We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

Companies have no broad “duties” if you believe in private sector, and in a civil society based on voluntary relationships. That means if I set up a firm, with capital of mine or entrusted to me by others with their consent, then apart from not breaking rules about force, fraud, etc, there is nothing else one is required to do. Professor Milton Friedman has this all understood years ago. The proper response to calls for “corporate social responsibility” is “fuck off”.

Johnathan Pearce

53 comments to Samizdata quote of the day

  • Tedd

    When I think of the kind of people who run the various corporations I’ve worked for using the corporation’s money and influence to pursue a “social” agenda, I shudder. Nobody who’s actually worked for any of the larger corporations could think that was a good idea. But, of course, that’s not actually what people who call for “corporate social responsibility” want. It’s really just a code phrase for “spend money on the things I think you should spend money on.” In other words, a tax by another name.

  • RRS

    To properly consider that comment, perhaps we should back off and reflect a bit.

    Do we really still have a Civil Society or do we now have a Political Society?

  • RRS

    Apologies for repetition, but the following fits here as well:

    In a Political Society there are the implicit drives to increase the functions of governments and therefore the significance of politicians (and political motivations) in human activities (including, inter alia, those conducted as business organizations).

    Usually this occurs under the usual guise of presenting political objectives (principally increases in power through increases in governmental functions) as “social policy.” The mechanisms are:

    1. Taxation.

    2. Public-private “partnerships.”

    3. Direction of activities through regulations (“Rules of Policy”).

  • While it’s not “required” of a corporation, it’s a wise move to build a reservoir of public support so that when the busybodies on the city council begin abusing their authority, public support for the business can be rallied in opposition and the pestiferous polls can be replaced.

  • Tedd

    RRS:

    I completely agree. Also, I’ve noticed that the academic left has taken to calling the three things you described “civil society.” So the very term “civil society” will soon become unusable unless explicitly contrasted with “political society.”

  • While it’s not “required” of a corporation, it’s a wise move to build a reservoir of public support so that when the busybodies on the city council begin abusing their authority, public support for the business can be rallied in opposition and the pestiferous polls can be replaced.

    Actually I would be oh so happy to hear a significant businessman *not* pander to some presumed need for “public support” and instead say “fuck off, you parasitic rent seeking shithead who never made an honest non-tax supported penny in your entire life.”

  • Tedd

    I think we can credit Perry with a useful new TLA: PRS.

  • Mr Ed

    @ Billll Here in this presentation to Cupertino City Council, Steve Jobs blows away a suggestion from a member of the City Council that Apple should provide free Wifi, at 13′ 14″ the questions starts, and Mr Jobs responds.

    He also dismisses any idea of taking private property at 4′ 36″ in relation to some apartments that were close to a site that Apple wished to purchase but were not for sale.

    Steve Jobs was in the unusual position of being able to face down the local council, for obvious reasons.

  • the other rob

    Surely the level of “public support” for any given business is a very straightforward matter, easily quantified by measuring the number of members of the public buying that businesses goods or services?

    While this view may be too straightforward for the self-appointed intelligentsia to understand, the man in the street understands it very well. Round our way, a grass roots boycott of Coors (a “brewer”, for want of a better word, based in Colorado) is gaining momentum, quietly and without fanfare.

    The motivation is not any sin committed by Coors (though I might argue that their so-called beer constitutes a mortal one) but the recent raft of “gun-control” laws passed in CO. The boycotters reason that by hitting the company’s bottom line, they will encourage it to adjust the way in which it spends any campaign contributions, away from anti-gun politicians and towards pro-gun ones.

    This is interesting, in that it suggests that rather than petitioning government to modify the behaviour of corporations, some people deem it more desirable to petition private corporations to modify the behaviour of governments. This is, of course, the opposite of what is usually meant by CSR, but might actually constitute a genuine form of it.

  • Tedd

    Other Rob:

    …though I might argue that their so-called beer constitutes a mortal one…

    Surely, mortal sin is too harsh a judgement on Coors. It’s really only a venal sin. Coors Light is a mortal sin.

  • Lest anybody doubt the burden of such things, Sam Laidlaw, boss of Centrica, said recently that the company had spent £500,000,000 on ‘social programmes’.

  • The Coors boycott has been “brewing in the grass roots” since the early 70’s. If it has had any effect on their sales, I haven’t noticed. The boycott started when Coors workers voted down union membership, and continues on account of Mr. Coors running for the congress as a conservative.

    If you don’t like Coors for their beer or their politics, the New Belgium Brewing Company in Ft. Collins makes it a company policy to preferentially hire only lefties.

  • Laird

    Well, this is the first time I can recall that an essay posted on the front page of Samizdata has also been the source of its Quote of the Day. Does Johnathan get double credit?

  • the other rob

    Tedd – I stand corrected. You are quite right – Coors Light is, indeed, a greater sin. Indeed, I once said to a chap in a convenience store, who was buying two large cans of it, “You know, if I was going to buy cans that big, I think I’d want them to have beer inside.”

