From the Mises blog:
Left-Libertarians on Corporations “Expropriating the Efforts of Stakeholders”
Over at Mutualist Blog, Kevin Carson replies to, inter alia, Peter Klein’s response to Roderick Long. I replied at length in the comments, but let me just note here a few of the comments, expressions, and assumptions that caught my eye as being problematic from a libertarian and Austrian point of view. First there is the repeated complaining about “vagueness of ownership rights in the corporation,” and “the ambiguous division of control between management and shareholders.” There is a “pretense that management represents shareholders or that the latter are the owners in any real sense“. “Corporate management, in fact, is a self-perpetuating oligarchy in control of a free-floating mass of unowned capital.” “It uses its purported representation of shareholders as a legitimizing ideology to insulate it from accountability to internal stakeholders.” “More generally, hierarchy and the separation of labor from residual claimancy are inherently prone to incentive and agency problems.” And finally, corporations “expropriate” the “efforts” of “internal stakeholders” “because of the vaguely defined property rights in the organization. … much of the value created by internal stakeholders is expropriated by management.”
Carson also relies on “Rothbard’s threshold of calculational chaos“–to argue that “the predominant oligopoly firms in the existing manufacturing sector” must be artificially large since they “are already demonstrably above” this threshold.
(He goes on: “Rothbard argued, specifically, that rational calculation becomes impossible whenever no external market exists for an intermediate good. Since, in fact, the majority of intermediate goods used by the typical manufacturing corporation are firm-specific, their transfer prices must be assigned internally rather than based on outside markets.”)
One hardly knows where to begin in responding to such reasoning. But as I noted in my response–libertarianism does not require any “pretense” that “management represents shareholders or that the latter are the owners in any real sense.” It only requires respect for property rights and not interfering in capitalist acts between consenting adults. That is, if you can somehow show that “management” does not “represent” shareholders, or that they are not “the owners” in “any real sense”–so what? Whose rights are being violated? If you don’t like the way a firm is organized, don’t work there; don’t invest in it.
Beyond that: in a libertarian society we need only identify who has the right to control a given resource; and who is responsible for the commission of various torts or crimes. If a collection of people (shareholders, directors, managers, creditors) whatever all agree to some complicated internal set of rules that specify their right to control a set of private assets, then *their* rights are not violated (they all agreed to it), and outsiders have no business complaining, any more than they would have a right to complain about the “messiness” of ownership claims within a neighborhood that has an ambiguously drawn set of restrictive covenants. For example if I buy a share of Wal-Mart stock I am in some sense an owner, but only in specified ways–I don’t have the right to use the Wal-Mart HQ for a picnic etc. I have agreed to a contractual set of rules that divide control–day-to-day control is given to managers; and a set of procedures determines how changes to the rules or to the decision-makers is made. From the perspective of an outsider, Wal-mart property is owned by a set of people (shareholders plus directors plus managers).
In response to Carson’s claim that corporate property is “a free-floating mass of unowned capital”–hogwash. Walmart’s inventory and factories and stores are not unowned by any stretch of the imagination. Just because some anti-market or anti-capitalist types don’t like the messiness and complexity of the internal rules governing rights of control (ownership) of these assets is utterly irrelevant. You don’t have to work for them, or invest in them. This “unowned” comments has a whiff of Georgism about it.
As for yammering about “stakeholders” — this leftist concept is routinely used by governments to justify infringing property rights. Again: in libertarianism, the corporation does not need to justify anything–so it does not need to pretend it “represents” anyone. If a group of people agree to pool their money and become shareholders, this just means they have agreed to collectively purchase some things with their money, and to have specified rights of control and rights to gain or dividends, that is their business. The consent of the parties is all that is needed to justify it.
As for “stakeholders,” it depends on who this means. For people that are employed by, or contract with, or invest in, or sell to or buy from the company–their rights are defined by contract already. The only other people left would be those who have torts committed against them by employees of the company. A libertarian theory of causation (as I noted here) is what is needed here, to determine who should be vicariously responsible for the actions committed by employees–should anyone else be? Should the corporation as a whole? The managers? Executives? Directors? Shareholders? Creditor? Vendors? Customers? Consultants? Contractors? “Stakeholders”? Whoever it should be, they should of course not be exempted from liability. But most people, including bad-lefties and libertarian lefties (and most libertarians in general) seem to simply assume that vicarious liability and respondeat superior are valid, and that absent state law, shareholders ought to be liable for torts committed by employees. But to my knowledge no one has shown that they should be. This has has to be established before one can bluster in outrage at the failure of the state to hold shareholders personally liable for such torts.
As for the comments about management “expropriating” the “efforts” of “stakeholders”–here we have what appears to me to be Marxian reasoning: the “expropriation of efforts”? What? I’d like to see exactly whose “labor” is being “stolen”? An employee? Hey, he isn’t compelled to work for them. The comments indicate that the value of the stakeholders’ effort is stolen from them–but you can’t “expropriate” value. People do now own value. There is no property right in value. Workers do not have any ownership claim to a company they have worked for–they have a claim to whatever they have contractually agreed to, that’s all.
As for the complaints about the separation of labor from “residual claimancy.” Libertarianism does not require labor to not be “separated” from XYZ; it does not base property rights on whether there are or are not “incentive” or “agency” “problems”. If incentive or agency problems that arise when using a given firm structure, presumably people over time will invest in or employ more efficient structures. If they don’t–hey, it’s their money.
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Archived comments (partial):
December 10, 2008 at 4:00 pm-
“Charles Manson took an active (planning) role in murdering people. ”
I think this is a distinction without a differentiation. An employer who orders an underling to commit aggression is not taking an active role in that aggression?
December 10, 2008 at 5:26 pm-
One falling into this debate from the outside needs to understand something about mutualists like Carson- they don’t think you should own capital you are not working with yourself. JA is exactly correct- they are socialists/communists masquerading in libertarian clothing. Every argument they advance has a single, solitary goal- the dimunition of the principle of physical property ownership. This is why the language of debate keeps getting distorted whenever one engages with them. The principle they are attempting to advance is use it or lose it. To support this, one must completely invalidate the principle of voluntary contracts, and mutualists do this through a variety of methods, but the most common (and seen in several instances in this thread alone) is to change the meaning of voluntary to coerced.
