If you think of the valuable companies in history, you might think of Google,
Facebook, and Tesla. Nutmeg doesn't come into thought, right? Well, it should.
The biggest company ever to exist relied on spice and silk, along with many other products. But,
it's not a recent company. To know more about it, we need to go back to the 1600s.
We're talking about the Dutch East India Company. In this episode of Forensics, we'll compress its
fascinating 200-year history and show you how, today, it's still leaving a mark on us.
Origins:
Let's get one thing out of the way: the name. The United East
India Company translates to Vereenigde Oost Indische Compagnie in Dutch. But
I don't want to say that again, and you don't want to hear me say it. So we'll call it the VOC.
At the end of the 1500s, spices were precious. So,
all routes from Europe to Asia, especially the East Indias, commanded a high price.
One nation that dominated shipping was Portugal. But, the Dutch wanted in.
The Dutch began sending ships to what is now Indonesia and saw immense
profits. Some even yielded 400% in returns, but the risk and cost were too high.
So, the Dutch took from the British and created a company that would fund the trips. As a result,
hundreds of investors financed multiple ships. This way,
they split the risk and the profit. Thus, the VOC was born.
But, there was a problem.
Britain and Portugal brought their cargo to Europe and lowered those sweet margins.
Before we get into this, let's talk about some critical aspects of the VOC.
The VOC was private. It was formed in 1601-02,
comprised seventeen board members. But, it had the support of the government of The Netherlands.
When we say support, the Dutch Government gave them a free pass to do just about anything.
The VOC could hire and fire at will and define their own wages. In addition, the Dutch
government gave the VOC a monopoly of trading routes to East India for the next 21 years.
Oh, by the way, the VOC could also wage war.
Historians like Stephen Brown have compared the VOC to a state within a state.
That's how powerful it was. And, the benefits don't end there.
The incredible wealth that fueled the VOC
Did you know that the VOC is one of the first companies in
history to issue stock to finance its operation?
The VOC sold bonds to investors so it could finance its travels.
Then, it would pay back with the profits from the returning ships, months later. So,
they created the basis for the futures market.
But, the VOC was also visionary. They didn't ask for funding for one trip.
Instead, the funds would fuel many operations in the future. It's estimated that they raised
$110 million in today's money. Not bad.
The Dutch economy also helped. Interest rates were lower; from 1602 to 1696, dividends were between
12% to 63%, while loan interest rates were 4%. So people borrowed from banks to invest in the VOC.
With such financial prowess, it didn't take long for VOC to control the shipping routes.
The path to world domination
The VOC acted fast. It forged alliances with Middle Eastern and Asian countries
to oust the Portuguese. In no time, it monopolized essential products like mace, nutmeg, and cloves.
The VOC sold products at 15 times the price, reaping huge profits. But, it also left a path
of economic and social destruction, and much of it is thanks to this guy: Jan Pieterzon Coon.
This guy was relentless. He built many forts and settlements and took over other trading posts.
In 1619, the VOC attacked the Portuguese trading post in Jakarta. After securing it,
it had a grasp on a vital trading route. Then, the VOC sought to dominate modern-day Indonesia.
Under Pieterzon's leadership, the VOC ravaged local economies and populations. One such
case is the Banda Massacre. But, most remember him for creating an Inter-Asia trading system.
The VOC didn't deal mainly with Europe. In fact, only the best products, with the highest markups,
reached Europe. Instead, the VOC profited from trading within Asia.
The primary trading post was in Bengal. There, the most powerful economies traded silver,
copper, silk, cotton, spices. But, this wasn't some diplomatic paradise.
By 1640, the VOC had battled Vietnamese lords and Cambodians. Then, it tried to
use military force on China and got their asses handed to them. But they didn't stop.
The VOC wanted to dominate the world. And, to a degree, they did.
The sheer absurdity of the VOC's proportions
The VOC had colonies, settlements, or trading hubs in modern Malaysia,
Bangladesh, Sri Lanka, Persia, Taiwan, and South Africa, just to name a few.
It was even in Japan. This was, for 200 years, the only place where Europeans could trade with Japan.
Wherever the VOC was, it was ruthless. In South Africa,
for example, they colonized the Cape of Good Hope, an important resting place on
the way to Asia. The VOC would let you rest there but at an exorbitant cost.
The VOC had expanded to absurd levels by 1669. It had over 150 merchant ships, 40 warships,
70,000 employees at its largest (excluding slaves, of course), and a private army
of 10,000 soldiers. Plus, dividends paid 40% on the original investment.
So, no wonder that the VOC became the largest company in the world
and in history. And, let's talk about that for a moment.
