The parallels between the East India Company and today’s state-owned firms are not exact, to be sure. The East India Company controlled a standing army of some 200,000 men, more than most European states. None of today’s state-owned companies has yet gone this far, though the China National Offshore Oil Corporation (CNOOC) has employed former People’s Liberation Army troops to protect oil wells in Sudan. The British government did not own shares in the Company (though prominent courtiers and politicians certainly did). Today’s state-capitalist governments hold huge blocks of shares in their favorite companies.
I really liked this article because of it’s comparisons to today’s state-owned companies. Especially Chinese state-owned companies and their use of armed security. Now the big question is, will we see a day in which a modern state-owned company would have a standing army as large as the East India Company army? Who knows, but that is something I do like to track on this blog.
The Russians have also expanded the lethality of one of it’s state-owned companies. Back in 2007, Russia signed into law allowing Gazprom and Transneft to arm their security force for the protection of pipelines and facilities. Gazprom is a huge company and they are the largest natural gas extractor in the world, and the largest company in Russia.
Now what I always pondered with this stuff is the clash between state-owned companies and private-owned companies. Or state -owned companies and their private security or private military, clashing with other military forces or PMC’s. Especially on the high seas.
There was a recent threat warning where the Iranian navy might target merchant vessels in the Straits of Hormuz. In this situation, if there was an armed private force on a merchant vessel that was contracted by a ‘state-owned’ company, then that could be a situation where private force would combat a government force to protect company assets and personnel. The potential is there.
I guess my point is that back in the day, the East India Company had to protect it’s vessels from attacks by states and non-state actors all the time. They also raised an army on land to protect company assets as well, and this article identified the trend of these state owned companies and their private military or security as only getting bigger and more lethal in order to deal with expansion and control. A 200,000 man standing army, all under the control of a company is pretty impressive if you ask me.
The other thing I was interested in with this article was the mention of the bond as a means of dealing with the principal agent problem. Here is the quote:
The Company’s success in preserving its animal spirits owed more to necessity than to cunning. In a world in which letters could take two years to travel to and fro and in which the minions knew infinitely more about what was going on than did their masters, efforts at micromanagement were largely futile.
The Company improvised a version of what Tom Peters, a management guru, has dubbed “tight-loose management”. It forced its employees to post a large bond in case they went off the rails, and bombarded them with detailed instructions about things like the precise stiffness of packaging. But it also leavened control with freedom. Employees were allowed not only to choose how to fulfil their orders, but also to trade on their own account. This ensured that the Company was not one but two organisations: a hierarchy with its centre of gravity in London and a franchise of independent entrepreneurs with innumerable centres of gravity scattered across the east. Many Company men did extremely well out of this “tight-loose” arrangement, turning themselves into nabobs, as the new rich of the era were called, and scattering McMansions across rural England.
In modern times, we have the luxury of phones, cameras, the internet, jet aircraft, cars, overnight shipping, you name it. We have all of these tools at our disposal for the war effort, and yet we continue to have problems where a subcontractor on continent A, screws up something, and the head shed on continent B hasn’t a clue on what is going on. Or head quarters believes that things are getting taken care of, just because of emails and video conferencing–but they aren’t.
One of the solutions the East India Company came up with in their world that lacked the technologies of connectedness that we take for granted today, is the simple bond. That, and this ‘tight loose management’ concept that gave their company men ‘rules and guidelines’, but also the freedom necessary to make things happen throughout the world. And a man’s word was backed up by a bond, in which if they violated, they would literally pay for their mistake or violations.
It is such a simple little thing, and yet I am still perplexed as to why it is not used more in today’s contingency contracting? The East India Company depended on it, Renaissance period mercenaries and the towns that hired them in Italy depended upon it, and our Continental Congress and early Privateers all used the bond as a means of keeping everyone honest and on task. Perhaps problems with today’s contracting could have been minimized if we implemented a license and bonded concept for those contracts?
Cool article and check it out. –Matt
An armed East Indiaman vessel.
The East India Company
The Company that ruled the waves
As state-backed firms once again become forces in global business, we ask what they can learn from the greatest of them all
Dec 17th 2011
A POPULAR parlour game among historians is debating when the modern world began. Was it when Johannes Gutenberg invented the printing press, in 1440? Or when Christopher Columbus discovered America, in 1492? Or when Martin Luther published his 95 theses, in 1517? All popular choices. But there is a strong case to be made for a less conventional answer: the modern world began on a freezing New Year’s Eve, in 1600, when Elizabeth I granted a company of 218 merchants a monopoly of trade to the east of the Cape of Good Hope.
The East India Company foreshadowed the modern world in all sorts of striking ways. It was one of the first companies to offer limited liability to its shareholders. It laid the foundations of the British empire. It spawned Company Man. And—particularly relevant at the moment—it was the first state-backed company to make its mark on the world.