December 11, 2008 at 3:42 am-
Stephan, allow me to clarify further:
TT: “Is there any libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business?”
SK: No, and the state should not exist. But people criticize corporations as being *mere* creatures of the state on the grounds that the state gives them privileges that would not exist in the free market.
TT: My point is simply that there is no libertarian argument that the state OUGHT to step in and allow investors to unilaterally shift a portion of the risks of their business venture to others who might be damaged by the activities of the business. I’m glad that you agree, and am puzzled that you do not acknowledge that the state grant of limited liability to investors (and to transferees of such investors) in corporations constitutes an uncontracted-for shifting of risks to investors from victims of corporate torts.
TT: “Without the act of state in creating limited liability for shareholders, such limited liability would not exist – except perhaps vis-a-vis creditors and business counterparties who might otherwise agree to limited their claims to the assets of the company, in exchange for agreed methods of risk control or higher prices. However, such limited liability could not otherwise exist as to Involuntary (or “tort”) creditors who without their consent are injured by the corporation, who have not agreed to assume the risk of corporate insolvency and shareholders’ limited liability, and who have neither received ex ante compensation for doing so nor had the opportunity to bargain for contractual safeguards.”
SK: Again: the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not? The presumption is they should not, since they did not commit the acts–unless you can come up with a sound argument for why they should (and pointing to the way it’s been done before doesn’t cut it).
TT: Stephan, again you refuse to actually advance a justification for the government grant of limited liability to shareholders (indeed, you concede that, there is no libertarian argument for such a state grant), but simply argue for the status quo, on the grounds that shareholders don’t typically themselves do not commit the torts.
If there is no libertarian grounds for the use of government fiat to limit the liability that shareholders bear for the risks that the activities of the business might injure others, then surely the “presumption†you offer should be reversed, and you should advance a case that whether those who are injured by business enterprises should justly be forced to assume the risk that their ability to make claims against the assets of the business owners depends upon whether the business happens to be a sole proprietorship, a partnership or limited liability corporation.You state that “the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not?â€, presume that shareholders should have no liability as principals for acts of the corporation “because they did not commit the actsâ€, and then ask me to advance arguments that shareholders should be held responsible for the acts of corporations. I disagree, note that your formulations dodge a number of issues, and note further that you have completely ignored the arguments that I and others have advanced for unlimited shareholder liability (prominently, the two Yale LJ articles and the Vanderbilt L Rev article).
Time for you to start doing some of the work.
TT: “My point is that limited liability lets investors entirely off the hook for damages that the wrongful acts of the corporation and its employees. While a few employees might individually be held responsible for their actions, this still may leave many injured persons uncompensated for injuries cause by a corporation’s business activities”
SK: You are assuming the “business activities” are “the cause”. This is question begging.
TT: Well said, Artful Dodger, but it’s not me who’s begging the questions. Putting aside (i) the question of the scope of vicarious liability WITHIN the firm and (ii) cases where there is a only one a single injured party and a single employee committing an unauthorized tort, it is undeniable that small, medium and large corporations have in the past and continue from time to time to commit large-scale torts – in the form of pollution, dumping of waste, defective products, other personal injuries, slander and the like – that arise directly from their business activities. In most such cases, no single individual tortfeasor within the corporation can be identified. Clearly, in some such cases a few employees might individually be held responsible for their actions, this still may leave many injured persons incompletely uncompensated for injuries caused by a corporation’s business activities.
TT: “Before limited liability corporations were established, the common law doctrine of respondeat superior required investors to bear responsibility for the acts of a business, just as individual proprietors and partnerships remain so liable today.”
SK: Why should they be? Because the common law says so?
TT: No; sole proprietors and partnerships have been and remain liable for the acts of a business because it is unjust to allow them to externalize a significant portion of the risks of their activities, while capturing the benefits of those risks. The state, by providing the corporate form, allows the externalization of such risks on a vast scale, and continues to do so by further making limited liability available for those who prefer to be taxed as partners. But to reverse the question, perhaps you care to point to libertarian principles or a common law doctrines (which libertarians frequently point to as a valid basis for determining the scope of ownership rights and who should be responsible for injuries caused to others) that would justify a position that those who own and operate businesses ought NOT to be responsible for the damages those business activities cause, beyond the assets of the business?
TT: “Again, you simply …. presume that the state action that leaves shareholders free to shift business risks to others is valid and justifiable. Even as you remain unwilling to make your case, I am happy to expand my argument that limited shareholder liability is an unlibertarian grant by the state to shareholders.”
SK: You need to explain why shareholders should be liable. You keep calling them investors–shareholders are usually not investors.
TT: Again, you are nonresponsive. Perhaps you should pick fewer nits and acknowledge the bigger picture. For small corporations, start-ups, and corporations raising capital, the shareholders typically are investors. Moreover, for small firms, closely-held firms (including large LBOs) and even for many large firms, there are major shareholders that are also clearly “ownersâ€. You have advanced no libertarian or other argument that justifies limiting the liability of investors and owners at all for the torts of corporations; much less for your implied position that investors and owners should be able to freely slough-off any vicarious responsibility for damages to victims of corporate acts by the simple expedient of selling their shares to others (who, while they do not directly fund the company, are certainly investing in ownership of the same set of assets and liabilities as the initial investors).
TT: “The chief point, of course, is that the creation by the state of corporations limits tort liability to individual tortfeasors”
SK: It limits state-imposed vicarious tort liability. If the state stops taxing you, this is good, because it should not be taxing you in the first place. If the state stops imposing vicarious tort liability on shareholders, this is also good, if it should not be doing this in the first place. You seem to assume they should. why?
TT: Where does “the state†impose vicarious tort liability? Respondeat superior is largely an old and evolving part of the common law. I don’t agree with all cases, but individual judgments are hardly the same as the state acting by law to free shareholders from liability above the amount they paid for the shares for the risks generated by corporate activities.
TT: “This reduces the likelihood that victims will receive full compensation for corporate acts.”
SK: If a FedEx driver negligently crashes into you, why arey ou calling it a “corporate act”? He was not directed to do this by FedEx, was he? Why is his negligence theirs?
