The massive British corporation was founded under Queen Elizabeth I and rose to exploit overseas trade and become a dominating global player.
Updated: June 29, 2023 | Original: October 23, 2020
One of the biggest, most dominant corporations in history operated long before the emergence of tech giants like Apple or Google or Amazon. The English East India Company was incorporated by royal charter on December 31, 1600 and went on to act as a part-trade organization, part-nation-state and reap vast profits from overseas trade with India, China, Persia and Indonesia for more than two centuries. Its business flooded England with affordable tea, cotton textiles and spices, and richly rewarded its London investors with returns as high as 30 percent.
“At its peak, the English East India Company was by far the largest corporation of its kind,” says Emily Erikson, a sociology professor at Yale University and author of Between Monopoly and Free Trade: The English East India Company. “It was also larger than several nations. It was essentially the de facto emperor of large portions of India, which was one of the most productive economies in the world at that point.”
But just when the East India Company’s grip on trade weakened in the late 18th century, it found a new calling as an empire-builder. At one point, this mega corporation commanded a private army of 260,000 soldiers, twice the size of the standing British army. That kind of manpower was more than enough to scare off the remaining competition, conquer territory and coerce Indian rulers into one-sided contracts that granted the Company lucrative taxation powers.
Without the East India Company, there would be no imperial British Raj in India in the 19th and 20th centuries. And the wild success of the world’s first multinational corporation helped shape the modern global economy, for better or worse.
On the very last day of 1600, Queen Elizabeth I granted a charter to a group of London merchants for exclusive overseas trading rights with the East Indies, a massive swath of the globe extending from Africa’s Cape of Good Hope eastward to Cape Horn in South America. The new English East India Company was a monopoly in the sense that no other British subjects could legally trade in that territory, but it faced stiff competition from the Spanish and Portuguese, who already had trading outposts in India, and also the Dutch East Indies Company, founded in 1602.
England, like the rest of Western Europe, had an appetite for exotic Eastern goods like spices, textiles and jewelry. But sea voyages to the East Indies were tremendously risky ventures that included armed clashes with rival traders and deadly diseases like scurvy. The mortality rate for an employee of the East India Company was a shocking 30 percent, says Erikson. The monopoly granted by the royal charter at least protected the London merchants against domestic competition while also guaranteeing a kickback for the Crown, which was in desperate need of funds.
Many of the hallmarks of the modern corporation were first popularized by the East India Company. For example, the Company was the largest and longest-lasting joint stock company of its day, which means that it raised and pooled capital by selling shares to the public. It was governed by a president, but also a “board of control” or “board of officers.” Unlike today’s relatively staid corporate board meetings, the East India Company’s meetings were raucous affairs attended by hundreds of stockholders.
And while the East India Company charter granted it an ostensible monopoly in India, the Company also allowed its employees to engage in private trading on the side. At first, the Company didn’t have a lot of money to pay its employees for this highly dangerous work, so it needed to provide other incentives.
“That incentive was to trade for their own private interest overseas,” says Erikson. “Employees of the East India Company would trade both within and outside of the rules that the Company granted. There were so many opportunities to fudge, cheat and smuggle. Think about jewelry, which is a very small and very expensive thing that you can hide on yourself easily.”
Before the East India Company, most clothes in England were made out of wool and designed for durability, not fashion. But that began to change as British markets were flooded with inexpensive, beautifully woven cotton textiles from India, where each region of the country produced cloth in different colors and patterns. When a new pattern arrived, it would suddenly become all the rage on the streets of London.
“There’s this possibility of being ‘in the right style’ that hadn’t existed before,” says Erikson. “A lot of historians think this is the beginning of consumer culture in England. Once they brought over the cotton goods, it introduced this new volatility in what was popular.”
When the British and other European traders arrived in India, they had to curry favor with local rulers and kings, including the powerful Mughul Empire that extended across India. Even though the East India Company was technically a private venture, its royal charter and battle-ready employees gave it political weight. Indian rulers invited local Company bosses to court, extracted bribes from them, and recruited the Company’s muscle in regional warfare, sometimes against French or Dutch trading companies.
