Business/Finance

Who should be held responsible? BP, Sovereignty, Personhood and the Corporation – Part 3

Investment from the poorestNot everyone can be Bill Gates or Steve Jobs. We would all love to be the person who invented the microchip or founded WalMart. We can’t be. It may be that we weren’t born into the right family, clever enough, or simply in the right place at the right time.

But we can buy shares in this luck. In 2004, you may have no design skills but you may recognise that the iPhone is the future and buy Apple shares. You would have done well for yourself.

Maybe you’re not that sharp? Well, you can always invest in an index fund and let the market make you an investor.

The last thing you need is a heavy knock on the door and be arrested for crimes committed by Enron even though you only had $12 in the firm.

Just as all Americans gained from the financial boom they have also all lost from the crisis. Your pension funds went up, and now they’ve come down in value.

That’s democracy.

The downside of democracy

It takes a lot of cash to reach everyone and persuade them to your cause. The average US presidential candidate has to raise millions, and probably soon billions, of dollars in order to launch their campaign.

If limited liability and incorporation were not possible then only the very rich could afford to be president.

The creation of special purpose vehicles can allow small pundits to invest their meagre savings in order to massively increase the spending power of their chosen candidate, or to campaign for their special interests directly.

These trusts open bank accounts and buy advertising on behalf of their investors. If the trust fails to honour its contractual expenses then it closes but the individuals who donated don’t get summonsed to pay off the trust’s debts.

A poor person in a rural town wanting to campaign for their rights doesn’t want their $1 donation to compel them to bail out the organisation for a further $1 billion if things go wrong. If you donate to a charity supporting rebuilding after Hurricane Katrina you don’t want to be held liable if the charity builds a home that subsequently falls down.

These are the benefits.

But it also means that others can organise who happen to disagree with you or have their own special interests. Such as unions, companies or religious organisations.

In 2010 the US Supreme Court ruled that corporate funding of political broadcasts is protected by the first amendment right to free speech. That caused some uproar.

Yet a company is set up to make profits for its investors, not to elect specific politicians. A company may have vast profits, and it may favour one political candidate over another, but it can’t abandon its mandate to pursue a single political end. Companies are there to outlast mere individuals.

Will company campaigning make a difference? Difficult to know just yet but, if you’re worried, you can always check the reported financial statements from a company. Such a thing would have to be reported to shareholders so they can judge whether it is a good investment.

Unfortunately, unions and special interest organisations are under no such compulsion in law, so you takes your chances.

The upside of limited liability

Either you think that all people are criminals and that limited liability gives everyone the chance to blame an intangible legal construct for anything they do; or you believe that people are mostly good, sometimes misguided or ignorant, that poverty is a terrible thing, and that pooled effort is a wonderful thing.

If you’re part of the former then every single type of contract-based organisation will always be a problem for you. If you’re part of the latter you’ll recognise that adverse outcomes do sometimes result from good things and that we should simply tweak the rules a bit to reduce these events as and when they occur.

Limited liability is a natural extension of division of labour. It frees us to pursue our own ends and take advantage of the upside of other peoples’ wealth, ambition and creativity. Most importantly, the most you can lose is to the limits of your own investment.

So where does that leave BP?

Risk is a natural component of life. We can do our best to minimise that risk but it is unlikely that we will ever obliterate it.

The way in which society has trended is to distribute the responsibility for risk but concentrate the responsibility for fraud. In other words, where things just go wrong because we’re on the downside of probability then insurance must distribute the pain to as many people as possible but, when the downside is a direct consequence of illegal individual action, then that person should be held accountable.

If BP and its various partners did nothing wrong but wrong happened anyway then everyone will end up paying just as everyone in the US now pays for health insurance. If the US doesn’t like this arrangement then you should really start looking for alternatives to oil otherwise … this is where the oil is and these are the risks you take in getting it.

If individuals are found to have been negligent then they will be held to account, but the cost of the cleanup will still be distributed to everyone since no individual could afford to make good.

Rehabilitation is the important thing; making good what was broken.

If you personally want to go further than that, to humiliate, punish and destroy, then you need to re-evaluate your principles.

11 replies »

  1. If limited liability and incorporation were not possible then only the very rich could afford to be president.

    Okay, now you’re just taunting me, right?

    No, you don’t have to be rich to be president. You have another choice: you can be less than rich, but willing to whore yourself TO the rich. But make no mistake. We have reached a moment in history where the presidency (and the 50 statehouses, and both chambers of Congress) are populated exclusively by those who either are rich or who are 100% in thrall to the rich.

  2. Yes, all this wonderfullness would explain why the US has a GINI coefficient like a developing nation ruled by a corrupt dictator.

    No one in the reality-based community would argue that every shareholder in BP should be put on trial for criminal activity, but an investment is a risk…is it not? It’s not a loan with a guaranteed pay back. So in the event of gross negligence on the part of the corporate structure there’s no reason why the corporation couldn’t be punished by, say, losing its charter. The investors will just be out the money they invested.

    But let’s look at the specifics. BP has a history of safety problems as well as a history of fudging safety test results. Halliburton has a horrible safety history. We know that safety equipment that could have been installed (and is often installed by other companies even when not mandated) wasn’t in an effort to save $500,000. We also know that when questioned, each company involved pointed the finger of blame at the other companies. If this had been an unavoidable calamity that was no one’s fault, all three would have said exactly that.

