Problem with America, market based solution?

[Jon Miller]

http://socialistworker.org/2013/04/23/a-corporate-made-catastrophe

There seems to be a real problem with the bureaucracy no longer working. The last time the plant was inspected was 1985, where it was found to have serious violations and fined 30$. There were complaints, which were ignored, and it was suppose to report all the chemicals present but it didn't. This is just one obvious example, there are many many many more.

What is a market based way to protect against externalities like those which are obvious in this case?

It seems like there is a complete market/regulation failure in our system. In this case and many many others, it is cheaper for companies to flout regulation (especially environment and safety) as they are not the ones who will face the costs of flouting it.

People say that more regulation is not the answer. And I understand that it is not a market based solution.

Is there some market based solution?

Does all of this come about due to limited liability found in corporations? Is the way to have a market based solution is to remove the notion of limited liability from the notion of corporations?

Corporations seem to have externalize the costs/penalties primarily through their limited liability and wealth (compared to the average citizen). In a capitalist society, the first is easy to remove while the second is more difficult.

JM

(tldr, I want to have the managers and owners of the plant tried on manslaughter charges and/or facing wrongful death lawsuits)

[Sava]

DP

[MRT144]

DP

I dont know if DPing the executives is really the best method

[Sava]

I dont know if DPing the executives is really the best method

Agree. They might enjoy it. A lot of those people are into such things.

[notyoueither]

http://socialistworker.org/2013/04/2...de-catastrophe

Is the way to have a market based solution is to remove the notion of limited liability from the notion of corporations?

Corporations seem to have externalize the costs/penalties primarily through their limited liability and wealth (compared to the average citizen). In a capitalist society, the first is easy to remove while the second is more difficult.

JM

(tldr, I want to have the managers and owners of the plant tried on manslaughter charges and/or facing wrongful death lawsuits)

To your first question, I wouldn't think so. Looking at a single example could lead you to think this way, but I don't think we want to throttle business activity the way removing limited liability would do.

You might want to require bonds be posted, and a pool of funds from these bonds could be used to pay for damages when something does go wrong... or something like that to internalise the externality, but I don't think you want to make the wealthy adverse to investing in certain types of corporations.

As for your second question, aren't there already laws regarding negligence?

[Sava]

My opinion on "market based" solutions is always the same. Why let the inmates run the asylum? Why trust the fox to guard the hens? Why let athletes decide if they've committed a foul or penalty?

[onodera]

You can already have the managers of the plant tried on manslaughter charges and/or facing wrongful death lawsuits. It's the owners that have limited liability. How should they be held liable if they own 0.1% of the company?

[Fake Boris]

Have fines paid directly by shareholders rather than the corporation?

[snoopy369]

Have fines paid directly by shareholders rather than the corporation?

Shareholders do pay the fines, in the sense that their stock is worth less post-fine. Imagine the theoretical case of a $15B company with 1B shares, so each share is $15, P/E of something like 7.5:1 (let's say $2B earnings). Fine them 1 year's earnings, $2B; that reduces the value of the company significantly. How much would depend on all sorts of factors (particularly, is this going to significantly affect the future earnings of the company), but either way it will reduce that value some, dropping the stock price some - in this case, a naive estimate might be reasonable, so drop $2 off each share. That happens nowadays, as long as the penalty is big enough.

That, really, is the problem; the penalties are often insufficient to be noticeable. That's a difficult line to walk, though; make it big enough to be noticed by the parent company and you might wipe out the whole division for a relatively small offense, but give appropriate penalty to the offense and the company doesn't really care. (Not speaking to Jon's specific case posted.)

[Jon Miller]

But the issue is for corporations the fines are often so low that it is financially advantageous to carry on and ignore them.

This is due to the problem I referred to. Which is common everywhere.

JM

[Jon Miller]

But the issue is for corporations the fines are often so low that it is financially advantageous to carry on and ignore them.

This is due to the problem I referred to. Which is common everywhere.

JM

[Imran Siddiqui]

OH NO, THE JON MILLERS ARE BACK!

[notyoueither]

After the Gulf blowout there were question if BP could survive. Along the same lines Union Carbide no longer exists.

The company that owns that plant in Texas is likely to be gone very soon.

You do not want people with wealth to avoid investment in companies that do things that are important to our economy by piercing limited liability.

You need fees, bonds, and legal consequences for malfeasance (there are such consequences) to internalise the externalities. Perhaps we need more of some or all of the remedies that would make this sort of thing less likely, but you don't want to shred our economy to meet the goals which should be increased safety as well as costs to society being internalised.

[Colon™]

Isn't failing to abide by safety regulations only half the issue here? The other half would be allowing the plant to be located next to a residential neighbourhood, near 2 schools and a hospital.

[MRT144]

I want stock issuance to the american public as a penalty.

BP, you done ****ed up, you gotta dilute your shares. Raises capital to fix things, gives the american public a stake in the future and serves as a wakeup call for already invested parties to actually give a ****.