    Billlll – I know nothing of the boycott that you refer to. The one that I’m talking about is a new initiative, happening locally (in Texas) among (mainly conservative or libertarian) firearms enthusiasts and has nothing to do with Mr. Coors, unions, etc.

    I do dislike Coors beer, but patronizing another Colorado brewery would make little sense. Especially with Shiner being right here in Texas.

  • Julie near Chicago

    To me, “Corporate social responsibility” means things like not dumping toxic waste into the water supply. The same sort of stuff that considerate people try to avoid doing as private citizens. Picking up after your dog. So forth.

    I don’t see that either I or Apple has a “social responsibility” to finance a soup kitchen or to provide free wi-fi. But it might be good P.R. for Apple to do the latter, and more to the point, it might expand its market.

    [American industrialism has historically been accompanied by philanthropy, by the way, some benevolent and worthwhile, some less so. I suppose that that was at least partly from the "tycoons'" sense of "social responsibility," although I wouldn't care to think of it in those terms myself. In fact it should be thought of not as a "responsibility" (a positive duty) but rather as a simple act based on "I would like to help and I can afford to, so why not."]

    So to me there are two kinds of “corporate social responsibility,” one benign, and necessarily flowing from the demands of “common decency” as exemplified in (private, individual) morality and libertarian justice; the other pathological and arising out of the demands of politics and P.R. misjudgments.

    The hard part is telling which is which.

  • Pat McCann

    Billl:
    Some gun parts manufacturers are leaving Colorado because CO passed laws that prohibit their sales in that state. Colt Arms is moving from Connecticut to South Carolina. Both companies are taking their jobs and taxes with them. Other arms companies are refusing to sale parts to the Police in CO because the general population can not purchase them. There is hope.
    Perry:
    PRS is now a part of my vocabulary!!

  • Paul Marks

    The left pretend that companies are monsters who lack morality – but they actually hand over profits to SHAREHOLDERS it is these shareholders who should make the moral judgements over what is done with the profits.

    The left claim to be “anti corporate” but actually they are pro corporate – as they want corporate managers (under the influence of “the community”, i.e. paid professional leftists) to decide what is done with profits – not the shareholders.

    This is nationalisation by the backdoor.

    “Economic democracy” is really socialism.

  • Plamus

    Julie:

    “So to me there are two kinds of “corporate social responsibility,” one benign, and necessarily flowing from the demands of “common decency” as exemplified in (private, individual) morality and libertarian justice; the other pathological and arising out of the demands of politics and P.R. misjudgments.”

    To bring in my déformation professionnelle: the dichotomy you point out is a direct outcome of a few capital market developments in the last several decades:
    1) The divorce of ownership and management (aka agency problem).
    2) Fiduciary duty of management.
    3) The compensation incentives of management – short term performance is emphasized.
    4) As Benjamin Graham wisely and concisely stated, in the short term, the stock market behaves like a voting machine, but in the long term it acts like a weighing machine.

    Now, since management is incentivized mostly short-to-middle term, they will manage a company to please the markets short term. Is it inefficient? Sure. Is it consistent with human nature? You bet. As long as politicians have the power they have over business, what we have is the rational outcome. Curb politicians’ power, and you’ll get more businesses behaving like businesses and not like charities. Will it happen? Sadly, not before there is nothing left to loot from businesses at the point of a gov’t gun.

    The matrix needs to be reloaded.

  • Julie near Chicago

    Following on that, somewhere recently I saw an article proposing that the present theory of a public-stock company, where the shareholders are supposedly the company’s “owners,” isn’t really right: Rather, the shareholders are more in the position of creditors, where they take their profit (or loss) mostly when they sell their shares. (I hope I have that straight.) I can’t remember where it was said the ownership really resides. I also can’t remember where I saw the article. LvMI? Maybe, but I don’t think so. Anybody? Anybody? Bueller?

  • the other rob

    It’s about people pretending to knowledge and/or skills that they do not have.

    An example: I put on a record this morning. After a few minutes an unpleasant buzzing noise appeared on one side. I swapped out the turntable, amp, etc and concluded that the problem was with that speaker. The delay in the problem manifesting led me to think that it might be a faulty capacitor, so I went to Radio Shack, bought a new one and replaced it.

    That worked. All was good. Now show me a board member of the tech company of your choice who understands his product sufficiently well to be able to get out a soldering iron and fix it.

  • Julie near Chicago

    Alastair, I don’t think it was that exact article, though it may have been. But if not, it made similar points. Very interesting, either way. I see that in the comments, one person argued in favor of the article’s position and another against it. Also interesting.

    Thanks a lot for the link. :>)

  • Mr Ed

    @ Aliastair, that article is an excellent exposition of the legal reality.

  • Paul Marks

    The effects of government tax law (high income tax and inheritance tax) have been to move the ownership of companies away from individuals to pension funds and other institutions (hired managers in charge of other hired managers – with owners out of the loop) also shareowners are castrated by the endless regulations one sees in Britain and the United States – thus moving more and more control away from shareowners to managers.

