Empire, Incorporated

Bashing “neoliberalism” is the height of fashion today. Among the sins of neoliberalism is privatization, the (misguided) hiving off onto private entities of what had been state responsibilities. In this scholarly and entertaining book, Philip Stern shows that neoliberalism, or at least privatization, is actually more retro than neo. Colonialism, another highly visible term in present-day academic discourse, was largely initiated early on not by the (British) state but through the agency of a multiplicity of private enterprises. Drawing on primary sources, Stern chronicles what he calls “venture colonialism,” analogous to modern venture capitalism, as it operated throughout the world from the dawn of European long-distance sea travel in the early modern period. The venturing projectors, promoters, and undertakers were a motley assortment of visionaries, entrepreneurs, and charlatans, employing a dazzling array of institutional forms.

The great strength of this book is the extreme care and craft with which Stern narrates the details of all the multifarious episodes of private (and often quasi-private) territorial venturing. In one sense, however, this is also the book’s greatest weakness. Each “corporation” is presented as unique, something that can be understood only in its own historical context. Although we are often given tidbits about the organizational structures of these enterprises, the tidbits tend to arrive hidden amid a flurry of (admittedly fascinating) historical detail. The reader is left without any analytical framework to understand and appraise venture colonialism in the large. The same can be said even more strongly about the concept of the state, which disappears almost completely into the background. We are most certainly never offered any counterexample: What did or would non-corporate colonialism look like and how did or would it operate? Part of the story is that, in virtually all cases, the British state eventually took over running the surviving ventures, either because the colonial corporations were nationalized (from the East India Company to British Airways and the BBC) or because the colonial corporations themselves became states (as in parts of the colonial United States). But could “states” have carried out the earliest venturing? And what would that have looked like?

Empire, Incorporated builds out from Stern’s earlier important book The Company-State (2011, Oxford University Press), which focuses on the British East India Company and British imperialism in India. In that book, Stern claims to have upended the traditional narrative that the East India Company started out as merely a trading business and became a territorial state only after the Battle of Plassey in 1757.

In Stern’s view, the East India Company was a state almost from the very start. The Company built infrastructure at its “factories” on the coasts, taxing inhabitants to pay for walls, sanitation, defense, and other public goods. It imported law from England and resolved disputes. In the end, the early Company ruled like a government—with surprising impartiality and toleration—over the diverse populations that inhabited those outposts.

That is all true, but the facts arguably make the opposite case. By creating a “government” at its Indian enclaves, the Company was acting very much as a trading company. Trade does not take place in a vacuum; it requires institutions. And when “external” institutions of civil society fail or simply don’t exist, a corporation can create its own institutions internally. I have argued (2023, The Corporation and the Twentieth Century, Princeton University Press) that this remains true even today. We can understand the organization of the large multi-unit enterprise in the twentieth century as in part an internalization of institutional functions in response to the destruction and failure of “external” market-supporting institutions during the crises of depression and war. When “external” institutions do emerge or thicken within civil society, they acquire comparative advantage over those created within the walls of the corporation. The “neoliberalism” of the late twentieth century involved the hiving off of activities from the corporation as much as from the state.

In the eighteenth century, the East India Company and other private British ventures around the world encountered not only growing state capacity but also a changed rent-seeking environment at home. Under the Stuarts, venture colonialists could deal with a weak state and (mostly) a single monarchical spigot for rents. James II’s holdings in the East India Company passed seamlessly into the account of William III after the Glorious Revolution. Yet the increased power of Parliament after the revolution created multiple potential access points for rent seeking; and just as the venturers sought advantage by allying themselves increasingly with the state, a multiplicity of actors in Britain sought rents by allying with—or sometimes doing battle with—the venturing organizations. The eighteenth century became the golden age of mercantilism, the intertwining of the commercial, the political, and the territorial. In the case of India, the collapse of indigenous empire left a vacuum that Robert Clive was all too anxious to fill. (Not at all a new phenomenon: The Roman republic became an empire after the fall of Carthage when plunder became a more lucrative business model than running the institutions of a club of merchants and planters. Think also of the Italian city-states of the Renaissance, which evolved from merchant clubs into warring territorial states.)

