Question for Libertarians (big L)

[Fosbery]

Bartholemew Roberts,

It's a pretty elementary part of a hardline libertarian ideology i.e. belief in responsibility for your actions, belief in the sanctity of private contracts, belief in non-agression. Here's an article on libertarianism and corporations.

http://www.lewrockwell.com/rozeff/rozeff28.html

I should point out that the problem is only with the limited liability protection offered by governments, not with the rest of what corporations are or with limited liability when it is written into private contracts etc.

 

[Glock Glockler]

Bartholomew Roberts,

As far as bankruptcy goes, why should someone just be able to have thier debts erased?

Let's say you want to invest $100 in a share of Exxon-Mobil. Are you going to invest that $100 if it makes you liable for your share of a $350 million oil spill?

Couldn't one purchase what is essentially a loan product to a company for start up capital in exchange for a share of potential proceeds? A lender doesnt share liability for a business venture's activities, they only loose their loan if things go south.

Corporations are a govt created entity for enhance economic activity, I don't necessarily have a problem with them existing per se, but they should definately pay extra for that privilage.

While I certainly don't agree with everything the author says I did find this book very interesting, he's got a lot of good stuff regarding corporations.

http://www.thomhartmann.com/unequalprotection.shtml

 

[Titan6]

Glock- What you are talking about are corporate bonds. The corporate bond market in America is the largest in the world.

I think 350 million dollar liability of a 150 billion dollar company is not too bad. So long as the books balance out. The problem with Enron, MCI and others is the books were cooked.

 

[Glock Glockler]

Titan,

I know about the bonds, my point was only that there is a way to accomplish investing without liability aside from the investment.

IMO, one of the prices of incorporation should be that the corporation's books should be open to the public.

 

[budney]

Glockler,

Limitation of liability would be a lot less important if it were impossible to win multi-billion-dollar settlements because you smoked yourself sick, or ate yourself fat. It should be impossible to win a lawsuit without actual aggression (including fraud) against the victim, and damages should be limited to recovering damaged property plus the costs of enforcement.

Other than that, it's a bit of a red herring to get worked up over the corporate structure. As you point out, bonds do not confer liability. So if equity instruments DID confer liability, then all investments would be structured as bonds. It's not hard to come up with a bond instrument which gives one a claim to future profits: for example, a variable-rate bond whose interest is tied to the company's profitability.

--Len.

 

[Glock Glockler]

Budney,

Don't get me wrong, I don't hang out with the anti-WTO hippies (though I actually am against the WTO) and I understand that the situation is out of control regarding what a company can be help liable for. The root problems do need to be addressed.

My favorite is sexual harassment, how an entire company can be raked over the coals because some executive decides to grope an intern.

 

[Titan6]

The corporation's books are open to the public if you are an investor. I get balance sheets every quarter on every stock I own. More information is available should I request it.

 

[Caimlas]

It's simple: Corporations don't support the Libertarian party for two primary reasons:

1) Because it's got a lower return that supporting the party (Dem/Rep) in power.
2) Libertarian party candidates are unlikely to give corporations any sort of preferential treatment when it comes to taxes, and indeed might penalize them, compared to the Democrats and Republicans.

 

[ArmedBear]

There's also the small matter that most libertarians do not agree with corporation laws - corporations would not exist under libertarianism.

That may well be true of the remaining Libertarians, who really are sounding a lot more like organic food coop hippies every day.

The ones who have left the party never had any trouble at all with corporations.
"Corporate welfare", yes, but incorporated businesses? No problem.

See ya, wouldn't wanna be ya.

(Going to change my registration to Republican today, so at least I can vote for a pro-2A candidate in a meaningful primary. Maybe I'll even vote for another ex-Libertarian. Imagine that!)

 

[mordechaianiliewicz]

Ah. I'm back, and will weigh in. (although a little late)

Yes, everyone has put in on the fact that corporations would significantly change in nature if we were to actually have Libertarians in power.

That is the crux of the matter. If you own shares of stock, it is only a way to collect a dividend check, or a method of trading in what are effectively commodities markets (atleast that is what the stock market acts like).

If I open a business without the benefit of limited liability, I actually have to take responsibility for my actions, and I have to care about what I'm doing. Because you divorce the concept of responsibility from ownership, you will have the resulting problems.

Perhaps worst of all, because the stocks are traded as a commodity, it is in the interest of all involved to make their specific stocks raise in value regardless of whether those stocks merit a raise in value or not.

This is why corporations give money to politicians, and attempt to exist outside of the normal rules of laissez faire. The executives are only concerned with a rising stock price. That is their job.

And, it's been like this since the post Civil War period. How do you think the railway system got up in this country? Back then, corporations bribed the government to use asset forfeiture to confiscate land folks wouldn't give up for any price.

The Revolution? As much an anti-British East India Company move as an anti-British government move. The BEIC manged to get favorable laws because of the mechanism of limited liability, and bribery, and we ended up rebelling, and then having strong laws against limited liability corporations. People could contract, it was their right, and they could trade their portions, but they had to pay if they messed up.

