350 Years of English Leadership

Global Financial Data is completing its collection of data for the English stock market. The UK stocks database includes data on 25,000 companies from 1657 when the East India Company started trading in London to 1985. GFD has written two other articles, “Four Centuries of Global Leadership” and “Two Centuries of American Leadership” which analyze how leadership in the global and American economies, with leadership defined as the largest listed company by market capitalization, has changed over the past several centuries. This article focuses on England. London has a long history of creating companies that explored the world. As William R. Scott described in his three-volume set, The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720, there were dozens of joint stock companies that were established in England before the South Sea Bubble in 1720 and the passage of the Bubble Act. The Virginia Company was established to create its colony in Jamestown. Dozens of other companies were founded, but ownership of the companies was so limited and concentrated that there is very little record of trades in their shares. When the Bubble Act was repealed in 1825, the number of companies in England exploded. Although there is very little data on the trade in shares before 1694, we have been able to piece together some data on shares outstanding and trades from 1657 to 2017 to create 360 years of data on the largest companies in the United Kingdom every ten years from 1657 to 2017. GFD’s capitalization tool allows you to find out the size of the largest company and its competitors every year from the 1650s to the 1980s, if you want this information in detail. What is fascinating about this history is not only what it tells us about capitalism, the financial market and technological change, but the politics of the market. Two companies that dominated the London Stock Exchange in the 1700s and 1800s were nationalized after World War II. The period between World War I and the Big Bang impacted the companies that were listed in London and their size, as did the merger and acquisition activity after the Big Bang. Politics, markets, technology and finance are all intertwined and developed over time in reaction to each other. For a history of the London Stock Exchange, you need to look no further.  

East India Company.

In some ways, the largest company in England up until the 1720s wasn’t really an English company, but a company dedicated to foreign trade in India and the Far East. Actually, there were three companies, the East India Company, the New East India Company and the South Sea Company that dominated both foreign trade and the stock market in England until 1720. The British East India Company was actually established in 1600, a year before its Dutch cousin, but the Dutch East India Company was more successful than its English counterpart in the 1600s, taking over Indonesia and defeating the British East India Company in open battle to maintain its control over the Far East. Nevertheless, the British East India Company was successful enough that other private firms wanted a cut of the action. In 1694, the East India Co. lost its British monopoly over trade with India and in 1698 a new company, the English Company Trading to the East Indies was established to compete with the Governor and Company of Merchants trading with the East Indies. But competition meant fewer profits, and in 1708, the two companies merged into the United Company of Merchants of England trading to the East Indies after providing £3.2 million to the British government for the exclusive right to trade in India and the Far East. Those were the good old days when companies paid for their monopoly directly. As the table at the end of the article reveals, the original East India Company was the largest corporation in England in the 1600s. The New East India Company gained that prominence in 1698 and remained the largest company until 1708 when the conjoined company took over from its two predecessors. 1720 was the year of the South Sea Bubble when England followed in France’s footsteps and got holders of the bountiful British government debt to convert their bonds into equity in the South Sea Co. in the hopes of making a fortune. In 1720, there were 100,000 shares of South Sea stock outstanding and when the company’s shares hit £1045 on June 29, 1720, the market cap of the company was over £100 million. No other English company reached the £100 million mark for the next 200 years when Shell Transport and Trading broke through the £100 million barrier. Even at this summit, the South Sea Co. was half the size of the Compagnie des Indes which reached 210 Million Pounds in 1719 (6,302 Million Livres Tournois). This sum was slightly less than $1 billion, a size no company reached until Standard Oil became the first billion-dollar company in 1913.  

The Bank of England.

