When The Dutch Ruled The World: Rise and Fall of the Dutch East India Company
The Netherlands: a tiny European country that is actually one of the wealthiest and most important economic centers of the continent. The surprising success of the Dutch is invariably tied to one company, which was arguably the greatest and most successful one in history. Today we’ll see how the Netherlands transformed from a swampy backwater into a global trading empire, thanks to the Dutch East India Company.
The birth of the Netherlands
The Netherlands today might be an economic powerhouse, but back in the 16th century, well, it wasn’t doing too great. To start things off, it wasn’t even independent. Instead, it was under the domain of the Spanish Empire. As one of the earliest European colonizers, the Spanish Empire controlled vast territories across the world and used the money it gained from slavery and trade to fund numerous wars of conquest and suppression.
The Netherlands ultimately became a victim of one such war. They had to become part of the Empire unwittingly due to marriage, and spent the next 80 years trying to break free.
But the Dutch independence effort ran into a big problem very early on. You see, the Dutch were a seafaring people. Fishing and mercantile shipping was their thing and they had been doing it for centuries. The main goods they shipped were spices coming from the Far East, but this was before the Dutch had any colonies of their own.
Back then Portugal held a virtual monopoly on the spice trade, controlling all the major trade routes to Asia and back. Thus what the Dutch did was to buy all of their spices from Lisbon and then shipped them around Europe to sell them at a profit. But Portugal was absorbed into the Spanish Empire in 1580, and of course, the first thing the Spanish did was to close off Lisbon to the Dutch merchants.
Suddenly the main artery of the Dutch economy had been cut off, and there was really only one thing the Dutch merchants could do: they had to sail to the Far East and build their own trading network.
Creating the Dutch East India Company
At first, this effort was very decentralized. Merchants from various Dutch cities would establish companies for single voyages.
Essentially, they would fund a few ships and their sailors, and they would send them off to find a new trade route to the Far East. Some missions were successful and came back with lots of spices, but most did not go very smoothly. During the first six years of the expedition effort a total of 65 ships were sent out. One in 10 never made it back, and those that did come back with only a third of their crew on average. Suffice to say, being a sailor in these early fleets wasn’t a very safe job.
Nevertheless, these early voyages gave the Dutch the knowledge and experience on how to establish a more permanent trading network. But coordinating individual merchants, each of whom was competing with the rest, is difficult (to say the least) and with the English, Spanish, and Portuguese all trying to create their own trading empires, the Dutch knew that they had to band together.
In 1602, under the patronage of the prime minister of Holland, the various expedition companies united into a single company with vast sovereign power; its name wasn’t the Dutch East India Company. Even though that’s how we call it today, it was actually the United East India Company or VOC for short, and its creation marked a new chapter in the history of the Netherlands.
The political motivations were clear: the Dutch needed a new economic engine to fight off the Spanish and to restore their war-torn country. The VOC was their only hope, which is why it was granted not only a monopoly on trade, but also the ability to train its own army, to negotiate and declare war, to occupy the land, and even to enforce slavery.
The first IPO in human history
But just getting permission to do all of these things meant nothing if the VOC couldn’t actually do them, and to conquer the Far East would require a lot of capital. The VOC, however, figured out an ingenious solution, which would, later on, become the cornerstone of modern capitalism.
In the center of Amsterdam, the VOC built a trading house where every Dutch citizen could go and buy shares of the company, effectively giving the VOC money now in exchange for a claim on its profits in the future.
The VOC had effectively created the world’s first stock markets, and the VOC itself had become the first publicly-traded company in history.
Pretty much every rich man in the Netherlands invested in the VOC, and even many immigrants did so. In total, the VOC’s initial public offering raised over 6 million guilders, which is equivalent to about $110 million today. And keep in mind, this is coming from a country that’s half occupied by Spain and whose economy had been in the drain for a decade.
Of course, circumstances were favorable to the Dutch. The Spanish empire was at war with England at the time, allowing the Dutch to sweep into the Far East and kick out the Portuguese establishment.
The rise and fall of VOC
The first victim of the VOC’s colonial ambitions was Indonesia. The Dutch conquered modern-day Jakarta in 1611, slaughtering the locals and building vast spice plantations on nearby islands. With the island of Java as its headquarters, the VOC spread throughout the Far East.
Their factories in India produced exquisite silks and fabrics, which the VOC then shipped to Japan to trade for their famous and crucial supply of silver. The VOC got silk from China as well, which also produced valuable porcelain.
What matters, though, is that the profit margins the VOC earned by monopolizing these trade routes were as high as 1500%, and all of this money was, of course, being funneled into the Netherlands.
They finally won their independence in 1648, and with that out of the way, the VOC’s profits were invested in one type of project unique to the Netherlands: land reclamation. You see, the Netherlands is extremely flat and is below sea level, which makes it prone to flooding. But if you build dykes and keep the water out, you can turn swamps into farmland, and that’s exactly what the Dutch did with their VOC profits.
Just by looking at the geography, you can tell when the VOC was running at full force. In total, over one and a half thousand ships sailed for the VOC during its two centuries of existence, and its influence is still felt to this day. Many former Dutch colonies, for example, still bear the scars of the oppression they suffered.
But the VOC has other interesting legacies that few people know. Capetown, for instance, started out as a VOC resting station in 1652. A decade earlier, a VOC merchant discovered two big landmasses south of the Dutch Indies. He called them New Holland and New Zealand, and you can guess which names stuck and which one didn’t. But in any case, just as the ideal set of circumstances gave the Dutch the opportunity to become a colonial empire, a perfect storm in the late 18th century ended up destroying the VOC.
To start things off, the Dutch lost a disastrous war against the British in 1784 (the 4th Anglo-Dutch war), which disrupted the VOC’s network in Asia. Then, just a decade later, the newly created French Republic invaded the Netherlands and conquered them. With the British attacking in Asia and the French attacking at home, the VOC really had no chance, and officially went into bankruptcy in 1799. Sadly, without the spice trade, the Netherlands lost its status as a global power.
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