We are often told, even by so-called “left libertarians” who claim to be in favour of markets but not corporatism, that modern corporations, with their evil limited liability protections, favours from the state and so on, can roll over a democratic government and shaft the general public. Up to a point, Lord Copper. In fact, the situation is far more complicated. Some firms seem remarkably weak when confronted with some pressures, which makes me wonder why Hollywood movies still insist on portraying corporate executives as flinty-eyed, heartless bastards on the take. (The irony is, of course, that some of the most ruthless corporations are in the film business).
As evidence, Brendan O’Neill has this excellent piece in the Telegraph about Tesco’s, workfare, and the influence of the “Twitterati”:
“What could be worse than the government’s workfare programme?”, almost every columnist in the land is currently asking. I can think of one thing worse: the awesome and terrifying power of the commentariat and its slavish groupies amongst the Twitterati to strike down initiatives like workfare and almost any other government project that they don’t like. That’s the real story here. Forget the historically illiterate wailing about young people being forced into “slave labour” or the idea that getting yoof to work in return for money is the Worst Thing Ever. The ins and outs of workfare itself pale into insignificance when compared with the new power of tiny cliques of cut-off people to override public opinion and reshape modern Britain.
The speed with which first Tesco, that supposedly arrogant monolith of the high street, and then others withdrew from the workfare scheme was alarming. It was a testament both to the sheepishness of modern corporations (remember this next time someone starts banging on about “free-market fundamentalism”) and to the authority of the therapeutic, suspicious-of-wealth, pro-state, anti-big-business sections of the well-fed media classes, who can now put powerful institutions on the spot simply by penning a few ill-thought-through articles with the word “SLAVE” in them.
One possible quibble: has this not been the case for decades, even centuries? Consider that the opinion-forming classes have tended to be concentrated in the London area, have tended to have an influence out of all proportion to their numbers? This is hardly new. What has changed, clearly, is that in the age of the internet, the speed with which this class can make its voice heard accelerates.
I always thought it was a bit optimistic to imagine that blogging, the internet and so on would massively shift the balance of forces in terms of who gets to influence debate in a country like the UK. The mainstream media still carries big influence, especially television. And our political class, drawn as it is from a relatively shallow pool of talent, is as susceptible to the influence of such opinions as it ever was. However, what I think has changed for the better is that more of us, such as O’Neill and so on, can attack the conventional wisdom through the medium of the internet rather than hope that our letters get printed in some corner of a newspaper.
There is also more of what we might call a “swarm effect” these days with certain issues; I think the internet definitely magnifies this phenomenon. Another consequence is that memory of certain events gets ever shorter as the news cycle spins faster and faster. The Singularity is near!!!.
Update: Guido Fawkes has a delicious twist on this whole business about “workfare” – it involves the Guardian.
I have absolutely no inside information on why Tesco gave up on workfare, but I like to imagine it went something like this.
GOV: Please Mr. Tesco take some of these feckless workshy youths and give them all the Health and Safety and Diversity training etc. they need before you let them near a job, then try and get them to turn up every day, on time. Please Mr. Tesco.
Tesco: Look, we get enough feckless workshy youths and have to give them all the Health and Safety and Diversity training etc. they need before we can let them actually work and we try to get them to turn up every day, on time and they actually apply for jobs and some of them even stay for more than six months.
Tesco: And we employ older guys who’ve been laid off and struggle to get other jobs, and the less than fully abled and we tick all the boxes on diversity and all the other crap you and your ilk have handed us these last thirty years.
GOV: Oh Please Mr Tesco. Pretty Please. And don’t forget they’ll be free.
Tesco: Free? Free? You have got to be joking. All the crap we have to give them before they get near the store floor costs us plenty.
GOV; But think of the poor country. You can help instill proper work habits in these poor unfortunate people and that will help clear the deficit.
Tesco: Oh, OK. But the first sign of scandal – any mention of slavery for instance – and we’re out of here.
In re: Opinion forming classes
In addition to the changes cited, we now have the issues of whether the opinions “formed” have any effect on motivating action, and if so to what degree.
