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Liabilities: A Key To Growth And Innovation?

December 29, 2011
It is interesting that a key factor in the rise of the modern corporation was the decision by the British government (in the late 16th century) to allow limits to liability. This led to some of the first global trading companies because it proved crucial to investment and risk taking. It allowed organizations to seek external funding that was otherwise beyond the means of its owners and to undertake projects that far exceeded their net worth.
Today we observe an apparently relentless trend (in the Western world and especially the United States) to shift the balance of liability back onto the supplier. Ironically, it is Government that has been at the forefront of this trend – quite in contrast with the situation in the emerging economies, where the boundaries between public and private are blurred and where Government stands firmly behind its main corporate champions.
It is often said that increased risk discourages innovation and undermines collaboration between buyer and seller. Perhaps it is time to reflect on the historic role that limited liability played in economic growth and innovation. Could this be a major factor in the loss of competitiveness facing Western corporations?
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