TT's Lost in Tokyo — by TokyoTom

First, George Reisman, and now, Stephan Kinsella.  I have asked two of our leading lights whether they and libertarians are striving for a self-satisfied irrelevancy on climate issue, or wish to be taken seriously, and they both, with self-professed seriousness, announced that we should, in Stephan`s words, “investigate nuclear winter as a way to offset alleged global warming“.

I`m afraid these proposals leave me a bit stunned. On first blush – nay, lengthy consideration – such proposals can not in the least be considered libertarian, or something libertarians could countenance. This is the way to libertarian relevancy, and to take both the challenge of statist climate change proposals and libertarianism itself seriously? 

I don`t get it – is this obvious sarcasm or straightforward mockery of climate concerns, an inside joke, from which suspected “watermelons” are excluded, or am I just not on the right sober, libertarian wave-length?

And am I the only one who notices and is jarred by the cognitive dissonance in these messages from our leading lights? You know – puny man can`t possibly be affecting the climate, but if so, it`s something we can easily fix with a little “geo-engineering” (even if we have to use the state), so let`s just let our little ongoing and uncontrolled world-wide climate geo-engineering experiment continue?

Readers` help appreciated!

I copy below relevant passages, both from Dr. Reisman and from Stephan (emphasis added).

1.  George Reisman: Global Warming: Environmentalism’s Threat of Hell on Earth  March 16, 2007 (emphasis added):

In contrast to the policy of the environmentalists, there are rational
ways of cooling the earth if that is what should actually be necessary,
ways that would take advantage of the vast energy base of the modern
world and of the still greater energy base that can be present in the
future if it is not aborted by the kind of policies urged by the
environmentalists.

Ironically, the core principle of one such method has been put
forward by voices within the environmental movement itself, though not
at all for this purpose. Years ago, back in the days of the Cold War,
many environmentalists raised the specter of a “nuclear winter.”
According to them, a large-scale atomic war could be expected to
release so much particulate matter into the atmosphere as to block out
sunlight and cause weather so severely cold that crops would not be
able to grow. …

Certainly, there is no case to be made for an atomic war. But there is a case for considering the possible detonation, on
uninhabited land north of 70° latitude, say, of a limited number of
hydrogen bombs. The detonation of these bombs would operate in the same
manner as described above, but the effect would be a belt of particles
starting at a latitude of 70° instead of 30°. The presence of those
particles would serve to reduce the amount of sunlight reaching most of
the Arctic’s surface. The effect would be to maintain the frigid
climate of the region and to prevent the further melting of its ice or,
if necessary, to increase the amount of its ice. Moreover, the process
could be conducted starting on a relatively small scale, and then
proceed slowly. This would allow essential empirical observations to be
made and also allow the process to be stopped at any time before it
went too far.

This is certainly something that should be seriously considered by
everyone who is concerned with global warming and who also desires to
preserve modern industrial civilization and retain and increase its
amenities. If there really is any possibility of global warming so
great as to cause major disturbances, this kind of solution should be
studied and perfected. Atomic testing should be resumed for the purpose
of empirically testing its feasibility.

2.  Stephan Kinsella & TokyoTom, Physicist Howard Hayden’s one-letter disproof of global warming claims  October 29, 2009

Stephan Kinsella October 30, 2009 10:03 AM

If there were really global warming why not just use “nuclear winter”
to cool things down? You don’t see the envirotards advocating that! 🙂 (see Greenpeace to advocate nuking the earth?)

TokyoTom November 3, 2009 4:01 AM

Austrians know very well that resource battles very often become
politicized as soon as government steps in; are “misanthropes” and
“rotten watermelons” responsible for the state grant of public utility
monopolies, the lack of court enforcement of common law rights to
protect property from state-licensed corporation that led to massive
pollution problems, the massive state role in the development of
nuclear weapons (that you & George Reisman mock-seriously suggest
the federal govt ought to start using again in the open atmosphere) ….

Stephan Kinsella November 3, 2009 8:00 AM

I don’t remember Reisman’s proposal, but I never said the feds should do it. I’m an anarchist, remember?

3.  Stephan Kinsella & TokyoTom, In which I applaud another balanced, productive post by Dr. Reisman, and draw attention to a post by Lew Rockwell on the need for more power competition (Apr 23 2009)

# Friday, April 24, 2009 2:27 PM
by
Stephan Kinsella

The
left yabbers about nuclear winter caused by nuclear bombs. This implies
nukes can be used to cool things down. The left yabbers about global
warming. Why is it unreasonable to investigate whether nuclear bombs
could not be used to cool things down and offset global warming? Which
one of these two contentions are you watermelons not serious about?

# Friday, April 24, 2009 9:45 PM
by
TokyoTom

Stephan,
I was just talking about the frumious bandersnatch and in walks the
yabberwocky!  Such coincidences are to be celebrated!

But surely you`re not serious about open air nuke tests to combat
climate change, but Reisman was, and on the LVMI main pages.  His
discussion was not the type of facetious one you throw out to dodge
addressing it.  You disappoint me.

What the left yabbers about is worth mocking, but anyone worth his
salt as a libertarian would do like Lew and spend a little time
acknowledging that preferences for green power, etc. are perfectly
fine, explaining that the reason for their frustration is public
utility regulation that stifles competition and protects utilities, and
suggesting approaches that would foster consumer goals while advancing
liberty.

But it`s so much funner to be like George, right?

What would Ludwig von Mises have said?  mises.org/…/draft.aspx (quoting Reisman`s translation)

# Sunday, April 26, 2009 2:25 PM
by
Stephan Kinsella

Tom,
it’s time to drop your sarcasm and just be direct and clear. I am
serious–why not investigate nuclear winter as a way to offset alleged
global warming?

As for all the fulminating against global warming… are you aware
that we are in an interglacial period, probably somewhere near the
middle? The earth is bound to start cooling and heading towards another
ice age before long. If global warming is real, it will only delay
this–which is good. In any event, suppose we impoverish ourselves to
slightly decrease the warming for a few decades, until natural cooling
starts anyway. Why do this.

# Friday, May 08, 2009 7:54 PM
by
TokyoTom

Stephan,
thanks for your comment, but I`ve been preoccupied.  However, it`s hard
to believe that you want Dr. Reisman`s suggested testing of atom bombs
in the Arctic to be taken seriously from ANY perspective, much less a
libertarian one.  There are obvious issues about the role of
government, consent and compensation of those facing fallout risks, the
problem of interfering with Arctic ecosystems and access to resources
that are coming available as a result of thawing, potential releases of
methane by the explosions themselves, plus small things like
international treaties as crf notes.

