The East India Company: The World's Most Powerful Corporation (The Story of Indian Business) (8 page)

In the prevailing political atmosphere in England, the forts sometimes became symbols of royal power. Having forced a reluctant employer to grant them these havens
of safety, the local agents often sided with the Crown. The new settlements became, in spirit, colonies of the king more than trading outposts. The Company did not try too hard to correct that impression. The heads of the establishments had been called agents before; after the restoration of monarchy, they were called presidents. In these newly acquired territories, the heads were also the governors. His Majesty’s flag, the Union Jack, flew over buildings in these cities.

The town administration was recast in the London pattern, with a mayor and aldermen, of whom some were the Company’s servants and the others Indian residents. These were the justices of peace, and wore ceremonial regalia on formal occasions. Silver gilt maces were carried before the mayor on these events. These justices presided over what became known as the mayor’s court. The courts settled commercial disputes with reference to English common law. Indian merchants resorted to these courts and the laws, and not only out of necessity. In fact, writes the historian Kanakalatha Mukund in a recent book, ‘the cosmopolitan character of traders who came to Madras and the emerging multi-racial society of the town … found the English court a great convenience.’

In 1687, the whole royalist paraphernalia caused a meeting to take place between the top brass of London
and the king. A description of the meeting was later communicated to the governor of Madras Elihu Yale. In this meeting the king enquired if orders regarding administration of Madras ought not to come from him directly. To this question, the governor of the Company readily assented. But he insisted that the king refrain from making any appointments in his territories in India, for that would divide the authority there. The king reflected on this point and proposed that administrative orders could be passed by the Company in the name of the Crown. An important matter of policy was agreed upon—wisely it would seem in hindsight, for the king himself was deposed a year later.

The English fort in Bombay, 1703. © National Maritime Museum, London.

THROUGH THE MIDDLE decades of the 1600s, the Company needed to maintain a fine balance between the king and the Parliament. The turbulent years between the civil wars (1642–51) and the Glorious Revolution (1688) did not destroy the Company but increased uncertainty to such heights as to affect the disposition to make long term plans. During this period, a desperately cash-starved Charles I made several attempts to squeeze the Company for money. He finally succeeded in 1640 in the wake of the Scottish invasion. The king forced the Company to deliver 600,000 lbs of pepper on credit, sold the pepper in the market, raising £50,000 for himself. The goods were sold at a price lower than the one set by the Company and the loan was not repaid. The restored monarchy made good only a small part of the loss.

In the 1640s, the fluctuating fortunes of the royalists and their adversaries reduced the market for Indian produce. During Oliver Cromwell’s rule, the rivalry in the Indian Ocean led to the First Anglo-Dutch War in 1652. At the peace negotiations of 1654, Cromwell succeeded in extracting the promise of compensation, little of which was actually paid. Cromwell also oversaw a renewal of the charter in 1657, which made the Company a permanent joint stock, thereby placing it on a firmer footing.

Nevertheless, political instability at home and conflicts abroad led the Company directors to tread a cautious path and they exhorted their agents to reduce employment and investment. There were two long term effects of the enforced caution. Firstly, the bane of the Company, the private traders, gained an advantage. Secondly, the weakness of the head office in London increased the discretionary powers of the branches and the men who managed them. While London called for restraint, the spirit of enterprise and aggression rose in India. The three new settlements embodied that assertive spirit.

These troubles at home form the theme of the present chapter.

London merchants with money to invest in a ship had reason enough, if not the sanctioned right, to make a trip to the Indian Ocean. On the Indian coast, they could openly engage in business as short-haul or ‘country’ traders. These merchants usually managed to find an officer of the Company on shore willing to enter into a partnership deal with them. The most attractive of such deals involved trade in some of the prohibited goods.

It was generally believed, and the Company never disputed the belief, that its employees were underpaid. The implicit understanding was that the employees would compensate themselves for their low salaries by engaging in personal trade, as long as it did not directly compete with the Company’s business. The employees sometimes owned vessels of about 100 tons singly or in partnership. The ships bought goods along the coasts and plied between the Bay of Bengal littoral, Surat and Persia. Occasionally, when a large Company ship in need of repair or manpower was berthed in Calcutta for a whole year, the senior officers would use it for private coastal trade. The use of such resources went beyond what the Company would consider fair. The more powerful the officer the greater was the scope for free riding on the Company’s resources. Almost anyone in a
position of authority within the Company’s agencies conducted some private trade. And that included the chaplains and the surgeons. This curious duality of service to Company and self aggrandizement followed by its officials made the Company unable to take a firm stand against private trade. It railed in public and pardoned in private.

