Episode 86: ESG and EIC (East India Company)

DAD: Welcome back to Money With Mak and G. This is dad. And today I’m going to cover the biggest company of its time called the East India Company, something that started as a great idea that led to some very interesting and bad places. Now the kids needed a break from the podcast this week as we’re shooting the video portion of our first course on stocks and bonds. And since I recently watched a couple shows about England and the East India Company, I became fascinated by its history. It was literally the biggest company of its time. And although it’s no Apple, it influenced the world in its own way like Apple has. We’ll get into that in just a minute. I know we’ve spoken a lot about companies and how their goal is to make money. But sometimes the pursuit of money can lead to some very bad outcomes. How can we figure out if a company is doing the right thing by the environment, society and has a structure to make some good decisions. When we invest, we have many choices. One category of good performers is known as ESG companies. These companies focus on making positive decisions for the environment, social concerns and governance. Governance is how a company governs itself or makes decisions. And I like to think of the G as how it makes good decisions. There are other words tossed around like sustainable investing, socially responsible investing, sustainable responsible impact investing, and some others. They are in relatively the same category as ESG. You can see a couple short two minute videos on the Educounting YouTube channel. If you search for SRI, that’s the same channel, you can also watch these video podcasts. Anyway, they’re even rating systems for these ESG categories. So you can see how well these companies are doing compared to others focused on these areas in their day to day operations. And there are now over 1000 indices to track them. One that I found some time ago is called the MSCI KLD 400 Social Index. Wow, that’s a mouthful. It’s just like the Dow, S&P or NASDAQ indices, and there are trillions of dollars flowing into ESG companies. Some research even shows they outperform all other stocks. So making positive decisions doesn’t have to hurt your investing. As you can imagine, there are other stocks which aren’t looked upon as well. They’re called vise stocks. The short definition of a vise is something seemed to be as wicked. Some investors only want ESG stocks and want to stay away from any and all vise stocks. Others identify what they think can be included in their investment portfolio and what can’t. Companies that are in the business of gambling, alcohol, tobacco, and weapons are usually in this category. So what does this have to do with the East India Company? Well, this company was the biggest and most powerful company in the world from around the time it started in 1600 to about 1874. It had its own army, its own territory, it controlled half of the world’s trade during the mid 1700s and early 1800s, particularly in basic commodities like cotton, silk, indigo, dye, salt, spices, saltpeter, tea and opium. That was a lot. Can you imagine if you controlled half of the world’s trade, you would be crazy powerful and rich. Now opium is and was a big time addictive drug, saltpeter was used for making gunpowder which was used in making bombs and firing guns as well as cannons. So it’s pretty easy to see how these could hurt people. So how did the company get its start? Let’s begin with the explorer Sir Francis Drake, who was English. He wasn’t a great guy but in 1577, he wanted to head to South America and steal things by force from the settlements of Spanish people who live there. So he did his bad deeds. And when he decided to keep going west, instead of returning the way that he came, he ran into some islands known as the Moluccas. He met the Sultan there and traded linen, gold and silver for a bunch of spices, which included cloves and nutmeg. He didn’t have any idea what a huge value this was. Hey, if you’ve ever eaten English food, it’s not known for being the most tasty. So spices were a big trading opportunity. Who wants food without taste anyway, right? The Spanish and Portuguese were great sailors. They’ve been to these islands many times before, but the English had no idea about them. Well, Drake got home three years after he left and was a celebrated hero. Hopefully you’re saying, but he went to South America and did bad things. That’s very true. But he did circumvent the entire globe, which means he went all the way around it. This brought in a ton of money and his investors earned a 5,000% profit on his voyage. So now people are starting to get interested in this new opportunity. Okay. now about eight years later, in 1588, the Spanish Armada or fleet of Spanish warships was coming north to attack England, there were about 130 of them. That’s huge. It was called the ‘Invincible Armada,’ and was a pretty serious war machine on water. However, the English had faster, more maneuverable ships. This Armada was supposed to pick up some soldiers and drop them to fight against England. But due to the weather and some other issues, Drake, yes, the guy who went around the world that we just talked about in the Moluccas defeated them. Huge surprise. So guess what happens? He captured all these ships and their riches. And now they have the money or capital to travel the globe and search of more riches. Hey, they already did it once, right? But they want a little help and they see an opportunity. So a bunch of merchants, which simply mean people who own companies that sell stuff, go to Queen Elizabeth the first and asked if they could get permission to sail back to the Indian Ocean. We know the Spanish and Portuguese have been traveling there for a while so they wanted in on the trading. She agreed and now they’re off to the far east again. On their voyage, when they had the chance, they would attack other ships like pirates. And they got a big one. Not just any big one, the biggest ship they’d ever seen. It was a Portuguese carrick, called the Madre de Dios. Well, that means the Mother of God. Now a carrick at three or four large masts. Those are the big poles that come straight up from the ship that hold the sails. This thing was loaded with jewels, pearls, gold, silver, cloth, pepper, cloves, cinnamon, nutmeg, Benjamin and other stuff. If you didn’t catch that, yes, it had Benjamin, that was the tree that produced frankincense, you know, gold, frankincense and myrrh from the three kings. Anyway, it also had the ship’s rudder, which isn’t that thing that drives the ship. But it actually is a handbook of information for sailors on vital information related to the China, India and Japan trades. When the ship came back to England, people saw the riches that the Portuguese were trading and really got other people excited about all the money they can make. Now, not everyone was successful, because traveling by sea was crazy, dangerous storms, lack of