As I have written elsewhere, I normally cringe when I read the Economics section of most conservative publications. Nothing changed when I picked up last month’s issue of Chronicles. Writing under the heading of “The Economy,” R. Cort Kirkwood has done it again. Jeff Tucker has already drawn our attention to Kirkwood’s anti-Wal-Mart rant in the November issue of Chronicles. Now Kirkwood has taken on Wal-Mart again (“Wal-Mart and the Homosexuals”), maintaining that “Wal-Mart wants to undermine the American family and culture by supporting buggery.” Kirkwood betters his previous effort this time, however, managing to also attack Jeff Tucker, libertarianism, capitalism, and private property in his screed against Wal-Mart.
What would conservatives do without Wal-Mart? Would they attack Sears, Target, and Home Depot? But where do they draw the line? Since “big-box stores” are evil, is a company with large stores off limits? What about a company with a large number of stores? What about a company that is not locally owned? Is there any place that a conservative can shop with a good conscience?
Economics aside, I like reading Chronicles magazine, and will continue to do so because, besides the excellent articles by Raimondo, there are also some gems that you won’t find anywhere else. Like this in the February issue by the editor, Tom Fleming: “To this day, Christians and Southerners have not wised up. Every four years, they get out the vote for a party that betrays and insults them as soon as its members are in office.”
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As for your questions, the answers depend on context and on the particular situation/s to which they are applied. You’re attempting to use loaded questions to smuggle in an ideology here. As a method to validate your position it won’t work. It’s better for you to specifically state your position and explain your theory of politics openly. Then other people can evaluate what you present and decide whether there is any value to it.
Sione
Tom,
I have a bad cold on a Saturday morning and am feeling ornery, so I’ll try to answer your questions.
1) What do you think of the news and entertainment media? What news? It’s all entertainment. But I would guess from your previous posts that you’re worried about media concentration. A favorite scare tactic of the left is to claim that a few corporations control the media and therefore the perspective that viewers have. In the extreme, some claim that media corps have a lock on what people think; we’re nothing but brainwashed consumers.
I disagree. A few decades ago, we had 3 major TV stations. With cable, we have hundreds. Radio has proliferated, as have magazines. But best of all, the internet keeps any one corp or group from dominating communications.
Another monster that the left loves to scare people with is advertising. According to the left, people are helpless before the onslaught of genius spin-doctors. But real research proves that advertising has no where near the power that the left, and ad execs, claim. It mainly serves to provide information. It can’t brainwash anyone.
2) If CEO pay was relatively stable for 200 years, what has made it become “outrageous” (your words, not mine) in the last ten?
Globalization. The left has a very low opinion of corp execs, believing they’re mostly unecessary. But anyone who has tried to start or run a business knows that good execs are as rare as good NFL coaches, and just as necessary. The increased rewards and risks involved in global businesses makes good execs even more in demand. However, I do think the conpensation has gotten out of hand, but the market is forcing adjustments as I write.
3) How do you define “coercion”? Certainly not as advertising, which can be persuasion. But there’s a big difference between persuasion and coercion. I can still reject an action that someone is trying to persuade me to perform. With coercion, I have no choice. The most common form of coercion is law.
4) How do you feel about the principle of “caveat emptor”? I rarely think about it. But Douglass North has, quite a bit, in fact. In his writings on the history of economic development, he thinks that one of the greatest achievements of capitalism was the advancement of informal exchange. Before capitalism, commerce was based on personal knowledge of the seller. People knew which merchants were crooks and which ones were honest in their village. But personal commerce limits the size of markets and therefore the economies of scale. It also causes high transaction costs, because you may have to devote an enormous amount of time to learning who’s honest who isn’t, then personally negotiating prices with dozens of vendors. With warranties, guarantees, and standardization, companies could create trusted brands. Consumers knew that certain brands were better than others, and if the product failed, warranties and guarantees allowed the consumer compensation. As a result, impersonal commerce developed, lowered transaction costs, increased market sizes and contributed enormously to increased wealth for consumers.
5) What constitutes a “voluntary” transaction to you? Any transaction in which both parties can walk away if they don’t like the results. In the US, all retail transactions are voluntary. Transactions with utilities, such as electricity, and the government are not voluntary.
6) How do you think competing property rights should be adjudicated? According to natural law, by which I mean that body of writing from Thomas Aquinas to Adam Smith, roughly.
7) How do you feel about unions? They steal wages from non-union workers in order to increase their own wages.
8) Assuming you do, why do you believe in the rule of law, and how do you interpret the phrase. I’m not a big fan of positive law, but natural law is God’s law, and I believe following it is best for mankind. It reveals God’s intent and purpose for mankind. It’s important because it reduces arbitrariness on the part of rulers and makes all mankind equal. The rule of law applies equally to ruler and subject.
I mean by the rule of law what most people mean: we obey the laws, not the whims of men who happen to be in power.
How did I do?
Sione,
You’re still looking for “proof” on corporations as the driver of big government? I articulated my belief that corporate property rights are a privileges extend to its holders that instantly encroach upon my property rights, and the rights of all individuals. Without the benefit of statutory enforcement, why would I or anyone waive a right of recourse against an owner of a business that had damaged me? Why would I agree to compete against an inanimate entity that had the same privileges under the law as me, with none of my human limitations (mortality, and the resources, knowledge and information-gathering capabilities of only myself)? Why would I concede those advantages to others for nothing?
These corporate advantages set in motion the need for the government to intervene on a trailing basis to clean up the wreckage. Every set of governmental interventions you see and object to have been made in an attempt to rectify the messes made by corporate actions in the marketplaces. I’m sympathetic to the argument that these interventions have created their own moral hazards, but they all have been set in motion as a clumsy attempts to contain the excesses of corporate capitalism.
Roger and others have disputed my read on history, but that’s where I am at with it. We haven’t gotten too far in sorting out that dispute, but it seems that everyone here thinks the statutory laws that allow for the creation of the corporation – and with it, the massive bargaining leverage it provides its holders – is an arrangement that could come about voluntarily in an idealized, stateless world. Kind of tough to argue against that, though, as it is a freely made assertion that is wholly safe from ever being tested. We live in no such world as that, never have, and never will.
Tom seems to have reified the corporation. As far as his conception that a corporation is the Great Invincible, a history of the PC and software industry should drain that notion. It’s true that an individual, or a small group of individuals, can rarely achieve stupendous wealth through competing with entrenched corporations, but this is largely the reflection of the fact that achievement of stupendous wealth, period, is rare.
