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This recent article by @nic__carter investigating the idea of a truly "private" company reminded me of a paper I recently read https://www.coindesk.com/twitter-trump-private-company-fallacy
The paper is called "Company-states and the creation of the global international system" https://journals.sagepub.com/doi/full/10.1177/1354066120928127
Company-states are mentioned throughout history books. 2 of the most famous company-states were the Dutch East India Company (VOC) and the English East India Company (EIC)
The authors claim company-states are misunderstood. The IR field underrates how much the company-state influenced not just the geopolitics of old but modern Europe as well. They used mgmt techniques we take for granted today and ruled over their own mini empires
They were not just commercial enterprises or appendages of the state. They were profit seeking entities blessed with sovereign powers. They blurred lines b/w, "the public and private, between political and economic, ...
between the market and the state, the domestic and international, and between sovereignty and dependence”
Company-states bridged the ambition of 17th century States' to their capacity. Governments then had neither enough money nor the operational skill to import raw goods from overseas
Habsburg Spain licensed self-funded "adventurers" to bring silver back from the Americas. This initial score brought prosperity to Spain and their trade partners-- the Ming and Mughal empires
This Eurasian market, like any good market, benefited everyone involved. Other countries were inspired by the profits and hungry for the luxury goods now available from the east
The problems European countries had securing their colonies' resources themselves:
1) States -- the principles -- had trouble controlling their agents overseas
2) They also had trouble financing these projects
1) States -- the principles -- had trouble controlling their agents overseas
2) They also had trouble financing these projects
Starting in the early 17th century States began granting Charters to companies. The charter gave organizations a monopoly over the trade of a commodity in a specific region. Company-states were owned by merchants and investors looking to make money.
They were given sovereign power. They could set up a colony of their own, use force to defend and expand. They could even mint and tax money.
Their secret sauce was how they aligned the interests of each stakeholder. They pioneered tools we still use today.
Essentially, they were set up as joint stock LLCs with a BoD.
How familiar.
The Board consisted of specialized subcomittees. They delegated substantial power to their agents in the field
How familiar.
The Board consisted of specialized subcomittees. They delegated substantial power to their agents in the field
The joint stock setup allowed their field agents to buy ownership in the company. With something to gain beyond a salary they became great moneymakers for their employer.
Back then, expeditions were one-off enterprises. Funding was harder and investors faced a very high risk of making no money on any given expedition.
What if the ship sinks or pirates rob them? They'd be SOL. Incorporating a company allowed for a pooling of capital. A pool becomes a portfolio of bets, improving the risk adjusted ROI.
(Reminds me of the great book "Against the Gods". Check it out https://www.amazon.com/dp/B00BV6RTUG/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1)
The company structure allowed for cost advantages and aligned local knowledge with power
Let's contrast this money printing juggernaut with how countries delegated power back then -- birthright. Bloodlines are obviously not the best hiring criteria. Even the best Noble can birth a dunce or a coward
Company-states hired and promoted based on meritocracy. They gave bonuses and allowed employees them to have side businesses. Hiring talented, motivated agents and giving them vast leeway is good mgmt when you'e not there to watch them work
Through patient diplomacy and effective warring they acquired large territories. They were "empires within a state."
The VOC had one of the largest navies in the world. Both the VOC and EIC ended up ruling over more people in their their territory than the entire populations of their home countries.
This is insane! And still happening today! Facebook "rules" over as many people as the two most populous countries combined.
Success brought their demise. Their territories swelled and they lost their cost advantages. There was natural limit to what they could manage, to how far this structure could scale.
As technology improved the world became smaller and company-states lost their edge. Nations developed better management techniques and could handle their empires without help. We entered the age of Nation-states
