The English East India Company (EIC): Model for Future Multinational Corporations?

By

 INTRODUCTION

 

The English East India Company (EIC) was an innovative new type of corporation. It was not only a multinational corporations but it was created to exploit the profit potential of global trade. 


It might be a model for how a multinational corporation (MNC) could survive and prosper in an increasingly chaotic and hostile geopolitical world.


For a description of the structure and strategy of the English East India Company, see The English East India Company (EIC):  Trade with Asia

 

 

THE EIC AS A MODEL FOR FUTURE MNCs?

 

The international political structure is now moving in reverse as the post-World War II economic and political order created mostly by the United States is breaking down. America seems to be less willing to pay for global political leadership, reverting back to its traditional policies of isolationism and protectionism. It hugely expensive military is paid for with deficit financing. Wealthy countries cannot pay for all of their programs; frustrations seem to be expressed in voting for nationalist political parties headed by authoritarian leaders. Most wealthy countries, including the United States, are attempting to limit immigration. Most of the more than 100 new countries created after World War II are dysfunctional or corrupt. Civil wars and local conflicts disrupt the global economy, in addition to terrorist groups, pirates, and criminal gangs.

 

 

At the same time, the global economy dominated by multinational corporations operating on a global scale continues to expand. Markets, supply chain technology and organization, telecommunications, transportation, and finance are now all global. They all transcend national borders. Multinational companies have stronger economic links with companies in their ecosystem in other countries than with the rest of their national economy.

 

 

While the East India Company operated in a different era, it may suggest some lessons for our times because it operated in a fragmented Asian environment similar to the global one currently evolving. The global political system constructed by the United States after World War II is breaking down. There are over 200 nation-states and territories. Many are poor or small. Many are autocratic (not democratic). But all are sovereign within their borders, although in many cases this sovereignty is limited.

 

 

The greatest danger now (2024-25) to multinational corporations, predominantly American, is the American government. President Trump's pursuit of narrow mercantilist goals — fluctuating tariffs and trade restrictions, attacking universities and greatly reducing research funds, cutting off immigration of technological and scientific personnel, increasing shipping costs, and extorting money from large companies — adversely impact multinational corporations.

 

No country, with the possible exception of China, protects and supports its companies abroad. (More detail – similarities and differences from EIC. More instruments of Chinese geopolitical projection of power and influence? What about new high-tech companies?) Many are state owned and share some similarities with the EIC.

 

Maybe multinational corporations, in this environment, will evolve to be more like the EIC. They will need some way to protect themselves from the “extractive” policies of political elites. Governments have power - sovereignty, guns, laws, forms of coercion, corruption and cooptation, “populist” support, that can be used against private companies. They have centralized bureaucracies and armies. But companies control most economic resources (except natural resources like fossil fuels and minerals) and innovate new technology. They have large financial resources. Employees of multinational companies may possibly have alternative loyalties.

 

 

MORE SPECULATION ON FUTURE MULTINATIONAL CORPORATIONS

 

For a wildly imaginative vision of a future society (not too future) dominated by powerful corporations similar to the EIC (with advanced technology similar to AI), see Neil Stephenson's The Diamond Age. The book centers around an English global company much like the EIC. This corporation combines nostalgic Victorian culture and loyalties with advanced technology and political power.

 

No one seems to be conjecturing how corporate structures and economic organization will be affected by new technologies such as unsupervised AI, AI-driven singularity, and quantum computing. In an environment of shrinking population and labor force, burgeoning national debt, and increasingly dysfunctional (or to be fair, overwhelmed) central governments.

 

Another vision is in Donald Westlake’s Good Behavior. It argues that the political structures of nation-states are breaking down. The world is becoming more like the feudalism of the Middle Ages. Kings and emperors (central national governments) had limited power. Local areas were controlled by different types of aristocrats – barons, princes, dukes, etc. The people in a barons’ area of control were loyal to the baron, not the king. Local rulers fought each other. To a large extent, barons were independent of kings and their governments.

 

Multinational corporations (MNCs) have some of the attributes of the medieval barons. Sovereign in their own domains, they demand loyalty, negotiate and compete with other. MNCs are part of a hierarchy of organizations with responsibilities to each other. 

 

Multinational corporations are increasingly at the whim of national policies, particularly those of autocratic rulers. Autocratic rulers commonly threaten and extort funds from corporations. 

 

When the political objectives of nation-states begin to seriously reduce and jeopardize the profits, or even the survival of multinational corporations, MNCs might began to take measures to protect themselves. Some of these measures may bring them into direct conflict with nation-states.