Are you suggesting that I`m “fulminating” about “global warming”?
 I`ve just been trying to steer the discussion from fulminations by
Reisman (and fawning worshippers) towards actual libertarian principles
and productive engagement.

“are you aware that we are in an interglacial period … Why do this”?

I don`t agree with your suppositions, but at least they provide a start for conversation.  

My reading indicates that climatologists agree that the Milankovich
cycles are in a unique period of overlap and, given the forcings that
we have already made (starting millenia ago with albedo changes/methane
releases resulting from agriculture), this interglacial is expected to
last for another 50,000 years, and that man`s activity is by far the
largest climate forcing variable – and we`re only heading north.  This
involves heavy pollution and will be accompanied by other large costs
to private and shared assets, including drastic changes in ocean
chemistry and ecosystems.

Mises, Yandle and others recognize that societies invested in
establishing informal and formal private and communal property rights
systems in order to tame tragedy of the commons problems and lead to
more efficient plan formation; IMHO it`s time for us to start managing
our atmosphere and oceans, instead of allowing those who profit from
exploiting these resources (a wealthy class of investors and
executives) to continue to do so while playing a rent-seekers` and
spoilers`s game that allows them to continue to shift costs to the rest
of us.

A focus on this will also help to shift down the environmental
Kuznets curve and improve the protection of private health and property
in China and elsewhere.

4. Greenpeace to advocate nuking the earth?

The February 25 Wall Street Journal carries an insightful piece of commentary by James K. Glassman (president of the World Growth Institute and a former undersecretary of state) and William T. Nolan (president of Devonshire Holdings and former associate at Brown Brothers Harriman & Co. in the early 1970s) .

The Glassman and Nolan piece, entitled “Bankers Need More Skin in the Game; Partnerships may be a more trustworthy business model than corporations,” echoes in the context of Wall Street financial institutions the theme of inappropriate managerial risk-taking that I have previously blogged on a number of times regarding the consequences of  the “limited liability” corporate form.  Glassman and Nolan point to the sterling performance of Brown Brothers Harriman & Co., the oldest and largest partnership bank in the U.S., founded in 1818.

The Glassman and Nolan editorial is worth reading in whole, for purposes of discussion I excerpt portions here (bolding is mine):

“Of all the causes of the financial meltdown of the past few years, the easiest to understand is that an irresponsible attitude toward risk led to terrible mistakes in judgment. But where did this casual approach to risk originate?

“A major culprit, we believe, is a change in the way Wall Street financial institutions are organized. During the late 1970s and ’80s, much of the responsibility for risk was transferred away from the people who made the financial decisions. As a result, leverage rose from 20-1 to 40-1 or higher, creating shaky towers of debt, which, as we know, eventually collapsed. …

“The trick is to find a way to encourage sensible risk-taking, while dampening the impulse to take chances that can throw an economy into recession and force taxpayers to bail out a banking system.

“Can government accomplish this feat through rule-making and regulatory oversight? It is unlikely. As the Nobel Prize-winning economist Friedrich von Hayek correctly emphasized, no one — not even a politician or a bureaucrat — can gain the broad and deep knowledge necessary to make wise enough rules. Moreover, in a $14 trillion economy, you can’t hire enough overseers to pore over everyone’s books.

“There is, however, a better solution: expose players in the financial game to greater personal loss if their risk-taking fails. When you worry that a mistake will cause you to lose your second home, your stocks and bonds and your club memberships, then you’re less likely to take the kinds of risks that expose the rest of society to your failures.

“A simple mechanism exists to achieve this purpose: the private partnership. Partners face liability that extends to their personal assets. They aren’t protected by the corporate shield that limits losses to what the corporation itself owns (as well as the value of the stocks and bonds the corporation has issued). Unfortunately, the partnership is a legal form of business organization that was largely abandoned by banks over the past quarter-century. Our advice is to bring it back. …

“Even John Gutfreund — the man who kicked off the dramatic change in investment-banking culture and structure when he took Salomon Brothers, a longtime partnership, public in 1981 — confirms our thesis. Michael Lewis wrote in the December issue of Condé Nast Portfolio that Mr. Gutfreund now believes “that the main effect of turning a partnership into a corporation was to transfer financial risk to the shareholders. ‘When things go wrong, it’s their problem,'” said Mr. Gutfreund.

“But when the personal wealth of executives is put at risk, as it is in a partnership, their behavior changes. Risk aversion increases. Few partnerships would leverage themselves to the hilt to load up on risky subprime loans.

“How do we know this? Luckily, for this financial experiment, there is a control case: Brown Brothers Harriman & Co. ….

“Some would say that BBH is sui generis. Would its structure work more broadly for financial institutions? It already is. As large brokers merged into huge corporations with greater concentration in real-estate finance, corporate finance migrated to private equity firms and hedge funds, which are generally structured as partnerships. While many of these new engines of finance have suffered in the recent meltdown, they generally didn’t engage in such extreme risk-taking and thus haven’t become wards of the state.

“We know from Alfred Chandler, the great business historian, that “strategy determines structure.” Similarly, structure determines behavior — in this case, a healthier attitude toward risk. It is unlikely that a partnership will grow to the size of a Bank of America or Citigroup, but, while size can boost efficiency, it also poses systemic risk. As partnerships — and corporations with partnership attributes — replace behemoths, the current crisis will spawn structures for future success.  …

We do not believe that government should require banks to be partnerships. Rather, investors — and governments — should recognize the extra safety inherent in doing business with partnerships.“

I have previously argued that one of the key state interventions that has fuelled the rent-seeking and risk socialization that we see today is the grants of blanket limited liability to shareholders, along with the grant of legal personhood (with unlimited purposes and life and Constitutional rights) to corporations:

Limited liability has enabled corporate managers to act without close shareholder oversight and management; this I believe has played a key role in the vast misalignment of incentives that Michael Lewis and David Einhorn describe at the NYT, and in the risk mismanagement that Joe Nocera of the NYT describes at length in the NYT Magazine.  Those taking large bonuses (whether in the financial industry or large corporations) were essentially playing with OPM – Other People’s Money – and capturing the upside of short-term gains while leaving shareholders and taxpayers holding the bag for loses.

I hope that you and others here will look more deeply at the role of the state in the problem of misaligned incentives that continue to corrupt American capitalism.

