| Bill Clinton's 1992 campaign had a slogan as a reminder | | | | where the materials fester and produce more |
| to campaigners; "It's the economy, stupid". The | | | | dangerous gases? How about the thousands of |
| phrase has passed into history but it still rings as true | | | | regulations that are required if not to keep people |
| today as it did then and green campaigners need to | | | | safe, at least doesn't poison them too quickly? How |
| recognise that. | | | | about the idea that productivity is boosted by |
| | | | | employing fewer people, so cutting more and more |
| Economic activity is the bed rock of our civilisation | | | | out from a share of the riches? How about the |
| and the basis of much human preoccupation. There is | | | | tendency to globalisation that erodes cultural |
| not a sovereign state that does not rely on | | | | diversity? How about the death and destruction of |
| economic activity, even if the basis of it is outside | | | | thousands of species of animals, insects and plants? |
| what some would consider legal. All Governments | | | | Is accountancy really telling us the reality "as is"? |
| depend on business to employ people (whose income | | | | When the BP well in the Gulf was spewing oil that it |
| they can tax) and generate profits (that they | | | | could sell of around US$80 per barrel, it was facing |
| re-invest to build the business or share with | | | | fines of between US$1,100 and US$4,300 to |
| stockholders, which can then be taxed). For their | | | | compensate for the damage that each spilt barrel |
| part, businesses rely on government to keep the | | | | caused! What is the true price of oil? |
| peace and provide a fair set of rules that everyone | | | | |
| abides by. An individual that is not "economically | | | | Like a lot of human problems, we didn't set out to do |
| active" or family that does not have at least one | | | | it the wrong way. Modern accountancy was invented |
| "economically active" person in it is likely to be | | | | about 500 years ago in Italy where double-entry |
| severely disadvantaged. Most places in the world | | | | book-keeping was first used. Double-entry |
| follow this model and most have combined it with a | | | | book-keeping changed the way that people were |
| form of democracy where the population get a | | | | able to think about business and virtually all the |
| regular chance to approve or change the people who | | | | decision making tools we use today like pay-back |
| are responsible for making up the rules. Although | | | | times and returns on investment could not exist |
| democracy is not necessary for economic | | | | without it. It was and is an amazing system and at its |
| development, it has become ingrained in the Western | | | | intellectual core is the concept of "balance". Even |
| psyche so much that world countries where the | | | | today when a financier wants to know the financial |
| central government is so weak or ineffective that it | | | | strength of a company, she looks at the "balance |
| has little practical control over much of its territory, | | | | sheet". Consider, for a moment how very different |
| or where there is little or no provision of public | | | | the world in 15th century Italy was compared to |
| services, or where widespread corruption and | | | | today. In human terms, there were many fewer of |
| criminality exists, or where there are refugees and | | | | us for start, about a twentieth of our number today. |
| involuntary movement of populations and sharp | | | | We had also not had our industrial revolution. Little |
| economic decline it is said to be a failed state. | | | | wonder that the guys who thought that "balance" |
| | | | | was so important didn't notice that there was a cost |
| Although you might be able to argue over how fairly | | | | associated with using the Earth's resources and |
| the benefits have been spread, there is no denying | | | | services. |
| that the world is much better off than it was 60 | | | | |
| years ago. People in the very successful economies | | | | Once the industrial revolution got into full swing, it |
| like the US and most of Europe have seen standards | | | | became apparent pretty quickly just how damaging |
| of living soar and even the traditionally poor countries | | | | the activity was to the environment. Rich people built |
| now have a burgeoning middle class. There have | | | | their houses upwind of the smoke-stakes and |
| been crisis like that of Long Term Capital Asset | | | | changes the cuffs and collars of their shirts before |
| Management in 1998, the dot com collapse of 2001 | | | | evening. Around this time in our history the "science" |
| and, most recently, the global banking crisis of 2008. | | | | of economics was newly emerging. Economists noted |
| They have all been scare moments when the world | | | | the filth but felt secure enough that the damage |