 

Already there are large areas where the national governments’ writ doesn’t run. Many groups besides MNCs avoid national power and control. Companies and wealthy individual avoid national laws and launder money, often gained from illegal activities. The more sophisticated, ones who hire lawyers and specialized financial consultants, use shell companies. Cryptocurrencies are used to avoid the financial system and reporting of income. Drug and criminal gangs control large areas. Other areas are controlled by ethnic groups at war with the central government. “Informal” and illegal economic activity beyond government control or oversight make up a large part of the economies of many countries.

==========================================

For historical background and context on the EIC, see

Comments

Post a Comment

Most Popular Posts

Adam Smith's Pin Factory

By
Image
Adam Smith - Our Founding Father ADAM SMITH VISITS A PIN FACTORY   Adam Smith’s description of a pin factory is on the first page of  The Wealth of Nations .  (Chapter 1 – “Of the Division of Labour”)  Drawings of pin factories of this period show workers using hand tools. Smith says the process can be broken down into 18 distinct steps, including packaging the pins. Smith mentions that pin factory workers were poorly paid, despite their high productivity.    Adam Smith says he visited a pin factory employing 10 men who produced 48,000 pins per day.  If each of the ten workers had done all the steps themselves, Smith says each worker could produce only 10 or 20 pins per day.  So the pin factory replaces 2,400 to 4,800 pin makers. The increase in labor productivity (output per person per day) is as high as 50 times that of individual pin makers.     This reduction in unit cost or average cost (AC) and the huge i...
Read more

Bilateral Oligopoly

By
Image
The best movie about the Gunfight at the O.K. Corral is titled My Darling Clementine. A great western - great cast, great photography.  DEFINITION OF A BILATERAL OLIGOPOLY Models of market structure assume that the demand side is represented by a large number of buyers.  The structure of the market, and the assumed market outcomes, depends on the number of suppliers and how they compete.  Suppliers either post one price or exploit their knowledge of buyer categories by using price discrimination.  Despite the comments about the key role of consumers in determining economic performance, consumers are fairly passive when the discussion focuses on imperfectly-competitive industries.  But many markets are not structured this way; the buyers are not passive consumers but large corporations that do not passively accept suppliers’ prices.  Net prices are actively negotiated.  These markets are often bilateral oligopolies. In a bilateral oligo...
Read more

The Stock Market Crash of 1929 and the Beginning of the Great Depression

By
Image
Famous Headline Before You Begin If you don't know the background of this complicated story, you might want to first read a shorter version that introduces some of the key factors explaining the Crash and the Depression. See, Introduction to the Stock Market Crash of 1929 and the Beginning of the Great Depression Before reading this essay, I strongly recommend you see the PBS video on YouTube. Type in Stock Market Crash 1929. Look for US – The Crash of 1929 (PBS), ALLHISTORIES – PLAYLIST.  Documentary broken into 6 parts to show commercials. Great documentary with wonderful photos, videos, and scenes from movies of the 1920s and the crash. Shows what a crazy time this was.  Introduction The usual reasons given for the Great Depression – the stock market crash of 1929 and the later collapse of the banking system – do not tell the whole story. Available economic data (there were no national income accounts in 1929) indicate that a recession had already begun be...
Read more

List of Posts By Topic

By
Image
FIND POSTS BY CATEGORY The Beginning of the Industrial Revolution The theme of the following four sections of the blog is that innovation, not price competition, is the basis for understanding economic growth, competition, and analysis. Basic Concepts and Theory Market Behavior and Structure Market Dynamics and Information:  How Markets Work Economic Theory and Markets There is beginning a historic change in future populations and their demographics. This will interact with other variables and have a serious, maybe profound, effect on future economic growth. Demographics and Economics China Geopolitics and the Global Economy American Economic History Management The world seems to be in the midst of radical political and social change. Where are we going? Can studying past periods and countries facing disrupting change help us navigate our times? Maybe. HISTORY American History World War I:  The Beginning of the 20th Century The Roman Republic and America - Differences and...
Read more

Government Finance 101. Fiscal Policy: Welcome to Alice in Wonderland

By
Image
Secretary of the Treasury PRELIMINARY SUMMARY OF FISCAL YEAR 2025 BUDGET   The Congressional Budget Office (CBO) made their latest projection in January, 2025. The projected deficit in fiscal year 2025 will be around $1.8 trillion, the difference between about $5.2 trillion in revenue and $7.0 trillion in expenses. Interest on the national debt this year will be around $950 billion, over twice the interest expense in the fiscal year 2021 budget. By 2035, the CBO expects the  yearly  budget deficit to increase to $2.7 trillion.   Interest expense this year passed budgeted outlays for the military. It is about equal to Medicare, and also to total non-defense discretionary spending.   Leaving aside Social Security and Medicare, interest expense is  about 20% of total budget outlays. Interest expense is about half the budget deficit.   The $1.8 trillion budget deficit is 6-7% of total GDP, or approximately 10% of consumer spending. Adding the $1 trillio...
Read more

