How should Bill Carmichael's transparency project be pursued now?

 

Unfortunately, few readers of this blog will know anything about Bill Carmichael or his transparency project. My main purpose here is therefore to explain who he was and why the question I have posed above is worth considering.

W.B. (Bill) Carmichael died recently at the age of 93. In his obituary,  Gary Banks, former chair of the Australian Productivity Commission, described Bill aptly as “an unsung hero” of the Australian Public Service (APS).

In my experience, most members of the APS who are working on economic policy like to claim that they are contributing to the well-being of the public at large. However, I find it difficult to accept such claims unless the people concerned can demonstrate that they are actively seeking to either undo mistakes that governments have made, or to discourage governments from making more mistakes.

Bill Carmichael made a huge contribution in helping to undo mistakes that Australian governments made over many decades in insulating much of the economy from international competition. His efforts in support of trade liberalization have helped Australians to enjoy greater benefits from trade and greater productivity growth than would otherwise have been possible.

Alf Rattigan’s right-hand man

Bill’s contribution to trade liberalization was largely behind the scenes, helping Alf Rattigan, the former chairman of the Tariff Board, to pursue his reform efforts. Rattigan argued successfully that tariff reform was required because industries that had been given high levels of government assistance to compete with imports were inherently less efficient users of resources than those requiring lower levels of assistance or none at all.

As Gary Banks’ obituary indicates, Bill played an important role in developing strategies, writing the key speeches that Alf Rattigan delivered, dealing with difficult bureaucrats, and engaging with economic journalists who were highly influential in informing politicians and the public about the costs of protection and the benefits of international competition. Bill’s contribution reached its pinnacle in the early 1970s when the Industries Assistance Commission (IAC) was established with an economy-wide mandate to ensure greater transparency to processes for provision of government assistance to all industries.

Bill eventually became chairman of the IAC. However, in my view, his most important contribution was made in helping to establish the organisation and ensure that it had access to the professional economic expertise it required to undertake research and produce quality reports.

Bill’s transparency project

Bill Carmichael’s interest in the transparency of trade policy did not end after he retired from the IAC in 1988. My reference to Bill’s transparency project relates specifically to the efforts he made during his retirement to bring greater transparency to trade negotiations. These efforts were made in collaboration with Greg Cutbush, Malcolm Bosworth, and other economists. The best way to describe that project is to quote some passages from an article in which Bill suggested that Australians are being misled about our trade negotiations and agreements. The article, entitled ‘Trade Policy Lessons from Australia’,  was published by East Asia Forum in 2016.

Bill wrote:

“The goal of trade policy is not limited to increasing export opportunities. Nor is it just about improving trade balances. Rather trade policy is about taking opportunities to improve the economy’s productive base. When assessing a nation’s experience with bilateral trade agreements, this is the test that should be applied.

In each bilateral agreement Australia has completed to date, projections of the potential gains for Australia, based on unimpeded access to all markets of the other country involved, were released prior to negotiations. These studies did not, and could not, project what was actually achieved in the ensuing negotiations. The quite modest outcomes for Australia from those negotiations meant the projected gains conveyed nothing about what was eventually achieved. Yet the projections were still quoted to support the agreements after they were signed, as though they reflected actual outcomes.

This approach to accounting for the outcome of trade agreements has meant that Australia has missed opportunities for productivity gains. So how, given Australia’s recent experiences, can trade policy and negotiations be better conducted in future?

Australia cannot change how it negotiated its agreements with the United States, Japan, South Korea and China. But policymakers can refine their approach to future negotiations. Australia’s trade policy should be guided by a model based on its conduct in the Uruguay Round of trade negotiations. The Uruguay Round confirmed that the domestic decisions needed to secure gains from unilateral liberalisation and those required to secure the full gains available from negotiations have converged.

The negotiations in the Uruguay Round took place at a time when former prime ministers Bob Hawke and Paul Keating were reducing Australia’s barriers to trade unilaterally. Their productivity-enhancing reforms were subsequently offered and accepted in the Uruguay negotiations as Australia’s contribution to global trade reform. Consequently, Australia secured all the gains available from trade negotiations: the major gains in productivity from reducing the barriers protecting less competitive industries, as well as securing greater access to external markets.

