How different were the strategies of the Dutch and English East India Companies between 1600 and 1750?


This is an essay from my undergraduate years at the London School of Economics. I thought maybe someone could use it, in whatever way. Beware academic language.

What is a strategy? According to the Oxford Dictionary it is a plan of action or policy designed to achieve a major or overall aim.[1] The fact that the Dutch and East India Companies shows that they shared similar aims, yet their strategies varied over time and the companies had different means to achieve the aim of gaining access to the Asian trade, and importing goods from Asia to Europe. First, I will argue that the strategies of the Dutch and the English diverged for most of the 17th century, when the Dutch dominated the Asian trade routes by monopolizing trade in a wide variety of commodities.

The Dutch strategy was different in terms of being more effective and successful towards achieving its aim. The English were lagging behind and were not able to successfully compete. Then, I will demonstrate that by the end of the 17th century, strategies of the Dutch and English began to converge by which the English were able to adapt to the strategy of the Dutch. Finally, I will argue that the strategies of the Dutch and English began to diverge again in the second half of the 18th century, but this time in favor of the English.

For most of the 17th century, the Dutch East India Company was using a more successful strategy than the English East India Company and as a result came to dominate the Asian trade routes on account of their financial might. Amsterdam was more sophisticated and financially dynamic than London, especially in the first half of the 17th century. Both the Vereenigde Oost-Indische Compagnie and the English East India Company were founded at the beginning of the 16th century, but the English were not able to monopolize the trade to the same degree as the Dutch, even though both companies shared similar joint-stock company characteristics. When Grotius had advocated ‘free seas’, it gave the Dutch the justification to enter the Asian market, which was previously dominated by the Portuguese in the 16th century.

However, ironically the Dutch enforced their concept of free trade with guns. Both the English and Dutch focused their efforts and build their strategies around a closed trade by which trade would be monopolized and profits maximized. This made the Dutch different strategically to the English in so far as their ruthless use of violence against natives and Europeans was made possible through their superiority in resources. For example, the Dutch East India Company sent out twice as many ships to Asia as the English East India Company. The Dutch had an advantage in resources because they were on the cutting edge of capitalism.

The Dutch East India Company had a more successful strategy on account of sound money, an efficient tax system and a system of public debt by which the government could borrow from its citizens at low interest rates. [2] A testimony of their financial strength is the company’s return on investment. The Dutch East India Company returned on average almost twenty percent annually.

Further, the Dutch enforced their advantage by giving merchants an incentive to increase the turnover of their business by rewarding them on gross revenue rather than net profits.[3] Although the English East India Company was chartered in 1600, two years earlier than the Dutch East India Company, the English did not become a permanent joint-stock company until the second half of the 17th century. In fact, not until 1657 became the English East India Company a genuine joint-stock endeavor, which means continuous, unlimited investment taking place without reference to individual voyages and stock being valued and traded accordingly. [4] The Dutch trade policy was more specialized than that of the English. For example, spices accounted for three quarters of the value of the Dutch company’s business. [5]

The Dutch eventually came to dominate the lucrative spice trade with Indonesia, and thus the Dutch trade policy generated higher profits compared to the English. [6] Gaastra acknowledges that around 1630 the Dutch had created a profitable intra-Asian trade network which was based upon the exchange of a number of important commodities. [7] For example, Japanese silver and copper would be exchanged for Indian textiles and Chinese gold, and the Indian textiles and gold would be exchanged for something else. Thus, the Dutch East India Company was more specialized than the English. Read concludes that the success of the Dutch Company was based on the fact that it had used its power selectively to establish monopoly conditions. [8] Farrington indicates that the Dutch for the next 80 years were ahead of the English in terms of money, men power and more ships. [9] The fact that the Dutch emerged as victors of the three Anglo-Dutch wars, which were fought over conflicts over the Asian trade routes, shows that the Dutch were financially stronger than the English. Ferguson argues that the Dutch won the wars because they had a superior financial system that enabled them to punch well above their economic weight. [10]

The Dutch intended a complete take over of the European trade in fine spices from their Asian bases Chinsura and Jakarta by squeezing the English out of the trade entirely. They seized control of the sources of production, offered individual rulers protection and forbid them to sell to competitors. For example, the outrage on Amboina was an attempt to drive the English out of the spice market. The English chief on the clove island of Amboina and nine other company servants were executed by the Dutch governor Herman van Speult on a charge of conspiracy. [11] Therefore, the Dutch strategy, which was less diversified than the English one, worked perfectly as long as the English were kept in balance, supply was limited and demand for spices and pepper remained high.

