After Nations: The Making and Unmaking of a World Order, by Rana Dasgupta book
Mohan Gulrajani
In his new book, Rana Dasgupta shows how imperial Britain hijacked successful Asian economies
An excerpt from ‘After Nations: The Making and Unmaking of a World Order’, by Rana Dasgupta.
Author Rana Dasgupta.
The East India Company conspired to hijack one of the world’s most opulent concentrations of silver: that of India’s provinces of Bengal, Bihar and Orissa, where a world-beating cotton industry drew in bullion from all over Asia, as well as from European traders. In 1757, Company forces defeated the Nawab of Bengal and replaced him with a candidate of their own, who was expected to share the contents of the treasury; “however, it contained only a fraction of the forty million pounds [they] had reckoned on.”
In the following years, the hostage ruler managed to hand over as much as £3 million worth of silver, but the Company was not satisfied. In 1765, Company officers pushed for a settlement that would grant them the entire tax revenue from the territory in return for an annual tribute to the Mughal emperor. This Asian prize – the “diwani” – would relieve the pressure to find silver elsewhere, reduce the number of treasure ships taking the long and dangerous route around the Cape of Good Hope, and enhance the Company’s account in Canton. The extortion was secured by Robert Clive, Governor of the Company’s Bengal presidency, who boasted to his superiors in London that it would
defray all the expenses of the investment, furnish the whole of the China treasure and answer all the demands of all your other settlements in India, and still leave a considerable balance in your treasury besides.
Initially, the Bengali windfall had the desired effect. In the first five years of the diwani, £4,914,611 of silver was sent from Bengal to China; by the late 1760s, the Company’s annual expenditure in Canton was six or seven times greater than in the 1720s and 1730s. (The annual revenue of the British state, by comparison, was about £8 million.)
The Company’s Court of Directors was delighted. “The enlargement of the Trade to China to its utmost Extent,” it wrote in 1768, “is an object we have greatly at heart.” For a short while, the Bengal extraction enabled “the [Company’s] directors to confound domestic critics who had long charged them with exporting [Britain’s] precious metals in exchange for useless luxuries”. Increased revenues from the East India Company became crucial, indeed, for servicing the national debt incurred by Britain during the Seven Years War; the share price rocketed.
For reasons that should have been clear from the beginning, however, the scheme proved tragically temporary. Since the Company treated Bengal’s tax revenues as pure profit, its extractions were inflexible and peremptory; almost immediately, landowners – whose close relationship with tax officials had previously afforded them some discretion over the timing of payments – complained they were no longer able to muster funds for maintaining roads, bridges and irrigation channels.
The Company, naturally, spent almost nothing on maintaining the state, and the local economy began to fall apart. Following the failed monsoon of 1769, as production slumped and tax revenues began to fall, the indignant Company raised land taxes by 10 per cent and employed increasingly aggressive methods to collect them. The territory’s sophisticated welfare system had already been ruined by Company extractions; amid the food shortages, merchants now hoarded grain to profit from rising prices.
The famine that followed claimed two million lives. Even as the British employed labourers to collect the accumulating bodies and dump them in the Ganges, they kept their focus on the matter at hand: amassing silver for China. During the four years of the crisis, the Company spent only £9,000 on famine relief, despite the fact that, as Governor-General Warren Hastings proudly wrote to London in 1772, tax collection had been “violently kept up to its former standard” (roughly £2 million per year). This was the result of a strategy by which, according to one contemporary commentator, “the Company’s collectors compelled the living to pay the taxes of the dead”.
Inevitably, the value of the diwani began to decline. The Company found itself once again overcommitted, and its share price crashed. East India Company stock was one of the core instruments of the international financial system, which now entered a crisis. In 1772, as banks closed across Britain and the Netherlands, parliament fell apart. The prime minister, Lord North, campaigned to bring the Company under state control and to suspend its extraordinary privileges. Not only were his colleagues personally invested, however, but Britain was itself completely dependent on the support of its “private” appendage – that was the whole reason those privileges had been granted in the first place. Britain’s world-beating debt capacity was underwritten by the Company’s excise payments; were it to fail, the political consequences would be apocalyptic. Thomas Pownall, member of parliament and former governor of Massachusetts, “tremble[d] with horror even at the imagination of the downfall of this Indian part of our system; knowing that it must necessarily involve with its fall, the ruin of the whole edifice of the British Empire”.
