Limited liability: a common encounter

The East India Company was the prototype modern corporation that gave us the governance structure identified now with limited liability businesses. It was also a phenomenon unprecedented in world history, unleashed upon a country still enmeshed in feudalism. The encounter between the Company and India was cataclysmic, to say the least. It introduced Western modernity to the subcontinent with a crash, and coloured for many years India's attitudes to modern capitalism.

This book is not for those with Raj nostalgia. It is instead a history of globalisation, which took a detour through imperialism to get to its present stage. A lot of what Nick Robins writes in this book has resonances in the new millennium. Corporations are still accused of unethical practices, and they are also allowed to get away with a lot. Recent examples of Enron and WorldCom should not be such a shock. In some ways, they are not very different from the Company's offer of higher dividends during the Great Bengal Famine of 1769, a direct appeal to greed that served to obscure its mismanagement.

Even more significant than these resonances, however, is the book's detailed look at how at every step of the Company's progress, whistleblowers and regulators tried hard to bring it to account. Especially worth noting are Edmund Burke's nine-day closing address at the impeachment trial of Warren Hastings and Adam Smith's own opinions on the matter.

At the centre of Robins' book is Smith's reservations on the separation of ownership and management, of executives turning corporations to their own ends, and shareholders disowning any responsibility for their company's actions. "The propensity of joint stock corporations to managerial capture, insider trading, over optimistic projections of future earnings and irrational exuberance of financial markets...", it seems, have been around since the very early days.

In Robins' contention, Smith's real views on globalisation have sadly been twisted out of shape. According to him, Smith felt that open markets and corporations do not really mix well. In fact, for a true entrepreneurial spirit to flourish, the company is likely to be locally rooted, limited in size and liable for the costs it imposes on others.

For India, therefore, this book's significance is not just as an important work of historical research, but also as a tool to understand the origins of globalisation""as relevant to economic reforms. It is not an exaggeration that India's debate on globalisation is influenced by the experience of the Company as much as by a genuine desire to globalise.

It is worth pointing out that while the Company in itself was devoted purely to profit, there were many commentators like Burke who raised issues of ethics""as intrinsic to sustainable profitability. Today, it is Burke's views that command respect in the West, not the Company's record.

Yet, India has not been able to shrug off the post-1947 bogey of foreign domination that global companies are sometimes suspected to be proxy agents of. Fears of a loss of sovereignty are most evident in talk of privatisation of public sector enterprises.

This book ends with an exhortation against corporate consolidation. Monopolistic power can rig elections, suffocate competition and corrode institutions designed to safeguard the interests of the common citizen. Robins calls for an "ethical gene" in the corporate DNA, something evidently absent in the Company. It was the world's most notorious monopoly.

THE CORPORATION THAT CHANGED THE WORLD

Nick Robins
Orient Longman
Price: Rs 295; Pages: 218