| Home | Main | « January 2018 | November 2017 » |

Friday, 15 December, 2017

Capitalism Hijacked

Summary: Supporters of Capitalism put forward strong and logical reasons why Capitalism is socially beneficial. On the other hand, antagonists of Capitalism point to all the problems which they ascribe to Capitalism, which are numerous and serious. They can’t both be right, so what’s going on?

**********

The simple truth is that we claim to be Capitalists as we follow certain principles of capitalism, namely that of free enterprise, but that alone does not make us Capitalists. Both parties mistakenly believe we are Capitalists when in fact we are nothing of the sort. This accounts for the diametrically opposed views of both parties being correct and true. They are arguing at cross purposes, as neither understands that we are not following the important principles of Capitalism; we are not Capitalists.

Something has hijacked the Capitalist ideology, which everybody thinks we follow, but the evidence proves otherwise. So what is it that has hijacked our Capitalist principles so cleverly?

Ideologies deal with the things we say we believe in. We can say we believe in anything, even although we may not, because, talk is cheap. It’s what we do that determines what we truly believe. To ensure we achieve what we truly believe, we measure performance. Measures dictate outcomes. Outcomes reflect what we believe. Therefore, we truly believe that the creation of short-term profit for the exclusive benefit of shareholders at the expense of other business constituents (or stakeholders) is the purpose of business. This is what our business measurement standard measures. However, this, by definition, makes us Profiteers, not Capitalists. A Profiteer is an entity which use an unfair advantage to create profit. The unfair advantage, under these circumstances, is our measures, which only favour the interests of shareholders, over other constituents involved in the value creation activities of the business. Normally, profiteering involves “external profiteering”, where the business creates a profit at the expense of other businesses, the government, etc. (i.e. external entities.) However, in this case, it’s a matter of “internal profiteering”, which is a far more insidious form of profiteering, as business owners profit from their own stakeholders, or partners (i.e. internal entities or partners); those dedicated to generating profit for the business.

Now we are clear that we are Profiteers rather than Capitalists, the two divergent arguments made by pro and anti-Capitalist makes sense. Profiteering is the root cause of our most serious social, environmental, economic and business problems. So, the anti-Capitalist arguments are true about greed, self-interest and exploitation, but misdirected at Capitalism rather than our inadequate and inappropriate business measures.

The pro-Capitalist argument that Capitalism benefits society remains true, but its full benefits will only be appreciated when a measurement standard is introduced which supports its principles.

The problem with pro-Capitalist supporters is their almost flippant dismissal, of the “ills of Capitalism”. An attitude which suggests that because “the principles are right, the price is worth paying.” However, the ills presented by the anti-capitalists are real and life-changing and should not, and cannot, be brushed aside. It is almost with a mocking tone they dismiss anti-Capitalist groups as the “ignorant plebs.” After all, free-enterprise has brought about improved living standards for most. Furthermore, the ideology is not coercive, it is based on freedom of exchange - willing buyer, willing seller. So it’s a good ideology to follow.

Of course, they are right, but they should have delved a little deeper, questioning how an ideology supposed to serve us is not (with the evidence all around us.) It’s clear to all, whatever we are doing, we are headed towards a vastly changed and less favourable future for the majority. Instead, they go on the defensive, claiming Capitalism is not based on greed, self-interests and exploitation.

The reality just doesn’t support this argument. Yes - Capitalism does not support these principles, but the penny should have dropped by now - perhaps we aren’t Capitalists. They as the intelligentsia should have seen that Capitalism has been hijacked by our inadequate and inappropriate business measurement standard.

So, if I were asked to pick sides in this debate, I would say both parties are wrong, because, they both blamed an ideology we do not follow. However, I would suggest that the pro-Capitalists are the delinquent party, as it is their ideology, and they should have known it better than most. They should have been able to point out the obvious problem - Capitalism has been hijacked by our business measures.

