by Adam Smith 1723-1790

A Conflict of Interest

Economist Adam Smith warned that when Western commercial interests get involved in policy-making abroad, war and want are sure to follow.

1776

King George III 1760-1820

Introduction

In 1757, a Government-backed trade agency called the British East India Company achieved such commercial and military superiority in India that its board members appointed princes, conquered territories, and dictated social and economic policy. Twenty controversial years later, Scottish economist Adam Smith warned that a company set up to make profits for European clients should not and could not run India for the Indians.

by Adam Smith 1723-1790

IT is the interest of the East India Company, considered as sovereigns, that the European goods which are carried to their Indian dominions should be sold there as cheap as possible; and that the Indian goods which are brought from thence should bring there as good a price, or should be sold there as dear as possible.

But the reverse of this is their interest as merchants. As sovereigns, their interest is exactly the same with that of the country which they govern. As merchants their interest is directly opposite to that interest.*

But if the genius* of such a government, even as to what concerns its direction in Europe, is in this manner essentially and perhaps incurably faulty, that of its administration in India is still more so. That administration is necessarily composed of a council of merchants, a profession no doubt extremely respectable, but which in no country in the world carries along with it that sort of authority which naturally overawes the people, and without force commands their willing obedience.

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* Smith is not saying that commercial interests are always in conflict with the interests of society. He is saying that as a European commercial enterprise, the East India Company quite rightly looked out for European interests, whereas any governor of India was obliged to look out for the interests of Indian people and businesses. One Company could not do both.

* ‘Genius’ here means a prevailing character or spirit.

Précis

In 1776, groundbreaking economist Adam Smith warned the East India Company against trying to act both as governors of India and as a European merchant company. These roles were mutually incompatible, because they were constantly bidding against themselves for the best deals; moreover, as foreign merchants they commanded respect in India only by the force of arms.

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