This morning’s Times has an article about the travails of Craig Zucker, who founded a company that manufactured Buckyballs. Buckyballs were very small, very powerful magnets which, as the article explains, were a hazard to children. The package contained a warning, but that didn’t stop the carnage:
The product safety agency says it has reports of about 1,700 emergency room visits involving children who had ingested Buckyballs. The power of the magnet in some cases caused ripped intestines.
Written warnings do no good once the package is opened, and the fact is that Buckyballs were kid magnets as well as real magnets. It was inevitable, warnings or not, that they would cause real harm.
Mr. Zucker is by no means an evil man, and I must say that I myself almost bought a set of Buckballs, and would have done so had the price not been so high.
The Consumer Product Safety Commission has taken the unusual step of trying to hold Mr. Zucker liable for the cost of the product recall. Mr. Zucker feels that he should be shielded from personal liability. Isn’t that what corporations are for? He’s being assisted, the article implies, by the inevitable Koch Brothers, whose tentacles reach everywhere.
Holding Mr. Zucker liable for the harm he caused, whether intentional or not, would, according to him and his allies, cause irreparable harm to the nation:
The groups argue that holding an individual responsible for a widespread, expensive recall sets a disturbing example and runs counter to the business desire for limited liability. They contend that such risk would have a detrimental effect on entrepreneurism and openness in dealing with regulatory bodies.
“It really has a chilling effect on the kinds of things all of us were trying to do, which is involve corporate officers in these kinds of decisions — to decide if something should be reported and if there should be a recall,” said Lee Bishop, a lawyer for the manufacturers association, who helped draft the brief.
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“This really punishes entrepreneurship and establishes a bad precedent for businesses working to create products for consumers,” said Daniel Z. Epstein, the group’s executive director. “It undermines the business community’s ability to rely upon the corporate form.”
There are some things that become so ingrained that we fail to ask fundamental questions about them. The concept of limited liability, in my humble opinion, is one of them. We assume, without asking “why?”, that the business community should be allowed to “rely upon the corporate form” so that the people who benefit the most from corporate wrongdoing can escape liability and responsibility when they are caught out.
First, a very brief course in the history or corporations. Initially, a corporation could be created only be the legislature, for a limited purpose, and usually to accomplish something that the legislature deemed to be a public good. Limited liability was an inducement for men (no women need apply) of means to invest without hazarding more than their investment, and it makes sense, and still makes sense if the person involved is investing money only and is not responsible for the day to day operation of the business, or, in the case of today’s banks, for instance, the day to day direction of the criminal enterprise.
But, back to the brief history. As time went on, and no doubt at the behest of the monied interest, the several states made it easier and easier to form corporations. Nowadays, you can form one for the cost of a filing fee and a small fee to a lawyer, and you too can conduct business behind a corporate shield. With a minimal amount of care you can reap any profits your “entrepeneurship” may yield, while evading any financial liability for any harm it might cause. It is, in brief, a way to launder liability much like some people launder money, and it is often simply a license to steal. I won’t bore you with war stories, but I’ve been involved in many a case where an individual took advantage of the corporate form to evade liability for debts of one sort or another that we mere mortals would be stuck paying, or at least, subject to suit for not paying.
So, returning to Mr. Zucker. The costs of the recall can be borne by a combination of three entities: his corporation, now defunct, him, and us, the taxpayers. It is not immediately clear why we taxpayers should pay for the harm he has caused over a thousand children, even if we stipulate that he meant no harm. The country is littered with non-entrepreneurs who have been held liable for unintentional negligence. The fact is, he caused the harm, intentionally or not. A case can be made that his corporation should pay, and no doubt the CPSC would be content with that if his corporation could pay, but it is bankrupt. There is no indication that Mr. Zucker has shared its fate. He remains wealthy as a result of selling a product that maimed children. So, the proper question is this: Is it good public policy to let “entrepreneurs” retain the profits from an enterprise that causes social harm? Why is it bad if “entrepreneurs” are made aware that among the risks they run is the possibility that they will be responsible for the harm they cause, which they must weigh along with all the other risks and benefits. Why must society at large pick up the costs, while the “entrepeneurs” pocket all the benefits?
Etymological sidenote: I’ve put the term “entrepreneur” in quotes because it’s use by the various corporate shills quoted in the article is instructive. The word, for some reason, gives us warm and fuzzy feelings. It evokes an image of a struggling inventor battling long odds to bring his brilliant idea to market. In Mr. Zucker’s case, that image almost holds water, but it’s not Mr. Zucker the Koch Brothers are concerned about. This case threatens to do something they and their ilk cannot abide: make them personally responsible for the social harm they cause. They shield themselves behind the term “entrepreneur”, because it does not evoke the same response as more accurate terms might bring to mind.