    The Financial Times crowd think this is a good thing – and like most things the “FT” people think good (such as Corporate Welfare via the “cheap money” policy) it is bad.

  • Julie, I am not familiar with the source, but I find the argument compelling. To the question about actual ownership (beyond the formal legal status), there is effectively none – not in any real sense, which is in a way similar to state property. That’s just my overall sense of things – if someone can put a finer point on it, I’m interested.

  • RRS

    May I suggest:

    The Modern Corporation and Private Property by Berle and Means

    You can Google the title of that classic and get a fair summary of the issues covered.

    Harder to come by are those issues of Dicta ( Va.Law Weekly- U.Va. Law School)of some 60 years ago, on the subject of Corporate Democracy lead by Mortimer M. Caplin.

    Those items might possibly disabuse or mollify some of the fixed opinions that have been expressed.

    For those who may really care to study this area of social development there are materials that will disclose the roots of today’s Managerial Capitalism.

  • Quentin

    > Companies have no broad “duties” if you believe in private sector,

    Surely it would be more correct to say that they have whatever broad “duties” their shareholders give them?

  • Mr Ed

    @ Quentin. Companies are a statutory construct, in a common law system it might be regarded as fraud to seek to limit the liability of what would, but for statute, be a partnership. it would certainly be void to claim legal personality for a piece of embossed paper called a ‘Certificate of Incorporation’ barring a statute or remarkable precedent.

    The shareholders do not give companies duties, a Company’s duties come from the Company’s Articles of Association, and here statute, which provides for this legal fiction, may presribe or proscribe certain duties as void.

    Why should it be for shareholders to decide what duties a company has? If they accept the legal fiction of corporate personality granted by statute, then they must take whatever statute throws at them by way of corporate duties, as that is only the business of the corporation, which, as the shareholders agree, is a separate legal person, on which they may have a claim, but they do not own it, any more than an architect owns a receptionist that he employs.

    As Tolkien told us, he who deals with Sauron does so on Sauron’s terms.

  • Why should it be for shareholders to decide what duties a company has? If they accept the legal fiction of corporate personality granted by statute…

    A company can exist without a state ‘granting’ it anything and indeed many such entities have existed through history. If you choose to do business with that entity, then it gains its ‘existence’ from your willingness to enter into explicit or implicit contract with it by, not from a state breathing life into its clay nostrils.

  • Mr Ed

    @ Perry. I would say that to state that a company can exist without a state ‘granting’ it anything is ot the full picture. What matters is what the courts regard as the legal entity that exists to answer a claim, often an unincorporated association may be found to exist, e.g. in a sports or social club, which renders personally liable the individuals involved.

    What may arise at common law by a joint enterprise could be a partnership, which until recent statutory interventions in the UK had unlimited liabiility, we now have the option of LLPs.

    If however, absent the statutory concept of limited liability, (granted, in my view, by law and not the State) a group of people come together and seek to limit liability by contract, that is one thing, and that is nothing a sole trader or partnership could not do by express terms of trade, however it is not possible to limit liability in tort to uncontracted third parties.

    In essence, if one complains that a company is not ultimately responsible to its shareholders, e.g. because the law imposes a duty on it to ‘save the environment’ ahead of ‘provide a surplus for shareholders’, the riposte to that is a company only exists through a legal fiction of a separate personality, and once you accept legal fictions of that ilk, then you are open to other legal fictions being imposed by the political power from time to time, and if you are on the losing side later, then having won once with limited liability, you have now lost, but that is the game of using the law to achieve desired ends.

  • Paul Marks

    The idea of a body corporate (a corporate body – be it a trading company or a church or whatever) is ancient (much older than the modern state).

    When people set up a church (in pagan times a Temple) a club (such as a Roman burial club) or trading company (such as the ancient practice of putting a “stake” in a “trading pot” with the stake, NOT everything, at risk if the venture failed) they set up a body corporate (a corporation).

    Nothing to do with a “legal fiction” – clubs and trading enterprises are ancient (even if Common Lawyers know little of them – because they were actually traditionally covered by church law Cannon Law and by private Law Merchant).

    HOWEVER what is the specific law concerning such corporations (churches, clubs, societies, trading companies, whatever)?

    We know the general principles, for example that someone representing a body corporate must SAY THEY ARE (they must not give the impression that they are personally standing behind debts when they are NOT) – but what are the SPECIFICS?

    At first it was CANNON law (church law)and Law Merchant (private law) not Common law that covered such matters – later (much later) they became covered by Statute law.

    In fact (in spite of all the praise Common Law gets) Law Merchant was not incorporated into Common Law till the late 18th and 19th centuries. Statute Law took even longer to catch up (in fact early Statutes were a mess).

    One odd thing I have seen in my lifetime (and perhaps Mr Ed could help here) is the strange death of “Limited” and “Incorporated”.

    Not so long ago it was common practice for a limited liability enterprise (i.e. one where people only risked the money they put into the modern version of the “trading pot” – not everything they have) to show the fact by having “Ltd” after their name in Britain or “Inc” after their name in the United States and using these terms in their advertising (indeed it was so common it got into cartoons – “Acme Inc” in the Roadrunner cartoons and so on).