It’s their indolence which has, and still is, costing us. Until they stand up an identify the real cause of the problem (our inadequate and inappropriate business measures,) the problems caused by our measurement standard will persist. They indirectly encourage the misbelief that Capitalism is our problem and needs fixing and that they somehow have a solution for us. By not addressing the true problem, the harm and hardship continue.

They could easily shift the blame to the real culprit but do not. Why, is this so? Do they want the myth of Capitalism being our problem to continue? Do they want this Capitalism smokescreen, which hides the real culprit, to continue? Are they part of the problem, as they are doing little to promote the solution by drawing attention to the actual problem? They behave in a manner which appears to maintain the smokescreen.

Let us be realistic - the problems we face are measurement related, so the solution must involve measures which address these problems. The naivety in believing that ideologies, or good ideas and a lot of talk will dislodge deeply embedded measures, which our economy relies on, is almost unbelievable. In my opinion, there is little, or no grasp, of the situation, for whatever reason.

Inclusion Capitalism, one of the pro-Capitalist organisations, has joined up with Ernst & Young on their LTV (Long Term Value) project, but this project fails to meet our two minimum requirements for a new measurement standard. As one of my earlier articles “Why are they trying to pull the wool over our eyes?” pointed out, the accounting fraternity has failed to identify the two minimum requirements for a solution, which they should have been able to do. The question then is - “Are they trying to pull the wool over our eyes?” Understandably, they have vested interests in maintaining the status quo. They are happy that confusion reigns as to the cause of our problems, and that the blame is placed at the door of Capitalism. Is the Accounting fraternity backing pro-Capitalist groups, who help stoke this fire of confusion?

Who knows? However, we do know it’s time to stop the farce by blaming Capitalism for the immense problems caused by our inadequate and inappropriate business measurement standard. It’s time to restore the good name of Capitalism and correct our measurement errors now.

Adrian Mark Dore

*** You may reproduce this article provided you acknowledge Adrian Mark Dore as the author and make reference to this website. ***

Monday, 04 December, 2017

Why are they trying to pull the wool over our eyes?

Summary: For more than three decades the accounting profession has known we have a problem with our Accounting Model - it’s not fit for purpose as a business measure. They have also known for as long what the requirements for a solution should be. However, only now have they acknowledged the problem, but what they suggest as a solution in no way meets our needs. How can these so called “experts” get it so horribly wrong? Are they trying to pull the wool over our eyes?

**************

For three decades we’ve known of all the shortcomings of the Accounting Model. There has been a lot of water under the bridge since then, but none of these things, as tumultuous as they have been, have added any new shortcomings to the list. They have certainly accentuated existing problems and made the situation considerably worse, but nothing new.

If you have a clear understanding of the problem, then you should have a clear understanding of what the solution should entail. Therefore, for as long as we’ve known about the problems, we have also known what we should do about it.

Accountants, their associations, institutions and academics, as well as those involved in business performance measurement are those most closely involved with this problem. They, as professionals, should have known of the problems and of the requirements for a solution.

So given the above, we can confidently conclude:-

  • They have known of the problem for 3 decades (or thereabouts)
  • They have also known what’s needed to fix it for as long.
  • Yet, they have done nothing, thus far, about it.
  • Now, that they can no longer hide from, or deny, the effects of the problem,
  • They say they want to fix it.
  • However, their proposed solution in no way resembles our needs.

This does beg the question - “What’s going on?” Perhaps they’ve just got this whole thing horribly wrong, in which case they aren’t experts at all, or perhaps they are trying to pull the wool over our eyes?

By them acknowledging the problem that our measurement standard is inadequate and inappropriate, we think they are on the side of change, that the problem will now be addressed. We feel reassured as the “experts” are on the case. However, by showing a total lack of understanding of our requirements for a solution, you have to ask yourself are they really “experts”? After all they’ve done nothing about a major problem that’s been right under their noses for 3 decades, and then when they finally acknowledge it, they show they have no understanding of our needs whatsoever.