On their part, many local officers thought the Company had little moral right to preach about good conduct. As Francis Day’s case showed, private trade was not always opportunistic. Day built Fort St George with borrowed money, staking his personal reputation as a trader. John Weddell was a sea captain who had fought courageously for the Company but was fined and warned on account of private trade. Despite their remarkable contributions to the making of Bombay, both Oxenden and Aungier were disgraced on their return to England on charges of private trading. Elihu Yale had to leave the governorship of Madras on the same charges. But if Oxenden, Aungier, and Day could be persecuted, Thomas Pitt changed the rules of the game.

In 1674, a twenty-year-old merchant from Dorset reached the Company’s settlement in Balasore and set up an independent trading concern in defiance of the Company’s prohibition. Pitt was an extremely able
entrepreneur and in a short time established a network of trade in sugar and horses spanning Persia and India. The Company ordered him to desist from trade, which he blithely ignored. With sagacity, he had married a relation of his local patrons, and the blessings of his Balasore in-laws allowed him to conduct business with impunity. In 1681, when Pitt briefly returned to England, court proceedings were initiated against him for sabotaging the Company’s commercial interests. But before the ink had dried on the paper, Pitt was back in India to discuss with the Nawab of Bengal the prospects of securing a license to set up a factory. In 1684, he was arrested and an enforced exile followed. Again, he got away by paying a paltry fine, while using the imposed leisure to buy up land in Dorset and having himself elected to the Parliament in 1689. His career in the House of Commons saw a coordinated attack by the interlopers on the Company’s monopoly in the East.

In 1693, Pitt returned to India. Again the Company tried to stop him without conviction or success. Eventually, in 1695, the Company directors changed strategy and offered Pitt the post of the president of Madras. Pitt happily accepted the offer. The subsequent turmoil in the Company elections showed how controversial the decision had been. The early part of his tenure of fifteen years in Madras led to a series of
complicated diplomatic and military manoeuvers that brought peace and stability in the relations between the Company settlement and the Nawab of Carnatic. The latter part was taken up with the administration of Madras. Inevitably, Pitt got into trouble with his colleagues. One of the issues in the conflicts was interference by Company agents in the affairs of the Indian residents of the territory. Pitt had criticized a senior colleague for getting too involved in caste disputes. After protracted wranglings, Pitt was sent back to England in 1710.

The last fifteen years of his life were spent in managing his extensive estates, in Parliamentary activities, and in defending his right to possess one of the world’s largest diamonds. This diamond he had acquired from a merchant in Madras in 1702. Forever a shrewd entrepreneur, Pitt had the diamond cut in England at huge expense, reducing it to one-third the original weight, but raising the price five-fold. The diamond was eventually sold in France, where it adorned Marie Antoinette’s crown and Napoleon’s sword, and is currently displayed in the Louvre.

Following Pitt’s footsteps, interlopers became ever more prominent in business and public spheres. Thomas Bowrey, a private trader from a marine background, settled down in England after many years in the Bay of
Bengal as owner of merchant ships and became an authority on the Malay language. His most famous undertaking, a travelogue containing valuable details on contemporary Bengal, was rediscovered and published three hundred years after his death. Nathaniel Gould, one of the early governors of the Bank of England, began as an interloper in the 1690s. In the 1680s, John Child, a steadfastly loyal governor of Bombay accumulated considerable wealth by means of unconcealed private trade.

Pitt’s example showed, furthermore, that the Company’s claim to monopoly could be questioned.

Influential members of the business elite complained that the Company benefited a small section of society by deliberately restricting the gains to a privileged coterie of shareholders. The point of the criticism was that the directors kept control of the Company by refusing to issue new stock. They arranged to raise loans, used the loans to finance trading investments, and made massive gains on the difference between interest rate and the profit on the India trade which was substantial. There was a cost attached to the strategy. The directors implicitly sacrificed any potential capital gains on their
shareholdings. But they could well afford to give up such gains as the returns on their investments were extremely rewarding.

Attacks on the shareholders provoked counter-attacks. The leader of the counter-attack was Josiah Child (1630-99). A merchant and brewer, Child in his early life was a licensed private trader. In the 1670s, he assisted in the founding of the Royal African Company. With prudent political and economic moves, he emerged as the single largest shareholder of the East India Company by the end of the decade, and assumed leadership of the oligarchy of thirty-plus shareholders who took all decisions. Having overseen the issue of a new charter, Child started taking on the critics.

