Matt Taibbi’s post last month in Rolling Stone is worth a read:

How I Stopped Worrying and Learned to Love the OWS Protests

Taibbi is still unable to put his finger on what I think the Ocuppy movement is about – a manifestation of the desire by hopeful people to rebuild meaningful civic life and social capital in the face of erosion by corporatism, and to insist on greater accountability at a local level of both business and government – but he’s at least making an honest effort.

I recommend the whole post. but I excerpt below (emphasis added):

… The first few times I went down to Zuccotti Park, I came away with mixed feelings. I loved the energy and was amazed by the obvious organic appeal of the movement, the way it was growing on its own. But my initial impression was that it would not be taken very seriously by the Citibanks and Goldman Sachs of the world. You could put 50,000 angry protesters on Wall Street, 100,000 even, and Lloyd Blankfein is probably not going to break a sweat. He knows he’s not going to wake up tomorrow and see Cornel West or Richard Trumka running the Federal Reserve. He knows modern finance is a giant mechanical parasite that only an expert surgeon can remove. Yell and scream all you want, but he and his fellow financial Frankensteins are the only ones who know how to turn the machine off.

That’s what I was thinking during the first few weeks of the protests. But I’m beginning to see another angle. Occupy Wall Street was always about something much bigger than a movement against big banks and modern finance. It’s about providing a forum for people to show how tired they are not just of Wall Street, but everything. This is a visceral, impassioned, deep-seated rejection of the entire direction of our society, a refusal to take even one more step forward into the shallow commercial abyss of phoniness, short-term calculation, withered idealism and intellectual bankruptcy that American mass society has become. If there is such a thing as going on strike from one’s own culture, this is it. And by being so broad in scope and so elemental in its motivation, it’s flown over the heads of many on both the right and the left.

The right-wing media wasted no time in cannon-blasting the movement with its usual idiotic clichés, casting Occupy Wall Street as a bunch of dirty hippies who should get a job and stop chewing up Mike Bloomberg’s police overtime budget with their urban sleepovers. Just like they did a half-century ago, when the debate over the Vietnam War somehow stopped being about why we were brutally murdering millions of innocent Indochinese civilians and instead became a referendum on bralessness and long hair and flower-child rhetoric, the depraved flacks of the right-wing media have breezily blown off a generation of fraud and corruption and market-perverting bailouts, making the whole debate about the protesters themselves – their hygiene, their “envy” of the rich, their “hypocrisy.”

The protesters, chirped Supreme Reichskank Ann Coulter, needed three things: “showers, jobs and a point.” Her colleague Charles Krauthammer went so far as to label the protesters hypocrites for having iPhones. OWS, he said, is “Starbucks-sipping, Levi’s-clad, iPhone-clutching protesters [denouncing] corporate America even as they weep for Steve Jobs, corporate titan, billionaire eight times over.” Apparently, because Goldman and Citibank are corporations, no protester can ever consume a corporate product – not jeans, not cellphones and definitely not coffee – if he also wants to complain about tax money going to pay off some billionaire banker’s bets against his own crappy mortgages.

Meanwhile, on the other side of the political spectrum, there were scads of progressive pundits like me who wrung our hands with worry that OWS was playing right into the hands of assholes like Krauthammer. Don’t give them any ammunition! we counseled. Stay on message! Be specific! We were all playing the Rorschach-test game with OWS, trying to squint at it and see what we wanted to see in the movement. Viewed through the prism of our desire to make near-term, within-the-system changes, it was hard to see how skirmishing with cops in New York would help foreclosed-upon middle-class families in Jacksonville and San Diego.

What both sides missed is that OWS is tired of all of this. They don’t care what we think they’re about, or should be about. They just want something different.

We’re all born wanting the freedom to imagine a better and more beautiful future. But modern America has become a place so drearily confining and predictable that it chokes the life out of that built-in desire. Everything from our pop culture to our economy to our politics feels oppressive and unresponsive. We see 10 million commercials a day, and every day is the same life-killing chase for money, money and more money; the only thing that changes from minute to minute is that every tick of the clock brings with it another space-age vendor dreaming up some new way to try to sell you something or reach into your pocket. The relentless sameness of the two-party political system is beginning to feel like a Jacob’s Ladder nightmare with no end; we’re entering another turn on the four-year merry-go-round, and the thought of having to try to get excited about yet another minor quadrennial shift in the direction of one or the other pole of alienating corporate full-of-shitness is enough to make anyone want to smash his own hand flat with a hammer.

If you think of it this way, Occupy Wall Street takes on another meaning. There’s no better symbol of the gloom and psychological repression of modern America than the banking system, a huge heartless machine that attaches itself to you at an early age, and from which there is no escape. You fail to receive a few past-due notices about a $19 payment you missed on that TV you bought at Circuit City, and next thing you know a collector has filed a judgment against you for $3,000 in fees and interest. Or maybe you wake up one morning and your car is gone, legally repossessed by Vulture Inc., the debt-buying firm that bought your loan on the Internet from Chase for two cents on the dollar. This is why people hate Wall Street. They hate it because the banks have made life for ordinary people a vicious tightrope act; you slip anywhere along the way, it’s 10,000 feet down into a vat of razor blades that you can never climb out of.

That, to me, is what Occupy Wall Street is addressing. People don’t know exactly what they want, but as one friend of mine put it, they know one thing: FUCK THIS SHIT! We want something different: a different life, with different values, or at least a chance at different values.

There was a lot of snickering in media circles, even by me, when I heard the protesters talking about how Liberty Square was offering a model for a new society, with free food and health care and so on. Obviously, a bunch of kids taking donations and giving away free food is not a long-term model for a new economic system.

But now, I get it. People want to go someplace for at least five minutes where no one is trying to bleed you or sell you something. It may not be a real model for anything, but it’s at least a place where people are free to dream of some other way for human beings to get along, beyond auctioned “democracy,” tyrannical commerce and the bottom line.