That’s one conclusion, but perhaps another is they are simply playing for time. What they are trying to do is extend the life of their outdated measures and practices, which serve their needs not ours. They establish a smokescreen of “doing something about the problem”, when they know (or should know) it will fizzle out in what they hope will be a decades time. Bear in mind they are the ones who promote capitalism as being the source of our problems despite knowing (or should know) that their Accounting Model (as a business measure) is the problem, and that it has nothing to do with capitalism. The capitalism smokescreen has effectively hidden their bad practices for decades and diverted attention away from the real problem.

So, we are left with these two obvious conclusions. Either they are not experts and therefore not suited to lead change, or they are playing a devious game and therefore not suited to lead change.

Here, you decide if they have misidentified our requirements for a new measurement standard, because, it all revolves around this, as they have finally, after 3 decades, acknowledge the problem.

Our requirements fall into two section.
1) Our broad understanding of business as it affects our business measurement needs.
2) Specific requirements.

1) Broad requirements.

Our broad requirements are based on some fundamental understanding of business, such as:-

  • Business functions as a cause-and-effect (causal) model.
  • A causal model is fully inclusive of all constituents, based on their interrelationships.
  • Value creation is the common denominator of business (i.e. it is the common objective of all business processes.)
  • We need a clear understanding of this model; it’s structures and interrelationships, to be able to measure and manage business effectively, so as to optimise value creation opportunities for all constituents.

2) Specific requirements.

A new measurement standard must meet these specific requirements.

  • Comparable: Our economy relies on comparable measures across all businesses irrespective of sector or size. Incomparable measures are valueless to the market (investors.)
  • Relevant: It has to solve our need - to provide insight into the value creation potential of business for all stakeholders, including shareholders.
  • Reliable: Our new measurement standard needs to be prescriptive. It needs to be specific on what to measure and how to measure. It needs to establish the rules and standards and they need to be assured.
  • Simple/easily understandable: It has to apply to all. Therefore, it has to be simple and easy to understand.
  • Useful: It has to provide a roadmap, which even the smallest business can understand and use to help unlock value creation for all constituents.

Let’s have a look at the major “solutions” on offer currently and see how they shape-up in meeting our requirements. To do that, all I’m going to do is ask two questions, one each from our broad and specific requirements. The questions are:-

1. Is your solution based on any understanding of the value creation causal model?
2. Is you solution comparable?

If both questions are not positively affirmed, it’s no solution.
If both questions are negatively affirmed, it’s a complete waste of time.

The “solutions” we will look at are as follows, with their answers shown next to them.

Solution Question 1 Question 2
Global Reporting Initiative No No
IIRC (International Integrated Reporting Council) No No
UN Reporting Framework No No
Ernst & Young LTV (Long Term Value) No No

Although the list is not extensive, none of the other less well known solutions fare any better. All these solutions are backed by the “leading lights” from the Accounting fraternity - International accounting associations, academics and all the leading practitioners.

We can be thankful that at least they have finally got around to acknowledging the problem; that our inadequate and inappropriate business measures (i.e. Accounting Model used as a business measure) is the root cause of our most serious social, environmental, economic and business problems. Capitalism isn’t the problem, but rather our business measures. It’s taken them three decades for them to do this, but now they cannot identify our requirements for a solution correctly. Whatever the reason, it strongly suggests they are in no position to lead change.

When you’ve played a dominant role for so long as the “expert”, it makes embracing a new world that more difficult, for you have neither the knowledge nor skills to do so. You are an expert in by-gone knowledge and thinking. What we need is a paradigm shift in thinking and approach. It does not involve the rearranging of the deck chairs on the Titanic, as our “experts” suggest.

Adrian Mark Dore

*** You may reproduce this article provided you acknowledge Adrian Mark Dore as the author and make reference to this website. ***

Posted by Adrian Mark Dore at 11:22 AM
Edited on: Monday, 04 December, 2017 12:07 PM
Categories: Problems with current measures.