Limited liability, limited profit¶
We have a bug in our legal system, in the laws that rule the western liberal-capitalistic civilisation. Many people are desperately trying to fix the problems caused by this bug. Here are my two cents.
Introduction¶
Every human activity bears a potential risk. No investor would dare to engage in any bigger project if they wouldn’t be protected from the risk. The limited liability concept makes sure that the worst case scenario for an investor is that they loose the money they invested into that particular project. And no wise investor puts all their capital into a single project. This is one of the basic principles of capitalism.
But what happens when it turns out, sometimes decades later, that some activity has dramatically negative effects? For example by causing health issues? [1] Or, more difficult to detect, indirectly contributes to complex world-wide climate changes or pandemics, resulting in damage that goes beyond anything we can reasonably account for? What if the damage exceeds the capital? Who is going to pay the bill?
In some cases the victims get help from their governments or some charitable organization. But don’t expect the corporations that made the profit to lend a helping hand! Because that’s not part of the game, it is not their business. After all they are private corporations. Basically and by law, their purpose is to make money, not to help others.
The only potential source of help in case of big accidents are governments and charitable organization, because these are public corporations. Don’t misunderstand me. I’m not saying that private corporations are not helpful when there is a big accident. I’m just saying they are not a source of help. They will help only when there is some profit for them in the end.
Being brave is good thing. We don’t want to stop private corporations –most of them are doing good work most of the time–, but we must subdue them. We must remind them that we are the masters, not they. “I’m only brave when I have to be. Being brave doesn’t mean you go looking for trouble.” (Mufasa in The Lion King).
Who is to blame?¶
How to change it? Where is the bug? Where is the sin? Who is guilty?
We cannot blame those who happen to be wealthy. There is nothing wrong with being skillful and clever for using your opportunities and talents. It would be wrong to not use them. A considerable part of donations for charitable organizations comes from wealthy individuals who read Carnegie’s Gospel of Wealth.
It is not a conspiracy. A conspiracy means that a group of humans “conspire” (“unite their spirits”) in order to plan something. We are standing in face of something far bigger and far more dangerous than a conspiracy.
We cannot blame private corporations for being greedy because that’s their reason of being. We cannot blame their managers for doing their job. If a courageous manager would feel guilty and “waste” some capital of the owners for “useless” purposes like “mercy” or “solidarity”, this manager would soon get replaced by somebody who “knows” their “duty”.
Neither can we blame capitalism or the free market. Capitalism is important because it provides a way to transform ideas from mere words of a written text into money, which gives them “substance” and power. Money turns ideas into reality, money is a door between the invisible world and the visible world.
Neither can we blame the limited liability concept as such. Limited liability is important because humans should get protected from carrying more responsibility for their mistakes than they can reasonably bear. Humans need mercy. Mercy is an unwritten human right.
We cannot blame anybody. There is no culprit. It is a collective sin. Let us recognize our collective sin, let us stop hiding it away, let us repent and realize that our way of governing the earth is a screaming injustice.
What’s the problem¶
Our problem is that we grant limited liability without demanding limited profit. We give to private corporations a right to make unlimited profit while asking only limited responsibility for the risks. This is a serious bug, a design flaw.
This bug was hidden as long as private corporations remained relatively small. The bug has become active and dangerous only in the digital era where corporations have at their disposal new ways of communication and data processing, giving them a chance to become more powerful than the nation state that controls them.
But it is a bug, and it is in our system. We need to fix it all together. After all these are our laws. We developed them. As the developers of these laws, we are able and responsible for upgrading and changing them.
History of limited liability¶
The world’s first modern limited liability law was enacted by the state of New York in 1811. The modern world is built on two centuries of industrialisation. Much of that was built by equity finance, which is built on limited liability. Limited liability corporations are the key to industrial capitalism. (economist.com, Wikipedia)
How to fix it¶
Subdue the greed giants¶
My favourite idea for fixing this bug is in a separate document: Expropriate the greedy giants.
Windfall taxes¶
An example of how governments can force private corporations to help are windfall taxes.
A windfall tax is a higher tax rate on profits that result from a sudden “windfall gain” to a particular company or industry, often as the result of a geo-political disturbance, war or natural disaster that creates unusual spikes in demand or interruptions to supply. (via Wikipedia)
Example: Financial Times: EU targets €140bn from windfall taxes on energy companies
Platform boards¶
Aline Blankertz (blog.wikimedia.de) suggests to force the big platforms to install “platform boards” where major decisions would happen in a transparent way. Wie wir gemeinsam die Macht der Plattformen bändigen.