The eventual accommodation was almost the reverse of Lord North’s intention. Instead of sacrificing the Company to save the state, parliament risked the state to save the Company. Despite mounting fiscal resentment in the American colonies, the government authorised the Company – with the Tea Act of 1773 – to extract from America the funds to make good its Asian debacle, and its monopoly was extended, effectively at least, to the New World. Thus was the British state broken apart, and the American colonies lost.
What else could Britain do to solve the bullion problem? Tea was now the primary mechanism by which the Asian subsidy was captured: silver exported from Europe bought a multiple of its value in Chinese tea, which was then converted back into coin at home. But the disaster in Bengal demonstrated that even the largest company in the world could not sustain this trade. The silver simply did not exist to pay for “all the tea in China”. Though “everything” hung in the balance, therefore – the Industrial Revolution, British supremacy, the modern world – and though Company directors would do literally anything, to the point of mass famine on one side of the globe and revolution on the other, the quest had clearly reached its limit. Britain needed to extract itself from Europe’s perennial cycle. Two epochal interventions brought that cycle to an end.
One was the Industrial Revolution, which, like slavery, allowed Britain to undercut Asia even when British wages were rising to six times those in Bengal. One answer to the frequently asked question Why did the Industrial Revolution take place in Europe and not Asia? is: “Because Europe needed it, while Asia did not.” A major consequence, after all, was that Britain overcame another of its greatest bullion obligations: payment for Indian textiles. By the 1770s, each of the various stages of cotton production – ginning, spinning, weaving, dyeing – had been converted into an efficient mechanised process, and British workers were able to produce cloth ten or twenty times faster than their Indian counterparts.
A cotton industry began to explode in Lancashire, close to Britain’s main coal deposits. The East India Company imposed tariffs on Indian cloth, and reversed the direction of the textile trade. Raw cotton now became the most important foreign input into the British economy and, over a few decades, the Indian cotton industry was proletarianized. India’s own high-value exports disappeared, the formidable skills of its spinners and weavers went into desuetude and its opulent merchants moved to other trades – or, more frequently, entered the long and pathetic decline so painfully described in Bengali novels. With India hobbled, it became possible for the British textile industry to take over the world – and Indian bullion flowed to Britain, instead of the other way around
The other intervention, though criminal, was equally ingenious. For the problem of Chinese tea there was no industrial fix; but by this time Indian traders had discovered one commodity for which China would pay good silver: opium. Europeans (and Americans) saw in this commodity the possibility of reducing their trade deficits with China, and instigated a frantic expansion in cultivation and commerce. In Bihar and Bengal, British agents coerced farmers to abandon other crops in favour of poppies, which they usually produced at a loss.
Americans purchased opium from Turkey and Persia. All of it ended up in south China ports. “From 4,000 chests of opium a year in 1787, by 1833, 30,000 chests were trafficked annually (one chest containing 170 pounds of the drug), and Chinese estimates suggest there were as many as twelve million addicts.” Importing opium was illegal under Chinese law, a problem foreign merchants solved by appointing covert agents who would smuggle the drugs and transfer the silver to “official” partners, who used it to buy tea. As the opium trade reached full scale, in short, the problem of bullion was neatly solved: the Chinese would themselves provide the silver with which Europeans would pay them. Silver finally reversed its direction of flow, moving westwards out of China for the first time since the Mongols.
Nothing could be allowed to stand in the way of a narcotic that could engineer so cherished a transition. When China moved to stamp out the trade, Britain declared war. The “First Opium War” (1839–42) was followed by the first of several “unequal treaties” by which Britain secured commercial and legal privileges in China, as well as the trading post of Hong Kong. France, Belgium, Sweden, Norway, Portugal and the United States then negotiated similar treaties, and Britain decided to extend its demands. When these were refused, a “Second Opium War” (1856–60) followed, during which China fought for its very survival; Britain and France occupied the capital city – looting and incinerating the legendary Old Summer Palace in Beijing to show what they thought of the empire and its survival.
The eternal problem of Europe’s economic subordination to Asia was finally solved. As India and China crumbled, it became possible to rob them of all their remaining advantages: in the 1840s, for instance, the East India Company conspired to steal tea plants from China, deputing the botanist Robert Fortune to identify species that might flourish in its own territories of India and Sri Lanka. From about the 1840s, therefore, Britain could begin to assume the role of global, not merely regional, superpower.
Excerpted with permission from After Nations: The Making and Unmaking of a World Order, Rana Dasgupta, Penguin Random House India.
Professor (Dr.) M. L. Gulrajani F.S.D.C. (UK)
Former Professor and Dean (I.R&D), IIT Delhi
601 - B, Hamilton Court, DLF City Phase - IV,
Gurugram, 122009, Haryana
Mo. +919818253979