The Dutch East India Company was the first publicly traded joint-stock company in the world, established in 1602, and many historians consider it the first truly multinational corporation. Perhaps foreshadowing the power of other multinational corporations, this company has vast powers and operated almost as a shadow state in Dutch colonial holdings. It even had the ability to wage war. Learn more about the Dutch East India Company and its legacy here.
Dutch East India Company Definition
The Dutch East India Company was founded on March 20, 1602. It was created by an act of the States General of the Netherlands and combined several preexisting companies under one umbrella. It was initially given a 21-year monopoly on Dutch trade with Asia.
Fun Fact
The company's name in Dutch was Vereenigde Nederlandsche Geoctroyeerde Oostindische Compagnie, commonly referred to by the abbreviation VOC.
The Dutch East India Company was the first publicly traded joint-stock company in the world, and any citizen of the Netherlands could buy shares in it. Earlier joint-stock companies had existed, including the British East India Company, founded just two years earlier. Still, the Dutch East India Company was the first to allow easy sales and trading of its shares.
Joint-stock Company
A joint-stock company is a company where people can buy shares, or percentages, of the company. These shareholders comprise the ownership of the company. Day-to-day operations are managed by a board of directors, who, in theory, are responsible to the shareholders.
Fig 1 - Dutch East India Company ships.
Dutch East India Company vs. British East India Company
As noted above, the founding of the British East India Company predated the founding of the Dutch East India Company by two years.
The two companies were very similar. The British East India Company (originally known as the East India Company) was given a monopoly on British trade with the East Indies for 15 years. The British East India Company was given broad powers like the Dutch East India Company.
The British East India Company came to focus most of its efforts on the Indian subcontinent, taking control of much of the area by 1857 when a rebellion led to the establishment of formal British governmental colonial control.
The Dutch East India Company focused most of its activities on the islands of Southeast Asia, most of which are now part of the present-day country of Indonesia.
Did You Know?
Indonesia has 17,000 islands and thousands of ethnic and linguistic groups. After 1799, the areas under the control of the Dutch East India Company were taken over by the Dutch government and known as the Dutch East Indies. Japan occupied the islands during World War Two. The colony declared independence at the war's end but had to fight a 4-year war against the Dutch, who wanted to reestablish colonial control. In December 1949, the Dutch finally accepted their independence as the new nation-state of Indonesia.
Dutch East India Company History
The Dutch East India Company existed for nearly 200 years. During that time, it was the most important colonial force in Asia. It established control over a vast swath of territory, transported many Europeans to work in Asia, and conducted an incredibly profitable trade.
Founding of the Dutch East India Company in Amsterdam
By the late 1500s, the European demand for pepper and other spices had grown enormously. Portuguese traders held a virtual monopoly over this trade. However, after 1580, Dutch traders began to enter the trade themselves.
Dutch explorers and traders conducted several expeditions between 1591 and 1601. During these voyages, they established trade contacts in Indonesia's so-called "Spice Islands."
Despite the dangers of the voyages, conflict with Portugal, and the loss of several fleets, the trade was enormously profitable. One voyage returned a 400 percent profit, setting the stage for the further expansion of this trade.
For these voyages, companies were founded, with shares sold to spread around the risk and raise money for the voyage. They were very high-risk, high-reward investments. The British East India Company's founding had effectively been meant to reduce risk and increase the chances of return by investors while also forming a united cartel to control the prices of the spices brought back.
Cartel
A cartel is a group of businessmen, companies, or other entities that collude or work together to artificially control the prices of a particular product or group of products. It is often associated with the illegal drug trade today, but organizations such as OPEC operate as cartels for other products.
In 1602, the Dutch decided to follow the British example. The idea for the Dutch East India Company came from Johan van Oldenbarnevelt, and it was founded with its headquarters in Amsterdam.
Fig 2 - Johan van Oldenbarnevelt.
Powers Granted to the Company
The Dutch East India Company was granted vast powers. Besides being given an initial 21-year monopoly on Dutch trade with the East Indies, it could also do the following:
- Build forts
- Maintain armies
- Make treaties with local rulers
- Carry out military action against local and other foreign powers, such as the Portuguese and British
Growth and Expansion
The company was incredibly profitable and was highly successful in expanding its share of the spice trade. It was eventually able to essentially monopolize the trade of cloves, nutmeg, and mace to both Europe and Mughal India. They sold these spices at as much as 17 times the price they paid.
