share-holders and a capital of 72000 pounds. It went through three phases:
1) 1600 to 1757, the year of the Battle of Plassey.
2) 1757 to 1857 when the Indian Mutiny took place.
3) 1858 when the British Government took over the functions and authority of the Company to 1874 when the Company was legally dissolved.

The Company secured a base in Madras (1639), Bombay (1668) and Calcutta (1690).

In 1670, King Charles II gave the rights to the Company to acquire new territories, mint money, build armies, fight wars, and exercise civil and criminal jurisdictions over the acquired territories. Thus, sovereign powers were given to the Company for imperialistic expansion. By the end of the 17th century, the Company had territories consisting of the Presidencies of Madras, Bombay and Calcutta. During the century, the Parliament generally opposed monopoly charter by the Crown.

Resorting to negotiations and bribes, the Company obtained firmans in 1717 from the weak Emperor Farrukhsiyar who succeeded Aurangazeb, as per which the Company was granted duty-free trading rights from Bengal, Coromandel ports and West India ports in Gujerat. The Company made whopping profits of 30 million Pounds in 30 years between 1713 and 1743. The British traders outside of London shouted against the monopoly of the Company.

The Clive phenomenon began with his arrival in Madras in1744 as a writer (clerk) at the age of 19. As a boy he had a reputation for fighting. An un-trained soldier, he showed great bravery in capturing Arcot and Trichy by audacious guerilla tactics. By defeating the French, he became a hero in England. He was made Governor of Cuddalore in 1755.

By the firmans of 1717, the Company President at Calcutta was given authority to issue dastaks (passes) for exempting the Company’s import and export shipments from paying duty. The Company however illegally and fraudulently gave such dastaks to their own executives for their private trade within India and outside duty-free. Worse, such duty-free passes were given to Asian merchants too. The new Nawab Siraj-ud-Daula claimed in 1756 that the Company had thus defrauded the Moghul Exchequer of Rs.15 million since 1717 up to 1756 by the abuse of dastaks.

Clive’s forces ransacked Hugli in January 1757 and later captured Calcutta. He entered into a conspiracy to topple Siraj-ud-Daula, with the help of the powerful Mir Jafar ( Nawab’s paymaster-general) and the rich and powerful traders Jagat Seth and Amir Chand. The Company thus fomented illegal insurrection and treason. The large Nawab’s troops faced a battle with Clive’s small forces at Plassey. Thanks mainly to Mir Jafar’s treachery Clive won the Plassey battle and set up Mir Jafar as a puppet Nawab on his terms. Perhaps the history of India would have been very different if Clive had not won the Plassey battle.


THE SECOND PHASE OF COMPANY’S HISTORY, ONE OF MISRULE AND TYRANNY FROM 1757 (PLASSEY) TO 1857 (INDIAN MUTINY):

Following Plassey, Clive received personal benefits totalling 234,000 pounds. This was plunder. He became one of the richest men in England. Later, Clive told the Parliament, “I stand astounded at my own moderation”!

Clive was appointed Governor of Bengal in 1765. In 1765 he obtained Diwani rights from the Emperor over Bengal, Bihar and Orissa. With these rights the Company became richer and its share prices reached a peak in 1768. Anticipating this peaking, Clive indulged in ‘insider trading’ by buying up huge quantities of Company shares through his agents in London which gave him a huge profit.

Clive himself indulged in private trade on a very large scale and made 21000 Pounds of profits in one year. Clive allowed his Company executives to freely exploit the Bengal market. Bengal used to be the richest province in Asia. In 1750, India’s share in global manufacturing output was 25 % compared to only 1.9% for Britain. The market dominion of Bengal by the Company and its executives meant that nearly two-thirds of the Bengal revenues went to British commercial plunder. The Bengal weavers were forced to sell textiles below costs. Good quality products were fraudulently labelled as sub-standard. The weavers were oppressed and tyrannised by fines, imprisonments, floggings etc. To resist forced labour, many weavers cut their thumbs. Bengal became impoverished and the weavers became terribly poor and indebted.

Clive returned to England for good in 1767. The author calls Clive a genius and a rogue and more. Macaulay called Clive’s corruption “un-British”. King George III protested against Clive’s “fleecing of India”. The fleecing of Bengal resulting in impoverishment of Bengal and serious decline in trade, profits and share prices of the Company led to an investigation into Clive’s action by a parliamentary Select Committee. The Committee’s report in 1773 exposed Clive’s corruption, illegal acts and tyranny. Yet Clive escaped even a censure by the Parliament though his personal reputation was gone. This is what patriotism and racial pride does while treating a compatriot’s crimes in a distant land allegedly consisting of “barbarians”! However, Clive allegedly committed suicide soon after.

Warren Hastings’ rule as Governor General (1773-84) that followed Clive’s era proved an equal disaster for Bengal and for the Company. Meanwhile Bengal witnessed a severe famine in 1770 thanks to the Company’s tyrannical taxes following the Diwani rights of 1765. The Company employees cornered rice during the famine by buying it cheap from the farmers and sold it for huge profits. As a result, one third of Bengal’s population starved to death. The death figure was 10 million. Instead of decreasing the taxes, the Company increased the taxes during the famine! The share-holders went on giving themselves more dividends despite the looming famine. Such was the British conscience when it concerned India.

