Nick Draper (University College London)
Existing literature on the history of VC as an enabler of entrepreneurship is centered on the US—Tom Nicholas’s VC: An American History denotes venture capital as an American invention with whaling as its precursor—resulting in a sustained elision of both slavery and European influences. We sat down with acclaimed historian and co-creator of the Legacies of British Slavery files at UCL, Nick Draper, to understand the influence of European slavery and its multiple mechanisms, not least “carried interest” and “mobilizing pools of investors,” on today’s venture capital industry.
Interviewed August 2021
How the Slave Economy Informed Modern Finance
Erika Brodnock (EB): I believe that venture capital plays a significant role in creating the products and wealth shaping the present and the future, yet the past is rarely analyzed. I’m keen to learn more about your research and the findings that traced slave-owner compensation payments through to London today.
Nick Draper (ND): There are two distinct aspects of the slave economy that appear especially relevant to the development of the modern financial system, including venture capital: the first is financial innovation driven by the slave trade, and the second is the capital generated by slave ownership. Slave traders and slave owners were generally separate groups within the British and colonial economies. I will come back to the slave trade, but the work that other colleagues and I have done over the past 10–15 years focused and continues to focus to a large extent on slave ownership. So my knowledge of slave ownership is much deeper and broader than my knowledge of the slave trade.
The work on slave ownership began by looking at the payments made to slave owners in the 1830s, and the compensation payments were looked at for two reasons.
One, it’s a very, very vivid expression of the relationship between Britain, the state, slavery, money, and slave ownership. It’s just an extraordinary thing to see these payments being made and the circumstances under which they were made. The enslaved people were being cast off into freedom, but with no endowment of anything, no resources, no land, no money, no literacy, nothing. It was as if they were born naked into a new world and had to negotiate and navigate from a zero base, in a world where we know that the ownership of assets tends (as Thomas Piketty showed), over generations, to multiply the disparities that exist.
The second thing is that the records for the compensation process were extraordinary, and they still are. They’re in the National Archives at Kew, they comprise an immensely long list of people. You can determine which individuals were connected as owners or mortgagees or annuitants with particular estates and, therefore, which enslaved people were attached to them. The records give complete visibility into the end of slavery and who was holding the bag when the music stopped.
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Slave Owner Compensation Is a Small Part of the Timeline
As I have continued to work on slave ownership over the years, I have come to see, however, that the moment of compensation, significant though it is, is in the end just a coda to a story that lasts over 200 years. The money transferred in the 1830s is about a decade’s worth of earnings for slave owners from slavery, which had taken place every decade for the previous 20 decades. So we are looking at huge amounts of money in totality. In comparison, while the compensation payments are very visible and very charged, they are still only a small part of the whole story.
Originally the mission was to try and trace, to the extent that we could, the compensation payments and how they flowed into other areas of British life, not just business but also into the cultural fabric of Britain, governance, philanthropic institutions, things that people value highly in Britain today, and we can see that a part of that endowment comes from slavery—there’s no question.
We’ve accumulated thousands of examples, each of them representing micro-histories and, in turn, thousands of specific legacies, and the whole thing seems to me to take on a new life and goes straight back to Eric Williams’s Capitalism and Slavery, a text that was in the 1960s taken up and discarded very quickly. The view was that he was wrong on so many counts that there was no point in engaging with him. I think that the work we’ve done, and the work that other scholars are doing, will reinstate Williams in terms of economic and financial significance.
What we did for slave ownership, a new group of scholars in the UK are now trying to do for slave traders, looking at some of the same questions, which are: where did their capital come from? Where did it go to? Sometimes it was destroyed in business losses, but in other cases, it wasn’t, and it was multiplied. Then the question remains, where did it go?
In that context, it is clear to me that the whaling industry is a relatively brief explosion of mobile, entrepreneurial capital and overlaps with the slave trade, as it overlaps too with East India ship owning—there is no doubt. There is a lot of interest in the Venn diagram, which has whaling in a circle. Slave trading is undoubtedly one of those other circles. The same names come up in the intersection. The question is, how significant is that as a whole?
