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Between Monopoly and Free TradeThe English East India Company, 1600-1757$

Emily Erikson

Print publication date: 2014

Print ISBN-13: 9780691159065

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691159065.001.0001

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Conclusion

Conclusion

Chapter:
(p.173) Chapter 8 Conclusion
Source:
Between Monopoly and Free Trade
Author(s):

Emily Erikson

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691159065.003.0008

Abstract and Keywords

This chapter uses the case of the English East India Company to reflect on existing knowledge about overseas trade expansion, decentralization within organizations, the importance of context in the emergence and interpretation of networks, and the centrality of micro-to macro-level phenomena in historical change. The English East India Company played an important role in spurring the development of Europe and Britain in particular. Its success generated a tremendous amount of wealth, handed the British government the foundation of a global empire, and permanently altered the trade and economies of Britain and Asia. As such, the Company serves as an example of the importance of overseas trade.

Keywords:   English East India Company, overseas trade, overseas trade expansion, decentralization, social networks, historical change

Before the founding of the East India Company, Europe was a relative, if rapidly developing, backwater. England was a rural country with a largely agricultural economy, soon to find itself scrambling to emerge out from under the shadow of the Dutch in their golden age. By the time of the Company’s dissolution, India was a colony of Britain, which had become the preeminent global political power. The Industrial Revolution had transformed Britain into “the workshop of the world,” while the City played home to the most dynamic financial sector the world had yet seen. State capacity had increased dramatically. Economics was playing an increasingly influential role in politics. And inequality between nations had increased dramatically. Not only had England’s position in the world changed, the world itself was transformed.

The English East India Company played an important role in these events. Its success generated a tremendous amount of wealth, handed the British government the foundation of a global empire, and permanently altered the trade and economies of Britain and Asia. It will always serve as an example of the importance of overseas trade. In these chapters I have argued that a key component of the Company’s ability to successfully expand its operations for nearly two centuries depended upon the local knowledge and adaptive capacity introduced into firm operations through the entrepreneurialism and communication networks of the private traders. Chapter 3 highlighted the distinctiveness of the English Company’s relationship to private trade. Chapter 4 showed that increasing employee autonomy by granting private trade privileges was associated with increased transfer of information between ships through social networks via the mechanisms of rational imitation, conditional choice, trust, timing, and information diffusion. The increased information flow also acted to bring new ports into the regular trade network. Chapter 5 demonstrated that private trade pursuits led employees to explore new ports while weaving a cohesive network of trade between ports, creating a robust and efficient communication network for the firm. The process involved a concatenation of mechanisms (p.174) including the cultivation of a profit-maximizing ethos in Company employees, lack of organizational control leading to nonroutine behavior, small-world effects in which randomness increased network connectivity, and, once again, information diffusion. Chapters 4 and 5 illustrated that the autonomy of firm employees encouraged the exploration of new ports and goods. The networks of decentralized communication that sprang up in this period of autonomy allowed those new goods and markets to be incorporated into the larger system of trade. The result was continued innovation and expansion until the restructuring of the Company in the colonial period.

The title of the book, Between Monopoly and Free Trade, indicates my belief that the private trade practices of employees were so widespread and well integrated into Company operations that they effectively altered the organizational structure of the firm. I have argued that it was not truly a monopoly as is commonly held. In the strictest sense, this is not quite accurate. Increasing the trade allowances of employees may have expanded the pool of privileged traders, but it did not actually threaten the monopoly privileges of the Company. It is within the rights of a monopolistic company to license their privileges to others, as was the case with regulated companies of the time. However, the theory of monopoly, where profits are based in exclusive access to markets, does not adequately describe the basis for the East India Company’s long-term success. The private trade of its employees was not a pittance, nor did it merely appease employees. A conservative estimate of the size of the private trade, counting only private freight aboard Company ships, is 11 percent of the value of Company goods (Mentz 2005: 129); other more generous estimates value it at equal to or greater than the trade of the Company by the early eighteenth century (Krishna 1924: 125). Monopoly is an attempt to centralize market access, but the responsiveness and innovations found in the East India Company were tied to the opposite principle, increasing access to markets within a controlled framework.

