From Radley Balko:
Sunday Discussion: Should We Abolish the Limited Liability Corporation?
We libertarians are regularly accused of being corporatists, despite a wealth of evidence to the contrary. But what are the arguments in favor of keeping the legal protections that define corporations?
This is one area where the breakdown between strict adherence to libertarian principles and reality suffer a disconnect, but I applaud Radley for raising the question (though Murray Rothbard has touched on this as well in “Power and Market”) But recognizing the “problems that stem from shielding government actors from any real repercussion for their actions” while also confessing that with respect to corporations it is “outside (his) area of expertise” seems to raise the question of whether you’ve truly thought through all of the problems, and its why libertarianism to me always seems to have decided on an answer, and retrofits the argument to support it.
The idea of personal responsibility being a limiting factor on one’s actions is necessary for many of the supposed benefits of libertarianism to work (ie. the function of the invisible hand in laissez faire economics). The problem with this is a divergence of interests between the individual actors that compose a corporation, and the corporation itself. If the individuals are shielded from liability, that personal responsibility disappears.
The problem, of course, is that you are throwing the baby out with the bathwater. Modern society requires complexity and scale. Individual proprietorships simply can’t engage in the level of activity necessary for any sort of large scale efficiency. This complexity may have drawbacks, but large scale coordination has real benefits as well.
Strict adherence to principles would require the (counterproductive) elimination of limited liability protections for shareholders. But partial adherence to principles – recognizing the form, but not allowing for regulation of action – is counterproductive as well. A pragmatic approach recognizes that there are advantages to allowing limited liability, but with those advantages must come restrictions. Either in the form of regulation, or by subjecting them to actors of comparable strength.
The natural libertarian aversion to regulation always seems to kick in, but it shouldn’t – limited liability structures are an artificial construct. Regulation of an artificial construct is simply setting the rules of the game: it is about recognizing the limits of a granted power, not curbing an existing right and liberty. Recognizing that police or other government actors go beyond utility in their actions is not the same as advocating for elimination of police altogether, but I see the same dynamic in libertarian discussions over and over in other contexts. In this case, libertarianism leads to one of two solutions: eliminate corporations (limited liability is a government intervention) or allow them to run rampant (no regulation!), where the answer is really in the middle, and that to me highlights the inadequacy of thinking in terms of strict principles when the real world is infinitely too complex to comply with them.
On the flip side, the idea of a comparable actor arises when discussing unions. I understand the drawbacks to unions, but contextualize them by comparing them to corporate structures. One must do away with both, or neither. But to gut unions while leaving corporations unbound seems to me the worst of both worlds.