Our work focuses on Britain, and my work focuses on the City of London. It sounds as though there is a thesis in the United States that is relevant to Britain—namely, the connections between the whaling industry and all of these other forms of shipping and ship owning that were going on. It also embraces marine insurance, and I’ve been trying to think and quantify and get my head around the significance of slavery to marine insurance in the 18th century in Britain.
There seems to be an evidence-based consensus that between a third and 40% of marine insurance in Britain relates to slavery, not only the slave trade but in particular, to the movement of commodities in ships. Originally, of course, these formed a literal triangular trade. The same ships sailing from England to Africa, taking captive Africans across the Atlantic, bring back slave-grown produce. Yet later, the system tends to get differentiated, with people specializing in just bilateral trade between Britain and the Caribbean, and that’s where the significant amounts of marine insurance are. That’s a very, very important part of the growth of marine insurance and, therefore, obviously connects with [insurance company] Lloyd’s. However, it isn’t simply a bilateral trade, slavery underpins it all.
The Possible Connections to Venture Capital
I’ve never considered this nexus in the context of your specific interest in the venture capital industry. I’m just thinking now about this. The techniques of finance, for the British, are relatively prosaic. They’re relatively simple. The Dutch were far more sophisticated. They had created mortgage securities in relation to Berbice, Demerara, and Suriname [then Dutch colonies in South America]. In the 18th century, there were what you would now call general partners in Amsterdam. They were mobilizing pools of investors, buying up packages of securities, and financing the expansion of the slave system. And that Dutch sophistication doesn’t appear to be replicated in the case of the British, the British are much more bilateral. A merchant in London, who is a consignee, would advance credit to the slave owner in the Caribbean and will allow that slave owner to run up, often, very substantial debts, the capital being drawn by the merchant in turn from banks and investors in the UK.
EB: Did the financier in Britain have significant returns? And from those returns, pay carried interest?
ND: The West Indian merchants in London became bankers for the slave owner. They advanced money to educate their children if they were sent to Britain. They would then pay attorneys in Jamaica and Barbados to manage the estates on behalf of the owners, and those agents were paid, but not in the way of so much carried interest. It appears that in many cases, they were paid a percentage of the value of their crop. So maybe that is indeed analogous to what you describe.
EB: Carried interest in VC is the payment of a percentage of the value the general partner and company can create.
ND: Some of the attorney’s pay was a fixed salary, and the rest was a percentage. Of course, the consequence is that you incentivized your attorney to focus on this year and next year. He is not interested in the 20, 30, and 40-year perspectives. He just wants to maximize production, which means that he may not be as careful with the lives of enslaved people. He is not concerned about whether the population is healthy and reproduces itself. He just wants to ensure that this and next year’s crop is as big as it can be.
EB: To maximize his returns?
ND: Yes, there is an incentive that is generated from those percentages.
The Systemic Impacts of the Slave Economy
EB: What then are the systemic impacts of the slave economy?
ND: Out of the work on slave ownership, I’ve come to recognize, firstly, that the compensation payments are only part of the story. And secondly, these West Indian merchants in London and, to an extent, Liverpool and Bristol, are the center of the system. It is not the slave trader. It’s not the slave owner. It’s this mercantile capital in Britain which is the focal point of it. So the question is: A) what returns do they make and B) what do they do with their money?
It’s a risky business, and it’s clear that a large number of them go bust. Some have spectacular collapses at various points, but others don’t. Others create long-term wealth for their families and do with it what British families tend to do. It becomes landed. Often, in that curious blend of both landed money and mercantile money, they’ll split it amongst their children. Once that starts, it doesn’t evaporate, but it becomes far less spectacular because it’s divided between many different families over time.
We have traced some of the money into some companies, railways, and investments across the whole spectrum of Britain. There is no single number to measure how material this cumulative money is, not just from compensation but from the payments and profits made earlier. We came up early on with the suggestion at least 5–10% of the British elites are in the slave compensation records. In many cases, the money flowed away.
In terms of institutional development, we can see that all the big banks in Britain today grew up by consolidating provincial banks and whole networks of smaller banks. If those smaller banks were in Liverpool, Lancaster, Bristol, or London, there’s no question they would have done business with slave traders, have done business with slave owners. In some cases, they would have been mortgagees directly on enslaved people. We can generate many examples, and the question again is, how material and how significant is this?