wind, unknown rocks in the water, your enemy shooting at you and many other things. Okay, so they went to the Queen again and wanted to go to the East Indies and a group. Though the Queen wasn’t in favor of supporting their efforts the first time the following year, she did give her blessing and gave them a 15 year monopoly. Okay, that’s not a board game. The term monopoly means they were the only ones that were allowed to do business there. That would be awesome. If you were a business and you had the monopoly, no one and I mean, no one could do business there. If you didn’t have a license from the company, and you were caught, you’d have to give them your ship your cargo, which meant anything on the ship and half of that would go to the crown, the other half the company can keep as well as imprisonment at the Royal pleasure. Okay, so that lays the groundwork. And do you think that company ever wants to give up their monopoly? No way. Now the Dutch East India Trading Company, very creative is very competitive with the British one. Plus the Portuguese are pretty mad too because they’ve been ripped off many times and probably had a lot of their sailors killed along the way. Anyway, the Dutch company had 50,000 employees and over 200 ships with all this competition and aggression between the Dutch and English. They actually got into for Anglo Dutch wars, but that’s jumping ahead a bit. Don’t forget About the Dutch when I tell you about tea, the company actually started factories in some of the territories they worked. And since they started reporting very high profits from all this trade, King James the First gave them an indefinite charter in 1609. Now, Queen Elizabeth, the first one that we’ve already talked about, had already died by then. But indefinite means for ever, they get to keep doing what they’re doing. The king really liked his share of all the money he was getting from the whole thing. But if the company lost money for three years straight, it would end. But Wow, isn’t that crazy? Indefinite forever? If you’ve ever heard the saying absolute power corrupts absolutely. I think there’s some very interesting parallels here. Money has been known to corrupt the East India Company was given absolute authority to trade in places and do you think that started to corrupt them? There’s so much amazing and interesting history I literally could keep going on and on and on. And if you like pirates, then you need to read about the Mughal convoy piracy incident of 1695. The first worldwide manhunt occurred and the richest ship ever taken by pirates happened, and the East India Company was right in the middle take that Jack Sparrow are, for the first 150 years the company had just a few 100 soldiers as guards. The expansion came after 1750 When it grew to 3000 regular troops, and then over 260,000, which was twice the size of the British Army, it was time for them to become empire builders. Most of these were recruited from the Indian Army as well. Well, as this army grew, the East India Company started to rule India. You heard me right. In 1757, the Battle of classy led to the Nawab of Bengal surrendering. But the secret power was with the company. There were only 3000 East India Company soldiers at the time, while the Nawab of Bengal had 50,000. before things got started, the company made an agreement with Indian bankers, probably about money, which led to almost all of the Indian soldiers agreeing not to fight. So that’s how the company won. And with that, when they were given diwani, or the right to collect taxes, trading was less profitable than just taxing everybody who did any business right. Now, other battles raged on in India, with the company, and the company started to govern or rule things. How crazy is that? They were a company ruling the subcontinent of India invading areas collecting taxes and more. Lots of people were killed along the way. But the company ruled India from 1757 to 1858. And if you didn’t do the math, that’s over 100 years. Okay. I lived in the United Kingdom, and there’s one thing they love, and that’s tea, absolutely crazy about it. And I’ve read that they drink about 1.78 cups per day on average, I bet with COVID It’s probably much more fancy a CA love. Anyway, they take it very seriously. And back in the late 1700s was probably a more intense I think most Americans know the slogan no taxation without representation. It meant the American colonies didn’t want to pay taxes back to England unless they got to have people there who they elected to fight for what the colonists wanted. So Britain repealed all taxes, except the tea tags. Okay. They drink it every day, remember, so that’s going to hurt. Britain wasn’t going to let up on the nearly 1.2 million pounds of tea that colonists drank each year without attacks. There is no way the colonists were really mad about the tax and actually boycotted or stopped drinking tea because of that British tax. Guess who was selling the tea? You got it. It was the East India Company. So the colonists decided to go ahead and smuggle in Dutch tea. Now the smugglers go around the regular system and therefore they wouldn’t have to pay the tax. If the company wasn’t selling its tea. What do you think happened? No taxes were being collected and the East India Company had tons of rotting tea leaves in their warehouses. The boycott really hurt the company financially and they were facing bankruptcy. Since we know Britain benefited from the profits of the East India Company for almost 200 years now, they wanted to help the company out. So, Parliament in Britain actually passed the Tea Act in 1773, which allowed the East India Company to sell their tea without the tax. You heard me, they could sell it cheaper. This advantage really made American businessman who sold the tea with the tax really mad. How could they sell their tea with the tax when the East India Company could sell it for much cheaper without it? This actually lead to the Boston Tea Party in the same year. Remember that the colonists boarded? Get this East India Company ships and through the tea overboard? Isn’t that crazy? I always say if you look for the money, you’ll find the real reason things are happening. I didn’t even touch on the opium war with China or the company’s operation in slave trading. Both shed light on the East India Company’s dark, dark dealing in the name of profit. As we continue to learn about money and investing, it’s really important for you to know your values about investing, read about the company and understand what they do. And if it’s important to you choose companies that are highly rated on the ESG scorecard. If you don’t, you might just be fooled by what a company does, or the name they’re known by hay. The East India Company was also known as the honorable East India Company. I think my definition of honorable is quite different from theirs. Thanks for listening. And please don’t forget to like, comment and subscribe to the channel. Until next week, this is dad signing off.