    Sure, government deserves a share of the blame, but then we must also consider the undue influence that these corporations wield within government.

    Had everything gone right, the oil released from the Earth in a controlled manner would have been the property of British Petroleum, to do with as it saw fit and to profit on it to the best of BP’s ability. It would not have been divided equally among several groups or the population at large. BP would never have given me a gallon of gas out of the goodness of its heart; in fact, it would prosecute me if i took a gallon of its gas.

    But here, in the worst case scenario, we’re supposed all pitch in, help and be understanding of BP’s property fouling everyone else’s property. See, i’m all for property rights. What i cannot understand is why so many supposed libertarians and conservatives who are for property rights always and invariably side with the property rights of giant, faceless corporations over the property rights of individuals.

    As i said before (when my paradox went unanswered yet again), this is clear cut. BP’s property is all over the property of others, doing damage that will last for at least a generation. No investigation is needed. The evidence is washing ashore as i type. And yet this entire series has passed without a single mention of the property rights of those most affected.

    Dr. Denny has written several excellent posts here putting paid to the happy theory that we can track where corporate political funds go with any reliability. And again we’re confronted with theory being promoted as reality. The quickest way to profit is to control the government agencies that regulate the corporation, so political spending is an investment on the behalf of shareholders. Enough political spending will get you trillion dollar bailouts when you shit the bed.

    Yes, it would be wonderful if Americans thought, “hmm, we should look for alternatives to oil and cut back on our usage so that we dont’ have to deal with things like this spill.” But doing so would require depending on the politicians elected with corporate funds to make great changes that would be detrimental to the shareholders of the corporations that give them the most money. What are the odds?

  3. Good article, good grasp on things. You’re the only person at S&R that writes about such things that actually “gets it” and you don’t bloviate and interject hype and class warfare into the equation. Truly fair and balanced.

  4. So then no one wants to deal with my question about BP’s violation of property rights all along the Gulf then, eh? I know Jeff doesn’t want anything to do with the question, he ran away the last time i asked it too.

  5. Not afraid of the question, Lex.

    I really have no idea what happens next as far as the oil damage is concerned (stopping the deluge would be nice, though) but I don’t see how anything I’ve written comes out as against anyone’s right to sue BP for damages, for those damages to be paid, and for responsiblity to be assigned.

    As far as Limited Liability is concerned, all I’ve said is that – if there is found to be negligence – then the people responsible for that negligence should be appropriately punished. The limitation, as far as it goes, is that BP as a company is responsible for rehabilitation but that individuals are responsible for negligance. That is all.

    I never said anything about the company not being responsible for the clean-up.

    For me it is the difference between a genuine car accident (in which the person who caused it still winds up paying – via their insurance company – for the damage, but doesn’t get charged or sentenced with a crime) and a drunk who rear ends you who both has to pay for the damage and probably lose their licence.

    I see no point in punishing the insurer for the crimes of the driver any more than I see the point of punishing BP for the crimes of individuals.

    I’m not sure if that makes my position clearer?

  6. Since Lex isn’t a legal scholar, I will ignore his “violation of property rights” hallucination and move on. Accidental damage to neighbors property is not a violation of property rights, but it could be considered to be a public nusance which is a whole other can of worms and is not constitutionally protected.. It is a civil case that will be addressed by the courts, and damages assigned. Furthermore, I’m not holed up in a cabin in the north woods, I’m in the path of the oil spill that is expected to be on my property within 14 days. I am the only one on this board that will suffer real harm from this, personally. I’m not engaging in hysteria and hyperbole like so many shrill voices from the left. I am taking a wait and see attitude, which is what most intelligent people should be doing. If I end up with a black beach in my backyard, my property rights have not been denied Save the rhetoric for the courts.

    Property rights:
    1. control of the use of the property
    2. the right to any benefit from the property (examples: mining rights and rent)
    3. a right to transfer or sell the property
    4. a right to exclude others from the property.

    not included in property rights:
    1. uses that unreasonably interfere with the property rights of another private party (the right of quiet enjoyment)
    2.uses that unreasonably interfere with public property rights, including uses that interfere with public health, safety, peace or convenience.

  7. But isn’t that what people here have been saying? The corporation pays to clean up its mess; if individual responsibility within the organization can be ascertained, then those people can be punished according to the regulations in place? You sue or fine the company to fix what’s wrong; you sue or fine the people who made the decisions for the decisions.

    I thought the issue was with the ineffectual regulation and the use of corporate “personhood” as a legal dodge when convenient…

  8. So then clearly BP et. al. have violated the property rights of not only individuals but also the public at large…since the Gulf itself is considered US waters in this area.

    As any quick scan of the news will show, the companies involved are already working furiously to limit their monetary liability. And that’s where my contention in part one started. We should wait and see while the companies involved send an army of lawyers to make sure that claims are preempted.

    BTW, Jeff, i wasn’t asking for a legal argument. I’m asking for a philosophical answer from libertarians/conservatives because i want to see how often the philosophical answer matches with real world behavior.

    Gavin, i know you’re not afraid of the question…and i’d be interested in having a serious conversation about it with you. I see your point. I don’t take much (if any) issue with it. It’s only that we’re confronted with the theory/reality disconnect here. Nor do i have a philosophical problem with limited liability, but i have a problem with a good idea being taken too far.