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| ISBN-13: | 9781742241326 |
|---|---|
| Publisher: | UNSW Press |
| Publication date: | 01/01/2013 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 256 |
| File size: | 527 KB |
About the Author
Andrew Cornell is an associate editor and senior writer for the Australian Financial Review, covering business, economics, and general culture. He is a former North Asia Bureau chief based in Tokyo and the recipient of several awards, including the Citigroup/Columbia University Award for Excellence in Business Journalism and the Walkey Award for commentary and analysis. He is also a contributor to Australia-Japan: Friendship and Prosperity.
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The Best Australian Business Writing 2012
By Andrew Cornell
University of New South Wales Press Ltd
Copyright © 2012 University of New South Wales Press LtdAll rights reserved.
ISBN: 978-1-74224-620-8
CHAPTER 1
Bobby Kennedy and the wealth of nations and corporations
Jane Gleeson-White
On 18 March 1968, three months before an assassin's bullet cut short his life, Senator Robert F. Kennedy made an impassioned speech at the University of Kansas. He spoke about the health of his nation, the economic powerhouse that is the United States of America, and the way we measure national wealth using figures such as the Gross National Product (GNP). Kennedy said:
Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the Gross National Product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile.
Like many before and after him – including the GNP's creator, Simon Kuznets – Senator Robert Kennedy believed there was something profoundly wrong with the way we calculate our national wealth and with the numbers we produce to do so, such as the GNP and the Gross Domestic Product (GDP). As Kennedy pointed out, these numbers generate alarming anomalies: in their parlance cigarette advertising is worth more than the health of a child. And yet today, 40 years after Kennedy's call for their revision, these numbers continue to rule the policy decisions of governments, financial institutions, corporations and communities. These flawed numbers rule our lives.
How could we have got things so wrong?
And it is not just in our national accounting that things have gone so awry. From the notorious implosion in 2001 of the 1990s' 'It Company', the energy giant Enron, to the near collapse of the global financial markets in 2008, we have witnessed a wave of spectacular cases of profoundly misleading, inscrutable and flawed corporate accounting.
* * *
On 27 February 2008, the 2007 annual accounts of the Royal Bank of Scotland were signed off. By asset size, the RBS was titanic. It was the biggest company in the world. The group's assets were larger than the GDP of many nations, including the United Kingdom's (which was £1.762 trillion versus the £1.9 trillion group assets of the RBS). As befits a massive financial institution entrusted with other people's money, the rhetoric of the company's 2007 annual report was responsible and measured:
It is the Group's policy to maintain a strong capital base, to expand it as appropriate and to utilise it efficiently throughout its activities to optimise the return to shareholders while maintaining a prudent relationship between the capital base and the underlying risks of the business.
A mere two months later, in April 2008, the so-called prudent bank was sinking, torpedoed by its exposure to toxic assets which left a £12 billion gaping hole in its balance sheet – a figure which soon stretched to £100 billion and counting. And yet nowhere is this multibillion-pound- sterling chasm evident in the group's accounts. Company accounts are supposed to be the tools by which corporate transparency is guaranteed for shareholders, the market and the public alike. And so shouldn't a massive shortfall of £12 billion be obvious in the RBS accounts? Or, as writer John Lanchester put it:
By rights, by logic, and by everything that's holy, it should therefore be possible to see, somewhere in the accounts and the balance sheet, some clue to what went wrong – especially given that whatever went wrong must already have gone wrong, to hit the company so hard less than two months later.
It was later revealed that the group had a much greater exposure to the sub-prime mortgage market than it had publicly admitted. Despite this apparent gross misrepresentation of the company's assets in February 2008, a spokesman for the RBS said: 'The Board was in possession of full information and the details provided to the market in all financial reporting reflected the Group's honestly held opinion at the time.'
This would become an all too familiar refrain over the coming months, as the behemoths of finance and banking toppled – Lehman Brothers, Lloyds-HBOS, AIG, Anglo Irish Bank, the Icelandic banks Glitnir and Landsbanki – all struck down by 'gigantic holes' that appeared, apparently out of nowhere, on the asset side of their balance sheets. And on their way down, these giants brought the international financial system to its knees. The costs of these collapses will be paid by taxpayers for decades.
