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How Does Laissez-faire Capitalism Account Corporate Responsibility?

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theone Posted: Sun, Apr 8 2012 11:00 PM

Hello all,

 

I am not only knew to this forum, but new to the world of Libertarianism (in a true sense).  I've always held Libertarian beliefs, but it is only now that I begin reading deeply into it (libertarian manifesto, rothbard).

 

Anyways, I would like to have a concrete answer to how laissez-faire capitalism accounts for corporate responsibility.  I have asked around and I get the answer that markets generally expunge such companies that would commit horrendous acts against nature/humans, but that's about as detailed as it gets.

 

I am truly a budding libertarian and will probably go to the road of anarchism eventually, but for now I have to have a concrete answer for this question, as it is very important for me to have peace of mind of this.  I am sure libertarianism can provide such a concrete and logical answer, as it has already for every other question I have had! 


Thanks!

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Jargon replied on Sun, Apr 8 2012 11:34 PM

What specifically does "corporate responsibility" mean. Not shirking the question, just trying to answer it well.

Land & Liberty

The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger

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theone replied on Sun, Apr 8 2012 11:43 PM

Polluting a town's river, thereby giving the populace some horrible cancer;

 

Using cost-analysis to determine that the deaths of driving an unsafe vehicle outweight the costs of lawsuits.  

 

Basically, corporate responsibility not commiting terrible acts to the environment/people.

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Jargon replied on Sun, Apr 8 2012 11:53 PM

A corporation's polluting of a river owned by a that party which is not itself (say B), is a crime punishable to the satisfaction of B. If I came on your lawn and dumped a bag of fecal on your lawnflamingo, you would have the right to press charges. Same thing if a corporation's actions poison the soil on your property. This is not practiced nowadays due to a convoluted and privileged legal system.

A corporation selling a dangerous car cannot be considered a criminal action. Both parties perceive to gain from the transaction. Should the car prove to be of an obviously dangerous design, it will become a less viable candidate for those seeking cars. Should it leak that the corporation ran this action from a cost-benefit basis, this has public relations implications. Generally it is not profitable for companies to produce products which make their customers not want to buy from them and encourage others not to buy from them. Remember when Ford got blown up about that Fiesta car that supposedly (see here: http://en.wikipedia.org/wiki/Ford_Pinto#Fuel_tank_controversy) burst into flames? It got shushed off the manufacturing lines.

When corporations must pay directly for the harm that they cause, directly (through lawsuits) or indirectly (through losses), they tend not to act in a malignant manner. When they are shielded from the consequences of their actions, as they are today with LLC and monopolized courts, they have carte blanche on harmful action.

 

 

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The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger

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Welcome to the Mises forum!  Be sure to check out the newbie thread for forum tips and how-to's.

 

Someone else actually recently asked a similar question about environmental issues.  See here.

 

Using cost-analysis to determine that the deaths of driving an unsafe vehicle outweight the costs of lawsuits.

Funny you should ask...

 

 

theone:
Basically, corporate responsibility not commiting terrible acts to the environment/people.

Consumer Protection

 

Welcome to a new world.  I made a thread that you'll probably find helpful.  See here.

 

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theone:
Polluting a town's river, thereby giving the populace some horrible cancer; Using cost-analysis to determine that the deaths of driving an unsafe vehicle outweight the costs of lawsuits.  Basically, corporate responsibility not commiting terrible acts to the environment/people

Governments harm individuals in the name of the "common good".

 

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Corporations can't exist on the free market as they require a government to recognize their personhood. Without corporate personhood we could only recongize individual people (principals and partners). I think this would be a disincentive for companies to be irresponsible as the owners of the business would be held liable and not the corporation

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Corporations can't exist on the free market as they require a government to recognize their personhood.