    Now the terms “Limited” and “Incorporated” seem to have fallen out of use (at least in public advertising, for example the names on the sides of trucks and company H.Q.s)

    This means it is hard to tell a limited enterprise from one that is NOT.

    The whole point of getting the state (via both Common Law and then Statute Law) involved in this area (not leaving it to private Law Merchant – private arbitration rather than the government courts) was that, supposedly, it was not clear to some people that they had made a VOLUNTARY AGREEMENT to trade with a limited liability enterprise.

    So, for example, they would be shocked when the club (or whatever) could not pay its debts – yet individual members of the club (or the trading venture) kept their own private assets.

    Yet such things as the public use of “Ltd” and “Inc” seem to fallen out of use (they are no longer on the sides of trucks and on company H.Q. walls) why?

  • A company… or partnership, need not have ‘unlimited liability’ is it states in its terms and conditions that “if you agree to do business with us, our liability is limited to the capitalised sum of this company and no more”… that does not restrict criminal liability of course but then neither does a government sanctified LTD mark.

  • Mr Ed

    Paul, there has certainly been a rush for solicitors in England and Wales to go to LLPs in recent years, abandoning the unlimited liability that they had previously been subect to when in partnership (backed by mandatory indemnity insurance, which, as with ltd companies, fills some of the gap of a limit on tortious liability but by a statutory mandate).

    The law on churches, clubs has developed a lot through case law, from lawsuits against churches by abuse victims, ‘employees’ (or not). Many ‘priests’ (in a generic sense) are not employees and so may not sue their church if their office is terminated, conversely, Catholic priests kiddie-fiddling have been held to bring liability to their Church in England, due to the connection of their acts with their office (and the futility of suing a priest). Other cases arise with clubs and their members being sued, rather piecemeal.

    And here is the Companies Act 2006. Now with over 1,300 sections, and 16 Schedules.

  • Paul Marks

    All quite true Perry.

    But none of that explains why the Ltd mark does not seem to be shown much now.

    I have often heard people express shock that the owners of a company (that has gone bust unable to pay debts) “drive to the big houses in the big cars” (and so on) some if it is indeed envy – but some of it is real shock.

    The basis of limited liability (in both Cannon Law and Law Merchant) is VOLUNTARY AGREEMENT – the person trading with the limited liability body corporate must KNOW what it is. Otherwise there is no voluntary agreement.

  • Mr Ed

    Paul,

    It might also be a ‘brand’ issue, the term ‘limited’ having Victorian connotations, far more ‘modern’ to use a snappy name for marketing?

    The practice of pre-pack administration and buy-outs etc. take on a lot of (fiat) debt, find your company cannot service the debt, sell it to a new company and let the creditors whistle, is this what goes on?

  • Paul Marks

    Ed – as Perry pointed out there is no limitation in liability for criminal fraud. The difficulty is proving it……

    But bodies corporate (not just churches – but colleges and so on) should not be shy of what they are.

    A college is not a partnership (and more than a church is a partnership) and the Fellows are not partners – but that does not give the right to order lots of wine (knowing the college had no money to pay for it) and drink it up, saying to the creditors (the wine merchants) “sue the college” (that was the point Perry was trying to make). Fraudulent intent – or reckless disregard for reality (the Reasonable Man test).

    However, I am very troubled by the “brand” thing (which you QUITE RIGHTLY bring up).

    Sorry “marketing managers” – but people must KNOW your company is a limited liability enterprise.

    If you repeatedly fail to mention this vital fact in your presentation of the name of the enterprise – then, perhaps, you should be considered guilty of conspiracy to defraud.

    In both Cannon Law and Law Merchant – it is the active duty of an agent of a limited liability enterprise to inform the people that he or she is dealing with, that he or she is representing a limited liability enterprise, otherwise no VOLUNTARY CONSENT can be held to have occurred.

    Even if NOT a shareholder (Fellow, putting of a Stake into the Trading Pot or whatever) such an agent should be held PERSONALLY LIABLE for their failure to inform trading partners.

    The point of such things as “Ltd” and “Inc” is that it means that employers of the company do not have to go around saying to customers and suppliers “you know I work for a limited liability company do you not?” as it is expressed in the name of the enterprise.

    If it is NOT expressed in the name of the enterprise…… then actively telling each and every supplier and customer has to resume.

    With a Church, College or club it may be assumed that a “reasonable man” knows that a rich member of a club is NOT responsible for the debts of the club.

    But for a commercial company it needs to be made clear.

    And if it is not made clear…..

  • RRS

    Mr. Ed et al.,

    My experience in the UK was principally in the area of Risk Transfer. This involved associations with the operations of Lloyds – at that time a bastion of “Utmost Good Faith” and Unlimited Liability.

    I have not followed the developments in English Company Law, with which I was once relatively familiar. But I would suggest some, perhaps most legislation on business organizations, their composition and operations, as well as relationships, public and private, is not a “construct” exclusively, but is often a codifications that simplifies the applications of legal processes to disputes or conflicts that involve business organizations.

