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Things Fall Apart: Guest post on further developments in the Dangerous Corporate "Free Speech" Balderdash

June 28th, 2011 2 comments

I have commented extensively on the decision last year by the Scalia majority in the Supreme Court’s decision in Citizens United.

An important point is that it is perfectly clear that (1) the Founders hated corporations and were seeking to protect inviduals against government in the First Amendment, and that (2) in the Fourteenth Amendment the Congress and states were trying to secure the liberty of freed slaves and non-citizens (like the many Chinese at work on railroads) against excesses by states. But the most important point is that corporations are not real flesh-and-blood people, but the creations of states, which thus have every right to condition the grant of corporate status (and the special benefits included in such grant, such as legal entity status, limited liaibility of shareholders, unlimited purposes, unlimited life, etc.) on a curtailed ability to influence political decision-making. Limits on “corporate speech”do not, of course, pose any limits on the rights of speech of the individuals who own, manageor work within particular corporations).  Related points are that the incentives faced by decision-makers within corporations are different from those faced by individuals within communities, that corporations have special advantages over citizens in seeking to influence government, and that corporations are becoming increasing entangled in rent-seeking behaviors.

These are fundamental points that far too many are overlooking.

I recently stumbeld across a June 23 article at The Atlantic by Garrett Epps, a former reporter for The Washington Post, who is a novelist and legal scholar, and teaches courses in constitutional law and creative writing for law students at the University of Baltimore. Epps was writing in response to further, recent judicial developments in the wake of Citizens United.

While I don’t agree wholly with Epps and find his analysis incomplete, I thought it worth bringing his article to your attention. Epps kindly agreed to allow me to cross-post his article here.

I note that the bolding is mine:

Constitutional Myth: Corporations Have the Same Free-Speech Rights as Individuals

By Garrett Epps

The problem isn’t “corporate personhood”; it’s simple-minded interpretation that refuses to take note of the real function of the First Amendment


On June 16, Judge James C. Cacheris of the Eastern District of Virginia ordered charges dismissed against two criminal defendants charged with violating federal election laws [Actually. he made this decision in May, and just re-affirmed it.] The defendants allegedly allowed corporate employees to attend Hillary Clinton campaign fundraisers, then reimbursed them for the cost out of funds of their corporation, Galen Capital Group. If the allegations (as yet unproved) are true, this was a direct violation of 2 U.S.C. 441(b), which forbids corporations from contributing to federal election campaigns.

Judge Cacheris contemptuously brushed the statute aside as a restriction on the corporation’s free speech rights. The Supreme Court has never held the statute unconstitutional, but the judge did it for them, relying on their latest campaign finance ruling, Citizens United v. Federal Election Commission.

The Court in Citizens United went out of its way to say it was not invalidating contribution limits, but Judge Cacheris explained they couldn’t be serious:

Taken seriously, Citizens United requires that corporations and individuals be afforded equal rights to political speech, unqualified. . . . Thus, following Citizens United, individuals and corporations must have equal rights to engage in both independent expenditures and direct contributions. They must have the same rights to both the “apple” and the “orange.”

Judge Cacheris’s opinion is a prime example of right-wing judicial aggressiveness and simple-minded constitutional mythology. Like levees on the Mississippi, the extremely modest restrictions on corporate domination of American politics are being deliberately breached; the result, as in New Orleans in 2005, is a man-made disaster, a flood of corporate money that is distorting, and indeed threatens to destroy, American democracy.
The First Amendment exists, in the new logic, only to protect the right of those with money to drown out those without
Almost every literate American knows that in 2009 [sic; actually, it was 2010], the United States Supreme Court held that corporations must be given the same free-speech rights under the Constitution as ordinary Americans to fund advertising advocating the election or defeat of political candidates. (The Court did explain that its opinion applied only to independent expenditures, not to direct contributions, but Judge Cacheris apparently saw them winking at him when they delivered that part of the opinion.) The Court gutted the McCain-Feingold Act, the first significant (even if timid) attempt at campaign finance reform since the laws passed in the wake of the Watergate scandals. What that means, of course, is that corporations, with their enormous financial resources, could flood the airwaves with ads from deceptively titled “issue groups” with names like “Americans for Prosperity” and “American Future Funds.” This is precisely what happened in the 2010 campaign, when these anonymous funds swamped Democratic and progressive candidates with semi-anonymous attack ads in the days before the election. Perhaps coincidentally, those elections produced a radical shift to the right in the membership of both the House and the Senate.

To hear the right discuss it, though, anyone who questions Citizens United is spitting on James Madison’s grave. “Any proponent of free speech should applaud this decision. Citizens United is and will be a First Amendment triumph of enduring significance,” Sen. Mitch McConnell (R-KY), who is to campaign finance laws what Darth Vader was to Alderaan, crowed on the Senate floor after the decision. Rep. Mike Pence (R-IN) also explained that “the Court has taken important steps toward restoring to the American people their First Amendment rights. This decision is a victory on behalf of those who cherish the fundamental freedoms protected by the First Amendment.” Sen. John Cornyn (R-TX) told the New York Times that “I can’t think of a more fundamental First Amendment issue.” He also noted that, by a bizarre coincidence, the decision would “open up resources that have not previously been available” to the Republicans.

There’s another way to look at it. In his dissent in Citizens United, Justice John Paul Stevens–a moderate-conservative Republican–spoke for many citizens when he said, “While American democracy is imperfect, few outside the majority of this Court would have thought its flaws included a dearth of corporate money in politics.”

The problem is not that corporations are “persons” under the law. That’s been the law for more than a century. And the problem is not the mere idea that corporate “persons” have free speech rights. Of course they do; otherwise the government could prohibit the New York Times Co. or MSNBC from engaging in news coverage. [wrong; the First Amendment also specifically mentions “the press”]

The problem is the kind of simple-minded interpretation of the Constitution I have discussed elsewhere. The current Court in Citizens United claimed to be choosing between a system in which corporations would have no free-speech rights and one in which corporate “persons” must have precisely the same free-speech rights as natural persons do. There surely is a middle position. In fact, our laws treat many kinds of “persons” differently for various purposes–citizens differently from non-citizens, minors differently from adults, members of professions differently from non-members. Each group’s rights–even important rights like free speech–are treated differently for some purposes. High-school students do not have the right to criticize their school administrations; college students do. Minors do not have the right to purchase sexually explicit entertainment; adults do. Non-citizens cannot contribute to federal political campaigns; citizens can.

That a corporation is a “person” does not mean that its participation in politics has to be completely free of regulation. Any sane system of laws would take into account the facts that corporations control vastly more money than individuals; that they never “die,” and thus can influence events indefinitely; and that, by law, they must (and do) concern themselves with one thing and one thing only–making profits for their shareholders.

