TCS Daily

The Wrong Way to Right Wrongs

By Stephen Bainbridge - April 14, 2004 12:00 AM

Descendants of African-American slaves are suing Lloyd's of London seeking reparations on grounds that Lloyd's insured ships used in the slave trade in the Eighteenth Century. Although a federal judge recently dismissed a class action seeking reparations for slavery from a number of US corporations, lawyer Edward Fagan who successfully pursued Swiss banks on behalf of Holocaust victims seems confident that he's got a strong argument:

"Why is it too far fetched to say blacks should be entitled to compensation for damages and genocide committed against them, when every other group in the world that has been victimized in this way has been?"

A fair question, but there is a big difference between reparations from corporations for the benefit of victims of the Holocaust or Japanese internment, to cite two commonly used examples, and the descendants of slavery.

Legal liability can be justified on a number of grounds, such as deterrence, compensation, and retributive justice. Requiring a corporation to pay reparations to victims of centuries or even decades old wrongs advances neither deterrence nor retributive justice.

Who do we punish when we force the corporation to pay reparations? Since the payment comes out of the corporation's treasury, it reduces the value of the residual claim on the corporation's assets and earnings. In other words, the shareholders pay, not the directors and officers who actually committed the alleged wrongdoing (who in most of these cases are long dead anyway).

As far as deterrence goes, the problem is that shareholders don't control corporations. Corporation law assigns the responsibility for making corporate policy to the board of directors and the firm's managers. Holding the shareholders liable for something that happened decades ago is unlikely to have much deterrent effect on the corporation's current directors and managers. Human nature being what it is, current managers likely believe that they won't commit the errors of their predecessors. On top of which, the prospect that shareholders will be held liable is far less likely to deter management misconduct than would the prospect that the managers who made the decisions would be held personally liable.

Retributive justice likewise is poorly-served by corporate-level liability. Retributive justice is legitimate only where the actor to be punished has committed acts to which moral blameworthiness can be assigned. Because the corporation's legal personhood is a mere legal fiction, however, a corporation is not a moral actor.

Edward, First Baron Thurlow, put it best: "Did you ever expect a corporation to have a conscience, when it has no soul to be damned, and nobody to be kicked?" The corporation is simply a nexus of contracts between factors of production. As such, there is no moral basis for applying retributive justice to a corporation -- there is nothing there to be punished.

Even if you assume the corporation is still benefiting from alleged wrongdoing that happened decades or even centuries ago, the modern shareholders are mere holders in due course. It is therefore difficult to see a moral basis punishing them. They have done nothing for which they are blameworthy.

In sum, both deterrence and retributive justice require that punishment be directed solely at those who actually commit wrongdoing. In this context, it would be the directors, officers, or controlling shareholders who actually enslaved people. Since they're long dead, there is nobody left who properly can be punished.

This leaves compensation. When compensation is the goal of a particular punishment, it is more appropriate to treat the corporation as though it were a real entity that can be punished through fines or tort liability. After all, the corporation likely will have far deeper pockets and thus far greater ability to compensate victims than either managers or shareholders.

As a matter of compensatory justice, however, reparations for slavery differ significantly from the Holocaust or Japanese internment. In the latter cases, there were living victims whose injuries could be redressed. In the case of African-American slavery, there are no living victims or even immediate descendants.

Courts have routinely held that descendants of slaves have suffered no legally cognizable injury for which they have standing to sue. In his decision in the African-American Slave Descendants Litigation case, for example, federal district court judge Charles Norgle rejected the plaintiffs' argument that they suffered continuing harms, in form of racial profiling, racial slurs, and shorter life expectancy, as result of the enslavement of their ancestors.

Slavery was a great injustice. Yet, there is no moral case for reparations. None of the principal legitimate purposes of punishment -- deterrence, compensation, or retributive justice -- would be served by requiring corporations to pay such reparations.


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