The Story of the East India Company is a Lesson in Market Freedom

In debates over economic liberalization and globalization, the case of the East India Company is often cited as a cautionary tale against the free market. Indian historians and political commentators, on either side of the ideological axis, hold it up as a historic bogeyman when arguing in favor of tariffs, market restrictions, and economic control. Indians are warned against opening their gates to foreign trade and investment today, lest we repeat the same mistake that led us to two centuries of oppressive colonial rule. The Company’s draconian actions are recounted as illustrations of the various alleged demerits of market freedom. Considering the true nature and actions of the Company, this couldn’t be further from the truth.

India had always been the Old World’s most vibrant trade hub. Known for its overflowing bazaars bustling with activity and overflowing with produce, the subcontinent lay the junction of multiple land and sea trade routes. Despite being home to some of the most ambitious and overwhelming rulers and empires in history, India’s markets had remained unrestricted and largely self-determining, spare occasional fair-trade regulations and standardization.

The very origin of the English East India Company is shrouded in the impious nuptials of imperialism and capitalism. The Company started as a group of influential merchants who secured a Royal Charter from the Queen awarding them a monopoly on English trade with virtually half of the world. Having established a monopoly at home, it strove for the same at its trading site. It urged the British Crown to launch a diplomatic mission to the Mughal Empire, which then controlled most of the subcontinent. Therefore, King James, I directed the diplomat Sir Thomas Roe to visit the court of the Mughal Emperor Jahangir on behalf of Britain and win his favor by lavishing him with praise and presents. Roe stayed there for four years and became the emperor’s close friend and drinking partner. Jahangir granted them permission to operate but no exclusive trade deal was struck. Following the grant, the Company aggressively expanded, waging wars with other European trade powers, forging alliances, and sealing international deals. It began to rapidly equip and fortify its trading posts. Soon, it acquired a complete waiver for custom duties on its trade, a prerogative which was never extended to its competitors. Further, King Charles II brought forth a series of acts that empowered it with rights to autonomous territorial acquisitions, currency-minting, fortifications, raising and maintenance of standing armed forces, enacting diplomatic decisions, and exercising civil and criminal jurisdiction in its territory.

The Company would win favors and territories in the name of its nation and would claim bounties on behalf of the Crown. It would even settle political scores, manage international bargains, broker power, fight battles, and seal treaties and other intergovernmental agreements, representing Britain all over the Indian Ocean. At the local level, it undertook a continuous slew of less manifest operations – dabbling in succession affairs, instigating uprisings, offering protection, lending its forces, interfering in regular administration, and waging endless proxy wars among the various kingdoms and principalities that the subcontinent was then fragmented into.

Emboldened by successive permit and waiver grants from Mughal rulers, the Company consolidated the autonomy of its trading posts. Company officials exploited the royal decree awarded to it, to protect certain subjects, assert their economic-administrative autonomy, levy duties on inbound goods, and issue custom-free-trade passes at their pleasure, in the region of Bengal. These activities compromised the revenue-collection of the Nawab (local governor). In the fateful Battle of Plassey in 1757, the Company’s forces led by Robert Clive defeated the Nawab through a fine blend of tactic and conspiracy by bribing his general Mir Jafar and instigating a section of his courtiers, army, and subjects against him. The Company then appointed Jafar as their puppet titular Nawab. When the latter tried to assert his control and claim autonomy, he was replaced with his treacherous son-in-law, Mir Qasim, who in turn lost favor when he tried to take independent decisions. This culminated in the Company’s forces defeating the combined forces of Mir Qasim, the Nawab of Awadh Shuja-ud-Daulah, and the Mughal Emperor Shah Alam II at the Battle of Buxar. The humbled parties were forced to sign a humiliating treaty on terms chosen by the Company. The Company thus obtained rights to tax collection from a major portion of Northern India, keeping the respective rulers as titular figureheads in order to carry out what they saw as trivial tasks as governance and jurisdiction, opting to become kingmakers rather than kings. Subsequently, it started to instigate rebellions, forge opportunistic alliances and fight wars, as and when it saw fit. It introduced a policy of annexation called ‘The Doctrine of Lapse’ whereby a kingdom would automatically come under its rule should its ruler be deemed ‘manifestly incompetent’ or fail to produce a male heir, one of its many outrageous and manipulative political measures. Through indirect puppet governments, underhanded interference in wars and successions, and a deceitful divide-and-conquer policy, the Company consolidated its power.

During his tenure in India, Clive, the British hero of Plassey amassed an enormous personal fortune, which he used to secure himself peerage, upon returning home. He also procured membership of the Parliament. Jobs in the Company with posting in India became highly sought-after in Britain. A powerful lobby of the Company developed in the English Parliament. Many MPs owned shares of the Company and thus protected their personal interests in furthering the venture’s interests. The Company cautiously walked the line between being a government venture and a private corporation, as suited its opportunistic interests – freely utilizing British imperial geopolitical, strategic, and military apparatus to protect its territorial acquisitions and economic holdings and unabashedly requesting financial and political bailouts when needed while cleverly invoking its legal status as a ‘company’ to keep much of its profits and ulterior earnings from reaching the government. The highlight of this distinction would be based on flexible ‘definitions of convenience’ as per the demand of the circumstances. This pliability helped it shrug off having any accountability while appropriating all benefits, enjoying only the best of both worlds.

The Company had stepped in India appealing to free-trade principles to secure a full waiver of all customs and duties but as soon as it came into a policy-making capacity, it promptly imposed inordinate reverse tariffs and taxes, discouraging native producers, creating a forced demand for the poor consumer populace, and unilaterally imposing British factory-made goods upon them. Such outrageously unjust and exploitative measures rendered India’s long-running flourishing export trade impracticable destroyed all forms of local industry and caused an employment crisis. The collapse of established native textile production, handicraft manufacturing, and general trade compelled hundreds of thousands of artisans to return to villages and regress to peasantry, where indiscriminate, non-viable, abusive tax laws trapped them in an inescapable vicious cycle of debt and lending, leading to widespread famines. The company ended up effectively deindustrializing India, forging a vacuous, fabricated market, and sowing an aversion to the manufacturing sector that lingers in the country even today. The Company’s blind bubble of artificial profit growth soon burst as its policies culminated in widespread uprisings and mutiny, ultimately leading the same crown and parliament that it represented to revoke its authority, absorb it, and assume direct administrative control of its overexploited sub-continental market.

In an ideal past, the English East India Company would have competed with rival European and local traders in India and thus facilitated the liberalization, industrialization, and modernization of a country much in need of one. Rather than try to compete in the market, it tried to compete for the market, in courts, battlegrounds, and the parliament more than in the market itself. The story of the East India Company’s destructive, unsustainable rise and ultimate demise is a lesson against the intermingling of trade and polity.