From: Brian Holtz [brian@holtz.org]
Sent: Wednesday, October 23, 2002 9:04 AM
To: Franklin Schmidt
Cc: LPSM-Discuss@yahoogroups.com
Subject: RE: [LPSM-Discuss] Re: More comparisons between government and
regular corporations


> From: Franklin Schmidt [mailto:fschmidt@digdb.com]
>
> The consumer protection effect is fairly obvious.  If General Motors makes a
> defective car and this car kills someone, then this is simply a case of
> manslaughter.  It should be handled as any other manslaughter case which
> would return a verdict of lets say 10 years in prison.  This prison sentence
> should be divided among the voting shareholders in proportion to their
> voting share

A case can be made for unlimited financial liability, but not for shared criminal 
liability.  If CEO Ramsey arranges that the corporation causes the death of his 
daughter Jon Benet, it's silly to say he should only serve a fraction of the 
sentence corresponding to his voting shares.  And what if the sentence is death?
 
> Today's investors are absentee owners of the companies whose shares they
> own.  They have unlimited upside, but the downside is limited to the size of
> their investment.  So they push companies to take risks and cut corners.
> They also tend not to really understand the businesses that they are
> investing in as well as management or even employees do.  Eliminating
> limited liability would end this kind of investment because investors would
> not be willing to accept unlimited risk in a business that they do not
> understand.  Instead, the stock market would trade mostly nonvoting shares,
> which would not carry any liability because these shares have no power
> associated with them.  This is analogous to the idea of a limited partner in
> a business partnership. The significant result of this is that wealth
> becomes separated from power.

Would it really, in practice?  Could not holding companies be differentiated 
according to how they vote their voting shares, and issue non-voting shares 
that in effect limit liability without limiting voting power?

> People who believe in an egalitarian society are simply naive.  The most
> greedy, most ruthless, and generally the worst people in any society will
> always wind up with the most wealth.

Obviously false.  Societies vary widely in how well they reward ruthlessness.

> The best that one can do is to separate wealth from power
> so that the greedy choose wealth, thereby allowing power to be more
> equitably distributed.

Why isn't it "simply naive" to think that power can be separated from wealth?

> In a system of unlimited liability, the greedy will
> likely be investors and bankers who finance businesses but they will not
> want to hold voting shares because of the liability risks.

It's true that I've never voted any shares I've directly held, but I'm sure 
my mutual funds vote their shares, and I would worry that your scheme would 
make capital markets less efficient. Has any academic economist ever evaluated 
this idea?

> In such a system, management has a large motivation to give workers voting
> shares.

Maybe, but the workers wouldn't share that motivation.

> Contrast this with the
> situation today where workers are given options as a financial incentive,
> but this carries no voting power.

So?

> All economic power is concentrated today
> in the hands of the wealthy.

Change "the wealthy" to "wealth-holders" and you have a tautology. Don't change 
it, and your "all" makes the statement trivially false.

> If workers would have voting power in the
> companies that they work for, then working conditions should improve
> considerably.

Economists generally agree that working conditions and compensation in a market 
economy are ultimately determined by only one thing: productivity.

> freedom tends to lead to equality

No, I think Marx and others have argued convincingly that in a free market, 
capital tends to concentrate.

> and inequality tends to
> destroy freedom (as the wealthy take control of the government for 
> their own benefit).

Replace "wealthy" with "poor" and your statement is even more true.

> I think of communism as being corporate capitalism taken to its logical
> conclusion.  A communist government is structured just like a corporation,
> with its Politburo being analogous to the board of directors and its premier
> being analogous to the CEO.  So communism is the ultimate corporate monopoly
> where effectively, the entire country is run like one large corporation.

A ridiculous analogy. The essence of a corporation is shares as property, 
limited liability, and the ability of the corporate person to make and enforce 
contracts with other economic actors.  In communism, there is no property, 
no liability, and no other economic actors.  It's absurd to say that an 
organization with a chief executive and a policy-making group is morally 
equivalent to a corporation.

brian@holtz.org
http://humanknowledge.net