on to suggest that trade would have been more successful in the absence of the
privileges that the British government had conferred on the East India Company
longing for empire would never have burdened the Company with the enormous debt
which at present paralyzes it. The energy that has been expended in aggressive
wars would have been employed in developing the resources of the country.
Unenervated by monopolies, trade would have been much more successful.”
Prior to my
recent visit to India I was aware that classical liberals like Herbert Spencer
were critical of the East India Company. Since my visit I have become an expert
on all matters pertaining to Indian history. Just joking!
I can only claim
to be able to sketch the outlines of the story of how the EIC ended up ruling
India. I think the story is worth telling as a case study of the unintended
consequences of government intervention in international trade.
correct in identifying the importance of the EIC’s links to the British government
as an important determinant of its behavior, but the context in which it
operated also needs to be taken into account. The most important element of context seems to
me to the rivalry between European powers to obtain advantage in trade with India.
can recall from school history lessons that Vasco da Gama sailed to India around
the Cape of Good Hope in 1498. This was the culmination of voyages of discovery
by Portuguese sailors, including the important contribution of Bartolomeu Diaz,
who had rounded the Cape some years earlier.
The Portuguese government was heavily involved in this exploration, and in what followed. In his book, The Portuguese in India, M.N. Pearson relates how the king, D. Manuel, invited da Gama to command the expedition when the latter happened to wander through the council chamber where the king was reading documents.
Gama’s voyage, the Portuguese court debated whether they should use force to
seek a monopoly in the Indian Ocean or be peaceful traders. They chose force.
Their aim was to try to monopolize the supply of spices to Europe and to
control and tax other Asian trade. There was, of course, a great deal of trade
in the Indian Ocean prior to Portuguese intervention, much of it controlled by
Muslims (from India as well as the Middle East).
Portuguese built forts in India to protect their trading activities. Some local
rulers saw advantage in giving the Portuguese permission to establish forts,
but they often used force. Goa was conquered in 1510. The Portuguese obtained permission
to build a fort at Diu in 1535 (and had ceded to them the islands that today
form Mumbai) because the sultan of Gujarat, Bahadur Shar, wanted Portuguese
help after being defeated by the Mughal emperor, Humayon. The Portuguese
obtained Daman from the sultan in 1559 and immediately began construction of
the fort at Moti Daman. Building of St Jerome fort (my photo below) commenced
in 1614, but was not completed until 1672.
The Dutch eclipsed the Portuguese early in the 17th century.
Portuguese were unable to prevent competition from the Dutch because the latter
were “better financed, better armed, and more numerous”. The Dutch blockaded
Goa from 1638 to 1644 and again from 1656 to 1663.
East India Company was founded by the Dutch government in 1602, not long after
the English formed the EIC. Both organisations were granted trade monopolies,
and combined private investment and the powers of the state in a similar manner.
In the early
18th century there was fierce rivalry between the Dutch and English over
the spice trade in Indonesia. That ended with the English quietly withdrawing
from most of their interests in Indonesia to focus elsewhere, including India.
transformation of British activities in India
In the 17th
century, the EIC established trading posts in Surat, Madras, Bombay and
Calcutta with permission from local authorities. The French India Company
offered increasing competition during the latter half of the 17th
century and into the 18th century.
objectives of both the EIC and the French were commercial, but their conflicts
in Europe spilled over into India. The British sought to fortify Fort William
in Calcutta against potential attack from the French. In 1756, the French encouraged
the nawab of Bengal to attack Fort William. After the fall of Fort William, the
surviving British soldiers and Indian sepoys were imprisoned overnight in a
dungeon where many died from suffocation and heat exhaustion. The prison became
known as the Black Hole of Calcutta. The number of fatalities is disputed, but
the incident seems to have provided impetus for the EIC to seek to wield
greater political power in India to protect its commercial interests.
My photo of
the Black Hole monument in the grounds of St John’s church in Kolkata.
led by Robert Clive (Clive of India) retook Calcutta in 1757 and went on to
defeat the nawab and his French supporters at Plassey. Clive’s victory was
aided by a secret agreement with Bengal aristocrats which resulted in a large
portion of the nawab's army being led away from the battlefield. The person
responsible for this treachery, Mir Jafar, was rewarded by being installed as nawab.
Clive rewarded himself and EIC forces from the Bengal Treasury.
A few years
later, as governor of Bengal, Clive arranged for the EIC to collect land tax revenues
in Bengal by appointing a deputy nawab for this purpose. The conquest of other
parts of India was planned and directed from Calcutta. Amartya Sen has noted:
made by the East India Company from its economic operations in Bengal financed,
to a great extent, the wars that the British waged across India in the period
of their colonial expansion.”
consequences of EIC rule became evident during the Bengal famine of 1770. The company
was apparently more concerned to maintain land tax revenue than to relieve to
the suffering of peasants. Its policies contributed
to the massive loss of life during the famine. Adam Smith presumably had that
in mind when he suggested in Wealth of Nations:
sovereigns ever were, or, from the nature of things, ever could be so perfectly
indifferent about the happiness or misery of their subjects, the improvement or
waste of their dominions, the glory or disgrace of their administration; as,
from irresistible moral causes, the greater part of the proprietors of such a
mercantile company are, and necessarily must be.” (V.i.e 26)
the agricultural labor available to generate taxable income, the famine caused the
EIC to experience a subsequent loss of revenue. The British government provided
financial relief to the company but arranged to supervise it. Regulation of the
EIC was further increased in 1784, when British prime minister William
Pitt the Younger, legislated for joint government of British India by the EIC
and the government, with the government holding the ultimate authority.
government seems to have been engaged in an ongoing balancing act to placate
both supporters of the EIC, including investors and former employees, and its
critics, including prominent individuals like Edmund Burke and Adam Smith.