It is not clear what Glassman and Nolan intend with their reference to “corporations with partnership attributes”, but I would note that corporations that make use of an unlimited liability structure (as American Express once did) share the main “partnership attribute” – that the owners of the firm may be, if the assets of the firm are insufficient, personally liable to creditors for all debts of the firm (other than those whose creditors agree in advance to limit recourse), particularly for torts to involuntary third parties.  The availability of the unlimited liability corporate form in various jurisdiction should be further investigated.

I agree with Glassman and Nolan that governments should recognize the better risk management that partnerships are likely to conduct, but not merely in the financial sector but in other industrial, commercial and professional fields as well.   Such recognition could take the form of eased regulations, for example.  I favor aggressive pursuit of this “carrot” approach to encouraging better risk management and less shifting of risks to shareholders, government and citizens generally.  However, this fails to consider what should be done about existing public companies and other limited liability corporations.  I would urge more aggressive veil-piercing, both judicially and by statute.

In any case, it is gratifying to see this topic getting some of the attention that it deserves.

Stephan Kinsella, in two recent blog posts, Left-Libertarians on Corporations “Expropriating the Efforts of Stakeholders” and Corporations and Limited Liability for Torts, kindly provided a forum to discuss the issue of the limited liability that states grant to shareholders of corporations (and more recently to partners in LLPs (limited liability partnerships) and LLCs (limited liability corporations)) for torts committed by business enterprises and their employees and agents. 

It was in the context of these two posts that I have done a little legwork in pulling together legal resources regarding limited liability, which I publish in an earlier post.

By law, under most statutes providing for the establishment of corporations, shareholders (whether individuals or business interests) simply risk the amount of their investment in the event that corporate liabilities exceed corporate assets, and otherwise have no personal liability for a corporation’s debts, whether such debts resulting from negotiated loans with creditors or similarly negotiated obligations to employees, or from the harms that a corporation’s business activities (which may or may not also be attributable to identifiable employees, agents and managers) cause to involuntary third parties.

The short version of our conversation is that Stephan acknowledges that the state grant of limited liability is non-libertarian and unjustified, but plays down its importance – essentially by ignoring the past and ongoing effects that the absence of any personal risk to shareholders has certainly had on the evolution of corporations, on shareholder control, and on managerial and employee behavior, and instead focussing on a static argument that today, under libertarian principles, shareholders have little actual control over corporate actions and merely passive shareholders probably would not have liability.  While Stephan’s point is correct, it is shallow and static, and ignores the bigger picture.

My own view is that the grant of limited liability for torts has played an important role in engendering shareholder powerlessness vis-a-vis management, fuelling the growth of the environmental movement, general mistrust of corporations, and the at time rather paranoid “risk society” that we face today, and locking us into a spiral of increasing government interventions into corporate management that tend to further free management from shareholder control while raising barriers to entry, and providing greater incentives and opportunities for non-investor “stakeholders” to try to increase their influence on corporate behavior.

I hope to explore these issues in further posts, but for now I thought it would be useful – to those interested in exploring the ramifications of limited liability – to pull together some of my comments and dialogue (with Stephan and others) from the two posts noted above. 

 1.  Published: December 9, 2008 3:25 AM (emphasis added)

Stephan, while I agree with most of your post, your attempt to shift the burden of argument on the issue of limited liability strikes me as a bit disingenuous:

most people … seem to simply assume that … absent state law, shareholders ought to be liable for torts committed by employees. 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 I’ve noted elsewhere,  one of the chief purposes and effects of the corporate form is that through it, the state allows owners to sidestep any personal liability for the wrongful acts that their corporation commits, with the result that liability for such wrongful acts is limited to the assets of the corporation. Very clearly, limited liability to investors is an act of state, and not something that investors could contract for in advance with the as yet unknown victims of their future torts. As such it seems to me clearly inconsistent with libertarianism.

Do you find it so difficult to establish that such limited liability IS consistent with libertarianism that your best response is to shift the burden of proof, while characterizing those who disagree with you as “blustering with outrage”?

2.   Published: December 10, 2008 7:43 AM (emphasis added)

Stephan, thanks for your comments.

1. Me: “one of the chief purposes and effects of the corporate form is that through it, the state allows owners to sidestep any personal liability for the wrongful acts that their corporation commits”

You: It’s only sidestepping if they should have this liability in the first place. Should they?

Again, you are shifting the burden of proof on the issue. 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?

I don’t believe that there is any such libertarian justification for limited liability. 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.

This result seems to be entirely outside of libertarian principles that require voluntary exchanges and eschews takings by force (including by the state), particularly if uncompensated.

2. Me: “with the result that liability for such wrongful acts is limited to the assets of the corporation.”

You: This is untrue. Liability on the part of the *person who committed the wrongful act* is unlimited. If an Exxon employee robs your house, you can sue him for all he’s worth.

Me: 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 (many of which it many be impossible to identify a single bad/responsible actor inside the firm: defective products, pollution, etc.).

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.

3. Me: “Very clearly, limited liability to investors is an act of state, and not something that investors could contract for in advance with the as yet unknown victims of their future torts.”

You: Now, if you want to object to the inability to sue shareholders for vicarious liability for the torts of another, you need to show that the victim *should* be able to sue the shareholders. Should he? If so, why? What exactly is your theory of causation and responsibility?

Me: Again, you simply fail to answer my question, and 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.

The chief point, of course, is that the creation by the state of corporations limits tort liability to individual tortfeasors (if any) and to the corporation itself – up to the value of its assets (after sharing with all other creditors), and frees the owners from liability. This reduces the likelihood that victims will receive full compensation for corporate acts. Unlike an unincorporated entity, the act of the state in authorizing investors to act through corporations thus places the owners (and managers, who are similarly free from liability except for torts they may individually commit) in a position to shift some of the social costs of their business activity on to members of the public who have not agreed to bear those costs.

Because the shareholders (and employees and managers) bear no responsibility for the full magnitude of costs that corporate activities may impose on others, as an activity holds some promise of increasing shareholder wealth, limited liability for tort claims creates a moral hazard problem by leaving shareholders (and managers) with the possible upside benefits to such activities without regard for the full magnitude of possible social costs (which might greatly exceed the benefits).

This results in not simply in an unjust and uncontracted for shifting of risks from tortfeasor corporations to victims, but also inefficient resource allocation decisions – by shifting risks to those least positioned to anticipate or manage them, and by encouraging excessive entry and aggregate overinvestment in hazardous industries while not fully incentivizing investment in precautions.

Further, the limited liability of the corporate form greatly reduces incentives of shareholders to monitor corporate risk-taking, and frees executives to act in ways that further their own interests without bearing full responsibility for risks that are posed to third parties and to investors (which is quite evident in the activities leading up to the ongoing financial crisis).