In any event–this whole critique is ridiculous. Whenever a corporation’s employee commits a tort, the victim is compensated by the corporation or its insurer. IT’s almost always irrelevant that he can’t sue shareholders individually. Even if they could, shareholders could simply purchase shareholder-liability-insurance, no biggie.
TT: “Ridiculousâ€? Nonsense! There, are we even now?
The grant of limited liability to involuntary creditors cannot be justified on libertarian grounds, and arguments I have noted regarding efficiency, moral hazards, equity, the disincentives for shareholders to closely monitor firms, the relative freedom of managers and executives to loot, and the related rise of citizen pressure groups to seek to have governments provide checks are all substantial and important.
While there are many cases where injured persons are compensated, there are many cases where corporations have generated widespread risks and failed, leaving countless others holding the bag, while investors (and managers) may have profited and then exited without substantial loss. The limited liability grant actually encourages such behavior.
You say that, if victims could “sue shareholders individuallyâ€, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggieâ€. I heartily agree – a system of pro rata shareholder unlimited liability would work (as one of the law journal articles argues), as well as being more just. I appreciate the concession – so have you stopped fighting this point?
Regards.
December 11, 2008 at 8:10 am-
An employer who orders an underling to commit aggression is not taking an active role in that aggression?
What I dispute is this is an “order.”
It’s not an order. It’s a mutual agreement.
“Underling” is another meaningless word outside of serfdom or the military, both institutions based on violent threat. The employee-employer is an equal agreement of mutual service (trading labor for money).
- December 11, 2008 at 9:48 am
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Kevin Carson believes in the Labor Theory of Value.
Is this true?
If so, it relates to my earlier questions. How can Carson use Rothbard and Mises’ calculation argument against large firms (whatever “large” means)…when he disregards the very premises of the Calculation Argument by holding the false “labor theory of value”?
The Calculation Argument presupposes marginal utility, Austrian price theory, etc. If the Labor Theory of Value is true (and it’s not), then the Austrian “Calculation Argument ” makes no sense!
Is Carson just making up a “Cargo Cult” of ideas, completely unrelated by logic or reason (i.e. he’s just a crank weirdo), or is he trying to attract normal libertarians to his socialist ideas by throwing in Rothbard and Mises, even though neither man’s idea make any sense when connected to the Labor Theory of Value.
December 11, 2008 at 3:43 pm-
TT:
I’m trying to decide what I should think about limited liability. Could you give me a couple of specific examples (hypotheticals are fine) of the kinds of corporate acts that limited liability presently protects but which you think shareholders should correctly be accountable for beyond the pro-rata share of the firm’s assets and income? Also, in your mind, would shareholders have to be shown to have been aware of the acts in question, or would they be responsible for all of the decisions of management — even those “off the radar screen”?
Thanks!
- December 11, 2008 at 3:58 pm
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JA:
Carson does accept the validity of some form of the LTV, but not in the way you might think of it. Part 1 of his book details this thoughts on value theory. There is also a fair synopsis in Robert Murphy’s critique of Carson in the Journal of Libertarian Studies. You’ll find that despite Murphy’s objections, there is a lot to Carson’s thought that is consistent with Austrian economics. I don’t think Carson’s value theory precludes him from finding use in Mises and Rothbards calculation arguements. Carson accepts that prices form as a result of supply and demand — the haggling of the market. For him prices simply tend, in the long run, to equal whatever value is necessary to compensate the marginal worker for the subjective disutility of labor. Though I remain unconvinced that his LTV is a superior explanation of prices, I find that most caricatures of it represent misunderstandings of the position.
- December 12, 2008 at 3:42 am
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Mike, try starting from basics. Say you have an unincorporated sole proprietor who is engaged in manufacturing and produces is a hazardous or toxic waste. If he disposes it in a way that causes injury to others, he is liable – up to all of his assets (and even further, though it may be a bankruptcy law cut off and it not be worth the injured person’s efforts). If he hires one or more employees, he is responsible for any injuries if he directs them to dump the hazardous waste, or if they cut corners as a result of his negligent oversight.
If he incorporates, he will not be held responsible personally unless he committed the tort himself or directed it; his liability will be limited to the net assets of the firm. Clearly, the state grant of limited liaiblity lessens the ability of persons injured by his business activities to recover damages for their losses (they MIGHT be able to recover from the employee, but they will not have access to his personal assets). This creates a moral hazard on the part of the corporation owner to maximize private benefits from business activites while not having to worry about whether the full scope of losses may exceed the value of the gains. Courts recognize the injustice in this and sometimes “piece the corporate veil” to protect injured persons and even voluntary creditors.
The state grant of limited liability has made it possible for founding shareholders to gather even more capital from persons who know that their downside risks are limited and wish to capture upside benefits. As these shareholders have limited liability, they also have limited interest in making sure that risks are managed well. The result has been a continuing erosion of shareholder rights, a whithering of control over managers, and the growth of ever larger corporations able to impose ever larger risks on society (the downside of which they can further limit by separately incorporating different business lines, especially the riskier ones).
The focus on investors earning profits while bearing no personal responsibility for losses has given us a gradual shift in the nature of corporations (which now are given rights by the state to have unlimited lives and unlimited purposes, and are even recognized as “persons” for purposes of the Bill of Rights), a growth in corporate scale and risks posed to others (as shareholders, creditors and executives, managers and employees have increasingly less identifiable personal risk and more opportunity to look out for number one while ignoring risks), and a growth in citizens forming pressure groups to push for the regulation of firms and the risks they pose (mandating the posting of bonds for certain activites, mandating pollution clean up, etc.).
All fed by the state grant of limited liablity – which could only exist on a libertarian basis (without veil piercing) if a substantial owner was covering the risks.
December 12, 2008 at 4:03 pm
December 12, 2008 at 11:12 pm-
Stephan Kinsella says of Mike’s “If A employs B for some non-aggressive act, but B then uses A’s resources to commit aggressive act, A, it would seem, is not culpable”, “You have just joined the pro-corporation side, since this view would totally eviscerate the notion of respondeat superior and vicarious liability that makes the company responsible for the torts of its employees committed while in the scope of performing their duties”.
No, because he added that “while in the scope of performing their duties”. Mike’s description is more that of the “frolic”, for which the responsibility does not flow through.
