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Boundless Ambition, Bitter Ruin: The Tale of the $8 Trillion East India Company
Companies rise and fall, often in unpredictable ways.
Few stories better illustrate this better than the fate of the British East India Company in 18th-century Bengal.
This corporate behemoth grew into a powerful force that challenged even nations. At the height of its stock bubble, its value hit about $8 trillion in today’s dollars.
That’s equal to the market capitalization of Apple (AAPL), Microsoft(MSFT), Google(GOOGL), and Amazon (AMZN) - combined.
Inevitably, the East India Company overextended itself through greed and hubris.
The dramatic arc of its rise and fall offers timeless lessons on power and its limits that still resonate today.
Our tale begins in 1600. That was the year Queen Elizabeth I granted a corporate charter to the British East India Company. It would become the world’s first multinational corporation. It came to control both trade and territories in India as well as a trade monopoly with China.
For over two centuries, this trading giant shuttled spices, cotton cloth, tea, and opium in massive quantities. It made its investors enormously rich.
Opportunity in India
By the mid-1700s, the East India Company’s influence had expanded across India.
Sensing the boundless opportunity for further conquests, the company set its sights on Bengal. This part of India was part of the declining Mughal Empire. It was also home to one of India's richest provinces. The company had its own massive private army and could operate like an independent state. This power encouraged it to try aggressive tactics to subjugate Bengal and loot its legendary wealth. (The English word "loot" is of Bengali origin). It also launched a bubbly stock frenzy surrounding East Asia Company's stock back in London.
Leading the company's charge was Robert Clive, an unassuming clerk propelled to military commander. With just 3,000 troops against Bengal's 50,000-man army, Clive resorted to bribing disaffected Bengal generals. The scheme worked brilliantly. When the Bengal capital fell, Clive shipped its entire treasury—worth around $230 million today—back to the East Asia Company.
As “The Gentleman's Magazine” from March 1767 put it:
'The prodigious value of these new acquisitions may open to this country such a mine of wealth as not only in a few years to pay off the National Debt, to take off the land tax, and ease the poor of burdens from taxes, but to add to the dividends upon the company's stocks such a proportion of the increased revenue as will astonish Europe and exceed the most sanguine expectations.'
Bengal was now under the East India Company's thumb. It hiked taxes and monopolized trade, reaping gigantic profits. Company shares surged from £39 to £245 over just two years. Clive collected £22 million for himself through shady insider deals. Back in London, investors enjoyed over 12.5% dividends.
Yet the Bengalis suffered miserably under the company's greed. The East Asia company slashed already low prices it paid locals for goods like silk and cloth. Weavers cut off their thumbs to avoid working for the East India Company. A drought led to famine in 1769-1770. The company hoarded grain supplies, causing food prices to skyrocket out of reach for average citizens.
Over 10 million Bengalis died—one-third of the population. That death toll exceeded Britain's 6.4 million population at that time.
This news of mass death in Bengal shifted public opinion against the East India Company. But it was too late. The company had overextended. It had taken on too much debt.
“Too big to Fail”
But it had also become “too big to fail.” The British government bailed it out in 1773 to avoid a devastating collapse.
Parliament had seen enough of unchecked corporate excess. The 1773 regulatory act curbed the company's charter. It introduced parliamentary-approved people to run both Bengal and the company. It paid dividends only under direct government management.
Robert Clive - dubbed "lord vulture" by the press -morphed from hero to villain. He barely survived a parliamentary censure from the inquiry. Clive ended up slicing his throat with a paper-knife after ingesting a cocktail of opium and alcohol.
The East India Company languished in decline before its final dividend payment and its dissolution in 1874.
In retrospect, the East India Company's downfall seems inevitable. Its meteoric rise fostered boundless ambition unchecked by legal limits. Its huge private army essentially freed it from government oversight. The excesses and indifference it displayed mirrored its culture of greed and corruption. Its ultimate ruin became inescapable.
The fate of the East India slicing company remains a cautionary tale for today's global giants. Ultimately, mammoth concentrations of power lead to greed and corruption. And inevitable downfall.
For a more complete historical overview of the East India Company in India, watch this video