This is where “media” have become mood setters rather than opinion formers.
The opinions of those “reached” by the output of “The Media” are no longer actively affected by that output.
Still, the mood setting impact is serious enough, witness 2008 in the U S .
I agree with with Kevin B. It isn’t that business doesn’t have a back bone. It does when it comes to making money. It is just that in this case it was mostly just for PR in the first place so when it started to turn against them they backed out very quick. It is called cutting your losses.
If a corporation has a single shareholder who owns a large amount of the stock and he (or she) has a backbone, then the enterprise may have a backbone. Of course this depends on the individual themselves – if they have courage then the enterprise will, if they do not it will not (for it has no will of its own). But if there is a single leading shareowner there is hope.
If not then not. For corporate managers are alone (responsible to institutional shareholders – i.e. corporate managers responsible to other corporate managers, with no OWNERS in the picture at all) then no real backbone can exist.
Certainly the enterprise may go on well enough in good times (and do some naughty things as well – if the people there think they will not be found out), but real courage in a tight place? No – how could there be courage? No one owns the enterprise and all the mangers (with their telephone number incomes) will, in a time of danger, think only of saving their own backsides.
So the “anti corporate”, “libertarian left”, may have a point – just not the one they think they have.
Corporations, at least ones without leading indiviudal shareowners, may be a bad form of business organization (in hard times), – but not because they are strong, but because they are weak.
Once again the Paul Marks organization hits it head on.
Fragmented ownership, as noted as far back as 1932 by Berle and Means in The Modern Corporation and Private Property
has led the the multi-level managerial capitalism which is replacing financial capitalism, which replaced industrial capitalism that succeeded out of commercial capitalism.
It is plausible to assume that the motivations of managers of large enterprises differ from those responsible for more directly owned enterprises.
What next?
And this morning we have the gruesome spectacle of the multinational corporation Barclays (boo hiss) exercising its ruthless power over poor ickle government (hooray) by, er, being stung for a £500m retrospective tax charge.
OK, I admit it, I’m hopelessly naive. When Gordon Brown introduced his homage to the rule of law by introducing retrospective income tax charges, I thought the Conservatives would be against it – sort of on principle. Conservatives…principle….same sentence. Stupid child !
I’m with the “left” libertarians on limited liability.
One wonders if the corporations would be so pathetic if they didn’t depend on the Taxpayer/state for thier position.
I don’t think they would be too keen on an easy entry into the market place for competitors. They should man up and compete.
There are lots of advantages to being big but the little businesses also have some huge advantages over the bigger beasts. Unfortunately the biggest advantage of being big seems to be the ability to buy legislation to prevent new competition entering the market.
Rob H, et simile,
Is there some false concept about “Limited” Liabilty of Corporations?
Is there some confusion of Liability (responsibility for a breach of duty, originally), with debtor obligations?
The two are distinct, and differ. It is true that many true liabilities (that do not arise from financial transactions) can be discharged in bankruptcy, or otherwise mitigated. But, that is a separate legal procedure from the concept of limited liability.
As for “buying legislation,” who has it for sale, who owns it to sell it? Is this not a case of politics getting into money, as opposed to money getting into politics?
I’m confused by your last post RRS. I understood Rob H to be complaining about limited liability being a state creation. Which it surely is. Certainly, without special state created limited liability companies, the owners of businesses could ensure that they were not personally liable for the contractual debts and liabilities of the business, beyond the assets of the business, by writing all their contracts to that effect. But they could not protect themselves against liabilities arising from torts. Hence it’s perfectly true that the protection of shareholders from liability for the companies debts and other liabilities is, at least to some extent, a state creation.
Lee Moore is correct on torts, although just as owners of businesses could ringfence their personal assets from the business, so could shareholders insure against torts against third parties. For instance, a chemicals company might, in such a situation, take out insurance against the risk of a spillage into a river, and the cost of that would have to be factored in as a cost of the business. The cost might be so heavy that it would, for instance, affect whether certain types of business are located in a certain place. Such a cost variation would be a good example of relative prices doing their job.
