Friday, April 03, 2009

Double Entry Bookkeeping and Childhood Dreams

As my cogent yeomen know, I am a bear of very little brain. This isn’t always a disadvantage, sometimes it is positive asset.

Take the G20 summit in London, while all of the leaders took turns in announcing the unanimity of all concerned and the success of the summit (see Note 1), I remained unconvinced. When all the papers laud the communiqué (see Note 2) as giving real hope for the world economy, I remain disappointed. (see Note 3)

You see, I find it difficult to believe that additional regulations will achieve anything more than provide job opportunities for those young children who have dreamed since they were at kindergarten of becoming auditors. (see Note 4)

Regulation is a problem because it flies in the face of human nature. My logic for being cynical about its likely success is because business, like sport is a competitive environment. With the will to win so great, human nature is such that people are encouraged to play by the letter of the rules rather than to the spirit. I’m not going to search out any of the zillions (see Note 5) examples where sportsmen have sought ways to bend the rules or those where the rules were deliberately or accidentally broken, but I think you can find plenty of your own.

In the UK, the regulator, FSA, had a budget for £250m for staff costs in 2008/09 (increasing to over £300m in 2009/10) according to their latest business plan. Printing out their regulations would destroy a small forest. Yet this didn’t stop various banks from playing pass the parcel with various toxic debts.

You see, the various financial institutions juggle risk against reward (see Note 6) and will still seek to maximise the reward. By simply adding more regulation we will achieve very much. What will happen is that the various financial institutions will simply seek to employ cleverer people with the intent of finding ways to maximise the reward by, like sportsmen, finding ways to take the risk by sticking to the letter rather than the spirit of the rules.

Sadly, business success has only one measure – profit and everything else, including ethics are secondary to the pursuit of wealth.

But fear not, my saturnine yeomen, for this singular purpose of business is also the means by which we could make other considerations, especially ethical considerations more important in the corporate world.

For every profit is subject to taxation. Whatever the risks, whatever the excesses of a business, our governments take their cut of the profits in taxes.

The answer is to make this taxation voluntary. By offering businesses exemption on their tax bill for showing they comply with an accredited and ethical scheme. So Trade Unions could run an accreditation scheme that would knock 20% of the tax bill if a company complies. You could knock a further 20% off if the company is accredited as following the spirit of the regulations as well as the letter. It could be extended to fair trade, the environment, community and all sorts of different considerations.

The profit would be directly affected by the ethics of a business and BINGO! We have a way of stemming the excesses.

Not only that, when wrong doing is detected, we have a way of making sure that we have the means to exact retribution. Remember, Al Capone was eventually brought to justice for tax irregularities.

So for all you G20 leaders reading this little blog, why don’t you phone round your pals and see if you can persuade them of the wonderful simplicity of my little plan in time for your next little shindig in Japan? If you want a few extra details, you can always leave a comment below, I’ll happily put a little meat on the bones.

Note 1: And then promptly returned home to tell their domestic audiences how they fought out to secure an agreement that secured their own particular national interests.

Note 2: I am sure that President Nicolas Sarkozy of France is particularly pleased because he can return to France and proudly announce that after weeks of concerted lobbying and negotiations behind the scenes, he gained international agreement that the G20 would issue a communiqué instead of the a vile anglicised statement.

Note 3: This disappointment was extended to cover the protests as well. They seemed all rather lacklustre. I guess that even anarchists are finding their budgets are being cut back in these uncertain economic times.

Note 4: Otherwise we would end up with a nation of train drivers, nurses, firemen and lap dancers.

Note 5: A few years ago, in order to exaggerate a point I would have used ‘millions’. The responses to past disasters and crisis meant that soon became devalued in the exaggeration stakes so ‘billions’ had to be used. The current crisis has the G20 talking in terms of ‘trillions’ so I am now forced to jump up to ‘zillion’ and I don’t even know if that is the next step up from a trillion or even if it is a real number.

Note 6: We all balance risk against the reward as part of our daily lives. Some of us are more risk averse than others. On a hot day we may fancy an ice-cream from the shop over the road. Some of us will consider crossing the busy road to risky and forgo the treat. Others will consider the risk to our long term health and give the cool gloop a miss. Then there are those who will shout ‘GIMME THE LOLLY’ and run headlong into the rush hour traffic.

Media Whimsy Watch.

My theory is that the appearance of whimsical items in the “serious” media is in direct proportion to the economic prospects.

The G20 summit has obviously had some impact, albeit small.


Rachel Noy said...

The summit may have been worthless, but it was fun seeing Berlusconi piss off the Queen.

I think that's all we can hope for.

Simon said...

I love Burlusconi - he makes me realise that our leaders could be worse.

Rachel Noy said...

You speak the truth!

Anonymous said...

It was all very odd. Nothing actually happened did it?