Not all correct. Corporations as they exist right now couldn't exist on the free market, but similar company structures could be contractually recreated, but on a much more responsible level:

http://blog.mises.org/4269/in-defense-of-the-corporation/

http://blog.mises.org/9084/corporations-and-limited-liability-for-torts/

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theone:

Anyways, I would like to have a concrete answer to how laissez-faire capitalism accounts for corporate responsibility.  I have asked around and I get the answer that markets generally expunge such companies that would commit horrendous acts against nature/humans, but that's about as detailed as it gets.

...I am sure libertarianism can provide such a concrete and logical answer, as it has already for every other question I have had!

 
The question by the OP has been well answered, however I would say two things:

1) While the following argument is not very effective against those who do not already buy into libertarianism, I think it is no less true, and you could benefit from it. No well-read libertarian will claim to be able to tell you, in any great degree, how the free market will address any social or economic problem. The only thing this libertarian will say is that the proposed solution cannot and will not use coercive force. If any person, even someone calling themselves a libertarian, claims to know the best solution to any/every social problem, he might as well be the world's socialist dictator sending out his commissaries to administer his decrees. If one man were capable of knowing how best to admonish crime, allocate resources, and organize the labor, your market economy is at best redundant, and at worst inefficient.
 
We Libertarians know, however, that one man is incapable of these feats of omniscient wisdom. We know that one of the biggest benefits of a free market is the ability of a single inventive mind to solve a problem, and the masses get to share in that benefit. That ordinary people of no great distinction or fame can benefit indirectly from the labors and innovations of a single person is a characteristic of the free market that always struck me as ironic. How funny it is that the Marxists' main intention was to redistribute wealth so as to make everyone equal, when the free market, using selfishness and greed (qualities most would find repugnant), finds a way to spread the benefits of one man's work over the entire population.
 
For instance, the profits earned by the man who invented the tractor pale in comparison to the benefits he bequeathed to the world populace. The profits of the invention are not even limited to those who buy the tractor! The workers, toiling on their hands and knees in the fields, do not even own the tractor, yet their labor now produces more compared to before, thus raising their relative wage. What could be done in 10 hours now can be done in one. Leisure is more bountiful, and sweat is diminished. So we see the world did not lose when the tractor's inventor profited. He was the world's benefactor. He risked his own time and capital on a bet that his idea might make the world a better place to live in, and this bet paid off, not just for the inventor, but for the farmer, the laborer, and the consumer of the land's bounties, the latter three of which risked nothing.
 
How funny that in their attempts at making "all men equal", the marxists would be forced to make each man an island unto himself. How funny that in aspiring to a virtuous society focused on man's finer qualities, the marxists created one of predation, resulting in man's display of his more course qualities. In a socialism, consistency of the ideology would demand that a man's standard of living must be purely dependent on the profits he alone is accountable for. Unfortunately for the Marxists, to even attempt to force these conditions is an exercise in futility. This is one reason (among hundreds) I feel they failed. Even if you superficially attempt to redistribute equally through force and law, no man will ever be perfectly equal; a conclusion which then begs the question: Why would you want them to be? Why would you want all men exactly equal, meaning exactly the same?

what I mean is, If everyone were me, we'd all be living in squalor, because you cannot eat a well-written paper, can you? My point is: you will not get a concrete answer to a question like the one you have posed. Any answer other than the one I've provided is at best merely educated theory and more likely conjecture. So, in a way, you've already answered your own question: "...I am sure libertarianism can provide such a concrete and logical answer, as it has already for every other question I have had!"  A libertarian cannot provide you a concrete answer, but the market will; we just need to give it a chance.
 
2) Now for part 2 (my conjecture). In a free society, there is GENERALLY very little to no pre-emptive punishment or retribution imposed on a party. For instance, if a company institutes a new policy that appears may, perhaps, some day in the future cause pollution of a river that you own part of, there will be no retribution. Punishments may only be imposed, GENERALLY SPEAKING, once the company has, in fact, injured you or some other party. This alone would detour most injuries, but you also have to understand that in a free society everything (and I mean everything) is privately owned.