Over the past generation, the conservative majorities on the Court have systematically destroyed any idea that the First Amendment relates to democratic self-government, or civic equality. Earlier this year, when the Court considered Arizona’s Clean Elections Act, Chief Justice Roberts asked the lawyer for Arizona this remarkable question:

I checked the Citizens’ Clean Elections Commission website this morning, and it says that this act was passed to, quote, “level the playing field” when it comes to running for office. Why isn’t that clear evidence that it’s unconstitutional?
The First Amendment exists, in the new logic, only to protect the right of those with money to drown out those without. This is such an obtuse reading of the Constitution that anyone can be forgiven for thinking it was a self-interested, overtly partisan decision by a five-Justice majority of conservative Republican appointees deeply disappointed that their party had been roundly defeated in the 2006 and 2008 decisions.

Having said that, Barack Obama and the Democratic Party bear their share of the blame for this sorry mess. By wrecking the public-finance system in the presidential election of 2008, the Democrats did a lot to convince reasonable people that their concern about money in politics was as self-serving as the Republicans’ concern for corporate “liberty.”

The proper vision of corporate “personhood” would consider the meaning of the First Amendment not as a simple on-off switch but as a provision that protects a key ingredient in democratic self-government–speech to and about politics by ordinary people.

As Judge Cacheris’s decision demonstrates, the rot has progressed almost to the terminal stage. But remember the worlds of Miracle Max in The Princess Bride: “It just so happens that your friend here is only mostly dead. There’s a big difference between mostly dead and all dead.”

Equality and self-government, as ideas in the law, are mostly dead–but not all dead. The battle is not over. Sustained popular pressure may force right-wing courts and activist groups to back off from their continuing demands for special political rights for corporations and the rich.

[More on the decision by Judge Cacheris here: http://www.scotusblog.com/2011/05/expanding-citizens-united/ and http://volokh.com/2011/05/27/unconstitutional-to-ban-corporate-contributions-to-candidates-even-when-independent-expenditures-are-allowed/  and http://electionlawblog.org/?p=18848.]
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Perfect for you Fathers: Samuel L. Jackson reads the runaway hit, ‘Go the (Blank) to Sleep!’

June 19th, 2011 No comments

 I tweeted this earlier today, and thought I’d share with all you other fathers out there.

@Tokyo_Tom Don’t Miss! Samuel L. Jackson narrates “Go the F**k to Sleep” | Nerve.com http://bit.ly/ko5Un0 #p2 #tpp #tcot #tlot

Yeah, it’s a bit NSFW, but if the Wall Street Journal can post about it, I suppose I can too.

As WSJ notes:

Samuel L. Jackson’s audio version is available for free, for now.

German film director Werner Herzog also recorded a reading of the book, which the New York Public Library played for an audience last night. A bootleg video of the recording hit YouTube.

Enjoy! More here.

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(I’m irked and encouraged by the) anger and confusion, even among libertarians, over ‘Capitalism’

June 19th, 2011 2 comments

Yesterday I stumbled across a blog post by Joel S. Hirschhorn, a self-described libertarian who is author of Delusional Democracy, the Chair of the Independent Party of Maryland and co-founder of Friends of the Article V Convention (www.foavc.org), one of the first of the growing movements to rally citizens at the state level to seek to check excesses by the federal government.

While I think Joel is right to be angry about the state of ‘capitalism’ and of our politics, he doesn’t quite have his finger on the problem and thus his proposed solutions seem quite a bit off.

Joel’s post is here: Two Capitalisms; he urges that we learn from Germany; I abjur. I quote below key passages:

Maximizing financial returns to reward corporate bigwigs and stockholders even though the actions greatly harm the US economy and society results from US companies practicing bad, immoral capitalism. Think of this development as the conquest of Wall Street over Main Street, of those who make money over those who create and make products, of those who promote economic inequality over those who value the middle class.

The power elites that have succeeded in perverting capitalism have also succeeded in making much of the American public so dumb and distracted that they no longer function as informed and effective citizens, which has allowed the government to be hijacked by the rich and powerful through a two-party plutocracy.

Selfish capitalism was exemplified by the role of Fannie Mae in creating the economic disaster by perverting the housing market, as conservative David Brooks correctly concluded; he noted “the leadership class is fundamentally self-dealing;” it practiced “shameless self-enrichment” which produced disastrous results.

To be clear, the conflict is not between capitalism and socialism, the way right wing ideologues talk, but between the good and bad kinds of capitalism, which those on the left need to learn how to talk about. Bad, greed-driven, too-big-to-fail capitalism has ruined the US for all but the rich which have sucked off much of the nations wealth.

A fine analysis by Harold Meyerson on the difference between the highly successful German economy and the dismal US one drives home the crucial differences between the two forms of capitalism. The need is for the US to learn from the more successful German, good form of capitalism and develop policy reforms that could rejuvenate the US economy by curbing the bad form of capitalism. The ideas that Republicans keep advocating are all wrong because all they want to do is promote bad capitalism, which only serves the interests of the rich and powerful, not ordinary Americans, not the middle class, and not workers. Peter Coy has also assembled great information on what can be learned from other nations.

The German economy makes the US one look like it is on its deathbed. The German tripartite system has business, labor and government working together. Faced with the same competition from low wage developing countries and the entire globalization condition, Germany has a booming manufacturing sector that constitutes almost twice the share of the economy than that in the US. And even in the current global economic recession German unemployment is 7 percent. The tripartite system has kept German labor unions strong and, therefore, protects the middle class whose pay has risen at roughly the same rate as top incomes. This is in stark contrast to the rich-getting-richer and unionbusting situation in the US. Indeed, the top 1 percent in the US are seeing their proportion of total income rise dramatically, even as their German counterparts are seeing their share of total income shrink. German corporate boards are required by law to have an equal number of management and employee representatives. By law! Germany’s stakeholder capitalism benefits the many unlike the US where selfish capitalism benefits the upper class and brutalizes everyone else. Corporate power has not captured the German government the way it has hijacked the US government.

While I agree with Hirschorn that corporations (shareholders and executives) have slipped from responsibility to the communities  in which they operate and have captured government, this is a consequence of initial favors given by governments to corporate shareholders, and subsequent and consistent pressure both by corporations and those whom they affect for greater central controls on corporations. In smaller societies like Germany, Singapore and Japan, a sense of strong social responsibility by corporations remains, but the broader US market has allowed gamesmanship and moral hazard to flourish (with the ultimate game of using government to build barriers to entry, guarantee markets, and to shift risks to shareholders and society as a whole).

Our answers cannot lie in more government, but on rolling back the government interventions that insulate corporations (and their shareholders and executives) from markets, communities, and from the adverse consequences of their behavior. What interventions?