The Mughul Empire concentrated its power in the interior of India, leaving coastal cities more open to foreign influence. From the start, one of the reasons the East India Company needed so much pooled capital was to capture and build fortified trading outposts in port cities like Bombay, Madras and Calcutta. When the Mughul Empire collapsed in the 18th century, war broke out in the interior, driving more Indian merchants to these company-run coastal “mini kingdoms.”
“The problem was, how would the East India Company rule these territories and by what principle?” says Tirthankar Roy, a professor of economic history at the London School of Economics and author of The East India Company: The World’s Most Powerful Corporation. “A company is not a state. A company ruling in the name of the Crown cannot happen without the Crown’s consent. Sovereignty became a big problem. In whose name will the company devise laws?”
The answer, in most cases, was the East India Company’s local branch officer. The London office of the company didn’t concern itself with Indian politics. Roy says that as long as trade continued, the Board was happy and didn’t interfere. Since there was very little communication between London and the branch offices (a letter took three months each way) it was left to the branch officer to write the laws governing company cities like Bombay, Madras and Calcutta, and to create local police forces and justice systems.
This would be the equivalent of Exxon Mobil drilling for oil in coastal Mexico, taking over a major Mexican city using private armed guards, and then electing a corporate middle manager as the mayor, judge and executioner.
A major turning point in the East India Company’s transformation from a profitable trading company into a full-fledged empire came after the Battle of Plassey in 1757. The battle pitted 50,000 Indian soldiers under the Nawab of Bengal against just 3,000 Company men. The Nawab was angry with the Company for skirting taxes. But what the Nawab didn’t know was that the East India Company’s military leader in Bengal, Robert Clive, had struck a backroom deal with Indian bankers so that most of the Indian army refused to fight at Plassey.
Clive’s victory gave the East India Company broad taxation powers in Bengal, then one of the richest provinces in India. Clive plundered the Nawab’s treasure and shipped it back to London (keeping plenty for himself, of course). Erikson sees the East India Company’s actions in Bengal as a seismic shift in its corporate mission.
“This completely changes the Company’s business model from one that had been focused on profitable trade to one that focused on tax collection,” says Erikson. “That’s when it became a really damaging institution, in my opinion.”
In 1784, the British Parliament passed Prime Minister William Pitt’s “India Act,” which formally included the British government in ruling over the East India Company’s land holdings in India.
“When this act came into being, the Company ceased to be a very significant trade power or a significant governing power in India,” says Roy. “The proper British Empire took hold.”
The exploits of the East India Company didn’t end in India. In one of its darkest chapters, the Company smuggled opium into China in exchange for the country’s most prized trade good: tea. China only traded tea for silver, but that was hard to come by in England, so the Company flouted China’s opium ban through a black market of Indian opium growers and smugglers. As tea flowed into London, the Company’s investors grew rich and millions of Chinese men wasted away in opium dens.
When China cracked down on the opium trade, the British government sent warships, triggering the Opium War of 1840. The humiliating Chinese defeat handed the British control of Hong Kong, but the conflict shed further light on the East India Company’s dark dealings in the name of profit.
By the mid-19th century, opposition to the East India Company’s monopoly status reached a fever pitch in Parliament fueled by the free-market arguments of Adam Smith. Erikson says that ultimately, the death of the East India Company in the 1870s was less about moral outrage over corporate corruption (of which there was plenty), but more about English politicians and businessmen realizing that they could make even more money trading with partners who were on a stronger economic footing, not captive patrons of a corporate state.
Even though the East India Company dissolved more than a century ago, its influence as a ruthless corporate pioneer has shaped the way modern business is conducted in a global economy.
“It’s hard to understand the global political structure without understanding the role of the Company,” says Erikson. “I don’t think we’d have a global capitalist economic system that looks the way it does if England hadn’t become so uniquely powerful at this point in history. They transitioned into a modern industrial force and exported their vision of production and governance to the rest of the world, including North America. It’s the cornerstone of the modern liberal global political order.”
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