Limited Liability Is a Scam That Allows Corporations To Loot Your Planet and the Economy
Limited Liability Is a Scam That Allows Corporations To Loot Your Planet and the Economy
It's time to make profiteers pay the full cost of their outrageous profits
“Come now, you rich, weep and howl for the miseries that are coming upon you.” — James 5:1
Imagine if I inherited a billion dollars from my father.
Now imagine I used some of that money to get some of my college buddies elected to Congress.
Now imagine we just “happened” to have lunch and a round of golf and in passing I mentioned I’d like some “deregulation” (aka slashing of democratic protections) so that I could get even richer by using chemicals and mining equipment to hydraulically fracture the ground behind your house in order to extract gases that I could then burn for power while helping to roast the planet alive.
Once the gas well ran out, I naturally would decide to move on to my next money-getting venture. But you, poor reader, would have one heck of a disaster in your backyard — a hideous rusting natural gas plant, poisoned water, earthquakes shaking your house to the bones.
On the bright side, at least your child’s swingset would swing itself.
What would any good American in your shoes do?
They’d sue!
And why not?
What is suing if not the only way to force me to pay the full costs of the damage I’ve caused?
But that leaves me with a bit of a problem: If you sue me and successfully convince a bleeding-heart jury in court, I’ll have to spend a lot of my daddy’s hard-stolen money to remove the plant, fully clean up the site, and totally heal the water supply. (Only God knows how I’ll stabilize the ground so your house doesn’t collapse.) There’s a 100% chance it would cost me more money to clean up my mess than I made in profits.
If only there was some sort of made-up legal fiction that would allow me to keep all the profits and shoulder none of the responsibilities…
No one knows exactly who invented limited liability some six hundred years ago, but it was a stroke of genius:
With the stroke of a pen on parchment, an investor was entitled to unlimited profits from their speculations, but could never lose more than their initial wager — no matter how much profit they amassed or harm they inflicted in the meantime.
Perhaps the most egregious early use of limited liability to shield predators from real human losses was the 17th-century British monopoly, the East India Company. From a five-window office in the City of London, the EIC and their 260,000-soldier private army violently enslaved the Indian subcontinent, robbing trillions in wealth by draining the nation of cotton, silk, sugar, salt, spices, tea, and labor. For literally centuries, Britons raped, enslaved, and murdered Indians and their children.
But don’t worry — those initial investors had limited liability and never had to pay the true cost of all the suffering and poverty they caused, including the engineered famines and systematic drug addiction.
In fact, while Indians still suffer under some of the worst living standards on planet Earth, their looted wealth still enriches the inbred English aristocracy, including stolen diamonds that still sit atop the new king’s crown.
And in the case of today’s corporations, even if some justice-love judge ordered a corporate to pay the true costs of its profit-seeking, I could always just bankrupt the corporation like Donald Tr*mp so I don’t have to pay any of its debts.
Isn’t limited liability awesome?!
There’s a word for the damage that corporations cause to others in their blind pursuit of private profits: negative externalities.
I like to call negative externalities what they really are: Human suffering.
Like when Chevron poisoned eighteen billion gallons of water and deformed babies and then imprisoned the lawyer that caught them.
Like when Nike, Coke, and Apple quietly lobby to continue using slave labor in Ch!na.
Like every time Exxon’s offshore drilling rigs explode, killing oil workers and billions of aquatic species.
So long as the passive parasite shareholders get paid and don’t have to risk any downside, negative externalities are just a temporary PR setback.
Corporations love negative externalities. In fact, many of the world’s biggest multinational monopolies wouldn’t be in business if they couldn’t force the public to pay for their profits.
In fact, corporate negative externalities cost Americans upwards of 20% of U.S. GDP, meaning we’re subsidizing profiteers to the tune of $4.4 trillion, which would completely cover the federal deficit and leave more than $1,000,000,000,000 to start rebuilding this corporate-savaged nation.
I’m of the old-fashioned belief that if someone expects to be entitled to unlimited profits, they should be responsible for unlimited losses.
Welcome to the free market, parasites.
To be clear, I do believe in one form of limited liability:
It’s called bankruptcy.
If a bunch of people invest in a business and it goes bust, they should lose their money. That’s capitalism for you.