We’re a nation that was built on a thousand different utopian ideas, from the Shakers to the Mormons to New Harmony, Indiana. It was possible, once, for communities to experiment with everything from free love to an end to private property. But nowadays even the palest federalism is swiftly crushed. If your state tries to place tariffs on companies doing business with some notorious human-rights-violator state – like Massachusetts did, when it sought to bar state contracts to firms doing business with Myanmar – the decision will be overturned by some distant global bureaucracy like the WTO. Even if 40 million Californians vote tomorrow to allow themselves to smoke a joint, the federal government will never permit it. And the economy is run almost entirely by an unaccountable oligarchy in Lower Manhattan that absolutely will not sanction any innovations in banking or debt forgiveness or anything else that might lessen its predatory influence.

And here’s one more thing I was wrong about: I originally was very uncomfortable with the way the protesters were focusing on the NYPD as symbols of the system. After all, I thought, these are just working-class guys from the Bronx and Staten Island who have never seen the inside of a Wall Street investment firm, much less had anything to do with the corruption of our financial system.

But I was wrong. The police in their own way are symbols of the problem. All over the country, thousands of armed cops have been deployed to stand around and surveil and even assault the polite crowds of Occupy protesters. This deployment of law-enforcement resources already dwarfs the amount of money and manpower that the government “committed” to fighting crime and corruption during the financial crisis. One OWS protester steps in the wrong place, and she immediately has police roping her off like wayward cattle. But in the skyscrapers above the protests, anything goes.

This is a profound statement about who law enforcement works for in this country. What happened on Wall Street over the past decade was an unparalleled crime wave. Yet at most, maybe 1,500 federal agents were policing that beat – and that little group of financial cops barely made any cases at all. Yet when thousands of ordinary people hit the streets with the express purpose of obeying the law and demonstrating their patriotism through peaceful protest, the police response is immediate and massive. There have already been hundreds of arrests, which is hundreds more than we ever saw during the years when Wall Street bankers were stealing billions of dollars from retirees and mutual-fund holders and carpenters unions through the mass sales of fraudulent mortgage-backed securities.

It’s not that the cops outside the protests are doing wrong, per se, by patrolling the parks and sidewalks. It’s that they should be somewhere else. They should be heading up into those skyscrapers and going through the file cabinets to figure out who stole what, and from whom. They should be helping people get their money back. Instead, they’re out on the street, helping the Blankfeins of the world avoid having to answer to the people they ripped off.

People want out of this fiendish system, rigged to inexorably circumvent every hope we have for a more balanced world. They want major changes. I think I understand now that this is what the Occupy movement is all about. It’s about dropping out, if only for a moment, and trying something new, the same way that the civil rights movement of the 1960s strived to create a “beloved community” free of racial segregation. Eventually the Occupy movement will need to be specific about how it wants to change the world. But for right now, it just needs to grow. And if it wants to sleep on the streets for a while and not structure itself into a traditional campaign of grassroots organizing, it should. It doesn’t need to tell the world what it wants. It is succeeding, for now, just by being something different.

Robert A.G. Monks is another well-known Republican now railing at runaway crony capitalism and its related corruption of government.  I have referred to Monks twice previously:

More by Bob Monks on the shareholder marginalization at the core of the crisis of public corporation capitalism

WSJ: Governance guru Robert A.G. Monks blames investors for crisis (but both he and WSJ miss that irresponsible, ineffective shareholders is a consequence of limited liability and “public co” regulation)

Before embarking on a 40-year crusade as a corporate governance consultant, Monks had an extensive history in business and government. He was once the Republican candidate for Senate from Maine and corporate governance adviser in the film “The Corporation“. According to Wikipedia, “Monks has written widely about corporate governance and has published more than a hundred papers in publications around the world.He was the recipient of the Award for Outstanding Financial Executive from the Financial Management Association in 2007. Monks is the subject of a biography chronicling the corporate governance movement, A Traitor to His Class by Hilary Rosenberg.

Bob Monks’ 30-Year Crusade“, 2003), “In the early 1980s, Monks established Institutional Shareholder Services, a leading corporate governance consulting firm, and, in the early 1990s, he opened Lens Asset Management, a fund that used shareholder activism to shake up underperforming companies. But today — in the aftermath of Enron, the corporate profligacy of Tyco International management and the like — Robert A. G. Monks appears to be a man for the moment. Monks, author of the book The New Global Investors, argues that shareholders, especially large institutional investors, have become passive, essentially abandoning their responsibility of overseeing the behavior of executives who are charged to serve them, and, Monks argues, the common good.”

Monks’ books include:

• Power & Accountability. HarperCollins, 1991. (with Nell Minow)
• Watching the Watchers. Capstone, 1996. (with Nell Minow)
• The Emperor’s Nightingale. Saint Simons Island, Georgia: Brook Street, 1999.
• The New Global Investors. Capstone, 2001.
• Capitalism Without Owners Will Fail: A Policymaker’s Guide to Reform. London: CSFI, 2002. (with Allen Sykes)
• Reel and Rout. Saint Simons Island, Georgia: Brook Street, 2004.
• Corpocracy. New York; Wiley, 2007.
• Corporate Valuation for Portfolio Investment. London: Wiley, 2010. (with Alexandra Lajoux)
• Corporate Governance (5th Revised Edition). London: Wiley, 2011. (with Nell Minow)

His blog is here. Below I cross-post in full , with his approval, Bob Monk’s October 31, 2011 post, together with the comment I left in response at his blog (emphasis added)

Corporate Power & Government Capture

I left the following comment in response at Bob’s blog (emphasis added):

Allow me to shill for Gonzalo Lira, a Chilean-American novelist, filmmaker, founder of the Strategic Planning Group, and an economic blogger who contributes  to Zero Hedge, naked capitalism, Seeking Alpha and Business Insider.

I ran across an interesting blog post by Lira that, in contrast with other pieces on LvMI (such as George Reisman‘s), expresses strong support for the “Occupy” movement. 

