I was at a talk by Joel Bakan, writer and co-creator of the documentary The Corporation today here in Berlin. In the spirit of all that, let me share this story that has been sitting on my desktop for the past couple of days. By Venkatesh Rao:
On 8 June, a Scottish banker named Alexander Fordyce shorted the collapsing Company’s shares in the London markets. But a momentary bounce-back in the stock ruined his plans, and he skipped town leaving £550,000 in debt. Much of this was owed to the Ayr Bank, which imploded. In less than three weeks, another 30 banks collapsed across Europe, bringing trade to a standstill. On July 15, the directors of the Company applied to the Bank of England for a £400,000 loan. Two weeks later, they wanted another £300,000. By August, the directors wanted a £1 million bailout. The news began leaking out and seemingly contrite executives, running from angry shareholders, faced furious Parliament members. By January, the terms of a comprehensive bailout were worked out, and the British government inserted its czars into the Company’s management to ensure compliance with its terms.
If this sounds eerily familiar, it shouldn’t. The year was 1772, exactly 239 years ago today, the apogee of power for the corporation as a business construct. The company was the British East India company (EIC). The bubble that burst was the East India Bubble. Between the founding of the EIC in 1600 and the post-subprime world of 2011, the idea of the corporation was born, matured, over-extended, reined-in, refined, patched, updated, over-extended again, propped-up and finally widely declared to be obsolete. Between 2011 and 2100, it will decline — hopefully gracefully — into a well-behaved retiree on the economic scene.
Here.
There was an interesting follow-up to this story. The EIC had stocks of 17 mn tons of unsold tea and was being undercut in the important North American market by American and Dutch smugglers. The British government cracked down on the smugglers and granted the EIC a monopoly in the American colonies, substantially raising the price of tea there and putting the squeeze on local traders. The result was the Boston Tea Party and then of course the War of Independence.