Fundamentalist says of TokyoTom’s “I don’t believe that there is any such libertarian justification for limited liability”, “The justification would be the issue of control. Common sense says that people who don’t control events aren’t responspible for the results.”
Actually, it doesn’t say that, if you look wider than the instantaneous effect. Consider someone who lets go of a plate that breaks a fraction of a second later. Instantaneously, nobody was holding it, so it fell – but the letting go reasonably foreseeably although not absolutely certainly led to the smash (some falls don’t break things).
So, common sense says that people who don’t control events because they let go are responsible for the results.
JA asks of “The defining feature of a corporation is its legal independence from the people who create it. If a corporation fails, shareholders only stand to lose their investment, and employees will lose their jobs, but neither will be liable for debts that remain owing to the corporation’s creditors. This rule is called limited liability, and it is why the names of corporations in the UK end with “Ltd.” (or some variant like “Inc.” and “plc”).”, “Please explain how any of above is NOT libertarian?”
Because there is no way you can ever achieve that in full without state aid. The most you can achieve by contract is to limit liability to contracting parties, and the most you can achieve de facto is to let sleeping or silent partners hide while active partners cannot.
‘What I find confusing is how this whole conversation started with a promise that “free markets would lead to a prevalence of organizational structures that mutualists like…co-ops, worker-owned firms, etc.”‘ – it didn’t, go and see. It started out with saying there would be smaller and simpler types of firm, of which those might be some. It never had a claim that those would be prevalent, outside the straw men that got thrown up.
“Never mind all of the rest of us are talking about normal free market businesses…enterprises which trade on a voluntary basis for profit, violating the rights of none” – only, they aren’t like that, they are state aided and crowd out alternatives.
“There is also suddenly a shift to the justification for partnerships and sole proprietorships. But this leaves out all the problems of partnerships — what if one partner dies, what if one partner wants to leave, what if all partners want to sell out, what if new investors want a fast exit strategy — the solution is to create a corporate structure and issue shares of the business. This has nothing to do with limited liability.”
Absolutely correct, just as a solution to someone asking for his change on a purchase is to throw him out without giving him his change.
“Such a structure can be created without State intervention” – wrong. Quite simply, the only possible free transactions always leave someone in a position of responsibility.
“But the investor IS on the hook to the limit of their investment” – actually, http://en.wikipedia.org/wiki/Corporation wasn’t quite right on this point, so I updated it. It usually works out that way, though.
“You still need to answer WHY the investor is on the hook for more than than the value of their shares, given that some employees were the actual perpetrators (agents) of the violation of others’ rights” – see my reply to Fundamentalist.
‘when I read comments on the Carson blog to the effect that “left-libertarians believe corporations = companies, and left-libertarians are anti-corporation.”‘
Go back and re-read them. It’s not a statement that corporations = companies, it’s a statement that companies are corporations (in non-US English, and also in Stephan Kinsella’s own statements); but that doesn’t rule out other corporations. And left-libertarians are not anti-corporation, just against the sort of state intervention that creates most of them. There are, however, a few that have an internal dynamic and don’t get created like that, e.g. the monastery St. Columba founded on Iona during the Dark Ages when there wasn’t any state there.
Being a “Vulgar Libertarian” means being blinkered and recklessly, negligently or wilfully unaware of the selectiveness of facts and/or arguments being admitted. It’s not an aesthetic charge at all. And, of course, that selectiveness is just what Vulgar Libertarian is recommending.
Mike follows up “In these cases, I’m not sure if it’s libertarian to go after the shareholders beyond their share ownership” with “I’m not either. In fact I’m starting to come around to the idea that it’s not. Still, someone has to have unlimited liability.”
I believe firms could conveniently restructure from corporations to limited partnerships, with former shareholders becoming de facto limited liability through anonymity and management becoming active and accessible partners. So the pattern of liability arising from such a restructure seems to match what should already be in place.
JA believes that ‘The employee can always quit. Hence, a request from an employer to an employee is not an “order.”‘
Ah, but there is a concealed circularity in there, begging the question. Precisely because corporations have been given state aid, they have crowded out other options – so the only way an employee can quit is by going to another one just the same, unless he is lucky enough to find one of the rare alternatives.
Stephan Kinsella asks “the question is, absent the state, should shareholders be vicariously liable for torts committed by employees, or not? The presumption is they should not, since they did not commit the acts–unless you can come up with a sound argument for why they should (and pointing to the way it’s been done before doesn’t cut it).” – see my reply to Fundamentalist.
“You need to explain why shareholders should be liable. You keep calling them investors–shareholders are usually not investors.” While that remark encapsulates a precise distinction between owning and having made an increment to physical or other capital, saying it like that does not clarify matters but only serves to confuse them.
Fundamentalist addresses TokyoTom: “I agree with you completely that the behavior of executives in a lot of corporations is disgusting. I just don’t agree that such behavior is caused by the corporate structure. Some of it is just the natural inclination of people to greed. But much of it is caused by the state’s control over the economy. If you get the state out of the economy, corp execs will have little reason to bribe them for special treatment. Anyway, your argument is based on the disgusting behavior of some execs and not necessarily on principle.”
There is something with a bearing on this at http://en.wikipedia.org/wiki/Corporation#Corporations.27_criticism – “Legal Scholar and Professor of Law at the University of British Columbia Joel Bakan describes the modern corporate entity as ‘an institutional psychopath’ and a ‘psychopathic creature.’ In the documentary The Corporation, Bakan claims that corporations, when considered as natural living persons, exhibit the traits of antisocial personality disorder or psychopathy. Also in the film, Robert Monks, a former Republican Party candidate for Senate from Maine, says: “The corporation is an externalizing machine (moving its operating costs to external organizations and people), in the same way that a shark is a killing machine.””
Yancey Ward misunderstands “One falling into this debate from the outside needs to understand something about mutualists like Carson- they don’t think you should own capital you are not working with yourself”.
Actually, there is a range of views there. Kevin Carson takes the view that “property” that turns out not to be legitimate, i.e. true property, should go to people who are working with it directly, and that working directly with something that definitely isn’t owned sets up ownership (very Lockeian, that). But he doesn’t rule out legitimate property changing hands, say by gift, as far as I can see.
- December 13, 2008 at 2:50 pm
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P.M. Lawrence,
Nothing you wrote contradicts my “misunderstanding”.