This was the kind of win–win outcome negotiators should seek from all trade agreements. It made a substantial contribution to the prosperity Australia has since enjoyed.  …

In future trade negotiations, the Productivity Commission — Australia’s independent policy review institution — could provide a basis for market-opening offers by conducting a public inquiry and reporting to government before negotiations get underway.”

In a subsequent paper, publicly endorsed by a group of trade economists, Bill argued:

“If we are to close the gap between trade diplomacy and economic reality, we need to respect three lessons from experience: first, a major part of our gains from trade agreements depends on what we take to the negotiating table, not what we hope to take away from it ; second, liberalising through trade negotiations cannot be pursued simply as an extension of foreign policy ; and third, … future bilateral agreements should be subject to cost-benefit analysis before ratification.”

How should Bill’s project be pursued?

I raise this question without much optimism that greater transparency of trade policy can be achieved in the short term. There is no more reason to be optimistic that the Department of Foreign Affairs and Trade will suddenly become receptive to ideas that challenge its claims about the benefits of trade agreements it has negotiated than there was to be optimistic that its predecessor, the Department of Trade and Industry, would be receptive in the 1960s to the ideas of Rattigan and Carmichael which challenged the protectionist orthodoxy of that department. Added to this, it is difficult to ignore signs that protectionist sentiment is on the rise again in Australia in the wake of the Covid 19 pandemic and fears that a further deterioration in international relations could lead to disruption of international shipping.

Nevertheless, as Bill might say, none of that should stop us from pursuing longer-term goals.  I hope that some people reading this will feel motivated to think constructively about how Bill Carmichael’s transparency project could be pursued as a longer-term exercise in institutional reform.

Who was Erasmus and why should we care?

 After I stumbled across that quote a few days ago, it struck me that Erasmus might have something relevant to say to people living today.

However, before I discuss the context in which Erasmus made that statement, it might be helpful to provide some relevant background information about him.

The man and his vocation

Erasmus was born around 1467 and died in 1536.  William Barker, the author of a recently published biography, Erasmus of Rotterdam: The Spirit of a Scholar, tells us that Erasmus had become famous by the time he reached his mid-fifties. Erasmus was a prolific author. The rise of the printing press helped him to establish an international reputation during his lifetime. At that time it was possible for a humanist scholar – one steeped in the literature and culture of ancient Greece and Rome – to have fame equivalent to that of an Einstein or Stephen Hawking in more recent times.

Although Erasmus was a priest, he remained independent of the church hierarchy. Patrons offered gifts and allowances, which he accepted, but he was not dominated by any person or institution. He had an aversion for scholastic theology, believing that the words of the Bible show the message of Jesus more clearly than could any scholastic commentator. He based his famous translation of the New Testament on ancient Greek manuscripts because he believed that some of the original reports written by followers of Jesus had become distorted in the official translation used at that time.

In addition to his Translation of the New Testament, Erasmus’ famous works include The Praise of Folly, and his compilation of Roman and Greek proverbs. The Praise of Folly takes the form of a speech by Folly, seeking to persuade us that she is basic to all our lives. Barker sums up the book as follows:

“The work begins with social criticism, a kind of genial mocking, but it ramps up to direct attacks on various interest groups in the political, intellectual and religious worlds, and, in the amazing final move, suddenly turns inwards, and pulls the reader towards the abyss found in the complete loss of self through a total religious faith.”

As I see it, theological disputes were a particular focus in this book. Erasmus wrote:

I [Folly] am often there, where when one was demanding what authority there was in Holy Writ that commands heretics to be convinced by fire rather than reclaimed by argument; a crabbed old fellow, and one whose supercilious gravity … answered in a great fume that Saint Paul had decreed … “Reject him that is a heretic, after once or twice admonition.” And when he had sundry times, one after another, thundered out the same thing, … at last he explained it thus … . “A heretic must be put to death.” Some laughed, and yet there wanted not others to whom this exposition seemed plainly theological … . “Pray conceive me,” said he, “it is written, ‘Thou shalt not suffer a witch to live.’ But every heretic bewitches the people; therefore …”.

