I’ve been thinking about whether we should quit creating various forms of corporations–like LLCs–for for the past 15 years or so–ever since Bakunin, more or less. But other than the fraud post a few days ago, I think the only other piece I’ve really written on the subject was a short explanation of my opposition to letting corporations have any kind of political rights (eg, donating to campaigns, freedom of speech,) on the grounds that they are non-human organisms (they are meta-human organisms,) and since I am a human and rather speciesist, I don’t want non-humans getting power.
The problem with discussing whether corporations should exist (or in what form, or if they are good or bad,) is that people are prone to status-quo fallacies where they forget that corporations are just legal fictions and act instead as though they were real, physical objects or forces of nature created by the Will of God, like mountain ranges or entropy.
But a “corporation” is not so much a big building full of people, but a piece of paper in your filing cabinet. Modern corporate structures did not exist throughout most of humanity’s 200,000 year existence, and in fact only came to exist when governments passed laws that created them.
All that takes to change them is a new law. Unlike mountains, they only “exist” because a law (and pieces of paper tucked away in filing cabinets,) says they do. What man has made, man can unmake.
So let’s talk about lawsuits.
America is a litigious society. Extremely litigious. Probably the most litigious in the world. (We also incarcerate a higher % of our people than any other country, though on the bright side, we summarily execute far fewer.)
Sometimes I think Americans are the kinds of people who solve disputes by punching each other, but we’ve gotten it into heads that lawsuits are a kind of punching.
At any rate, fear of litigation and liability are ruining everything. If you don’t believe me, try setting up a roadside stand to sell some extra radishes from your garden or build a bridge over a creek on your own property. You have to pass a background check just to help out on your kid’s school field trip, and children aren’t allowed to ride their bikes in my neighborhood because, “if they got hit by a car, the HOA could get sued.” As farmer Joel Salatin put it, “Everything I Want to do is Illegal.” (All Joel wants to do is grow and sell food, but there are SO MANY REGULATIONS.)
100 years ago, the kind of litigation people are afraid of simply wouldn’t have happened. For example, as Stanford Mag recounts of campus violence around 1910:
Black eyes, bruises, and occasional bouts of unconsciousness didn’t seem to alarm the administration. … Farm life came with a brutish edge. Some freshmen slept in armed groups to ward off hazers, a state of affairs apparently enabled by the administration’s reluctance to meddle. “Persons fit to be in college are fit to look after their own affairs,” Stanford President David Star Jordan said.
Fast forward a century to MIT getting sued by the parents of a student who killed herself:
Elizabeth Shin (February 16, 1980 – April 14, 2000) was a Massachusetts Institute of Technology student who died from burns inflicted by a fire in her dormitory room. Her death led to a lawsuit against MIT and controversy as to whether MIT paid adequate attention to its students’ mental and emotional health, and whether MIT’s suicide rate was abnormally high.
… After the incident, MIT announced an upgrade of its student counseling programs, including more staff members and longer hours. However, the Shins claimed these measures were not enough and filed a $27.65 million lawsuit against MIT, administrators, campus police officers, and its mental health employees. …
On April 3, 2006, MIT announced that the case with the family of Elizabeth Shin had been settled before trial for an undisclosed amount.
Universities, of course, do not want to get sued for millions of dollars and deal with the attendant bad publicity, but these days you can’t say “Boo” on campus without someone thinking it’s the administration’s job to protect the students from emotional distress.
All of this litigation has happened (among other reasons) because corporations are seen (by juries) as cash cows.
Let’s pause a moment to discuss exactly what an LLC is (besides a piece of paper.) What’s the difference between selling your extra radishes as yourself and selling your extra radishes as a corporation? If you are selling as yourself, and one of your radishes makes a customer ill and they sue you, then you can be held personally liable for their sickness and be forced to pay their $10 million medical bill yourself, driving you into bankruptcy and ruin. But if you are selling as a corporation, then your ill customer must sue the corporation. The corporation can be found liable and forced to cover the $10 million bill, but you, the owner, are not liable; your money (the income you’ve made over the years by selling radishes) is safe.
(There are some tax-related differences, as well, but we will skip over those for now.)
There are doubtless many other varieties of corporations, most of which I am not familiar because I am not a specialist in corporate law. The general principle of most, if not all corporations is that they exist independent of the people in them.
This is how Donald Trump’s businesses can have gone bankrupt umpteen times and he can still have billions of dollars.
But precisely because corporations are not people, and the people who own them are protected (supposedly) from harm, people are, I suspect more likely to sue them and juries are to award suits against them.
As a lawyer I spoke with put it, he was glad that his job only involved suing corporations, because “corporations aren’t people, so I’m not hurting anyone.”
Suppose MIT were just a guy named Mit who taught math and physics. If one of his students happened to commit suicide, would anyone sue him on the grounds that he didn’t do enough to stop her?
I doubt it. For starters, Mit wouldn’t even have millions of dollars to sue for.
When people get hurt, juries want to do something to help them. Sick people have bills that must get paid one way or another, after all. Corporations have plenty of money (or so people generally think,) but individuals don’t. A jury would hesitate to drive Mit into poverty, as that would harm him severely, but wouldn’t blink an eye at making MIT pay millions, as this hurts “no one” since MIT is not a person.
You might say that it is kind of like a war between human organisms and corporate organisms–humans try to profit off corporations, and corporations try to profit off humans. (Of course, I tend to favor humanity in this grand struggle.)
The big problem with this system is that even though corporations aren’t people, they are still composed of people. A corporation that does well can employ lots of people and make their lives better, but a corporation that gets sued into the gutter won’t be able to employ anyone at all. The more corporations have to fear getting sued, the more careful they have to be–which results in increased paperwork, record keeping, policies-on-everything, lack of individual discretion, etc., which in turn make corporations intolerable both for the people in them and the people in them.
So what can we do?
The obvious solution of letting corporations get away with anything probably isn’t a good idea, because corporations will eat people if eating people leads to higher profits. (And as a person, I am opposed to the eating of people.)
Under our current system, protection from liability lets owners get away with cheating already–take mining corporations, which are known for extracting the resources from an area, paying their owners handsomely, and then conveniently declaring bankruptcy just before costly environmental cleanup begins. Local communities are left to foot the bill (and deal with the health effects like lead poisoning and cancer.)
The solution, IMO, is individual responsibility wherever possible. Mining companies could not fob off their cleanup costs if the owners were held liable for the costs. A few owners losing everything and ending up penniless would quickly prompt the owners of other mining companies to be very careful about how they construct their waste water ponds.
People need to interact with and be responsible to other people.