The two East India Companies also had strategically much in common, especially in terms of the organization of the company, yet the bigger scale of the Dutch East India Company allowed the Dutch to control the Asian trade routes for most of the 17th century through coercion and monopolization. Both the English and the Dutch understood that the profitable trade lay in monopolistic trading and prices would not decrease on account of the monopoly. For example, the volume of spice exports is elastic and therefore increased supply, which comes through competition, drives down prices.

The joint-stock model brought protection by the government, which would allow merchants to be compensated for pooling resources together for a risky venture that was time and capital intensive. Both companies also separated ownership from management. Further, the government could tap the company for revenue or loans and, in return, investors could be rest assured that the company gained a hundred percent market share. [12] However, the English only had a limited capacity to trade in Asia on account of the strategy of the Dutch to prevent competitors from entering the Asian trade market. The English East India Company was also much more diversified than the Dutch East India Company. This specialization helped the strategy of the Dutch but the diversification of the English East India Company hindered its growth in the 17th century.

By the end of the 17th century, the English and Dutch strategies began to converge in so far as the English began to catch up on account of a financial revolution which was triggered by the Glorious Revolution of 1688. The strategy of the Dutch East India Company ceased to work as successful and effective as previously. The English East India Company became financially stronger. The financial system in England began to improve when a coup was staged against James II by a powerful oligarchy of English aristocrats, who received support of the merchants of the city. Ferguson indicates that the Glorious Revolution thus also had the effect of an Anglo-Dutch business merger since the Dutch Prince William of Orange became the new king. As a result, Dutch investors started to invest into the English East India Company. For example, the Bank of England which manages government’s borrowings and the national currency, was established in 1694. Thus, the Anglo-Dutch merger revolutionized the financial system in England and altered the strategy of the English East India Company.

The English East India had three methods to finance the trade, and the Anglo-Dutch merger improved the ability of the English to finance their risky ventures. Griffiths identifies those three key methods. First, capital can be subscribed by the company’s shareholders or proprietors of stock. Second, internal financing through retained profits. Third, fixed rates of interest through the bond market in London. For example, the London Stock Exchange created a system of national public debt by which long-term bonds could easily be bought and sold. It allowed the government to borrow at lower interest rates which, in turn, could finance large-scale undertakings.

Thus, the financial revolution gave the English East India Company more options to finance their trade. The improved financial institutions provided the English East India Company with more opportunities which yielded higher profits. It also changed the strategy of the English East India Company by which protection was increased through higher spending on the naval army. Thus, the financial revolution of the Anglo-Dutch merger allowed the English to adopt their strategy to the Dutch, and did not allow the Dutch to continue their strategy of coercion and monopolization in the same manner as when the English were lagging behind.

The Anglo-Dutch merger did not necessarily reduce competition but it increased cooperation between the Dutch and English, and a consumer demand shift from spices and pepper to textiles contributed to the English East India Company’s long term strategic success. In fact, the flourishing trade in other commodities encouraged cooperation between the two East India companies. Gaastra notes that the struggle for spices during the first period could only be won by one of the contesting parties, but the booming trade in textile, tea and coffee offered opportunities for both the Dutch and English East India Company.[13] A deal was made by which the Dutch would continue focusing their trade on Indonesia and spices, while the English would focus on the Indian textile trade. Although spices and pepper remained an important commodity, a major shift in European consumption was responsible for a fast-growing demand for cotton and silks and for tea and coffee. [14]

The commercial policy of the Dutch was carried out under protection of the spice market and keep the price for spices and pepper high by restricting trade for others. In contrast, the commercial policy of the English East India Company was to drive down prices for textiles and increase the quantity of the Indian textiles for which an insatiable demand existed in Europe.[15] Unlike spices and pepper, the demand for textiles was elastic. As a result of the price elasticity of demand the market for textiles quickly outgrew the market for spices and the English strategy overtook the Dutch strategy in terms of volume and sales. The new Asian base shifted to English ports such as Madras, Bombay and Calcutta and the English East Company brought commodities such as textiles, coffee and tea to European consumers. The English, under their new Dutch king, were more enterprising, aggressive and self-confident. [16] The company became more predictable, profitable, sophisticated and well managed.

