Vaguely Defined Property Rights Indeed
December 19, 2008
Author’s note: I originally and mistakenly attributed some of Stephan Kinsella’s quotes to Peter Klein. I’ve made the necessary corrections. My apologies to Klein and Kinsella.
Anyone with even a tangential connection to the blogosphere of the libertarian left has probably caught wind of the shit-storm set off by Roderick T. Long’s Cato Unbound article, “Corporations versus the Market; or, Whip Conflation Now.”
If you have ever knocked over a hornet’s nest, kicked an anthill or tossed holy water on a coven of vampires, then you will not be surprised that the response has been fast, furious, scattered and heated. The battle lines were quickly drawn in blogs and forums. In this corner, the “Left”, concerned with the role that government plays in enabling big business privilege. And in this corner, the “Right”, who, while acknowledging the role of government in impeding the free market, don’t see any particular reason to oppose the structure of business-as-usual and additionally find it praiseworthy on many counts and the natural result of respect for property rights.
Kevin Carson has recently come to Long’s defense in what serves as a good summary of some of the back-and-forth. The first part of Carson’s analysis focuses on Peter Klein’s reaction to Long so this too is where I started my catch-up work on the debate. I did not get very deep into the comments, when I noticed something unexpected: Stephan Kinsella providing an excellent argument in support of a 100% labor-managed economy.
Now this is likely to come as a surprise to Stephan because he did so in the midst of supporting Klein’s attack on the idea of labor-managed firms as a major focus of the left. Klein says,
I’m baffled by the left-libertarian fascination with worker-owned and -managed cooperatives. As I mentioned in my post, this strikes me as a purely aesthetic preference — power to the workers, down with cubicles and pointy-headed bosses!
Klein is clearly not a fan of arbitrary or aesthetic decisions in this context nor should he be. I also think that principles of justice in business contracts must be something more, something coherent and consistent.
So what is Kinsella’s KO argument in favor of labor-management?
It is not even clear that an employer ought to necessarily be responsible for his employee’s torts–the doctrine of respondeat superior. I have yet to see a careful libertarian analysis justifying respondeat superior. Without RS, you can’t even hold the employer (whether it be a sole proprietorship, partnership, corporation, etc.) responsible for acts of employees. So you would not even reach the question of whether shareholders are themselves further responsible for the debts of the employer-firm.
Why should shareholders be personally liable for damages caused by the actions of an employee of the company they own stock in? After all, the employee is another individual. He is responsible for his own torts. Unless you can show some kind of causal nexus, like a conspiracy, why should other individuals be responsible? People simply assume that if the shareholder “owns” a part of the company, then “of course” they “should” be personally responsible for its debts (which include damages for employees’ actions, due to respondeat superior). But why is this?…With such a loosey-goosey implicit theory of causation, almost anyone the corporation deals with is guilty of “aiding and abetting” the company, and thus should be personally liable for torts committed by its employees. Every ship a package by FedEx–well, you gave them money, so you are liable! Ever bought a McDonald’s burger?–you are liable for the hot coffee spill in that old lady’s lap. Ever held ownership in a fund that holds bonds for McDonald’s (lent them money)? Well, you’re again liable. The little lady who mops the floor at the Kroger’s–she’s helping them to commit crimes–break her windowz!
“Why is this?” indeed. But once I read this, I was more baffled at why Kinsella supports anything less than 100% labor-management. After all, the capitalist employment contract is one where labor is de jure considered not responsible for its actions. David Ellerman explains:
Why don’t the workers have the labor claim on the produced outputs (as well as the symmetrical claim against them for the used-up inputs)? The firm ownership myth is only the first line of defense. The real defense is the employment contract which puts the employees in a non-responsible position of a hired factor “employed” by the employer. But the labor theory of property is the property theoretic expression of the usual juridical canon of assigning legal responsibility in accordance with de facto responsibility…The criminous employee [example shows] how de facto responsibility is not transferable and how the law only pretends that labor has been alienated (until a crime has been committed). Thus the capitalist appropriation of the product (including the liabilities for the used-up inputs) is based not on the “private ownership of the means of production” but upon the legal validation of an inherently invalid contract which pretends that human actions are transferable like the services of things.¹
Now this at first might lead people to object, even Marxists, that, “No, it’s about who owns the firm. Ownership of the means, you know?”. But this would be what Ellerman calls the fundamental myth of capitalist property rights:
The fundamental myth can now be stated in more precise terms as the myth that the residual claimant’s role is part of the property rights owned in the capital-owner’s role, i.e., part of the ownership of the means of production.