    In this regard, I would recommend to the seriously interested to become acquainted with the American Law Institute and the development of model legislation such as the Model Business Corporation Act.

    Having participated many, many years ago in the revision of one of the major (in terms of preferred choice of incorporation) corporate laws of the United States, through the adoption and adaptation of the Model Business Corporation Act, I can assure Mr. Ed that it was not a “construct,” but rather a codification of the systems which gave greater freedom of association to the persons forming, involved in, and to be involved in the business organization.

    Those laws have subsequently been extensively modified for the extension of the principle of limited liability to professional and other activities conducted in different formats of organizations. However, they represent codifications designed to simplify the applications of legal doctrines and processes within the legal system.

    Incidentally, I was pleased to see the implied reference to the Corporation Sole, such as are applicable to ecclesiastical and academic entities.

  • Midwesterner

    It is with third party (non-consenting) tort liability that the perversity of corporations having their own identity separate from the stakeholders becomes apparent. Defenders of LLCs almost always conflate consensual and non-consensual liability. Doing so plays right into the hands of authoritarians.

    Imagine a very wealthy person. He buys a worn out, bald tired, leaking brakes truck and hires the cheapest driver he can find. He incorporates this assemblage as a limited liability trucking company. By bidding low and not bothering with insurance, he makes much more than his inputs before the inevitable “accident” happens and the truck has a runaway collision causing a lot of fatalities. The wealthy investor declares the company bankrupt to avoid tort liability beyond assets, but keeps his previously accrued profits for a net gain on the endeavor.

    Any liberty minded person opposed to the ridiculous levels of government micro-regulation of private business needs to recognize that it is limiting liability obligations to non-consensual third parties that forces regulation. Since an amoral investor can always find somebody to assume responsibility for the right price, in this example perhaps an unemployed alcoholic driver, regulations must adopted that criminalize certain types of investor behavior in order to get at the investor. Limiting third party liability compels regulation/criminalization of both business practice and investor practice when neither is necessary in a unlimited third-party liability free-market. Authoritarian control freaks love limited liability. It is their license to dictate.

    If non-consensual risk carried unlimited liability to the owner(s), that unscrupulous wealthy owner would need to either risk his personal fortune or meet the operating standards set by an insurance underwriter. Underwriter mandated operating standards are what regulation looks like in a free market.

    It is the collectivization of risk, in the form of dispersing consequences over exposed asset value on to non-consenting third parties, that compels the collectivization of management in the form of authoritarian micro-regulation of business and investment activity.

    Objecting to unlimited non-consensual tort liability while at the same time objecting to intrusive regulation is trying to put jam on both sides of the bread.

  • Paul Marks

    I am told the cult of regulation (and the general cultural hatred of corporations – and the cult of lawyers) goes back to an accident at a boating lake.

    The lake was artificial – and there was a town under the dam that held in the water, and the dam broke……

    Many people in the town were killed – and some of the richest men in America were members of the club, but the response was “do not look at me – the liability is that of the club”.

    The first bad consequence was the move in American law to reduce the burden of proof in proving negligence (pointless as the liability would still be that of the club – and incredibly HARMFUL as many cases have since been decided unjustly with damages being awarded where there WAS NO REAL NEGLEGENCE).

    Another consequence was a big boost to the cult of hatred (whipped up by the left) against corporations – odd as the boating club did not make a profit (and was never intended to do so – it really was just a boating club).

    And, of course, there is the tidal wave of regulations – pointless (as those who ignore their common sense responsibilities will ignore regulations also) and highly damaging (as honestly run companies will bankrupt themselves trying to obey all the insane regulations).

    No one seems to have thought of asking “who is on the committee of the club – and did they fail in their responsibility to make sure the dam was maintained?”

    As others have already pointed out a club or corporation does NOT remove individual responsibility (and liability) – it means that lawyers have to do the hard work of finding out who was really in charge and whether or not they failed in their responsibility.

  • RRS

    PM

    Have you noted the acceleration of the desire for emancipation from responsibility throughout the “developed” societies?

  • Midwesterner

    Paul,

    Making negligence a factor in determining whether harm to non-consenting bystanders is born by the bystanders or the harm causer is wrong. It requires regulators to establish what constitutes safe business practice and enforce those standards either before or after the fact. The actors who cause harm are unlikely to be deterred but responsible actors will be constrained by bureaucratically determined safe business practice. Expecting a jury to do the engineering for themselves and judge “negligence” is impossible. They will be judging whether the bureaucrats ‘guidelines’ were followed.

    Furthermore, even if the best known safe business practices are followed, using negligence as a determining factor in liability still segregates the risk from the reward. The owners of the “not negligent” (as determined by experts) company keep their past profits and their personal assets are protected while the people who bore the impact of the unforeseeable accident the company caused lose their personal assets.

