Too Big to Fail

A fundamental belief that economic gain occurred at the expense of others lay at the heart of the EIC and encouraged the annihilation of competitors and the plundering of resources of foreign lands to attain economic supremacy. The company launched attacks and waged war due to the lucrative nature of victory. Officers received annuities and bribes from aligned ”leaders” installed on the thrones of formerly noncompliant rulers.

As wars grew more expensive, however, bribery, prize money, and plunder were insufficient to cover military expenses and a series of unresolved wars drained the EIC’s cash reserves. Consequently, the business took the next logical step: tax exploitation. Taxation slowed the export of bullion overseas, a significant benefit in mercantilist thought, and maintained a positive balance sheet. This money was also used to fund lobbying efforts to protect the company’s monopoly.

The Bengal famine of 1770, which killed ten million people, exacerbated dire financial conditions and heightened public concerns about corruption and despotism in India under British rule. The decision to increase taxes during the famine, in addition to earlier mandates to plant specific crops and regulations against hoarding, further exacerbated the situation and proved to be a step too far on the part of the EIC’s leadership. The company’s stock price plummeted as investors withdrew funds, and by 1772 the EIC was bankrupt, facing dissolution, and pleading for aid from Parliament.

The lobbyists’ response was an imperialist version of the phrase “too big to fail.” Insolvency meant the end of the hard-won British dominance in the subcontinent. The argument endured despite France overcoming the Royal Navy’s naval dominance to reclaim Indian possessions. The Regulating Act of 1773 stipulated a £1.5M loan and capped dividends. In addition, employees were banned from accepting bribes and illegal donations, and a governor general of Bengal was appointed to enforce the regulations.

Parliament’s error was in opting for a compromise and attempting to regulate the company rather than liquidating it, or leaving it, which proved to be unenforceable. Neither the politicians in London, nor the governor in Calcutta, could compel the EIC to comply with government regulations. Fifteen more years of corruption and war ensued. Parliament lost patience after passing additional legislation in 1784 and took decisive action. It impeached Governor General Warren Hastings, who was appointed in 1773. The chief prosecutor was Edmund Burke, who noted:*

Mr. Hastings’s government was one whole system of oppression, robbery of individuals, spoliation of the public, and suppression of the entire system of the English government. … I impeach Warren Hastings for high crimes and misdemeanors … in the name of the House of Commons of Great Britain, whose national honor he has sullied. I impeach him on behalf of the people of India, whose laws, rights, and liberties he has subverted … whose property he has destroyed and whose country he has left desolate. I impeach him in accordance with the eternal laws of justice that he has disregarded.

Parliament renewed the company’s charter for another 20 years in 1793 and exonerated Hastings the following year. Predictably, the outcome was more of the same.

Continued wars in the 19th century, specifically the conquest of the Northwest Territories and Punjab, strained finances and prompted Parliament to intervene once more. In 1813, the company lost its monopoly on all products besides tea and trade with China, and it ceased operations in 1833. The Indian Rebellion of 1857 and the subsequent Government of India Act 1858 led to the British Crown assuming direct control of India in the form of the new British Raj.* Just over a century after victory at the Battle of Plassey marked the beginning of British ascendancy, the EIC collapsed.