  • The whole regulatory state, which substitutes political battles and micro-management for stricter enforcement of private and community property rights;
  • Public company regulations, which raise barriers to capital markets (and thus barriers to entry) and which substitue a busybody by inept and corruptible government for shareholder vigilance;
  • Deposit insurance, that substitutes a card-house of prudential government regulations – that encourage moral hazard and games by bankers, traders, investment bankers and rating agencies rather than prudence – for oversight by depositors and their proxies; and
  • The initial government grant of limited liability to shareholders, which not only encourages shareholders not to worry to closely about the risks that ‘corporate’ actions pose to third parties, but has fuelled the growth of the regulatory state and external pressure by advocates of the ‘precautionary principle’.

Anger over our perverted ‘capitalism’ is perfectly fine and appropriate – nay, essential. But let’s have some clearer thinking, please.

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Despite financial crises, BP's mess in the Gulf and now TEPCO's costly meltdowns in Japan, Matt Ridley doesn't understand the attractiveness of a little 'precaution'

June 13th, 2011 No comments

In the wake of the recent deaths and illnesses in Germany from a dangerous strain of E. coli, thinker and former banker Matt Ridleywho’ve I discussed before in the context of nuclear crony capitalism –  has an article in the June 11 Wall Street Journal on “When Precaution Trumps Public Safely“.

As I thought Matt’s post to be curiously uncurious as to the factors driving the ‘precautionary principle’, I ventured to address the deficiency with a thought or two of my own, and left the following comment at Matt’s blog:

Matt, ever wondered where the ‘precautionary principle’ comes from?

Ever heard of ‘once burned, twice shy’?

It seems clear to me that the insistence of many on the precautionary principle has it roots in massive externalities (pollution) by government activities and by corporations, those great pools of anonymous and irresponsible capital who shareholders, freed by the government grant of limited liability from downside risks, decided to turn a blind eye to risk management.

If we want more risk-taking, we should demand more responsibility by investors. Saying that it’s the common man who has to have the greatest skin in the game is a recipe for continued stonewalling.

Tom

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Interesting new research shows that THE key to disaster recovery is the strength of the local community ('social capital'), NOT Government action

June 12th, 2011 No comments

Daniel P. Aldrich is an up-and-coming political scientist who got interested in disaster recovery when New Orleans was hit by Hurricane Katrina a few months after he had moved there with his family.

He has also spent quite a bit of time living and studying in Japan; I ran across him recently in connection with my reading and blogging on post-earthquake, post-tsunami and post-Fukushima nuclear power plant disaster Japan; he’s mentioned prominently in the NYT article excerpted in my preceding post.

According to his bio at Purdue University, Aldrich:

received his Ph.D. and M.A. in political science from Harvard University, an M.A. from the University of California at Berkeley, and his B.A. from the University of North Carolina at Chapel Hill. Daniel has focused on the ways in which state agencies interact with contentious civil society over the siting of controversial facilities such as nuclear power plants, airports, and dams. His current research investigates how neighborhoods and communities recover from disasters. He has published a number of peer-reviewed articles along with research for general audiences. His research has been funded by grants from the Abe Foundation, IIE Fulbright Foundation, the National Science Foundation, the Reischauer Institute at Harvard University, the Weatherhead Center for International Affairs, and Harvard’s Center for European Studies. He has been a visiting scholar at the Japanese Ministry of Finance, the Institute for Social Science at Tokyo University, Harvard University, the Tata Institute for Social Science in Mumbai, the Institut d’etudes politiques de Paris (Sciences Po), and the East West Center in Honolulu, Hawaii. He has spent more than three years conducting fieldwork in Japan, India and France.

His research and writing on disasters and resilience is very interesting and speaks to the importance of strong communities of the type that governments and their corprate agents frequently do their best to seek to erode. Here is his own description and set of links to that work:

Externalities of Strong Social Capital: Post Tsunami Recovery in Southeast Asia forthcoming in Journal of Civil Society

 

Much research has implied that social capital functions as an unqualified “public good,” enhancing governance, economic performance, and quality of life (Coleman 1988; Cohen and Arato 1992; Putnam 1993; Cohen and Rogers 1995). Scholars of disaster (Nakagawa and Shaw 2004; Adger et al. 2005; Dynes 2005; Tatsuki 2008) have extended this concept to posit that social capital provides nonexcludable benefits to whole communities after major crises. Using qualitative methods to analyze data from villages in Tamil Nadu, India following the 2004 Indian Ocean tsunami, this paper demonstrates that high levels of social capital simultaneously provided strong benefits and equally strong negative externalities, especially to those already on the periphery of society. In these villages, high levels of social capital reduced barriers to collective action for members of the uur panchayats (hamlet councils) and parish councils, speeding up their recovery and connecting them to aid organizations, but at the same time reinforced obstacles to recovery for women, Dalits, migrants, and Muslims. These localized findings have important implications for academic studies of social capital and policy formation for future disasters and recovery schemes.

Social Science Perspectives on Disasters in Perspectives on Politics

In this extended review, I discuss three recent books on disaster: Governing after Crisis: The Politics of Investigation, Accountability, and Learning edited by Arjen Boin, Allan McConnell, and Paul ‘T Hart, Learning from Catastrophes: Strategies for Reaction and Response , edited by Howard Kunreuther and Micheel Useem, and The Next Catastrophe: Reducing Our Vulnerabilities to Natural, Industrial, and Terrorist Disasters by Charles Perrow. All three books invoke the market and state as core forces at work in mitigation and disaster recovery, overlooking the critical role of social capital.

Separate and Unequal: Post-Tsunami Aid Distribution in Southern India published in Social Science Quarterly

Objective. Disasters are a regular occurrence throughout the world. Whether all eligible victims of a catastrophe receive similar amounts of aid from governments and donors following a crisis remains an open question. Methods. I use data on 62 similarly damaged inland fishing villages in five districts of southeastern India following the 2004 Indian Ocean tsunami to measure the causal influence of caste, location, wealth, and bridging social capital on the receipt of aid. Using two-limit tobit and negative binomial models, I investigate the factors that influence the time spent in refugee camps, receipt of an initial aid packet, and receipt of 4,000 rupees. Results. Caste, family status, and wealth proved to be powerful predictors of beneficiaries and nonbeneficiaries during the aid process. Conclusion. While many scholars and practitioners envision aid distribution as primarily a technocratic process, this research shows that discrimination and financial resources strongly affect the flow of disaster aid.

The Power of People: Social Capital’s Role in Recovery from the 1995 Kobe Earthquake forthcoming in Natural Hazards

Despite the regularity of disasters, social science has only begun to generate replicable knowledge about the factors which facilitate post-crisis recovery. Building on the broad variation in recovery rates within disaster-affected cities, I investigate the ability of Kobe’s nine wards to repopulate after the 1995 Kobe earthquake in Japan. This article uses case studies of neighborhoods in Kobe alongside new time-series, cross-sectional data set to test five variables thought to influence recovery along with the relatively untested factor of social capital. Controlling for damage, population density, economic conditions, inequality and other variables thought important in past research, social capital proves to be the strongest and most robust predictor of population recovery after catastrophe. This has important implications both for public policies focused on reconstruction and for social science more generally.