The Libertarian Party would likely bring back those days. To everyone involved in every facet of business, this can't happen.

 

[ArmedBear]

mordecai, try the 3rd Century BC, not the American Civil War.

And the idea that Libertarians want stockholders to assume the risk of bankruptcy and prison time for the actions of people over whom they can have only limited oversight is insane. At least I've never been exposed to any who do.

If that's the case, the LP has sure changed a lot in a year or two.

If the Libertarians really want to send our economy back to the Middle Ages, no wonder the LP can't muster up enough votes to be more than a blip.

 

[Bartholomew Roberts]

I share Armed Bear's sentiment on this...

I should point out that the problem is only with the limited liability protection offered by governments, not with the rest of what corporations are or with limited liability when it is written into private contracts etc.

Except that not all liability can be contracted for... look at asbestos suits as an excellent example. There are companies today that are being bankrupted that never even laid down an inch of asbestos, they simply acquired companies that did use asbestos as insulation (which was often a common and approved practice at the time it happened). Under your proposal, not only would these companies go bankrupt for a merger from 20 years in the past, every investor who had bought the stock since that time would have all of their personal assets at risk as well.

You want to talk about a chilling effect on the economy. That type of investment risk would do it quite nicely. If the Libertarian party is advocating that, they have completely and totally separated from reality.

If I open a business without the benefit of limited liability, I actually have to take responsibility for my actions, and I have to care about what I'm doing. Because you divorce the concept of responsibility from ownership, you will have the resulting problems.

Nobody is divorcing the concept of responsibility from ownership, all they are doing is limiting your responsibility to what you actually invested in the corporation. It is saying that you cannot lose more than you decided to risk short of active wrongdoing on your part.

 

[ArmedBear]

Addendum:

There are many things, from financial reporting violations to environmental violations, that can land corporate officers in prison.

It was right for Enron's top officers to go to prison.

But would it have been right to also jail all of the stockholders?

It's simply not true that there's no liability for people at the helms of large corporations. There's just limited liability for common stockholders. Why and how is that bad?

 

[Fosbery]

Bartholemew,

Suppose I own a firm with limited liability. Acting as the head of the firm, I borrow $100,000 from a bank, to invest in setting up a business selling rubber neck ties. But as it turns out nobody wants to buy rubber neck ties, so the firm cannot pay off the debt.

Because I have limited liability, the bank can only reclaim the assetts of the firm in order to get back it's $100,000. But suppose there's only $50,000 worth of stuff that the firm owns? Well the bank loses $50,000.

But suppose I didn't have limited liability. In this case, the bank can take $50,000 worth of my own private stuff in order to pay off my debt. Instead of the bank losing $50,000, I lose $50,000.

In either case, somebody loses $50,000, so who should lose it? Well since I agreed to pay back the money would it not be reasonable to expect me to take the loss instead of the bank, who have kept to their end of the bargain?

 

[ArmedBear]

The bank has two options:

1. Loan the money to the corporation, based on trust in that corporation.
2. Loan the money only with a personal guarantee from the CEO.

In case 2, the bank can get his personal assets.

In case 1, the bank can either write off the loss or it can take over the company if it believes there's value to be extracted. And case 1 wouldn't even happen if the bank didn't see the corporation as credit-worthy.

If the bank DOES lend money to an entity that should not be given any credit, and loses the money, that IS the bank's fault. That's happening right now in the American residential mortgage market.

And if there is any INTENT to do this on the part of the CEO, it's fraud, and he can go to prison for it.

So your scenario is not a real situation.

 

[Bartholomew Roberts]

ArmedBear explained it well and in many (most) cases, the bank will demand a personal guarantee from someone with sufficient assets if they feel there won't be a chance of recovering their loan. Just like anything else, limited liability can be contracted away - so why would you make the default position that a 65yr old granny who has invested her retirement fund is on the hook for purchasing shares of your rubber neck tie company?

 

[Titan6]

Limited liability is a cornerstone to capitalism. No sane person would make themselves responsible for the acts of potentially hundreds of thousands of people. Any individual engaged on company business from a drunken sea captain to a stoned railway engineer could expose the company to billions in losses.

The reverse is also true. An average common stock holder own as much of the company as say the average American owns America.

He also gets paid last as well. If the company owes money in loans and other liabilities that gets paid first when they go belly up. Most companies that go belly up borrow a lot of money near the end so granny ends up with nothing.

Normally only the wealthy people running the company see the hand writing on the wall in time to cash in and not lose everything. Despite what Bear is saying about these type practices being rare this is simply not true. I can point to dozens of cases, perhaps a hundred where the major stock holders were exhorted buy, buy, buy all the time they were sell, sell, selling with non S&P 500 corporations. These people may go to prison if anything illegal is uncovered but certainly it does not faze them when faced with losing millions and driving a Honda instead of Mercedes.