This piece is an abridged transcription of a talk given at St Andrew’s on the Terrace, 18 August 2015
There are four main parts to this article. Firstly I’d like to offer a view of accounting in context; then, a map of how accounting is typically taught in our institutions, in our universities, and how the profession tends to portray itself. Thirdly, I want to start challenging that perception, that public portrayal of accounting. I’ll suggest here that accounting is far more problematic than we conventionally conceive it to be. I’d like to finish off by tackling some key issues: accounting and global financial crisis, accounting and global poverty. I’d like to point to some of the specific ways that the accounting practices we use are actually deeply implicated in exacerbating a lot of these problems.
Accounting in context
It’s important to make sense of a particular practice in context. My suggestion is, if you look at the social and ecological context, we live in pretty dire times.
One of the greatest crises we face now is the global inequality crisis. In New Zealand, over the past 30-40 years, inequality has deepened. Partly because of wider economic cycles, partly as a result of the neoliberal policies that have been embedded since the 1984 David Lange-led Labour government. Since then, the neoliberal project has pretty much been the dominant position at the level of public policy in this country. And not just in this country; pretty much around the world. The U.K. has led the way through Margaret Thatcher, and the U.S. with Reaganomics.
Oxfam has predicted that by the end of next year, the top global 1% will own over half of the world’s wealth. At the other end of the spectrum, we’ve got forms of inequality that are hard to fathom. The starker realities: 1,000 people die from poverty related causes every day – hunger, preventable diseases and so forth. 50% – some 3 million people – live on less than $2.50 per day. That’s our social reality today, both here nationally, in New Zealand, and overseas.
If you think about the class inequalities, they’re also racially stratified, and they’re stratified across gender lines. Women make up a disproportionate amount of the world’s global poor. Almost 70% of the illiterate people in the world, some 780 million people, are women. Most of the global poor are located in countries of the global South, and you can see why that is the case by looking at the modern history of colonialism and the neocolonialism that is going on today.
If we look at the ecological situation, if it’s possible, it’s even more frightening. We’re currently consuming 50% over and above our biosphere’s capacity to regenerate ecologically. We’re consuming one-and-a-half planets’ worth of resources, both renewable and non-renewable. We’ve got increasing toxicity across the board. Recently, U.N. scientists released a report on the state of the world ecologically. Out of the nine planetary boundaries – which are identified as crucial for maintaining stable human presence on the planet – we have violated four. One is climate change, the second is increasing acidification of the oceans, the other is nutrient run-offs, the fourth is biodiversity loss.
Most scientists, including Bill McKibben from 350, advocate keeping our carbon emissions or carbon concentration in the atmosphere below 300 parts per million. We’re over 400, today. And the number is only increasing. You’ll be comforted to know that the current government is planning on expanding dairy, which is our biggest industrial polluter, by at least twofold, with no real plans in sight for mitigation. Of course we are looking forward to the outcome of talks in Paris, U.N. Conference at the end of December this year.
These are some of the social and ecological issues I try to keep at the forefront of my research when I think about the role that accounting and business might be playing. That’s the context that we confront, and it takes us to the next question: why is this even happening in the first place? One of the thinkers that I really admire, but whose name has pretty much been written out of the academic canon, is one of the great feminist thinkers of the second wave in the 1970s: Andrea Dworkin. I love this quote, because it points out that human atrocities are not new.
All through human history, there have been terrible, cruel wrongs. These wrongs were not committed on a small scale. These wrongs were not rarities or oddities. These wrongs have raged over the earth like wind-swept fires, maiming, destroying, leaving humans turned to ash. Slavery, rape, torture, extermination have been the substance of life for billions of human beings since the beginning of patriarchal time. Some have battened on atrocity while others have suffered from it until they died.
I also like this quote because it points out that one of the most important reasons for why these atrocities arise is that they are rooted in the social systems that we live in. When you have patterns that keep coming up – regular, routine patterns – from a sociological perspective, they are organised, they are structured in some way. So if you want to understand the root cause of those patterns, you have to look at social organisation. You can look at specific institutions, and you can look at society as a whole. Of course in our modern, academic traditions, it was sociologists such as Karl Marx, Max Weber and Emile Durkheim who tried to grasp the totality of society’s social structure.
