Free trade is a myth perpetuated by the powerful
The modern European colonising enterprise, that is, the process of taking land and establishing political subjugation by force, in Africa and Asia began not with the arrival of military generals, but with the arrival of commercial merchant companies that commanded huge labour forces and armies.
It was in the 1600s that the first corporations that created the blueprint for colonialism and embedded that strain of often violent ‘amorality’ in the ‘DNA’ of modern corporations, an amorality that is hailed as a virtue in the economic orthodoxy in the present.
Two companies – the Dutch East India Company and the English East India Company (which we mentioned in a previous article for its abduction of Chief Xhore), led the colonisation of South Africa and India respectively in the 1600s – and were also the most successful and most profitable transnational corporations of their times. These companies served as vectors for the arrival of European expansion on the continent but also invented and refined key features of modern corporations such as:
– limited liability
– the issuing of shares/stock to ordinary members of the public to raise capital
– the trading of shares on stock markets
– the separation of ownership from management in governance
From today’s point of view, these features, amongst others, make corporations appear to be market-neutral vehicles of profit and accumulation, informing mainstream orthodoxy around free markets. However, to gain access to commodities and labour, these merchant corporations were fully backed by their national states to act as judicial and military proxies of the crown wherever they landed.
They also employed and enslaved thousands of people as part of the operations of their enterprise. According to Lucassen in, A multinational and its labour force: the Dutch East India Company, the Dutch company used both “free and unfree” labour, and that “the number of people who boarded over 4,700 ships bound for the East Indies between 1595 and 1795: nearly one million persons took ship from Europe in those two centuries, which averages 5 000 a year.”
A large proportion of these people working as sailors, soldiers, cooks, dockworkers, labourers died by disease, war, drowning and execution during their time working for the Dutch East India Company. It was a labour regime based on the disposability of enslaved people as well as Europe’s desperately poor men who worked for the company out of economic desperation.
Indeed, it was these appalling working conditions that caused the prevalence of illness that led the Dutch company’s governor’s Amsterdam to instruct one Jan Van Riebeeck to set-up a refreshment station in the Cape so that it could have a reliable source of food along the way to its chief trading station in Jakarta which it had renamed Batavia in 1619 after a series of violent confrontations with the local royal house of the region.
The Dutch built a permanent defensive fort as its headquarters in Batavia, much like it would do later in the Cape. Several thousand enslaved people from occupied Batavia would be transported to Cape Town to work for Dutch company, forming the basis for a multi-ethnic oppressed population in the Cape.
Between 1602 and 1750, the Dutch East India Company became the largest and most aggressive company of its trading era, establishing commercial dominance by force of arms as O’brien writes in Mercantilism and Imperialism in the Rise and Decline of the Dutch and British Economies 1585-1815: “over the first half of the seventeenth century the Dutch attacked the Portuguese, Spanish and Chinese empires and established a network of fortified trading posts, bases and plantations of their own in Asia under the control of the ‘Verenigde Oostindische Compagnie’ (VOC) Like the Portuguese but with more success, the Dutch used naval power and colonization in an attempt to monopolize the transhipment and sale of Asian spices (mace, nutmeg, cloves, and cinnamon and more important foodstuffs such as pepper and coffee) to Europe for the profit of the Republic.”
From the outset, these two companies were entangled and mired in national politics because they were state-owned/funded monopolies who were granted exclusive trade charters by the crown to conduct East Indies trade. The companies’ monopolies were important because they created “a captive home market for its products”, as Robins puts it in The corporation that changed the world: how the East India Company shaped the modern multinational:
“Monopoly provided incentive for undertaking what was a difficult two-year voyage from the docks of Europe, around the Cape, to Asia and then back again with sufficient goods and luxury for trade at home. To ensure profitability, trade meant exchanging all along the south East Asian coast, goods being exchanged at various points until the desired commodities finally stocked up and taken back to Europe.”
Both Adam Smith and Karl Marx criticised these corporations at the time, both recognising that monopoly excluded others from trade, but advancing differing critiques.
Smith critiqued monopoly for constraining free trade, arguing that: “Such a rich country as Holland, on the contrary, would probably, in the case of a free trade, send many more ships to the East Indies than it actually does. The limited stock of the Dutch East India company probably repels from that trade.”