Carson, and the mutualists “like” him, don’t accept the profitting from accumulated capital unless that person is the one laboring with the capital. If you are not the one laboring with the capital, be it a bulldozer or a fertile field, then mutualists don’t recognize your ownership of this capital. If mutualists were more open about this, I wouldn’t give them such a hard time, but they always try to obscure this reality about their political philosophy as you did by not really explaining what is meant by “illigitimately owned”.
December 13, 2008 at 7:02 pm-
P.M. Lawrence, couple questions.
First, are you a (left) libertarian, or not a libertarian at all? I ask b/c of Kevin Carson’s saying I made an unwarranted assumption that you are in this post. Tell you what, I’ll assume you are, until you deny it.
Second, with all your handwringing about corporations being “institutional psychopaths” blah blah blah, let’s envision a free market–or as your comrades like to say, “freed market”–in which some people decide to form a firm and organize it as a so-called “corporation”, which means that in dealings with people (customers, suppliers, etc.) all these people are on notice that any contractual claims they have are limited to the assets of “the corporation” and not the shareholders; and in a world in which libertarian principles of causation prevail and by and large shareholders are not held personally liable for the torts committed by employees of the companies they own shares in. Let’s also imagine that because the world is vastly wealthier, there are no taxes on companies and enterprise, that some of these corporations happen to be very large–as large as today’s MNEs or even larger.
Now, in such a world, would you guys still be whining about corporations…? If so, your complaint has nothing to do with the state or state grants of incorporation. If not, then it seems you think merely having the state grant corporate status (even while taxing and regulating the corporation) makes the corporation an “institutional psychopath.”
Interesting…. theory.
December 14, 2008 at 8:59 am-
PM: “So, common sense says that people who don’t control events because they let go are responsible for the results.â€
I responded to that above. You haven’t shown that stockholders ever had the responsibility in the first place.
PM: “”Legal Scholar and Professor of Law at the University of British Columbia Joel Bakan describes the modern corporate entity as ‘an institutional psychopath’ and a ‘psychopathic creature.â€
Merely stating it doesn’t make it true. You would have to show that the majority of corporations act in that manner and you can’t. The truth is that very few corporations act that way. The vast majority are good citizens. You’re guilty of trying to make the exception the rule.
I think there is something deeper going on with anti-corp types. Before I tell you what, let me make the following disclaimer: I’m not calling any of you socialists. Repeat, I’m not calling any of you socialists. So please don’t anyone post that I’m calling you names or calling you socialists because, to repeat: I am not calling anyone a socialist. If that is clear enough, then let me say that socialists believe that human beings are essentially pure in motives and they blame bad behavior on something outside of human nature. Anti-corp types seem to share that attitude with socialists, although to repeat: I am not calling anyone a socialist. As a result, anti-corp types have cause and effect backwards: organizational structure does not cause people to behave badly; bad people behave badly because it’s in their nature. They will behave badly in government, in corporations and in non-corporate structures.
For example, all non-profit organizations are corporations. Why don’t they act as psychopathic creatures? They have exactly the same corporate structure, except that they don’t have any pesky stockholders to appease, which should make them more extreme psychopaths. You might respond that the profit motive makes for-profit corps act differently, to which I would respond then it’s not the structure but the motive that is the problem. If that’s true then why don’t you consider privately-owned businesses just as evil as corporations because they have a profit motive, too.
- December 14, 2008 at 7:15 pm
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Yancey Ward writes ‘Nothing you wrote contradicts my “misunderstanding”‘ – I thought he wouldn’t get it.
As for ‘Carson, and the mutualists “like” him, don’t accept the profitting from accumulated capital unless that person is the one laboring with the capital. If you are not the one laboring with the capital… then mutualists don’t recognize your ownership of this capital. If mutualists were more open about this, I wouldn’t give them such a hard time, but they always try to obscure this reality about their political philosophy as you did by not really explaining what is meant by “illigitimately owned”‘.
Doesn’t that mean, if they don’t say what he thinks they mean after all, but something else, he is going to give them a hard time? He just wants them to match his straw man.
Stephen Kinsella (as I shall deliberately misspell his name, as he did mine at the Rockwell blog) asks “First, are you a (left) libertarian, or not a libertarian at all?”
I shall answer this in instalments as convenient, probably elsewhere. For now, I will point out that this has no bearing on the facts and arguments I present and would merely present a target for ad hominem attacks.
“Tell you what, I’ll assume you are, until you deny it” is an announcement that straw man attacks will be made, probably ad hominem too.
With his ‘with all your handwringing about corporations being “institutional psychopaths” blah blah blah’ he is utterly misrepresenting what I wrote: I drew people’s attention to other criticisms that are on the record, so they can think about those without being filtered out by any prejudice being thrown at me. It’s Joel Bakan‘s ‘an institutional psychopath’ and a ‘psychopathic creature’, not mine, and both he and I are being objective and detached, not “handwringing”.
“Stephen” goes on to hypothesise ‘let’s envision a free market–or as your comrades like to say, “freed market”–in which some people decide to form a firm and organize it as a so-called “corporation”, which means that in dealings with people (customers, suppliers, etc.) all these people are on notice that any contractual claims they have are limited to the assets of “the corporation” and not the shareholders; and in a world in which libertarian principles of causation prevail and by and large shareholders are not held personally liable for the torts committed by employees of the companies they own shares in. Let’s also imagine that because the world is vastly wealthier, there are no taxes on companies and enterprise, that some of these corporations happen to be very large–as large as today’s MNEs or even larger.’
First note that he is still building in his assumption that you could actually get that. I have pointed out that you can’t, not in full, because the buck always stops somewhere and any attempt to get rid of responsibility, whether it succeeds or fails, always leaves it somewhere. Of course you can get a long way de facto, by using anonymity to shelter behind, but sooner or later someone has to come out in the open even if not all the “someones” have to. He is also assuming that these organisations could get – and, more importantly, stay – large. As he remarks, “Interesting…. theory”.
So I’ll help him. I’ll give him a real world example that comes close: Andy Carnegie and his steel business. From http://en.wikipedia.org/wiki/Corporation#Mercantilism we have “Many private firms in the 19th century avoided the corporate model… (Andrew Carnegie formed his steel operation as a limited partnership… )”.