If you want to understand why we’re in the situation we’re in today, of multiple cascading crises, we have to look first of all at the structure, and secondly our ideas about the world. That’s what I mean by the ideological dimension of social systems. We have to really look deeply into the way we make sense of the world, the way we tell stories about ourselves and the type of society we live within. The next part of Dworkin’s quote I really love too, because it speaks to this ideological dimension:
Whether through indifference, ignorance, or brutality, most people, oppressor and oppressed, have apologized for atrocity, defended it, justified it, excused it, laughed at it, or ignored it.
When I put on my sociologist’s hat, I often return to this ideological dimension. Because it really brings home how the ideas we have about the world can make us overlook atrocities or downplay them in various ways – for example by using euphemistic language. Look at the public policy language we use today. Look at the terms we use. They’re incredibly sanitising. They deodorise crises. They downplay it. That’s only one example of the way in which our ideas, the stories we tell about ourselves and the world we live in, are actually fundamental to how we act and to whether or not we tolerate the atrocities that are going on or whether we recognise them and try to address them.
You can solve a problem if you can’t even see it, and we can only make sense of our problems through our ideas; our narratives; our stories.
Accounting: Conventional Perspectives
The reason why I wanted to spend time talking about ideology and social structure is because one of the first ideas about accounting I want to suggest to you is: accounting is a carrier of ideology. Accounting is the language of business. If you want to think about the one story in an enterprise that will inform decision-making – the ‘bottom line’, so to speak – don’t go any further than accounting; that is the bottom line. So as a story, as an ideology, it’s absolutely fundamental.
The question we need to ask though is whether accounting actually tells the truth about the realities of our world. So that’s we’re going to get into, but that’s the set-up; that’s the hypothesis: accounting is not separate from these aspects of social life. It helps organise our social structure; and fundamentally, it’s a narrative. About the nature of an organisation, a corporation; about the nature of the economy; about the nature of our society as a whole. That’s not typically taught at universities, but that’s the tradition I come out of, a research tradition I come out of – critical accounting. I’ll talk more about that towards the end.
But now, let’s get to the conventional, common-sense understanding of accounting. When you were in high school, or you were going to university Accounting 101 – my suggestion is, this is the typical view of accounting. Accountants are pretty boring, bookworms – ‘bean-counters’ is the pejorative term I believe – they slink off to their position at the back of the company headquarters, they keep to themselves, they’re socially inadequate, and they don’t have much charisma and they’re not that central to how organisations run.
I’d like to challenge that perception, and I’m going to do it in different ways. But after teaching for ten years now, that’s the perception that students carry with them when they come to accounting. If you have a look at the conventional textbook definitions, they are really dry. “Accounting is a process of recording, measuring, classifying, ordering, communicating information,” it’s about “assets”, “liabilities”, “equity” – and that’s not false, that is true, it is that. “Accounting is the process of keeping financial accounts”, “accounting is the language of business” – all that’s true.
On the other hand, the problem with these definitions, these conventional definitions, is they completely underplay the political dimensions of accounting. And I’ll explain what I mean by that in a minute. But it’s very dry language, it’s very neutral, technical language. You look at it and go – where’s the moral dimension of accounting? That’s not there. Where’s the political dimension of accounting? These definitions don’t really get at it. The second thesis I’d like to convey to you is this: any social practice, not just accounting, any practice – law, health, teaching – any practice is inherently political, because we are not separate from society; we are part of it.
Problematising Textbook Definitions
Definitions like this do an injustice to students, because they don’t teach students those other equally important dimensions. Accounting is a technical practice, but it’s not just that. One of my favourite quotes is from an article I love by Ruth Hines. Hines is an amazing scholar who wrote some of the seminal papers in critical accounting, got sick of accounting academia and went off to write children’s books in Australia. But she was a true artist at heart and you can see it in her papers. This is one of the quotes from her that I really love:
Accountants often see themselves as engaged in an objective, value-free technical enterprise representing reality as is.
That’s all we do. We just take photographs, or to use another metaphor, accountants are just mirrors. The information provided simply mirrors the financial reality of our business organisations. That’s the view. And if you look at the Code of Ethics that accounting practice is based on, and you have a look at the professional values in that code, it reflects that idea that accountants as professionals are objective, neutral portrayers of our social world.
If we have a think about the function of accounting, accounting is a public profession. It is charged with serving the public interest. How does it serve the public interest? If you want to get your head around that idea, we have to look at the social contract model of liberal democracy that it’s based on. Under liberal political theory, if you have a look at how society’s organised – you have your economy at the bottom, that’s your economic base, and it’s a free market. It’s efficient, it allocates and distributes resources equally. That’s the economy. And all individuals who participate in the free market are what? Free and equal individuals. That’s neoclassical economics, that’s liberal political theory.