The subject of limited liability has been much discussed recently; may I recommend the following?  [see my related post with links to discussions among legal scholars]

3.  Published: December 10, 2008 11:14 AM  (emphasis added)

In corporations, by government fiat none of the owners has unlimited liability, and the lack of control that investors or their transferees typically have is a reflection of that limited liability. Of course it is possible for shareholders to have actual control, whether in the case of close corporations or even large public ones, and courts sometimes “pierce the corporate veil” (very sporadically) to hold shareholders responsible for bad acts despite legal niceties.

Corporations are creatures of the state that could not exist in their current form without a transfer of risk that is neither voluntary nor fully compensated.

There is nothing objectionable in excluding bondholders or other voluntary creditors from unlimited liability; they can bargain for limited risks and certain controls over corporate action. The question is whether it is consistent with libertarian principles to limit the liability of ALL investors to those who are subjected unwillingly to damage resulting from the torts of the corporation.

While I am sympathetic to common investors in public corporations, who have bargained for the situations they find themselves in, and not for unlimited liability, the question of where we go from here is logically distinct from the question as to whether the course to the present situation is one that comports with libertarian principles.

It seems to me that it does not, and that we face any number of undesirable consequences as a result – not merely a shifting of risks to citizens that finds its counterpart in citizen pressure groups, but in a bifurcation of ownership and control that provides ample opportunity for executives to loot their firms. These come on top of the problems with rent-seeking and politicization that tie in with the growth of big government.

4.  Published: December 11, 2008 3:42 AM (emphasis in original)

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.

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 “owners”. 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:  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 individually”, in which case “shareholders could simply purchase shareholder-liability-insurance, no biggie”. 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?

5.  Published: December 12, 2008 3:42 AM  (emphasis added)

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.

6.  Published: December 15, 2008 6:21 AM  (emphasis added)

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.

6.  Published: December 11, 2008 4:54 AM

By the way, Stephan, I don’t consider myself an “anti-corporate type”, or an “anti-industrialist”, “socialist” or “left-libertarian” either.

I’m just an anti-uncontracted-for-limited-liaibility-for-torts” type. There are plenty of my type in the world of corporate lawyers, as I noted on the other thread.

7.   Published: December 15, 2008 5:02 AM (emphasis added)

Roger:

Kinsella has already established that the master is responsible for the actions of his servant, so corporations are responsible for employees. Anti-corps want the responbibility to go even further to the stockholders. But why stop there? Why not make the customers responsible too? And let’s throw in the bond holders. Then let’s add the suppliers. How about the relatives of stock and bond holders?

The corporation is a legal fiction. Are there any persons within it where the buck stops? Created in order to free investors from downside risks, the limited liability has removed incentives for investors to keep executives and managers under control and to monitor business risks. Although small corporations remain under investor control, the result has been the growth of large public companies that are owned but not controlled by shareholders, leaving discretion but limited downside risk to employees, managers and executives.

Of course I’m being ridiculous. My point is where do you draw the line of responsibility for the actions of coroporate employees? Stopping with the stockholders is an arbitrary judgement. You need some principle that can delineate who is responsible for the actions of another. Traditionally, that line is drawn where control of the actions of the other party ends.

As for line drawing, voluntary creditors are all able to investigate whom they deal with, and to negotiate risks and prices. Victims of torts are seldomly so situated. But the problem of corporations leaving real victims behind is precisely why governments have started to seek further pockets, such as lenders and suppliers (via Superfund laws, for example), to require firms to post bonds and maintain certain capital levels, and why governments have fallen to the temptation to heavily regulate “public” firms.

As for what “tradition” was and where lines used to be drawn, surely you recognize that before limited liability corporations were established, investors had unlimited liability for losses – and risks for widespread torts were much lower? Unlimited shareholder liability was once more common than limited liability, and large markets like Lloyds until recently required that all Names bear unlimited liability for losses. It used to be that most small businesses and partnerships were structured with unlimited liability; now with LLCs and LLPs, there is a rush into structuring as limited members, precisely to limit liabilities.

8.  Published: December 15, 2008 8:50 AM (emphasis added)

9.  Published: December 16, 2008 5:10 AM (emphasis in original)

You: Again: shareholders are not investors necessarily. In any case, you are question-begging. It’s not a fair presumption for the libertarian–that’s the issue here.

While I would agree with you that there should be no presumption that shareholders SHOULD have tort liability – after all, that should be a decision that depends on the facts of particular cases – I think it’s pretty clear that the blanket grant of limited liability has in fact acted to shield shareholders (and initial investors) from tort liability.

You: Yeah, like you mean, the President or CEO, or manager or boss? Sure. These guys run the company. Not shareholders.

Yes, the guys who run the company ought to be liable, but in some cases, controlling shareholders as well. Most individuals simply don’t have the assets to cover all of the risks, so a blanket rule that stops tortfeasor liability with the firm is clearly wrong.. Note that there are no rules that require managers, executives or even firms to acquire insurance sufficient to cover all risks created by corporate activity.

You: I don’t think so. It’s primarily for contractual liability limitation, which would continue to exist in a free society. Tort liability could easily be handled by insurance.

Stephan, come on. The partnerships could contract for liability limitations without a limited liability form; they have been moving rapidly into LLCs and LLPs solely to slough off risk to their personal assets for torts; for the same reasons, big firms that are already corporations separately incorporate subs for dangerous activities in order to limit potential liability for damages (both for torts and to creditors).

You: Yep, when formalities are not followed or a shareholder is too dominant and really acts as a manager.

My point about veil-piercing is that such cases show that no general state grant of limited liability is justified. The doctrine itself is extremely inconsistently used, in part because given the legal grant of limited liability courts are reluctant to use their equity power.

You: Well, if the state is abolished as we want, any “externalities” would go away.

Yeah, “IF”. Until then, there is certainly a lot of externalization that takes place, which seems to excite a few people.

You: Right, I agree. Thoguh even in today’s law, if a shareholder is in a position of control, it’s either (a) because he’s also a manager or director; or (b) he goes beyond his passive shareholder role and pushes the company to do his bidding. In case (a), he’s not protected by limited liability. In case (b), well,l of ten in such cases the corporate veil would be pierced, again reaching his personal assets.

I am happy that you agree that shareholders in a position of control should not be able to escape liability merely because they use the corporate form.