Warren Hastings’ tenure witnessed droughts in 1781 and 1782 and a famine in 1784. Yet, he gave no tax relief for farmers resulting in unrest. His annual plunder of manufactures and produce of India was estimated to be 1.2 million pounds. Hastings resorted to corruption, and extortion from the rulers of Awadh and Benaras. He imprisoned the Begums of Awadh in order to obtain their jewelleries. He introduced Company’s monopoly production of opium in Bihar and allowed opium to be smuggled into China which had a ban on it. Soon after Hastings returned to England in 1784, Edmund Burke set in process in the Parliament an impeachment trial against Hastings that went on for 10 years up to 1895. Twenty charges were brought up against him in respect of his “high crimes and misdemeanours”. Burke eloquently spoke about “tyranny, robbery and destruction of mankind” by the Company under Hastings. Strangely Hastings was acquitted of all the charges in April 1795!

Lord Cornwallis assumed power in 1786 as the new Governor General. He defeated Tipu Sultan in 1792 and got possession of Malabar from the latter. Although the India Act of 1784 had prohibited further territorial acquisition by the Company, the British war with France was a convenient excuse for further Company wars in India.

Lord Wellesley was the next Governor General from 1798 to 1805. He is known for the sack of Seringapatam in 1799 and the death of Tipu by which he obtained immense treasures. Wellesley captured Agra, Delhi and Gujerat from the Marathas in 1803. The Company Directors simply lamented the wars of acquisition but pocketed the income from them. However military expenditure began to mount and prove a burden. The Company had in India an army of 18,000 in 1793 but the number became 1,54,500 in 1805, far beyond the needs of self-defence. The next four decades saw wars of acquisition in Afghanistan, Punjab, Sind, west of Nepal and Burma.The Charter Act of 1813 totally removed the Company monopoly in trade except for the China trade. Due to competition the Company ceased exporting anything out of England in 1824 and the Company could buy very little in India for sale in England due to the steep increase of tariff on textiles.

However, the Company’s operations shifted towards China. The Company continued illegal exports of monopolized opium from India into China which was started by Hastings, and with the opium-proceeds China-tea was bought for consumption in England. The smuggling of opium was done through the bribing of the Chinese customs officials. It was estimated that 12.5 million people in China had become opium addicts.

In 1833 the Company’s charter was further extended by 20 years. The Charter Act of 1853 provided that the Company would continue to administer British India in trust for the Crown until Parliament decided otherwise. At the time of the India Act of 1784, the Company had control over 7% of the geographical area of the sub-continent which rose to 62% in 1856.

The Indian Mutiny of 1857 crowned the downfall of the Company. The germs for the mutiny lay in the increasingly racial and administrative arrogance of the ruling Britishers in India. The word “nigger” came to be freely used for the Indians in the 1840s and 1850s. Earlier, Macaulay’s famous Minute on Education (1835) had terribly defamed the Indians. The lifting of the ban on missionary activity by the 1813 Charter Act, also contributed to grave suspicions about the British motives. Things came to a head when the sepoys in North India rejected new rifle cartridges said to be greased with cow/pig fat. The Company’s crass conduct towards the rulers of Awadh, Jhansi and Kanpur turned them against the Company on top of the revolt by the sepoys. The Mutinty lasted two years with considerable bloodshed on both sides. In 1858, the English Parliament passed a legislation stripping the Company of all its administrative powers in India and transferring these to the Crown. Direct rule by the Queen and Parliament replaced the Company rule.


THE LAST PHASE:

Yet the Company remained alive for 16 more years. No commerce or governance was performed by it. The Company simply passed annual dividends to share holders while the winding up operations continued. Eventually, on 1st June 1874 the Company was dissolved. The book’s author sees three main raisons for the collapse of the Company over time:(1) Monopoly control (2) Speculative tendencies of the executives and share- holders (3) Absence of automatic remedy for corporate abuse. He further says: “The East India Company’s story is ultimately a tragedy, the tale of an institution that generated great wealth, but also great harm”.


THE COMPANY AS THE SHAPER OF MODERN MULTINATIONALS:

This forms the second heading in the title of the book, and yet the author has written very little to link the modern Multinationals with the Company. Very little light is thrown on the modern Multinationals too. The author has talked about the need for a “World Competition Authority”. He states that the need of the hour is “global anti-trust approach”. He recommends an ethical “genetic code” for the Multinationals. Deregulation and privatization by governments, and the present globalisation process are seen by the author as dangers leading to corporate abuses affecting the public. The author recommends the cancellation of company license when gross misconduct is proved.

It cannot be really said that the Company was the mother or “shaper” of the modern Multinationals in the absence of proof and analysis although the Company could be said to be the FIRST MULTINATIONAL. The Company did have an admirable structure. The joint-stock mechanism was a great innovation. Even monopoly was unexceptionable under the special circumstances in the early decades. (Adam Smith acknowledges this too). The private trade by Company officials was a disaster indeed. Ban on taking presents even though it came late, was absolutely right. Even though there was no C.E.O., The Board of Directors meeting every week was a good idea. The separation of ownership and management, which the current practice in a company is, was a wise step despite some inherent dangers. The power given to the Company to mint coins, form armies and wage wars was simply dangerous and the imperialistic motivation behind it is obvious. No modern Company can indulge in these things.

The Company was purely a trading multinational. Today’s Multinationals are into foreign investments (direct and portfolio), manufacturing and assembly, banking and insurance and other services. Modern Mutinationals have either horizontal integration or vertical integration or a combination of both.