It is clear to me that in the case of Royal Bank of Scotland (NatWest as it is now), many, many of their precursor firms were implicated in this involvement, this entanglement, in slavery. It is a complex tapestry. If, for example, you were a banker in Birmingham, you weren’t necessarily involved in trading and enslaving people or owning them. Still, you were financing the manufacturer of guns used in the slave trade. The connections run backwards and forwards like this right across industry.
Joseph Inikori wrote a book 20 years ago, Africans and the Industrial Revolution. It is a very important book. At least as important as Eric Williams, yet, it passed more or less unnoticed in Britain. Oddly, you can still pick up literature about slavery and Britain’s economy and not see references to Inikori. And others have read Inikori but pushed it to one side. He did an extraordinary amount of work to get to this question of significance by looking into different sectors. There’s a lot of important primary research in there. We are working in the shadow of not only Williams but also of Inikori.
Drawing a Line from Old Money to Modern VC
EB: There’s enough to link how venture capital today is structured to how the slave industry was structured. Based on the evidence I have reviewed, I do not doubt that the wealth generated from slavery, both in the US and the UK, has trickled down to create the backbone of venture capital. If we think about the early investors in UK venture capital, it was people who had made money from banking, insurance, etc. There is a lot of old money in the venture capital system. Many people who can angel invest have accumulated wealth that has been passed intergenerationally to them. Indeed, they are not just angel investing, they are sometimes limited partners in funds. Limited partners are often companies, such as J.P. Morgan, or NatWest, who you mentioned earlier, often invest in pension funds, private equity, and venture capital. With this, you can begin to see the clear links between the history of capital markets, the history of slavery, and the VC market that we have today.
ND: To your point, if you wanted to do business with the City of Chicago in the mid-2000s, you needed to file an affidavit about all kinds of things, including, at the insistence of the city council there, a disclosure about involvement in slavery. Banks did, therefore, commission research into their histories. It was found that Chase Manhattan, which merged with J.P. Morgan, was active in the south and mortgaged enslaved African people in Louisiana. Morgan, in response to that, did set up a small trust fund, I think $5M in Louisiana. There were other banks, at the same time, faced with the same thing. RBS Royal Bank of Scotland also did work at that point. That’s one reason why there’s more transparency into their lending against, and ownership of, enslaved people than other firms because they laid out some of their histories at that time. Nevertheless, the original RBS reports tended to minimize their involvement—even based on our data at that stage, we knew they were undercounting their involvement.
EB: The profit that was made from the railway industry, then all marine insurance, but then also the insurance and mortgage of slaves, plus the slave owner compensations, did you follow that money right into the city?
ND: Yes, but it’s not a systematic piece of work, Erika. It’s a series of anecdotal, specific mini-case studies. We haven’t been able to do systematic economic work as of yet.
As far as I can see, British insurance companies did not write life insurance for enslaved Africans on plantations or estates. That did happen in the US in the 1840s and 1850s. But I think that mass life insurance was developed relatively late, after the end of British colonial slavery. So I think that we found no examples of insurance companies insuring the lives of enslaved people in the Caribbean, although they insured the lives of the slave owners, and they insured the cargoes of captive Africans. The kind of life insurance policies written in the Deep South hadn’t been seen in Britain. Fire insurance in Britain, however, is related to sugar refineries. And that is a product of enslaved people’s appropriated labor. But the main connections between insurance and slavery are not with life insurance, per se, but with marine insurance and fire insurance.
Next Steps Needed in Order to Right Historical Wrongs
EB: What, if anything, are your thoughts on what needs to happen next to right some of the historical wrongs?
ND: I think that there are several dimensions to it. As far as Britain is concerned, at least, we’re stuck in a series of culture wars. One of them is about Britain’s relationship with slavery, and it’s a very bitter conflict. Ten years ago, most people didn’t care. They would say, “But it was a long time ago.” However, because of the cumulative weight of work by us and many others, the dial has been shifted enough to frighten people who, up until now, have been able to say, “Let’s not worry about this. What about the white working class?” “Didn’t Africans sell Africans?” Those responses I’ve had repeatedly, and I’m sure you’d have had, in every public engagement meeting that you’ve ever been to. But things have moved significantly in the last two or three years, and that’s brought a backlash that causes individuals now a difficult time professionally and personally because they are the subject of hate campaigns that social media and mainstream media are capable of launching. The bitterness of that struggle tells me that things are changing a bit.