    What must determine liability is not negligence, but whether or not you created the hazard that was eventually realized. To use your example of the fishing lake, if there was no dam and a “storm of the century” had caused a flash flood that destroyed a village, that is an act of nature. The people harmed were living in a naturally dangerous area and that is the risk of living there. If on the other hand, it was a failed dam that caused the flash flood, then that was an artificially created hazard and not a natural hazard of the location.

    By making ‘negligence’ the deciding factor, it becomes necessary for governments or quangos to create the ‘guidelines’ that define safe business practice. But by holding the creator of the hazard accountable, irrespective of any procedural determination of ‘negligence’, the insurance underwriters regulate the construction and operation of the hazard (in this case a dam).

    I have far more faith that insurance underwriters who operate in a competitive free market will accurately estimate risk and set their premiums so that hazard creators can accurately make risk/reward decisions, than I do that political operations whether legislative, executive or the courts and juries, can make that determination post hoc and not be politically captured and bent.

    Even if the jury and generally accepted safe business practice decides there was no way that the dam builders could have known about the vein of sand under the chosen location and the builders were not negligent, why should the dam builders personal assets be held immune and the villagers assets held uncompensatable. No matter how you try to resolve it, property is redistributed either from the villagers to the dam builders or from the government disaster relief to the dam builders.

    If you create a potential hazard to non-consenting persons, there are only two options. One option is to redistribute the consequences onto those non-consenting persons or else collectively onto ‘society’. That option requires experts to determined when “negligence” (or belonging to the wrong political party) requires that the owners take the loss or conversely, that “negligence” did not occur so society or the harmed parties must bear the consequences.

    The other option is to hold the creators of hazards accountable irrespective of expert and professional second guessers and instead let the insurance underwriters regulate the creation of hazards.

  • Paul Marks

    Mid – if people can sue for anything (without proving negligence) then society is destroyed.

    Everything from cheese rolling down a hill in a west of England (“you had better not provide any cheeses” say the “helpful” police “because you lay yourself open to civil action”) to ordinary community events in Church halls, – right to manufacturing itself (“sorry we can not produce stuff here anymore – we might get sued if someone eats the cooker or something”).

    Accidents happen – that is life.

    If the “someone must PAY, someone with DEEP POCKETS!” principle takes hold – then everything is, eventually, destroyed.

    There is no way that things can be totally “safe” – life it not safe.

    Full disclosure, I work for an amusement park – if “you can sue without proving any negligence” takes more grip in English law, then the amusement park will have to close (as will every factory, Church hall, indeed everything…. in this country).

    No one (other than a lunatic) is going to keep anything running if they can be sued at any time without proving negligence.

    Remember “proving” does NOT mean “beyond all reasonable doubt” – it means “on a balance of probabilities”.

    If one does not even have to prove that – then nothing can run, everything will need to be closed.

    One can not take risk out of life – not by regulations and not be law suites either.

  • Paul Marks

    Already in England and Wales (I do not know about Scots Law) there are people sniffing around looking for excuses to sue.

    It is not a zero sum game – it is a negative sum game (the cost of the lawyers and the courts must be included).

    General demands for “compensation” without proving fault (on a balance of probabilities basis) is the road to Hell.

    It is a charter for every free loading fraudster out there.

  • Midwesterner

    Mid – if people can sue for anything (without proving negligence) then society is destroyed.

    Strawman, Paul. Pretty obviously I’ve stated and made clear that liability must attach exclusively to the creation of a hazard. I even went so far as to use your example of the failed dam destroying a village to clarify risk inherent in nature from risk created deliberately for some other purpose.

    To clarify the dam/storm/flood example, with a naturally occurring flood the risk of the flood is undertaken by the people who live there in exchange for whatever benefit it is that leads them to live with that risk. Insurance is their own responsibility. With an artificially occurring flood, the water stored and released by the failed dam, the risk is undertaken by the people living there but the benefits of taking that risk accrue to the people who own the dam. In the naturally occurring flood, risk and reward fall on the same actors. In the failed dam case, the risks and the rewards are assigned to different actors. It is simple and clear cut redistribution of wealth.

    Like so many well intentioned people, you are responding to the capture of the liability settlement legal process by tort lawyers with a utilitarian argument for the (continued) transfer of risk (to either ‘society’ or non-consenting victims) by law. Two wrongs cannot make a right. When politically approved actors are allowed to retain the rewards of their activities while transferring the risks to ‘society’ or to not-so-politically-protected actors, that is almost the definition of economic fascism.

    Please, Paul. Stop with the strawman creations and address a simple matter. If you have made a lot of money putting me at risk against my will, why should I bear the consequences and you be protected from liability? Your “shit happens” attitude is indefensible. If indeed shit happens, then it should fall on the beneficiary of whatever business the shit happened to, not to non-consenting bystanders.

    Full disclosure, I work for an amusement park – if “you can sue without proving any negligence” takes more grip in English law, then the amusement park will have to close (as will every factory, Church hall, indeed everything…. in this country).