It is possible, of course, that a world without statutory LL (the key word being statutory) might see businessmen and women take a more assertive stance regarding the state. I am not really all that sure. Something tells me that this would not necessarily be the case without cutting the state down to size radically first.
I am really not as confident as some more that ending statutory LL is any kind of serious magic bullet, any more than I share the confidence of those who argue for the end of statutory intellectual property (and often for exactly the same sort of reasons)
I would state it more strongly than Johnathan: there is no connection between statutory limited liability and the “crony capitalism” to which Rob H seems to be referring. The wealthy have always exercised great power over governments; indeed, for most of history the two were essentially interchangeable. A century ago JP Morgan and his cronies wielded sufficient power to engineer the creation of the Federal Reserve System, thereby solidifying the power of the banks they ran. Those were private partnerships, not LL companies. Before that the railroad magnates (and even earlier, the canal promoters) used their political influence to acquire vast tracts of land via eminent domain. Again, most were not LL companies. It was ever thus.
The important factor is the aggregation of wealth, not whether there is statutory limited liability. That’s an entirely different, and wholly unrelated, issue.
Johnathan Pearce:
That’s assuming that somebody would be prepared to offer that insurance in a world in which the insurer would not have limited liability. I’m not convinced that there would be many people willing to take on unlimited liability for the acts of others.
Paul, your argument seems to imply that no insurance company could operate without LL. insurance has been around longer than LL (Lloyds, etc).
In a free market, an insurer would obviously insist on various things before taking on a risk. That applies with or without LL
Laird is right. Most attacks on LL miss the real problems
when it comes to the alleged evils of big business.
Jonathan Pearce:
No, my argument is that insurance wouldn’t be the silver bullet you imply. Just waiving away the impact of unlimited liability for something like a chemical plant, by pointing to insurance, misses the point that somebody somewhere will still have unlimited liability. If the insurance were to be for a limited amount, which it currently tends to, then the insured would still have unlimited liability.
I think, if you were being realistic, you’d have to admit that, if faced with unlimited liability for the acts of another, there are certain risks that an insurer wouldn’t touch. Insurance isn’t a right.
The real problems with LL are unlimited liability for torts.
LL for contractual liabilities are still a state interference, but I don’t see them as such a concern. What grates are the faux libertarians who vigorously defend corporate LL for contractual liabilities, but argue that laws which give individuals an ability to walk away from their liabilities (bankruptcy, etc.) are an unacceptable weakening of contract by the state.
Paul Lockett’s mention of personal bankruptcy raises a further question on unlimited liability for torts. If I wish to profit from coal extraction I can establish a business to do so, and if there is some environmental disaster that results I can be held fully liable to the full extent of my assets. And debtors prison, or even pounds of flesh, if those are the rules for bankrupts. If I do not choose to run the mine myself, but hire a servant to do so for me, the servant may well be liable for environmental disasters, but the fact of my having hired a servant does not prevent me, the owner, still being liable too.
But what if I don’t establish the business at all? The chap who would otherwise be my servant, who understands coal mines, establishes the business. But I lend him the money he needs, at a rate of interest sufficient to extract all the profits of the mine, less an amount equivalent to a reasonable salary for the mine owner. If an environmental disaster ensues, the owner is liable, yea even unto his underpants. But am I ? And on what principles should I be liable for the mine owner’s torts ? I gave him no directions, but my loan enabled him to operate the business.
Never mind the law as it is – what principles should apply for libertarians ?
I have fallen a bit behind:
I participated in the revision of the corporate law of one of our states, years ago, to bring it closer to The Model Corporation Act of that time.
As a result I had forced exposure to the development history of corporations (or various kinds) and their changes as our U S society changed.
It must surely be recognized that all liabilities are limited to the assets of the responsible entities or persons. The issue then becomes whose assets are exposed.
At one time, shareholders of certain forms of banks were by law exposed to indemnify liabilities for twice the par value (set by statute) of the shares held. Like the scaffold this got attention.
Still, the modern corporation (as well as many of its predecessors) is a statutory creation. It is not “created by the state” as though the state (in the U S and U K [Companies Act]) were some kind of reified entity having an existence of its own. Corporations have evolved from the way our societies are organized and the objectives of its members have come to be expressed in statutes, by legislation in representative goverments.