EB: So what happens next?
ND: Ultimately, there needs to be a national commission that acknowledges the many different views but lets us collectively examine the evidence. What does it support? And what does it not support? Until we have more agreement about what the basic history and background were, we’re not going to be able to move this from a political conflict into a substantive movement forward.
Only then will Britain be able to articulate a response to the CARICOM reparations movement. Only then will it be able to articulate a response to the British people who’ve been working for reparations, not on a government-to-government basis, but to say, look, this is not only about Britain and the Caribbean. This is about British society, the structure and the inequalities we have here, and how they’ve been reproduced over 200 years because of the background of slavery.
Until that point, independent institutions, without doubt, are going to do what they have to do, not what they want to do, but what they have to do, because they are subject to growing internal and external pressures. Take Lloyd’s of London and the National Gallery as examples of institutions trying to get their heads around this, to get ahead of the challenge from the public and staff who say, “You haven’t even done the work to pretend to tell us about this history of your connections to slavery.” In Oxford, All Souls College, famously the site of the Codrington Library, now has a stone outside which says, for the first time, this represents the labor of enslaved Africans in the Caribbean. All Souls also put some money into a scholarship and made a grant to Codrington College in Barbados. Who’s to say that is the right and exhaustive thing to do? Not me, but I think there ought to be someone arbitrating this. There needs to be some check on institutions, so they don’t just get to do the bit they want and think they’ve done it all.
Racism as a Consequence of Slavery and Abolition
EB: Just before the issuance of slave owner compensation payments, there was propaganda as to why slavery should continue initially and then why people should be compensated. What are your opinions on the literature used to describe the people that were enslaved? One of the key reasons that venture capital isn’t invested in Black people is the perceived risk and a presumption of deficiency. I believe that this started to be propagated through slavery and has then passed down through the ages. What are your thoughts?
ND: Williams said that racism was a consequence, not a cause, of slavery.
To justify a system of racialized slavery, of course, the slavers had to reconstitute the enslaved people as being less, in whatever way they could. They did this for two centuries and established the basis of all the tropes of racial superiority and inferiority that we see today. But by the 1820s and 1830s, there were relatively few people who would justify slavery by that stage as being a positive good. The view was that this system is not great, but it’s here, and there’s nothing we can do about it, so we have to live with it. The common sense, by then, was that everybody was potentially equal. It was just that the enslaved people have been held back by slavery itself, and maybe one day, enslaved people could reach the same level of civilization, as you know, the white British.
It’s emancipation that shifts that because, by the 1860s, the abolitionists are beginning to wag their finger at the formerly enslaved and say, “You haven’t done what you were supposed to do. You were supposed to become wage labor on the estates. What you’re doing instead is becoming a proto peasantry; you’re supporting your family, and you’re not engaging with the modern commodity world.” That then feeds into the much harder racism you describe, which is that it’s not about stages of development, i.e., Africa is down here, but maybe one day it will develop with our help and support. Instead, it becomes something more fundamental, which is that it will never happen. The “gap” can never be closed. So I think that maybe racism was not entirely the consequence of slavery; it was the consequence of slavery and abolition. After abolition, the abolitionists began to move toward that fundamentally racist view to say, “No, there’s an inherent difference here that isn’t working in the way we expected it to, and it is the fault of the ‘Negro.’”
EB: Suppose you take books away from a people for 200 years and provide them with only Bibles. How do you expect them to be at the same level as those who have had resources for 200 years within a couple of years, especially when you allowed an additional 12 years of free (indentured) labor?
ND: I’m absolutely with you. As I said, this is the whole Thomas Piketty theory, which speaks to your work. If you don’t have an asset endowment at the beginning, you’ll never catch up because the return on assets is greater than the wage increase over time. If you have nothing, and you’re invited to join a race with people who started 100 yards down the course, you’re not likely to catch up. In the States, work has been done to quantify the systematic differences in wealth from generation to generation. It’s a fact that with zero resource endowment, you can never close that gap as a complete collective.