There can be no Partnership with the King: Regulatory Commitment and the Tortured Rise of England's East Indian Merchant Empire

Abstract

The English East India Company helped build Britain's colonial empire, but the Company was not a leader in East Asian trade for nearly a century after its founding in 1600. This paper argues that its early performance was hindered by a problem of regulatory commitment. It gives a brief history of the torturous renegotiations over its monopoly trading privileges and the fiscal demands by the monarchy. It also analyzes the effects of political instability, warfare, and fiscal capacity on the Company's investment in shipping tonnage. Regressions show the growth of shipping tonnage declined significantly when there were changes in government ministers, when Britain was at war in Europe and North America, and when shipping capacity exceeded central government tax revenues. The findings point to the significance of regulatory institutions in Britain's development and its links with politics and war. They also provide an important case where regulatory uncertainty lowers investment.