Dutch East India Company Essay

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In  the  mid-to-late   16th  century,  European  enterprises began to reassert  a time-honored interest  in the potential  rewards offered by long-distance  trade. Among them was the United East India Company, or Verenigde Oost-Indische Compagnie. The VOC, as it is often referred to, developed over the next two centuries into an organization so large and powerful that it is considered  to be the world’s first-ever multinational corporation.

The VOC was established as a charter company in 1602 by the Dutch parliament,  the States-General  of the Netherlands,  from a collection  of smaller companies. At the time, European economy and society, especially in England and Holland, were undergoing rapid  change  through  the  growth  of the  merchant middle class that preferred  trade rather  than land as the method of income. Within that was another  economic transformation: Bills of exchange emerged as a favored currency  for business transactions,  which, combined  with the opening  of banks in large cities and the first waves of colonialism, led businessmen to new concepts of investing their capital.

The Dutch  had been one of the leaders in creating a structure  of modern  colonialism that  involved merchant businessmen joining with their home states on the formation of monopolistic, imperialistic companies. One manner of effectively accomplishing such an outcome, they discovered, was to raise capital for ongoing  ventures  by pooling  individual  assets  into a single company. In return,  the individual investor would receive transferable shares of stock in the company. Then, at the point in time at which the venture turned  a profit, the company  would divide and disburse  the  profit  based on the  proportion of shares held by the investor. It was the VOC that became the first-ever company to begin—and benefit from—this practice of limited liability.

From  the  outset,  the  VOC turned  a profit  from its ventures and did so largely by buying low, selling high, and trading favorably in all manner of commodities across the Asian continent.  The capacity to do so systematically began with the company directors, the  Seventeen  Gentlemen,  dispatching  a few VOC fleets each year to the hub outpost  in Batavia (present-day Jakarta, Indonesia). These voyages had a tendency to last anywhere from seven to nine months in each direction, as the fleet sailed to Batavia and back via the Cape of Good Hope. When the fleet reached Batavia and unloaded its cargo of tradable goods and precious metals, servants, and instructions to the colonial High Indies Government, agents of the colonial government  would in turn  oversee the distribution  of cargo throughout the  commercial  hierarchy and local geography.

From there, VOC merchants  transported the imported goods, metals, and people to regions including India, Persia, Japan, and, later, China. The effectiveness of the  land-based  operation—and  the monopoly itself—was settled as much in various collection posts along the trading routes as in maintaining coercive or  inequitable  relationships  with  local populations. Through whatever means, the commodities, once  acquired,  would  be delivered  to  Batavia for shipment  to the Netherlands  on a returning  fleet. Upon arrival, the cargo would be brought  to a VOC warehouse  until  the company  saw fit to release the goods to the European market through  auction. The resultant profit was then used to provide dividends to shareholders  and fees to directors, and to fund existing and future company operations.

As an additional  part of their  business, the VOC financed voyages such as those on which Henry Hudson was sent in the early 1600s to explore and discover a more efficient route to India via Greenland. In any case, the sheer magnitude  and force of the overall operation—geographically, economically, organizationally,  politically, and  militarily—was at once the  basic element  in the  company’s early ability to reduce its risk and also precisely what led to a considerable amount of uncertainty  at even the minutest step in their business processes. As time went on, for instance, the Seventeen Gentlemen experienced difficulty in obtaining accurate information about goings-on in Batavia while also mismanaging the balance of better incentives and harsher sanctions to their many agents. But these relatively internal hindrances began to emerge in larger numbers around the same time as fiercely increasing external competition, most notably from the British East India Company that had gained its footing by the mid-to-late  17th century.

By the end of the 17th century and the beginning of the next one, the centralized authority within the VOC began to seriously break down. Some conveniently-situated VOC agents  found  power  in their positions,  for  these  agents  were  situated  in  manners that  would have allowed them  to direct  VOC resources through any channels they perceived to be beneficial. That is, the agents eventually recognized that they were effectively positioned  to act as principals, which meant  they could selectively become direct competitors of VOC principals should they so choose. Many acted on the opportunity in the interest of greater personal gain and, though  the formal hierarchy  remained  in place, the authority  of VOC principals withered away until the company was dissolved on December 31, 1795.

Bibliography:    

  1. Adams, “Principals and  Agents, Colonialists and Company Men: The Decay of Colonial Control in the  Dutch  East Indies,” American  Sociological Review (1996);
  2. H. Arnoux, The Dutch in America: A Historical Argument (private printing, 1890);
  3. B. Ekelund and R. D. Tollison, “Mercantilist Origins of the Corporation,” Bell Journal of Economics (1980);
  4. S. Gaastra, “Competition or Collaboration?: Relations Between the Dutch East India Company  and  Indian  Merchants  Around  1680,” in Merchants, Companies and Trade, S. Chaudhury and M. Morineau, eds. (Cambridge University Press, 1999);
  5. Gelderbloom and J. Jonker, “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market, 1595–1612,” The Journal of Economic History (2004);
  6. William N. Goetzmann and K. Geert  Rouwenhorst,  The Origins of Value: The Financial Innovations That Created Modern Capital Markets (Oxford University Press, 2005);
  7. Robert Parthesius, Dutch Ships in Tropical Waters. The Development of the Dutch East India Company (VOC) Shipping Network in Asia 1595–1660 (Amsterdam University Press, 2008);
  8. Prakesh, “The Portuguese and the Dutch in Asian Maritime Trade: A Comparative Analysis,” in Merchants, Companies and Trade, S. Chaudhury and M. Morineau, eds. (Cambridge University Press, 1999).

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