Above the economy sits civil society and the overarching institution is of course the democratic state. It’s representative of democracy, affirms the civil rights and human rights of individuals, and so, you have freedom to participate in the political process of electing our representatives and also participate in the free-market. Accounting serves the public interest by providing financial information that renders organisations more transparent. In doing so, it helps markets function more efficiently. That’s the theoretical rationale for how accounting serves the public interest. We provide information, we help the market function, the market grows social wealth, and under the utilitarian concept of wealth, that is the wider social welfare, the public interest.
But if you have a look at some of the assumptions underpinning that model, you can start to see how you might challenge some of those assumptions. For instance, one of the unstated, implicit assumptions of liberal theory, or neoliberal theory under people like Milton Friedman, is profit maximisation is actually compatible with public interest, with social welfare. That’s one of the bedrock assumptions. Others include assumptions about the nature of the individual: “free and equal”. Again, given the realities that confront us, we can see how those assumptions simply do not hold in practice. Equality – as a regulating norm, but not as a concrete reality.
If those assumptions hold, then that’s the function of accounting: it’s a social accountability tool. It helps make organisations accountable to wider society by rendering their activities more transparent.
The problem with it, though – this is my suggestion – is it’s simply not true.
One of the interesting points made by David Harvey, one of the political economists I really admire, about neoclassical economics is that, like a few other key theories of our time that inform public policy – they’re what he calls ‘just world-views’. The starting assumption is that we actually live in the best of all possible worlds. It’s a just world. Everything else hangs off that one basic assumption. The flip-side is, if that one basic assumption is wrong, all the other assumptions that hang off it are fundamentally undermined.
If we actually have a look at at our social model in a more realistic sense – when we take account of history, and we take account of actual political-economic conditions and patterns – the evidence points the other way: we don’t live in a just world, we live in a world that’s actually structured by fundamental forms of inequality. Structural inequality. A 400 year history of colonisation; the class relationship that’s at the heart of capitalism.
This is one of the truths – Marx got a lot of things wrong, but I’m pretty sure he got this one right. Capitalism is based on class. And of course, lastly, in so many different ways, we still live in deeply patriarchal societies. So our societies are organised on institutionalised forms of male dominance. These are only some of the inequalities that I would suggest are at the heart of social life.
But then if we move to accounting, and this is what I’d suggest is a more realistic, critical view of what accounting actually is – if you look at the calculations in accounting – pay close attention to them – what you’ll actually find, amongst other things, is that it actually reflects the dominant social relationships that our society is currently based on.
Take for example, class relations. In the accounting calculus, assets = liabilities + equity. Capital owners are not expenses. They’re not liabilities. They are classified as equity holders. The environment, on the other hand – what is that classified as? It’s not equity, it’s not natural capital, it’s not an asset – it’s an expense. If you as a business are going to try to protect the environment, you’re going to incur costs. The costs of doing environmental protection. So within the accounting calculus the environment itself is an expense. Now you might not have taken a business degree, but it’s common sense in our society that if you want to run a sustainable business, sustainable in the financial sense, not in the long-term ecological sense, you have to keep costs down. So you have to keep your environmental costs down. So the environment is first of all commodified, and it’s treated as an expense. Not as a capital base to protect and nurture.
Think about workers. A major expense item on the balance sheet. Again, workers can put their heart and soul into an enterprise – but are they recognised as equity? No, again, they are recognised as an expense. Again, something to be constantly minimised. So, just with those few examples I’m hoping you’re beginning to pick up just how fundamental accounting is, not just for organisation decision-making, but also for structuring how we perceive – each other. Other people. The environment. Nature. Accounting organises social relationships. And that class-capital relationship is fundamental to accounting. Accounting reflects it; accounting reinforces it.
Another aspect is the ideological dimension. By providing managers with financial information to make business decisions, it provides managers with a set of rationalisations for carrying out whatever it is they decide. Justification; financial justification. That’s accounting. But that makes accounting profoundly ideological. Because if the consequences of that project that is decided on are fundamentally environmentally destructive, on the books, it will still show you a positive outcome. Economically positive. But all the social and ecological consequences that are destructive accounting does not recognise. It classifies those consequences as ‘externalities’ that can be ignored. Accounting is an externalising machine par excellence.