Fixing Recovery: Social Capital in Post-Crisis Resilience in The Journal of Homeland Security June 2010

Disasters remain among the most critical events which impact residents and their neighborhoods; they have killed far more individuals than high salience issues such as terrorism. Unfortunately, disaster recovery programs run by the United States and foreign governments have not been updated to reflect a new understanding of the essential nature of social capital and networks. I call for a re-orientation of disaster preparedness and recovery programs at all levels away from the standard fixes focused on physical infrastructure towards ones targeting social infrastructure. The reservoirs of social capital and the trust (or lack thereof) between citizens in disaster-affected communities can help us understand why some neighborhoods in cities like Kobe, Japan, Tamil Nadu, India, and New Orleans, Louisiana displayed resilience while others stagnated. Social capital – the engine for recovery – can be deepened both through local initiatives and interventions from foreign agencies.

Aldrich Presentation on 25 March 2010 BUILDING RESILIENCE conference

Despite the clear and present danger from disasters, social scientists have yet to provide strong, quantitative evidence about which factors influence the pace of recovery. Using data from four megadisasters over the 20th and 21st century – the 1923 Tokyo earthquake, the 1995 Kobe earthquake, the 2004 Indian Ocean tsunami, and the 2005 Hurricane Katrina – Aldrich argues that social infrastructure is the critical factor in recovery.

The Crucial Role of Civil Society in Disaster Recovery and Japan’s Preparedness for Emergencies in Japan aktuell 3/28

This article is concerned with the empirical puzzle of why certain neighborhoods and localities recover more quickly than others following disasters. It illuminates four mainstream theories of rehabilitation and resilience, and then investigates a neglected factor, namely the role of social networks and civil society. Initial analyses underscore the important role of trust and connectivity among local residents in the process of rebuilding. After examining the role of civil society in Japan’s preparedness for emergencies, the article concludes with some policy recommendations for governments and nongovernmental actors involved in disaster relief.

This paper, entitled the The Need for Comparative Research, was prepared for a conference at the Jamsetji Tata Centre for Disaster Management in February 2008, and sets out some initial ideas which have motivated this project.

Some of Aldrich’s newspaper articles are linked here.

I expect I’ll be commenting further on his work.

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Japan's nuclear power subsidies to rural areas a case study in sick dynamics: how governments eviscerate local economies and addict them to what destroys them

June 12th, 2011 No comments

We can see the same phenomenon in extractive economies wherever governments own the resources, but locals own the risks – as in the Gulf of Mexico/BP (as I noted in a number of posts) accident, Nigeria, Ecuador/Texaco, etc.

We can also see this more generally with crony, corporation-based capitalism.

Japan’s version is more complicated and seductive: the locals get paid off – at the expense of electric power ratepayers who are subject to a government-supported monopoly – in a way that encourages them to abandon their own livelihoods and further dependent on handouts.

Below are excerpts from a May 31  article at the New York Times:  In Japan, a Culture That Promotes Nuclear Dependency

Excerpts:

When the Shimane nuclear plant was first proposed here more than 40 years ago, this rural port town put up such fierce resistance that the plant’s would-be operator, Chugoku Electric, almost scrapped the project. Angry fishermen vowed to defend areas where they had fished and harvested seaweed for generations.

Two decades later, when Chugoku Electric was considering whether to expand the plant with a third reactor, Kashima once again swung into action: this time, to rally in favor. Prodded by the local fishing cooperative, the town assembly voted 15 to 2 to make a public appeal for construction of the $4 billion reactor. …

As Kashima’s story suggests, Tokyo has been able to essentially buy the support, or at least the silent acquiescence, of communities by showering them with generous subsidies, payouts and jobs. In 2009 alone, Tokyo gave $1.15 billion for public works projects to communities that have electric plants, according to the Ministry of Economy, Trade and Industry. Experts say the majority of that money goes to communities near nuclear plants.

And that is just the tip of the iceberg, experts say, as the communities also receive a host of subsidies, property and income tax revenues, compensation to individuals and even “anonymous” donations to local treasuries that are widely believed to come from plant operators. …

In a process that critics have likened to drug addiction, the flow of easy money and higher-paying jobs quickly replaces the communities’ original economic basis, usually farming or fishing.

Nor did planners offer alternatives to public works projects like nuclear plants. Keeping the spending spigots open became the only way to maintain newly elevated living standards.

… Towns become enmeshed in the same circle — which includes politicians, bureaucrats, judges and nuclear industry executives — that has relentlessly promoted the expansion of nuclear power over safety concerns. …

“This structure of dependency makes it impossible for communities to speak out against the plants or nuclear power,” said Shuji Shimizu, a professor of public finance at Fukushima University.  …

Much of this flow of cash was the product of the Three Power Source Development Laws, a sophisticated system of government subsidies created in 1974 by Kakuei Tanaka, the powerful prime minister who shaped Japan’s nuclear power landscape and used big public works projects to build postwar Japan’s most formidable political machine.

The law required all Japanese power consumers to pay, as part of their utility bills, a tax that was funneled to communities with nuclear plants. …

Political experts say the subsidies encourage not only acceptance of a plant but also, over time, its expansion. That is because subsidies are designed to peak soon after a plant or reactor becomes operational, and then decline.

“In many cases, what you’ll see is that a town that was depopulating and had very little tax base gets a tremendous insurge of money,” said Daniel P. Aldrich, a political scientist at Purdue University who has studied the laws.

As the subsidies continue to decline over the lifetime of a reactor, communities come under pressure to accept the construction of new ones, Mr. Aldrich said. “The local community gets used to the spending they got for the first reactor — and the second, third, fourth, and fifth reactors help them keep up,” he added.

Critics point to the case of Futaba, the town that includes Fukushima Daiichi’s No. 5 and No. 6 reactors, which began operating in 1978 and 1979, respectively.

According to Professor Shimizu of Fukushima University, Fukushima Daiichi and the nearby Fukushima Daini plants directly or indirectly employed some 11,000 people in communities that include Futaba — or about one person in every two households. Since 1974, communities in Fukushima Prefecture have received about $3.3 billion in subsidies for its electrical plants, most of it for the two nuclear power facilities, Mr. Shimizu said.

Despite these huge subsidies, most given in the 1970s, Futaba recently began to experience budget problems. As they did in Kashima, the subsidies dwindled along with other revenues related to the nuclear plant, including property taxes. By 2007, Futaba was one of the most fiscally troubled towns in Japan and nearly went bankrupt. Town officials blamed the upkeep costs of the public facilities built in the early days of flush subsidies and poor management stemming from the belief that the subsidies would remain generous.