As far as succesful competition against entrenched corporations is concerned, there are many small businesses that do so – so many, that we tend to take their existence for granted. By “successful” competition in this paragraph, I mean “making enough to stay afloat,” rather than the vague use of “stupendous wealth” in the previous paragraph.
Roger,
Re your responses, you did fine. Some answers were as I expected, others weren’t. Will try to address when I can. In brief, I think our divide is mostly over the nature of what constitutes a voluntary exchange. I believe the rise of the corporation corrupts the nature of marketplace transactions, and compromises their free nature. For me, the corporation is an invention created for the benefit of gaining economies of scale, but it is one that requires a sacrifice of principle on the freedom front. Since libertarians are nothing, if not principled, it forces them to develop rationales that deny any individual freedom is being exchanged for the merely materialistic benefit of greater efficiency. Mainly this is done by sticking to a narrow definition of coercion, and labeling the main instrument of marketplace coercion – deception – under the tame heading of “persuasion”. And, no, I’m not talking about TV commercials.
Daniel,
It is a nonsequitor to say that the existence of small businesses “proves” the corporation gains no advantages for itself in the marketplace by way of the laws that allow for their existence. Let’s say we have a 100 yard dash on a hill, with some runners starting at the uphill end, and others at the downhill end. A handful of those going uphill might be good enough to overcome their disadvantage, but that doesn’t change the fact that they ARE racing at a disadvantage. The outcome of the race is affected.
The non sequitur is in your inference, Tom. What I refuted was the notion that it’s impossible to compete against a big corporation successfully.
One more point: if you use an analogy, you have to justify why it’s a fitting one, other than through appeal to some kind of authority. Appeals to authority include “it’s customary” or some such.
Tom: “why would I or anyone waive a right of recourse against an owner of a business that had damaged me?”
I think you misunderstand our argument for limited liability. You’re not contracting to give up an rights. The limited liability of passive investors is just common sense. You can’t go around suing anyone you want for any reason. You have to show cause and effect. If the management of a corporation caused you damage, then the management is liable and the assets of the corporation are available to recompense you. But how can you make the passive investor liable? No cause/effect relationship exists between the passive investor and the actions of management. The lack of cause/effect relatioship gives the passive investor in stocks and bonds limited liability.
Tom
I didn’t ask you to re-articulate your beliefs. I asked you to prove your premise (e.g. you cited corporations as not merely a driver but causal).
I also asked you to specifically state your position and explain your theory of politics openly. What that requires from you is an explanation of how you derive and validate your system, why it would be an improvement, why you consider it moral (if indeed it is), how it would operate and why it would be practical (in the case of the corporation you would need to explain what rules you would recommend, how they would work and why they would be superior to the present regime). Doing this will save a lot of polemic hot air and enable your ideas to be properly examined and evaluated.
Sione
Sione,
Sorry. You probably think I’m being coy, when mostly I’m just in information-gathering mode. For a full rundown on my views, visit this website and either order my book from amazon, or download the ebook from the website.
http://outskirtspress.com/cgi/webpage.cgi?ISBN=159800350X
Sione and Roger,
This is an editorial submission I made to the WSJ. It is a decent synopsis of my thoughts on remedying the problems I see with corporate capitalism. The book, of course, goes into much greater detail.
In the debate over corporate governance and regulatory reform, the Wall Street Journal editorial staff has been the lead defender of the status quo. Every advocate needs a foil, so occasionally the voice of the opposition is allowed on these pages. Elliott Spitzer and the accounting industry may be allowed to speak their piece, but entirely missing from the discussion is a perspective from Main Street. As a mere 401K participant and cubicle dweller, let me offer this heretical position on the topic of corporate governance: Anyone who claims a belief in free markets and love of country cannot also defend the current corporate ownership structure. Here’s more: The proof of this lies in the very words of the foremost modern defender of capitalism, Milton Friedman.
In his seminal work, “Capitalism and Freedomâ€, Friedman defined a free market as one where transactions reflect voluntary exchanges between private individuals. He also offered that a key element of a voluntary transaction is that both parties to it be fully informed. Unfortunately, with the government-spawned creation of the corporation, we have long since ceased to have an economy comprised of individuals acting at arm’s length, armed with equal information. Through the conscious interference of law, our corporations are allowed the right of immortality, the negotiating power that comes with the pooled capital of millions of investors, and the legal standing of personhood. With these enormous privileges in hand, the balance of power between the individual and corporation tilted to the favor of the corporation a long time ago.
Ironically, this reality has left all defenders of the status quo stuck defending these aggressive acts of governmental interference, while professing to oppose on principle such interventions. When note is made of this contradiction to conservative friends, most respond with patronizing explanations of how necessary the corporation is to a modern economy. With great condescension, it is explained that it would be impossible to create steel mills and microchip factories without the invention of the corporation, unless we gave all work over to the control of government.
This may be true, but it only means the corporation is merely a tool of convenience, not one of principle. Its use requires a sacrifice of principle. And with this sacrifice of principle, the touch of the invisible hand is partly disabled. In response to this, we’ve devised regulatory means of keeping the tainted results of our marketplaces in check. Unfortunately, these efforts create their own moral hazards, hazards about which the editorial board is always anxious to complain.
This dilemma is especially evident in our financial markets. The editors have made great cant of how costly, unnecessary and redundant the requirements of Sarbanes-Oxley are. They say the marketplace can solve these problems on their own, without interference. Corporate boards will become more diligent, as board members strive to defend their reputations in the marketplace, or so we’re told.
Do these contentions jibe with marketplace outcomes? Hardly. The endless waves of corporate scandal we endured through the 80s and 90s and market bust of 2000 finally culminated in the passage of the Sarbanes-Oxley Act. And yet, even under the supposed hyper-scrutiny imposed on executives and boards by this regulatory shotgun, we face yet another round of scandal related to back-dated options. Meanwhile, corporate boards cannot even attend to the remedial task of containing executive pay to a single-digit rate of inflation. With these problems, it isn’t even necessary to ask the most obvious question: Why did the discipline of “reputation risk†never work in the first place?
Such persistent failure screams of a design problem. As a quality assurance process, the current system works much like that of a 1970s-era factory. Then, quality control inspectors sifted for defects to be culled after production. Today, corporate governance is an inspection system that looks for regulatory breaches after the fact. Reformers should instead borrow from the playbook of the Quality Movement, and regard these persistent failures as symptoms of a process problem. They should then look upstream to identify and fix the defective process.