Accounting is also an objectifying machine. It reduces everything to objects; commodities that can be bought and sold. Marx really pointed out that capitalism is fundamentally based on commodity production, but the language that allows commodification to take place, the basic language, is accounting.
So – what does this all mean, how does it make sense of so many of the problems we face today?
First of all, let’s think about what it means that accounting actually has a political and ideological dimension. The first thing is, if you think about the last 30 or 40 years under neoliberalism, so many fundamental changes have taken place in all our sectors of social life. Healthcare, education, superannuation, the selling off of state assets, privatisation of our prisons – these are all political and economic transformations. But in order to decide to undertake any of these things, you need financial information. That is the basic reason why accounting is centrally involved. David Harvey also makes the point that if you have a look at the consequences of so many of these neoliberal transformations, they can be seen as a consolidation of class power. And accounting shows its partisan nature by facilitating those political-economic transformations.
We can go through, you can shout out to me any public institution in New Zealand – I can point to research that’s coming out now, or even thinking on the fly, we could talk about and discuss the ways in which accounting is fundamentally involved in all these things. All of them. In universities now, I am trying to get my head around university reforms over the past 30 years. Whether governments are National-led or Labour-led, they go to accounting firms who provide evaluations for all these organisational reforms.
Crises Facilitated by Accounting
I want to finish off by providing some insights into particular crises and the ways in which accounting has been centrally involved.
Warwick Funnell is an amazing accounting academic based in the U.K., who looked at the role accounting has played in facilitating the processes of the Nazi holocaust. The ‘processing’ of Jews. Taking them out of their homes, confiscating their properties; their properties had to be catalogued. They had to be put on trains and cars in order to be shipped off to concentration camps. It was a huge, bureaucratic exercise – accounting. At every step of that process. Accounting facilitated the processing of the European Jews during World War Two. One of the points Funnell makes in the paper is that if you have a look at the social function of accounting, one of the most important functions of accounting is, it can hide atrocities. Take them off the books.
Of course, if you think about organisational decision-making, whatever is measured counts. Whatever is not measured, you can ignore it. It’s immaterial. It doesn’t count. And accounting played a crucial role in that. It reduced people to numbers – gave them all serial numbers, so people could more effectively distance themselves from confronting the reality of what they were actually collaborating in. Being complicit in. It’s much easier for you to manipulate numbers on a page than to actually have a picture, a name, with a story, a background, someone you actually have relationships to. Again, that’s the power of accounting that more conventional, technical definitions do not allow students to grasp.
Another really important issue we should all be thinking about is the role that accounting plays in global financial crises. And there’s different ways that accounting is implicated. You can have a look at accounting education; the type of education we now promote – if you notice, a lot of universities throughout New Zealand have been trying to trumpet themselves as amazing research institutions. Now, there is a lot of amazing research going on but if you have a close look at accounting, in so many ways, accounting research is really asleep at the wheel, because most of the research that takes place in accounting is informed by neoclassical economics. So we never bother about investigating structural problems, structural crises; what economists call ‘systemic risk’. Neoclassical economics can’t deal with it.
If you want to be able to deal with systemic risk, you have to go in to an author most of the West has been scared of the past hundred years: Karl Marx. That’s where you start learning to think more adequately and critically about systemic risk. That’s accounting education. The other two major ways accounting has been involved in our global financial crisis is: the types of financial reports we produce, and the types of consulting services that we are now still promoting.
So if you look at financial reporting, the major feature contributing to creating the preconditions for the global financial crisis is rules governing asset valuation and off-balance-sheet entities. You might remember Enron, the big fiasco – energy giant in the United States. When Enron collapsed, it was an accounting firm, Arthur Andersen, that created off-balance-sheet financing, which basically means they were able to hide the liabilities of Enron off the books. This amounts to billions of dollars. So it was completely insolvent, but accountants kept on rubber-stamping the annual accounts as they were put out.
If you have a look at what accounting firms are doing now, these are all the things they are selling to businesses. Due diligence work, tax advice on off-sheet models; assisting with securitisation of trillions of dollars of mortgage backed securities; and collateralised debt obligations, and facilitating tax avoidance. All of these financial devices are at the heart of the global financial crisis. They financialise and securitise debt; they allow debt that should actually be recognised as completely toxic to continue to circulate throughout the economy. That’s what all these highly collateralised and securitised financial devices allow companies to do. And accounting firms make their money selling to companies advice about exactly how to carry these strategies out. That’s a huge source of accounting firm profit.