The South Sea Bubble brought an end to the dominance of foreign trading companies over the British stock market. From the 1720s to the 1860s, the Bank of England was not only the largest company in England, but in the world. Central banks dominated global stock markets in the 1800s. Whether it was England, France, the United States, Ireland or any other country, the largest company was usually the central bank. This remained true until the rise of the railroads during the 1800s. Central bank stocks were safe and provided a higher return than government bonds. Unlike the Bank of the United States, the Bank of England had a perpetual charter and faced virtually no competition. In fact, during the 1700s, the Bank of England was the stock market in England since it represented about 90% of the stock market capitalization of the British Isles. Between 1730 and 1860, depending upon market conditions, the Bank of England ranged in size from £12 million to £32 million ($60 million to $150 million). However, the Bank of England was only able to maintain its reign for so long. The railroad bubble of 1845 laid the foundations for the industry which would dominate the stock market during the rest of the nineteenth century. Shell was created as a dual-listed company in April 1907 with 60% of the company owned by the Royal Dutch Petroleum Company and 40% owned by the English “Shell” Transport and Trading Company. The amalgamation occurred to help the company compete with Standard Oil. The two Shell companies remained separate until 2005 when they merged into Royal Dutch Shell plc. Upon its creation in 1907, Shell became the largest company in both the United Kingdom and in Netherlands. Shell kept its title until 1923 when the Imperial Tobacco Co. took the title away from Shell. Second place went to the British-American Tobacco Co. in 1923 with Shell third. Tobacco stocks held the top two positions. Shell lost its top position to the Imperial Tobacco Co. in 1922. The demand for tobacco in the British Isles and elsewhere was so great that the Imperial Tobacco Co. remained the largest company on the London Stock Exchange until 1950. Imperial Tobacco was created in 1901 through the amalgamation of 13 British tobacco and cigarette companies. In 1902, the Imperial Tobacco Co. and the American Tobacco Co. agreed to form the British-American Tobacco Co. and not compete directly with one another. This left Imperial Tobacco free to sell in Britain and its colonies making it the largest tobacco company in the world. The American Tobacco Co. was broken up by the U.S. government in 1911, but Imperial Tobacco remained intact.  

From World War II to the Big Bang

After World War II, the London stock market faced a new reality. The Bank of England, the railroads, and other key industries were nationalized by the Labour government, replacing the company’s shares with bonds. The Labour party felt they could manage the economy better than the private sector, but failed to prove it. As Atlee put it, “I cannot see why the motive of service to the community should not operate in peace as it did in war.” Obviously, Atlee did not understand human nature. Until Margaret Thatcher was elected in the 1980s, the British stock market faced battles between the Labour and Conservative governments with Labour governments nationalizing and Conservative governments privatizing. Labour often treated the stock market as an evil competitor, not as an engine for economic growth. If Labour could have closed down the stock exchange, they probably would have. The fear of government intervention and nationalization kept stock prices low during most of the 1950s and 1960s. Nevertheless, there were a few large companies that dominated the British market after the war. Notably, the dominant companies were international corporations, not purely British firms since many of the domestic companies were either nationalized or under threat of nationalization. Consequently, Shell Transport and British Petroleum were the largest companies on the London Stock Exchange between 1951 and 1959, handing off the title to each other over the years. Imperial Chemical took the top spot in 1960 and 1961 and Shell Transport took back its leadership in 1962. With the exception of 1966 when British Petroleum was the largest company, Shell held the title until 1985. The only dent in its rule was 1982 when General Electric plc was briefly the largest company in Britain.  