We do not see railing against the concept of “perpetual” existence; nor of the reserved powers of the charter granting authorities (the several states).
Who would be owners of corporations absent LL? Has that not made possible opportunities for growth of personal wealth?
So, what’s the beef? Do we want criminal charges like France? What is wrong with the concept of Limited Liability?
May I also add that my work with LLoyds going back almost 50 years and on through the great disaster, including reinsurance of a major property syndicate, convinced me of the deficiencies of Unlimited Liabilities.
Fortunately, I had declined the suggestion to become a name.
Paul Lockett:
I implied nothing of the sort. I am sure that insurance cannot cover all such eventualities (although some people might naively imagine it might do so).
I know that. In a free market, if you have a business that might be exposed to certain risks, you cannot expect have complete cover. Any more than one can expect to be insured against any other sort of risk, either in one’s private life, business, or whatever.
“LL for contractual liabilities are still a state interference.”
There is no reason why a limited liability firm could not make it clear to any consenting parties that it only accepted liability to a certain amount. In this sense, it would be no different from any other consensual arrangement. Such a contract is protected by the state in the trivial but accurate sense that we expect a state to protect contracts freely entered into, such as, say, a prenup marriage contract where certain limitations on claims are spelled out.
If bankruptcy claim limitations can arise by genuine consent, then I would not see the problem. The fact that some people are inconsistent on this may grate, but as you probably know by now, Paul, a lot of libertarians are inconsistent, just as socialists or conservatives are. That’s life.
Lee, I had not read your interesting comment before responding to Paul’s own rather gruff comment on bankruptcy and debt. I suppose the issue here is how broadly can the liability net be spread.
If a person who lends money to a separate business, owned by someone else, can lose everything in the event of a business failure, even if that lender stipulates certain limits in any loan agreement, then there would be a problem in any business.
The argument almost seems to be that anyone who facilitates another’s business, by lending money to it, or investing in it, or whatever, can be liable to the last penny they have, however remote or close to the business they are.
In the real world, this would make business impossible. (I sometimes wonder if this is the idea). That is why, even without statutory LL or bankruptcy codes, a non-statutory system, with all sorts of imperfect but useful things like insurance and the like, would evolve in response to demand.
Afternoon Johnathan
I agree that life would be tricky if any lender could be held liable for torts committed by a business he had lent to, on the principle of his having facilitated the business. And ditto for suppliers and employees. My query – which is as much to myself as anyone else – is what are the relevant principles for holding X responsible for Y’s actions ? When we think of a business owner, typically there is a combination of appointment and control of the servant, benefit from the servant’s activities and facilitation of the business activity through the provision of capital. If we remove appointment and control, is that sufficient to eliminate responsibility, if we still have benefit and facilitation ? If so, doesn’t that present a fairly straightforward means of circumventing liability where you as the capital provider know that there’s a small risk of a Macondo ? You just suck up your profits and if and when the well blows, you write off your loan, and leave innocent third parties to pick up the tab. (I’m sticking firmly to “what should a liberty compliant law be”, rather than what the law is.)
I started off thinking that it was all pretty obvious. Now I don’t think so.
Gee, I was spambotted last night – and still not cleared.
What gives?
Not a word about Sovereign Immunity?
(Possibily the most consistent source of irremediable harm)
(EDITORS NOTE: The machine-data meat buffer is ill and so only just woke up and clearly your comment 😛 )
Lee:
Why should there be any specific law at all, instead of a system of contracts between any and all parties involved – including employees (‘servants’?), employers, lenders/borrowers, customers/suppliers, etc, etc.? As far as I can see, all the state needs to do (if anything) is see to it that the various contracts are honored – or am I missing something?
The consequences of an incident, negligent or otherwise, do not disappear by political decree. They can only be transferred. Limiting liability transfers the consequences of the incident from actors who were voluntarily engaged in the incident (IE, a tanker truck owner) to either the collective society or the individual non-consenting victims of the accident.