Take, for example, the most recent occurrence of what many would call a lack of corporate responsibility: the BP oil spill. Because these waters are not privately owned, there was no one property owner directly injured by the spill at first gush. Yes, many on the coast were affected, but because there was no property owner for that stake of water where the spill initially occurred, BP was much more in the clear than they would have been in a private society. I will not say that there will be no spills in a private society, but in our current state there exitsts a very large version of the tragedy of the commons, especially in the realm of environmental problems. "why shouldn't I dump my medical waste here?" thinks Medical waste company X. "No one owns this area, and everyone owns that one, so I do also."
 
In fact, Rothbard talks about the latter situation a lot in one particular essay (the name of which i cannot recall) where the commons is a public street block hosting where an event is taking place, and the point in question is: how do we fairly allocate the use of the microphone? A crowd of citizens sit at the foot of the stage listening to the speakers. Rothbard asks, "is the right of all to be allotted time?" He explains that because every person in the audience paid in taxes for some part for the street block holding the even to be built, then, in theory, each member of the audience should have the same amount of speaking time allotted to them, rather than some favored speaker. This of course would be impossible, and likely defeat the purpose of the event in the first place. But, you see the problem, and these problems can be found in anything with the government's hand in it.
 
So...Lets say I exclusively owned the stake where the BP spill initially occurred. I would sue BP for damages not before, but only after the spill had occurred. Now you may have noticed that I said "Generally" a couple of times previous, implying an exception to the rule of post-injury retribution. The exception in a free society occurs when I have made rules stipulating to this effect previous to the injury being able to occur. Perhaps in my tract of ocean, I decide I have no tolerance for even the slightest risk that spill could occur, so I put up signs saying that i do not allow the transportation of oil over my waters. I may suffer economic consequences for this decision, as BP may be willing to pay me for the privilege of sailing over my waters. So I must now weigh two options against my value scale: Do I take the money at the risk of a spill or do I deny the money and eliminate this risk? Perhaps the agreement offered to me by BP would even cover the cost of fixing a spill should one occur, thus reducing my risks. What is important to understand is that, in the end, I must make the decision based upon my value scale. That is what Praxeology is, in a nutshell.
 
You may not notice it, but we make these decisions everyday. As the Milton Friedman video that JJ posted previous pointed out, the safety of the car is not the issue. Are you willing to accept the disadvantages of driving a (relatively) unsafe car when presented with its much less expensive price? "You could, at a cost, eliminate almost all of your risk altogether." You could achieve this by never leaving your house, but this strategy may be very costly. From our governments perspective, it could, at a cost, pay off some (very little) of the unfunded liabilities of social security in the next year by taxing its citizens 99% of their annual income, but as the laffer curve points out, this strategy would probably not be advantageous for the governments sustainment. So when I say "generally", I mean the only exemption to pre-emptive retribution comes from some rule or previous agreement made with the property owner. And even this instance wouldn't really constitute justification for pre-emptive retribution because they must first break the agreement or the property owners rule's, and thus cause injury to them. We see that even in these cases, the retribution is only superficially pre-emptive. What we have done in reality is create a new "law" that when broken constitutes a tort. The property owner is simply taking precautions against something potentially harmful to him from happening.