On the flip side of the same token, the Company framework, monopoly privileges included, also benefited the private traders. The trade of the captains suffered tremendously after the 1813 and 1833 Parliamentary Acts stripping the Company of monopoly rights (Sutton 2010: 267–74). It was the Company that had borne the costs of defending the trading privileges—that were also extended to its employees—all along through loans to the government and vigorous prosecution of interlopers. Following a favorable court ruling, the Court of Committees of the Company brought charges against twenty-five private shipowners they considered guilty of trade to the East Indies and encouraged the persecution of sixty-five more (Stern 2011: 59). The advantage such efforts achieved was significant. Even interlopers initially preferred to be included in the monopoly rather than (p.175) abolish the privilege entirely. Evidence of this lies in their attempts to form the New Company, another chartered monopoly.

The factory system, which depended upon the formal Company framework for the large initial outlays necessary to constructing permanent settlements, was essential to the larger flow of timely information between English traders described in chapter 4. The factories acted as multiple hubs, capturing and dispersing information between merchants within the larger decentralized network. In times of political upheaval, English forts, factories, and settlements provided safe havens for English and even Indian merchants (Watson 1980a: 82). Despite claims to the contrary (Jones and Ville 1996a), there is no evidence that small-scale independent ventures, which would not have had the benefits of forts and factories, would have been more successful than the Company trade. Instead there were clear synergies between the private and formal trades.

Although the Company was a monopoly, it did not operate on monopolistic principles. And although the private trade flourished alongside the Company, this does little to indicate that free merchants trading to the East would have survived without the infrastructure created and maintained by the Company. The Company was not operating in a completely competitive marketplace, but it also never achieved a monopoly of any good. It was somewhere between the two.

In the section that follows I use the case of the English East India Company to reflect on existing knowledge about overseas trade expansion, decentralization within organizations, the importance of context in the emergence and interpretation of networks, and the centrality of micro-to macro-level phenomena in historical change.

History, Networks, and Analytical Sociology

Context

There is a tendency to think of networked forms of organization as part of a new movement in organizational design or perhaps as part of a new network organization of society. This perspective has been countered by the view that network forms of organization are enduring features of social and organizational life. If we consider social networks as patterns that link micro-behaviors to macro-outcomes, this clearly implies their existence across all of history and society. However, the perspective is also used in a sense that implies that social networks, understood as informal relations, are a constant feature of social life—a necessary counterpoint or glue for formal or market relations (Granovetter 1985). The English East India Company (p.176) gives a largely unprecedented opportunity to study the use and development of networks over more than two centuries as the firm developed. It therefore provides the chance to develop and ask more specific questions about informal relations, such as if they are more or less prevalent, more or less effective in different contexts. One of the more interesting findings is then perhaps that the impact of informal social networks varied over the life of the firm, decreasing as centralization increased. The structure of the organization itself had a large impact on network use and formation.

Because the East India Company’s structure evolved through contact between diverse societies and cultures different from each other and in many ways different from what we would find around the world today, the importance of social and cultural contexts is more immediately apparent than is the case in contemporary settings. For example, the idea of loyal company service was quite different in Stuart England than it is for employees of a large North American firm of today. The difference in the behavior of East India Company employees and IBM employees is correspondingly large. Considering the unfamiliar historical and cultural terrain of premodern firms highlights the effect of context on organizational practices and routines of both firms,1 which also feed into patterns of informal network use. The advantage is not particular to the case of the East India Company, although I would argue that historical and transnational network research is particularly well suited to increasing our store of knowledge about how social, cultural, and institutional contexts affect network formation and use.

Network research arguably began with the theoretical work of Georg Simmel. Simmel was a Neo-Kantian who developed the idea of a priori social forms, such as the dyad (two linked individuals) and triad (three linked individuals) (Simmel 1971: 6–22). According to Simmel, these a priori social forms had a determinative effect on the thoughts, beliefs, and behaviors of individuals independent of any specific historical or cultural circumstance.