It is important to keep always in mind that somebody will suffer the consequences, the only decision is whether it will be a consensual participant or an non-consenting participant (the direct victims of the incident or the taxpayers).
The argument that unless the pain of error is limited, investment will not be properly deployed, is logically interchangeable with defense of ‘stimulus’, ‘quantitative easing’, etc. These arguments are based on the belief that the market is not (capable of) deploying investment properly and the authorities need to ‘correct’ the errors in the investment market by taking from non-consenting people and giving to activities that have the political imprimatur authorizing their activity.
Removing this transfer of consequences to non-consenting victims a/o taxpayers (LL) needs a tort process that pursues truth, not one that is manipulated into a lottery. I oppose tort limits because they are like taking fever reducers for an infection, they only address the symptoms of the problem will the underlying problem continues to grow but with a slightly altered course of progress. Allowing counter suits for frivolous claims might be a way of balancing the system that does not lock out poor litigants like a ‘loser pays’ system might. Allowing separate suits over the value assigned to the damage that can be appealed separately may serve to bring settlements closer to the genuine consequences of an incident.
If liability is in fact fully assigned to the owners then perhaps certain activities that have relied on the transfer of consequences to the victim/taxpayer will fade out of the market. That is the nature of a free market. Other activities may be heavily restricted by the insurers. Insurers may elect to cover only the first part or the remainder of a settlement (similar to reinsurance) and adjust the criteria according to what part of a claim they are covering. For related incentive based insurance structure, think of no-deductible health insurance versus high-deductible and the choices the holders of each policy makes when selecting their behavior WRT medical care.
In light of the redistributive nature of LL and its distortion of investment activity, a lot of people seem to think the money presently invested in those activities will leave the market. It will not. It will, in a free market, pursue other activities.
To hear the energetic support some people give to the redistribution of wealth in the form of limited liability is perplexing in light of the enthusiastic support those same people give market pricing structures in other spheres. Limited liability is, in actual function, the assignment of investing decisions to political processes (the criteria for receiving LL status) complete with all of the distortion that unfolds from any politically controlled process. Myself, I would rather see the evaluation of risk removed from the political allocation of LL imprimaturs and placed back into the market.
Lee,
Wonderful question. And one that is complicated by cross-jurisdictional activities were the shell could be operating from a place where abandonment of debt is easy. Sort of a hired hit man scenario is what I believe you are positing.
It compares fairly to a hypothetical of somebody funding a bank robbery. Under our present laws, typically if an investor exercising due diligence believes they are funding a legitimate activity and are unaware of the intent to steal from a bank, then they should not be culpable beyond the loss of their investment. On the other hand, if you are knowingly funding a bank robbery that will occur while you are sitting at home in your living room, you are a bank robber.
I think at the time of the tort action, determination of the intent of the loan has to be made in both cases; the proxy bank robbery and the indigent person being chosen to proxy the activity for the investor.
To alter the law in anticipation of possible criminal activity violates the principle of individual LLP, and never works. Under our present (US) Constitutional meta-contract, the investor’s intent matters. Any future libertarian society could specify in its constitution (meta-contract) how that situation is to be handled and potential constituents would include that when deciding whether or not to subscribe to a particular meta-contract.
That last paragraph is getting pretty far afield into a hypothetical libertarian state. For purposes of modifying our present structures, the same process for dealing with someone attempting to evade culpability by ‘lending’ the money to fund a bank robbery would apply to somebody using a proxy to evade tort liability.
Midwesterner –
Do not confuse the transfer of risk, which is the essential nature of insurance, with the transfer of costs.
In modern insurance risks so transferred are spread
over income, as premiums (usually from many exposed to similar risks), from investments or over larger bodies of assets. A brief look back at the sharing of risks in rural america that gave rise to Mutual and co-op insurers; the rise of Factory Mutual (with its extensive safety/ exposure engineering) should give one a more realistic perspective.
As an aside, that is what has gone wrong with so-called Health Insurance, which is no longer risk transfer or spreading, but now converted chiefly to cost-spreading.
What has occurred in torts is the pre-eminence or repairing the harm, damage or suffering replacing the determination of duty or responsibility. This is sometimes referred to as “absolute liability without fault.”