Were we to do this, the trail would lead us straight back to the often-mentioned, but never-solved agency problem. To the point of satire, all we seem able to do is add layer upon layer of agents, with each new one charged with monitoring the previously added one. For a better idea, how about quitting this farce, and focus on eliminating the root cause, which is absentee investors’ reliance on corporate agents?
How? The answer lies in the ashes of United Airlines failed attempt at worker capitalism. Typically described as a case study in the flaws of worker ownership, United Airline’s experience was actually just a variation of what happened at Enron, Worldcom, et al. In all these cases, insiders used their better access to information to exploit poorly informed absentee investors. In the case of United, this took the form of workers as insiders who gifted themselves with an above-market wage agreement in much the same way CEOs finesse pay-for-failure options packages.
Were worker buyouts instead devised so that workers and absentee investors took shares that represented an agreed-upon stake in the total of all value added by the corporation, the ability of either party to game the system to their favor would be eliminated. More importantly, a corporation built upon the issuance of these types of shares – let’s call them TVA shares – could dramatically reduce the need for agents. Corporate leaders would be charged with advancing the interests of shareholders by way of advancing the interest of workers, as the two would move in lockstep. In turn, workers would be far better positioned to gauge the competence of their leaders than disengaged absentee shareholders.
Meanwhile, this more perfect alignment of interest would greatly diminish the need for active portfolio management, and the massive sums of monies lost to this zero-sum game. TVA shares would be far more stable in their returns, thereby eliminating the volatility in share prices that money managers need to pitch the promise of above-market performance. With this illusion exposed, there would be nowhere to hide the 150 to 200 basis points Wall Street now pockets for itself each year in payment for their trading exertions. In doing so, absentee investors and workers could capture this massive spread – the difference between the gross returns on equity shares, and the net returns that ultimately trickle into the pockets of absentee investors – and split it amongst themselves.
The byproduct of such an ownership arrangement would be a host of social benefits too numerous to describe here. Their essence would be to revise for the better the flow of economic information, and by extension, every economic calculation we make as workers, consumers, investors, and citizens. The only group that would lose under such an arrangement would be the aforementioned agents, so their opposition to such reforms can be presumed. Keep in mind, though, that whatever objections they might express would be contradicted by their own long history of support for stock grants, options, and employee ownership via ESOP plans and 401K participation. While these programs are said to be means of ensuring their interests are aligned with those of shareholders, worker ownership based on TVA shares would accomplish this same end far more efficiently. All stakeholders would be acting together in concert, and there would be no room for the pay-for-failure agreements that nearly every CEO now has tucked in their safe deposit box. The day the editorial board backs reforms that help eradicate the need for agency representation is the day their professed belief in free markets finally ring true.
What I myself inferred from that proposal of yours, Tom was:
1. Permitting the limited liability provision of corporations encourages people to invest their money with far less forethought than confining investment to joint-stock companies, with unlimited liability, would.
2. Thus, elimination of the corporate form, and substituting the joint-stock company form in its place, would lead to people being more careful in their investments.
3. As a side benefit, substituting the joint-stock form for the corporate form would reduce the size of business organizations, which would restrict businesses from growing so large as to be unwieldly. Evidently you consider the “bargaining power” aspect, inhering in large pools of capital coalescing into a single firm, to be a means of burying mistakes in the making, which limited liability does not prevent from happening.
Is this summary accurate?
Daniel,
Your synopsis is close, but let me clarify some.
1. Permitting the limited liability provision of corporations encourages people to invest their money with far less forethought than confining investment to joint-stock companies, with unlimited liability, would.
I think I’ve done a poor job on this one, as everyone thinks this is an issue about investors.
I’m more concerned about third party damages. In an arms’ length transaction between individual’s, the fear of personal bankruptcy is a big limiter on personal overreach. The risk of being responsible for reparations to damaged parties ensures better behavior. For the corporation, the fear of personal liability for damages done to third parties is loosened considerably, even to the point of being non-existent. This creates the condition where corporate executives wield considerable power, but little fear of being held responsible for exercising it in an aggressive or wanton manner. In the most egregious cases, the corporate veil may be pierced, and damaged parties can proceed against corporate agents – Enron and Worldcom being some of the very rare cases where this has happened. Unfortunately, the statutory standards of proof are so high, they clearly embolden corporate agents (C-level executives and corporate boards) and even lower level employees to be aggressive in their actions. This breeds a sense of irresponsibility throughout corporate organizations, leading people to believe (correctly) that they aren’t personally responsible for their business actions. Whether it is a drug researcher who hides the bad result of their clinical trials, a design engineer who hides product defects, or a sub-prime lender who jacks the mentally impaired, the shield from personal responsibility serves as an inducement to immoral economic behavior.
2. Thus, elimination of the corporate form, and substituting the joint-stock company form in its place, would lead to people being more careful in their investments.
That would help, but the corporate form I have in mind would simply require that only corporate workers would be allowed to own voting shares. It is a bit involved, but I think this would recalibrate all economic decisions in such a way as to ensure better economic behavior in all respects. Decisions would be more moral, and also more efficient. Smarter risks would be taken, capital would be better allocated, and both capitalist and workers would be better incented to create true wealth. Consumers would make more informed choices, and we would naturally encourage a more economically literate citizenry.
3. “As a side benefit, substituting the joint-stock form for the corporate form would reduce the size of business organizations, which would restrict businesses from growing so large as to be unwieldly. Evidently you consider the “bargaining power” aspect, inhering in large pools of capital coalescing into a single firm, to be a means of burying mistakes in the making, which limited liability does not prevent from happening.”
Well stated. The current system hides mistakes by design. The invisible hand relies on “reputational risks” to act as a limiter on personal overreach. The bargaining power and personal anonymity that results from a corporate structure built upon absentee ownership greatly diminishes the effectiveness of this constraint.
Thanks for the clarification, Tom.
Tom’s ideas sounds too good to be true; as if all the problems associated with the principal-agent relations and co-operation of different individuals inside of large community just disappear if some changes are made to internal organization of business initiatives.
Tom’s proposition, syndicalism and worker capitalism have similar characteristics and same problems.
Tom, I would like to ask you if company which would operate in a way you suggested has both salaried and owner employees, how day-to-day operation and investment decisions are made? Is every worker required to own equal share in company? Is there capital market to sell your shares if you want to quit company? How much each worker has to contribute his own money to company if losses are made?
There are good reasons why some people want to get regular salary and not any varying share of profits of operations. It’s all about the matter of risk taking and risk sharing.
adi,
Good questions, all of which are addressed in my book. I don’t believe the reforms would be a panacea for all organizational problems, they would just be an improvement upon the current system. The improvements would be incremental, but one must remember that incremental improvements compound over time, and can lead to dramatic results in the long run.