Child published a series of pamphlets under a pseudonym. The pamphlets made a case for continuing with monopoly in the Indian trade. He pointed out that the monopoly had been beneficial for the revenues of the state, and that the economies of scale had enabled the construction of larger and better ships. Answering the charge that the export of bullion for Indian goods was harmful for the nation, Child pointed out, rightly, that the real benefit was contained in the welfare effects of the cheap foreign goods that came in, and in the competitive edge established by England in overseas trade. Anticipating present-day critics of neo-liberalism,
Child voiced misgivings over the potential bad effects that ‘unfettered’ competition could bring about. He also pointed out that the trade needed military protection, which was best supplied by one large agency empowered by a royal edict.

As one would expect, Child’s India policy, partly implemented through the Surat governor, his protégé and namesake John Child, saw more money being spent on local defence than before. Josiah Child was not alone in pursuing this course of action. The other principal shareholder, Thomas Cooke, who was a partner of Josiah in bribing the Court, endorsed a policy of aggression in India. Both these aspects of the old Company’s activities became controversial in the wake of renewed political instability at home and a spat between Aurangzeb and John Child in Bombay.

The Glorious Revolution of 1688, which made the Dutch stadtholder William III the king of England, occurred at the same time as the Company had to battle a lobby of interlopers in the House of Commons. A number of moves were organized by those adversaries whom Child had angered during his leadership. They supported reissuing of stocks, limiting individual holding, even suggested the dissolution of the Company. The handloom weavers affected by imported Indian textiles declared their hostility to the Company. As the
historian Alfred Plummer has shown, the weavers rioted when petitions to the Parliament for prohibition on the trade failed. A customs duty was imposed on Indian goods in response to their grievances, but the duty was hardly a check on the volume of demand. What strengthened the animosity was the public knowledge that the two richest corporate bodies in London, the City and the Company, were mainly employed ‘for corrupting great men’. The old company paid generous bribes to ministers and officers who had influence in the court to defeat moves against it, paid the king himself £10,000, and offered him £50,000, which he refused.

A committee was set up by the House of Commons in 1693 to enquire into these allegations. The Committee sat in Leadenhall Street, sifted through volumes of ledger, and was mystified by an item of expenditure called ‘special service’ under which thousands of pounds had been spent, and the purpose of which the new governor Cooke alone understood. Suspicious contracts of saltpetre awarded to individuals close to the members of the Board were discovered. Although no money was found to have changed hands, the committee was informed that one of Cooke’s trusted agents was sitting with a large sum of ready cash, clearly waiting for the storm to pass. Cooke was sent to prison pending a full confession. In the end, nothing came of the enquiry
because a key witness to this transaction escaped abroad. But the Company had lost its moral right to a monopoly.

These developments had a complex effect on the role of the Crown in East India trade. The new arrangement reduced many of the royal prerogatives with respect to Parliament, but increased the monarch’s say in matters concerning overseas trade. As we have seen, prominent interlopers had the backing of a lobby within the Parliament. And yet, throwing open the trade would amount to opposing the Crown that had issued the charter. The Crown continued to have an acute interest in the matter, because the East India trade was a huge source of tax revenue and a war with France had made this revenue even more keenly needed as the Crown found itself desperately short of money. The Company made a guaranteed payment to the state. There was a justified fear that private traders would escape paying any tax at all.

The compromise that emerged from a messy negotiation was a new East India Company in 1698, formed of the capital of prominent interlopers. The king allowed the new company to form, while respecting the old company’s rights to prosecute individual interlopers. Both monopoly and competition, thus, were accommodated in a new charter. The resolution of the conflict was hardly ideological, though. While the old
company bribed parliamentarians, the new company extended a cheap loan to the state, a burden it could ill afford to carry and which ensured its early death.

Even if the idea of monopoly had suffered, there was something to be said for a ‘natural’ monopoly, a single firm large enough to make use of the economies of scale in this business and to weather the still considerable risks. The old company possessed an array of forts, warehouses, ships, garrisons, vast capital, had access to thousands of artisans and merchants whom it did business with, and could offer the lure of dividends to scare away competition. The new company was starved of money, until the first instalment of interest became available on its extravagant loan. Eventually a merger was proposed, through the mediation of the treasurer, Sidney Godoplhin. His interest in pushing through the merger was fiscal in nature. The state needed money more acutely than ever before, and a single point of taxation of the profits of trade was better than two. In 1708, the rivals, then known as the English Company and the London Company, merged to form the United Company of Merchants Trading in the East Indies, which now became the holder of monopoly trading rights in the East.