Eisaku Sato, who served as the governor of Fukushima Prefecture from 1988 to 2006 and became a critic of the nuclear industry, said that 30 years after its first reactor started operating, the town of Futaba could no longer pay its mayor’s salary.

“With a nuclear reactor, in one generation, or about 30 years, it’s possible that you’ll become a community that won’t be able to survive,” Mr. Sato said.

Futaba’s solution to its fiscal crisis was to ask the government and Tokyo Electric, Fukushima Daiichi’s operator, to build two new reactors, which would have eventually increased the number of reactors at Fukushima Daiichi to eight. The request immediately earned Futaba new subsidies.

“Putting aside whether ‘drugs’ is the right expression,” Mr. Sato said, “if you take them one time, you’ll definitely want to take them again.”

Eiji Nakamura, the failed candidate for mayor of Kashima, said the town came to rely on the constant flow of subsidies for political as well as economic reasons. He said the prefectural and town leaders used the jobs and money from public works to secure the support of key voting blocs like the construction industry and the fishing cooperative, to which about a third of the town’s working population belongs.

“They call it a nuclear power plant, but it should actually be called a political power plant,” Mr. Nakamura joked.

 

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The fundamental socialism of capitalism: Elinor Ostrom echoes Hayek in explaining that rules and institutions are a form of social capital

June 9th, 2011 No comments

I hope you’re not wondering just WHO Elinor Ostrom is, but I’ve blogged quite a bit about her.

For those of you who need a reminder, Peter Boettke said the following when this brilliant, hard-working political scientist deservedly won the Nobel Prize in Economics in 2009:

Lin Ostrom is firmly seated in the mainline tradition of economic scholarship from Adam Smith and David Hume to F. A. Hayek and James Buchanan ….. Instead,   she has been a major contributor to public choice economics, new institutional economics, and to our understanding of polycentricity and political economy.

And:

Her presidential address to the APSA summed up her theoretical agenda as “A Behavioral Approach to the Rational Choice Theory of Collective Action.”

She is most deserving of this Nobel, and she has made a unique contribution theoretically and empirically to the study of self-governance. But there is no need to pick a fight where one isn’t there. Her prize fits nicely in a stream of recognitions ANALYTICALLY by the committee to scholars such as Hayek (1974), Buchanan (1986), Coase (1991), North (1993), and V. Smith (2002). These are all scholars within the discipline of economics/political economy that recognize the cognitive limitations of man, and focus analytical effort on institutional analysis.

Lin Ostrom’s contributions come from an analytical framework that grounded in rational choice theory (as if the choosers are human) and builds to an institutional analysis (as if history mattered). The distinction between “rules in form” and “rules in use” means she studies in close detail the social norms that underlie self-governance in the management of resources and the management of social relationships.

It is amazing body of work.

Now for the pitch:

The Gund Institute for Ecological Economics has just posted on YouTube this thought-provoking 38-minute lecture that Ostrom gave in 2006:

 

The Challenge of Building Social Capital in a Sustainable & Desirable Future

 

[View:http://www.youtube.com/watch?v=Bo5Unn3AkVY&feature=youtube_gdata:550:0]

Hmm, you mean even the institutions of “private property” and corporations are forms of social capital, and dependent on shared institutions and even “trust”?

And that such “social capital” might include negative externalities?

Just what the heck IS “property“, then?

And corporations might have negative characteristics?

And indigenous “primitives” might have valuable, adaptive social capital?

And are large corporations as well as “government” responsible for the erosion of Hayek’s “market morals”?

So many questions, and so much distrust eating away at the social capital! …

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Corporations are the Health of the State III: how the State, by "protecting" depositors and shareholders, elevates risks and creates a NeverNever Land where the buck never stops

June 7th, 2011 No comments

Just like deposit insurance means depositors don’t bother to pay attention to whether or not bankers engage in risky activities, so too does limited liability mean that shareholders have little incentive to invest in managing risk.

While it should be shareholders (along with others who have stakes of one kind or another in commerical enterprises) – not governments – that are responsible for overseeing companies or banks, the reverse is precisely the situation we find ourselves in. Why?

Could government’s efforts to “protect” us have anything to do with poor management and decisions that benefit executives and traders, but harm shareholders, depositors and third parties?

(Enron, Lehman, BP, TEPCO, Bernie Madoff, and the whole raft of “Public” companies that are immune from shareholder criticism, but subject to growing heaps of federal prudential micro-management directives like Sarbanes-Oxley?)

How do we get government out of the risk management business, unless we insist that others take responsibility for their own investments?

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Corporations are the Health of the State II: Let's be Good Libertarians now, and defend state-created irresponsibility and lack of moral clarity

June 7th, 2011 No comments

In surfing for a simple post on moral hazard to distribute last week to a leadership seminar that I’m faciliating at a university here (not wanting to hazard my double-secret identity by proffering a post of my own), I stumbled across this little, thought-provoking piece from Joshua Pelton-Stroud.

This was posted June 13 2010, in the midst of last year’s little oil spill — for which, it seems, naturally enough, NOBODY is responsible. Corporations are now simply Acts of God, and the health of the State (emphasis added):

 

The concept of “moral hazard” is one that arises often in libertarian philosophy. It stands to reason that the farther a person is removed from the consequences of his or her actions, the more willing that person may be to risk disaster for personal gain. We see it often in the realm of government — politicians willing to sacrifice lives in war because, of course, it is not they who will be subjected to the killing fields; politicians willing to drive families from ancestral lands because, of course, it is not they whose families will be dispossessed; politicians willing to deliver future generations into pauperism because, of course, it is notthey whose progeny will become destitute. We as libertarians see these actions and decry both their consequences and justifications as abuses of arbitrary power.

 

But what of that stronghold of libertarian principle, the supposed bedrock of free market capitalism — the corporation? It strikes me that there are countless instances in which dealing as a single corporate entity may simplify commerce. Yet at its most rudimentary level, such an entity primarily serves to limit the individual liability of its constituents. Would that not entail some form of moral hazard in its own right?

 

BP will lose billions of dollars in its effort to clean up the gulf of Mexico, and billions more in stock as a result of market uncertainty. The actors, however, who laid the groundwork for calamity will remain relatively unscathed. Tony Hayward may lose his position as CEO, he may never again work as a high profile executive, but with a personal net worth well into the millions he and his family will never go wanting. Federal monetary policy and subsidy programs encouraged many of the risky lending practices that led to the real estate bubble, but the largest banks were themselves responsible for inventing the mortgage-backed derivatives which wreaked havoc on US financial markets. The individual architects and sellers of those derivatives may (or may not) have lost their jobs, but they made their money and are unlikely to face significant punishment in the foreseeable future.