The idea today is that the insurance is there to cover the damage, not to protect the insured from loss through mishap.
Can you enlighten us as to how LL is “redistributive” and how or why it is a “distortion” of investment activity? How or in what way is LL “an assignment of investing decisions to political process?”
LL mainly concerns operations of business enterprises. To some extent it concerns the individual human activity. If your assets are limited ( no deep pockets) and you cause loss to others, the consequences are lower than for those with deep pockets.
So, if you look at an enterprise, as you would at an individual, you would look at the assets subject to exhaustion to cover losses caused, or obligations, to others.
Lee Moore –
Libertarians, take life as it is.
Be governed by “proximate cause.”
Determine who has what obligations and to whom they are due.
Provide for the enforcement fo obligations.
JP:
I didn’t think that comment was particularly gruff. It certainly wasn’t any more gruff than the tone of your initial post.
Redistributive is easy to explain with an entirely plausible (and probably common) example. Imagine a small trucking company with old trucks and a fair amount of debt. Imagine that they ‘save’ money on maintenance (in ways that don’t technically violate the letter of the DOT regs). The owner is skimming everything possible and has a nice house and personal possessions. The trucking company is an LLC. When there is an accident that falls short of criminal (but is none the less predictable) but with consequences far in excess of the value of the trucking company, who bears the costs? Not the person who wrung a pretty good sized stack of personal assets from the company.
To find the owner criminally liable would require perfect law to anticipate every possible way he may cheat on safety. If you look at contemporary DOT regs, you can see that this is in fact what they are attempting to do. But without an actual violation, his liability is limited to forfeiting some old, worn and heavily leverage trucks. He has transferred the risks and kept the rewards. Classic redistribution.
As to how LL skews market investment activity, eligibility for limited liability is chosen by politicians acting politically. For example, I could not unilaterally declare my personal car to be limited liability and then drop insurance and liability risks with my sole exposure being the (rather negligible) value of the car. Politics decides the eligibility and terms for a grant of limited liability. This cannot but change how people including investors allocate their assets.
I debated with myself while writing the comments how much to oversimplify. These kinds of discussions can easily turn into word soup. If you think I have conflated terms in a way that nullifies the underlying argument, please LMK and I’ll find some time to address/correct it. Your point about the distinction between risks and costs is an important one that I think I touched on with reference to the tort process which is where costs are calculated and assigned to someone who carries the liability as a risk of doing business.
I agree on your assessment of health insurance although that is probably off topic to this thread and I introduced it as an example of how changes in one’s exposure to consequences of decisions changes one’s decisions.
I agree with your point about “absolute liability without fault” on the assumption that you see that as miscarriage of justice in many ways. I think its practice ties in with “deep pockets” and is central to how tort has been subverted from holding individual actors responsible for the consequences of their actions into a lottery picking “deep pockets“. It is, I think, an example of the repurposing of long established institutions. I was first introduced to the practice when learning of a case of an accident in a highway construction zone where the business at fault did not have adequate resources to cover the costs of their fault and a (10%?) at fault contractor was hit with a much higher percentage of the damage award solely because they had the resources to cover it.
I don’t want to pull the thread in too many directions at once (or any more away from Johnathan’s point than it already is) and will summarize that my point is that any detachment of risk from reward and action from consequence, which limitations on liability are (by virtue of segregating potential profits from potential losses and making only the potential losses severable from one’s personal assets), is redistributive and will skew investment in directions favored by the politically connected and against the politically unpopular.
Either all costs and rewards are spread without discrimination across the society collectively without limit (pure collectivism), they are linked together for all individuals without discrimination (individualism), or there is an of-necessity wandering line through the middle ground. That line cannot be mapped except by political process.
Paul, no need to be so touchy. I am gruff, and often necessarily so.
Woof!
Mid, excellent comments with lots to think about. Where have you been hiding, old chap?
