The East India Company: The original corporate raiders

One of the very first Indian words to enter the English language was the Hindustani slang for plunder: “loot”. According to the Oxford English Dictionary, this word was rarely heard outside the plains of north India until the late 18th century, when it suddenly became a common term across Britain. To understand how and why it took root and flourished in so distant a landscape, one need only visit Powis Castle.

The last hereditary Welsh prince, Owain Gruffydd ap Gwenwynwyn, built Powis castle as a craggy fort in the 13th century; the estate was his reward for abandoning Wales to the rule of the English monarchy. But its most spectacular treasures date from a much later period of English conquest and appropriation: Powis is simply awash with loot from India, room after room of imperial plunder, extracted by the East India Company in the 18th century.

By 1803, when the EIC captured the Mughal capital of Delhi, it had trained up a private security force of around 260,000- twice the size of the British army – and marshalled more firepower than any nation state in Asia. It was “an empire within an empire”, as one of its directors admitted. It had also by this stage created a vast and sophisticated administration and civil service, built much of London’s docklands and come close to generating nearly half of Britain’s trade. No wonder that the EIC now referred to itself as “the grandest society of merchants in the Universe”.

Yet, like more recent mega-corporations, the EIC proved at once hugely powerful and oddly vulnerable to economic uncertainty. Only seven years after the granting of the Diwani, when the company’s share price had doubled overnight after it acquired the wealth of the treasury of Bengal, the East India bubble burst after plunder and famine in Bengal led to massive shortfalls in expected land revenues. The EIC was left with debts of £1.5m and a bill of £1m unpaid tax owed to the Crown. When knowledge of this became public, 30 banks collapsed like dominoes across Europe, bringing trade to a standstill.

In a scene that seems horribly familiar to us today, this hyper-aggressive corporation had to come clean and ask for a massive government bailout. On 15 July 1772, the directors of the East India Company applied to the Bank of England for a loan of £400,000. A fortnight later, they returned, asking for an additional £300,000. The bank raised only £200,000. By August, the directors were whispering to the government that they would actually need an unprecedented sum of a further £1m. The official report the following year, written by Edmund Burke, foresaw that the EIC’s financial problems could potentially “like a mill-stone, drag [the government] down into an unfathomable abyss … This cursed Company would, at last, like a viper, be the destruction of the country which fostered it at its bosom.”

But unlike Lehman Brothers, the East India Company really was too big to fail. So it was that in 1773, the world’s first aggressive multinational corporation was saved by history’s first mega-bailout – the first example of a nation state extracting, as its price for saving a failing corporation, the right to regulate and severely rein it in.

Historians propose many reasons: the fracturing of Mughal India into tiny, competing states; the military edge that the industrial revolution had given the European powers. But perhaps most crucial was the support that the East India Company enjoyed from the British parliament. The relationship between them grew steadily more symbiotic throughout the 18th century. Returned nabobs like Clive used their wealth to buy both MPs and parliamentary seats – the famous Rotten Boroughs. In turn, parliament backed the company with state power: the ships and soldiers that were needed when the French and British East India Companies trained their guns on each other.

As I drifted on past the fort walls, I thought about the nexus between corporations and politicians in India today – which has delivered individual fortunes to rival those amassed by Clive and his fellow company directors. The country today has 6.9% of the world’s thousand or so billionaires, though its gross domestic product is only 2.1% of world GDP. The total wealth of India’s billionaires is equivalent to around 10% of the nation’s GDP – while the comparable ratio for China’s billionaires is less than 3%. More importantly, many of these fortunes have been created by manipulating state power – using political influence to secure rights to land and minerals, “flexibility” in regulation, and protection from foreign competition.

But the biggest Indian corporations, such as Reliance, Tata, DLF and Adani have shown themselves far more skilled than their foreign competitors in influencing Indian policymakers and the media. Reliance is now India’s biggest media company, as well as its biggest conglomerate; its owner, Mukesh Ambani, has unprecedented political access and power.

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Estimated to have cost $4.9bn – perhaps the second most expensive ballot in democratic history after the US presidential election in 2012 – it brought Narendra Modi to power on a tidal wave of corporate donations. Exact figures are hard to come by, but Modi’s Bharatiya Janata party (BJP), is estimated to have spent at least $1bn on print and broadcast advertising alone. Of these donations, around 90% comes from unlisted corporate sources, given in return for who knows what undeclared promises of access and favours. The sheer strength of Modi’s new government means that those corporate backers may not be able to extract all they had hoped for, but there will certainly be rewards for the money donated.

In September, the governor of India’s central bank, Raghuram Rajan, made a speech in Mumbai expressing his anxieties about corporate money eroding the integrity of parliament: “Even as our democracy and our economy have become more vibrant,” he said, “an important issue in the recent election was whether we had substituted the crony socialism of the past with crony capitalism, where the rich and the influential are alleged to have received land, natural resources and spectrum in return for payoffs to venal politicians. By killing transparency and competition, crony capitalism is harmful to free enterprise, and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression.”