 

It is individuals, and not entities, who reason and act, and if there is to be any earnest discussion on the topic of individual freedom, it seems it must of a necessity include discussion of individual culpability, as well. Yet calls to drastically rethink regulations governing corporate legal structures are strikingly absent from “mainstream” libertarian dialogue (at least that with which I am familiar). It is time to put to rest the claim that libertarianism and free market capitalism are solely concerned with a powerful elite, profiting at the expense of masses. It is time for liberty and responsibility to again walk hand in hand.

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Scrupulosity IV: Corporations are the Health of the State (thanks to institutionalized moral hazard)

June 6th, 2011 2 comments

I copy below some more of my dialogue with Stephan Kinsella and others, regarding Jeffrey Tucker‘s unhappiness that not all libertarians are cheerleaders for our current model of “capitallism” (see my eariler posts on “scrupulosity“).

Stephan does a great job at wrestling with strawmen, attributing to me positions that I have expressly argued against, and questioning my forthrightness and my dislike for the state:

{Folks apologies if you are seeing disordered paragraphs; the blogging software seems to do that frequently when one copies in various blocks of text. I have added a few numbers to make chronological order clear.)

1.  Stephan Kinsella June 5, 2011 at 8:33 am

Calling shareholders “passive” might be a fair representation of the existing, government-created system – especially for listed, “public” companies, but that’s pretty much my point. This is NOT true of partnership or other traditional types of business organization,

See Hessen et al.–it is true of limited liability partnerships, where you have limited partners who are passive, and general partners who are active.

But even for a general partner–why is he automatically liable for what torts employees commit? this hoary, feudal notion of respondeat superior–you are responsible for your “servants’” actions–is a bit insulting and elitist.

” and the grant of limited liability itself deliberately signals shareholders that they can turn a blind eye to activities that profit the company while posing costs and risks to others.”

If they would not be liable in the first place then it’s not a grant, any more than you, as a Walmart customer, are “granted” limited liability just b/c the law does not currently make you jointly reponsible for torts committed by Walmart employees. I suppose you could argue this “grant” of limited liability to you as customer makes you as customer turn a blind eye to its risky activities. As I said in my post, this broad view of causal responsibiltiy would make everyone in society liable for everyone else all the time, without exception, which is why I analogized it to socialized medicine/Obamacare.

Sure, it’s probably not now “fair” to passive shareholders to “attribute vicarious liability to them … for torts committed by employees”, but that is both a strawman and besides the point. The point is that the government grant of limited liability MAKES A DIFFERENCE;

You keep saying it’s a grant but this is question begging, as this assertion assumes that absent this legal rule they would be liable vicariously under some libertarian principles of causation. I deny that they would. So if you say it’s grant you are arguing dishonestly by assuming your premise.

the strawman is that I am certainly NOT proposing a new rule that shareholders be assigned liability for acts by corporate employees, but simply that the limitation on liability be eliminated

WElt he state should be eliminated of course. There should be no laws whatsoever regarding corporations. I agree with this. The limitation of liability law should be abolished. I of course agree, which shoudl be apparent from reading what I have written since unlike many left-libertarians who are vague and maunder and equivocat and are disingenuous I try like Rothbard to be clear and upfront, and am very openly anti-state. I simply disagree with people like you who explicitly or implicitly propose that in a free society it would be appropriate to automatically hold the equivalent of passive shareholders (whatever you call them) vicariously responsible for others’ torts. If you think removing limited liability would make a difference, this is your implicit view. This is what I disagree with; your distractions seem to be an attempt to cloud the water to make it hard to see that this issue is at the heart of our disagreement.

– just as other grants by the government of liability limits (nuclear power, offshore oil drilling, and pollution permitting generally) should be eliminated.

Yes, I agree, but that is a bad analogy b/c those ARE real limits that do have an effect, unlike the shareholder case which does nothing IMO but ratify the situation that would obtain anyway.

Your assertion that limited liability of shareholders “would also be present in a free society in which private contractual ‘corporations’ arose” is totally unsupported. Can you point to where Rothbard, Hessen or Pilon argue that private contracts that limit liability of investors against voluntary creditors could serve to limit their personal liability against INVOLUNTARY creditors, viz., tort victims?

It’s not contracts that do it. It’s simply the fact that tort victims can pursue the tortfeasor, and the shareholder is not the tortfeasor; and there is no ground for making the shareholder liable vicariously for the employee’s torts.

And yes, see: Rothbard on Corporations and Limited Liability for Tort; Legitimizing the Corporation and Other Posts; Defending Corporations: Block and Huebert; Pilon on Corporations: A Discussion with Kevin Carson; Corporations and Limited Liability for Torts; In Defense of the Corporation

For example, see pilon http://www.stephankinsella.com/wp-content/uploads/texts/ga-l-rev-1979_6.pdf pp. 1310-. for Hessen, see this excerpt,http://www.lewrockwell.com/blog/wp-content/uploads/2004/04/Hessen+corporation+tort+liability+excerpts.pdf , pp. 18-20
and http://www.stephankinsella.com/2010/02/rothbard-on-corporations-and-limited-liability-for-tort/ — this last post also quotes Rothbard: “Similarly, if a corporate manager committed a wrong and damaged the person or property of others, there is no reason but “deep pockets” to make the stockholders pay, provided that the latter were innocent and did not order the manager to engage in these tortious actions.”

So, Rothbard, Hessen, Pilon–all hold that passive shareholders are not automatically liable vicariously for torts committed by employees, any more than limited partners would be.

Just as you, surely, have no objection to private agreements between parties to protect the information created by one of them (private “intellectual property”)

I would not call it that. “Intellectual property” is a propaganda term invented recently to justify state grants of monopoly privilege (patent and copyright)http://blog.mises.org/14914/intellectual-properganda/

but simply oppose state-created IP, so too should you (as a lawyer!) be able to understand that in principle, of course, I have no objection to contract-based companies, but oppose the obvious and important favors granted by the state in the case of all corporations?

You are confusing the case for contractual limited liability of shareholders for contractual debts, with the case for shareholders not being liable vicariously for others’ torts. The latter is not based on contract.

2. Not to be missed is that the grant of limited liability is extremely important and consequential:

See: The Cliff Notes version of my stilted enviro-fascist view of corporations and government – TT’s Lost in Tokyo http://bit.ly/9oBkC7

It has allowed owners to divorce themselves from formal reponsibility for the acts of their agents/employees, to divorce themselves from the communities in which their firms act, and to dodge claims of moral responsibility.

So what? this is not a justification for a law. It’s just some “policy” musings.

