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Masticating on McKay Part One - Limited Liability


As all three of you know Iain McKay, librarian of the workers' revolution and keeper of the one truth, is my favourite person ever.

Several of his pieces are published on libcom.org so I couldn't help but browse. This will be a series with this top bit repeated through each post. Sorry for that. I'm unresponsive to my public :p

~~~

In a piece called The Grand Bluff: Private profits, social risks our truth-teller gives a quick history of limited liability and why it's a bad thing; namely that it decreases owners' exposure to the risks the businesses they own take on.

Correct! Limited liability is one state-granted monopoly privilege (along with organisational legal personhood, patents, and copyrights) that pretty much all anti-statists oppose. By describing the situation from the perspective of risk McKay even gets the reason why it's economically problematic right.

Inevitably, however, there are some things I must complain about; there wouldn't be any point doing this if I didn't have a few pennies to toss in the well...

First is the fact that the chance of gain is not "unlimited", as a quick perusal of business failure rates will make clear. [2]

Next is the obscene generalisation that "Capitalism has developed precisely by externalising risk and placing the burden onto..., ultimately, society as a whole" when discussing, specifically, the finance industry. The construction, tech, security, entertainment or energy industries are not party to any of this - well, maybe construction indirectly, but even then that's two industries out of thousands. [3]

My third and final contention is that a government bailout, while it represents government shielding certain people against the risks they face, is not a necessary outgrowth of limited liability, otherwise why didn't Iceland's government bailout its stricken banks? In Iceland, the banks went out of business and that was that.

In the overwhelming majority of countries in the world the kind of government activism exercised in 2008 to 2009 is not generally seen even in finance, and is certainly more-or-less unheard of in any other industries. [4]

Judging by the example of Iceland, allowing the banks to go out of business didn't lead to anarcho-socialism anyway, but rather just a sturdier financial system. In the UK it was Royal Bank of Scotland, Lloyds, HBOS and Northern Rock that were brought low, whereas Barclays and HSBC were by and large unexposed and never required any government assistance. Between them these two, Santander, and a few up-and-coming smaller banks could have taken on all the customers of the stricken UK banks without much incident. [5]

P.S

The article seems to confuse Limited Liability Partnerships (LLP) and Limited Liability Companies (Ltd), though this criticism may be unwarranted as McKay might only be talking about the businesses that offer sstock market services, which are mostly LLPs

~~~

[1]
http://libcom.org/library/grand-bluff-private-profits-social-risks

[2]
http://www.statisticbrain.com/startup-failure-by-industry/

[3]
http://www.freetheworld.com/2015/economic-freedom-of-the-world-2015.pdf

[4]
https://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_financial_crisis

[5]
https://en.wikipedia.org/wiki/2008_United_Kingdom_bank_rescue_package#Participating_banks

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