Capitalism and Rule by Corporation

A few years ago Ron Paul made a somewhat controversial statement.

Paul told CNN's T.J. Holmes. "If you look at Africa, they don't have any free market systems and property rights and they have famines and no medical care. So the freer the system, the better the health care."

There are several problems with this statement, starting with the fact that Africa is a continent and not a country. It has at least 54 countries with economies ranging from socialism to complete anarchy and everything in-between.
However, what I want to focus on is the assumption that you don't have famines in a capitalist system.

We've all heard political candidates say that the government should be run like a business. It's the idea behind privatizing public assets. The reason is because corporations are more "efficient".

One thing that even liberals generally won't question is that capitalism is "efficient", and thus the best system for maximizing production. It turns out that "efficiency" should be questioned.

It's difficult to define "efficiency" because there is more than one way to measure it. That measurement depends on what you value.
If you value resource extraction and profits then capitalism wins hands-down.

However, if you value, say, continuation of the human race, then capitalism may not be the most efficient system.

When the lists of communists victims are tallied up the famines are always included. The 1932-33 Soviet Famine is often given as the prime example. Somewhere between 3 and 8 million people died (with the generally accepted number of 5 million).
It was a horrible, devastating disaster and held up as proof that communism doesn't work.

Using a famine as proof that communism doesn't work also implies that man-made famines don't happen under capitalism (as Ron Paul will testify to).
But the truth is that capitalism has caused far larger man-made famines.

The book Late Victorian Holocausts: El Niño Famines and the Making of the Third World by Mike Davis argues that 30-60 million people died because of laissez faire capitalist policies in colonial Britain between 1876 and 1902.
However, I want to focus on an earlier event. Specifically, I want to focus on the catastrophe that visited Bengal in 1770.

The Company Raj

In the 1750s, Robert Clive led a mercenary army for the British East India Company. Through bribery and deception they conquered the state of Bengal, one of the most populated and oldest nations on Earth.
The Bengal state treasury was immediately looted.
According to the Pratt-Yorke opinion, the Crown would acquire sovereignty, but the Company would acquire title. Thus Bengal was EIC property to do with as they wished. With the 1765 Treaty of Allahabad, the company became the tax collectors (diwani) of the region.

This is the capitalist's utopian dream. A totally private firm, deregulated in 1694, owned a huge nation. As long as they didn't undermine the British King, they were free to do whatever they liked. Business was the government, and government was the business.
By contemporary free-market capitalist ideology, Indians should have become the most prosperous people in the world.

"The difference between the genius of the British constitution which protects and governs North America, and that of the mercantile company which oppresses and domineers in the East Indies, cannot perhaps be better illustrated than by the different state of those countries."
- Adam Smith

Like any company today, their primary concern was maximizing profits above all else.
Would a private company who's owners were 2,000km away grind a peasant economy into the ground with rapacious taxation?

As lands came under company control, the land tax was typically raised by 3 to 4 times what it had been – from 10-15% up to 50% of the value of the agricultural produce. In the first years of the rule of the British East India Company, the total land tax income was doubled and most of this revenue flowed out of the country.

The EIC kept calling it "tribute" and maintained Emperor Shah Alam in his palace (under virtual house arrest) to try to keep the peasants unaware that the EIC now ran everything.

“We are sensible that, since the acquisition of the dewany, the power formerly belonging to the soubah of those provinces is totally, in fact, vested in the East India Company. Nothing remains to him but the name and shadow of authority. This name, however, this shadow, it is indispensably necessary we should seem to venerate.”
- Robert Clive to the directors of the EIC, 1767

Of course like any good capitalist, the directors of the EIC were not satisfied with simply pillaging the peasants through sky-high taxes. They needed more, more, MORE!
So they changed the way that farmers did business, despite thousands of years of experience.

wherever it was possible the planting of cash crops such as indigo and cotton were made compulsory. Likewise, because the raised tax had to be collected in cash and at the point of a bayonet if necessary the hoarding of rice was forbidden, and so with little option this was sold on and a thriving grain market came into being which was of course eventually monopolised by the company.
Thus it was that the peasants lifeline, the stock of surplus staples was drastically reduced and were in fact no longer available to tide them over when the partial failure of crops (itself nothing out of the ordinary) came in 1768.

The early halt to the rains in 1769 was a crisis, but not something Bengal hadn't seen before.
However, this time the government of Bengal couldn't help because it had already been pillaged. The local farmers also couldn't help because "hoarding" had already been outlawed.

