By John C. Mozena
On a cold Boston night 250 years ago today, Americans started down the path to revolution by standing up against corporate welfare.
Young Americans are taught in elementary school that the Boston Tea Party took place because the American colonials were “mad about the tax on tea.” The reality, however, is slightly different. The Americans certainly didn’t like the tea tax, but the tax itself had been in place since 1767. Rather, the new injustice from London that energized the Sons of Liberty on December 16, 1773 was what we’d today call a corporate tax credit or tax abatement. They were mad that the British government had just destroyed local entrepreneurs’ businesses and interfered with the colonies’ economy just to prop up a massive multinational company with deep political connections.
For years, the market for tea in America was constrained by a British law restricting its sale in the 13 Colonies to tea that had been sold at auction in London and taxed by the British government. Some American entrepreneurs – including future iconic Founding Fathers like John Hancock and Samuel Adams – in turn did their patriotic duty (and made good money to boot) by smuggling untaxed Dutch tea into the colonies. Others played by the rules and imported legally taxed tea from London on their merchant ships, making smaller but more reliable profits.
The smuggled tea was much cheaper and dominated the American marketplace, resulting in lost tax collections for the British government. It also resulted in warehouses full of unsold tea owned by the British East India Company.
Normally, that would just be bad news for the company and its shareholders. But this was the British East India Company, which used its intimate relationship with British kings, queens and Parliaments from Elizabeth I until the 1870s to exercise unprecedented political, financial and even military power across the globe. During the time of the American Revolution, this company controlled half the world’s trade in what Adam Smith called “a strange absurdity.” It would go on to directly rule India, launch the Opium Wars with China and otherwise play a pivotal global role until it finally had many of its powers and possessions absorbed by the British government in the 1850s, and was formally broken up in 1874.
In the early 1770s, the East India Company had a government-granted monopoly on trade with India and a quasi-governmental rule over the subcontinent’s tea plantations that it backed up with a private army and navy. Despite those advantages, it still found it hard to compete in the American marketplace with untaxed tea smuggled in by Hancock, Adams and their colleagues.
In 1773, the Tea Act changed all of that by giving the British East India Company an effective monopoly on exporting tea to America, an exemption from existing tea taxes and even a credit toward taxes it had already paid on an estimated 17 million pounds of unsold tea sitting in London warehouses.
This had the effect of putting the smugglers out of business, as their untaxed Dutch tea was now competing with effectively untaxed East India Company tea. Many American colonists who did not support smuggling were angered by the way that with the stroke of a pen, the Tea Act’s favoritism to the British East India Company also ruined the businesses of legal, above-board American merchants who had been paying their taxes and playing by the British government’s rules.
Notably, this came on the heels of the Company taking out a large loan from the government-owned Bank of England, which it planned to repay with the proceeds from its American tea sales.
This wasn’t the first time that Parliament had interfered with the economy on behalf of the British East India Company’s interests. It had previously granted a similar tax abatement to the company for tea sold in Great Britain to help it compete with smugglers who had been bringing untaxed tea into the British isles. In an effort to make up the tax revenues lost to that round of tea tax abatements for the East India Company, Parliament passed a tax on tea sales to the American colonies in 1767, along with taxes on glass, lead, paints and paper that were repealed in 1770. The result was the same mechanism that had played out in Great Britain: Smugglers sprang up, the East India Company couldn’t compete, it got a special tax abatement and the end result was no meaningful net tax revenue increase for the Crown but a deeply angered populace who could see that their interests were not being represented by the people who were making taxation decisions.
British historian William Dalyrmple says that the British East India Company “invented corporate lobbying,” and while that’s debatable it certainly set new standards for what we now call “crony capitalism” by blurring the lines between government and corporate interests more than any other company had to that point, and arguably more than any other company ever would. American colonists’ anger over “taxation without representation” was colored by the way they could clearly see how one powerful corporation had more “representation” in the actions of the British government than the entire population of the 13 colonies did.
On that night in Boston 250 years ago, Americans were angry about the British government’s willingness to distort or abandon basic precepts of law, governance and fundamental fairness to benefit a company in which government officials held a major financial stake. They were mad that honest – if not necessarily law-abiding – independent businessmen were being put at a disadvantage or run out of business altogether to prop up a company that owed its existence to government subsidies, monopolies and special treatment.
We can only imagine what those Sons of Liberty would say if they were transported to the present day and saw the descendants they fought to free from the arbitrary rule of British aristocrats and oligarchs now handing out billion-dollar subsidies to things like electric vehicle battery plants, computer chip factories and sports stadiums. We can only guess at how people whose rallying cry was “No taxation without representation!” would react to unelected boards of quasi-governmental authorities being given power to commit taxpayers to subsidy contracts lasting 30 years or more.
They might well ask directions to the nearest harbor.
John C. Mozena is the president of the Center for Economic Accountability.
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