For his shareholders, Carnegie’s firm offered all those things. However, he himself (and some others) remained on the spot, and – in the end – he had to bow out, and sold up; a corporate structure was formed, under the legislative framework. The original structure couldn’t be kept going indefinitely without Carnegie and his colleagues. Yet they did not find it practical to set up the Kinsella-style non-state corporation to start with, despite its advantages to them as he describes those!
Stephen Kinsella asks of his hypothetical, ‘Now, in such a world, would you guys still be whining about corporations…? If so, your complaint has nothing to do with the state or state grants of incorporation. If not, then it seems you think merely having the state grant corporate status (even while taxing and regulating the corporation) makes the corporation an “institutional psychopath.”‘
Clearly, people then and now did and do complain – but about Andy Carnegie et al, not about the steel operation per se. So the answer is no, there would be no “whining about corporations”, unless and until there were any.
Fundamentalist claims that I “haven’t shown that stockholders ever had the responsibility in the first place”.
The point is that someone sets up the resources and physical power that allow a corporation to do things, and there is a chain connecting those original investors to current shareholders, at every step of which control was passed along with ownership. The shareholders didn’t have responsibility in the first place, they got it bundled up with the shares or by being people who set up the corporation.
He then says of Joel Bakan’s description, “Merely stating it doesn’t make it true”. No, but it does give you food for thought and a reference to follow up if you want to find out if it is true. Which is why Fundamentalist’s “You would have to show that the majority of corporations act in that manner and you can’t” is a faulty test. I don’t have to show any damned thing, people can follow up Joel Bakan’s work if they want to see how he got there.
Fundamentalist almost gets there with “As a result, anti-corp types have cause and effect backwards: organizational structure does not cause people to behave badly; bad people behave badly because it’s in their nature. They will behave badly in government, in corporations and in non-corporate structures”.
But there is no inversion of cause and effect. It’s just that a corporation attracts and gives incentives to those types, then shelters them so that the corporation does those things as convenient. It’s like accusing someone who wants to drain a swamp because of malaria of not realising that malaria is actually caused by a microbe. When there is no corporation, you get isolated Carnegie behaviour (see above), which is self limiting because individuals come and go, and for which an actual person can be put on the spot and/or affected by his own real human qualities – which happened to Carnegie, later.
Fundamentalist offers “For example, all non-profit organizations are corporations. Why don’t they act as psychopathic creatures? They have exactly the same corporate structure, except that they don’t have any pesky stockholders to appease, which should make them more extreme psychopaths. You might respond that the profit motive makes for-profit corps act differently, to which I would respond then it’s not the structure but the motive that is the problem.”
That’s not a counter-example. They, too, misbehave in just that way. I and others have experienced this at their hands. No, I will not describe my own personal experience of this.
- December 14, 2008 at 9:07 pm
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PM: “The point is that someone sets up the resources and physical power that allow a corporation to do things, and there is a chain connecting those original investors to current shareholders, at every step of which control was passed along with ownership. The shareholders didn’t have responsibility in the first place, they got it bundled up with the shares or by being people who set up the corporation.â€
That doesn’t make any sense, but I’ll try to respond. I assume you’re trying to say that the original investors were not stockholders and therefore had control over the company. But if those investors become stockholders with limited control, they pass control of the company to the board of directors and management. I don’t know any other way to say it make it clear to you. That seems to be a very difficult concept for you to get your head around. Or are you trying to say that once you have control, and therefore responsibility, you can never under any circumstances relinquish it? And how in the heck does responsibility come “bundled†with the stock shares when the contract for ownership of the stock specifically states that the stock holder does not have control? You make less and less sense with each post.
PM: “I don’t have to show any damned thing, people can follow up Joel Bakan’s work if they want to see how he got there.â€
You don’t have to be rational either, but it makes the discussion a lot more interesting. I don’t have to read Bakan’s work. He is merely a poor imitator of the thousands of Marxist economists who have written against the corporation for over a century. I doubt he has anything new to say. And the point stands: you cannot make every corporation guilty of the crimes of a few. It’s unjust and irrational.
PM: “It’s just that a corporation attracts and gives incentives to those types, then shelters them so that the corporation does those things as convenient.â€
Tell that to the execs of corporations that have failed and no longer exist, some of the largest in history, or the execs that have gone to prison. You haven’t shown me anything about the corporation that is different from private business in attracting “those types†or that corporations shelter “those types†from punishment. In fact, most pyramid schemes are privately owned in order to avoid state inspection.
PM: “That’s not a counter-example. They, too, misbehave in just that way.â€Every single non-profit acts that way? Again, you want to punish the majority for the acts of a few. How just is that? Does no single privately-owned business ever commit a crime? Do you have any idea whether more corporations commit crimes than privately-owned businesses?
You have no principle to stand on that would convict the corporation, so you insist on condemnation by anecdotal evidence, and there you want to punish the many for the actions of a few.
- December 14, 2008 at 9:11 pm
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PS, since you insist on abandoning principle and indicting all corporations for the actions of a few, you’ll need to have some statistics about what percentage of corporations out of all corporations commit crimes and what percentage of non-corporations commit crimes. I don’t have those statistics myself, but based on media reports, I suspect that less that one percent of all corporations are involved in criminal activity and about the same for private companies.
- December 15, 2008 at 6:21 am
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Stephan, thanks for the further remarks.
1. me: the state grant of limited liability to investors (and to transferees of such investors) in corporations constitutes an uncontracted-for shifting of risks to investors from victims of corporate torts.
you: “It’s not a shift if they don’t or shouldn’t have liability in the first place”
TT: Your conditional rejection obviously fails. Clearly state action is necessary to limit shareholders’ liability to the amunt of their investment, and a key aspect of the popularity of the limited liability corporate form over other forms is precisely that it limits the downside liability that shareholders would otherwise bear for the risks of damage that the activities of the company (via employees) pose to unconsenting others who are victims.
As new limited liability forms have been created (LLC and LLPs), once tax authorities have confirmed pass-through tax treatment, their use has exploded, precisely to limit prior liability for torts (and to voluntary creditors). Large public firms separately all of the various hazardous ventures (that they own and control) precisely because they want to limit liaibility to third parties that they would otherwise be exposed to.