Simmel’s theoretical work on social forms inspired an innovative and productive line of network research that focused on the effects of transposable social patterns of relations; however, as network research has grown an increasing number of voices have been raised in criticism of the emphasis on contextless forms, which seem to come at the expense of an explicit consideration of the characteristics of social actors and social environments (DiMaggio 1992, Emirbayer and Goodwin 1994, Pachucki and Breiger 2010). Instead of adopting a purely formalistic approach to social networks, the analytical sociology framework necessarily drives researchers to extensive consideration of both the agent and the agent’s operative social and cultural context. Although analytical sociology consistently asks researchers to base explanations in a lower level of observation, which may (p.177) seem at first to exclude consideration of the larger environment of actors, that advice is aimed at research in the social sciences that relies exclusively on explanations pitched at the level of impersonal macro-historical forces.2 The analytical strategy is never to contain explanation at the level of the individual social agent—as in a formalistic sociology or psychology—it is instead to enrich the analysis of large-scale social processes with the lived experiences of the individuals participating in them. This is part of the process by which researchers bridge the micro and macro levels of analysis. Thus cultural context and historical context are always in the end essential components of any network-based explanation that fits within the analytical framework.3

In the case of the English East India Company, the individual-level transfer of information through peer networks was tied to decentralization, but this occurred within two layered contexts. The first was a hierarchical organization. The organizational setting cannot be separated out from the peer networks because the effect of networks would have played out differently in other sites. For example, since markets are already decentralized, social networks may well dampen innovation and the adoption of novel ideas in such circumstances, even as they increase innovation in hierarchical organizations. This is an important condition for interpreting the analysis and demonstrates the potentially large impact of context; however it is a description of context that can be abstracted from specific social and historical circumstance.

However the development of effective social networks in the East India Company, that is, social networks that effectively channeled useful information within the firm, also relied upon contact with inclusive economic arenas in the East. The peer networks inside the firm were sustained by external circumstances, implying that open societies may be necessary to maintain networked and decentralized firms—that is to say efficient and innovative firms. At first blush this may sound like a generalization that could survive across different contexts; however even if commercially sophisticated, open societies consistently create stable environments for network forms of organization, which are in turn capable of sustained growth, unique historical circumstances will almost inevitably determine whether open societies arise in the first place, as was the case for the environs of the English Company.

Decentralization and History

The question of what causes economic growth also plays into larger arguments about the role of top-down versus bottom-up processes of social change. Because the English Company sat at the nexus of several important (p.178) strands of global history, the creation of new organizational forms, the rise of Britain to world hegemon, the expansion of global markets, and even the birth of economics, its history illuminates larger processes of historical transformation. The historical importance of the East India Company is not under debate, instead the question of concern here is to what extent the private trade affected the process of historical transformation.

I argue that the private trade worked within the organization itself to introduce vitality, local responsiveness, and capacity for adaptation to a large bureaucratic administration that would otherwise have been left behind by a changing market. The continued expansion of the Company was responsible for the British colonization of India, and the expansion of the British private trade was responsible for making the trade to Europe the largest portion of overseas trade in Asia (Steensgaard 1987: 145).4 Since the English private trade in Asia depended upon Company facilities and privileges (granted by Asian rulers as well as the English monarch), and the entanglements created by private traders helped draw the Company into the colonization of India, these historical developments should not be linked to either the purely formal structures of the Company or the English private trade in isolation. Instead they depend upon the relation between the private trade and Company. The push and pull between the coordinating hierarchical form of the Company and the many loose ends of the different desires and ambitions of enterprising individuals was at the center of this transformation. After the private trade moved out of the auspices of the Company, in the colonial period, the Company began a long period of decline and settled into a typical and unproductive pattern of exploitation. This history has implications for both globalization and processes of social change.

Globalization was first conceived as an irrepressible force, expanding in concentric circles of doux-commerce or culturally devastating cycles of creative destruction (Guillén 2001, Hirschman 1997). Research has shown that globalization, the establishment of international commercial and financial ties, is an uneven and ragged process that expands and shrinks (Fligstein 2001, Williamson 2006, Zelizer 2005), clumps together in certain areas, and excludes others (Kim and Shin 2002). The standard explanation for this uneven process attributes it to variations in the factors of land, labor, and capital that make business opportunities more or less desirable in different regions of the world. In other words, firms react to market conditions.