Look at accounting and war. Critical research has shown that accounting plays an important role in in deepening forms of militarisation that are currently happening in our society. Edwina from Peace Movement Aotearoa is probably our foremost national expert on processes of militarisation in New Zealand. Chwastiak looks at the U.S. and U.K. context, where obviously because of the military-industrial complex, those processes are far more advanced than here, although I think we are trying to do our best to catch up.
Some of the points they make – again, accounting really helps to normalise the violence that militarisation is based on. It hides the violence off the books, it provides government departments and corporations with the language to rationalise violence. It’s a form of instrumental rationality. That’s a term from Max Weber. Basically, it means you are only concerned about achieving the institutional goals of the organisation. You’re not concerned at all about the wider social consequences of those actions. That’s instrumental rationality – it’s an incredibly truncated form of ethical reasoning. You could ask, how can you call it ethical reasoning? When social consequences, when underlying social structures aren’t part of that process. Of course, war today is big business. And again, accounting is right at the centre of profiteering off war and conflict.
Finally, if you think about accounting and poverty – there are papers that look at how accounting facilitates wealth transfer between countries, at the international level, through things like transfer pricing; International Monetary Fund initiated ‘structural adjustment programmes’ that countries, mostly from the third world, are often forced to get into when they run into debt problems. These debt problems of course have their origins in the 1970s, in the petrodollar crisis. When the Oil Cartels flooded American banks with billions of dollars of petrodollars, and the banks had to use it – the only way they thought to use it was to supply those petrodollars to third world nations, such as those in Africa at incredibly low interest rates. But of course, when the global economy tanked, interest rates spiked, and you have the historical foundations for that particular debt crisis.
To finish off: the subtitle of this presentation was – a spiritual reflection on the role of accounting in social and ecological crisis. The first thing I want to suggest to you: if you look at any of our spiritual traditions, our Christian traditions; Islam; Judaism; our indigenous forms of spirituality – one of the things that comes up again and again, and I think it comes up because it is absolutely foundational is: an ethical approach to life has to be based on recognising, speaking and acting on the truth. Or at least truth as far as you can find it and discern it. My suggestion to you is accounting actually precludes the truth. Nature is not a commodity. Human beings are not commodities. But that is what accounting reduces them to. So in a really fundamental sense, accounting precludes the truth.
Also, accounting masks suffering. If you look at the Gospel, it is fundamentally about basing your ethical life or practice on recognising and working with and working for the lowest of the low. Because of the process of sanitisation that accounting is able to produce, it helps us to avoid that suffering. I’m no theologian; I’m an accounting academic, but the Christian faith that I came out of – they are traditions that are grounded on Matthew 25, which says: If you are not doing for the least of these, you do not do for me. If you look closely at who accounting serves – accounting is meant to serve the public interest, but accounting actually serves the dominant groups in our society at the expense of the lowest. The least of these.
Finally, again, if you take an interfaith perspective and have a look at another common theme that comes through again and again in so many of our spiritual traditions – some of our most profound secular traditions as well – existentialism, psychoanalysis – it’s really premised on the argument that life is a balance. You have to balance certain aspects of your life if you want to live a fulfilling life. You have to take care of your inner needs, your outer needs. No side of that polarity is superior to the other; you need both to work.
There is another paper produced by Hines – it’s called The Negative Space. Ruth Hines uses these spiritual traditions to have a look at the value-hierarchy of how accounting is structured in terms of informing normative values. When you apply this idea of polarity, or yin and yang, accounting is fundamentally yang-based, or masculine. All the characteristics that are traditionally attributed to what we consider masculine traits – objectivity, hardness, linearity, rationalism; as opposed to the soft, the inner, the emotional; traits that are typically associated with the feminine – accounting represses those ‘feminine’ values. Accounting valorises and affirms those masculine values. Hines makes the point that one of the problems we have today is the world as a whole is fundamentally unbalanced. Our economy reflects those yang-based values; our political system does that; our culture, including a lot of our institutionalised religions, does that.
How can we change things? I don’t know. We do have to recognise that the way that we teach a lot of our professions, like accounting, is fundamentally problematic. We are failing our students by not equipping them to confront the problems that we face; we are also indoctrinating them. I come out of a liberal arts tradition – we should be teaching students to think critically. But now we produce systems managers for the most part. They are really bright, really innovative – but they only know how to run a dead system. We need students who can actually challenge the basic paradigms on which that system is based.
– Pala Molisa