Limited liability and the modern corporation in theory and in practice

The catastrophic consequences of a lack of public control over the operations of large private corporations have been thrown into sharp relief by two major events in the recent past: the global financial crisis and the Deepwater Horizon oil spill in the Gulf of Mexico. While these events obviously differ in scope and nature, they nevertheless turn the spotlight on a fundamental problem of contemporary capitalism. An economic system that facilitates the privatisation of gains in the hands of ever smaller elites while also socialising risk (losses) in an anarchic manner to the detriment of the many, is not politically viable in the long run. This is the case, in particular, if a core element of this system’s legitimacy is its claim to promote democracy at home and around the world, based on principles of transparency and accountability. Both the global financial crisis and the Deepwater Horizon oil spill have already attained the status of ‘watershed’ events mainly because the social, economic and environmental risks inflicted by private actors on very large groups of people were extraordinary and the causes of failure to manage these risks were systemic rather than accidental. At the heart of the systemic nature of these ‘watershed’ failures lies the gradual evolution of the modern corporation into organisations with the power to re-shape in their favour a changing and varied history of precarious balancing acts between public and private interests in advanced capitalist economies. From its beginnings, capitalism has been defined by the primacy of economic over political organisation, most famously encapsulated in Adam Smith’s metaphor of the ‘invisible hand’. Much later, Albert Hirschman’s insightful account of how ‘the interests’ gradually came to outweigh ‘the passions’ (Hirschman, 1977) provides a detailed analysis of such early legitimisation patterns, according to which the pursuit of individual freedom and economic selforganisation would be the driving force of political pacification and collective civilisation. Yet from the beginning such high expectations were curbed by warnings of potential conflicts between private and public interests if the former became too powerful. Thus, Adam Smith himself pointed out that: [t]o widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax on the rest