Subdue the greedy giants!¶
We have a bug in our legal system. On this page I explain that bug, how we might fix it and why we don’t do it.
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)
These limited liability corporations are also called private corporations. It’s amazing to watch them do their jobs. They bring clean water and electricity into our houses. They bring bananas to tables in regions where no banana grows. They produce cars, telephones, computers, music, movies. And we enjoy it. We are grateful for it. We want it to last.
Corporations (both public and private) are a great medium for ideas that survive the lifetime of individual humans. They are one of the prerequisites for human civilization.
But we start to realize that corporations sometimes do their job more efficiently than what would be useful. And that they are doing it independently. We are like the sorcerer apprentice realizing that the spirits he called are out of control. Let’s realize this fully. And then don’t panic.
Most law systems are giving to corporations two rights that should be reserved to human beings: the right to be greedy (to own property) and the right to have secrets (privacy).
One reason is that corporations don’t need these rights. The humans who interact with a corporation (employees, customers, providers, …) do need these rights, but not the corporation itself. A corporation does not need to get rewarded in order to remain motivated. The “motivation” of a corporation results from its mission statement, which bundles the collective motivation of the individual humans who support or own the corporation. A corporation does not need to have secrets. There are many examples of corporations (basically all non-profit organizations) that work well without having any secrets. An edge case are security issues, we treat these in a separate article. See About whistleblowing.
Another reason is that corporations can potentially misuse these rights against humans. They are immortal and have neither good nor bad conscience. Letting them function on their own inevitably leads to unwanted results. Corporations must remain under human control. We must not give them any chance to get out of our control.
The bug in our law systems is that we grant limited liability without demanding limited profit in return.
Every human activity bears a potential risk. No investor would dare to engage in any bigger endeavour if they wouldn’t be protected from the risk. The worst that can happen to an investor is that they lose the invested capital.
But what happens when it turns out, sometimes decades later, that some activity has dramatically negative effects? For example by causing a catastrophe? 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?
Who is going to pay the bill when something goes wrong? Those who suffer. Some group of humans. If they are lucky, they get help from their governments or charitable organizations (all of which are public corporations). But don’t expect any private corporation to lend a helping hand other than reluctantly. It might happen that they help when they can use it for making publicity. It might happen when their direct responsibility can be undeniably proven (where the proof itself usually demands considerable administrative costs). But basically it is not their business.
This bug was tolerable as long as corporations remained relatively small. The bug is becoming dangerous only in the digital era where corporations have at their disposal new unlimited ways of communication and data processing, giving them a chance to become more powerful than the national government that controls them.
Theoretically this bug is easy to fix. Since private corporations are neither a natural law nor tangible objects, but a human convention, a product of our legal systems, and since we made these laws and can change them at our will.
We just need to nationalize private corporations under certain conditions:
when its investment to profit ratio exceeds a certain threshold. IOW when we can say that the investors have made enough profit. Limited Liability – Limited Profit.
when its size gets bigger than a certain threshold so that it has become more powerful than its government.
We don’t want to stop them –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.
Reality, of course, is less easy than theory.
The effect will be yet another example of beating swords into ploughshares. Nothing new, but still a revolution each time it happens.
Yes, my description of the problem is naive and simplistic. It needs feedback and help from experts. It waits here for other people –maybe you– to take it and work on it, with or without my help.
The main challenge is that it is a fundamental change in a complex system. The majority of those who understand it won’t want us to fix it because that would deprive them from a convenient source of income they have gotten used to. And most of the humans who would benefit from it don’t have the expertise to defend it.