Limited liability, limited profit

We have a bug in the laws that rule the western liberal-capitalistic civilisation. Many people are busy with fixing the problems caused by this bug. Why don’t we fix the bug itself, the root of these problems? Here are my two cents.

Introduction

Every business activity bears a potential 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. No investor would dare to engage in any bigger project if they wouldn’t be protected from the risk. This is one of the basic principles of capitalism.

But what happens when it turns out that some activity has dramatically negative effects? For example by causing health issues? [1] Or by contributing to complex world-wide climate changes or pandemics, resulting in damage that goes beyond anything we can account for? What if the damage exceeds the capital? Who is going to pay the bill?

The only potential source of help in case of big accidents are governments and charitable organization, because these are public corporations.

But those who made the profit won’t lend a helping hand because that’s not part of the game, because they are private corporations, because it’s not their business. Their legal top-level purpose is to produce profit for their owners, not to help victims.

Don’t misunderstand me. I’m not saying that private corporations are evil. We don’t want to stop private corporations, most of them are doing good work most of the time.

I’m saying that we must subdue them. Let’s realize that we are the masters, not them.

Who is to blame?

Where is the bug? Where is the sin? Who is to blame?

We cannot blame those who happen to be wealthy. There is nothing wrong with being skilful 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 give to private corporations a right to make unlimited profit while asking only limited responsibility for the risks.

We grant limited liability without demanding limited profit.

This is a serious bug. It’s fundamental 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 responsible for upgrading and changing them.

And we are able to do it.

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.

Related publications

Inspired (also) by How Facebook and Google fund global misinformation and Alarming reports after the COP26.

See also Dangerous rights in wrong hand.

Footnotes

[1]

As an example, consider how much profit has been generated since the mid 19th century thanks to the discovery of asbestos for construction and fireproofing and compare this to the costs generated after discoverying its toxicity. A similar example is the case of a Teflon factory in Rumilly (Haute-Savoie, France).