It is simple to show that the two roles of residual claimant and capital-owner can be separated without changing the ownership of the means of production. Rent out the capital assets. If the means of production such as the plant and equipment are leased out to another legal party, then the leasor retains the ownership of the means of production (the capital-owner role) but the leasee renting the assets would then have the residual claimant’s role for the production process using those capital assets. The leasee would then bear the costs of the used-up capital services (which are paid for in the lease payments) and the other input costs, and that part would own the produced outputs. Thus the residual claimant’s role is not part of the ownership of the means of production.¹
It’s unfortunate really to think of all of those Marxists gnashing their teeth over “ownership of the means” as the source of product appropriation or Lockeans pointing past everyday intuitive examples of borrowing to emphasize how appropriation only makes sense on unowned state-of-nature resources or, likewise for them, current ownership of the resources. Anyone who as ever borrowed any capital knows that ownership of the means doesn’t allow the owner to appropriate the result by default or the involvement of resources owned by others doesn’t prevent appropriation for the user by default. It is the person responsible that appropriates the product.
Now Kinsella might object that non-criminal actions don’t count. But this seems rather like an aesthetic choice, to borrow Klein’s characterization. Why should someone be considered responsible if the outcome threatens the capitalist but not if it benefits the capitalist? Also, if Kinsella can’t find a libertarian defense of RS for tort, is he claiming that he has one for the case where the action is not injurious to a third party? If someone is hired to bake a cake in one instance and carry out a hit in another, both contractual obligations of employment, it would be inconsistent to hold the employee responsible for the murder in one case and not the cake in the other. If the hit man produced a contract showing that he clearly signed over responsibility to the employer, it would do him no good in avoiding prosecution. Yet if the baker ever attempted to accept responsibility for the cake so that he could claim the profits from its sale and pay the capitalist back for any capital liabilities, he would be quickly reminded of his contract.
It seems to me that support for a consistent application of the assignment of the residual claimant to the party de facto responsible for using up inputs and producing outputs would be much more than purely aesthetic. And it is quite rational that the RC would prefer to manage, directly or otherwise, the firm, thus my contention that 100% labor-management is the inevitable outcome of a consistent libertarian legal order. I would ask Kinsella upon what basis he would rest capital’s claim to the RC role? I would urge him however to be very careful lest he pull on a thread that unravels the whole sweater of private property theory.
Without a compelling principle, it looks as if Kinsella would be left with only one course of argumentation if he is not ready to join the labor-managed camp: to support the RS doctrine on consequentialist or, dare I say, aesthetic grounds. Klein has no shortage of arguments already lined up to demonstrate how
the worker-owned cooperative, the partnership and proprietorship, the decentralized “open-production” system, all suffer from serious incentive, information, and governance problems, almost none of which are mentioned in the anti-corporation libertarian literature. I suspect this literature’s preference for small-scale production is based primarily on aesthetic, rather than scientific, grounds.
To address these perceptions of labor-management would take much more space than I wish to dedicate here. I plan to return to it because I agree with Klein that it is important to address them. He is clearly annoyed with Long in his followup for not responding to the literature.
As I pointed out in my post, there are substantial technical literatures in economics, organizational sociology, and business law on the benefits and costs of alternative organizational forms, and Roderick does not grapple with these literatures at all, either in the original post or in the reply.
In all fairness, however, Carson, in a comment on Klein’s 2007 article “Vaguely Defined Property Rights”, suggested that Klein investigate some of Ellerman’s ideas of the sort I’ve presented here. I haven’t seen a public reply or analysis from Klein. If one exists, I would very much like to read it. I’m also not sure if Klein is in agreement with Kinsella about the doctrine of respondeat superior.
But, in the meantime, I would encourage Klein, Kinsella or anyone to consider for the sake of argument that the listed problems with labor self-management are real and unavoidable and simultaneously the fundamental myth I described is also acknowledged as such. Should then libertarians choose efficacy over consistency? Why should performance be a more important consideration for libertarians than consistent legal treatment of inalienable responsibility?
I suspect that if the state were shown to be able to produce the highest performance solution to a problem with fewer “incentive, information, and governance problems” (after all, they can ignore any pesky accountability), few libertarians (at least the anarchists) would embrace statism; instead they would reject these problems as primary considerations. Perhaps, as Ellerman says,
The membership rights in a democratic firm must join the other nonmarketable and inalienable human rights in the ignoble status of being “market imperfections.”²
1 Ellerman, David. Property and Contract in Economics: The Case for Economic Democracy. Cambridge MA: Basil Blackwell Inc. 1992.
² Ellerman, David. The Role of Capital in ‘Capitalist’ and in Labor-Managed Firms. Review of Radical Political Economics. Winter 2007.