I am on the north Somerset coast, in England's "west country", with my young daughters for a family holiday. The wind is blowing cross-shore and I can see the industrial stacks of south Wales ten miles across the Severn estuary. It's time for my semi-annual kite-surfing outing. I put on a helmet, in case I get dragged over rock; some hundreds of yards out, I start to remember all my accidents, near-misses, even near-fatalities. My "risk-thermostat" (to use a term underpinning much of John Adams's work) is in full calibration, and my behaviour carefully honed to it - I turn back now and not later; I manoeuvre conservatively, with sacrifice to pure sensation ...

The corporate safety-net

This sort of fine honing of action to risk is what we are meant to get from rugged capitalism. The well-judged gamble of profit and loss keeps behaviour on track and the enterprise focused on creating value in the face of ignorance and uncertainty.

Except there is a catch. Almost all risks under modern capitalism are taken by "limited-liability corporations". What this means is that the shareholders of the corporation are not liable for any consequences of the corporation's behaviour beyond the value of their investment. It is as if, in the kite-surfing case, there were some God-given guarantee that the worst that could happen to me would be the loss of my equipment and a bit of exhaustion - I would be guaranteed a safe return to my family, and not, Odysseus-like, after twelve years of wanderings.

That sort of safety-net would no doubt change the calibration of my risk-thermostat, as it will the behaviour of the shareholders of the corporation. A corporation - maybe one that owns a nuclear-power plant - might cause deaths and ill-health for thousands of years to come. But its shareholders can only lose as much as the corporation has in capital from them. Where some increased chance of catastrophe is likely to benefit shareholders, their risk-thermostat is likely to tell them to court catastrophe.

Indeed, a common libertarian objection to social security is that it diminishes the muscular self-reliance that makes for the prospering of true individuals. Responsibility for personal outcomes is good for the moral character of the individual as well as for the social whole, since the self-reliant tend to be productive, hard-working and fully constrained by the need to fit in to the desires of society around them.

Except, it would seem, if those persons are corporations rather than individuals. In that case the social safety-net of liability is just fine. Although not according to the classical economists: Adam Smith David Ricardo and John Stuart Mill, for example, hardly mention limited liability, it was so uncommon in their day. Nevertheless, we can surmise what Smith would have thought from his more general point in The Wealth of Nations:

"To exempt a particular set of dealers from some of the general laws which take place with regard to all their neighbours, merely because they might be capable of thriving if they had such an exemption, would certainly not be reasonable."

The gift economy

Stephanie Blankenburg and Dan Plesch are troubled by this asymmetry. Why have we as a society, they ask, given corporations the blanket protection of limited liability; and what have we got in return?

As part of their questioning of the rationale for limited liability (see "Corporate rights and responsibilities: restoring legal acountability", 10 May 2007), Blankenburg and Plesch convened an academic conference at London University's School of Oriental and African Studies (Soas) on 20-21 July 2007 on the theme of Corporate Accountability, Limited Liability and the Future of Globalisation. The guest speakers included Jack A Blum and Kurt A Strasser, both from the United States. I interviewed each of them.

Neither Jack Blum nor Kurt Strasser quite capture the radical simplicity of the Plesch-Blankenburg question: if something so valuable as limited liability is given away to the corporation, what does the corporation give back? As Kurt Strasser points out, it is telling that Exxon did not even try to mount a limited-liability defence in the case of the Exxon Valdez oil-spill in Prince William Sound, Alaska, in March 1989: "the public outcry would have been too great.''

As Dan Plesch and Stephanie Blankenburg point out, 80% of the world's output is created by 1,000 corporations - all of them benefiting from limited liability. This is certainly a question to keep asking: limited liability is in the social gift and giving, to be sustained, must always include the right amount of taking.

Jack A Blum

Jack A Blum is a lawyer with Baker Hostetler in Washington. He has been US Senate attorney and counsel on the Bank of Credit and Commerce and International (BCCI) affair, on the deposed Panamanian ruler Manuel Noriega, and on the Lockheed bribe affair. He provides regular testimony to congressional committees on money-laundering and tax-evasion. He is the author of Financial Havens, Banking Secrecy & Money Laundering (United Nations International Drug Control Programme [UNDCP] Technical Series, 1998); his book articles include "Offshore Money", in Tom Farer, ed., Transnational Crime in the Americas (Routledge, 1999).

In short, Blum is an expert in the rotten apples of the corporate world - the BCCI, as he comments, was the "Bank of Crooks and Criminals International''. He is used to seeing the worst delinquency of corporate behaviour; his experience leads him to view the practical problem it poses has much more to do with the lack of international coordination of enforcement than with limited liability per se

* listen to Jack Blum on national systems trying to control multinational crime (2 mins)

* listen to the whole interview (20 mins)

Jack Blum's recommendation for the next step of international law-enforcement: he points out that it is currently a tenet of international law that no country will assist another in the enforcement of its tax law. This should go.

Kurt A Strasser

Kurt A Strasser is professor of law at the University of Conneticut Law School. He is the co-author of a five-volume learned tome on corporations and their legal inter-relationships (including limited liability), Blumberg On Corporate Groups (Aspen publishers, 2nd edition, 2007). Strasser's main point is that reform of limited liability should aim to take it away from parent companies vis-a-vis their subsidiaries more than taking it away from individual final owners. He points out that most businesses insure themselves against terrible outcomes, and it is only the truly catastrophic that fall under the limited-liability regime.

There are some "strategic"' uses of limited liability in corporate structures, for example in the nuclear industry; a huge parent, General Electric for example, might incorporate each of its nuclear assets in a subsidiary, so that any one could go bankrupt without liability threatening the whole enterprise. Strasser's reform would stop this sort of behaviour: he wants entities that are single and unified in order that they carry the costs as well as the benefits of this condition.

* listen to Kurt Strasser on what difference his reform would make in practice (2 mins)

* listen to the whole interview (20 mins)