Lira kindly gave me permission to cross-post his piece. (I note that I seem to be more of a classic liberal and skeptic of government than Lira, and so I don’t fully endorse his ‘conservative’ positions.)

Why I Support The Occupy Movement (emphasis added)

In addition to the comment that I blogged the other day regarding Jeffrey Tucker’s June 2 post, Scrupulosity and the Condemnation of Every Existing Business, I posed a question to Jeffrey in response to this further comment by him:

But Rothbard was not just an anarchist. He was an anarcho-CAPITALIST. From what I can tell, Rothbard has yet to win THAT victory among libertarians. They have learned from his anti-state writings, but have they learned from his economic writings on the absolute centrality of capital accumulation for the advance of civilization?

My question:

Stephan Kinsella kindly jumped in; his response to me on June 4 is here.

I use this blog post to copy my response to Stephan:

 I note my related earlier posts on deposit insurance and moral hazard:

http://mises.org/Community/blogs/tokyotom/search.aspx?q=deposit+insurance

http://mises.org/Community/blogs/tokyotom/search.aspx?q=moral+hazard

Rob Bradley has up a post at the fossil-fuel cheering “free-market” Master Resource energy blog on April 25 that shows Ayn Rand’s familiarity with the mis-regulation of the energy industry. The post itself is fairly apt, except that while it paints the energy producers as victims of erratic government regulations it ignores those whose health and property were damaged by the energy industry and gives little play to the role of major firms in pushing for and benefitting from regulation.

But the chief point I wish to make is that Bradley’s post ends with a quote from Rand that is intended to criticize government but actually resonates because of the statism and poor decision-making of the major industry players themselves: (emphasis added)

There is no “natural” or geological crisis; there is an enormous political one. It is in the nature of a mixed economy that its policies are rationally inexplicable, that there are no identifiable causes, no accountable initiators, no ascertainable villains — and that you are losing your jobs, giving up your automobiles, catching pneumonia in unheated bedrooms, not because some giant evildoers are plotting your destruction, but because some seedy hack wanted an unearned salary, and some crummy professor wanted an undeserved prestige, and some measly shyster wanted a chance to fish in muddy laws, and none of them cared to or could watch the state of the country’s economy, and the sum of such termite aspirations has eaten through the pillars of the structure so that one kick from a sheik was sufficient to make it crumble.

Hundreds of thousands of people’s livelihoods and thousands of businesses have been disrupted along the Gulf Coast and nearby TEPCO’s Fukushima nuclear power plants, and millions of power consumers in and around Tokyo have been and will be affected for several years, not because of “giant evildoers”, but because major energy firms –  protected by government from full liability and with weak shareholder classes – are themselves highly bureaucratized with no clear locus of responsibility, with executives who look out for their own  interests but have no personal responsibility or liability for the damages resulting from lightly considered but materialized risks.

As I noted in March, F.A. Hayek (in an essay that Jeffrey Tucker has since kindly tracked down and made available generally) noted that:

Where previously perhaps only the aristocracy and its servants were strangers to the rules of the market, the growth of large organisations in business, commerce, finance, and ultimately in government, increased the number of people who grew up without being taught the morals of the market which had been developed in the course of the preceding 2,000 years.  …

People are losing faith in the market because large energy firms themselves are partially insulated from the market and as a consequence are not fully subject to its “taut discipline” – and, as a result, are making decisions that are highly damaging.

One can rightly protest that such firms are creatures of government and have been cosseted by government, so that government is responsible for skewed decision-making. But pointing this does not address the problem posed by institutionalized moral hazard.

Only reforms that restore responsibility and market discipline will do that. Such reforms should include not simply increasing competition and ending government ownership of resources and oversight of corporate risk-managment, but finding ways to ensure that there are real principals who are incentivized to hold corporate agents accountable. Otherwise, pervasive moral hazard and risk-shifting will persist.

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]

 I like Bob Murphy, and think he’s doing very important work in fighting nonsense from the Fed and from Keynesians.

But I am deeply disappointed with his ongoing shallow, partisan and decidedly non-libertarian work that he does for pay for the fossil fuel lobby. It’s not quite Dr. Jekyll versus Mr. Hyde, but it’s very clearly Bob Murphy/libertarian morphing into Bob Murphy/hired-gun-for-rent-seekers. I’ve got to admit that, as a hired gun, Bob still comes off well, even if not convincing to libertarians; the fossil fuel interests are getting their money’s worth!

Bob has a post up on his Free Advice blog  – EPA Will Destroy Jobs, Not Make Them – that excerpts a post of the same name that is now the lead item at the “free market” fossil-fuel lobbying outfit “Institute for Energy Research“(no comments allowed there, of course).

IER was started by fellow rent-seeking “libertarian” Rob Bradley (IER is now in DC; Bradley is CEO but has turned over operations to lobbyists; Bradley now focusses on the “Master Resource” “free market” for-pay fossil fuel think tank that features Bob and a host of other paid apologists for rent-seekers (Rob blocks dissenting libertarians like me).

I couldn’t resist making a few comments at Bob’s (emphasis added) 

And since Robert Reich has invited readers to “send this post to your friends”, I’ve taken the liberty of cross-posting it below.

Before we start, let me remind my readers that I’ve done a fair bit commenting on what I regard as the profoundly mistaken and wrong-headed Citizens United decision. I post this not to aggravate, but to point to a possiblity of reaching a shared agreement on problems.

Here’s Reich (my emphasis and comments in brackets)

The Secret Big-Money Takeover of AmericaThursday, October 7, 2010

Not only is income and wealth in America more concentrated in fewer hands than it’s been in 80 years, but those hands are buying our democracy as never before – and they’re doing it behind closed doors.

More follow-up comments regarding on limited liability, excerpted from the comment thread to Geoffrey Allan Plauche‘s post, “Ecofascism in the Name of Fending Off Ecofascism“. Here is my first post, second post and third post.