Thus there was absolutely nothing for the peasants to fall back on, and the Company was only interested in profits.
So when several million workers died of starvation in early 1770, the Company raised the land tax another 10% in order to make up for the decline in profits, which is a perfectly logical business decision to make.

“Throughout the entire course of recorded European history, from the remote times of which the Homeric poems preserve the dim tradition down to the present moment, there has occurred no calamity at once so sudden and of such appalling magnitude as the famine which in the spring and summer of 1770 nearly exterminated the ancient civilization of Bengal. It presents that aspect of preternatural vastness which characterizes the continent of Asia and all that concerns it. The Black Death of the fourteenth century was, perhaps, the most fearful visitation which has ever afflicted the Western world. But in the concentrated misery which it occasioned the Bengal famine surpassed it, even as the Himalayas dwarf by comparison the highest peaks of Switzerland.”
- John Fiske, ‘The Unseen World’ 1868

At least a third of the population of Bengal perished. Large areas were depopulated and the jungle reclaimed much farmland. Bandits returned to the countryside.
According to human morality this was a disaster. According to a national economy this was a disaster. But a capitalist corporation doesn't care about either of those things.

However, revenues at the Company were reported higher in 1771 than in 1768. Globally, the profit of the Company increased from 15 million rupees in 1765 up to 30 million rupees in 1777.
Thus the deaths of 10 million people in Bengal failed to dampen the mood at the EIC. According the values of capitalism, the Bengal Famine was a non-event. In fact, it isn't even noticed, much less proof of failure (unlike the Soviet Famine).

Why the difference in measuring failure?
Communism is supposed to raise the living standard of the worker. So a famine is evidence that communism isn't working.

Capitalism, OTOH, is all about profits.
According to corporate bookkeeping, payable wages for workers are an expense, not an asset. They are a negative.
So when the corporation owns the country, feeding the workers are an expense and a liability. As long as there are still enough workers left to maintain production, famines actually help the corporate bottom line by reducing expenses and liabilities.

To put it another way, 10 million Bengalis were downsized out of existence.

Tea Party Legacy

Despite the ECI collecting more revenue, expenses went up even faster. At one point the EIC had 200,000 mercenaries on their payroll. It seems the famine crippled worker productivity, and thus reduced "efficiency".
And so, like the capitalists of today, the EIC used socialism to bail themselves out.

The desperate directors of the company attempted to avert bankruptcy by appealing to Parliament for financial help. This led to the passing of the Tea Act in 1773. This Act gave the Company greater autonomy in running its trade in America.

You might remember the Tea Act. It's what the right-wing capitalists use as inspiration to rage against the government.
If you are like me this is what you learned in grade school:

The Boston Tea Party was the colonists' protest against taxes. Britian imposed a tax on tea and other imported goods, and the colonists were outraged. They dressed up as Native Americans, boarded ships in the Boston Harbor, and threw overboard all the tea they could find on the ships. They wanted to send the message to the British that they would not tolerate exorbitant taxes.

Pretty straight forward, right? This is why right-wing tax protesters consider themselves patriotic even today. They are just following a great American tradition...or are they?

Would you be surprised to find out that this is 100% lie? Well, maybe not 100%. The colonists did throw tea into Boston Harbor in 1773. It's only everything else that is a lie.

HEIC started transporting opium to England in 1606 and had established a legal monopoly on opium trade in India (by force), and controlled a majority of opium trafficking to Europe, China, and America by 1800. This became important because Britain had developed a large trade deficit with China from using silver to buy tea.
In order to balance the trade deficit, Britain enlisted the East India Company's opium cartel. Before long China was importing 900 tonnes of opium a year from HEIC sources. The resulting epidemic of addiction in China caused the Qing Emperor to ban the sale of opium in 1839.
This led directly to the First Opium War, in which the British government underwrote a war on behalf of private interests and their future profits, so that they could force drug addiction upon another race of people. By this time the East Indies Company's main job was to administer India, rather than being strictly a trading company.

As for that Chinese tea, the colonies in the New World had to buy it through Britain by law.
The trouble was that the colonists frequently flaunted laws like these.

The expenditures that the East India Company was making on their mercenary army was draining their resources and eliminating their profits. The company had huge debts, large stocks of tea in warehouses and little prospects of selling it because colonial smugglers like John Hancock were importing the tea from Holland to avoid paying taxes. The company appealed to the British government, which passed the Tea Act in May 1773.