2. Nice to see that you see no justification for the government grant of limited liability to shareholders in the first place, and that youy are not arguing for the status quo.
3. you: “there is no libertarian grounds for the state to *impose* liability on shareholders for acts of employees.”
I agree with your statement, but it dodges the real issues. The government acted in a unlibertarian fashion by establishing granting limited liability – previously, unlimited liability of investors for acts of a venture had been imposed not by the state, but by common understanding; as most ventures had no separate legal entity status, vicarious liability for torts was more narrowly applied, and wouldn’t always reach investors.
But with the corporate form, the scale of risks imposed increased and the legal entity was imputed by courts to be the master to which corporate employees reported. But this new “master” was accountable to no one directly, with an ability to seek gains for the benefit of shareholders while creating risks for others, without any requirement to maintain assets to make others whole for the risks imposed: dividends could be paid to shareholders from profits, but when liabilities arose, the firm could simply be shut down.
There are of course many firms where there are identifiable shareholders in charge, and who would have liability but for the corporate form.
4. “I have little interest in reading the works of a bunch of mainstream unlibertarian utilitarian state apologist lawyer hacks.”
Your call, but others may think that reading about the history of the rise of limited liaiblity corporations, some of the results (transfer of risks to parties who are injured without any ability to bargain ahead of time, and resulting pressures for the state to interfere FURTHER), consideratons of the equities and economic efficiency of the status quo, and suggestions for reform might be useful in understanding the full subject.
5. you: “absent the state, should shareholders be vicariously liable for torts committed by employees, or not?†“I’ve given my reasons and sketched out my view of a theory of causation.”
Sounds like I need to refer to the other thread, but certainly here you’ve done nothing of the kind here.
But as for an argument that shareholders should be vicariously liable for torts committed by employees, I could advance the following:
– there are many cases where a small group of shareholders clearly owns and controls a company, in which there is no basis to artificially limit vicarious liability to the company level. Such shareholders may be individuals that own a small firm or via and LBO own a very large firm that was once public, or may be corporations that own and control subsidiaries.
– without limited liability, shareholders of large firms would have been much more interested in limiting the risks of losses and damages that exceed company assets, and would have made sure that they were in a position to manage downside risks directly (through management of executives, managers and employees) and indirectly via insurance (which insurers would also be incentiivized to manage and price risks).
– Sure, there are many investors/shareholders of in “public” companies that have no ability to control corporate risks, but except for the state grant of limited liaiblity, there are no other such classes of shareholders.
– The imposition of large-scale risk of injuries by limited liaibilities on involuntary victims is unjust and inefficient, shareholders (and executives) are better placed to bear the risks, shifting to pro rata unlimited liability by shareholders would not destroy markets (insurers could step in, for a price), and moving to such umlimited liability would greatly reduce the pressures on (and rationales used by) governments to force corporations to disclose more risks, maintain greater capital, bonds and insurance.
- December 15, 2008 at 9:40 am
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“Ah, but there is a concealed circularity in there, begging the question. Precisely because corporations have been given state aid, they have crowded out other options”
No, they haven’t. There are millions of self-employed people out there, event in our currently statist market. So this is a non sequitur on your part. Further, it says NOTHING about the voluntary nature of employment.
- December 15, 2008 at 5:35 pm
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JA quoted me selectively, leaving out my “- so the only way an employee can quit is by going to another one just the same, unless he is lucky enough to find one of the rare alternatives”.
That’s the problem with his “There are millions of self-employed people out there, event in our currently statist market” – those are few in proportion to the whole work force, and have taken up most of the opportunities like that. That’s how the crowding out works. It’s a fallacy of composition to think that because some people have managed it, it’s realistic for everybody.
As for “Further, it says NOTHING about the voluntary nature of employment”, so? It takes a specialised definition to call it voluntary, when the opportunities for survival using private resources are also among those crowded out.
I’ll address Fundamentalist later, when it’s more convenient.
- December 17, 2008 at 12:27 am
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Fundamentalist, I note that I have responded to your further on Stephan’s newer thread.
- December 17, 2008 at 8:11 am
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It’s a fallacy of composition to think that because some people have managed it, it’s realistic for everybody.
It’s also a fallacy to assume that because some people are not something, it’s NOT based on choice and free will. Face it, you have NO proof of your “crowding thesis.”
Working for corporations is popular. Self-employment is not. And it this mostly has to do with human nature.
Most blue collar workers choose corporations because they are state-mooches, who want benefits of capitalism without taking the risks of capital.
It takes a specialised definition to call it voluntary, when the opportunities for survival using private resources are also among those crowded out.
No, it is YOU who is using a special definition for “voluntary.” I am using the common definition…free choice in relationships based on circumstances.
I see the Anti-capitalist mentality (as defined by Mises) peeping out of your posts…”private resources” — which leaves out that nearly all the capital used for starting most businesses is between the ears of the founder (or in their hearts as willpower).
- December 19, 2008 at 8:43 pm
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Fundamentalist says of my “The point is that someone sets up the resources and physical power that allow a corporation to do things, and there is a chain connecting those original investors to current shareholders, at every step of which control was passed along with ownership. The shareholders didn’t have responsibility in the first place, they got it bundled up with the shares or by being people who set up the corporation.”,
“But if those investors become stockholders with limited control, they pass control of the company to the board of directors and management. I don’t know any other way to say it make it clear to you. That seems to be a very difficult concept for you to get your head around.”
I fully understand that, and I also fully understand that it is not accurate, to the extent that they retain control over those – they can vote them out, and so on.
“Or are you trying to say that once you have control, and therefore responsibility, you can never under any circumstances relinquish it?”
No, I am saying that if you do relinquish control without due care and attention, then – just like walking away from a car leaving its hand brake off on a hill – responsibility stays with you. On the other hand, if you do take the right care in a handover, the person you hand over to gets the responsibility.
‘And how in the heck does responsibility come “bundled” with the stock shares when the contract for ownership of the stock specifically states that the stock holder does not have control? You make less and less sense with each post.’
We’ve been over this before. I know the contract says that. So does the state. They lie. The state is improper here, and nobody can give what he does not have – the old Latin saw nemo dat quod non habet. Does the person selling the shares have any way of not passing on responsibility, other than keeping it? Two people cannot agree among themselves that responsibility should vanish; they do not have the moral authority to do so. But yes, they can put it in writing that that happens.