TokyoTom September 21, 2010 at 8:40 am

Shay: “What limit is there to who all one can sue for damages? Owners, OK. Shareholders (if that term even applies to non-LLCs)? Employees? Customers?”

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.

Jon Leckie September 21, 2010 at 9:10 am

Hello Tokyo, thanks for a powerful reply. …

You and I are not going to reach agreement in the short run, but it’s been interesting and you’ve given me a lot to think about. I don’t agree with you that all of the evils you identify can be laid at the feet of limited liability. I remain of the view that the abuses of the corporate form must be set against the benefits of allowing investors to mobilise capital in such a way that the downside is limited to the assets originally invested. It may ultimately be demonstrated that the abuses outweigh the upside, but from I have seen you don’t seem to acknowledge any benefits to limited liability. You also don’t seem to consider what the costs of the extra compliance and risk to investors with personal liability: I can tell you from personal experience that compliance and monitoring is not costless and that the burden can sink an otherwise profitable and socially beneficial project. You might say “Well too bad!”, but that’s lost jobs for people, that’s products that won’t be made, that’s wealth foregone.

Ultimately, extraordinary claims require extraordinary evidence. You put so much responsiblity at the feet of limited liability that I don’t think it’s unfair of me to ask for more evidence, better arguments (I may find them on further reading of your blog ). I think Stephan Kinsella’s request of you earlier on this page remains valid, to quote:

“Tom, when you say the state grant of limited liability is not justifiable, this is a… way of trying to reverse the burden of proof. This very statement is relevant ONLY if the grant changes what would be the case anyway. That is, if shareholders would be vicariously responsible under a libertarian theory of cause for torts of employees of corporations they owned shares in.”

I believe I understand your response: “no one else gets to avoid tortious liability to third parties based EITHER on the grant of limited liability of the state or by a private contract, so why should people who stand behind an LLC get to do so? The existence of limited liablity (at least vis a vis third parties) is not the default position, they’re a creation of the state.” (Is that right? I’ve tried to be fair, I’m not interested in strawmen). Nonetheless, I don’t think that is a satisfactory libertarian theory of cause for tortious liability for reasons I’ve tried to set out already (contractual liability can exist absent a state (and thus so can limited liability) how would tortious liability exist absent the state?) and so Kinsella’s request remains valid.

If you think that question is covered, my other objection remains: it must ultimately be demonstrated that the abuses outweigh the upside. The law of unintended consequences applies to every proposal for change, and I don’t think you give fair credit to the role that limited liablity entities play in an advanced economy.

I’ll come and see you at your site, or watch out for a reply here. You’ve helped me clarify my own thinking and I appreciate that a lot. Best, JL.

TokyoTom September 21, 2010 at 2:01 pm

Jon:

Thanks for your response. While my envirofascist skin remains somewhat thin, I am fine with your tone – even if I see you as exaggerating and not fully comprehending my position.

A few comments in response:

“I remain of the view that the abuses of the corporate form must be set against the benefits of allowing investors to mobilise capital in such a way that the downside is limited to the assets originally invested.”

What, if anything, is libertarian about your proposed cost-benefit calculation? In determining whether state-granted limited liability is justifiable, shall we engage in a utilitarian weighing of the advantages to investors against the disadvantages to others?

“you don’t seem to acknowledge any benefits to limited liability”

But I have; but I have also pointed out that most of the benefits could be achieved by contract. It’s the benefits that can ONLY be achieved by government fiat and at the cost of innocent third parties that I object to.

You seem to think that either the intrusion of government here is minor or the cost to innocent third parties is trivial, but I can assure you that it is not. Indeed, much of what is wrong with the US in particular and with the world more generally can be laid at the foot of wide-scale government-enabled risk-shifting and moral hazard of the type seen in grants of limited liability and the concomitant cycle of regulation (in which the losers are always a number of steps behind) that such grants have set off.

“compliance and monitoring is not costless and that the burden can sink an otherwise profitable and socially beneficial project.”

I’m quite aware that compliance and monitoring are not costless; you, however, see to think that shifting risks to others and thus easing compliance and monitoring costs IS costless and “socially beneficial”, while ignoring that there are clear winners and losers from such government favor. Did you miss the Gulf oil spill, the limits on liability, the poor planning and oversight, the lack of caution, and the costs being borne by quite a different class of people than BP’s shareholders? Of many cases of environment harms experienced throughout the US? Are you unaware of the massive and ongoing environmental damage similarly caused by “socially beneficial” oil and gas development in Nigeria and Ecuador?

You and Kinsella: “Tom, when you say the state grant of limited liability is not justifiable, this is a… way of trying to reverse the burden of proof. This very statement is relevant ONLY if the grant changes what would be the case anyway. That is, if shareholders would be vicariously responsible under a libertarian theory of cause for torts of employees of corporations they owned shares in.”

Au contraire; it’s you and Stephan who are shifting the burden of proof and trying to avoid yourselves to come up with any convincing libertarian arguments FOR the state grant of limited liability to corporate shareholders. Stephan has acknowledged elsewhere that the grant is NON-libertarian, could not be contracted for voluntarily, and that if it were not to exist that insurers would be offering to insure shareholders from downside risks, but like you stubbornly seeks to cling conservatively to a status quo that favors investors and the big government corporatism has produced.

Far from me having to make a libertarian case shareholders should be vicariously responsible under a libertarian theory of cause for torts of employees of corporations, I simply need to show that the grant of limited liability significantly CHANGES the structure of the market and the behavior of market participants. Clearly, limited liability MATTERS, as amply demonstrated not simply by looking at markets and cases where limited liability shields shareholders from damages in cases where partnerships would be liable, but also by your own deep reluctance (and Stephan’s) to do anything about it. Stephan makes a thin lawyerly dodge, while you offer utilitarian arguments.