One objection has been to point to the role of institutions in shaping trade. This explanation has been offered by unorthodox economists as well as economic sociologists who emphasize the state’s role in constructing international markets. State intervention has negative effects in the form of trade barriers, tariffs, customs, and duties (Becker 1957, MacDougall (p.179) 1960). There are also positive effects. Overseas trade requires a host of institutions in order to reduce uncertainty to manageable levels and establish rules of exchange (Fligstein 1996, Fligstein and Mara-Drita 1996). States intervene in international commercial exchange in order to create these necessary institutions, thereby channeling the flow of overseas exchange (Gotham 2006, Duina 2005). In this book, I looked at both the institutional environment and the source of those flows, that is, the firm itself. A large part of the story of the English Company’s expansion has to do with firm characteristics. The firm was not driven merely by market conditions. The institutional environments of the East made the decentralization of the Company possible, but once installed, the decentralization of control within the firm drove trade into specific patterns that changed when the organizational structure changed.

When employees were granted a high degree of personal autonomy to pursue private commercial opportunities within Asia and a considerable amount of control over Company resources with which to pursue this private trade, social networks were a mechanism for personal exploration that expanded the size of the larger trade network. When the autonomy of the employees decreased, the impact of social networks on trade was significantly reduced. Internal control efforts shaped individual-level decisions, thereby molding the structure of the English trade network and, through this, affecting the larger process of globalization. The struggle for control between various levels of the firms affected the patterns by which the firm expanded—and since it was a large overseas operation, this also impacted the process of global commercial expansion.

Generally, exploitation is a static state. In an exploitative system, those who have power use it to gather resources and strengthen their own position. They have no reason to change or call into question a system from which they are benefiting—at the expense of others. Instead, they have every reason to protect the existing system in order to defend their own privileged place within that system. The oppressed are often too resource-poor to effectively organize any resistance. On the other hand, an entirely self-organized system is unlikely to produce the degree of coordination necessary to effect real change as well. Certainly, there is little evidence the English trade would have prospered as it did without the existence of the English Company.

It is rare to find instances of social organization that are both sufficiently well organized to collectively solve complex tasks and designed to distribute rewards (or profits) meritocratically—a strategy that encourages productivity and growth (Udy 1959). It is the tendency for social systems to fall into static rent-seeking states, which makes it important to identify the dynamics at work in moments when goods are distributed slightly more evenly. It is these moments, when rent seeking is somehow temporarily (p.180) halted, that produce economic growth (Jones 1988). In this case, that decentralization subtly changed the direction of world history by affecting the history of English–East Indies relations.

A confluence of circumstances temporarily created a situation in which the English private traders could act productively within a large, bureaucratic organization. To use the language of Michael Mann (1993), Harrison White (1992), and Richard Lachmann (2000), this transformative moment, a “conjuncture,” “interstitial emergence,” or “chain of contingencies,” reorganized the relationship between the East and West and affected societies on both sides of the divide. Ultimately, the system of exploitation was reasserted in the colonial period (a system that reduced the autonomy of the employees and, to a much greater degree, the colonial subjects), but the rapid expansion fueled by the private trade had left its mark on the global economy. The relationship between the micro level (i.e., the individuals) and the macro level (i.e., the Company form and social context), which can be analyzed through networks, is an important piece of the larger puzzle, which is framed by the relevance of open societies to economic development. To me it suggests a close connection among networks, employee autonomy, profit sharing, and innovation within successful organizations that I hope will continue to be the basis for further research.

Micro-Macro Linkages and Historical Transformation

Since networks are the primary means by which decentralized coordination and communication can take place, it makes sense that marginal actors, who are both excluded from many formal organizations and the most likely to push for social change, would use networks, that is, informal communications, as a means to coordinate activity. This fact suggests that networks, understood as a mechanism of decentralized communication, may be intrinsically tied up in or a likely or recurring factor in social change—given that communication is necessary for coordination. Networks to a large extent are defined by their mutability—this is, in the end, what makes them different from organizations or institutions. They link people together, but are still flexible enough to accommodate change. And in fact, the change networks facilitate may be a result of linking new groups together.

