|Bringing the East to the West: the rise and fall of the world’s first multinational - the United East India Company.
Justine van Mourik 16 January 2014
The Dutch discovery of the west coast of Australia in 1606: the creation of the world’s first stock exchange and the invention of better tasting gin. These events although seemingly unrelated, can in fact be attributed to one organisation - the Vereenigde Oost Indische Compagnie or United East India Company –better known to many of us as the Dutch East India Company. (However for the sake of brevity tonight I will refer to it using the acronym -VOC )
The earliest Dutch discoveries by VOC ships along the West Australian coastline were by-products of their voracious appetite for trade. The VOC were not interested in the colonisation of Australia – even after a proposal to colonise the continent was put forward by VOC employee Jean Pierre Purry in 1717, the hierarchy of the VOC ruled that there was "no good to be done there” turning down the scheme with the comment that, "There is no prospect of use or benefit to the Company in it, but rather very certain and heavy costs".
What the VOC was concerned with were profits. It was not only the world’s first multinational corporation but probably the largest in size in history. During two centuries of trade, the VOC sent almost a million people to Asia– more than the rest of Europe combined - and its economy was larger than some European countries. It’s not entirely unreasonable to say that the VOC transformed the world.
For much of the 1500’s the Low Countries (Belgium and the Netherlands) were under the dominion of Philip the Second of Spain. In 1568, seventeen largely Protestant provinces rebelled against the Roman Catholic Spanish rule. The resulting Dutch War of Independence led to the establishment of the United Provinces of the Netherlands in 1581, and although the war continued to be fought on and off until 1648, by 1609 an independent Dutch Republic had largely been established.
The formation of the republic allowed the Dutch to pursue their mercantile interests free of the Spanish embargoes. A large population of craftsmen and merchants had migrated north to settle in the newly created Republic, many of them Protestants and Jews fleeing religious persecution. This influx of skilled migration transformed Amsterdam from a humble port into one of the most powerful commercial trading centres in the world.
Prior to the formation to the VOC, voyages to the East Indies were funded by temporary companies set up expressly to raise money towards outfitting a ship. Merchants would contribute small amounts to different voyages in order to offset their potential losses -a large amount of capital was required and the results were never certain. If a ship returned laden with goods it could return as much as 400% to its investors but for every ship that returned many others were lost or destroyed by the Portuguese who had established, and largely controlled, the trade routes between Europe and Asia. In 1600 a convoy of four ships under the command of Jacob van Neck returned to Holland after a successful trip to the East Indies -richly laden with pepper and other spices, it was clear that there was a great deal of money to be made.
Later in that same year Queen Elizabeth the First granted a Royal Charter to a group of English peers led by the Earl of Cumberland awarding them a monopoly on trade with ‘all countries east of the Cape of Good Hope and west of the Straits of Magellan.’
The formation of the English East India Company, demonstrated to the Dutch the value of unified effort and shortly after in 1602 the VOC was formed. The company was owned by six town chambers – Amsterdam, Middelburg, Delft, Rotterdam, Hoorn and Enkhuizen – each with a governing board made up of local merchants, mayors and other wealthy burghers from the town. In turn these local boards were overseen by an executive board known as the Heeren or Gentlemen Seventeen.
The States-General of the Netherlands granted the newly formed company a 21 year monopoly on trade with Asia giving it the power to build forts, maintain an army and to conclude treaties with its Asian trading partners. In return the VOC had to provide a financial statement at the end of each decade.
Unlike its English counterpart, which was funded by wealthy peers and backed by the Government, the VOC raised its own capital in order to build and outfit its fleet. In 1602, the VOC issued the world’s first IPO – or Initial Public Offering – transforming it into a public company and allowing ordinary Dutch citizens to invest funds and hold shares. Examples of more recent IPOs that we are all familiar with include Visa, General Motors and Facebook.
The VOC’s first and only share offer closed on September 1st 1602 netting more than 6.4 million guilders in capital. Almost immediately after the closure of the offer, shares began to change hands – at first they were traded on the street but as demand grew - it became clear that the market needed to be regulated – and so the world’s first stock exchange was born. Opened in Amsterdam in 1610, its initial purpose was to control the trade in VOC shares and bonds but it didn’t take long before the public began to engage in a variety of complex financial transactions including futures contracts, short selling, commodity prices and trading debt securities. By 1680, the techniques deployed in the Amsterdam stock market were as sophisticated as any practiced today.
Isaac le Maire, a wealthy merchant (and the father of the navigator Jacob le Maire) was the one of the largest early shareholders of the VOC, and in 1609 he initiated the first bear raid in history, selling shares of VOC short in order to buy them back at a profit. The consequences of his actions can be seen on this graph - which shows the value of VOC shares in guilders over time. The effect of the South Sea Bubble of the 1720’s when the share price exceeded 1,000 guilders before spectacularly crashing is also clearly visible; as is the gradual decline of the VOC toward the end of the eighteenth century. Financial historians have suggested that the trends in VOC share prices - which come from the VOC’s own ledgers - are possibly the most accurate indicator of state of the Dutch economy and in fact the world economy prior to 1800.