We are in absolute agreement that the issue is “all about…risk taking and risk sharing.” I think the current system is designed badly for risk taking and risk sharing. The last bearers of risk are absentee shareholders, and they are incompetent for the job. That’s why we have market bubbles and crashes, and CEOs who game the system by cooking the books, and fraudulent/negligent boards, etc. They are too far removed from the business to properly assess risks, so they must rely upon agents to act on their behalf in that regard. But there is no way to solve the agency problem, as conflicts of interests are inherent to this design.
Re the exact structure of the organization, the details would vary from company to company, depending on what particular work groups settled upon. I have my personal opinions on the structure that would work best, but the reforms shouldn’t require that these be decreed, other than that voting shares are controlled by employees. That being said, I think the best working structure would be where voting shares only represented a nominal chunk of equity, shares would probably be of a one-person, one-vote variety, and voting rights would be mainly limited to the selection of corporate leadership, and the matter of dividend distributions. The bylaws would be restricted to prevent workers from raiding the equity interest of non-voting shareholders, as happened at United Airlines. This could best be done by having most of the equity in the company held in non-voting or preferred shares, or even better, the TVA-style shares described in the book. As well, some equity might be converted to bonds.
The best style of security for these shares would be what I call TVA’s, or Total Value Added Shares. They would represent a stake in all value created by the corporation prior to wages. Securities such as these would bind the interest of workers and absentee shareholders far better than the clumsy methods used now, most notably option grants.
The exact ownership structure used would have to be tailored to the risk preferences of individual workers within a work group, but these could be accomodated to a far greater degree than people’s first instincts tell them. Internal auction markets would arise within companies for handling business downturns, and the concomitant need to reduce compensation. Insurance market might also arise to smooth this risks for workers as well.
As for the stock market, there would for certain be a market for these shares, at least those held by absentee investors. The big difference, though is that fluctuations in their value would be far more moderate than we currently see in the stock market, as much of the corporation’s business risks would be shifted to workers. With less volatility, there would be less trading, as the need – and ability – to capture changes in what John Bogle calls the “momentary precision of price”. In short, the fog of speculation that now surrounds the ever-changing value of a stock share would be significantly reduced. With it would go the need for the expensive and wasteful zero-sum game the stock market now represents. The markets would exist for liquidity and diversification purposes, and the opportunity for speculative gains would be greatly reduced. One big benefit is that the smart people now dedicated to this wasteful task would be freed to create real wealth.
The book develops these points in fuller detail.
Tom: you _really_ need to read Man, Economy, and State. Learn some proper economics first.
I’ll pick just a few of Tom’s points to discuss, but I disagree with just about every line he has written.
Tom: “In the most egregious cases, the corporate veil may be pierced, and damaged parties can proceed against corporate agents – Enron and Worldcom being some of the very rare cases where this has happened.”
You’re using a few bad apples to characterize the entire bushel as bad. The truth is that the vast majority of corporations operate in an honest manner. You brought up the issue of quality control, so you should know that the standard practice in quality control is to determine if a problem is a special cause, not likely to be repeated, or if the problem is the fault of the system. The corporate bad guys, such as Enron and Worldcom, are so rare and represent such a small sample of the population that you can’t honestly condemn the system because of them.
The corporate system works quite well as it is. To propose an ideal system, such as your TVA, is to compare reality, the current corporate system, with and abstract idea. Of course the abstract idea will be a major improvement because it has never been tried on a large scale. The Yugoslavs tried it in the 1970′s and failed, and as you wrote, United Airlines tried it without much success. The problem is that workers turn out to be no better managers than passive investors.
“…only corporate workers would be allowed to own voting shares… Decisions would be more moral, and also more efficient. Smarter risks would be taken, capital would be better allocated, and both capitalist and workers would be better incented to create true wealth.”
I doubt it. Germany has a similar structure where the unions hold a lot of the votes. As a result, managers concentrate on keeping employment levels and wages high in order to pacify the unions. That’s why all of the German auto makers are building plants in the US and Mexico instead of Germany. As I wrote earlier, you seem to have a low opinion of the need for good CEO’s. But employee-owned companies, and Germany’s union controlled ones, have demonstrated that employees are a poor substitute for really good managers or entrepreneurs. Management and entreprenerual skill is far more important and scarce than you realize.
“Consumers would make more informed choices, and we would naturally encourage a more economically literate citizenry.”
Don’t see how that follows from your argument at all. Seems like an unwarranted leap in logic there.
“With these enormous privileges in hand, the balance of power between the individual and corporation tilted to the favor of the corporation a long time ago.”
I’m guessing that your argument here is that corporations try to hide product defects from the consumer, but that happens with private businesses as well as corporations. That’s a problem with unscrupulous businessmen, not corporations. But the marketplace takes care of such problems on its own, because product defects will soon be known by the first purchasers of a product and that information widely disseminated. That’s why the Toyota Camry is the best selling car in America; Toyota has a reputation for quality. Any advantage that you see the corporation as having over the consumer is small and temporary. Many volumes have been written about the failure of businesses to fool the consumer.
“As for the stock market, there would for certain be a market for these shares, at least those held by absentee investors. The big difference, though is that fluctuations in their value would be far more moderate than we currently see in the stock market, as much of the corporation’s business risks would be shifted to workers.”
That’s a very naive view of the stock market. Hundreds of factors go into determining the price of stocks, not just the risks the business faces. And there is no reason to assume that workers would take fewer risks or make better decisions than CEO’s. In fact, the history of those few who have tried is pretty poor.
“In short, the fog of speculation that now surrounds the ever-changing value of a stock share would be significantly reduced.”
You’re probably right on this one, but not for the reasons you think. These companies would become such poor investments that people would pull their money out of the stock market and put it into real estate and government securities, or equities overseas.
“The invisible hand relies on “reputational risks” to act as a limiter on personal overreach. The bargaining power and personal anonymity that results from a corporate structure built upon absentee ownership greatly diminishes the effectiveness of this constraint.”
There’s far more restrain on “personal overreach” than just “reputational risk.” The board-of-directors is the first line of defense for the stockholders. If the board doesn’t like what management does, it can fire them. If management does something illegal, the board can file charges. Large stockholders, such as mutual funds and insurance companies are very active in directing the board. If the board fails at its job, stockholders can sell their stock and send a message to the board, or lenders can call in loans, as happened with Enron.
