Proprietism 101: A Brief Introduction

By Nick Wilson, 12.03.31, 07:53 PM

Proprietism is a minimal government, free market alternative to modern corporate capitalism based around the idea that it is unjust to socialize risk upon society through the artificial limits on liability.

If one accepts the premise that the cost of a corporation’s damaging actions can potentially exceed the value of the corporation’s assets, it stands to reason that the remainder of the cost would have to be paid by somebody else. The personal wealth of the individuals responsible for the action are largely shielded due to limited liability laws; thus, the burden falls on the victims and/or taxpayers.

For example, let’s say Corporation X is a chemical company that decides not to implement safe disposal technologies because these are expensive and would hurt profits. Twenty years later, the executives who made this decision have retired with their millions,while the neighbors up the road have cancer. The victims sue Corporation X and, best case scenario, win a large settlement that comes largely out of the stock values of non-managing stockholders who probably had nothing to do with the original action. Let’s say the stock falls to nothing and Corporation X goes bankrupt without paying the full cost of the settlement. Now either taxpayers or charity will have to pick up the bill for the victims’ healthcare, or the victims will have to pay for it out of their own pockets. Had they lost the suit or the corporation closed before the suit was filed, the burden would have been even heavier.

When an individual performs actions that harm somebody else, they are fully liable – unless they are acting on behalf of a corporation. There are cases where the “corporate shield” is pierced in extreme circumstances – but these are the exceptions and not the rule. Privatized profits and socialized risk has benefits (extreme growth and easier exploration of riskier technologies), but it is also fundamentally unjust and unhealthy.

The Left has offered the regulatory state as a response to the negative effects of this moral hazard; however, this is flawed and unjust in its own right. Regulation largely punishes the responsible for the actions of the irresponsible – and disproportionately burdens smaller enterprises – resulting in rampant inefficiencies, rent-seeking and limits on competition by more politically connected corporations, misallocation of resources, and violations of rights. In corporate capitalist economies, the regulatory state encourages big business conglomeration, increases prices and centralizes wealth, while not correcting the intrinsic moral hazard of incorporation itself. Government and large corporations develop a mutually codependent relationship where the corporation has a compelling interest in influencing their overseer’s policies, and they use this power to profit at the expense of taxpayers and block out smaller, weaker competitors.

Proprietism proposes a purist version of laissez-faire modeled on the teachings of Adam Smith. Simply removing government limits on liability (i.e. state incorporation) would push business owners and stockholders towards risk-aversion, in order to protect their personal wealth. Instead of incorporating, proprietors would purchase liability insurance to protect their assets and those of their employees. Larger enterprises, riskier fields, bad business practices and a record of irresponsibility or illegality would result in higher liability insurance costs, and the insurance providers would monitor their customers to ensure they are run as safely and truthfully as possible, in order to determine rates and protect their own profits. More responsible enterprises will be rewarded for their responsibility, not punished for the actions of their irresponsible competitors.

The role of the government is primarily to enforce protections on natural rights by prosecuting criminals who commit fraud and violate the lives, liberties and properties of others. Actions and inactions that do not harm or endanger the rights of others should not be interfered with. All market distortions and cost shifting would be removed – these disproportionately burden the poor and small business.

The proprietist society would be highly meritocratic, increasing liberty, economic mobility and justice while breaking unhealthy cycles of dependency, irresponsibility and rent-seeking. The economy would more closely resemble a “nation of shopkeepers” than today’s corporate capitalism – slower paced, safer, closer to perfect competition and more diverse, specialized and decentralized.

Proprietism aims for the ideal synthesis between free enterprise and the preservation of natural rights, something corporate capitalism and regulatory statism inherently fail to do. The Left understands the dangers of corporations, but their medicine is far worse than the disease – hurting everyone else, while counter-intuitively making the bad elements more powerful and manipulative. The Right understands the dangers and flaws of central economic management, but ignore the unjust socialization of risk at the core of the current market structure. Both sides greatly misunderstand free markets and all the implications involved. At its core, proprietism seeks the most free and just system permitted by human nature.

Add Comment

  1. To arm yourself (since there are many Reason commenters who have absurd and totally ahistorical (i.e. perfectly comporting with their ideology) views on corporations), if you are serious, you should read this:

    The Cambridge Journal of Economics

    “Limited liability, shareholder rights and the problem of corporate irresponsibility”

    JoshSN · 12.05.08, 06:28 AM · #

  2. Indeed, the current two-party system is a sloppy schizophrenic machine that botches the natural karma of a truly free market from both sides. A proprietist system would realign the political economy, and for the first time ever, Adam Smith’s “invisible hand” would truly be free.

    Nick, there are absolutely profound social implications here as well. Would you mind sending me an email?

    — Paul Kurke · 12.10.20, 08:16 AM · #

  3. Nick, sorry to post another comment, but I’m not sure how else to contact you.
    I plan to complete my MBA in information systems in December. I have many self-developed ideas about economic theory coming from my area of expertise, and they bolster and are bolstered by a proprietist system (I didn’t happen across this site, I actually sought out the word). I am interested in contributing, and helping you develop and promote I do not want to sell you anything, nor do I want to claim credit for the idea. Will you please send me an email to let me know if you’re interested in my input?

    I thought if I posted, you would automatically see my email address, but just in case you don’t:

    — Paul Kurke · 12.10.30, 07:00 PM · #

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