| economy seemed on the brink of collapse but | | | | would only be localised and as the Earth was a big |
| somehow it has survived, pretty much intact. | | | | place, they could consider it as an "externality" i.e. it |
| Or has it? | | | | still didn't have to be accounted for. Remember, |
| | | | | though, that they were working at a time when |
| Wealth and money are human concepts. No other | | | | there was still only about a quarter of the number of |
| animal or plant or fish gives a fig about it. But we use | | | | us now. The result has been that today we have a |
| it as a way to communicate. Get enough wealth and | | | | global system that is focused on making a product |
| you get a lot of power, influence and "friends". | | | | and getting it to a customer as quickly and cheaply |
| Wealth is not entirely intangible, of course. It | | | | as possible, without considering much else. A global |
| originated from using energy to extract minerals and | | | | system that has brought us, for a while, better life |
| other material from the Earth, use more energy to | | | | expectancy, better health, more comfort and more |
| shape it into something desirable, some more energy | | | | convenience than the species has ever known. But |
| to ship it somewhere for someone to buy it, use it | | | | the underlying flaw has now been exposed. Although |
| for a while then throw it away. Over the past few | | | | the theories are over 100 years old, we now know |
| years, we have started to consider knowledge and | | | | that nature is not an abundant "mother" always |
| ideas as wealth as well but the physical economy is | | | | fertile and able to replenish with fault. In the past 50 |
| still the key. | | | | years we have come to know the delicacy, |
| We know we have wealth because our accountants | | | | complexity and interconnectedness of the natural |
| tell us that we do, in the form of assets or cash | | | | systems and just how vulnerable to damage they |
| (money). Accountants are generally good people and | | | | are. For the first time we can see that future |
| when they are compiling the accounts we expect | | | | generations will be poorer and worse off than we |
| them to gather information and report it objectively | | | | are now. |
| so that third-parties who must rely on it can be sure | | | | |
| there is no bias or inconsistency, whether deliberate | | | | How we choose to deal with this is, I believe, a |
| or not. So that everyone is clear about what this | | | | defining issue for humans. The reaction from some |
| means, each country has its own Generally Accepted | | | | quarters has been to say, we need to stop economic |
| Accounting Principles (GAAP), which lays down the | | | | activity. We need to go back to a simpler life. |
| standards and guidelines for how the information | | | | Needless to say, this has been a minority view. But |
| should be gathered and assembled. (There is also an | | | | we do need to find another way. |
| International GAAP, which as you imagine is pretty | | | | |
| complicated and one guide to it runs to 3,800 pages.) | | | | In the same way as there is a principle of prudence, |
| Accounting is based on a series of principles and | | | | there is also a Principle of Full Disclosure whereall |
| there are two, in particular, that are worth thinking | | | | information and values about the financial position of |
| about. The first is the Principle of prudence. This | | | | a business must be disclosed in the records. There |
| principle aims at showing the financial reality "as is": | | | | are already a number of campaigns to extend this |
| one should not try to make things look prettier than | | | | principle to include disclosure on the environmental |
| they are. This means that a revenue item should be | | | | impacts of a business. That would certainly help; the |
| recorded only when it is certain and a provision | | | | resources and services of the planet aren't really |
| should be entered for an expense which is probable. | | | | free. But the full solution needs a fundamental rethink |
| But is accounting really giving us the true picture of | | | | on how we account for our activity so that we are |
| the world "as is"? | | | | rewarded for replenishing the environment rather |
| | | | | than destroying it. As soon as people can make |
| Let's consider for a moment just what our economic | | | | money from nourishing natural systems, business and |
| activity really entails. How about the millions of tons | | | | the economy will deliver. Because if you really want |
| of toxic material that it pumps into the air, water and | | | | to know how to solve the problems of pollution and |
| soil every year? How about the gigantic amount of | | | | develop solutions to climate change; it's the economy, |
| waste we produce and, mainly, dump into a hole | | | | stupid. |