In 2010 the oldest known VOC share certificate was discovered in an archive in West-Friesland. The document, dated 9 September 1606 acknowledges the receipt of the final instalment of an investment of 150 guilders by one Pieter Harmensz, personal assistant to the mayors of Enkhuizen. In the early years of the company costs vastly exceeded profits and no dividends were paid to shareholders before 1605 but by 1622 the VOC had paid out dividends of more than 200 percent. Notations on Pieter Harmensz’ certificate show that his share earned multiple dividends that continued to be paid to him, and after his death, to his descendants, for 44 years. Dividends were regularly paid by the company but not always in the way that investors would have liked. In some years when cash flow was low, dividends were paid to stockholders as a combination of cash and product usually spices. Documents in the Dutch National Archives show that in 1611 one shareholder - Agneta Cock received 50 percent of her profits in pepper, and in later years 75 percent in mace and 30 percent in nutmeg. It was then up to the investor to ‘cash in’ their dividends – which I suppose gives new meaning to consuming the profits!
Investors who were unlucky enough to miss out on buying company shares in the IPO were still able to purchase VOC bonds – these were separate agreements between groups of investors and a city chamber to raise money for specific voyages after which the investors would receive a percentage of the profits of that voyage. This VOC bond certificate included in the exhibition was issued in 1651 by the Rotterdam chamber for 12,000 guilders (which equates to approximately one million US dollars today) and is signed by Hendrik Rammelman, a prosperous wine merchant and director of the chamber. On the certificate a number of individual investors have signed a contract to contribute the agreed sum within a 12 month period.
Once their financial security was assured the VOC began to send fleets to Java establishing their first permanent trading post at Banten in 1603. Soon after a second post was set up at Jakarta, which the VOC renamed Batavia. In 1619 Jan Pieterszoon Coen was appointed Governor General of the VOC. Coen was to oversee the VOC’s activities in Asia -his first decisive act was to drive the Banten forces out of Jakarta and establish Batavia as the VOC’s Asia headquarters. His other contribution towards the success of the VOC was to recognise that Europe really had little to offer Asia except vast quantities of precious metals. Coen recognised that bullion was the only the starting point of a network of trade relationships across the Indian Ocean, and that by creating trade between Asian countries any profits made could be invested back into spices to send home.
This map demonstrates the trading relationship between Holland and the East Indies but also shows the extent of the complex inter-Asia trade routes established by Coen.
In addition to creating new markets within Asia, the VOC would pressure their Asian trading partners to sign exclusive trading agreements in order to guarantee them a monopoly on export goods. One such example was the artificial island of Dejima in Nagasaki Bay which for more than 200 years was the only place where foreigners were allowed to set foot on Japanese soil. After the shogun expelled the Portuguese from the island in 1639, the Dutch moved in two years later - establishing an exclusive trading relationship with Japan that would last until the mid-1800s even after the demise of the VOC.
Integral to the VOC’s success in conducting trade between Europe and Asia was its cartographic workshop. VOC captains or pilots were issued a set of standard charts like this one. Each ship had at least thirty-two charts on vellum or parchment that covered the entire voyage between Holland and the East Indies. These charts incorporated all the known geographic knowledge of the time and pilots were expected to plot the course of their voyage on them (in pencil) and also to add any new discoveries to their charts and logbooks. The charts were then handed in at the end of the voyage – any new information approved by the Gentlemen Seventeen was added to the ‘master charts’ held in Amsterdam, all the working charts were then updated to reflect the latest developments and the voyage tracks were noted and erased. The updated charts could then be re-issued to the next pilot.
The secrecy surrounding VOC cartography was legendary. On his appointment as chief cartographer to the VOC in 1619, Hessel Gerritsz was required to sign a contract that stipulated - that all charts for the VOC shall be made at his order by trustworthy persons as much as possible in his house; no charts should be made or sent outside the city… (and that) he will publish nothing without the permission of the directors and he should observe secrecy about his work. For this Gerritsz received an annual salary of 300 guilders as well as payment for each chart produced.
The contract even extended after his death, instructing his widow and heirs to hand over any papers in their possession. Similarly, the pilots were also charged with guarding the content of the maps, and the penalty for publishing or making a copy of a map was a hefty 6,000 guilders.
Another key to the success of the VOC was its military presence - in their early years, VOC ships had to contend with opposition from Spanish and Portuguese fleets and competed fiercely with the Portuguese to establish a permanent trading presence in the East Indies. The first few voyages were lightly armed and went out of their way to avoid confrontation but after a number of skirmishes with the Portuguese, the VOC began sending heavily armed convoys that would go out of their way to attack Portuguese ships. As a consequence the largest group of personnel employed by the VOC was their military. Records of an incomplete staffing audit ordered by the Gentlemen Seventeen in 1688 show that military personnel stationed on land in Asia accounted for 7,806 out of 11,551 staff. By contrast, the number of sailors employed was roughly half that figure.
More than half of the soldiers employed by the VOC came from outside the Dutch Provinces and included Germans, Scandinavians, Poles, English, Swiss and Flemish. The VOC military force was like an earlier version of the French Foreign Legion, where adventurers and 'riff-raff' from all over Europe could get a job and see the world. Strangely enough, the smallest personnel component was 'management and business', less than 1,000 over the whole of Asia, suggesting a serious imbalance in the staffing of the company.