Thank you, Johnathan. I have so little free time, triaging it impinges on internet time. But even more of a factor, I have so little uninterrupted time to think that I am struggling with attention span. I try to follow the discussions but often have difficulty focusing for long enough to pursue a thought, much as I do enjoy them when I can. C’est la vie. At least for now. When I can’t focus, I spend discretionary time appreciating music.
Why should the taxpayer pay private sector employees wages? This is effectively what the workfare program is.
The Workfare scheme damages the economy by replacing a job that would bring in £100 – £300 a week with one that only brings in £60. Anyone with a reasonably good brain can figure out that this scheme is weakening consumer demand and taking money out of the economy.
This scheme is Corporate Welfare in disguise, bunging taxpayer’s money to Tesco, Poundland etc by the back door.
As for the “feckless”, did you know that its is pensioners who are the biggest benefit scammers? I thin it only fair that they get the credit they deserve for wasting taxpayer’s money.
Morning Alisa : “Why should there be any specific law at all, instead of a system of contracts between any and all parties involved – including employees (‘servants’?), employers, lenders/borrowers, customers/suppliers, etc, etc.? As far as I can see, all the state needs to do (if anything) is see to it that the various contracts are honored – or am I missing something?”
I agree with you entirely as to contracts, but what you are missing is torts, ie where a third party who hasn’t contracted with you finds himself involuntarily stuck with costs that your business has imposed on him – like an oil spill.
My issue is in working out who should be held responsible, and my problem is that I don’t see the answer as being as simple as RSS’s idea of “be governed by proximate cause.” That makes it too easy to escape liability. But taking into account more remote causes or contributors seems fraught with danger for libertarians – it provides an open door for ambulance chasers and anti-business fanatics. Midwesterner’s idea that you have to take intent into account is attractive, if incomplete.
That is pretty much how I feel about my response as well. I like to parse problems until the are ground fine enough to yield binary answers and your hypothetical is a difficult one. What I like to do is take a problem situation and convert the exact same dynamic into a familiar situation and see if the changes its complexion. In this case I equated somebody ‘lending’ money to finance a bank robbers with the intent that the loan fiction exculpated them, to somebody ‘lending’ money to a financial shill to exculpate them from potential tort liability.
In both cases, somebody is materially participating in an activity likely to generate liability (one criminal, one civil*). By lending the money for a fixed rate instead of getting a percentage of the revenue stream, their presumption is that it is a true loan and they are not culpable. Perhaps that is how it should actually be. But it seems to me that any response that deals with one of those cases has to work for the other one.
*I don’t at all like the distinction of criminal and civil. The bank robbers did not commit a crime against “The People” or any other collective entity, the committed it against the bank’s owners a/o customers. It is the fiction that people are committing crimes against “the state” or “the people” or “State of Illinois” that facilitates the criminalization of victimless activities and allows such absurdities as “The People versus A Pile of Cash“, etc. It appears to me that the removal of the victim to ancillary status in criminal cases and declaring the litigant to be “The People” facilitated the change from crime being something individuals did to other individuals into violations of legislative dictates. But that is waay OT and probably worth a thread or two of its own.
RRS,
I see that I have misunderstood your cost/risk distinction and probably some other points as well. Would it be accurate to characterize the insurance premium as a cost and a claim as a risk? So the risks are converted to costs through the medium of insurance and risk spreading?
If this characterization is accurate, then is not LL a method for reducing the costs of doing business for those who are granted the imprimatur of ‘Limited Liability’ and the costs associated with their business risks are transferred from their business on to external actors, either in the for of accident victims or tax payers? Are not tax payers or victims picking up the cost they would (in the absence of LL) bear for the market cost of insuring their activity?
Lee, I don’t think that I’m missing torts (although it could well be the case that I’m missing some particular aspect of it.) In your hypothetical, the third non-consenting party would sue the actual person physically (as opposed to legally) responsible for the damages (i.e. the employee/borrower/subcontractor, etc.) Whether that person would end up financially responsible for those damages would be subject to the specific contract(s) he is signatory to – such as with his employer, lender, contractor, etc. Where’s the problem?
The concept of a corporate organization is ancient – as is so called limited liablity (i.e. sueing the organizartion – not every member of it).