Act stated that to pursue schemes of conquest and extension of dominion in
India are “measures repugnant to the wish, the honour and the policy of this
nation”. Perhaps that was an honest statement of the British government’s
policy objective, but it is doubtful that it had any impact on the extension of
British dominion in India.
18th century, India was seen as offering opportunities for young
British men to obtain a fortune, become well-connected, and to marry well.
Macquarie, who (in
my opinion) ultimately become one of the best of Australia’s colonial
governors, expressed views, while a young army officer serving in India, that
may have been fairly typical.
In his biography of Macquarie, M. H. Ellis notes that in 1788 Pitt and his followers had cramped the style of young army officers in India by reducing their allowances. Macquarie recorded in his diary: “ … our golden dreams, and the flattering prospects we had formed to ourselves in Britain, of soon making our fortunes in the East, must now all vanish into smoke; and we must content ourselves, with merely being able to exist without running into debt” (p 18).
hopes for a change in fortune rested on being called to active service. He had
his wish during the third Anglo-Mysore war. The war ended after the
1792 Siege of Seringapatam led to the signing of a Treaty in which Tipu Sultan
surrendered half of his kingdom to the EIC and its allies. Macquarie noted
that news of the cessation of hostilities “damped the spirits of every one who
wished the downfall of the Tyrant and hoped to have the satisfaction in a few
days more, of storming his capital”. The storming of Tipu’s capital would presumably
have offered the prospect of looting, but Governor-General Cornwallis managed
to maintain the morale of his troops by announcing payment of a “handsome
gratuity in lieu of prize money”. (Ellis, p 39)
within India was another important element of the context in which the EIC
ended up ruling India. British colonial expansion occurred at a time when the
power of the Mughal empire was declining, with much of its territory falling
under the control of the Marathas. In the south of India, the rulers of Mysore
and Travancore were also powerful. The EIC sided with different rulers in
different locations at different times. For example, at the time of the Third
Anglo-Mysore War, referred to above, the Marathas were allies of the EIC. That
war occurred because Tipu, an ally of France, had invaded the nearby state
of Travancore, which was a British ally.
EIC rule end?
In 1813 the EIC
lost its monopoly over British trade with India. The opening of access to
competing traders seems to have been partly attributable to growth of the free
trade lobby in Britain.
In 1833, the
EIC was reduced to the status of a managing agency for the British government
of India. The government took over the company’s debts and obligations, which
were to be serviced and paid from tax revenue raised in India.
EIC rule of
India finally ended following the Indian Rebellion of 1857, which is now also referred to as
the First War of Independence. I took this photo at an Indian airport.
was formally transferred to the Crown in the person of Queen Victoria in
1858. The British government took over the Indian possessions, administrative
powers and machinery, and the armed forces of the EIC.
In my view, EIC
rule ended because the company had a hopeless business model. The company was
obviously successful in conducting wars in India, and some employees of the
company made fortunes as a consequence. But the company’s attempts to service
debts incurred by imposing taxes on the people of India were inherently
problematic. Such taxes made it inevitable that the company would incur high
ongoing costs to put down rebellions. The EIC’s conquest of Bengal raised
expectations that colonial rule might be a profitable activity for the company,
but it became incapable of surviving without government financial backing only
a few years later.
better option possible?
John Stuart Mill - in his role as a spin doctor
employed by the EIC rather than an eminent philosopher - opened his last ditch defence
of the EIC by pointing out that at the same time as the company acquired a “magnificent
empire in the East” for Britain “a succession of administrations under the
control of Parliament were losing to the Crown of Great Britain another great
empire on the opposite side of the Atlantic”. (Mill is quoted more fully by
Richard Reeves in John Stuart Mill, Victorian Firebrand, p 258.)
Mill was obviously
attempting to present a persuasive case to British politicians at a time when
most of them perceived “empire” to be a desirable objective.
people who want to defend the empire-building activities of the EIC in India
are more likely to suggest that the institutional legacy of British rule,
including a united India (if you overlook the tragedy of partition) would
otherwise not have been possible. Amartya Sen has pointed
out the weakness of that argument:
when Clive’s East India Company defeated the nawab of Bengal in 1757, there was
no single power ruling over all of India. Yet it is a great leap from the proximate
story of Britain imposing a single united regime on India (as did actually
occur) to the huge claim that only the British could have created a united
India out of a set of disparate states.
That way of
looking at Indian history would go firmly against the reality of the large
domestic empires that had characterised India throughout the millennia. …”
India Company came to rule India as an unintended consequence of British
government intervention seeking trading advantages over other European powers.
This intervention occurred against the background of previous involvement in
Indian trade by Portuguese and Dutch governments, and in the context of intense
rivalry with the French government’s trading company.
India Company’s schemes of conquest and dominion were made possible by disunity
within India, which provided it with opportunistic allies. However, the company’s
business model of taxing subjugated Indians was not capable of generating
sufficient revenue to service debts incurred in subjugating them and
maintaining order. Rather than let the company fail, the British government
became increasingly involved in directing its activities, and ultimately displaced