But the best defense against corporate irresponsibility, as Adam Smith noted, is the consumer. Consumers vote with their dollars and have destroyed many corporations with their disapproval. Is the system a perfect one, like the one you propose? No. But no working system ever looks as good on paper as an abstract one.
One reason that the market doesn’t discipline corporate misbehavior as well as it could is the so-called government oversight. The government lulls investors to sleep with its myriads of regulations and its insistance that it has made the system completely honest with increased regulation like SOX. Government creates a moral hazard. To improve the system, get the government out of it completely. Once investors realized that they were responsible for checking out the integrity of a corporation, they would be more careful and remain more diversified. In addition, less regulation would reduce the costs of doing business and increase capital investment, which then increases workers’s wages.
An article on today’s WSJ site has bearing on this issue, I think. In the article, economist Edmund Phelps writes about the poor performance of European economies relative to the US, Canada and Ireland. Here’s a sample:
“The weakness of these values on the Continent is not the only impediment to a revival of dynamism there. There is the solidarist aim of protecting the “social partners”–communities and regions, business owners, organized labor and the professions–from disruptive market forces. There is also the consensualist aim of blocking business initiatives that lack the consent of the “stakeholders”–those, such as employees, customers and rival companies, thought to have a stake besides the owners. There is an intellectual current elevating community and society over individual engagement and personal growth, which springs from antimaterialist and egalitarian strains in Western culture.” http://opinionjournal.com/editorial/feature.html?id=110009657
It seems to me that Tom’s TVA is trying to immitate the failures of the European model.
Will respond on Wednesday.
Roger:
“You’re using a few bad apples to characterize the entire bushel as bad. The truth is that the vast majority of corporations operate in an honest manner…The corporate bad guys, such as Enron and Worldcom, are so rare and represent such a small sample of the population that you can’t honestly condemn the system because of them.”
Tom: Here is the actual list of corporations guilty of accounting fraud from 2002 on:
AOL
Adelphia
Bristol-Myers Squibb
CMS Energy
Computer Associates
Duke Energy
Dynegy
El Paso Corporation
Enron
Freddie Mac
Global Crossing
Halliburton
Harken Energy
HealthSouth
Homestore.com
ImClone Systems
Kmart
Lucent Technologies
Merck & Co.
Merrill Lynch
Mirant
Nicor Energy, LLC
Peregrine Systems
Qwest Communications
Reliant Energy
Sunbeam
Tyco International
Waste Management, Inc.
WorldCom
Royal Ahold (2003)
Parmalat (2003)
Calisto Tanzi (2003)
AIG (2005)
CF Foods
This represents almost 10% of the corporations in the S&P 500. It doesn’t include Arthur Andersen, one of only 5 auditors in charge of all corporate audits, and whom was bankrupted by the cumulative litigation brought against them for failing to catch these scandals. It doesn’t include the 100s of other company that restated their financials during the window of opportunity provided prior to the adoption of SOX. It doesn’t include the 100s of other corporations prosecuted for criminal violations. It doesn’t include the dozen of mutual funds prosecuted for timing trades that ripped off their members. It doesn’t include the 100s of companies currently under investigation for backdating options. You simply aren’t correct that corporate crime and fraud is rare.
Roger:
“The corporate system works quite well as it is. To propose an ideal system, such as your TVA, is to compare reality, the current corporate system, with and abstract idea. Of course the abstract idea will be a major improvement because it has never been tried on a large scale.”
Tom: The idea has been tried on a larger scale than anarcho-libertarianism has (which has been tried not at all). The top 100 employee-owned companies in America employ a half million people. The Mondragon Cooperative in Europe employs 78,000 people, has $15 billion in revenue, and has financial fundamentals that would be the envy of most American Corporations.
Roger:
“I doubt it. Germany has a similar structure where the unions hold a lot of the votes. As a result, managers concentrate on keeping employment levels and wages high in order to pacify the unions. That’s why all of the German auto makers are building plants in the US and Mexico instead of Germany.”
Tom: Their experience is not at all similar. Under my proposal, unions would be unnecessary, and workers wouldn’t have the benefit of guaranteed wages. In my book, I argue against the need for, and effectiveness of, unions.
Roger: “As I wrote earlier, you seem to have a low opinion of the need for good CEO’s. But employee-owned companies, and Germany’s union controlled ones, have demonstrated that employees are a poor substitute for really good managers or entrepreneurs. Management and entreprenerual skill is far more important and scarce than you realize.”
Tom: “Again you misconstrue. I have a very high opinion of the need for good CEO’s. My low opinion relates to the current vetting process for selecting them. You seem to have this presumptive belief that because the CEO’s are paid so heavily, they must be good. As a CPA, I simply look at the percentage of them who cannot tend to the remedial task of keeping a straight set of books in order to conclude the current system fails badly at finding the right people for the job.
Roger: “I’m guessing that your argument here is that corporations try to hide product defects from the consumer, but that happens with private businesses as well as corporations. That’s a problem with unscrupulous businessmen, not corporations.”
Me: You disregard the degree of frequency in each case. Saying there are also unscrupulous independent business people says nothing about the relative prevalence of each. My argument was that the corporate veil of protection from liability emboldens unscrupulous corporate businessmen. This doesn’t mean I was saying there is no business crime outside the corporation. Instead, it occurs to a lesser degree and on a smaller scale.
Also, markets SOMETIMES punish the misdeeds and the deceptions of the marketplace, provided the transaction cost of discovering these deceptions are less than the potential value of the discovery. There is a ton of slop in the gap between those two numbers, and the corporation holds the information needed to capture that difference for themselves.
Roger: “That’s a very naive view of the stock market. Hundreds of factors go into determining the price of stocks, not just the risks the business faces. And there is no reason to assume that workers would take fewer risks or make better decisions than CEO’s. In fact, the history of those few who have tried is pretty poor.”
Me: Not true. Note my aforementioned examples of successful worker-owned companies. Also note the extent to which more and more companies have tried to approximate the effect of worker ownership through the issuance of options. This shows that corporations are struggling to fix the motivational problem traditional compensation arrangements create for them, and they are trying to resolve them to the extent they can under the current corporate structure. Unfortunately, options cause more problems than they fix.
Roger: “There’s far more restrain on “personal overreach” than just “reputational risk.” The board-of-directors is the first line of defense for the stockholders. If the board doesn’t like what management does, it can fire them. If management does something illegal, the board can file charges.