Harrison White, who presciently embraced and popularized the study of social networks in the 1960s, theorized networks as interfaces that create identity through linking mismatched pairs. The reconciliation of two different and disparate things creates a sense of identity and being (White 2008: 1–19). This insight gives a broad theoretical framework for (p.181) understanding how networks can be creative forces in the world. Building on relationalist theory, John Padgett and Paul McLean have convincingly argued that social transformation is produced by the intersection of new and different networks, showing that the partnership system of commercial organization emerged as an innovation in Renaissance Florence through the transposition of marriage and economic ties. The intersection and subsequent transformation of these two networks invigorated the Florentine economy—mainly through the dramatically increased capacity of the new partnership system—and transformed society, making it more amenable to the rise of civic humanism and republicanism (Padgett and McLean 2006: 1522). Padgett and Powell have recently developed these insights about network and systemic conjunctures into a general theory of institutional emergence (2012).

Networks are essential to the creation of these transformative linkages, exactly because they operate outside of and in the interstices of formal institutions and organizations. They are boundary-spanning devices, and therefore can create revolutionary connections between otherwise distant people. Thus it should be no surprise to those familiar with the history of the English Company that the dynamic networks within the firm depended upon networks of actors outside of the firm and located in Asia. By exploring these relationships in chapters 6 and 7, I hope to have contributed to the large literature emphasizing the importance of both global relations (Braudel 1972, 1977, Wallerstein 1974, 1980, Sassen 1991, Smith and White 1992, Curtin 1994) and the history of Asia (Lach and Kley 1965, Wong 1997, Pomeranz 2000) to the evolution of the modern world.

However, my attempt to contribute to this extremely macro-structural literature is based very much in the micro-level actions of the individuals of that time, and I hope it demonstrates some of the potential that an analytical approach poses for historical research in the social sciences. Analysis of the relations between individuals, whether communication networks or the availability of exchange partners, can shed new light on old historical dilemmas. Network models in particular give researchers a tool with which to model and analyze decentralized coordination. Since power tends to be centralized, for example in states and empires, and existing powers generally desire to retain the status quo that has kept them in power, coordination among loosely affiliated, disenfranchised actors is likely to be an important source of historical transformation—as it is, for example, in revolutions. In the case considered here, decentralized actors, the English Company employees, were not responsible for a social revolution, but they did inject a vitality into the English Company that transformed its position in the world—and by extension transformed global relations between Europe and Asia.

Since the time when the Annales school shifted history away from the study of great men, many historians have worked to illuminate the lives (p.182) of the large mass of individuals who fall outside of elite circles, but these have necessarily been focused illuminations of specific stories and individuals (e.g., Ginzburg 1992, Davis 1983). Network analysis presents a new method for studying the relationships between large groups of actors. And since it also reveals the causal force that patterns of relations can have, it provides social scientists and historians a new means of understanding how nonelite actors have shaped the course of history—through emergent patterns as well as goal-directed behavior, for example.

For sociologists the approach used in this book offers both a rich conceptual framework and a rigorous method for investigating and measuring specific social mechanisms. It is one of several tools that can be used to reveal how individual lives intersect and cumulate into larger institutional structures and historical patterns.

Notes:

(1.) In some ways, the disinterested model of loyalty for modern employees is perhaps stranger than the employee malfeasance found in the English Company (Sennett 1998).

(2.) This lower level has generally served as a shorthand for individuals, i.e., explaining collective outcomes by virtue of the actions of individuals, but it has also been argued that the relevant social agents for analytical sociology may in fact be interactions (Sawyer 2011).

(3.) This observation has been made repeatedly by contributors to analytical sociology (Hedström 1998, Rydgren 2009, Goldstein 2009: 162, Manzo 2010: 156, Demeulenaere 2011, Edling 2012). The importance of cultural context to understanding individual behavior has also been explored in great detail outside of analytical sociology (DiMaggio 1992, Martin 2011).

(4.) Steensgaard estimates that European overseas trade grew to more than Asian overseas trade in the first half of the eighteenth century—when the English private trade was growing exponentially and other companies were either stagnating, i.e., the Dutch, holding steady, or relatively small in comparison. (p.202)