East India Company: learning something new

[patrick_mcmurray]

In the spirit of the learning something new thread, and following up my "tips on how to study history thread", here is my first essay of term.

It is on the East India Company, which basically ended up ruling most of India in the late eighteenth century.

I find the topic very interesting. The essay is pretty much finished but not quite. So if you have any points about it I'd be more than happy (and grateful) to hear them.

best regards,
Patrick


Why did the EIC move away from trade towards territorial administration between the 1750s and the 1830s?

Today the extent and nature of corporate power are issues that have become familiar. Statistics which demonstrate that the world’s largest multi-nationals have economies that dwarf those of many countries are commonplace. Yet these issues are hardly new. This essay will broadly accept the point that the East India Company (EIC) moved from trade and towards territorial administration between the 1750s and the 1830s. However it will be argued that trade was still an important part of its activities and motivations, and so that the move into territorial administration can be seen as a development rather than as being a simple transition. The question as to why this development took place will be set in the context of the Indian political landscape of the time. It will be argued that the declining Moghul Empire left a power vacuum and a period of political uncertainty that the British were able to exploit. The initial phase of territorial administration took place in Bengal, and in outlining this point will be emphasized that this change was at first motivated - at least partly – by a desire to protect trading interests. The development of the EIC’s army was to prove crucial in more ways than one. It allowed the acquisition of territory, which in turn allowed vast amounts of revenue to be generated by taxing the Indian population. This, it will be argued, was the primary motivation for the move towards the administration of territory. But, alongside this development, trade continued. And the acquisition of territory had important implications for the EIC’s ability to control the terms of this trade. The expansion of the EIC’s activities was intimately linked to the mindset of those who worked for it. Their motivations – a blend of opportunism and patriotism, the emphasis perhaps being on the former – are important in terms of explaining why the Company moved in the direction that it did. But was the EIC fully in control? The size of its army and administration – and the consequent expenses associated with these – came to demand the acquisition of more and more territory. The move from trade towards administration came to have a self-perpetuating quality to it. It will be argued that the EIC’s ambitions led to its being overstretched, and ultimately, to its downfall.

The British EIC was founded in 1600 as a trading company, with a monopoly on all trade in the East Indies. Throughout the seventeenth century it established a string of trading posts along the eastern and western shores of India, the jewel the crown of which was to become Calcutta, in Bengal. The EIC exported spices, silks and cottons from India to the British market, and the trade was a profitable one. In 1674-5 the EIC exported £155,000 of British manufactured goods, £410,000 in silver bullion, and imported £860,000 worth of Indian goods, largely textiles. It also entered the shipping business both within India and between India and other Asian destinations, especially China, having seen the opportunity to make money by competing within pre-existing Asian trading networks.

By 1815, however, the EIC governed, directly and indirectly, Bengal, much of the upper Ganges basin, and extensive areas of eastern and southern India. It had its own army of 150,000 men. Independent princes feared its power and many sought its friendship and protection. Financially it was principally dependent on land taxes collected form the provinces it ruled. It was deeply involved in the administration of these provinces. Trade still mattered to the Company, but less than before. Since 1793 its monopoly had been whittled away by British govt which was falling under spell of Adam Smith’s economic theories. Also by 1810 interlopers had captured a quarter of the Indian market and were selling goods worth £2 m a year. India’s territorial revenues, not its trade, remained the chief prize in the East. The question’s assumption that the EIC had moved from trade to empire is to this extent correct.

The opportunity for the EIC to move from trade to territorial administration arose because of the declining state of the Mughal Empire in the second half of the eighteenth century. The central authority of the Mughal emperors was dissolving, and their imperial system had given way to regional states. This fragmenting of authority did not necessarily equate with political failure. It has been argued that decentralisation allowed a more rigorous local administration, and hence greater tax yields. But at the very least it meant that the Indian political landscape was in a state of flux. While the Mughal empire continued to exist – albeit increasingly tenuously – the British found themselves having to negotiate their terms of trade with India’s new leaders. These were the Nawabs, the leaders of the provinces, or statelets, into which India had disintegrated. Commercial negotiations were closely connected to political decisions and administrative procedures at the provincial level, and so the British found themselves increasingly drawn into both the politics and the administration of the changing political systems within India. It is debateable, certainly during the initial stages of these developments, as to what degree of intentionality there was on the part of the EIC to get involved in this capacity. These changes in its role were both insidious and incremental, as the Company was drawn into Indian politics. What is of less doubt, however, is that the possibility of territorial administration came to be seen as a great opportunity for the Company to increase its revenues.

Initially, however, the EIC’s impulse to control Indian territory was defensive in nature. In 1756 the Nawab of Bengal attacked and occupied Calcutta. The EIC’s trading interests were threatened, and the incident was a blow to its prestigious reputation. Clive wrested Calcutta back from Siraj in 1757 by inflicting military defeat at the battle of Plassey. He then installed a more favourable leader as Nawab. The customary land taxes passed into the hands of the Company, and the new Nawab - Mir Jair - was ostensibly in charge of the justice and policing. However by 1772 these functions had passed into the hands of the EIC as well. And while the administrative right to collect taxes (the diwan) was initially phrased as being a duty to the Mughal Emperor – and indeed was subject to checks by the Emperor’s officials – the EIC’s appreciation of the Emperor’s political weakness meant that they could keep the tax revenue themselves. So the British Empire came to be built on Indian taxation.