You: I actually think it’s got nothing to do w/ the bargain they thought they were entering, since A and B cannot contractually limit C’s tort-recover rights. However, I do agree w/ you that their ability to control is key. Now you appear to have swung in my direction on this.

In any particular case, I agree with you that actual ability to control is key. But generally, the state grant of limited liability is wrong and should be repealed.

Me: Stephan, I’m only discussing the difference a shareholder and an investor because you seem to think it’s importance.
You: I think they are *different*. The investor *gives money to* the company. The shareholder *votes for directors*. Both are different ways of having an affect on the company. The advocate of vicarious liability could make a separate argument based on each action for liability. Both are flawed, but in different ways.

I’m not sure that there’s a relevant distinction. If an investor provides money to a firm, he does so in exchange for a bargain of certain rights and liabilities; any purchaser simply steps into his shoes. Granted, if an investor or shareholder has separately taken actions that make him liable for a tort, that liability is not conveyed by a sale. I do not otherwise presume that a shareholder, by virtue of owning shares and having rights (and maybe an obligation to fully pay up shares), should become liable for the torts of others.

You: Small companies cut all kinds of corners–tons of illegal dumpting etc. It’s decnetralized and harder to track. And of course the biggest polluter is the state–e.g., w/ its wars. In any event, I don’t see that teh danger of toxic torts implies that shareholders have vicarious liabiltiy for torts of others.

I agree with you about small firms and the state, but large firms pollute – often as part of doing business with government – and generate risks too. The point is that the state grant of limited liability has as its purpose cutting off liability at the corporate level, thereby freeing shareholders. Without such a grant, investors and shareholders in firms would be much more careful about the risks that they generate.

You: it’s not obvious to the anticorpo crusaders, who think it’s a Holy Crime to NOT impute liability to them! They “are” “owers,” after all!

Thanks for the acknowledgement that *merely being a shareholder* is not by itself a sufficient basis to exclude a shareholder from liability. But there you go again, “yapping” about other people who aren’t on this thread!

Me: In addition there’s a larger point – without limited liability, shareholders would have had potentially unlimited liablility,
You: Auugh! No, they wouldn’t. Not if they were merely passive shareholders.

I agree with you that merely passive shareholders probably would not have liability, but the potential risk is there that they would have to face. They could wall off the risk by insurance (which would put an insurer in a position to evaluate the riskiness of a business and the degree of insulation that a shareholder is afforded by how the rights of shareholders are structured), or self-insure by making a similar analysis. But absent the limited liability rule, no doubt some shareholders would opt for measures that ensure better management by the company of risks of injury to third parties.

Me: I’m not opposed to a nuanced and fact-specific approach, but the fact is that the grant of limited liability has essentially eviscerated it.
You: Probably; but none of us are in favor of a state grant of limited liability.

Progress!

You: We just think that the left’s focusing on this as the Root of All Evil is confused and misplaced.

It does sound like it may be confused, but is it really misplaced? My own view is that without a state grant of limited liability on torts that we would see greater shareholder efforts to control the risks of injury to third parties, more responsible corporate behavior, more responsible management, fewer efforts by citizens groups to get government to impose asset/bonding requirements, to impose broader liability in pollution cases (Superfund), andliability toviscousdidn’t rdon’tegulate. There would be less vilification of corporations generally.

Me: “How about actually answering my question? Where does “the state” impose vicarious tort liability? The common law is not state-imposed.
You: sure it is; and in any event, it is not necessarily libertarian.

Howliability about actually answering my question? Where does “the state” impose vicarious tort liability?

You: No. I still think it’s unjust for them to have liability where it’s not warranted–it’s just that it would make little difference, which shows that this is just a straw man for the left–it masques their real issue which is hostility to modern business and capitalism.

Again, I’m not “the left” (and off of this site I am considered radically right); it may be a strawman for some of them, but I actually think that the grant of limited liability has had serious pernicious affects and removing it would be a great positive step. Under libertarian principles, individuals are responsible to the full extent of their assets for their harms to others; the creation of legal entities with limited liability for torts has allowed for the massive generation of risks, without regard to whether such risks are backed by the assets of real individuals. Rather, such risks are cut off by fiat at the corporate level, allowing shareholders to take profits for the upside of gains but not having to bear downside risk. 

To be continued.

[Note: some typos have been fixed.]

What are YOUR thoughts on the movie “Avatar“? Is it just an enviro fantasy? Or is it an allegory for what is “property”, and what is worth banding together with other people to defend?

The struggle to protect community/common property that James Cameron addressed in Avatar is still very much underway; see this from recent news?

It differs only in degree from the role of governments and corporations in resource development and pollution in the US, Canada, Europe, Japan, China, India, etc. etc.

[This is an edited re-post.]

Libertarians have not quite focussed on how the state grant of limited liability to shareholders – something that cannot be obtained merely by voluntary transactions) has set in motion and greatly fuelled the growth of the state and battles over the wheel of government — battles in which insider elites, generally acting through corporations, have the overwhelming advantage.

I have posted extensively on limited liability; for the interested reader perhaps the following post will be a quick introduction:

The Cliff Notes version of my stilted enviro-fascist view of corporations and government

For those of you who prefer NOT to let their fingers do the walking, I have noted elsewhere that (ed: some slight revisions):

“I am NOT arguing FOR a general rule that shareholders SHOULD be liable for corporate torts; rather, I have:

(1) pointed out that limited liability itself has served to muddle the question of whom, exactly, should be responsible for the very real harms that corporations frequently cause,

(2) noted that the limited-liability corporate form has enabled risk-generation and -shifting on a massive scale, with innocent third parties frequently being stuck holding the bag (not simply when liabilities exceed assets, but more generally since the cycle of escalating government interventions to rein in corporations perversely ends up raising barriers to entry and giving corporations “rights” to engage in activities that damage others, which rights curtail recourse even when sufficient assets are available),

(3) argued that libertarians should reconsider the grant of limited liability for torts (as opposed to limited liability as to those who contract with the corporation on a voluntary basis) not simply because it is clearly non-libertarian to begin with, but because it has had profound consequences in feeding the snowballing and increasingly centralized regulatory state– consequences at a serious enough level that state-loving libertarians concede simply by troubling themselves to argue against curtailing limited liability,

(4) noted that the most efficiacious way to roll back the regulatory state lie in the direction of shifting ultimate responsibility for managing risks to enterprise owners (and ending the counterproductive regulatory risk-management experiment), and

(5) noted that a curtailment of limited liability for torts could be hedged by shareholders via insurance, and could be achieved by state governments and the federal government offering more lenient regulation to busness enterprises that operate as partnerships, unlimited liability corporations, or in cases where shares are NOT “fully paid up” so that calls for signifcant additional capital could be made against shareholders if needed to pay claims. “Creative destruction” by new firms will eventually bring down the limited liability firms.