Stephan’s desire for a libertarian theory of vicarious liability of shareholders in the case of “torts of employees” of corporations is commendable, but as I have already noted, such a desire is itself confused by the failure to recognize the state favors given to corporations and the massive scale at which they operate and can damage third persons. It appears that Kinsella would have us treat most damages caused by companies as “torts by [particular] employees”, thus denying any recourse by injured parties to corporate assets. Such an analysis may be appropriate in the case of small businesses where who acts and under what authority may be very clear (as in the case of partnerships and sole proprietorships), but hardly make any sense in the case of the large, anonymous and bureaucratized institutions that limited liability and legal entity status have directly led to.

Sorry, but it seems to me that your own approach to the issue of tort liability makes even less libertarian sense: you have concluded that in a stateless society institutions would arise only to enforce contracts, while individuals and firms would get away scot-free if they willfully or negligently harmed others. Surely a brief look at traditional societies would quickly inform you that such societies have very sophisticated and effective ways of controlling behavior that damages others.

“my other objection remains: it must ultimately be demonstrated that the abuses outweigh the upside. The law of unintended consequences applies to every proposal for change, and I don’t think you give fair credit to the role that limited liablity entities play in an advanced economy.”

Ahh, there’s your non-libertarian insistence on the need for cost-benefit analysis for a change in eliminating limited liability as to persons involuntarily injured by corporate acts again. Do I need to add up all of the people harmed in the BP spill and weigh them against the potential cost to BP shareholders?

“The law of unintended consequences” sounds suspiciously like the precautionary principle that enviros always argue for (precisely because corporations are risk-shifting machines); bravo! Actually, I’m very well aware, not only of the very central and valuable role that corporate entities play in our economy, but of all of the negative unintended consequences that the grant of limited liability (and other favors) has entailed. But far from throwing the baby out with the bath water, I see reform in this area as both a sine qua non for any meaningful effort to reduce statism and something that is eminently achievable and with a net benefit in efficiency, risk-management and, last but not least, justice.

TT

J. Murray September 21, 2010 at 9:17 am

There is no such thing as a libertarian state-granted limited liability.

TokyoTom September 22, 2010 at 12:00 am

Agreed; that’s MY point exactly.

Jon Leckie September 22, 2010 at 4:40 am

Well hang on now guys, there’s very much a thing as libertarian state-granted limited liability – aren’t you conflating liberatarianism with anarchism? The two are not the same and I can find no definition of libertarianisn that requires the abolishment of the state.

There very much is such a concept of state-granted limited liability, it’s just that Tokyo sees proponents as being obligated to justify its continuance PRECISELY because it is a gift from the state, whereas – on this point – I view it as also capable of existing absent the state through private contract. Tokyo then asks how private contract can exclude third party tortious liability, and I respond with how can tortious liability even EXIST in a stateless environment? (Which might be a stupid question, but no one’s yet said anything on it, it must be a question addressed in the literature somewhere).

Tokyo, one discrete question on your response above: you say it’s non-libertarian to weigh costs and benefits, summing this up as a crude utilitarianism. Why is that not an approach I can take? I mean, on the BP example, one might read your post and wonder whether BP merrily skipped town, having destroyed the gulf completely, taken no remedial action and paid no billions of dollars into a compensation fund, plus remaining exposed to private civil claims? Ask British pensioners whose payments are reliant on BP’s dividends whether they’ve suffered or not. Yes those living around the Gulf have had a hell of a time, but that’s not enough of an argument: accidents happen. BP is being punished. So it’s not a crude balancing act between (a) environment destroyed, people suffering and (b) callous shareholders laughing to the bank. I’m saying that limited liability may be responsible for a vast amount of economic activity that otherwise may not take place due to the unlimited risk of personal liability. Surely you need to take this into account, no?

Oh, and I need to ask you to do me a favour: please don’t accuse me of supporting big government corporatism. I may not be an anarchist, but I am as resolutely against corporate welfare and crony capitalism as anyone else who enjoys these pages. Supporting limited liability as a vehicle for mobilising investment is NOT the same thing as supporting GE or GM, please acknowledge this.

J. Murray September 22, 2010 at 5:30 am

I’m not really confusing libertarianism with anarchism here. A state-granted limited liability would be violating the life, liberty, and property angle. I don’t see libertarianism compatible with a state granting immunity to a party for any wrongdoing. The general argument between minarchism and anarchism in libertarian circles is whether the state should exist to punish those who violate those three key tennents, not whether the state exists to protect the wrongdoer against just punishment.

Jon Leckie September 22, 2010 at 6:24 am

Thanks, J. Murrary: that’s helpful. It’s probably apparent enough, but I’ve a lot more reading to do and am picking up a lot as I go along.

Does it affect your view at all to stress that limited liability does not preclude recovery? There’s no immunity: but recovery is limited to the assets held in the vehicle and if damages are in excess of the value of those assets, the entity is dead. There seems to be remedies available beyond banning limited liability to prevent/minimise undercapitalised entities engaging in behaviour likely to give rise to torious liability (contrast BP with Mom&Pop LLC running a local hardware store): I’m really struggling to get across the line on limited liability as ipso facto in breach of the life, liberty and property standard (thanks again for clarifying the perspective there though). Maybe one day I’ll end up in his camp, I’m keeping an open mind (as much as one can try!). Lots to think about.

PS. Without a state to impose liability for and punish tortious acts against the property rights of another, how would liability for the tortious act be enforced against the tortfeasor?

TokyoTom September 23, 2010 at 12:30 pm

Jon, as for “how can tortious liability even EXIST in a stateless environment?”, I clearly addressed this above where I said:

Sorry, but it seems to me that your own approach to the issue of tort liability makes even less libertarian sense: you have concluded that in a stateless society institutions would arise only to enforce contracts, while individuals and firms would get away scot-free if they willfully or negligently harmed others. Surely a brief look at traditional societies would quickly inform you that such societies have very sophisticated and effective ways of controlling behavior that damages others.