Tom: Read John Bogle, and you will learn how board politics really work. Look at how boards are selected, and you will see how heavily they are stacked with the CEOs hand-picked directors. See how difficult it is to get independent directors onto proxy ballots.
Roger:
“Large stockholders, such as mutual funds and insurance companies are very active in directing the board.”
Tom: Again, read Bogle for the real numbers on the low participation rate of institutional investors in proxy votes. Ironically, those that are active in this regard are derided by the WSJ and the Business Roundtable as political grandstanders, acting against the interest of shareholders.
Roger: “If the board fails at its job, stockholders can sell their stock and send a message to the board.”
Tom: That works really well. Exactly what message is sent? Board are thankful to get rid of agitating shareholders, and replacing them with newly hopeful ones.
Roger: “But the best defense against corporate irresponsibility, as Adam Smith noted, is the consumer. Consumers vote with their dollars and have destroyed many corporations with their disapproval.”
Tom: You disregard the high transaction costs that must be covered before such “voting rights” can be exercised. Its disappointing that I identified this as the crux of my complaint against corporate capitalism, but you opted not to address it.
Roger: “Is the system a perfect one, like the one you propose? No. But no working system ever looks as good on paper as an abstract one.”
Tom: An interesting observation, coming from those in service to the utterly untried experiment of full-on laizzez-faire. Besides, there is a precedent for successful, thriving examples of worker ownership.
Tom
I recently had the opportunity to go see the District Court in action. Many of the people I saw hanging around that place were being charged with crimes relating to theft and fraud. It seems some judges specialise in hearing certain sorts of cases and so they fill the docket with those sorts of matters. That day, there appeared quite a few people were getting charged with “theft as a servant”, uttering documents, taking hidden commissions, stealing their employer’s property and so on. I was surprised at how many. Later I had lunch with the Crown Prosecutor. She reckoned only a handful of such matters ever got detected and of those very few made it to Court. I asked her about the prevalence of such crimes and she said that it comes down to education, culture and the fact that some people just have their priorities and morality all wrong (you just can’t beat a State Education). She also reckoned there were a lot of such people operating in authority, in govt. “You’d be surprised”, she opined.
Tom, in the end the issues that worry you so much are endemic to representational democracy. Of course in the special case of govt there are powers and authorities over all other people. That is far more serious than what may or may not go on within a company/corporation (and I submit the prime cause of corporate corruption is the government- it is the source of it). With govt, there is no way to avoid assault against individual property or liberty. There lies the real problem.
Tinkering with various mechanisms of representational democracy will not solve the troubles inherent in such schemes (and your schemes will not be a substantive improvement over what we have presently). In the end what is necessary is a complete overhaul of the political system. That means dealing with the topic of organisation of society and in particular the institution of govt (and whether there should even be such an entity). It is to this that people such as von Mises, Rothbard and the other Libertarian writers directed their attention. That is something you need to understand.
Sione
Tom: “This represents almost 10% of the corporations in the S&P 500.”
10% still seems like a small part of the total to me. Why haven’t the other 90% behaved the same way? Also, these scandals tend to come in waves. What causes the waves? Usually it’s new financial models. Something similar happened in the 1980′s with junk bonds. Michael Milkin went to jail essentially for inventing new techniques for financing. Many of us thought he was railroaded. A lot of the “criminal behavior” of Enron was just creative financing and it wasn’t clear to a lot of experts that they had done anything illegal.
Tom: “The idea has been tried on a larger scale than anarcho-libertarianism has (which has been tried not at all). The top 100 employee-owned companies in America employ a half million people.”
I’m not an anarcho-capitalist for the same reasons I don’t support employee-owned companies. But I’m not against them, either. I think they’re a great experiment. Let the marketplace decide whether employee-owned companies or traditional corporations are the best. I don’t care as long as the government stays out of it.
Tom: “Under my proposal, unions would be unnecessary, and workers wouldn’t have the benefit of guaranteed wages.”
I don’t see a difference between a union and an empoyee-owned company. And how would you keep the workers from guaranteeing themselves wages and benefits as the unions representing workers in Germany have? More government intervention?
Tom: “You seem to have this presumptive belief that because the CEO’s are paid so heavily, they must be good.”
No, I don’t assume that. However, I do know that good CEO’s are rare and that employees won’t necessarily make better decisions. And scarcity drives up prices.
Tom: “Also, markets SOMETIMES punish the misdeeds and the deceptions of the marketplace, provided the transaction cost of discovering these deceptions are less than the potential value of the discovery.”
The consumer is directly aware of the quality of products and services and the cost of that knowledge is nothing more than the purchase of the good. Corporations can’t hide quality defects from consumers. Accounting issues don’t concern consumers; that’s an investor problem.
Tom: “Note my aforementioned examples of successful worker-owned companies. Also note the extent to which more and more companies have tried to approximate the effect of worker ownership through the issuance of options.”
Note my examples of failed worker-owned companies. As I wrote before, there is no reason to assume that workers would take fewer risks or make better decisions than CEO’s. They may or may not. Besides, stock-options are a way to increase CEO pay without cash. As for improving CEO performance, they’ve been a bust.
Tom: “Read John Bogle, and you will learn how board politics really work. Look at how boards are selected, and you will see how heavily they are stacked with the CEOs hand-picked directors. See how difficult it is to get independent directors onto proxy ballots.”
I don’t doubt that. I have no illusions about the behaviors of boards or CEOs. I’m arguing that the problem is not the system, but individuals within the system lacking ethics. The system is set up to address the issues you raise. If people within the system fail to do their jobs, or are corrupt, that’s not a system failure, but a personal one. Worker-owned systems won’t change personal ethics; some of them will be just as corrupt and immoral as corporations. If stockholders have decided not to get involved in electing or overseeing board members, it’s because they see a cheaper way to accomplish what they want–selling their shares and buying shares in better managed companies. I can’t help but believe that falling share prices has some effect on board members’s decisions.
Tom: “You disregard the high transaction costs that must be covered before such “voting rights” can be exercised. Its disappointing that I identified this as the crux of my complaint against corporate capitalism, but you opted not to address it.”
I wasn’t referring to voting rights, but to consumer purchases of products and services. If the corporation produces shoddy products, the consumer will punish the corporation by refusing to purchase them. I’ve already addressed the voting rights issue several times. If the investor decides not to pay the high transaction costs of monitoring management and discovering corporate crime, then that investor will pay the much higher cost of losing all of his investment. Besides, the cost is not all that high with the numerous magazines and investment advisors who do the monitoring for the investor. Finally, the cost of losing one’s investment is not all that high either, if the inverstor is rational and diversifies his investment properly.