So we are left with massive corporations which are massively entangled with government

That’s b/c there is a state (which you favor, not me; I’m the anarchist), not b/c of the way people would create firms on the free market

and are powerful buyers of favors, which citizens forever clamor for “more control!”, and which lack any clear locus of responsibility — and in which we find anarchist libertarians like yourself and Lew Rockwell acting as their lawyers, and calling them and their shareholders “the biggest victims” (not the little people on the short end of the stick of projects like Gulf oil drilling, nuclear reactor meltdowns or even mundane health/air/water/soil damage from pollution)

Emotivism. You are not making an argument. It is not unlibertarian to have a view as to who is victimized by a given state policy. In fact the central state whose legitimacy you yourself support claims the overlord/landlord status in the offshore continental shelf; BP held a lease. It was your central state that is the landlord whose tenant had the oil spill. By your principles of vicarious responsibilty where you want to willy nilly say some old lady holding a single share of BP stock should be personally liable for this tort, of course the landlord should be too, right? I.e., your state is responsible, so why are you blaming me for favoring private investors in a free society, when you support the very state’s existence, the state that is responsible for the BP spill in the first place? And of course the nuclear industry is heavily distorted and corrupted by the state; Chernobyl was teh state’s fault, and the entire meltdown-prone western nuclear industry was corrupted by your beloved state for military reasons — instead of safe Thorium we needed the current system to produce nuclear weaponshttp://www.libertarianstandard.com/2011/04/01/the-states-corruption-of-nuclear-power/

So blaming this on private investors is rich. It’s the state’s fault, as usual. You think that getting rid of one of the few state laws that happens to mimic the likely result on a free market (limited liability for passive shareholders) is what you should focus on?!

As Mises long ago noted, moral hazard matters.

This is how statists and law professors reason. It is not how libertarians reason. We believe in individual rights–property rights–and have principles. we don’t run around “weighing” various “policy reasons” to tweak and fine tune statist positive law.

3. While in principle any partnership can keep going even when one partner dies or decides to leave and new partners are added, surely you are aware that this is a very cumbersome process, not in small part because of the concerns that the partners and its lenders, suppliers and customers all have about who, precisely, is managing the business and who has liability for potential losses?

Nonsense. SEe the Hessen excerpt above, p. 17, regarding how partnerships or firms can easily make the firm effectively immortal by use of continuity agreements. This is not hard.

Just as for limited liability,

More question begging, as I have explained

the grants of legal entity status,

this is not a gift but an unnecessary status that the state uses to justify regulation and double taxation of shareholders. In a free market firms would not have legal personality nor do they need to. Hessen has already explained this almost 30 years ago.

unlimited life,

See Hessen, last mention above. This can be done contractualy.

unlimited purposes and the ability to own subsidiaries are all substantial AND consequence-laden gifts from the state.

The purpose is whatever the shareholders agree to. It has nothing to do with the state just as marriage should not. Ownign a subsidiary is not a privilege but just another contractual private scheme. Nothing you described is a gift fromt he state. All these features are doable privately and contractualy, except for entity theory which is not a gift but a penalty.

Show me a partnership that has any of these, without a grant from the state.

This is like asking me to show you a 100% reserve bank. They are not used now b/c the state’s fractional reserve/guaranteed system outcompetes it. If I want a perpetual firm I just use a corporation b/c the state provides this mechanism. In a free market people would have to do it privately contractually, on their own; I have no idea if they would be called limited partnerships, LLP, LLC, or what. Who cares? IT’s just a detail. Get the state out of the way, and we’ll see.

Waht i object to is your clamoring for shareholders to be liable, when you have no theory whatsoever undergirding this.

The state creation of corporations has do much to muddle who, exactly, is responsible for injuries to third parties caused by “the corporation”.

So what, really? In most cases the corporation pays the victim, and has assets to do so.

Getting rid of limited liability would do much to provide moral clarity,

Again, this is question begging, b/c you are assuming there would and should be liability for shareholders absent the limitation of liability law.

I would note that, just as if deposit insurance were eliminated, market actors would step up to advise on which banks are safe and to provide deposit insurance, so too would insurers step up if limited liability were ended.

We are NOT talking about bringing down capitalism.

I know, but this still does not justify your claim that shareholders should be liable vicariously for the torts of others. What is your theory of causal responsibility? I have tried to sketch one out — http://mises.org/journals/qjae/pdf/qjae7_4_7.pdf — and see no way to hold passive shareholders liable; confirming the reasoning on the same lines of Hessen, Pilon, and Rothbard.

TokyoTom June 5, 2011 at 10:00 am

Stephan, of course the state is also at fault when statist corporations do stupid s**t like in the case of BP and TEPCO, and I’ve been arguing the case against the state as landlord loudly here for years now.

” claim that shareholders should be liable vicariously for the torts of others.”

You keep asserting this, even though I’ve made careful efforts to make it clear that I make no such claim. Do you anarcho-capitalists have such a difficult time reading? (By the way, since the boxes you want to put people in matter so much to you, I’m not by my own consideration “left” anything.)

I simply want to end the state creation of corporations, in particular the grant of limited liability to shareholders. You think it doesn’t matter and fight tooth and nail to defend corporations that lack any clear personal moral locus, while I think it has mattered and still quite profoundly, not the least in providing the rationale for the regulatory state.

Just as deposit insurance is at the root of rampant moral hazard in our financial sector, so too is limited liability at the root of corporate statism.

Sorry, but it’s late and I have a full day tomorrow. But I’ll ask, what INDIVIDUALS would you hold responsible for the BP oil spill and TEPCO bad decisions?

nate-m June 5, 2011 at 10:49 am

I simply want to end the state creation of corporations, in particular the grant of limited liability to shareholders. You think it doesn’t matter and fight tooth and nail to defend corporations that lack any clear personal moral locus, while I think it has mattered and still quite profoundly, not the least in providing the rationale for the regulatory state.

” claim that shareholders should be liable vicariously for the torts of others.”You keep asserting this, even though I’ve made careful efforts to make it clear that I make no such claim.

?
So you do not think that share holders should be liable for actions of employees, but you think that the legal framework that prevents share holders being liable for the actions of the employees should be removed?

It seems that these two statements are diametrically opposed under the current system. If you do not think that share holders should be liable then the way you achieve this is via LLC.

The only alternative is to go full AnCap with a contract-based legal framework, but that’s not going to happen any time soon.

If you remove LLC protections then your making shareholders liable vicariously for the torts of others.

 

2. TokyoTom June 5, 2011 at 6:47 pm

I suspect that Stephan’s lack of my response to my most recent comment to himhttp://blog.mises.org/17179/scrupulosity-and-the-condemnation-of-every-existing-business/comment-page-1/#comment-785116
indicates that he finally understands the difference between (1) a government rule absolving shareholders from personal liability for acts of the corporate legal fiction or its agents and (2) the absence of such a clear limitation of risk, which would leave shareholders subject to the risk of claims and a possible finding of liability.