By the end of the second half of the eighteenth century, the strategy of the English East India Company slowly diverged from the Dutch East India Company in so far as the Dutch monopoly began to crumble and the English East India Company became more successful in terms of profits, volume, innovation and expansion. Farrington reveals three main reasons for the decline of the VOC. Corruption of its servants, growing conservatism of its directors, and loss of edge in ship building. In the 18th century, the balance of power between the two companies reversed. Darwin reveals how the great vanguard of European power in Asia, the mighty Dutch East India company was staggering under the burden of its administrative and military costs after 1720, lurching into deficit and profitless growth. [17]

It was the Dutch East India Company, which failed to catch up with the more innovative English East India Company. The Dutch had concentrated their efforts so much on the spice trade, that when consumer demand shifted, they could not challenge the English in the textile trade. The English liberalized the trade by allowing merchants to make a private profit. The ventures to Asia due to its high cost and risk encouraged the concentration of trade by one big operator, but it was hard to control the company’s employees. Therefore, business would be started on the side since wages of employees were rather low. Alongside the official trade of the company, an enormous private business developed. [18] The directors effectively institutionalized the corruption of its servants by allowing and regulating the conduct of this private trade. This gave company servants a substantial financial incentive, which compensated for modest salaries and dangerous conditions. [19]

This turned out to be good for the English East India Company as the interlopers, the group developing the private trade, expanded the trade which was beneficial to the company. Further while the Dutch had coerced locals into exclusive treaties to promote their monopoly, the English negotiated complex treaties with the locals and bribed officials to evade taxes. For example, the English worked with Asian intermediaries in partnerships, adopted to the local culture and did not exert any sense of superiority over the locals.

By 1750, the strategy of the English East India Company seemed to be far superior than the strategy of the Dutch English East India. In the 18th century, the English East India would come to dominate those same trade routes but in a different way. While the strategy of the Dutch East India Company functioned by coercion and monopolizing the Asian trade routes, the balance of power shifted to the English East India Company because of their strategy to focus on textiles, improve their financing methods and allow private merchants to make a profit, as well.

The strategies of the Dutch and English East India Company converged and diverged over the period of 1600-1750 in so far as the balance of power slowly shifted from the Dutch to the English East India Company. In the 17th century, the Dutch had a more successful and effective strategy and as a result dominated the Asian trade routes, while the English were lagging behind. By the end of the 17th century, the Anglo-Dutch merger improved key financial institutions which enhanced the strength and strategy of the English East India Company.

The balance of power slowly shifted in favor of the English. By 1750 the Dutch East India Company was in decline, while the English East India Company had the prospect of dominating the Asian trade routes in a more liberal way than the Dutch. In the end, the difference of strategies of the two East India companies depends on the timeframe and different stages of the Dutch and English East India Company.

Bibliography

Darwin, John. (2008) After Tamerlane. (London: Bloomsbury, 2008)

Farrington, Anthony (2002) Trading Places: The East India Company and Asia (London:

British Library, 2002)

Ferguson, Niall. (2004) Empire. (New York: Penguin, 2004)

Gaastra, Femme (2006) ‘Relations between the English and Dutch East India Company’, in

H.V. Bowen The Worlds of the East India Company (New York: Boydell & Brewer,

2006)

Irwin, Douglas (1991) Journal of Political Economy (99) (Chicago: University of Chicago

Press, 1991)

Lawson, Philip (1993) The East India Company: A History (London: Longman Publishing,

1993)

Om, Prakash (2006) ‘The English East India Company and India’, in

H.V. Bowen The Worlds of the East India Company (New York: Boydell & Brewer,

2006)

Read, Anthony (1995) Southeast Asia in the Age of Commerce, 1450-1680, Vol. 2, The Age

of Expansion and Crisis (New Heaven: Yale UP, 1995)

Steensgaard, Niels (1982) ‘The Dutch East India Company as an Institutional Innovation’, in

M. Aymard Dutch Capitalism and World Capitalism (Cambridge: Cambridge UP, 1982)

Wild, Anthony (2000) The East India Company. (London: HarperCollins, 2000)

Footnotes


[1] “Strategy”. Oxford English Dictionary. 2nd ed. Oxford UP, 2006. Print.

[2] Ferguson, Empire, 14

[3] Steensgaard, The Dutch East India Company as an Institutional Innovation, 243

[4] Lawson, The East India Company: A History, 21

[5] Ferguson, Empire, 17

[6] Irwin, Journal of Political Economy, 99

[7] Gaastra, The Worlds of the East India Company, 55

[8] Read, Southeast Asia in the Age of Commerce, 1450-1680, 290

[9] Farrington, Trading Places: The East India Company and Asia 1600—1834, 56

[10] Ferguson, Empire, 18

[11] Farrington, Trading Places: The East India Company and Asia 1600—1834, 60

[12] Ferguson, Empire, 19

[13] Gaastra, The Worlds of the East India Company, 60

[14] Gaastra, The Worlds of the East India Company, 62

[15] Darwin, After Tamerlane, 158

[16] Farrington, Trading Places: The East India Company and Asia 1600—1834, 65

[17] Darwin, After Tamerlane, 150

[18] Ferguson, Empire, 20

[19] Wild, The East India Company, 64

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