13 Geo III c. 44, long title An act to allow a drawback of the duties of customs on the exportation of tea to any of his Majesty's colonies or plantations in America; to increase the deposit on bohea tea to be sold at the East India Company's sales; and to empower the commissioners of the treasury to grant licenses to the East India Company to export tea duty-free.

This act allowed the East India Company to sell tea in the colonies for half the old price that British tea was sold at, and even less than smuggled tea from Holland.

Still reeling from the Hutchinson letters, Bostonians suspected the removal of the Tea Tax was simply another attempt by the British parliament to squash American freedom. Samuel Adams, wealthy smugglers, and others who had profited from the smuggled tea called for agents and consignees of the East India Company tea to abandon their positions; consignees who hesitated were terrorized through attacks on their warehouses and even their homes.

So you see, Bostonians weren't angry about any taxes being imposed on them. They were angry about a huge corporation using its powerful lobby in the halls of government to crush the small businessman via corporate welfare in the form of tax loopholes.

Why that sounds downright leftist to me. Does it to you?

The outraged Bostonians circulated a pamphlet called The Alarm which reminded people of the company's recent record in Bengal.

Are we in like Manner to be given up to the Disposal of the East India Company, who have now the Assurance, to step forth in Aid of the Minister, to execute his Plan, of enslaving America? Their Conduct in Asia, for some Years past, has given simple Proof, how little they regard the Laws of Nations, the Rights, Liberties, or Lives of Men.... Fifteen hundred Thousands, it is said, perished by Famine in one Year, not because the Earth denied its Fruits; but [because] this Company and their Servants engulfed all the Necessaries of Life, and set them at so high a Rate that the poor could not purchase them.

Notice the anger and fear at corporate monopoly pricing. I'm going to come back to that.

The rest of the story you already know. The first of the huge East India Company tea ships (the Dartmouth) arrived in Boston Harbor in late November, 1773, but John Hancock, Samuel Adams and friends wouldn't let them unload their shipments.
On December 16, 1773, the Sons of Liberty dressed up as indians and boarded the Dartmouth and two other East India Company ships and dumped 45 tonnes of tea into the harbor.

Can you imagine today's tea party protesters raging against unfair corporate tax breaks? I certainly can't. Yet that is exactly what their movement is named after.


After having to bail out them out, the British government re-regulated the EIC. From them on the Company would have two masters, shareholders and the government.
But that doesn't mean things would change for the desperate people of India.

The Great Famine of 1876-78 killed around 5.5 million people.
With millions of people starving, the colonial government decided to apply a stricter standards of qualification for relief. For a pound of grain, women and children were required to do a "long day of hard labour without shade or rest."
As Lord Lytton put it: "everything must be subordinated to the financial consideration of disbursing the smallest sum of money... "

Meanwhile, the colonial government saw the export to England of a record 6.4 million hundredweight of wheat.

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gulfgal98's picture

This is an excellent and very comprehensive diary. I may have an additional comment on the substance tomorrow.

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Do I hear the sound of guillotines being constructed?

“Those who make peaceful revolution impossible will make violent revolution inevitable." ~ President John F. Kennedy

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LapsedLawyer's picture

Unlike other writers on political economy (and we should insist on that phrase whenever speaking of the workings of "the economy"), Marx concentrated on the exploitative nature of capital, doing so because he could see no other way any capitalist could realize a profit unless said capitalist underpaid (exploited) the workforce for the actual value it produced for the capitalist. (This included his take on the environment and the link points to an excellent book on the subject -- and you can get it on Kindle! Wink . ) He did this by first exploring transactions in the marketplace -- the basic buying and selling of goods and services -- via asking a basic question, "What is a commodity?" and going from there to show how the free market could only generate temporary profits of a highly transitory nature. From this he deduced that to find the source of profit one must focus on the production process, which led him to conclude that exploitation and expropriation were at the heart of the capitalist mode of production. From this he then goes on to see and to show, in his many political writings on the brutality of colonialism e.g., how these most basic features impacted other aspects of what are not normally considered economic matters. Davis's book, and thank you for your marvelous summary and review, details this expertly in the case of colonialism and neocolonialism and their relation to famine. Thanks.

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"Our society is run by insane people for insane objectives. I think we're being run by maniacs for maniacal ends and I think I'm liable to be put away as insane for expressing that. That's what's insane about it."
-- John Lennon