I am prompted by recent events to follow up on thoughts I emailed to Sheldon Richman a few months back:

I feel strongly that If we want to fix the country (and if libertarians don’t want to be dismissed as irrelevant/patsies for rent-seekers) we need to find ways to restore shareholder ownership of downside risk. This is the only way to back away from the destruction of communities and our natural and government commons by faceless elites through corporations – and the battle for control over Government micromanagement that so often is captured by corporations and serves as barriers to entry.

Insurers would step in to help shareholders and act as a check on management.

The states that create corporations retain power under the 14th Amendment to discriminate in favor of local, unlimited liability forms of corporation or corporations in which shares are not fully-paid up. There is nothing like a substantial risk tail to focus shareholders on managing management.

In addition, allow me to summarize thoughts that I have posted extensively elsewhere. The state has institutionalized moral hazard and exacerbated principal-agent problems via the grant of limited liability to corporate shareholders. This grant is at the core of why investors chose to us the corporate form (as opposed to traditional partnerships and older versions of corporations where shareholders retained substantial risk), and is something that cannot be obtained merely by voluntary transactions – as it involves future potential involuntary victims of acts by the new corporate legal entity (lenders and other parties can of course agree in advance to liability caps and recourse limits). 

This state intervention has set in motion and greatly fuelled the growth of government and battles with citizen groups over the wheel of government — battles in which insider elites, generally acting through long-lived and deep pocketed corporations that are armed with greater knowledge and cloaked with anonymity, have the overwhelming advantage. I earlier summarized these dynamics here: The Cliff Notes version of my stilted enviro-fascist view of corporations and government

As I have noted elsewhere: I am NOT arguing FOR a general rule that shareholders SHOULD be liable for corporate torts. Rather, I：

(2) note that the limited-liability corporate form has enabled risk-generation and -shifting on a massive scale, with innocent third parties frequently being stuck holding the bag (not solely when liabilities exceed assets, but more generally since the cycle of escalating government interventions to rein in corporations perversely ends up raising barriers to entry and giving corporations regulatory “rights to pollute” that curtail liability even when sufficient assets are available),

(3) argue that libertarians should reconsider the grant of limited liability for torts (as opposed to limited liability as to those who contract with the corporation on a voluntary basis) not simply because it is clearly non-libertarian to begin with, but because it has had profoundly perverse consequences (consequences at a serious enough level that state-loving libertarians in effect concede simply by troubling themselves to argue against curtailing limited liability),

(4) note that the most efficacious way to roll back the regulatory state lie in the direction of shifting ultimate responsibility for managing risks to enterprise owners (and ending the counter-productive regulatory risk-management experiment), and

I alerted readers in January to a blog post on libertarianism and the environment by Dr. Judith Curry, who heads the School of Earth and Atmospheric Sciences at the Georgia Institute of Technology, and is known for her work on hurricanes, Arctic ice dynamics and other climate-related topics.

Scientific American  noted last October, in “Climate Heretic: Judith Curry Turns on Her Colleagues; Why can’t we have a civil conversation about climate?“, that:

over the past year or so she has become better known for something that annoys, even infuriates, many of her scientific colleagues. Curry has been engaging actively with the climate change skeptic community, largely by participating on outsider blogs such as Climate Audit, the Air Vent and the Black­board. Along the way, she has come to question how climatologists react to those who question the science, no matter how well established it is. Although many of the skeptics recycle critiques that have long since been disproved, others, she believes, bring up valid points—and by lumping the good with the bad, climate researchers not only miss out on a chance to improve their science, they come across to the public as haughty. “Yes, there’s a lot of crankology out there,” Curry says. “But not all of it is. If only 1 percent of it or 10 percent of what the skeptics say is right, that is time well spent because we have just been too encumbered by groupthink.”

While I recommend that interested readers review the whole thread, I copy below my comments and some related:

TokyoTom | January 7, 2011 at 2:52 am | Reply

Judith, a climate scientist friend kindly gave me gave me a head’s up to your post.

I have been blogging and commenting for quite some time on environmental and climate issues from a libertarian perspective, and have also spent considerable time on trying both to help libertarians engage productively on environmental issues and to help leftist-environmentalists understand where libertarians are coming from.

Sadly, it’s largely a messy tale, reflecting how fights over government policy tend toward zero-sum games that blunt cooperation, the success that fossil fuel and other corporate interests have had in gaming the system, and how our tribal human nature leads many to abandon critical thinking in favor of choosing and reflexively defending sides and positions.

I have been highly critical of many libertarians in perpetuating unproductive discord, and have been the resident environmentalist pain-in-the-neck at the Ludwig von Mises Institute (for libertarian economics), which kindly hosts my blog. In particular, even while try to build bridges I have been critical of the Cato Institute, Competitive Enterprise Institute, Heartland Institute and MasterResource, which I view as being skewed by donations toward corporate agendas. There are of course some highly productive libertarians working on environmental and conservation matters; Terry Anderson and others at PERC (Properrty and Environment Research Center) have led the way on fisheries, water and other issues. (And then there are quasi-libertarians like Elinor Ostrom.)

Since you’ve expressed interest, allow me to load you up with a few links, to my exchanges with others such as John Quiggin, to my cajoling and castigating of libertarians, and to some of my views on climate/environment issues :

“Towards a productive libertarian approach on climate, energy and environmental issues ” http://bit.ly/ab3xJB

“John Quiggin plays Pin-the-tail-on-the-Donkey with “Libertarians and delusionism” ” http://bit.ly/8Zv5Y6

“A few more comments to John Quiggin on climate, libertarian principles and the enclosure of the commons ” http://bit.ly/eXaTKI

“A few more “delusional” thoughts to John Quiggin on partisan perceptions & libertarian opposition to collective action”http://bit.ly/f0FQ6K

“To John Quiggin: Reassuring climate “delusions” help us all to avoid engaging with “enemies” in exploring common ground ”http://bit.ly/eIFr4e

“The Cliff Notes version of my stilted enviro-fascist view of corporations and government ” http://bit.ly/9oBkC7

The Road Not Taken II: Austrians strive for a self-comforting irrelevancy on climate change, the greatest commons problem / rent-seeking game of our age http://bit.ly/14n6G0

For climate fever, take two open-air atom bombs & call me in the morning; “serious” libertarian suggestions from Kinsella & Reisman!?http://bit.ly/f2bRUr