Erasmus’ book of proverbs was also a vehicle for social criticism. For example, in his revised version of this book, his commentary on the proverb, “War is a treat for those who have not tried it”, is a passionate essay praising peace and condemning war. Barker notes, however, that Erasmus’ condemnation of war was not unbounded. He approved of war against the Turks during the 1520s when they had reached the outskirts of Vienna.

Context of the quote

The context of the passage quoted at the top of this article is explained by Paul Grendler in his article, ‘In Praise of Erasmus’ (The Wilson Quarterly 7(2) Spring 1983). The plea, “Let us not devour each other like fish” was in response to an attack by his former friend Ulrich von Hutten, who had become an associate of Martin Luther. Erasmus welcomed Luther as a fellow reformer in 1517 when he began to criticize greedy churchmen and the worship of relics. However, as Luther’s criticism of Catholicism became more abusive, Erasmus counselled moderation. Luther would have none of it:

“You with your peace-loving theology, you don’t care about the truth. The light is not to be put under a bushel, even if the whole world goes to smash”.

The papacy was not inclined to stand idly by while Luther “led souls to hell”. So, Europe went to smash!

Erasmus continued to try to mediate between Catholic and Protestant, asserting that he found much to admire in Luther while disagreeing with him about predestination. The Catholic response was that “Erasmus laid the egg that Luther hatched”.

Unfortunately, Erasmus was unable to persuade the contending parties to refrain from warfare. If political institutions had provide greater support to Erasmus’ message at that time, perhaps it would have been possible for Europeans to have avoided a few centuries of pointless religious warfare.

Contemporary relevance of Erasmus    

William Barker laments that the old discourse of humanism seems to have been eclipsed:

“Something has happened to the humanities and the old discourse of humanism in our time. The ideal of Erasmian humanism – a cosmopolitan, well-educated Republic of Letters – has moved to the margins of our cultural life. A shift in political, ethnic, gender and ecological values has led to a change in the cultural hierarchy.”

Nevertheless, he still sees Erasmus as relevant to the culture of our times:  

“Despite our hesitations and the new trajectories in our literary culture, there are aspects of Erasmus that still survive for us, that take him outside his historical moment and the programmatic frame of humanist education. We can still turn to him for his irony, laughter, and the free exercise of social criticism.”

I agree with all that, but I also see Erasmus’ message about refraining from war over theology as being highly relevant today. When Erasmus was alive, contending parties engaging in theological disputes were obviously willing to use coercive means to impose their will on their opponents. Today, not much has changed. Extremists among contending parties engaged in ideological disputes are still willing to use coercive power to impose their will on their opponents.

Few people who live in the liberal democracies have any difficulty condemning the authoritarianism of dictatorships which seek to prevent individuals from exercising freedom of conscience in their religious observance. However, there are many people among us who unwittingly engage in similar authoritarianism themselves. I am thinking particularly of politicians who are so certain of the correctness of their ideological beliefs that they struggle with the idea that those with opposing views are entitled to exercise freedom of conscience.

The exercise of freedom of conscience over the status of human embryos is the example that comes most readily to mind. I wrote about his in the preceding post. At one extreme, we have politicians claiming that pharmacists who refuse on conscientious grounds to supply medications that could be used to induce abortion are guilty of some kind of civil rights violation. At the other extreme we have politicians arguing that under no circumstances should it be lawful for a woman to exercise freedom of conscience to terminate a pregnancy.

Will this conflict end in open warfare? The only reason I can see for ideological and theological authoritarianism to result in less violent outcomes today than occurred 500 years ago is the existence of democratic political processes. Unfortunately, in some liberal democracies those processes may no longer be sufficiently robust to provide contending parties with appropriate incentives to moderate their extremist agendas.

at this time, those who regard freedom of conscience as of utmost importance should remember the efforts of Erasmus to promote peace 500 years ago, and endeavor to be more successful than he was. “Blessed are the peacemakers …”.

How is it possible to believe in both right to life and freedom to choose?