Explaining Derivatives - An Analogy

By
Image
You go around to farmers with cows. You buy all the cows and pay the farmers a small fee to milk the cows and sell the milk. You pay for the cows with ass(et)-backed securities called MBSs (Milked Bovine Securities) that you tell investors are udderly safe. But some of the cows don't give enough milk (cow flow problems) or give no milk at all. You take some of the asset-backed securities, say they're backed by the subprime cows, and use them as collateral to sell another set of securities called CMOs (Cow Milk Obligations). Then you buy CDSs (Cow Dried-up Swaps) from AIG (Angus Insurance Company) to insure the CMOs when the cows stopped giving milk. If you work it right, you collect more on the CDSs than you pay out to retire the CMOs. The money you get from selling the dead cows go to pay the CLOs (cow leather obligations). You could also sell CDOs (cow dung obligations) that depend on how much cow dung is produced. This is a typical Wall Street product - turning s...
Read more

Josiah Wedgwood, the Wedgwood Pottery Company, and the Beginning of the Industrial Revolution in England

By
Image
Wedgwood Anti-Slavery Cameo A better introduction to the beginning of the Industrial Revolution than Adam Smith is the history of Josiah Wedgwood and the Wedgwood Pottery Company. This is how one company actually ushered in the Industrial Revolution. The revolutionary generation that first adopted steam engines saw the following trends and changes: Manufacturing was being modernized by a small group of entrepreneurs. Much of the new raw material processing and manufacturing was concentrated in a small area in the middle of England, away from London. These modernizing entrepreneurs formed a new economic, intellectual and social network. Modernizing entrepreneurs like Wedgwood tended to be members of Dissenting sects (like Quakers) or Nonconformist churches (not members of the Church of England), Whigs (liberals) in politics, and believers in “progress.” They were optimistic about the future, influenced by the ideas of Hume, Rousseau, Locke and Adam Smith. They believed...
Read more

The Roman Republic Commits Suicide: A Cautionary Tale for America

By
Image
Roman Legion Why Study Rome? Americans have focused on comparisons between Rome and America twice in American history.  The first time was during the period from before the Revolution to after the ratification of the Constitution and Bill of Rights, when the founding fathers and others looked to the Roman Republic for ideas and inspiration on how to structure the new government. After the American Revolution, the founding fathers, having read the Roman authors detailing the collapse of the Roman republic, worried about internal threats to the survival of their new republic.   The second time was when the United States became a superpower, especially after WWII, and then again after the collapse of the Soviet Union in 1991. Commentators compared America to the Roman Empire at the height of its power. There was some discussion about how America became a permanent warfare state and how it affected domestic democracy and civil society. ...
Read more

John von Neumann Sees the Future

By
Image
John von Neumann JOHN VON NEUMANN CREATES THE FUTURE If you want to understand the world we live in, you have to know about the thinking of three men – Alan Turing, Claude Shannon and John von Neumann.   I’ve talked a little about Alan Turing in an earlier essay.   All three men knew each other, discussed their ideas with each other, and promoted each other’s ideas. John von Neumann has been called the smartest individual of the 20 th Century.   Even an outline of his accomplishments, which you can read about in  Wikipedia, is hard to believe.   He invented game theory, which I discussed in two earlier posts.   He headed up a group of mathematicians who invented new statistical techniques at Los Alamos that made the atomic bomb possible.   In 1944, he wrote a memo that outlined the structure of the modern computer.   He then managed the design and building of a modern general computer and consulted on the building of virtually all...
Read more

“Pax Americana”: The World That America Made

By
Image
There are two kinds of empires: the kind that rules through ruthless exploitation, and the kind that seeks to induce allies into defending themselves through economic incentives. (George Friedman) INTRODUCTION America's power and influence in the world rests on three broad, interrelated bases: 1) Overwhelming military power that can be projected anywhere in the world,   supplemented by security arrangements with allies and supporters. 2) A large, innovative, dynamic domestic economy as the basis for global economic and technological leadership. The economy provides the resources and technology to support the military and a global foreign policy. 3) Claims to moral and ideological leadership and influence, particularly the promotion of liberal democratic societies and supporting political institutions. This post will discuss the economic aspects and related security objectives of American foreign policy. It will focus on the structure of the global...
Read more