Roger: 10% still seems like a small part of the total to me. Why haven’t the other 90% behaved the same way?
Tom: A common response. Don’t forget the 100s of others I mentioned. 140 corporations are now under investigation for options back-dating. If you add in the other issues raised, well over 1/2 of all corporations are guilty of some form of malfeasance on this front alone. And remember, these are only those that have been caught. Still, I think dwelling on these criminal violations obscures the larger issue. I’m more concerned with finding competent, vital leaders, not simply ones that don’t break the law. In this regard, if roughly half our corporate leaders cannot even run an honest set of books, we can safely assume they are incompetent leaders. So we have to discard half the pile before we even get to the question of whether or not the person is a savvy strategist, or creative, dynamic, and visionary leader.
Roger: But I’m not against them, either. I think they’re a great experiment. Let the marketplace decide whether employee-owned companies or traditional corporations are the best. I don’t care as long as the government stays out of it.
Tom: Agreed. My intent is to advocate for these ideas on pro-capitalists terms (with the exception of the anarchist; still cannot get my arms around that concept). I truly believe the result would be less government, but I freely grant we are talking about an experiment here.
Roger: “I don’t see a difference between a union and an empoyee-owned company. And how would you keep the workers from guaranteeing themselves wages and benefits as the unions representing workers in Germany have? More government intervention?”
Tom: No. The Mondragon Cooperative is wholly worker-owned on the equity side, so they have no means of guaranteeing their wages and benefits. They receive fixed-rate, debt-based capital in the open financial markets, no governmental assistance provided. They consequently have no need for a union, as they would only be negotiating with themselves for a guaranteed wage.
In cases where equity is shared between absentee investors, the situation becomes ripe for workers to do as you say, and game the system to their favor, as they did at United Airlines. TVA shares would prevent this from happening, as there would be no way for workers to raid the absentee owners share of TVA, as that stake would be locked in at the inception of the corporation. TVA’s would work much in the manner as revenue sharing works in the NBA, the key difference being that the percentage split between the two wouldn’t be up for negotiation every few years. This would eliminate the contentious rounds of negotiation that results from this.
Roger:
“No, I don’t assume that. However, I do know that good CEO’s are rare and that employees won’t necessarily make better decisions. And scarcity drives up prices.”
Tom:
Not everytime, but I believe on balance they would. My rationale is this: They are both better motivated and informed to make the right choice. Further, you could eliminate the friction of distrust that exist between corporate leaders and the rank-and-file. Under the current system there is an inherent conflict, as the two are at odds over their goals. A CEO is charged with maximizing the interests of shareholders, not workers, but they are stuck in a role where they are supposed to be leading the workforce in the creation of value. If you change the mission of the CEO to be the maximization of workers’ wealth (as constrained by the fixed limit on workers’ share of the pie), this friction is eliminated.
With these three advantages in hand, I think you would get a better result.
Roger:
“The consumer is directly aware of the quality of products and services and the cost of that knowledge is nothing more than the purchase of the good. Corporations can’t hide quality defects from consumers.”
Tom: Capitalism does work well in this regard, but as I noted, I think there is significant slop in the system at the margins. Quality problems can be hidden, at least to some degree. To me, the proof is in the spending. It would seem odder to me that corporations spend so much on advertising and marketing for no gain. Lots of examples, mostly where the quality of a product can be obscured. Little example: Why do people pay more branded items such as Advil (ibuprofen) that are identical to private label brands, other than because of the influence of advertising?
Roger:
“I don’t doubt that. I have no illusions about the behaviors of boards or CEOs. I’m arguing that the problem is not the system, but individuals within the system lacking ethics. ”
Tom:
This is the heart of our differences, and they probably aren’t resolvable, but we’ve done well to clarify the exact nature of our differences. I do think system design does affect outcomes. Systems set the limits on allowed behavior, by encouraging certain actions, and discouraging others.
My ideas on worker ownership create problems for both the left and the right. The right thinks I’m proposing socialism, when less government would actually be required. It is very hard to consider the possibility that various forms of capitalism might produce various results. By contrast, leftist thinkers are suspicious of anything that preserves capitalism.
Last, I’m not sure there is much life left in this discussion, but I would like to extend my thanks for engaging me. For me, the discussion has been productive, and you helped me identify the areas where I am explaining my beliefs poorly. I hope you got some benefits from the discussion as well. I definitely understand that I am essentially tilting at windmills, but innovation is what capitalism is about.
Regards,
Tom
Tom you wrote: “…innovation is what capitalism is about…”
No, not really. Innovation is one result of how Capitalism operates and how its rewards are allocated but it is not a fundamental.
Essentially Capitalism is about property, how it is acquired, traded and disposed of. It is about exercising one’s freedom. It is about the recognition of Individual Rights.
Sione
Sione,
OK, but what I don’t ever see resolved by libertarian thought – at least the anarchist wing – is a real-world rule for defining where one individual’s property right end, and another’s begin. In a crowded world, we bump into each other at every turn, so conflicts arise. There has to be a means of resolving those conflicts, and establishing a set of enforceable rules is at the heart of that. The operative term here is “enforceable”, as that is implicit to the very meaning of the word “rule”.
Without this ability, we are back to the rule of the jungle, tribalism, etc. I appreciate that government can be used as a tool of coercion, but what completely baffles me about libertarianism is the belief that coercion can be wished away by the elimination of government. At that point, might would make right, and the coercion would still remain, only to be delivered by tribes, factions, and thugs.
Once we get thrust into the real world – the modern world – the main instruments of coercion are force and deception. I have concentrated in this blog on the current design of the corporation, as I think design changes could reduce their ability to coerce through deception.
Tom
When I grew up we had no government. There was no requirement for such an institution. Sure there was one on the main island but that was something no-one needed to interact with or have interact with him or her. It may as well have been on the Moon. The villagers (several villages and one town) operated in spite of govt. No-one paid tax and property issues were settled amicably by those involved. For complex matters or difficult disputes we could turn to a third party for adjudication- the Matai. He was wise in such issues and would guide parties to a result. Nevertheless he had no formal power to enforce. I suppose a person could have gone against his recommendation but I’m not aware of any who did. The result would have been ostracism by the rest of us.
I’ve witnessed just how rapidly and effectively that can sort out troublesome people. Ostracism is what happened to a fellow who passed bad cheques- although the Matai was not involved in solving that affair. It also happened to a fool who got drunk, started fighting people and broke someone property at the hotel. They came into line sure enough. In the end, the first one was never able to pass cheques again. The other was unable to purchase alcohol for years. The point is the the moral have a job to do in dealing with the immoral. They can do it without the burdens of adopting an immoral institution. They can (and should) do it directly.