    That is another strawman. In order to gain admission to your amusement park, all you need to do is require a waiver or limit of liability from the entrant. If your amusement park wants to launch fireworks or stockpile nerve gas and a “shit happens” incident causes harm to people not in your park, then of course your insurance company and you should bear the consequences regardless of whether you are guilty of ‘negligence’.

    You are tacitly defending the present tort lottery by directing it to look into peoples’ minds to see if they are ‘negligent’. What matters is not whether some panel of government selected experts, whether a jury or a quango, has decided to assign ‘guilt’ to a businessman, but rather whether an activity generated a hazard that, absent that activity, did not previously exist. You are also conflating consensual risk acceptance with non-consensual risk imposition.

    The problem with the tort process is not that it should be analyzing and rendering ‘correct’ opinions on various concepts of ‘negligence’ to justify society or bystanders bearing the consequences of those business activities. The problem with the tort process is that it does not connect the degree of ownership of the endeavor to the degree of liability for the consequences or connect the reward assigned for the damages to the true cost of the damages incurred.

    I do not defend the present Las Vegas crap shoot tort system but compounding its failures with a utilitarian socialization of consequences is not a solution; it is a step further into collectivization of private property.

  • Paul Marks

    Actually I agree that if the management committee of the club did not do their duty they should have been personally liable (as individuals).

    But “straw man”?

    American tort law is out of control – it is doing terrible damage RIGHT NOW (I was not writing about some theoretical possibility). Not having to prove negligence, and a the “Deep Pockets” doctrine (“they are not to blame, but they have got lots of money and WE WANT THE MONEY”) is already happening – right now.

    And Tort law in England and Wales is starting down the same dark road.

    For example, “no win – not fee” has already started here (making legal cases a nice life style choice for dead beats).

    It is not a “straw man” because it is already happening.

  • Midwesterner

    And your solution is not to try to restore tort law to connecting risk bearing to risk taking, but to segregate risk from reward and assign risk to society at large. This is exactly what ‘liberals’ have done with personal life style choices. Paul, that utilitarianism is disastrous to the individual rights of life, liberty and property.

    Socializing the occasional harm from the risk necessarily taken by business compels the regulation of business activity in much the same way that socializing the occasional harm from personal life style choices (alcohol, danger sports, unhealthy diets, etc) compels the regulation of life style choices.

    You are making a very utilitarian case Paul. I do not expect that from you. Like most utilitarian choices, any short term amelioration will be consumed by the long term structural consequences. We must fix the tort system, not socialize its mistakes.

  • Paul Marks

    Mid – my “solution” is to insist that there be no successful law case if there is no fault. If there is fault then I AGREE with you (the person whose fault it was should be forced to pay compensation), but if no one was at fault (if it was a real accident) than that is just too bad.

    As for who should bare the cost of an accident – if it really is a blameless accident, then the person who has the accident must bear the cost. I do not understand what you mean by your claim that I want to “assign risk to society at large”.

    Society is not a person – this is nonsense talk.

    The person who has the accident (if it really is an accident) bares the cost – for example if he or she looses a leg they will find that work is even harder than it is already (this is very sad – but there we go). This is why people used to belong to Fraternities (Friendly Societies in Britain) so that if that if they fell upon hard times (say lost limbs) their Fraternal Brothers had a duty to help them (and vice versa).

    By the way, unlimited tort law has not meant less regulations – regulations have INCREASED.

    If the choice was “unlimited tort law or regulations” then I would have to consider it.

    But the choice really is “unlimited tort law and MORE regulations” – which is no choice at all.

    Sorry Mid – but an attitude that says “something has gong wrong with my life I must SUE someone” is no good at all. The legal system is a Black Hole in the economic (and social) universe. Sometimes it is unavoidable – but those times should be very rate (most people should never see the inside of a court room in their lives).

    RRS – yes I have.

    “I have had bad luck – someone must PAY” is now very common.

    The reading of the Meditations by Marcus Aurelius has never been common (although it was less uncommon than it is now), but the ideas it contains used to be common (and no longer are). Although Kipling’s “If” is still the most popular English poem and it is straight from Marcus Aurelius (apart from the second to last line in the poem – which, to me, ruins the poem, NO the world and everything that is in it is NOT yours, no matter how good a man you are, indeed the best of people have often lived brief and poverty stricken lives, sometimes virtue must be its own reward)

    Life is a grim and terrible thing – to be endured. And the horrific laws of reality can not be got round by good intentions (as Kipling understood in his poem “The Gods of the Copybook Headings” – a better poem than “If”).

    People who expect (demand) happiness are a menace to themselves and to everyone around them.

    Actually, in his own life, Midwesterner is a classic example of a Stoic (far more than I am – and I respect that). But more and more people are in the “I have a right to be happy” crowd.

    Ironically it leads to greater (not less) unhappiness.

  • Midwesterner

    As for who should bare the cost of an accident – if it really is a blameless accident, then the person who has the accident must bear the cost. I do not understand what you mean by your claim that I want to “assign risk to society at large”.

    Society is not a person – this is nonsense talk.