Maybe this post with Bruce Yandle’s thoughts on how humans manage commons might be a good start: http://bit.ly/8V2q6R

Utilitarianism presumes both that it is possible to measure and aggregate conflicting preferences and that it is acceptable for government to do so and to intentionally benefit particular groups of individuals at the expense of others. Austrians say that the first is impossible and libertarians say that the the second violates basic principles.

As for BP and other corporations, I have little sympathy for shareholders, who have the benefit of their bargain (including dividends in good times that cannot be clawed back when risks materialize and the company is unable to fulfill its obligation), while persons injured by corporate actions have little or no ability to bargaining in advance whatsoever, or to get ready to get harmed. (The case of BP is compounded by the fact that government, by claiming to own “public” resources, deprives the fishermen harmed of any control over their livelihoods including any property right that they can claimed was harmed.) This just scratches the surface; I have commented extensively on BP on my blog and on other pages here: http://bit.ly/crTbEA

Yes, I see that you are “saying that limited liability may be responsible for a vast amount of economic activity that otherwise may not take place due to the unlimited risk of personal liability.” I see we agree that limited liability is very important – great! – but you seem to think either that, somewhat magically, such limitations on liability make risks simply disappear, or that such a shifting of risks by investors in particular firms (and the investor class generally) to innocent third parties class leads to improved risk management, or that such shifting or risks by those who fund and benefit from them to innocent third parties is justified on utilitarian or some other unspecified principled grounds. Surely you can see that “the unlimited risk of personal liability” is the default situation without state intervention?

By the way, I completely accept your good faith; please accept my pokes simply as attempt to get you to reflect on the implications of your positions.

You might think that you don’t “support[] big government corporatism”, but surely you ought to realizing that limited liability is a key factor in the rise of statist corporations. Supporting limited liability as towards innocent third parties might be effective in creating a vehicle for mobilizing investment, but it is also clear a vehicle of massive risk-shifting, theft and at destroying community in favor of fundamentally amoral governments and corporations.

You suggest you don’t support GE or GM, but if you can accept and support limited liability, then surely also you must accept its consequences.

TT

TokyoTom September 23, 2010 at 12:48 pm

“Accidents happen”? So do systematic trainwrecks due to mismanagement of risks.

Could government interventions that enable risk-shifting in banks, securities firms and corporations (and subsequent bailouts) have anything to do with engendering such mismanagement?

Massive kleptocracy in the third world differs little from what we see at home.

Beefcake the Mighty September 22, 2010 at 9:51 pm

“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?”

What does this question have to do with limited liability? Why should shareholders be any more responsible for the disaster than people who filled their tanks with BP’s gas? They both gave the the company money, after all.

I’m having a hard time seeing what point, exactly, you’re trying to make here (beyond anti-corporatist bromides).

TokyoTom September 23, 2010 at 11:20 am

Lord Bungulous Bringer of Beefcake:

What, those who simply buy a company’s products should be treated on the same basis as those who invest in the company’s business model? Are you trying to clarify, or obfuscate? One offers money in exchange for goods or services, the other offers money for the profits he expects to gain from the company’s business model.

I’m having a hard time seeing what point, exactly, you’re trying to make here (beyond pro-statist-corporatist bromides).

What does the question of whether corporations should have any vicarious liability for the actions of its employees and agents have to do with limited liability? Thanks for the opportunity for me to be a bringer of light, but it’s not that complicated: without limited liability and corporate “legal entity” status, investors and corporate managers would care to make sure that employees are careful. The limited liability shield makes it the interest of shareholders NOT TO CARE, and the interest of managers to obscure who is responsible. Because incorporations make possible large, impersonal businesses without a clear locus of responsibility, on the behest of victims seeking recompense for damages suffered, courts tend to hold “the company” responsible.

In short, the confusion that Stephan raises and professes to be concerned about is a product of the very state grant of limited liability that he – like you – thinks is too unimportant to question, but important enough to defend.

Why don’t you and Stephan start a libertarian fan club for essential government interventions? You can start with limited liability for corporate shareholders generally, add the specific caps on liability granted to the oil+gas industry and nuclear industry, and include the preemption of strict common law protection of property from pollution, in favor of federal preemption and rights to pollute.

Or you could think a little more seriously about how we could replace corporate risk-shifting machines and the whole mass of federal and state regulation that are purported intended to curtail such risks (but instead create barriers to entry and ensconce management from shareholders, thus introducing another layer of moral hazard) with internal risk control and risk control via insurers acting for shareholders.

A number of conservative commentators have made the radical suggestion that banks, securities firms and offshore oil+gas cos should be allowed to act only through partnerships (or other unlimited liability entities); they are thinking too modestly and have overlooked the limited liability for corporate shareholders that drives our whole regulatory edifice and has set off our escalating cycle of statist rent-seeking and corruption.

TT

Beefcake the Mighty September 23, 2010 at 11:26 am

“One offers money in exchange for goods or services, the other offers money for the profits he expects to gain from the company’s business model.”

Yeah, what a critical distinction. Shocking I didn’t see it previously; thanks so much!

TokyoTom September 23, 2010 at 1:09 pm

Not sure whether I should be pleased that my comments are so pedestrian, or disturbed that you are content with government interventions that help to erase moral distinctions.

Prior to the creation of corporations, it was clear who was doing what … thank goodness for anonymity and lack of personal responsibility!