There is quite a difference, and it can be seen in the choice of corporate founders to use the limited liability form, as opposed to alternatives that leave shareholders/investors on the hook, such as partnerships, corporations where shareholders expressly have no liability limitations (Amex was one such when it was created) or where shares are not fully paid in (and the corporation has a capital call), and in the continuing pressure by owners of partnerships to get governments to create entity forms that absolve owners of liability for damages to involuntary creditors.

nate-m, does this help understand my point? http://blog.mises.org/17179/scrupulosity-and-the-condemnation-of-every-existing-business/comment-page-1/#comment-785121

I am not saying we should have a rule that automatically makes shareholders liable for acts by the corporation and its agents, but that we should end the government rule that frees them from risk – and the incentives to oversee and monitor that risk.

The consequence of limited liability has been the steady growth of the regulatory state, and of use of the regulatory state by corporations (via CEOs who have slipped shareholder control) to create barriers to entry.

Just like we can end financial regulation by ending deposit insurance and forcing depositors to monitor banks, so too can we end the regulatory state by making shareholders pay attention to the risks created by corporations.

http://mises.org/Community/blogs/tokyotom/archive/2011/05/12/immodest-thoughts-to-fix-capitalism-we-must-get-govt-out-of-corporate-risk-management-rent-selling-business-and-get-shareholders-to-stop-playing-39-victim-39-amp-start-paying-attention-to-risks.aspx

REPLY

Stephan Kinsella June 5, 2011 at 7:35 pm

Your comments are incoherent, Tom. waht in the world are you trying to say.

REPLY

TokyoTom June 5, 2011 at 9:14 pm

I’ll make it simple, so even a non-lefty, non-stupid and non-dishonest anarcho-cap lawyer can understand:

The state grant of limited liability to shareholders, besides simply being unjustifiable under libertarian principles, has, by reducing the need of shareholders to monitor risk, had a profound affect on the development of what we now call ‘capitalism’ and on the growth of the regulatory state in response to complaints about corporate excesses.

I restated this position last September in the comment thread to a post by Geoffrey Plauche:

“Your uncertainty here is a manifestation of the confused discussion over liability for “corporate torts”that Stephan Kinsella refers to. His position is that only humans act, and not corporations (though they are given “legal entity” status), so only particular persons who actually injured someone else (and those who directed/ordered their actions) should be liable for any tort – not the corporation itself (and certainly not shareholders, unless they were personally involved somehow). I agree that granting corporate status has greatly confused discussions over whom should be liable for corporate torts, and think Stephan too lightly brushes back the enormous and anonymous torts that our now massive corporations commit — precisely what individuals, for example, is responsible for the BP disaster, for the damage to health and property caused by pollution, or for injuries resulting from faulty products?

“Rolling back limited liability should not mean that shareholders SHOULD be held liable for corporate torts in the same way that executives, managers and employees (the first two benefiting from company-purchased insurance policies) and sometimes lenders are; it would just mean that they would get no government-provided “get out of jail free” card. In this way, common shareholders would be put on a similar footing to partners in a partnership that acts through paid managers.”

The facts that the state now makes the corporate form widely available and that we have huge, statist corporations do not make the status quo acceptable, just as the state’s generosity in making IP widely available and that many are now invested in the status quo doesn’t justify IP or validate all the damage it’s causing.

But despite your ancap identity, you (and Lew Rockwell) keep rushing out to defend our system of amoral and anonymous pools of capital, rather than real people:

http://mises.org/Community/blogs/tokyotom/search.aspx?q=kinsella+victim

Thankfully, others are seeing this re limited liability:

Finally an LvMI commentator who sees the elephant in the room: effective reform to rein in rampant moral hazard at banks means removing limited liability! – TT’s Lost in Tokyo http://bit.ly/atelEr

The Curse of Limited Liability; WSJ.com: Executives/traders of big financial corporations generate risky business, while smaller partnerships are much more risk averse – TT’s Lost in Tokyohttp://bit.ly/8nlWr7

Best,

Tom

REPLY

3. TokyoTom June 5, 2011 at 7:14 pm

Block points to corporate moral hazard as a dynamic behind the rise of the regulatory state:

Limited liability produces both pollution and political meddling: Block on Environmentalism – TT’s Lost in Tokyo http://bit.ly/mvV4Qn

Ludwig von Mises on laws that cap risks: http://mises.org/Community/blogs/tokyotom/archive/2007/10/11/draft.aspx

“The laws concerning liability and indemnification for damages caused were and still are in some respects deficient. By and large the principle is accepted that everybody is liable to damages which his actions have inflicted upon other people. But there were loopholes left which the legislators were slow to fill. In some cases this tardiness was intentional because the imperfections agreed with the plans of the authorities. When in the past in many countries the owners of factories and railroads were not held liable for the damages which the conduct of their enterprises inflicted on the property and health of neighbors, patrons, employees, and other people through smoke, soot, noise, water pollution, and accidents caused by defective or inappropriate equipment, the idea was that one should not undermine the progress of industrialization and the development of transportation facilities. The same doctrines which prompted and still are prompting many governments to encourage investment in factories and railroads through subsidies, tax exemption, tariffs, and cheap credit were at work in the emergence of a legal state of affairs in which the liability of such enterprises was either formally or practically abated.”

“Whether the proprietor’s relief from responsibility for some of the disadvantages resulting from his conduct of affairs is the outcome of a deliberate policy on the part of governments and legislators or whether it is an unintentional effect of the traditional working of laws, it is at any rate a datum which the actors must take into account. They are faced with the problem of external costs. Then some people choose certain modes of want-satisfaction merely on account of the fact that a part of the costs incurred are debited not to them but to other people. …

“It is true that where a considerable part of the costs incurred are external costs from the point of view of the acting individuals or firms, the economic calculation established by them is manifestly defective and their results deceptive. But this is not the outcome of alleged deficiencies inherent in the system of private ownership of the means of production. It is on the contrary a consequence of loopholes left in this system. It could be removed by a reform of the laws concerning liability for damages inflicted and by rescinding the institutional barriers preventing the full operation of private ownership.”

REPLY

Stephan Kinsella June 5, 2011 at 7:36 pm

What is your question, exactly?

REPLY

TokyoTom June 5, 2011 at 9:18 pm

Not a question, but a response to your claim that my concern about “moral hazard” and CONSEQUENCES and somehow taints me and is non-libertarian:

“This is how statists and law professors reason. It is not how libertarians reason. We believe in individual rights–property rights–and have principles. we don’t run around “weighing” various “policy reasons” to tweak and fine tune statist positive law.

Balderdash: we all care about consequences, which is the chief reason why people are paying the slightest attention to your ‘principled’ ragings about IP.

 

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