 

The ongoing public debate between “right to life” and “freedom to choose” advocates, seems to be falsely suggesting that a choice must be made between irreconcilable positions. The debate overlooks the legitimate reasons that people have to support both “right to life” and “freedom to choose” in different contexts. I argue in this article that opportunities for human flourishing are likely to be greatest when the political/legal order recognizes the validity of both “right to life” and “freedom to choose” in contexts where those concepts are most relevant.

The article is addressed to people who believe that our main focus in considering the appropriateness of laws relating to termination of pregnancy should be on their implications for human flourishing. I hope that includes all readers.

My starting point is the proposition that opportunities for human flourishing are likely to be greatest within a political/legal order which allows individuals with differing values to flourish in different ways without coming into conflict with each other. The underlying idea here is that individual flourishing is an inherently self-directed process. The advocates of differing values may all think that they have the best recipe for human flourishing, but no-one can flourish if they are forced to live according to values they oppose.

The “live and let live” view presented in the preceding paragraph is not original. It is explained more fully, with references to major contributors to relevant philosophy, in my book Freedom, Progress, and Human Flourishing.

The line of reasoning sketched above suggests that people who hold widely differing views about issues such as termination of pregnancy may be able to live in peace and seek to flourish in their own ways, provided they refrain from attempting to coerce one another to modify their behavior. Such attempted coercion usually involves groups of people using their political power to impose their will on others.  

Of course, we may have good reasons to believe that some people are seeking to flourish in ways that are unlikely to succeed. We can try to persuade them to alter their ways but use of coercion to modify their behavior has potential to reduce further their potential to flourish. Putting people into jail does tend to diminish their opportunities to flourish.

When should the legal order recognize the right to life?

To this point I have obviously been writing about behavior that does not infringe the rights of others. When behavior does infringe the rights of others, it is appropriate for it to be subject to legal constraints. Infanticide is the example that is most pertinent to the current discussion.

The proposition that infants have a right to life is not controversial. Even so, legal systems tend to recognize that extenuating circumstances are often associated with the crime of infanticide. In high-income countries, infanticide is often attributed to post-natal depression. In 18^th century Britain, when infanticide more commonly occurred for economic reasons (for example, to give other children in a family a better chance of survival) it was apparently common for juries to practice “pious perjury” to avoid convicting offenders for murder. In the 19^th century, laws gave explicit recognition to the possibility that extenuating circumstances might exist in cases of infanticide.

There are strong grounds to argue that late term abortion is tantamount to infanticide because the unborn child is at that stage capable of living outside the womb. It makes sense to argue on that basis that in the final weeks of pregnancy the unborn child has a right to life almost equivalent to that of an infant. The “almost” qualification is appropriate because the mother’s life may sometimes to be endangered if an unborn child is accorded the same right to life as an infant.

When should the legal order recognize that women have a right to choose?

In my view the legal order should recognize that a woman has responsibility to decide what status should be accorded the embryo in her womb in the weeks immediately following conception. She is best placed to make such judgements because the embryo is only capable of existing with the life support that she provides it.

The most common alternative is for politicians to assert that they have a right to decide the status of embryos. They may follow the advice of religious authorities, philosophers of various kinds, the majority view of electors, swinging voters, party leaders, their spouses, their best friends etc. or they may rely on their own intuitions and feelings. Some politicians argue that embryos should be sacrificed to achieve their objectives concerning optimal growth of population, or to enable other species to flourish. Others argue that abortion should be illegal because human life is precious from the moment of conception.

Politicians should show some modesty when contemplating laws that over-ride the natural rights of individual pregnant women to make judgements about the status of  the embryos in their wombs and to act according to their consciences. They have a right to seek to persuade pregnant women to adopt their views on the status of the embryo, but there is no good reason why any of their views should constrain the actions of a woman who is not persuaded by them.

There is nothing in human nature that ensures that every woman with an embryo in her womb will view it as having the status of an entity that is worthy of being provided life support, given the opportunity costs that might entail for herself and her family. If the woman does not wish to maintain life support to the embryo, the use of force to require her to do so imposes a form of involuntary servitude upon her.

The authoritarianism involved in denying women the right to choose in the early stages of pregnancy is compounded by the invasion of privacy that is required to ensure compliance with this policy.