What, then, is a state? Is it the club government of the early Company outposts in India? Or is it the extractive territorial state of the later Company? The answer, I would argue, is that there are two different kinds of states. In one model, a state is a corporation. In the case of the early East India Company, that corporation was owned by shareholders; but in other cases, as in modern liberal democracies, the “owners” could be the citizen-residents. Citizens hold residual-claim rights much as shareholders in a capitalist cooperative do, even if citizens’ residual income is negative because they pay taxes (Henry Hansmann, 2014, “All Firms Are Cooperatives—and So Are Governments,” Journal of Entrepreneurial and Organizational Diversity 2:1–10). That is why territorial corporations could sometimes pass from the hands of shareholders into the hands of citizens. But there is another kind of state: the extractive territorial state—Max Weber’s ideal type (as Douglass North famously reformulated it) of the revenue-maximizing natural monopolist in the use of force. That is the kind of state the East India Company became. Early in The Company-State (p. 8), Stern rejects Weber’s model, which would have made it hard for him to paint the early Company as a “state.” My tastes are no doubt different from those of a primary-source historian, but I think readers would have greatly benefited from having some abstract categories like the club-state versus the Weberian state to guide them through the complex and context-dependent facts.

So too—and perhaps more so—with the concept of the corporation. In this respect, readers of both Stern’s books might profitably consult another important work on business organization before 1700, Ron Harris’s Going the Distance (2020, Princeton University Press). Whereas Stern looks at long-distance ventures from the perspective of how they governed on the ground, Harris looks at long-distance ventures from the other end—as business arrangements. He examines the various organizational forms of historical long-distance trade, from the sea loan to the commenda partnership to the caravanserai to the family firm to ethnic trading networks, many of these providing club-state-like institutional support for trade. In this account, the business corporation is a late invention, a form that appeared only in the West.

Informed by the economics of organization, Harris defines a business corporation along seven dimensions:
(1) a separate legal personality, which provides longevity and corporate ownership of property;
(2) a collective decision-making mechanism, which includes delegated central management;
(3) joint-stock equity finance;
(4) lock-in of investment;
(5) transferability of the interest (decision making and profits) in the corporation;
(6) protection from the expropriation of the ruler/state; and
(7) asset partitioning, which includes two elements—protection of private assets of shareholders from the creditors of the corporation and protection of corporate assets from the creditors of shareholders. (pp. 251–52)

These attributes evolved slowly in a process of trial and error. As both authors show, the legal idea of anonymous corporate personhood emerged from ecclesiastical models. Joint-stock ownership evolved separately, from commenda and related contracts. In Harris’s telling, the breakthrough—the genuine invention of the business corporation—was the English East India Company, when it began to employ joint-stock ownership not for the purposes of individual voyages but for the purposes of the continuous operation of an anonymous organization funding ongoing voyages. The final component, full asset partitioning in law, would not develop until the nineteenth century. Note that making a profit is not a necessary part of this organizational design.

As I have suggested, a fuller perspective would also require us to look at the nature and role of the state in empire. Another fairly recent book, William Dalrymple’s The Anarchy (2019, Bloomsbury), tells the story of the East India Company’s transition from a merchant-club government into a predatory state. The “anarchy” of the title refers to the warlord period in India after the death of the Mughal Emperor Aurangzeb in 1707, the vacuum into which the East India Company would step. Unlike the careful Stern, Dalrymple is anxious to highlight the anti-neoliberal subtext of venture colonialism. He criticizes the unwillingness of the Company’s Madras operation to pay taxes to a local ruler in the early 1700s, a time when the Company was still almost entirely a merchant-club government. By doing so, says Dalrymple, the Company “prefigured by 300 years the response of many modern corporates when faced with the regulation and taxation demands of the nation state: treat us with indulgence, they whisper, or we take our business elsewhere” (p. 35). Astonishingly, Dalrymple then proceeds to itemize, often in literally gory detail, the extreme predation and ill-governance, especially after 1707, of these local authorities—authorities that were nothing whatever like modern-day nation-states. Yet the villain is a merchant trading company that refused to pay taxes to such entities? It is certainly true that the East India Company itself quickly became spectacularly good at running a predatory Weberian state, far better in the end than the family firms of indigenous warlords. But predation is a matter of possessing control over violence, not of the corporate form.