But Smith also took the violence of occupation for granted, and thus argues later for monopoly as a temporary measure: “When a company of merchants undertake, at their own risk and experience (sic), to establish a new trade with some remote and barbarous nation, it may not be unreasonable to incorporate them into a joint stock company, and to grant them, in case of their success, a monopoly of the trade for a certain number of years. It is the easiest and most natural way in which the state can recompense them for hazarding a dangerous and expensive experiment, of which the public is afterwards to reap the benefit. A temporary monopoly of this kind may be vindicated upon the same principles upon which a like monopoly of a new machine is granted to its inventor, and that of a new book to its author. But upon the expiration of the term, the monopoly ought certainly to determine; the forts and garrisons, if it was found necessary to establish any, to be taken into the hands of government, their value to be paid to the company, and the trade to be laid open to all the subjects of the state.”
Marx however, apprehended the fuller political picture of mercantilism as a precursor for dispossessive European imperialism far clearer; writing in 1853: “The power the (English) East India Company had obtained by bribing the Government, as did also the Bank of England, it was forced to maintain by bribing again, as did the Bank of England. At every epoch when its monopoly was expiring, it could only effect a renewal of its Charter by offering fresh loans and by fresh presents made to the Government. The events of the Seven-Years-War transformed the East India Company from a commercial into a military and territorial power. It was then that the foundation was laid of the present British Empire in the East.”
Historian Nick Robins in The corporation that changed the world: how the East India Company shaped the modern multinational, observes that:
“it remains an oddity that although companies are among the most powerful institutions of the modern age, our histories still focus on the actions of states and individuals, on politics and culture, rather than on corporations, their executives and their impacts. If we are to fully understand our corporate present, then we must understand our corporate past …the Company exemplifies the constant battle within corporations between the logic of exchange and the desire for domination. Two centuries on, it demonstrates that the quest for corporate accountability is a perpetual exercise in directing the energies of merchants and entrepreneurs so that their private passions do not undermine the public interest.”
The template set by the two companies was followed by others such as the Hudson’s Bay Company, the Royal African Company, and the London and Plymouth companies. The Royal African Company (RAC), which was chartered in 1672, held a monopoly over the British slave trade between West Africa and the West Indies. The “free trade” in slaves was started in around 1712, and from then until 1759 the company also ran coastal forts for the British government.
These corporate histories help us understand that statement by the political economist, Karl Polanyi, that free trade is generally a myth perpetuated by the powerful. The challenge facing us is to uncover autochthonous ideas and indigenous forms of knowledge that can make a more progressive contribution to African economic development.
Armitage, David (2000) The Ideological Origins of the British Empire. Cambridge: Cambridge University Press.
Bohun, James (1993), “Protecting Prerogative: William III and the East India Trade Debate, 1689- 1698”. Past Imperfect Volume 2 pp 63 – 86.
Chang, Ha-Joon (2002) Kicking Away the Ladder--Development Strategy in Historical Perspective. Delhi: Anthem Press.
Chang, Ha-Joon (2003). Kicking Away the Ladder: The ‘Real’ History if Free Trade. Institute for Policy Studies. 30 December 2003. Available at http://www.ips-dc.org/kicking_away_the_ladder_the_real_history_of_free_trade/. Accessed on 25 March 2018.
Chaudhuri, KN (1981) “The English East India Company in the 17th and 18th Centuries: A Pre-Modem Multinational Organization,” in Companies and Trade in Blusse, L and F Gaastra pp 29 – 46.
Lucassen, J. (2004). A multinational and its labour force: the Dutch East India Company, 1595–1795. International Labour and Working-Class History, 66, 12-39.
Marx, K. (1853). The East India Company–Its History and Results”. New York Daily Tribune, 11. https://www.marxists.org/archive/marx/works/1853/07/11.html
O'brien, P. (2000). Mercantilism and Imperialism in the Rise and Decline of the Dutch and British Economies 1585-1815. De economist, 148(4), 469-501.
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Stephens, Beth (2002). “The Amorality of Profit: Transnational Corporations and Human Rights”. Berkeley Journal of International Law Volume 20. Issue 1 Article 3 (pp 45 – 90).
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