“I don’t have to read Bakan’s work. He is merely a poor imitator of the thousands of Marxist economists who have written against the corporation for over a century. I doubt he has anything new to say.”
As they say, you can lead a horticulture, but you can’t make her think. Also, “my mind is made up, do not confuse me with the facts”.
“And the point stands: you cannot make every corporation guilty of the crimes of a few. It’s unjust and irrational.”
But who is doing that? We’re just saying the corporation system hands out all sorts of privileges. Sometimes it enables crime, sometimes lesser harm, but always privilege as against natural persons.
Of my “It’s just that a corporation attracts and gives incentives to those types, then shelters them so that the corporation does those things as convenient”, Fundamentalist says ‘Tell that to the execs of corporations that have failed and no longer exist, some of the largest in history, or the execs that have gone to prison. You haven’t shown me anything about the corporation that is different from private business in attracting “those types” or that corporations shelter “those types” from punishment. In fact, most pyramid schemes are privately owned in order to avoid state inspection.’
Notice that when they fail, as when a Roman Emperor was overthrown, they get replaced by more of the same – the approach continues (what happened after Bernie Cornfeld?). Notice also that those who suffer in this way are those who go beyond the shelter they are given, not those who work the system.
When I pointed out that his suggestion that non-profit corporations provided a counter-example was wrong, he misses the point with “Every single non-profit acts that way? Again, you want to punish the majority for the acts of a few. How just is that? Does no single privately-owned business ever commit a crime? Do you have any idea whether more corporations commit crimes than privately-owned businesses?”
I doubt that they all do, all the time; only, they do when it is convenient – which it often is, because of the privileges. It’s also doing the same bait and switch between the privileged status and outright crime. It also has a red herring about private businesses; of course that also goes wrong some of the time – only, it doesn’t have the shelter of those privileges. The point is the privilege, not the bait and switch about crime. Which means…
…”You have no principle to stand on that would convict the corporation, so you insist on condemnation by anecdotal evidence, and there you want to punish the many for the actions of a few… since you insist on abandoning principle and indicting all corporations for the actions of a few, you’ll need to have some statistics about what percentage of corporations out of all corporations commit crimes and what percentage of non-corporations commit crimes. I don’t have those statistics myself, but based on media reports, I suspect that less that one percent of all corporations are involved in criminal activity and about the same for private companies.” is entirely made up.
JA also misses the point, with ‘It’s also a fallacy to assume that because some people are not something, it’s NOT based on choice and free will. Face it, you have NO proof of your “crowding thesis.”‘
No? How about comparing historical patterns under different systems? Oh, wait – I already did that.
“Working for corporations is popular. Self-employment is not. And it this mostly has to do with human nature… Most blue collar workers choose corporations because they are state-mooches, who want benefits of capitalism without taking the risks of capital.”
Now who’s making assumptions? That simply isn’t true, whenever and wherever realistic alternatives were available. Stopping them being realistic, well, that’s the crowding out. I suppose you could add in the learned helplessness effect, so that most people who haven’t been in a free market come to think of the remaining options as the things to go for.
Of my “It takes a specialised definition to call it voluntary, when the opportunities for survival using private resources are also among those crowded out”, JA comments…
‘No, it is YOU who is using a special definition for “voluntary.” I am using the common definition…free choice in relationships based on circumstances.’
Ah. So, if I maroon him on a desert island or drop him out of a plane over the sea, my prior force in doing that doesn’t count towards what happens after that – he is free to look after himself while falling into the sea or looking for resources on the island.
There’s more “sounds like” in his ‘I see the Anti-capitalist mentality (as defined by Mises) peeping out of your posts…”private resources” — which leaves out that nearly all the capital used for starting most businesses is between the ears of the founder (or in their hearts as willpower)’. It’s also unrealistic about the other stuff people need; ex nil nil fit, out of nothing nothing comes. Turn someone like that loose on a desert island and he would soon find he needed more. Or turn a peasant off his land with a lot of others and only the lucky few would find enough opportunities elsehere fast enough to save them; it has often happened before. What could Andy Carnegie have done, without a ship that could take him to a destination where he could flourish?
December 21, 2008 at 7:25 pm-
How does limited liability work in the real world?
Your company goes bust (or just has a lot of debt). You sell the assets of the company to another Ltd entity (you can create or buy one for a couple of hundred bucks) with your wife (or any other individual you pay a few hundred bucks to) as director, thereby preserving the original name.
You visit a liquidator and pay him ten grand to “verify” that the best way to dispose of the assets is by private sale, and then you have him sell the assets back to the original Ltd company for 1% of their value. Ta-da! Why would the liquidator care about the creditors? They aren’t paying him – you are!
Go an look up any number of Ltd. liquidations online. They all mysteriously have enough to pay the liquidator, but nothing for the creditors. THe sale of assest often adds upt o the taxman’s and the liquidators bill. (You don’t mess with the taxman – he might actually bring the hammer down on you and your liquidator). The average creditor has to “pierce the veil” in court.
There are all sorts of useful things you can do with limited liability, and in all my years as a credit controller, I’ve rarely seen it used to protect shareholders. Unless the shareholder also happens to be the director.
It’s BS.
Why should shareholders be liable for the risky actions of the company?
An example. Let’s say a courier company tells its drivers to drive as fast as they can and run read lights etc. The shareholders benefit from this, as the compnay always sticks to its 60 minute delivery guarantee. One day a driver bowls over an old lady..
Or the company pours toxic sludge into a lake rather than disposing of it safely, or whatever. If the shareholders benefit from the companies money making actions, they should also stand to be liable for its illegal actions.If I loan you $100 to deal drugs for me, and give me a 5% cut now and then, and then you get caught, do you think the law would see me as “not liable”?
February 12, 2010 at 10:39 pm-
“anti-capitalists who think they are owed more than their wage for their labour,” Dixie Flatline
Are you accepting the “LABOUR THEORY OF VALUE” with respect to what Marx called “labour power?” Namely, the necessary means of subsistence needed for the workers to resume working later?
Or is this the “Iron Law of Wage?”
Lo, I see vulgar corporate libertarians around. As if robber barons’ capitalism be what Hans Hoppe called “clean-capitalism.”
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