Is Limited Liability Equivalent to a Government Subsidy?

I don't care for this post.

One of the persistent threads running through environmentalism is the notion of "Corporate Responsibility." I've been thinking through some of the issues involving how corporations are formed and how the nature of the corporation affects how the economy assesses and handles risk and I'd like to present an idea for comment and examination.

The seed of the idea is that the limited liability corporation is a government subsidy to risky investments and as such may be partly what drives the reckless attitude of corporations towards the environment. Read on for more details.

First of all, I don't think corporations in general are reckless towards the environment. People fall prey to the recency effect and see a few companies in the news and think all companies are polluters.

Secondly I think the way this type of information is portrayed matters immensely. Take the following example, from this experimental philosophy post

Scenario 1: The vice-president of a company went to the chairman of the board and said, 'We are thinking of starting a new program. It will help us increase profits, but it will also harm the environment.'

The chairman of the board answered, '�'I don'�'t care at all about harming the environment. I just want to make as much profit as I can. Let'�'s start the new program.'

They started the new program. Sure enough, the environment was harmed.

Scenario 2: The vice-president of a company went to the chairman of the board and said, 'We are thinking of starting a new program. It will help us increase profits, and it will also help the environment.'

The chairman of the board answered, 'I don't care at all about helping the environment. I just want to make as much profit as I can. Let's start the new program.'

They started the new program. Sure enough, the environment was helped.

The strange thing with this example is that most people that read scenario 1 will say the chairman intentionally harmed the environment, while those reading scenario 2 will not say he intentionally helped it. The point is that we often assign blame for negative consequences but not positive consequences.

So I question the premise that companies recklessly harm the environment. That aside, I don't see what is wrong with limited liability. For one, a brand new small business doesn't really get it. Vendors will ask you to sign personal guarantees on stuff that you order. Secondly, who in their right mind would invest 10K in a venture if you thought someone could come back and take everything that you own? All you should lose is your 10K if the business goes under.

What should have happened from Enron, Worldcomm, etc. is that investors and creditors should have learned to be more skeptical of accounting numbers, and auditors should be held more accountable for signing off on them. I don't think that has happened, but it's probably because people are too lazy to investigate and they would prefer good news anyway.

I'll stop rambling now because this is a large and complex topic, and just say click over to the original post and read the comments section. There is some interesting stuff there, and some totally ridiculous stuff that is good for a laugh.