To best illustrate what I mean, lets take a drunk driver. In a free society, drunk driving would not in-and-of-itself be a crime. If I can get plastered, shit-faced drunk and make it home without causing injury to someone, I am good as gold. When I am not so good is when my drunkenness kills somebody. I am not punished because I was drunk. I am punished because I killed someone, meaning I caused them an injury. There is no pre-eminent punishment, per se. Now you may ask, "so won't everybody just be out drunk driving now?" Maybe some will, as they do now, but the free market will control this better for two reasons. First, most rational individuals, in a free society just as in one like ours today, know that drinking impairs their ability to drive a vehicle. Because of the increased risk that while under the influence they might inadvertently harm somebody and face punishment, they will be less inclined to drive than they otherwise would be. But, we do have irrational people out there who will still do so despite the increased risk and this is no different in a free society as compared to one like ours. So how do we stop them? This brings me to my second reason. Just because a free society does not GENERALLY punish pre-emptively, does not mean that property owners will tolerate it. As I've stated before, all property in a free society is owned and this includes even the roads. AS the owner of the roads, it is up to me to decide what I will tolerate on them and what I will not. As someone who owns a road, it is most likely that I will own it for the purpose of making money, and not just as my own private little roadway, although that would be acceptable as well. If in fact I run the road as a business, then i charge people to use the road. These are my customers, and it is in my economic interest to keep them safe so that I don't lose them as customers and so that I don't end up in court. Knowing that alcohol affects drivers as it does, this is reason enough for me to place rules on my road to outlaw the practice of driving under the influence. These rules shall be enforced by either a private company I have contracted or my own force of enforcers. The key difference between our current system and the one I have just described is that the free market arrangement will place a much higher value and reward greater profits to the road owner with the most effective policing practices and, in this case, the most efficient techniques at determining dangerous levels of drunkenness. In our current system, some arbitrary number is assigned to state absolutely from safe to drive to unsafe.
 
If you blow a .08, you are magically considered completely unfit to drive a motor vehicle, but if you blow a .79, you are somehow no danger to anyone. However, if you have ever had any experience with a breathalyzer, for the sake of entertainment or arraignment, then you probably know how completely useless they are at determining drunkenness (Both my personal experience as well as ample independent studies have proved the breathalyzer ineffectiveness). A 90 lb girl could drink 2 beers and be completely wasted but blow under the limit while a 250 lb male could put down a 12 pack, be completely sober, and blow over. All breathalyzer levels aside, the state doesn't even take into consideration that different amounts of drinking lead to different risk levels. Perhaps drinking one beer only makes a wreck 10% more likely while drinking 6 makes the occurrence of an accident 150% more likely. It is in my opinion that a free market arrangement would not only execute innovative techniques that would be better equipped to gauge general drunkenness (something the state has failed to do), but also administer more fitting punishments according to each individuals own personal risk factors (as in the case of the light weight girl and the heavy weight guy).
 
This idea of just punishment is important not just for the sake of safety but for the sake of justice in general. While it is true that the road owner may punish offenses as he sees fit, economic consequences will detour him from becoming a private tyrant to his customer, both guilty and not guilty. The road owner, cautious to accuse any of his customers of wrong doing without a healthy amount of certainty, must first verify if the individual in questions is guilty at all. In the case of drunk driving, If the owner finds evidence that the individual has been drinking, he must then determine if the individual has been drinking at a level that makes him a danger to the other customers, and if so, how much danger. If the danger level is negligible, the owner may let him off with a warning or a small fine. Careful not to lose the business of a paying customer, the owner has interest in serving a just penalty that the accused would, in any objective perspective, find to be fair.
 
Now, if the individual in question is found to be belligerent to the point of potentially causing great harm to the other customers of the road, a harsher penalty, such as a large fine and/or permanent ban of the roads, may be enforced. By taking this individual into custody, he now becomes the responsibility of the road owner. The individual's safety is now the obligation of the road owner, and any harm the individual may be subjected to is purely the liability of the owner. The owner now finds economic incentive to deliver the individual home safely and without a scratch. We find that while the owner may have punished the individual for his rule breaking, economic pressures compel the owner to treat the accused humanely and with respect. It is because of these factors, a market arrangement is preferable to our current system. Today, we experience fines and punishments, not just in the case of drunk driving but elsewhere, that are either much too soft or much too harsh when compared with any given (supposed) crime.* After we are accused, our well-being is hardly at the forefront of the minds of our holders. If you are beaten up in the drunk tank after being arrested for public intoxication, "well...you should have thought about that when you were drinking" say our good police "protectors". All of this aside, in the free society, if you find your punishment by the road owner to be excessive or unjust, it is your right to see him in court, if your funds will allow it, regardless of how likely you are to win the case or not; just be prepared to accept the economic and social consequences of losing the case.                      

