Balancing Permission and Prohibition: Private Trade and Adaptation at the VOC

The first wave of global trade, in which the Dutch East India Company (VOC) was a key player, writ large the problem of how "principals" could ensure that overseas "agents" protected company interests. The two principal mechanisms were suppression of opportunism and permission of agents to engage in private trade. There is near consensus in past research that the rigidity of the VOC in not permitting private trade left it unable to emulate more nimble rivals and contributed to its demise. Drawing on unique 18th-century archival data, a time-series analysis revises this assumption, showing that private-trade regulations, as a historical form of adaptation, occurred as a response to declining performance and exercised a beneficial financial impact. From the 1740s, control was more flexible than typically asserted, attempting to balance permission and prohibition. If principals recognized the economic upside of private trade, they were apprehensive about its social consequences. The study underlines the need of dynamic models to capture complex historical events, illustrating how seeming inactivity may in fact mask inconsistent activity. It also contributes to better understanding historical transitions when forms of adaptation may prove beneficial in the short run, but are insufficient to prevent decline in the long run.