What I have encountered since I started travelling around the World is that in the main people in civilised countries (much of Oceania, USA, UK and important parts of Europe etc.) operate as anarchists in their day to day living. They need no third party authority or enforcer. Same as home.
Unfortunately they are unable to evade govt intrusion, as it has imposed arbitrary rules and regulations that ultimately do affect them and interfere with their ability to make decisions. Worse is that many of them believe in the faith of govt. So they waste much effort and wealth dealing with govt, dealing with its imposts, paying tribute and attempting to minimise the damaging effects upon their lives. Many choices are closed.
People are aware all this hinders their progress through life and that it is ultimately deleterious to them but still they believe they must have such an institution in their lives and that it would be a better institution if only…(fill in the wish list here, get govt to control the other people- especially the ones you do not like, get free things from the govt., etc. etc._________). Nevertheless they do not need such an institution cluttering up their lives, consuming time and resources. Despite what people are taught (at state controlled schools), there is no need to embrace the “necessary evil”. There is no requirement to hand over your individual soverignty to someone else.
What surprises me is how many supposedly intelligent people know govt is never going to work (never has yet and the future aint looking too rosy either) and yet they continue to have faith that somehow a miracle will occur and everything will be better if only govt would act as they wish. Deam on! They may as well hit the drugs…
Anyway, the work of anarchist Capitalists such as Rothbard make perfect sense. It’s surprising that so many can’t consciously accept that which is so obvious.
Regarding your schemes of redesign for corporations, you’d be better off considering the prime source of deception in your society today – the institution of govt itself.
Sione
tom, your description of libertarianism taken to its logical conclusion, written thus:
“OK, but what I don’t ever see resolved by libertarian thought – at least the anarchist wing – is a real-world rule for defining where one individual’s property right end, and another’s begin. In a crowded world, we bump into each other at every turn, so conflicts arise. There has to be a means of resolving those conflicts, and establishing a set of enforceable rules is at the heart of that. The operative term here is “enforceable”, as that is implicit to the very meaning of the word “rule”.
Without this ability, we are back to the rule of the jungle, tribalism, etc. I appreciate that government can be used as a tool of coercion, but what completely baffles me about libertarianism is the belief that coercion can be wished away by the elimination of government. At that point, might would make right, and the coercion would still remain, only to be delivered by tribes, factions, and thugs.
Once we get thrust into the real world – the modern world – the main instruments of coercion are force and deception. I have concentrated in this blog on the current design of the corporation, as I think design changes could reduce their ability to coerce through deception.”
Strikes me as misunderstanding several central libertarian concepts, including ‘coercion’ (which you conflate with aggression), property rights, and enforcement.
Here is a chapter from Rothbard’s ‘For a New Liberty’ that I think you will find very helpful in at least understanding libertarian concepts on our own terms. Until then, your arguments against libertarianism (and anarchism) seem sadly beside the point at best, or simply incorrect at worst.
At the very least, it will help you to understand where libertarians are coming from. As of right now I think you are beating up straw men.
http://mises.org/rothbard/newliberty2.asp
I’m sorry for the double post, here is how my other post *should* have read (I’ve fixed the italics):
tom, your description of libertarianism taken to its logical conclusion, written thus:
“OK, but what I don’t ever see resolved by libertarian thought – at least the anarchist wing – is a real-world rule for defining where one individual’s property right end, and another’s begin. In a crowded world, we bump into each other at every turn, so conflicts arise. There has to be a means of resolving those conflicts, and establishing a set of enforceable rules is at the heart of that. The operative term here is “enforceable”, as that is implicit to the very meaning of the word “rule”.
Without this ability, we are back to the rule of the jungle, tribalism, etc. I appreciate that government can be used as a tool of coercion, but what completely baffles me about libertarianism is the belief that coercion can be wished away by the elimination of government. At that point, might would make right, and the coercion would still remain, only to be delivered by tribes, factions, and thugs.
Once we get thrust into the real world – the modern world – the main instruments of coercion are force and deception. I have concentrated in this blog on the current design of the corporation, as I think design changes could reduce their ability to coerce through deception.”
Strikes me as misunderstanding several central libertarian concepts, including ‘coercion’ (which you conflate with aggression), property rights, and enforcement.
Here is a chapter from Rothbard’s ‘For a New Liberty’ that I think you will find very helpful in at least understanding libertarian concepts on our own terms. Until then, your arguments against libertarianism (and anarchism) seem sadly beside the point at best, or simply incorrect at worst.
At the very least, it will help you to understand where libertarians are coming from. As of right now I think you are beating up straw men.
http://mises.org/rothbard/newliberty2.asp
Grr, it didn’t fix it.
Okay, the first three paragraphs, from “OK, but what I don’t ever see resolved . . .”
until “as I think design changes could reduce their ability to coerce through deception.”
should be italicized and considered a quote. Very bizarre.
Dan,
That’s OK on the italics problem; I caught your drift. And I will get to the links you sent when I can. My intent was not to “beat up on straw men”, as you put it, but to elicit an explanation of how the anarchists address this issue (I never had in mind that I was the first to raise it). With that as my goal, I appreciate your response.
Thanks,
Tom
Tom, thanks for the response. I think that anarcho-capitalism, libertarianism, and anarchism (which can all denote the same thing, depending on a couple of basic ideas) don’t get enough airplay in conversation and so people aren’t familiar with the actual arguments.
If you’re looking for an answer to your question, Rothbard is a great place to look; Hoppe’s work is also great. Mises is wonderful for libertarian thought in general, although the issues with security and protection of rights will not be addressed as fully as in the former two authors. In my opinion, there is no substitute for these books.
But, in the meantime, the short answers to some of the issues that you raise are: Property rights are absolute and well defined, and they are *not* fuzzy and relative to social conventions.
When it comes to figuring out whose property belongs to whom: homesteading, voluntary exchange, and ownership become important concepts.
Police, courts, security, and protection of rights are all issues that anarcho-capitalists believe could be handled through voluntary association and free markets (simply, unhampered exchange).
In short, the libertarian believes that it is possible to run a society that does not use aggressive force against anyone, as all governments necessarily do (taxes). Certainly punishing criminals will require coercion (even violent coercion), but the key distinction is that it will not be aggressive coercion, not initiated force, but only retribution aimed at the restoration of property to its rightful owner(s).
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