Dutch East India Company Forms (1602)
On March 20, 1602, the Dutch East India Company (Dutch: Vereenigde Oost-Indische Compagnie or VOC) was formed in the Netherlands. It was the world’s first multinational corporation and first company to issue public corporate stock.
During the 16th century, the Dutch realized that they could make a lot of profit in the Asian spice trade. However, the Dutch knew that many people would not invest in ships to acquire Asian spices because of the high risks involved. In particular, ships faced threats of pirates, disease, shipwreck, and volatile prices on spices. All of these factors made the spice trade a high-risk venture.
The Dutch also faced competition from the British. In fact, the British formed a company called the British East India Company in 1600 in an attempt to acquire investors and profit from the spice trade. The British East India Company threatened the Dutch in their quest to secure profits from spices. So, on March 20, 1602, the Dutch government followed England’s example and created the Dutch East India Company as a corporation to compete with the British over the Asian spice trade.
The Dutch empowered their Dutch East India Company to do many things that sovereign countries could do such as maintain armies and wage war, coin money, negotiate treaties, and establish colonies. In effect, the Dutch East India Company become like a sovereign country in it own right.
The Dutch East India Company proved to be very successful. It steadily grew to encompass 50,000 employees, 20,000 sailors, 10,000 soldiers, and a private army of 40 warships. The Dutch East India Company revitalized Holland’s economy and created many wealthy investors.
As the company grew it found innovative ways to raise additional capital to fund its operations. For example, one of the keys to the Dutch East India Company’s success occurred when it offered an initial public offering (IPO) to shareholders – i.e. the company offered ownership right to investors through the sale of stock. This act made the Dutch East India Company one of the first public corporations in the world. It also allowed the company to raise a vast amount of money. In effect, the Dutch East India Company became one of the first stock exchanges in the world and helped to carve a path for modern capitalism.
The company averaged 18% dividends each year and the stock price rose in value nearly every year. Soon, other countries began to create corporations like the Dutch and British, including the French East India Company, Danish East India Company, and Swedish East India Company. However, hardly any other company became as powerful as the Dutch East India Company.
The history of the Dutch East India Company has also acted as a kind of template for how corporations often end. For example, the Dutch East India Company eventually collapsed on speculative investments (such as on tulips), high debt, and corrupt officials – much like modern corporation such as Enron and others. We can learn a lot about the Dutch East India Company and how capitalism worked for and against it.