Corporate Sovereigns and the Emergence of State Sovereignty: A Closer Look at the East India Company

A new data collection has made it possible to reveal the self-sovereignty of the English East India Trading Company that produced a company-state and challenged the English state, facilitating a concentration of sovereign power in response.

This article is part of ProMarket’s history series. You can read all of the pieces in the series here.

By 1800, the English East India Company (“the Company” or EIC) ruled one-fifth of the world using a larger military force than England’s. It established forts and trading posts, organized land and naval forces, minted currency, collected taxes, and administered justice, all through a trade in spices, textiles, and opium. After the EIC’s creation in 1600, English market share of Asian trade ballooned to a quarter in 1650, a third in 1780, and two-thirds in 1820. The Company pilfered massive wealth from India, reversing capital flows from the West to the East and making possible the Industrial Revolution. In 1788, philosopher and parliamentarian Edmund Burke called the Company “a state in the disguise of a merchant.” In his book, The Company-State: Corporate Sovereignty and the Early Modern Foundations of the British Empire in India, historian Philip Stern examines the EIC as “possessed of political institutions and underscored by coherent principles about the nature of obligations of subjects and rulers, good government, political economy, jurisdiction, authority, and sovereignty.”

In a recent article, I use new archival evidence to study the EIC’s role in the development of modern state sovereignty, which had been faintly realized since the 1648 Peace of Westphalia. State sovereignty is often presented as meaning “ultimate authority,” located in an indivisible executive (e.g., monarch), body (e.g., parliament), founding document (e.g., constitution), or the general people. But this notion of sovereignty has been a work in progress across centuries. Between 1500 and 1800, the Indian Ocean reflected a layered concept of sovereignty in the delegation of sovereign functions to a variety of nonstate actors such as ship captains and charter company administrators. As one-way travel between Europe and Asia took about five months, overseas European empires were propelled by such divisible sovereign prerogatives. Delegated authority from state sovereigns to nonstate others was not obviously hierarchical, such that states would retain ultimate authority. But that changed.

In Outsourcing Empire: How Company-States Made the Modern World, Andrew Phillips and Jason Sharman note that by the mid-1800s, the international system shifted from one permissive of layered sovereignty to “an ever more restrictive one in which prerogatives of government were presumed to lie exclusively with sovereign states.” I argue that the EIC had a role to play in this change. Social scientists have examined the relationship of corporate power and state sovereignty, especially after the Cold War. Company-states present an opportunity to observe the co-evolution of corporate and state authority during an earlier period of international history.

Indeed, at 274 years, the EIC lasted longer than most states. After 1600, the EIC incorporated (1657), merged with a rival (1709), conquered Bengal (1757), began taxing 10 million Bengalis—twice England’s population—(1765), entered a financial crisis (1770), was bailed out by Parliament with increased oversight (1773, 1784), ceased to trade and became a territorial administrator (1833), relinquished India’s administration to the British government (1858), and was dissolved (1874). The period between incorporation in the late 1600s and regulatory scrutiny in the late 1700s is pivotal for the EIC’s emergence as a company-state. Company directors met thrice a week to run the organization, and shareholders held quarterly meetings. My research draws on internal records of all 16,740 EIC managerial and shareholder meetings between 1678 and 1795. This unprecedented data collection was made possible by materials recently being allowed to be photographed in the British Library.

When analyzing the data, I asked: Did the EIC think of themselves as sovereign in their own right? If so, what implications did this have for states? International relations scholars are not unified in how or where they locate sovereignty, variously proposing that one cannot meaningfully speak of sovereignty before the sixteenth or the nineteenth century. Yet, the data show that by the eighteenth century, the EIC viewed themselves as sovereigns following the conquest of Bengal. In 1769, EIC governor Robert Clive declared in Parliament: “The East India Company are at this time sovereigns of a rich, populous, fruitful country in extent beyond France and Spain united; they are in possession of the labour, industry, and manufactures of twenty million of subjects; they are in actual receipt of between five and six millions a year. They have an army of fifty thousand men.”

Tracing the evolution of Company sovereignty shows a key transformation. While at its founding Company sovereignty was delegated by royal charter (later renewed by Parliament), after the conquest of Bengal the Company’s sovereign claims shifted to a self-possessed right. Following Charles Tilly’s notion that “war makes states,” Company wars expanded territory, whose revenues were better extracted by increased bureaucratic capacity. But the data also reveal a related conceptual dynamic of “war awakens sovereigns,” where entities engaged in peace negotiations are stimulated by their defense of sovereign claims to conceive new self-understandings of sovereign authority. In the EIC’s company-state, wars generated continuous articulations of Company sovereignty vis-à-vis Asian powers and European rivals. Due to the communications lag with London, Company administrators were empowered with immense discretion to manage such diplomacy. Dividing Bengal’s tax revenues after conquest further entangled the Company’s sovereign claims with the English state. Over time, these contests led to a notion of self-possessed Company sovereignty, complicating some standard historical narratives of the EIC as “accidental and unwilling” sovereigns.

The Company’s sovereign awakening redefines the EIC’s challenge to the English state. We know that Company misrule led to more government demarcations of public and private. My research shows that it was not just mismanagement but also self-possessed Company sovereignty that sparked a state reckoning. Importantly, the sovereign awakening was not limited to Company officials in India but extended to the London directors. Until the late 1700s, the English state had tolerated ambiguity in Company sovereignty based on the shared international understanding of divisible, non-hierarchical layered sovereignty. But self-possessed nonstate sovereignty claimed from the core of the state became too much.

State actors responded by anchoring sovereignty along more indivisible, hierarchical foundations articulated by theorists such as Jean Bodin and Thomas Hobbes centuries earlier. Parliament directed stronger oversight and regulations on the EIC through the 1773 and 1784 India Acts. In 1788, at the high-profile impeachment trial of EIC Governor-General Warren Hastings, Burke argued that no legitimate government can delegate absolute sovereignty: “Before Mr. Hastings none ever came before his superiors to claim it; because, if any such thing could exist, he claims the very power of that sovereign who calls him to account. … Such a claim is a monster that never existed except in the wild imagination of some theorist. … No country has wholly meant, or ever meant, to give this power.” Ultimately, while Hastings was acquitted, Burke’s arguments would resonate with European sovereigns who by the 1800s gradually disavowed delegating sovereign violence to nonstate actors like the charter companies.

Studying the EIC illustrates how the Company’s self-possessed sovereignty was constructed in moments of contestation with other sovereigns. Along these lines, as the Company’s affairs increasingly consisted of navigating complex political alliances in India and England, diplomatic entanglements awakened the Company to notions of sovereignty enduring beyond delegated privilege. Relatedly, the history of the EIC further shows that states also confronted company-states as sovereign rivals and wrestled with nonstate sovereignty, which extends thinking about the co-evolution of state and corporate power.

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