A Big Haul
In 1603, the Dutch East India Company seized a 1,500-ton Portuguese merchant ship. The sale of the goods aboard the ship increased the company's profits that year by 50%.
In 1603, the company established the first permanent settlements in Banten and Jayakarta (later named Jakarta).
Between 1604 and 1620, several confrontations occurred between the Dutch East India Company and the British East India Company, which began establishing trade posts and settlements. After 1620, the British withdrew most of their interests from Indonesia, focusing instead on other areas in Asia.
In the 1620s, the VOC sought to expand its inter-Asian trade to increase its profits and reduce the need to transport silver and gold from Europe to pay for the spices. It established extensive Asian trade networks that included Japanese copper and silver, Chinese and Indian silk, china and textiles, and, of course, the spices from the islands under its control.
Did You Know?
A small artificial island named Dejima, off the coast of Nagasaki had a Dutch trading post and was the only place Europeans were allowed to conduct trade in Japan for over 200 years.
The VOC failed to establish more formal control or settlements in China, Vietnam, and Cambodia, where local forces defeated them. Still, it controlled a vast trade.
Fun Fact
The Dutch East India Company established a settlement at the southern tip of Africa in 1652. The location was previously known as the Cape of Storms but afterward became known as the Cape of Good Hope in honor of the settlement, which was a vital resupply post on the voyage from Europe to Asia.
Fig 3 - VOC headquarters in Amsterdam.
Decline and Bankruptcy
Towards the end of the 1600s, the VOC's profitability began to decline. This was primarily due to other countries successfully getting involved in the pepper and other spices market, breaking the near stranglehold the company had held.
Price wars led to a decline in income while the company attempted to re-secure its monopoly through military spending. However, this was a losing proposition over the long term. The English and French increasingly encroached on the Dutch trade.
However, in the first decades of the 1700s, growing demand for other goods from Asia and easy financing allowed the company to re-expand and reorient itself from its now less lucrative spice trade, diversifying the goods it traded. Still, the company had lower margins increased due to the increased competition.
Margin
In business, the margin, or profit margin, is the difference between the sale price and cost price. It is how much money the company makes from a good or service.
Even with its expansion, the company failed to increase those margins, although it remained profitable around 1780. However, the Fourth Anglo-Dutch War outbreak that year spelled the company's doom.
The company's ships took many losses during the war, and by its end in 1784, its profitability was wiped out. There were attempts to reorganize and revive it over the next few years. Still, in 1799, its charter was allowed to expire, ending its nearly 200-year run as one of the dominant forces in the early colonial period.
Dutch East India Company Significance
The Dutch East India Company's significance was enormous. We often remember Britain, France, and Spain as the leading historic colonial powers. However, the Dutch were incredibly powerful in the 17th and 18th centuries. The company was an essential part of that. Its decline also coincided with the decline in the Netherlands' international power.
The company is also seen as very controversial by historians today. It was involved in conflicts with Britain and France and local populations in Indonesia, China, and Southeast Asia. Massacres occurred in several places. They also had strict racist hierarchies in their settlements and trading posts, and local populations were often abused. During the conquest of the Banda Islands, an estimated indigenous population of 15,000 was reduced to just 1,000.
Additionally, their trade presence decimated the local economies of the islands of Indonesia. The mortality rate of their European populations was also incredibly high.
Role of the Dutch East India Company in Slavery
The company also employed many slaves on its spice plantations. Many of these slaves were from the local populations of the islands. Many slaves were brought to the Cape of Good Hope from Asia and Africa.
Dutch East India Company Worth
The Dutch East India Company's worth was incredibly high for much of its operation, especially for original investors. By 1669, it paid a 40% dividend on that original investment. The price of shares in the company remained around 400 even as the company's profits began to decline after 1680, and it reached an all-time high of 642 in the 1720s.
Most Valuable Company Ever?
Some estimates place the value of the Dutch East India Company in present-day dollars at nearly 8 trillion, making it possibly the most valuable company ever to exist and much more valuable than even the giant corporations of today.
Dutch East India Company - Key takeaways
- The Dutch East India Company was founded in 1602.
- It was the first publicly traded stock company.
- It held a virtual monopoly on the spice trade from Indonesia for around 150 years.
- The company was responsible for slave trading and decimating the local populations and economies of areas it occupied.
- Decreased profit margins and a devastating conflict with Britain led to the company's collapse and dissolution in 1799.
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