Thanks, Dr. Reisman; or, How I Learned to Hate Enviros and Love Tantrums http://bit.ly/h4BI0B

“Escape from Reason: are Austrians conservatives, or neocons, on the environment? ” http://bit.ly/cJhov2

“The Road Not Taken V: Libertarian hatred of misanthropic “watermelons” and the productive love of aloof ad-homs”http://bit.ly/cqFlzh

OMG – those ecofascists hate statist corps, too, and even want to – GASP – end that oh-so-libertarian state grant of limited liability!http://bit.ly/gjJFnv

“Who are the misanthropes – “Malthusians” or those who hate them? Rob Bradley and others resist good faith engagement despite obvious institutional failures/absence of property rights ”http://bit.ly/hbONhd

http://mises.org/Community/blogs/tokyotom/search.aspx?q=ostrom

http://mises.org/Community/blogs/tokyotom/search.aspx?q=bradley
http://mises.org/Community/blogs/tokyotom/search.aspx?q=manzi
http://mises.org/Community/blogs/tokyotom/search.aspx?q=michaels
http://mises.org/Community/blogs/tokyotom/search.aspx?q=lewis
http://mises.org/Community/blogs/tokyotom/search.aspx?q=horner
http://mises.org/Community/blogs/tokyotom/search.aspx?q=penn
http://mises.org/Community/blogs/tokyotom/search.aspx?q=bailey

On non-climate issues:

“Too Many or Too Few People? Does the market provide an answer? ” http://bit.ly/8zlecI
http://mises.org/Community/blogs/tokyotom/search.aspx?q=BP+oil
http://mises.org/Community/blogs/tokyotom/search.aspx?q=Avatar

Sincerely,

Tom

• curryja | January 7, 2011 at 7:32 am | Reply

  Tokyo Tom, thanks much for your input. your post originally went to moderation owing to the large number of links.

  • TokyoTom | January 7, 2011 at 10:15 am | Reply

    Dr. Curry, thanks for your indulgence on this; given the time differences (bedtime now!) and my schedule tomorrow, I thought throwing out a few links might be useful (though I may be mistaken!!).

    Tom

  • TokyoTom | January 7, 2011 at 10:24 am | Reply

    If I can add one further thought before I head off to bed, it would be that a key prerequisite (as Ostrom points out) for tackling commons issues like climate change that involves many players and countries is the need for TRUST, an element that is sadly lacking (a resource that libertarian analysis indicates is destroyed by squabbles over government) .

    Bill Gates, Roger Pielke, Avatar & the Climate (of distrust); or, Can we move from a tribal questioning of motives to win-win policies? http://bit.ly/912Xkj

    On climate, myopic progressives console themselves by pointing out fossil $ behind science “skeptics”; but miss the same from left and ignore middle ground http://bit.ly/arSX5G

    ‘Night.

    Tom

• Vaughan Pratt | January 8, 2011 at 6:04 am | Reply

  TokyoTom, take care that your fellow libertarians don’t label you a LINO: “Libertarian In Name Only.”

  Libertarians have a reputation for objecting to anyone messing with their access to fossil fuel . If you’re messing with it, the label “libertarian” may be working against you.

  Anyone undertaking to change the spots of the libertarian leopard may be biting off more than they can chew.

• gryposaurus | January 8, 2011 at 12:42 pm | Reply

  Tom, thanks for the links to your blog. It’s interesting to see Libertarians that are publicized outside of the corporate funded Beltway groups that have hijacked the movement. I’d love to point to you and think that there is still something useful with Libertarian thought, but you seem to have been relegated to a minority within a minority. Good luck and here’s hoping your message gets through to your fellows.

  • TokyoTom | January 8, 2011 at 8:27 pm | Reply

    Grypo and Vaughan:

    Let me note that though I don’t include myself among them, there are ‘left-libertarians’ and ‘anarcho-libertarians’ who are consistently quite critical of corporate statism and pro-environment (though they haven’t been too outspoken on climate.

    See, for example:

    http://mises.org/Community/blogs/tokyotom/archive/2010/06/16/a-bp-reader-statist-corporations-quot-the-environment-quot-and-the-tragedy-of-the-government-owned-managed-commons.aspx

    http://aaeblog.com/2010/06/08/roundup-on-bp/comment-page-1/#comment-356997

    http://c4ss.org/content/2446

    On climate, I have linked to various sympathetic libertarian comments at “”Towards a productive libertarian approach on climate, energy and environmental issues ” http://bit.ly/ab3xJB

    Ron Bailey, science writer at Reason Online, is also worthy of mention:http://mises.org/Community/blogs/tokyotom/search.aspx?q=bailey

    TT

Readers may recall my ongoing criticisms of Lew Rockwell, Stephan Kinsella and many others over their sympathy for and defense of statist mega-corporations like BP , their preference for confused attacks on “abstractions” like “the environment” (shared common or publicly-owned resources not under effective privatre control) while ignoring the role that “abstractions” like corporations playing in resolving or aggravating problems of human plan formation and conflict resolution, and for pretending that the unjustifiable state grant of limited liability to shareholders is inconsequential and has nothing to do with rapidly growing endemic/systemic corporate statism, so-called corporate “agency problems” (the struggles among, shareholders, executives, employees, and citizens groups/lawyers for control when clear owners are absent and costs/risks are externalized) and management failures in the financial industries and elsewhere?.

Clearly, the state grant of limited liability corporate status cannot be justified under libertarian principles; it was also an anathema to our Founding Fathers, who hated corporations (unlike their mistaken willingness to embed patents and copyright in the Constitution). It has long been crucial to investors choosing to incorporate (as opposed to accepting shared liability with their partners for the acts of their agents), and has had far-reaching consequences even greater than state-granted IP. Why, then, are libertarians defending ANY grants of limited liability? There are other forms of business organization available; such as sole proprietorships, classic, common-law contract-based partnerships, and “unlimited liability” corporations (American Express was an “unlimited liability” corporation for much of its history), firms whose capital is not “fully paid-in” (so that the company has a right to require shareholders to contribute more capital should existing capital be insufficient to pay debts).

In each of these cases, since shareholders have not been excused by government from potential personal liability for corporate acts (only people act, of course, but corporations have muddled all of this and become massive buck-passing machines), they retain a large tail of potential liaibility and so are all relatively incentivized to control risks that their agents may create. More exposure to risk will lead to more responsible behavior, and will abate call for more government interference. States all retain rights under the 14th Amendment to regulate different forms of business orgaizations differently, so they as well as federal regulators could lower regulatory barriers for unlimited liability corporations. 