After the Big Bang

Margaret Thatcher wanted to bring free markets back to the United Kingdom. From July 31, 1914 when the London Stock Exchange closed because of World War I until October 27, 1986 when the Big Bang was launched, the London Stock Exchange operated under a set of restrictions which kept it from dominating the global economy the way London had before World War I. During World War I, Britain restricted new companies from listing in London, and the country went from being a net creditor to being a net debtor. The government directed capital toward its debt which grew to twice the size of GDP by the end of World War II. Exchange controls were in place until the 1970s and the London Stock Exchange lacked the freedom to operate as an open capital market the way it had before World War I. The goal of the Big Bang was to bring capitalism back to the United Kingdom in a big way by deregulating the market and allowing anyone to trade in a free market, not just the members of the old boy networks of brokers and jobbers that dominated London’s open outcry market. Computers replaced open outcry and foreign firms were free to buy up English firms and compete in an open market. The Big Bang was a huge success and London soon became the European center for financial markets. Denationalization also impacted London, creating new firms and new technologies. With the deregulation of telecommunications, the 1990s were dominated by British Telecommunications (BT Group plc) and Vodaphone. British Telecommunications was privatized in 1984 and quickly became one of the largest companies in the UK. Racal Telecom was spun off from Racal Electronics plc in 1991 and was renamed Vodaphone Group. After Vodaphone acquired Airtouch Communications and became Vodaphone Airtouch, it became the largest UK listed company in London, larger than BP Amoco or GlaxoSmithKline. In 2000, the top three companies were all conglomerates. Vodaphone had acquired Airtouch, British Petroleum had acquired Amoco (formerly Standard Oil of Indiana) and SmithKline Beecham had merged with Glaxo. Global capitalism was back. Just as ExxonMobil, formerly Standard Oil, took back the top spot in the United States in the 2000s, British Petroleum (BP plc) and Royal Dutch Shell (Shell Transport and Royal Dutch were unified into a single Netherlands based and British incorporated company in 2005) have dominated the London Stock Exchange in the 2000s and 2010s. As a result of the Big Bang, finance companies grew in size as well. HSBC Holdings (the Hong Kong and Shanghai Bank) was the largest UK-listed company in London in 2015. In 2017, however, Royal Dutch Shell was the largest company listed on the London Stock Exchange.  

After Brexit?

The London Stock Exchange is the third largest stock exchange in the world by capitalization, falling behind the NYSE and NASDAQ. The London Stock Exchange will probably never regain its title as the largest stock exchange in the world, which it held in the 1700s and 1800s, but now even its role as the largest stock exchange in Europe is in question. How Brexit will impact the London Stock Exchange is an open question. Will European companies continue to trade in London or will Euronext take away London’s role as the central stock exchange for Europe? It is hard to believe that Britain could give up such a prize, but it has happened before. Politics determined the fate of the London Stock Exchange in the 70 years between World War I and the Big Bang in 1986. Will the London Stock Exchange face another 70 years of domestic politics determining its fate? With computers taking over trading, the London Stock Exchange probably won’t even exist in 70 years, but only time will tell. 350 Years of English Leadership

Year	Company	Market Cap in GBP
1657	East India Company	0.756
1670	East India Company	0.84
1680	East India Company	2.06
1690	East India Compay	2.27
1700	New East India Company	4.33
1710	East India Company	3.78
1720	South Sea Co.	22.00
1730	Bank of England Stock	14.54
1740	Bank of England Stock	14.01
1750	Bank of England Stock	15.95
1760	Bank of England Stock	12.48
1770	Bank of England Stock	15.40
1780	Bank of England Stock	12.71
1790	Bank of England Stock	21.78
1800	Bank of England Stock	18.79
1810	Bank of England Stock	28.40
1820	Bank of England Stock	32.46
1830	Bank of England Stock	28.97
1840	Bank of England Stock	22.92
1850	Bank of England Stock	31.00
1860	Bank of England Stock	33.91
1870	London & North-Western Railway	38.40
1880	London & North-Western Railway	53.66
1890	London & North-Western Railway	67.74
1900	London & North-Western Railway	76.26
1910	London & North-Western Railway	59.19
1920	Shell Transport and Trading Co.	114.43
1930	Imperial Tobacco Co. (Imperial Group plc)	177.25
1940	Imperial Tobacco Co. (Imperial Group plc)	188.99
1950	Imperial Tobacco Co. (Imperial Group plc)	197.21
1960	Imperial Chemical Industries Ltd.	844.38
1970	British Petroleum (BP plc)	1,596.78
1980	British Petroleum (BP plc)	6,637.91
1990	BT Group plc (British Telecommunications)	69,391.95
2000	Vodaphone Group plc	158,679.67
2005	British Petroleum (BP plc)	128,497.27
2010	Royal Dutch Shell plc	133,713.21
2015	HSBC Holdings (Hong Kong & Shanghai Bank)	103,344.96
2017	Royal Dutch Shell plc	207,964.51