    The point, Paul, is with the creation of hazard. A superbolt of lightening striking a city street or a ‘storm of the century’ level of rainfall causing a flash flood are natural risks. Nobody is “to blame” for them. Living where they can impact you is your choice.

    However, a tanker truck full of gasoline or a dam holding back a great quantity of water are hazards. They have in them the potential to magnify the damage caused by a natural accident. If the bolt of lightening was a superbolt(PDF) clearly the truck owner cannot be held negligent for his vehicle not being able to withstand it. If the rainfall was from a storm of unprecedented magnitude, the dam owners should not held negligent for not anticipating something far outside the bounds of historical observation.

    Yet, in each of these cases an artificially created hazard caused great harm beyond what the triggering events alone would have caused. The lightening struck tanker truck explodes, destroying very many houses and killing the occupants. The hurricane besieged dam fails, contributing an entire dammed up valley full of water to the flood, destroying a village and killing the occupants.

    The activities of these not-at-fault businesses none the less directly killed a great many people and destroyed much property beyond what natural hazards would. To call the full scope of the damage “an act of nature” is preposterous. Nature did not fill the truck with gasoline or place the dam at the mouth of the valley. With liability limited companies, the trucking company and the dam company keep the already realized profits from the hazards they have created. The hazards that did not exist until they created them. Despite having not been negligent, they still caused harm that would not have happened had they not put the loaded gasoline truck on that city street and filled that valley with water.

    The harm caused by the exploding truck and bursting dam were directly caused by the activities of those companies. You say “if it really is a blameless accident, then the person who has the accident must bear the cost.” So let me ask you, who had the accident? Was it the people whose houses were carried away in the explosion they died in, or was it the truck company carrying the fuel? Was it the villagers carried away in the flood, or was it the dam company? The trucking and dam owning companies are not negligent in this hypothetical. They did their human best to run responsible businesses and an “act of nature” overwhelmed them, turning the business machinery into killing machines.

    If you say the business owners had the accident and they must put up their personal assets to attempt to restore the damage caused by their business activity, then we agree. If you say that the unlucky neighbors to these businesses suffered from “an act of nature” and nobody is to blame therefore the business owners can keep their assets and those harmed have no claim, then you are leaving the realized profits from business activity with the owners and transferring the burden of the loss caused by the business activity to either “society” (aka taxpayers) or the individuals harmed by the business owners’ assets. That is a clear and transparent transfer of wealth from either “society” (taxpayers) or non-consenting persons harmed by the business assets to the owners who retain any realized profits from the businesses.

    Risk and reward must always be tied to the same actor. The creator of a hazard, whether a dam or a fuel truck or any other aspect of business capable of creating unnatural harm to non-consenting people, must bear the full burden of that harm to the maximum extent he is capable of. This is what insurance is for. It must be the full burden because if they are not born by the business owner, they must unavoidably be transferred to somebody(ies) not affiliated with the business. This relates to the “broken window fallacy”. There is a net loss, it must be made up from somewhere.

    Either the owner will self-regulate to protect his wealth and future income, his insurance company will dictate his business practices in exchange for assuming the burden of risk and an anticipated actuarialized profit, or government must regulate business.

  • Paul Marks

    The “creation of hazard” Mid?

    Who creates the hazard of running after a cheese down a steep hill?

    The person who provided the cheese – or the person who CHOOSES to run after the cheese?

    No one forces me to work in a glass box in the sun for X hours a day – so me getting fat (by lack of exercise) or getting skin cancer, is MY PROBLEM.

    Not the problem of my employer.

  • Paul, are you being intentionally obtuse? Mid is explicitly talking about third parties who have no stake in the business activity – innocent bystanders, if you like. You sitting in a box as an employee of the business in question hardly qualifies you as a ‘third party’.

  • Paul Marks

    Third party people.

    NOT customers. Like someone who buys a cheese, throws it down a hill – and then chases after it? To me such a person has no claim whatever. I think Mid would agree.

    Even the people below the dam that broke (not customers) would still have to prove that people on the management committee (or whatever) failed in their duty of care in relation to the dam, in order to have a case against them as individuals. Otherwise their only claim would be against the club (which had very limited assets).

    At least in a rational system of tort law.

    And, as Mid knows, business enterprises are moving from States with irrational systems of tort law to States with less irrational systems.

    HOWEVER – I think the divide between myself and Mid is largely an illusion.

    After all neither of us demand that the case be proved beyond reasonable doubt.

    Only a civil burden of proof (a balance of probabilities) should be required.

    Does not Mid not agree with that?

    If he does – then we are in agreement.

    For example – we would both agree that those who pollute air and water supplies should pay damages.

    That the 19th century Wensleydale case was wrongly decided (the case being that the “Public Interest”, in American legal jargon the “General Welfare”, trumped private property rights in air and water supplies).

    I do not see the difference in our positions.

    I do not think there really is a difference.

  • Paul Marks

    The water was not toxic – there was just rather a lot of it……

    And is the liability that of the club (which was never denied – the club went bankrupt) or of the individual members of the club?

    And all the members? Or just the relevant ones?

    And relevant by what criteria?