An interesting read on the East India company The East India Company: The Company that ruled the waves | The Economist A POPULAR parlour game among historians is debating when the modern world began. Was it when Johannes Gutenberg invented the printing press, in 1440? Or when Christopher Columbus discovered America, in 1492? Or when Martin Luther published his 95 theses, in 1517? All popular choices. But there is a strong case to be made for a less conventional answer: the modern world began on a freezing New Yearâ€™s Eve, in 1600, when Elizabeth I granted a company of 218 merchants a monopoly of trade to the east of the Cape of Good Hope. The East India Company foreshadowed the modern world in all sorts of striking ways. It was one of the first companies to offer limited liability to its shareholders. It laid the foundations of the British empire. It spawned Company Man. Andâ€”particularly relevant at the momentâ€”it was the first state-backed company to make its mark on the world. . . . Money and meritocracy The Company repaid the state not just in taxes and tariffs, but also in ideas. It was one of the 18th and 19th centuriesâ€™ great innovators in the art of governingâ€”more innovative by some way than the British government, not to mention its continental rivals, and outgunned only by the former colonies of America. The Company pioneered the art of government by writing and government by record, to paraphrase Burke. Its dispatches to and from India for the 15 years after 1814 fill 12,414 leather-bound volumes. It created Britainâ€™s largest cadre of civil servants, a term it invented. State-backed enterprises risk getting stuffed with powerful politiciansâ€™ half-witted nephews. The Company not only avoided this but also, in an age when power and money were both largely inherited, it pioneered appointment by merit. It offered positions to all-comers on the basis of exam performance. It recruited some of the countryâ€™s leading intellectuals, such as Edward Strachey, Thomas Love Peacock and both James and John Stuart Millâ€”the latter starting, at the age of 17, in the department that corresponded with the central administration in India, and rising, as his father had, to head it, on the eve of the Companyâ€™s extinction. The Company also established a feeder collegeâ€”Haileyburyâ€”so that it could recruit bright schoolboys and train them to flourish in, and run, India. These high-minded civil servants both prolonged the Companyâ€™s life when Victorian opinion was turning ever more strongly against it and also provided a model for the Indian and domestic civil service. The Company liked to think of itself as having the best of both private and public worldsâ€”the excitement and rewards of commercial life, on the one hand, and the dignity and security of an arm of the state on the other. But the best of both worlds can easily turn into the worst. . . . The Companyâ€™s growing involvement in politics infuriated its mighty army of critics still further. How could it justify having a monopoly of trade as well as the right to tax the citizens of India? And how could a commercial organisation justify ruling 90m Indians, controlling 70m acres (243,000 square kilometres) of land, issuing its own coins, complete with the Company crest, and supporting an army of 200,000 men, all of which the East India Company did by 1800? Adam Smith denounced the Company as a bloodstained monopoly: â€œburdensomeâ€, â€œuselessâ€ and responsible for grotesque massacres in Bengal. Anti-Company opinion hardened further in 1770 when a famine wiped out a third of the population of Bengal, reducing local productivity, depressing the Companyâ€™s business and eventually forcing it to go cap in hand to the British government to avoid bankruptcy. The government subjected the Company to ever-tighter supervision, partly because it resented bailing it out, partly because it was troubled by the argument that a company had no business in running a continent. Supervision inexorably led to regulation and regulation to nationalisation (or imperialisation). In 1784 the government established a board to direct the Companyâ€™s directors. In 1813 it removed its monopoly of trade with India. In 1833 it removed its monopoly of trade with China and banned it from trading in India entirely. In 1858, the year after the Indian mutiny vindicated the Companyâ€™s critics, the government took over all administrative duties in India. The Companyâ€™s headquarters in London, East India House, was demolished in 1862. It paid its last dividend in 1873 and was finally put out of its misery in 1874. Thus an organisation that had been given life by the state was eventually extinguished by it. A dangerous connection Ever since its ignominious collapse the Company has been treated as an historical curiosityâ€”an â€œanomaly without a parallel in the history of the worldâ€, as one commentator put it in 1858, a push-me pull-you the like of which the world would never see again. But these days similarly strange creatures are popping up everywhere. The East India Company is being transformed from an historical curiosity into a highly relevant case study. The Companyâ€™s history shows that liberals may be far too pessimistic (if that is the right word) about the ability of state monopolies to remain healthy. The Company lasted for far longer than most private companies precisely because it had two patrons to choose fromâ€”prospering from trade in good times and turning to the government for help in bad ones. It also showed that it is quite possible to rely on the government for support while at the same time remaining relatively lean and inventive. But the Companyâ€™s history also shows that mercantilists may be far too optimistic about state companiesâ€™ ability to avoid being corrupted by politics. The merchants who ran the East India Company repeatedly emphasised that they had no intention of ruling India. They were men of business who only dabbled in politics out of necessity. Nevertheless, as rival state companies tried to muscle in on their business and local princelings turned out to be either incompetent or recalcitrant, they ended up taking huge swathes of the emerging world under their direct control, all in the name of commerce. The Chinese state-owned companies that are causing such a stir everywhere from the Hong Kong Stock Exchange (where they account for some of the biggest recent flotations) to the dodgiest parts of Sudan (where they are some of the few business organisations brave enough to tread) are no different from their East Indian forebears. They say that they are only in business for the sake of business. They dismiss their political connections as a mere bagatelle. The history of the East India Company suggests that it wonâ€™t work out that way.