But will capitalism collapse if voters and legislators end or disfavor limited liability corporations? Hardly: entrepreneurs, investors and shareholders might willingly choose forms of organization that do not need to be as heaviliy regulated by governments, and insurance and rating agencies would surely step into the breach with respect to the increased risk borne by shareholders – at cost of course, a cost that represents the risks that would otherwise be shifted to society as a whole. One effect would surely be a reduction in the calls by citizens groups for “corporate social responsibility” legislation.

But enough of prologue — did any readers see the rather startling – and in my mind  also rather mis-guided – piece in the January Harvard Business Review by Michael Porter (a professor at Harvard Business School) and Mark R. Kramer (a senior fellow at Harvard’s Kennedy Schoo of Government)? Entitled “The Big Idea: Creating Shared Value“, it is accompanied by an interview of Michael Porter entiled “Rethinking Capitalism“. Both are worth a review and head-scratching by LvMI and other readers.

It seems to me that Porter’s core points are the following:

The capitalist system is under siege. In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.

Even worse, the more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures. The legitimacy of business has fallen to levels not seen in recent history. This diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth. Business is caught in a vicious circle.

A big part of the problem lies with companies themselves, which remain trapped in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success. How else could companies overlook the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, or the economic distress of the communities in which they produce and sell? How else could companies think that simply shifting activities to locations with ever lower wages was a sustainable “solution” to competitive challenges? Government and civil society have often exacerbated the problem by attempting to address social weaknesses at the expense of business. The presumed trade-offs between economic efficiency and social progress have been institutionalized in decades of policy choices.

Companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core.

The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking. ….

The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society. Perhaps most important of all, learning how to create shared value is our best chance to legitimize business again.

An article (nay, essentially a press release) by a Harvard-related commenter at BNET (the CBS Interactive Business Netwrok) says the folllowing (emphasis added):

Few people are as associated with modern capitalism as Harvard Business School professor Michael Porter, whose theories on strategy and competitiveness have shaped the direction of countless corporations.

So his latest article in Harvard Business Review comes as a shocker. Porter… argues that companies are locked in an “outdated” approach to creating value, focused on short-term profit while forgetting what they can do to benefit society–investments, by the way, that would pay off by ensuring long-term success.

One result: People have justifiably lost trust in business and are even questioning the very notion of capitalism.

… The idea that business has sold its soul in the pursuit of quick profit is nothing new, of course. But Porter and Kramer bring to the party a wealth of knowledge on the mutual benefits derived from a linking of economic and social goals.

And they create a new vision of how to get it done, a framework they call the “principle of shared value.”

The solution “involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.”

Some of the other highlights:

New skills required. Leaders and managers must develop skills and knowledge that give them a keen appreciation of societal needs, the ability to work across profit/nonprofit boundaries, and a deep understanding of how business productivity serves more than shareholders.

Government’s role re-conceived. Regulators must create policies, regulations and laws in ways that support shared value rather than work against it.

Broaden the role of capitalism. Companies have taken too narrow a definition of capitalism. We should be looking to business to help solve the world’s great problems, the authors argue. “The moment for a new conception of capitalism is now; society’s needs are large and growing, while customers, employees, and a new generation of young people are asking business to step up.”

The full article is …is bound to be one of the most debated and discussed thought pieces in 2011, you’ll want to check it out.

Some argue that business has no obligation beyond serving customers, creating jobs and, yes, making a profit for stakeholders. Isn’t it enough that companies already bankroll the health benefits of millions of Americans? Are you one of these capitalism minimalists? Or does business have broader mission to improve the society in which it operates?

Anybody wanna tell Mr. Porter that we can “fix capitalism” simply by ending limited liability – leaving owners to replace society and governments as the parties most interested in making sure that corporate managers are not creating too much risk? 

Far from needing new principles, we need a revival of OLD ones – of self-responsibility, rather than government-enabled risk-shifting.

Here’s the 15-minute video:

[View:http://www.youtube.com/watch?v=LrsjLA2NGTU:550:0]

Wow — The American Conservative is now running a sympathetic overview by Sheldon Richman on the “Libertarian Left” (subheading, Free-market anti-capitalism, the unknown ideal).

Have conservatives lost their senses, or have they come to realize that the statist rot at the core of American “capitalism” is growing out of control?

Even libertarians who don’t consider themselves on the left (FWIW, I consider myself as a screwed-up RIGHT-leaning libertarian) will find the piece thought-provoking and insightful.

But it strikes me as funny that, if I judge from Sheldon’s piece, Left-Libertarians have not quite focussed on how the state grant of limited liability to shareholders – something that cannot be obtained merely by voluntary transactions) has set in motion and greatly fuelled the growth of the state and battles over the wheel of government — battles in which insider elites, generally acting through corporations, have the overwhelming advantage.

I have posted extensively on limited liability; for the interested reader perhaps this post will be a quick introduction:

The Cliff Notes version of my stilted enviro-fascist view of corporations and government

For those of you who prefer to not let their fingers do the walking, as I have noted elsewhere: “I am NOT arguing FOR a general rule that shareholders SHOULD be liable for corporate torts; rather, I have：

So I wondered when I saw William Grigg’s “When Goliath Is the ‘Victim’” post at LRC last month.

The first paragragh hinted at the answer, while leaving me hopeful:

How does one simultaneously swagger and simper? Is it possible for someone to beat pridefully on his chest, even as his lip quivers in self-pity? Apparently so, given the evidence provided in Charles Krauthammer’s column today (December 3).

A little more reading left me disappointed, as I couldn’t help recalling the sympathies expressed by Lew Rockwell and Stephan Kinsella for poor li’l BP:

http://mises.org/Community/blogs/tokyotom/archive/2010/05/09/risk-shifting-bp-and-those-nasty-enviros.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/05/09/stephan-kinsella-on-bp-if-we-close-our-eyes-tightly-enough-we-can-make-the-government-role-in-generating-corporate-risk-shifting-and-moral-hazard-go-away.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/06/20/more-about-quot-the-biggest-victim-quot-bp-and-how-we-can-help-it-end-its-quot-victimization-quot.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/06/18/341436.aspx

http://mises.org/Community/blogs/tokyotom/search.aspx?q=BP+gulf

But I keep forgetting that we love statist corporations here, and hate the foolish “enviros” and other citizens who think that their only recourse against them is a bigger government.

Will I ever learn? Here’s to hope in the New Year!