Monthly Archives: November 2013

Proprietism and Liability Shields

I’m going to make a bold statement: liability shields are wrong, and the situations in which they’re right do not justify their existence so much as they point to a bigger problem in our society.

The intended purpose liability shields was to incent investors by removing the risk of losing personal assets beyond their original investment. What eventually evolved was the corporation, a structure that overtly and systematically encourages irresponsibility by protecting decision-makers from the consequences of their own actions.

Corporations and LLCs have become the norm. Business consultants run commercials on daytime TV like ambulance chasers: “Running a business is risky! You could lose everything! Your house! Your car! Don’t delay, call us and learn how to incorporate your business now!”

Today, it’s a smart idea for most small businesses to incorporate, but only to protect business owners from our own culture. You know what I’m talking about–we sue for everything. Punitive damages are “to punish and deter,” but our culture views them instead as a financial reward system for a plaintiff’s alleged emotional distress.

If you Google words relating to the claim that liability sheilds are wrong, you won’t get much. This article I referenced earlier from the Cambridge Journal of Economics is one of the only good finds. On the other hand, if you Google words relating to lawyers destroying our society, you’ll get plenty of results.

Apparently it’s a more widely held sentiment. One of the less sensational is Philip K. Howard, a lawyer himself. What can fix the problem that makes liability shields a solution? Tough to say. Howard runs, a “nonpartisan reform coalition” aimed at “pulling back law into boundaries that frame free choices.” I agree. Too much law and too many lawyers may make it easier for those who have been wronged to be compensated financially. But this societal benefit is completely washed by the hazard of rewarding irresponsible behavior, and by the overall loss of liberty to those whose work is guided by avoiding fines and lawsuits. This type of cultural change may be a prerequisite to a proprietist society.