The reason why world had never seen an empire as great as Britain before was because the world had never seen individuals as clever as bankers before. With state banks formed, paper notes issued, and bond market setup, bankers had made economies for European countries and in particular England’s economy extremely strong. And with their next innovation, they were ready to bring in wealth from around the world to the small island of Britain. They started off with India.
Corporate finance was the necessary foundation of both the Dutch and British empires. Dutch were the first to come up with a public limited company when, in 1602, they pooled in resources from its rich people in order to trade spices with India. They wanted to defeat their competitors from Britain, Spain and Portugal by creating a company bigger of them all. It was called the Dutch East India Company (VOC). New method of structuring the company where it is broken into small components, up for anyone to buy or sell them at any point in time, made corporation flexible and provided immense potential for growth. The separation of ownership and control was also crucial as owners are not always the best people to run a company. Hiring specialist managers to run a company improved its efficiency a lot. With this also came into existence the world’s first stock market when company directors refused to redeem shares and the only option left for the investors who wanted their money back was to sell shares to other investors in the market.
Britain however did not wanted to lose trade with India so they fought three battles with the Dutch in an attempt to take control of the trade routes to the east. When no decisive result was reached through wars the matter was resolved through a merger, not business merger but a political merger. William of Orange from Dutch married Queen Mary of England and became chief executive of Britain. Dutch businessmen became major shareholders in the English East India Company and trade items were divided. Dutch were allowed to trade spice with India and England was given textile trade.
The new financial innovation of combining resources to form a single entity corporation proved extremely successful. First ever limited liability company literally changed the world. East India Company (EIC) brought in so much wealth for the Empire that at its height it was worth around $7.9 trillion in today’s dollars. That equals to the combined market caps of 20 of the world’s largest companies today, including Apple, Microsoft, Amazon, ExxonMobil, Berkshire Hathaway and Tencent. Power of money mixed with clever politics gave the company control over entire Indian land, where they initially went just for trade but left as supreme rulers. If ever an empire was built on economics, then British Empire surly was it. And bankers certainly deserve credit for making empire so economically strong.
No single person could have made a company as big as this, but multiple rich people together did. EIC is a prime example to what extent can large corporations influence the countries they operate in. Things have not much changed since the days of EIC as even today many people believe that multinational companies are actually the ones who rule the world. Or rather what I believe is the handful of investors behind these corporations rule the world.
Whenever there is immense saturation of wealth in few hands it results in development of something extraordinary. When it was in the hands of Medici, world saw mind-bobbling art. When it was in hands of European bankers, world saw mind-bobbling industrial revolution. And when it got in hands of English bankers like Rothschild, world saw rise of an empire never seen before. The international bankers of today, through their series of innovations over the centuries, have gathered enough finance to become major investors in large multinationals. Now the 1% of the rich elite of the world that controls 50% of the world’s wealth wants resources to be allocated towards technology, thus we have become the most technologically advanced generation.
Over 90% of technology start-ups fail yet these rich investors do not shy away to invest, and on most occasions lose, billions of dollars. These financial wizards turned investors are the reason we see young twenty something becoming billionaires while their companies make literally zero dollars in revenue. I’ll quote a few examples. A few centuries ago, who would have funded a company that made loss of over 1 billion dollars in first 5 years of its operations? This only happened in 21st century where the most important company of our time went through a similar start. I am talking about Facebook. Just imagine if there was no one to bear losses Facebook made initially, how different our lifestyles would be.
How a company that made almost no revenue was sold for $19 billion? It’s the story of WhatsApp when it got acquired and Mark Zuckerberg, the man who acquired it, said he scored the messaging service for cheap! If you told this story to someone from the previous century he would take you to a psychiatrist thinking you have gone crazy. But anyone who follows Silicon Valley would know that stories like these are routine for this industry.
Another very innovative company of our time, Uber, is around for 10 years now and yet it is making losses in billions of dollars each year. Surviving on investors’ money for over a decade, this luxury was never available to entrepreneurs in the past. Still wonder how the world comes up with such innovative businesses every few years?
I see a weird similarity between 15th century Florence and 21st century California. Back then master of Renaissance, Medici, wanted people to focus their energies towards arts as that’s what brought power for them. Now international bankers want us to focus our energies towards technology for the very same reason. And as Florence saw some of the world greatest artists, California has produced some of the most brilliant inventors, like Steve Jobs, Elon Musk & Bill Gates.
Read Next: Magic of numbers
Originally published at haq.life, Financial Innovations series is an essay divided in 7 parts which should be read in sequence for better understanding. Click on the links below to navigate to other parts of this series:
Table of Contents