But if a bunch of people invest in a business, make a killing, and it later comes out that they didn’t cover the full expenses required to create those profits, they should have to pay for all of it — using their initial investment, all their past profits, and all their other assets until they reset to… well, normalcy like everyone else.
If a billion-dollar corporation causes $100 billion worth of harm, it should wipe out the firm and all its shareholders.
That’s where the social safety net comes in.
I believe every human being is entitled to that which is necessary to sustain human life — a house, food, heat, or the income to procure all these things.
Personal bankruptcy should be the only limited liability. Assuming you didn’t straight-up commit crimes for which you will be sentenced to prison, you should always get to keep your primary residence (up to, say, $500,000 in value) and that’s about it. Bye bye Tesla, cottage, yacht, jewelry, etc. The world shouldn’t have to subsidize your luxuries.
We certainly shouldn’t have to subsidize your private profits at the public’s expense.
But limiting limited liability is impossible!
No, it’s not.
Case in point: Hoare’s Bank.
Founded in 1672, the family-run London-based firm is one of the oldest and most stable banks in the world. UK’s oldest privately-owned bank stewards more than £6.68 billion on behalf of its clients, and… wait for it…
For twelve straight generations, the family has had unlimited liability if it loses its depositors’ cash.
Think about that for a second.
A bank that is actually held responsible for its actions? What a concept!
Their website explains:
“We continue to be owned entirely by the Hoare family on an unlimited liability basis with no external financing. We have a highly conservative attitude to risk which is monitored closely and managed within strict limits. Members or shareholders have a joint and several non-limited obligation to meet any insufficiency in the assets of the company to enable settlement of any outstanding financial liability in the event of the company’s formal liquidation.”
In English: If we lose your money, we lose our house.
And their customers love them for it.
Imagine how well you’d sleep at night if all bankers were held personally responsible for their actions:
Banks would only make sound loans — no more NINJA (no income no job no assets) loans, no liar’s loans, no subprime mortgages.
Banks wouldn’t invest in predator monopolies that bleed investor cash.
Banks wouldn’t gamble on highly-leveraged derivatives that set off global stock market crashes.
Hoare’s Bank is technically called an Unlimited Company, which is a fancy way of saying that its shareholders are entitled to all the corporation's profits and all its losses.
(Don’t give me the extremist right-wing corporatist propaganda that with real accountability “no one would invest.” The Equitable Life Assurance Society is unlimited. Credit Suisse International is unlimited. Sole traders and partnerships are unlimited. Nearly every freelancer, consultant, hairdresser, plumber, and electrician you know has unlimited liability, which is why they aren’t trying to cut corners, rob the poor, or destroy the planet. Humans have been making unlimited liability investments for more than 4,500 years.)
Imagine how differently people would invest if all companies were unlimited companies again?
Would you keep your 401(k) invested in the horrific S&P 500 index?
Or would you actually give serious thought to the wretched companies that abuse humanity and the planet so you can pocket an extra few dollars in retirement?
Unlimited liability with a social safety net would transform society:
It would make the public get serious about corporate responsibility
It would end shady banking practices
It would help deflate the debt bubble
It would crush inflation and reset prices to real value
It would end corporate malfeasance
It would drive bad actors out of business
It would ensure higher quality goods and services for consumers
It would save the planet from environmental collapse
The reality is that fossil fuel companies and their greasy shareholders will never clean up the mess they’ve caused until we make them Unlimited Companies again. Cory Doctorow wrote an excellent piece on their model a few weeks ago:
1. Drill a well.
2. Record the cleanup cost.
3. Throw this liability in a file drawer and forget about it.
4. Drain the well and distribute the profit to shareholders. Save nothing.
5. Assume that future income will magically cover the cleanup costs.
6. Realize that your well has run dry and there is no future income.
7. Declare bankruptcy and (magically) walk away.
As reader Jonathan Gros-Dubois so perfectly puts it:
“What other reason can there be for an individual to want to limit their liability other than to escape the potential consequences of their actions?”
Getting rid of limited liability would ensure all of humanity started investing and working with intentionality, care, and concern for one another.
It would make us more selfless and careful and thoughtful of others.
It would make us think more long-term.
It would bring a huge amount of stability to civilization.
It would also cool down the insatiable private profit motive, forcing humanity to build companies where people always matter more than profits.
So naturally, getting rid of limited liability will never happen.
Humanity really does love money more than life itself, and people are mere stepping stones on the path to personal profit.