It is impossible to describe the extent of the impact that VOC trade with Asia had on Holland and indeed on Europe more broadly so I thought that before I discuss the end of the VOC -I might briefly touch on two examples of the lasting global influence of the VOC trading network.
The VOC began exporting underglaze blue porcelain from China at the beginning of the seventeenth century establishing a trading post in Taiwan. The highly decorated Chinese porcelain was enormously popular in Holland, its exotic motifs and fine quality in stark contrast to the red- brown earthenware that was prevalent in most Dutch houses of that time. However in 1644 as mainland China became engulfed in the turmoil surrounding the transition between the Ming and Qing dynasties, the production of export porcelain in China virtually ceased and the VOC were forced to look elsewhere to satisfy demand. At the same time back in Holland, Dutch manufacturers in the city of Delft took advantage of this shortage of Chinese wares and began to make pieces imitating the blue underglaze style and faithfully copying traditional Chinese motifs on their tin-glazed pottery.
After the supply of Chinese porcelain dried up, the VOC went to their trading post at Dejima in Japan and commissioned several factories between Arita and Nagasaki to replicate the Chinese-style underglaze blue porcelain in bulk. The Japanese factories could fill large orders and invoices from VOC ships trading at that time show that shipments of 50,000 pieces of porcelain or more were quite common.
This magnificent large serving plate from the Kerry Stokes Collection was produced in a factory at Arita in 1680. The VOC like any major corporation had its own distinctive logo and this monogrammed piece would have been specially commissioned for the office or household of a senior VOC official, perhaps only to be used for business dinners. As the Japanese product flooded onto the European market, Delft potters moved away from creating imitation oriental porcelain and began to differentiate themselves by producing pieces with motifs from closer to home- windmills, hunting scenes and cityscapes. Ironically these Western designs proved to be so popular that Dutch Delftware began to be exported throughout the world as far as China and Japan where the distinctly Dutch motifs were copied by oriental porcelain manufacturers and then exported back to Europe.
Rather than torment you throughout this talk (mindful that it is approaching dinner time) I thought I would leave any discussion of the impact of the VOC on food globalisation until the very end. Of course, many of the VOC’s main edible imports were available and in use across parts of Europe before 1600 however they were extremely expensive and sparingly used by those who could afford them. The importation of spices in bulk put them within the reach of ordinary Europeans and with the influx of new ingredients a new era in cuisine was born. Foods like pepper, cinnamon, cloves, tea, rice, coffee, nutmeg and mace began to form part of the ordinary European diet – households began to drink Chinese tea, use Indian curry powder and end a meal with African chocolate.
Similarly these aromatic compounds also found their way into the hands of Dutch distilleries. Lucas Bols the founder of the world’s oldest distillery was also a major shareholder in the VOC and his company was the first to take advantage of the exotic ingredients brought back by the VOC producing a wide range of liqueurs and genevers. Genever or Dutch gin was the precursor to the English derivative that we refer to today simply as gin. English soldiers as far back as the mid 1600’s used to consume genever before going into battle - coining the term ‘Dutch Courage’ to describe the consumption of alcohol before a major event.
In March 1798, world’s first truly multinational corporation in the world went bankrupt leaving a debt of 219 million Dutch guilders. How could such a vast and successful enterprise fail?
Many historians argue that the defeat of the Dutch nation in the ‘Fourth English War’ fought between 1780 and 1784 was the primary reason for the decline of the VOC. The English Navy had become a powerful force and captured many VOC ships. The English East India Company could now trade without hindrance from the VOC and it appropriated many of the key VOC outposts in Asia.
But this was not the only factor in the demise of what had once been the world’s most powerful company. The management structure of the company compared to a modern multinational was complex and cumbersome and the long distance between Amsterdam and Batavia impaired the company’s effectiveness. With an average journey taking 8 months between the two ports, communication was slow. A great example of this was the decision to allow the English East India Company to trade freely in the Moluccas - unbeknownst to the Gentlemen Seventeen in Amsterdam, Governor General Coen had just fought a series of costly battles at sea in order to drive the English out.
Similarly the tyranny of distance also meant that a number of senior VOC officials began to act in their own self-interest safe in the knowledge that the VOC hierarchy were thousands of kilometres away. The VOC had always tolerated their senior staff engaging in some outside trade but by the late 18th century corruption within the company had become rife. Investigators would be sent from Holland by the Gentlemen 17, on arrival in the East they would get little cooperation from the regional staff and ultimately most of them would be bribed or in some cases killed so that they couldn’t report back to Amsterdam. In one documented case a Mr De Roo was allegedly poisoned when his enquiries started to bear fruit. In its final years the acronym VOC was said to stand not for Vereenigde Oost Indische Compagnie but for Vergaan Onder Corruptie which translatesfrom Dutch as 'Perished By Corruption.'
When you add to these factors a decline in profit on goods, changing trade patterns, increased competition and an unsustainable financial base, it seemed that the demise of the VOC was inevitable.