The transition

If it is accepted that right to life should prevail at the late stages of pregnancy and that freedom to choose should prevail at the early stages, that leaves the question of what rules should apply between those stages. It makes sense for the option of termination to be progressively restricted as pregnancy proceeds, rather than legal one day and illegal the next.  

A personal view

The views presented above have focused on what should be lawful or unlawful in a society which rejects authoritarianism and recognizes the rights of individuals with differing values to flourish in different ways. The discussion has been about the ethics of alternative legal orders, rather than personal ethics.

In case anyone thinks they can infer my views on the personal ethics of abortion from what I have written above, I will make them clear now. I subscribe to the view that because human embryos have potential to become human persons they should not be lightly discarded. I think the world would be a better place if more people were persuaded to adopt to that view, but it has potential to become a much worse place if governments attempt to impose it.

Conclusions

Opportunities for human flourishing are likely to be greatest in a political/ legal order which allows individuals to flourish in different ways without coming into conflict with each other.

When behavior infringes the rights of others it is appropriate that it should be forbidden. Infanticide obviously falls into that category. It is appropriate to recognize an unborn child as having a right to life almost equivalent to that of an infant in the final weeks of pregnancy.

The issues involved in the early weeks of pregnancy are quite different because the embryo is totally dependent on a woman to provide it with life support. The woman should be recognized to have responsibility to decide the status of the embryo at that stage. If she does not consider it to have a status worthy of being provided ongoing life support, her view should be respected. Laws requiring women to provide life support against their impose a form of involuntary servitude upon them.

How did a trading company come to rule India?

 

Spencer went on to suggest that trade would have been more successful in the absence of the privileges that the British government had conferred on the East India Company (EIC):

“Insane longing for empire would never have burdened the Company with the enormous debt which at present paralyzes it. The energy that has been expended in aggressive wars would have been employed in developing the resources of the country. Unenervated by monopolies, trade would have been much more successful.”  

Prior to my recent visit to India I was aware that classical liberals like Herbert Spencer were critical of the East India Company. Since my visit I have become an expert on all matters pertaining to Indian history. Just joking!

I can only claim to be able to sketch the outlines of the story of how the EIC ended up ruling India. I think the story is worth telling as a case study of the unintended consequences of government intervention in international trade.

Spencer was correct in identifying the importance of the EIC’s links to the British government as an important determinant of its behavior, but the context in which it operated also needs to be taken into account.  The most important element of context seems to me to the rivalry between European powers to obtain advantage in trade with India.

Portugal came first.

Perhaps you can recall from school history lessons that Vasco da Gama sailed to India around the Cape of Good Hope in 1498. This was the culmination of voyages of discovery by Portuguese sailors, including the important contribution of Bartolomeu Diaz, who had rounded the Cape some years earlier.

The Portuguese government was heavily involved in this exploration, and in what followed. In his book, The Portuguese in India, M.N. Pearson relates how the king, D. Manuel, invited da Gama to command the expedition when the latter happened to wander through the council chamber where the king was reading documents.

After da Gama’s voyage, the Portuguese court debated whether they should use force to seek a monopoly in the Indian Ocean or be peaceful traders. They chose force. Their aim was to try to monopolize the supply of spices to Europe and to control and tax other Asian trade. There was, of course, a great deal of trade in the Indian Ocean prior to Portuguese intervention, much of it controlled by Muslims (from India as well as the Middle East).

The Portuguese built forts in India to protect their trading activities. Some local rulers saw advantage in giving the Portuguese permission to establish forts, but they often used force. Goa was conquered in 1510. The Portuguese obtained permission to build a fort at Diu in 1535 (and had ceded to them the islands that today form Mumbai) because the sultan of Gujarat, Bahadur Shar, wanted Portuguese help after being defeated by the Mughal emperor, Humayon. The Portuguese obtained Daman from the sultan in 1559 and immediately began construction of the fort at Moti Daman. Building of St Jerome fort (my photo below) commenced in 1614, but was not completed until 1672.

The Dutch eclipsed the Portuguese early in the 17^th century.

The Portuguese were unable to prevent competition from the Dutch because the latter were “better financed, better armed, and more numerous”. The Dutch blockaded Goa from 1638 to 1644 and again from 1656 to 1663.