TokyoTom September 23, 2010 at 9:39 pm

[I am]  thankful that you provide an opportunity for me to help others examine the growing rot set off by the very non-libertarian grant of limited liability to shareholders regarding injury to involuntary third parties:

http://mises.org/Community/blogs/tokyotom/archive/2009/02/26/the-curse-of-limited-liability-wsj-com-executives-traders-of-big-financial-corporations-generate-risky-businesss-while-smaller-partnerships-are-much-more-risk-averse.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/06/29/limited-liability-financial-crisis-and-bp-someone-else-sees-the-obvious-quot-black-swan-quot-of-executive-trader-moral-hazard-after-investment-banks-went-corporate.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/04/22/finally-an-lvmi-commentator-points-out-the-elephant-in-the-room-effective-reform-to-rein-in-rampant-moral-hazard-at-banks-means-removing-limited-liability.aspx

http://mises.org/Community/blogs/tokyotom/archive/2010/08/18/in-a-shocking-moment-of-honesty-conocophillips-ceo-says-offshore-oil-isn-t-economical-without-government-gifts-of-limited-liability.aspx

TT

I refer to David Korten, a Stanford-trained economist, former professor at Harvard Business School, former adviser to the Ford Foundation and the US Agency for International Development. Korten, a prominent critic of corporate globalization and official aid, is co-founder and board chair of the Positive Futures Network, which publishes the quarterly YES! Magazine, a board member of the Business Alliance for Local Living Economies, and is author of  When Corporations Rule the World (1995 and 2001).

Korten recently published in YES! Magazine his thoughts on how we need to re-organize our economy. Since YES! publishes under a Creative Commons License, I take the liberty of reproducing the article below, with my comments interlaced.

Here are ten common sense principles to frame the New Economy that we the people must now bring forth:

1.  The proper purpose of an economy is to secure just, sustainable, and joyful livelihoods for all. This may come as something of a shock to Wall Street financiers who profit from financial bubbles, securities fraud, low wages, unemployment, foreign sweatshops, tax evasion, public subsidies, and monopoly pricing. 

An “economy” has NO purpose; it is simply shorthand for the interactions of people, acting as individuals and in groups. Securing just, sustainable, and joyful livelihoods for all is indeed a worthy goal for a society to have, among other goals that individuals, groups within the society (including those within government) and the society as a whole may have – which goals cannot all be achieved due to scarce resources and conflict between goals.

While the identification of “Wall Street Financiers” is vague, certainly it is fair criticize our financial system and those who profit from it while generating ill for the rest of society.

2.  GDP is a measure of the economic cost of producing a given level of human well-being and happiness. In the economy, as in any well-run business, the goal should be to minimize cost, not maximize it. 

Korten’s definition of GDP is idiosyncratic and not helpful. GDP is the chief measure of economic performance used by policy makers (determined either as the sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports, or as the sum of income and depreciation). It is certainly a very flawed measure of economic performance, as it fails to measure damage to private and social capital (including damage to the environment), and treats wasteful government spending on wars, pork-barrel spending and building a police state on the same basis as it treats expenditure by the private economy. It does not even attempt to measure of human well-being and happiness, such as differences in income and wealth.

Maximizing GDP – especially as it is now defined – certainly should not be a public policy goal. Korten does not refer to the “environmental” cost of our economic activities; if he intended this criticism I would agree. In fact, GDP treats expenditures to deal with environmental harms as positive contributions to GDP!

3.  A rational reallocation of real resources can reduce the human burden on the Earth’s biosphere and simultaneously improve the health and happiness of all. The Wall Street economy wastes enormous resources on things that actually reduce the quality of our lives—war, automobile dependence, suburban sprawl, energy-inefficient buildings, financial speculation, advertising, incarceration for minor, victimless crimes. The most important step toward bringing ourselves into balance with the biosphere is to eliminate the things that are bad for our health and happiness. 

While I share many of Korten’s concerns here, he has completely failed to define what he means as the “Wall Street economy”, so it is difficult to have productive conversation. GOVERNMENT, not Wall Street, is chiefly or substantially responsible for wars, automobile dependence and suburban sprawl, for building a financial sector that encourages financial speculation, and for the ruinous “War on Drugs” that militarizes our police, keeps blacks in jail and undermines the growth of healthy inner cities. How is Wall Street responsible for energy-inefficient buildings or any other problem Korten identifies, other than financial speculation? Does Korten intend here simply to set up his later criticism of the “money system”? Libertarians would certainly agree that our screwed-up money system is the linchpin of many problems in our society/economy.

Nor is it clear what Korten means by “bringing ourselves into balance with the biosphere” or by a “rational reallocation of resources”, whether these are goals shared by all and are top priorities, or who is supposed to be making rational reallocation decisions. If he is suggesting that governments should have more power, I would disagree.

4.  Markets allocate efficiently only within a framework of appropriate rules to maintain competition, cost internalization, balanced trade, domestic investment, and equality. These are essential conditions for efficient market function. Without rules, a market economy quickly morphs into a system of corporate monopolies engaged in suppressing wages, exporting jobs, collecting public subsidies, poisoning air, land, and water, expropriating resources, corrupting democracy, and a host of other activities that represent an egregiously inefficient and unjust distribution of resources.

“Markets”, loosely defined, are evolved and devised cooperative institutions for interpersonal and inter-group exchange. To maintain efficient cooperation, markets typically employ rules that enforce agreements, provide clarity, limit cheating. Cost internalization （limiting costs shifted to others) and fair sharing of collective costs are a purpose of the rules, but market participants generally have no personal interest in, and markets generally have no rules regarding, “balanced trade” or domestic investment.

Sure, there are a host of problems that can be identified as relating to “corporate monopolies”, but corporations are NOT creations of markets, but creations of governments. It is governments that incentivize moral hazard and risk-shifting, by allowing people to form limited liability business firms that – unlike individuals and partnerships – have unlimited lives and whose owners have no liability for the damage that such firms may do to others. Government action creating corporations has been the trigger fuelling corrupt and damaging behavior, that in turn has fuelled citizens’ demands that government get bigger and create more “rules” to constrain their Frankensteins, who are now bigger and more powerful than government, and far more influential than REAL “persons”. 

Well, it’s not working out very well, is it? The only path I see ahead is to gradually end “limited liability” in corporations, on a number of different fronts.