The pretense that this was created by 19th century statutes (a favourate tactic of leftists is to claim this) is just that – a pretense. They may be very important in English and American law – but the idea that 19th century statutes “created” the idea of corporate enterprises, or that such enterprises “could not exist without the state” is just counterfactual.
Both churches (a classic case of a body corporate) and trading companies (with their “trading pot” of money which people who want to invest in the enterprise put money in – the company is the money invested in the pot, NOT money that members never choose to invest in it).
Of course it should be made clear if if an enterprise is corporate or not – i.e. if one will be able to sue only it (the enterprise) or also the private funds of the shareholders.
But if someone KNEW they were dealing with a corporate body they have no excuse to whine afterwards – “but the owners are keeping their houses and cars, even though the enterprise is bankrupt and it owes me money….”
Want to buy insurance from a non corporate body – you can. But it will COST YOU MORE (as the owners are risking the shirts on the backs).
Ditto with other things.
HOWEVER, corporations play a much larger role in the economy than they might be expected to in a free market.
This is because of the vast weight of taxation on individually and family owned enterprises.
Specifically Capital Gains Tax and Inheritance Tax.
Corporate form organizations (churches, clubs, societies, trading companies) do not pay things like inhertance tax -but the way of dealing with this is….
To ABOLISH CAPITAL GAINS TAX AND INHERITANCE TAX.
Not to try and apply them to corporations.
There is also the “little” matter I touched in my previous comment.
To talk of “corporations” is almost meaningless unless one looks at SHARE OWNERSHIP.
If a corporation is 51% (or even less than this) owned by an individual it is likely to be a very different thing from a corporation that is just owned by “institutional investors” (pension funds and the like) – i.e. hired managers in charge of other hired managers and no OWNERS in sight.
But the “libertarian left” just talk of “corporations” – as if (for example) there was no fundemental difference between General Electric and Huntsman Chemicals.
This practice of the l.l. shows quite an astonishing level of ignorance.
By the way – getting rid of Capital Gains Tax and Inheritance Tax and getting rid of the vast web of government regulations which seem to be designed to protect corporate managers from shareholders (“seem to to be” – because they are), would make corporations of the type of General Electric vastly less important.
That’s true to a large extent, but it’s addressing the aspect of limited liability which everybody seems to have acknowledged is the least relevant. Your comment applies to contractual arrangements with a corporation, but it isn’t applicable to non-contractual liabilities. It doesn’t address torts.
Not really. No two corporations will be the same, but that doesn’t imply that it is ignorant to debate the issues which are common to them.
Alisa : “In your hypothetical, the third non-consenting party would sue the actual person physically (as opposed to legally) responsible for the damages (i.e. the employee/borrower/subcontractor, etc.) Whether that person would end up financially responsible for those damages would be subject to the specific contract(s) he is signatory to – such as with his employer, lender, contractor, etc. Where’s the problem?”
The problem is for the third party. He sues the operator, who turns out to be a man of straw. Indeed, aside from his talents at managing oil wells, he has been selected precisely because he is a man of straw. For the investor wishes to step out of the firing line of tort suits. So long as the lender arranges, via his contract with the operator, that the operator has no contractual claim on him, then the injured third party finds his fishing grounds wrecked and his claim of £100m damages against the operator upheld by the court, whereupon the operator turns out his pockets and says “Sorry, old cock, here’s thirteen and fourpence, it’s all I have. I gave my last ten thou to my barrister.”
Meanwhile the lender, having originally lent £10m, and having subsequently received £145m in interest payments, writes off his £10m loan with a sigh, and turns back to the morale boosting attributes of his new 19 year old mistress, draped on the sands of his own personal Caribbean island.
I am not saying that the lender, merely by virtue of having facilitated the operator’s operations by financing them, is always and necessarily responsible for the damage suffered by the fisherman. But sometimes – I don’t wish to try to specify precisely when, but sometimes – he will, even in the opinion of the most libertarian of libertarians, be sufficiently responsible to deserve being jointly liable in the fisherman’s tort suit. And if the legal trail is limited to a tort claim against the operator, followed by a game of chase the contract, the investor will always escape liability.