The key development immediately following the Company’s annexation of Bengal was the Company’s expansion of its army. This helps to explain the move from trade to territorial administration in two ways: it both facilitated and required territorial expansion. Bengal was followed by twenty years of intermittent campaigns to acquire more territory, which allowed the EIC to create and sustain its new position as a major military power within India. It became a power-broker, and used the British Indian army as a bulwark for trade in an era of continuing political flux. There was some resistance by the Marathas (in the west), and the Muslim sultans of Mysore (in the south) who attempted to build up European-style armies to fight the Company. But British technological and military superiority was very persuasive, and India’s provincial leaders realised the need to reach some kind of accommodation with this new political reality.

The most important financial implication of (and hence motivation for) the EIC’s political control over increasingly large areas of India, was that it allowed money to be made through tax revenues. Following the example of the French in the Carnatic, the EIC’s members quickly realised that the profits of territorial control were greater than the profits from trade. While the collecting of taxes was the EIC’s main concern, this could not be done in the abstract. It necessarily became involved in not just the administration but also the political and legal aspects of the territories that it acquired, as a means to the end of securing profit from these provinces.

This is not to say that trade became irrelevant, however. Trade continued alongside the administration of territory. Control of territory gave the EIC the power to set the terms of trade in its own favour. To put the point in economic terms, as well as providing the demand for Indian goods, the EIC were now able to have significant influence on the supply of those goods, and in particular on the prices that were paid for them: they were able to buy cheap and sell dear. Bengal’s weavers knew this to their cost. The EIC eliminated their freedom to sell to other merchants, so crushing their limited but financially important market autonomy, and exploited this administrative policy by imposing prices of 40 per cent below the market rate.

The final main financial aspect of the EIC’s military activities was that of simple looting. As Nehru observed, the Hindu word “loot” is one of the few that have passed into the English language. This was following Clive’s own example of having emptied the Bengal treasury immediately after the battle of Plassey, securing £250,000 for the Company, and £20,000 to put towards regaining his family’s ancestral seat at Styche, in Shropshire.

The personal motivations of the people who worked for the EIC help to explain the move towards territorial administration. A lot of money could be made if one was in a position of power within India; by securing favourable terms of trade, by siphoning off some of the money raised in taxation, or by accepting bribes from the area’s leading businessmen. Like Clive, many of the EIC’s employees wanted to make enough money to go back and join the ranks of the gentry. Some had not been able to afford to purchase a Commission in Britain. A second motivation was patriotic. Initially the EIC’s main military involvement was in fighting against the French presence in India, lead by Dupleix, in the context of the Seven Years’ War, and in restricting the French to trading posts in enclaves such as Pondicherry, thereby eliminating a major source of competition for the Company. Those working for the EIC believed that they were serving the interests of Britain in expanding territory and influence.

However by 1813 the Company’s finances were strained to breaking point. The costs of administration and of defending the borders of its territories from seemingly endless danger had become too great. It was forced to petition Parliament for assistance. The Charter Act of 1813 deprived the company of its India trade monopoly except for the trade in tea and the trade with China, and the British Crown asserted its sovereignty over the Indian territories which the Company had held. While the ideology of free trade played its part in these measures, the simple fact was that the EIC was no longer commercially viable. Ironically, the move from trade to territory – initially seen as being a lucrative opportunity - had contributed very significantly to the Company’s downfall.

The question as to why the EIC moved from trade to territory risks assuming too high a degree of agency on the part of the Company itself. While the Directors of the Company were in London, whereas the “men on the spot” who initiated the move towards territorial acquisition were many thousands of miles away. There were frequent differences of opinion, not least as regards the acquisition of territory. The overwhelming sense that one has when considering the rapid ascent and descent of the EIC is that of a lack of control. A nerve-wracking time for investors, indeed, raising early issues as to the need for more regulation of corporate activities. Although when one considers fairly recent events in corporate America (Enron, WorldCom), one wonders how much progress has really been made.

[img]/images/graemlins/tongue.gif[/img]

[poker-penguin]

As much as I agree with your conclusion, on a quick read it just felt like you'd tacked on a couple of "relevance to the present" sentences.

It also reads like a bunch of narrative with little analysis but that could just be me.

I don't like "final main financial" just from a stylistic point of view.

But yeah, looks solid (assuming it's roughly first year university level?)

[patrick_mcmurray]

[ QUOTE ]
As much as I agree with your conclusion, on a quick read it just felt like you'd tacked on a couple of "relevance to the present" sentences.

It also reads like a bunch of narrative with little analysis but that could just be me.

I don't like "final main financial" just from a stylistic point of view.

But yeah, looks solid (assuming it's roughly first year university level?)

[/ QUOTE ]

Thanks for taking the time to comment, PP.

1. Yes the relevance to the present points are pretty much tacked on. Just trying to indicate that it is relevant. Maybe not every student will have thought of this point.

2. On the issue of narrative versus analysis, there is little one can do other than answer the question given. History inevitably involves an element of narrative, but I like to think that this essay places the narrative squarely in the context of answering the question at hand, ie analysis.

Thanks again for your comments.

[poker-penguin]

1) I agree, although explicit "this is relevant damn it" comments tend to look heavy handed.

2) I didn't say it was a bad essay, I would probably say it's nicely in the B range for 1st year. I've proof read a lot of history essays. You're correct to make sure you answer the question.

However, I think this essay (and indeed 90% of short history pieces) would be stronger ordered thematically. Find two or three main reasons the EIC moved towards territorial control (profit, necessity, drive for power, the green and yellow weasel told them to while on an opium bender, whatever) and discuss each in turn. This makes it easier to display the analysis and understanding that earns As (assuming that's your goal).

Like I said I'm not trying to bash you, it's a decent essay, just offering my opinion.