5.  A proper money system roots the power to create and allocate money in people and communities in order to facilitate the creation of livelihoods and ecologically balanced community wealth. Money properly serves life, not the reverse. Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. Main Street uses money to connect underutilized resources with unmet needs. Public policy properly favors Main Street.

Korten is very right about his last three sentences; the first is spot-on: Wall Street uses money to consolidate its power to expropriate the real wealth of the rest of the society. If one understands modern “fiat money”, it is easily seen as a form of fraud. While I do not see this as a deliberate intention of those working in finance, expropriation of wealth is a natural consequence of the “fiat currency” system that banks developed and that the US government has captured (though governments often deliberately expropriate by inflating their currency – this is clearly seen in Zimbabwe). Until money systems were captured by banks and government, real money was nothing more or less than goods of various types that people found valuable and more convenient than direct barter as a means of exchange.

If fiat money was eliminated (a gradual process would eliminate “legal tender” laws and allow competing currencies), then the natural result would be a shift of power from government and Wall Street to people and local communities.

6.  Money, which is easily created with a simple accounting entry, should never be the deciding constraint in making public resource allocation decisions. This is particularly obvious in the case of economic recessions or depressions, which occur when money fails to flow to where it is needed to put people to work producing essential goods and services. If money is the only lack, then make the accounting entry and get on with it.

This is completely wrong-headed. First, wealth is not created, and long-run human needs are not addressed, simply by continuing to treat money as play money that can be created whenever one wants something – this simply hides the very real theft from the economy as a whole (particularly those least well-off).  If we want honest government that does not favor the wealthy over the middle class or the poor, then we need to end our fiat currency. But as long as we are NOT doing that, then the government should either borrow what it intends to spend, or raise it via donations or taxes – even during down times.

Second, economic recessions or depressions, while not happy times, are generally the product of government playing with money – “easy money” of the kind Korten seems to want – that leads to mal-investment. The recession is actually the process by which the economy “cures” the over-investment, as investments in unsustainable, over-heated sectors go bust and are reallocated to projects that more realistic.

7.  Speculation, the inflation of financial bubbles, risk externalization, the extraction of usury, and the use of creative accounting to create money from nothing, unrelated to the creation of anything of real value, serve no valid social purpose. The Wall Street corporations that engage in these activities are not in the business of contributing to the creation of real community wealth. They are in the business of expropriating it, a polite term for theft. They should be regulated or taxed out of existence.

Generally, agreed, with many quibbles and clarifications. Speculation as used in it’s negative sense is simply making a bet, backed with real money, that an asset (stocks) is worth more than or less than what others think. It sends a useful signal to everyone else that a particular corporations or government may be hiding its real financial and/or business condition. It is government AND banks that generate financial bubbles.

Of course risk externalization is bad, but not only is it inherent in the corporate form, but it is actually encouraged by our systems of financial and corporate regulation, and by government ownership of many resources. Government insurance of banks means government and not depositors must regulate and monitor the risks generated by banks, whose executives and traders are thus playing with “other peoples’ money”. The business models of securities firms and rating agencies has been to find ways around regulations, and to sell risky instruments to regulated entities. Likewise, the regulation of “public companies” has served to raise barriers to entry and to reduce the ability of shareholders to oversee management. The powerful “regulated” companies are always better positioned than consumers and possible upstart rivals to manipulate and take advantage of regulations.

“Usury”? Interest is nothing more than the recognition that a bird in the hand is worth two in the bush.

How to deal with Wall Street? First, end fiat money. While that is progressing, require banks and financial companies to be partnerships instead of limited liability corporations (tighten regulations on the first, relax them on the second), and roll back the counter-productive, easily corrupted effort by government to regulate risks, by limiting deposit insurance.

8.  Greed is not a virtue; sharing is not a sin. If your primary business purpose is not to serve the community, you have no business being in business.

I agree that sharing is not a sin (indeed, it’s necessary for societies to function well, particularly for common resources), but “greed” is a cop-out. While I would support whole-heartedly an effort to eliminate limited liability for corporate shareholders (it was once extremely rare, and required legislative approval on a case-by-case basis of a strong public purpose), people engage in business on an individual basis not expressly “to serve the community”, but to make a living – by providing goods and services that the community members want. If people and firms fail to do that well, they go out of business.

9.  The only legitimate reason for government to issue a corporate charter extending special privileges favoring a particular enterprise is to serve a clearly defined public purpose. That purpose should be clearly stated in the corporate charter and be subject to periodic review.

I have a very similar perspective, but my conclusion is that the government should not be issuing corporate charters at all, and certainly none that limit the potential liability of the shareholders. I don’t trust politicians who are easily influenced by the wealthy to be bestowing special favors to anyone. 

10.  Public policy properly favors local investors and businesses dedicated to creating community wealth over investors and businesses that come only to extract it. The former are most likely to be investors and businesses with strong roots in the communities in which they do business. We properly favor them. 

Muddled, but I largely agree. There are business that “extract wealth”, and damage the local community while benefitting others who have little or no stake in it. This can be addressed by insisting that states end limited liability corporations, which would allow them to apply different standards to corporations based in other states or countries, and finding ways to limit the damage done by Supreme Court decisions that say that corporations have Constitutional rights.

But rather than asking for government “favor”, communities and individuals should insist on reclaiming control over their own destinies, thus limiting the areas of “public policy” that government can screw up – a la BP and offshore drilling), in order to benefit a favored set of interest groups.

Let me conclude by saying that I share David Korten’s concerns about how screwed up our economic priorities are, and appreciate his efforts. However, his “common sense” principles miss the key factors at work in skewing our economy towards Wall Street and “extractive” corporations: fiat money, deposit insurance, limited liability for corporate shareholders, and government ownership of resources. 

David Korten is co-founder and board chair of YES! Magazine, co-chair of the New Economy Working Group, president of the People-Centered Development Forum, and a founding board member of the Business Alliance for Local Living Economies (BALLE). His books include Agenda for a New Economy: From Phantom Wealth to Real Wealth, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World.