The biggest company in the world.
Here's where we need to be careful. Yes, historically,
there's evidence to say that it is the richest company the world has ever seen.
But, how rich is controversial. The usual valuation was around $7.9
trillion when the VOC was worth 78 million Dutch Guilders.
Other sources place the value in a range of $7.4 trillion to $8.18 trillion. But,
some historians have valued it at around $2 trillion.
Let's take the most popular, $7.9 trillion. This would mean roughly twice Germany's GDP
at the shooting of this video. Whatever the amount, it was a shit ton of money.
So, the VOC grew at a pace unseen before or after. From 1603 to 1670,
the VOC dominated the world. But then, it didn't. So, what happened to this giant?
How the VOC slowed down
There are a lot of reasons for the VOC's decay. First of all, trade with some Asian
countries like Japan began to slow down. Japan tightened the conditions for business.
The VOC lost a lot of the silk trade with China due to internal political chaos.
Then, the constant conflict between the Dutch and the British
damaged the VOCs fleet. This hampered its ability to trade with Europe.
After losing some of its naval power, the VOC proved to be vulnerable.
Countries like Britain, France, and Denmark used their trading
companies and challenged the VOC's monopoly.
To protect its supplies, the VOC created forts and trading hubs in other locations.
It desperately tried to maintain its monopoly on trade, but at a huge cost. Add to this,
the VOC was desperate to have control over commodities that were losing importance.
By 1690, the company was investing heavily in a market that was already losing ground.
The VOC lost power, and the Dutch Nation did too. Moreover,
critical military losses weakened its grip on Asia. So, the VOC made an aggressive effort
to amplify its operations and entered the expansion age. But, numbers weren't kind.
Losing the numbers game
The VOC was expensive to maintain from the start: forts, employees,
ships, supplies. Most of it was fixed cost.
While this recipe worked great at the beginning,
times were changing. So let's look at some numbers.
From 1630 to 1670, known as the Golden Age, annual profit was, on average,
2.1 million guilders. About 50% of that was dividends. The rest,
the VOC reinvested in its massive operations. As a result, profits were about 18% of total revenue.
In the expansion age, from 1680 to 1730, the annual profit was 2.0 million guilders. About
75% of that went out as dividends, and 25% reinvested. But, profits were about 10%.
The same happened with the ROI, which went from 6% on the Golden Age to 3.4% on the Expansion Age.
The problem was that, from a distance, the numbers still seemed good. So, the VOC's leadership and
investors weren't all that concerned. And, if you've seen this show, that's not a good sign.
Decline:
One of the main reasons for the downfall was the deterioration of trade with Asia.
The ever-changing continent was going through internal battles and political tension. This
forced the VOC to ditch some trading hubs and settlements. So, it lost even more power in Asia.
Meanwhile, the British, for example, made their trading routes more efficient. As a result,
they dominated the import of tea from China to Europe.
Company culture, if you could call it that, also suffered. Historians say
that the VOC's conditions were so harsh and pay so low that employees avoided working
altogether. But, there wasn't much problem, because there was little control over them.
Then, the stockholders were also to blame. After 1730,
when numbers began to drop, they only decreased dividends slightly.
So, from 1730 to 1780, the VOC regularly paid more dividends than earnings.
To finance itself, the VOC took out loans on expected revenues. But,
these were higher in interest rates and sometimes didn't perform well.
Another big blow came from the British. The Fourth Anglo-Dutch War
again ravaged the VOC fleet, taking out around half its ships. Plus,
rapid British expansion took over valuable routes and markets.
Historians believe that, at the time, the VOC had 62 million guilders
of total capital. Thus, the losses during the war amounted to 48 million guilders.
Meanwhile, the world was expanding. As a result, Asian sugar was no longer coveted,
as Brazilian sugar was cheaper. And that wasn't the only affordable product from America.
Tension in Asia was high. The VOC didn't help its own case with China when it pillaged houses
and killed Chinese citizens in a revolt.
Now, the VOC was on hot waters. First, it fell under investigation
for the first time in its history, with many questioning its practices. Then,
with the New Batavian Republic came the nationalization of the VOC in 1796.
With the nationalization, the VOC effectively ceased to exist as a private company. But,
still, the government made several attempts to revive the VOC in the next three years.
There was no use. After many failed tries, on December 31, 1799, the rights to the VOC expired.
Most of the possessions fell to the British.
They then returned the scraps to the Kingdom of the Netherlands years later.
But these were only chewed bones. Instead, these rotten fragments reminded the Dutch
that they once had the greatest company on Earth. And that it ate itself to oblivion.