The Dutch East India Company was founded by the Dutch government in 1602, not long after the English formed the EIC. Both organisations were granted trade monopolies, and combined private investment and the powers of the state in a similar manner.

In the early 18^th century there was fierce rivalry between the Dutch and English over the spice trade in Indonesia. That ended with the English quietly withdrawing from most of their interests in Indonesia to focus elsewhere, including India.

The transformation of British activities in India

In the 17^th century, the EIC established trading posts in Surat, Madras, Bombay and Calcutta with permission from local authorities. The French India Company offered increasing competition during the latter half of the 17^th century and into the 18^th century.

The initial objectives of both the EIC and the French were commercial, but their conflicts in Europe spilled over into India. The British sought to fortify Fort William in Calcutta against potential attack from the French. In 1756, the French encouraged the nawab of Bengal to attack Fort William. After the fall of Fort William, the surviving British soldiers and Indian sepoys were imprisoned overnight in a dungeon where many died from suffocation and heat exhaustion. The prison became known as the Black Hole of Calcutta. The number of fatalities is disputed, but the incident seems to have provided impetus for the EIC to seek to wield greater political power in India to protect its commercial interests.

My photo of the Black Hole monument in the grounds of St John’s church in Kolkata.

 

EIC forces led by Robert Clive (Clive of India) retook Calcutta in 1757 and went on to defeat the nawab and his French supporters at Plassey. Clive’s victory was aided by a secret agreement with Bengal aristocrats which resulted in a large portion of the nawab's army being led away from the battlefield. The person responsible for this treachery, Mir Jafar, was rewarded by being installed as nawab. Clive rewarded himself and EIC forces from the Bengal Treasury.

A few years later, as governor of Bengal, Clive arranged for the EIC to collect land tax revenues in Bengal by appointing a deputy nawab for this purpose. The conquest of other parts of India was planned and directed from Calcutta. Amartya Sen has noted:

“The profits made by the East India Company from its economic operations in Bengal financed, to a great extent, the wars that the British waged across India in the period of their colonial expansion.”

Consequences and responses

The worst consequences of EIC rule became evident during the Bengal famine of 1770. The company was apparently more concerned to maintain land tax revenue than to relieve to the suffering of peasants.  Its policies contributed to the massive loss of life during the famine. Adam Smith presumably had that in mind when he suggested in Wealth of Nations:

“No other sovereigns ever were, or, from the nature of things, ever could be so perfectly indifferent about the happiness or misery of their subjects, the improvement or waste of their dominions, the glory or disgrace of their administration; as, from irresistible moral causes, the greater part of the proprietors of such a mercantile company are, and necessarily must be.” (V.i.e 26)

By reducing the agricultural labor available to generate taxable income, the famine caused the EIC to experience a subsequent loss of revenue. The British government provided financial relief to the company but arranged to supervise it. Regulation of the EIC was further increased in 1784, when British prime minister William Pitt the Younger, legislated for joint government of British India by the EIC and the government, with the government holding the ultimate authority.

The British government seems to have been engaged in an ongoing balancing act to placate both supporters of the EIC, including investors and former employees, and its critics, including prominent individuals like Edmund Burke and Adam Smith.  

Pitt’s India Act stated that to pursue schemes of conquest and extension of dominion in India are “measures repugnant to the wish, the honour and the policy of this nation”. Perhaps that was an honest statement of the British government’s policy objective, but it is doubtful that it had any impact on the extension of British dominion in India.

Fortune seekers

During the 18^th century, India was seen as offering opportunities for young British men to obtain a fortune, become well-connected, and to marry well.

Lachlan Macquarie, who (in my opinion) ultimately become one of the best of Australia’s colonial governors, expressed views, while a young army officer serving in India, that may have been fairly typical.

In his biography of Macquarie, M. H. Ellis notes that in 1788 Pitt and his followers had cramped the style of young army officers in India by reducing their allowances. Macquarie recorded in his diary: “ … our golden dreams, and the flattering prospects we had formed to ourselves in Britain, of soon making our fortunes in the East, must now all vanish into smoke; and we must content ourselves, with merely being able to exist without running into debt” (p 18).