*studies have shown that texting while driving 70 MPH requires an extra 70 feet of breaking space to avoid hitting an oncoming obstacle. Compare that statistic with the 4 feet of extra breaking space required to avoid on obstacle when going the same speed, and the picture becomes clear that one is 19 and 1/2 times more likely to cause a fatal car crash when texting while driving than when driving "drunk" with a .08 BAC level. Yet, we find that the practice of texting while driving is not taken nearly as seriously. In no way however am I saying either should be illegal. I say this to point out that government is terribly inefficient at determining risk. Their decisions on punishment and the definitions of the crimes these punishments are applied to are generally the practice of arbitrary guess-work. (http://www.cnbc.com/id/31545004/Texting_And_Driving_Worse_Than_Drinking_and_Driving)

So, in summation, I don't think you have to worry about corporate responsibility. Almost anything would be better than relying on government responsibility. They have a monopoly on force, after all. If you have a grievance with them, who else can you go to for justice but them? But, irresponsibility, no matter who is irresponsible, is a bad thing. I hope the examples I outlined above have made the case that if a free market arrangement is anything, it is responsible. It is important to remember that the motivation of an action is so commonly confused with its result or, in this case, level of responsibility. The road owner's motivation may be many things, depending on the individual in question, but most assuredly one of these motivations is pure selfish profit. As you can see, this profit motivation is the impetus, rather than the hindrance, by which safety and a greater quality of life for all parties concerned is attained. The road owner may only profit by first profiting you in some way, for if he didn't, you would not provide the transaction through which he profits from.

Conversely, when a group of politicians author a new welfare bill, their motivations (which I suspect to be more sinister than they would lead you to believe) may truly be benign and well-meaning. They may genuinely believe that taxing one class of citizens in the name of helping another is a good thing. We find, however, that these policies often end up hurting not just those that are taxed for the welfare, but more specifically those whom the bill originally set out to benefit. Government expenses and programs are completely without a means to conduct profit-loss analysis, and this characteristic does not make them a good candidate for running the realm of social work; it makes them a very bad candidate. Even if it could be proved without question that one government program did produce some net good for society as a whole, there would still be no way of knowing if some other government program could have done a better job given the same resources. So, now we reach the crux of where any good libertarian debate style should lead to when attacking the supposed merits of any statist argument or system with regard to economics: the statist has no leg to stand on once you get to the calculation problem. There is no finer weapon to be used against them. I hope this all helped.       

"If men are not angels, then who shall run the state?" 

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Holy F*king Sh*t you wrote a lot.

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You must not have read The Texas Trigger's first thread- he's the new guy!

Well done!

If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH

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The Texas Trigger:
The question by the OP has been well answered, however I would say two things:[...]

More paragraphs!

wink

 

NonAntiAnarchist:
Holy F*king Sh*t you wrote a lot.

Whattya expect? guy's been lurking for 4 years.  Got a lot to say.

 

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Sorry John. Its fixed now

"If men are not angels, then who shall run the state?" 

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Autolykos replied on Wed, Apr 11 2012 7:54 AM

thone:
Anyways, I would like to have a concrete answer to how laissez-faire capitalism accounts for corporate responsibility. I have asked around and I get the answer that markets generally expunge such companies that would commit horrendous acts against nature/humans, but that's about as detailed as it gets.

I, for one, don't see how universally-limited liability would exist as an institution in laissez-faire capitalism (i.e. anarcho-capitalism). Any business in laissez-faire capitalism would be fully liable for all damages incurred against non-contractual parties. Keep in mind that, even today, limited-liability corporations are chartered by governments and cannot (legally) exist otherwise.

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