Macquarie’s hopes for a change in fortune rested on being called to active service. He had his wish during the third Anglo-Mysore war. The war ended after the 1792 Siege of Seringapatam led to the signing of a Treaty in which Tipu Sultan surrendered half of his kingdom to the EIC and its allies. Macquarie noted that news of the cessation of hostilities “damped the spirits of every one who wished the downfall of the Tyrant and hoped to have the satisfaction in a few days more, of storming his capital”. The storming of Tipu’s capital would presumably have offered the prospect of looting, but Governor-General Cornwallis managed to maintain the morale of his troops by announcing payment of a “handsome gratuity in lieu of prize money”.   (Ellis, p 39)

India’s civil wars

Disunity within India was another important element of the context in which the EIC ended up ruling India. British colonial expansion occurred at a time when the power of the Mughal empire was declining, with much of its territory falling under the control of the Marathas. In the south of India, the rulers of Mysore and Travancore were also powerful. The EIC sided with different rulers in different locations at different times. For example, at the time of the Third Anglo-Mysore War, referred to above, the Marathas were allies of the EIC. That war occurred because Tipu, an ally of France, had invaded the nearby state of Travancore, which was a British ally.

Why did EIC rule end?

In 1813 the EIC lost its monopoly over British trade with India. The opening of access to competing traders seems to have been partly attributable to growth of the free trade lobby in Britain.  

In 1833, the EIC was reduced to the status of a managing agency for the British government of India. The government took over the company’s debts and obligations, which were to be serviced and paid from tax revenue raised in India.

EIC rule of India finally ended following the Indian Rebellion of 1857, which is now also referred to as the First War of Independence. I took this photo at an Indian airport.

 

Colonial rule was formally transferred to the Crown in the person of Queen Victoria in 1858. The British government took over the Indian possessions, administrative powers and machinery, and the armed forces of the EIC.

In my view, EIC rule ended because the company had a hopeless business model. The company was obviously successful in conducting wars in India, and some employees of the company made fortunes as a consequence. But the company’s attempts to service debts incurred by imposing taxes on the people of India were inherently problematic. Such taxes made it inevitable that the company would incur high ongoing costs to put down rebellions. The EIC’s conquest of Bengal raised expectations that colonial rule might be a profitable activity for the company, but it became incapable of surviving without government financial backing only a few years later.

Was a better option possible?

 John Stuart Mill - in his role as a spin doctor employed by the EIC rather than an eminent philosopher - opened his last ditch defence of the EIC by pointing out that at the same time as the company acquired a “magnificent empire in the East” for Britain “a succession of administrations under the control of Parliament were losing to the Crown of Great Britain another great empire on the opposite side of the Atlantic”. (Mill is quoted more fully by Richard Reeves in John Stuart Mill, Victorian Firebrand, p 258.)

Mill was obviously attempting to present a persuasive case to British politicians at a time when most of them perceived “empire” to be a desirable objective.

These days, people who want to defend the empire-building activities of the EIC in India are more likely to suggest that the institutional legacy of British rule, including a united India (if you overlook the tragedy of partition) would otherwise not have been possible. Amartya Sen has pointed out the weakness of that argument:

“Certainly, when Clive’s East India Company defeated the nawab of Bengal in 1757, there was no single power ruling over all of India. Yet it is a great leap from the proximate story of Britain imposing a single united regime on India (as did actually occur) to the huge claim that only the British could have created a united India out of a set of disparate states.

That way of looking at Indian history would go firmly against the reality of the large domestic empires that had characterised India throughout the millennia. …”

Summing up

The East India Company came to rule India as an unintended consequence of British government intervention seeking trading advantages over other European powers. This intervention occurred against the background of previous involvement in Indian trade by Portuguese and Dutch governments, and in the context of intense rivalry with the French government’s trading company.

The East India Company’s schemes of conquest and dominion were made possible by disunity within India, which provided it with opportunistic allies. However, the company’s business model of taxing subjugated Indians was not capable of generating sufficient revenue to service debts incurred in subjugating them and maintaining order. Rather than let the company fail, the British government became increasingly involved in directing its activities, and ultimately displaced it.