* * *
Accounting generates annually published financial statements that are meant to guarantee corporate transparency, thereby checking corporate behaviour and ensuring that markets function efficiently. These statements are the balance sheet, income statement, cash-flow statement and statement of retained earnings. But it turns out that these tools cannot be trusted to convey the true state of a business at all. And yet governments, managers, policy makers and shareholders alike depend upon this information when making decisions that affect the lives of everyone.
How could we have got things so wrong?
Our world is governed by numbers generated by the accounts of nations and corporations. And yet these numbers are arbitrary, illusory. So how did we come to depend on these fallible beacons to direct our policies, institutions, economies, societies? Where did these false prophets, these numbers and accounts, come from?
My book, Double Entry: How the merchants of Venice shaped the modern world – and how their invention could make or break the planet is my attempt to answer these questions, and more. But these were not the questions I first asked myself when I set out to write it. Its evolution falls into three distinct stages. The original idea was born from a summer I spent in Venice as an intern at the Peggy Guggenheim Museum, when I was inducted into the mysteries and symbolic language of Italian Renaissance painting, and an economics degree I started the following year. Renaissance art and economics merged in my mind and I became curious about their relationship, about the wealth that made the art possible. I still have the yellow Post-it note which records my original intention for this book. It says: 'I'd like to celebrate the material origins of the Renaissance as we celebrate its fruits.' So my first idea was to examine the neglected material foundations of the great Renaissance art we revere, which led me into the Dark Ages.
The Dark Ages turned out to be not so dark after all, or at least not in the emerging city-states of northern Italy. These cities – Pisa, Genoa, Florence and Venice – were swept up in a commercial explosion sparked at the end of the 11th century by Pope Urban II's call in 1095 for Christian Europe to liberate Jerusalem from Islam, which prompted unprecedented numbers of people to march across Europe to the Holy Land and back again. Northern Italy became a major thoroughfare for these Christian warriors, and business boomed. As trade flourished on ever greater scales, the northern Italians developed a new kind of recordkeeping to cope with the growing complexity of their business dealings. It was perfected by the merchants of Venice and became known as bookkeeping alla viniziana: the Venetian method. We know it today as double-entry bookkeeping.
The 'father' of double-entry bookkeeping was a Franciscan monk born near Florence in the 1440s. His name was Luca Pacioli. In 1494 he published the first printed treatise on Venetian bookkeeping. Very little has been written on him, but as I researched his life I became more and more fascinated. The monk was also a mathematician, the greatest mathematical encyclopaedist of the Renaissance. I learnt that he had been born in the same town and century as one of my favourite Renaissance painters, Piero della Francesca, who possibly taught Luca Pacioli mathematics. I then discovered that Pacioli had taught mathematics to my childhood hero, Leonardo da Vinci. And I began to understand that Pacioli's magnum opus, his mathematical encyclopaedia which contains his 27-page bookkeeping treatise, was published at a watershed in western history: the moment when mathematics was morphing from its medieval form into its incarnation as the lingua franca of science and the modern world. This, then, would be my book: the story of double-entry bookkeeping, Luca Pacioli and a revolution in mathematics — and in art.
It turned out that just as the wealth of Renaissance Italy was underpinned by a new method of bookkeeping, so the art of some of the greatest painters of the age was underpinned by mathematics – and Luca Pacioli was implicated in both revolutionary developments.
The book underwent a third transformation when I began to investigate the possibility that the system of national accounting first theorised by one of my economist heroes, John Maynard Keynes, might somehow be related to Pacioli's Venetian book-keeping. I discovered that the very same double-entry bookkeeping principles used by the merchants of Venice had been used to construct the national accounts of the United States and Great Britain during the Great Depression and World War II.
And so my book became the story of double-entry bookkeeping itself, from its first known origins in late 13th century Italy to its takeover of the 21st century global economy.
* * *
The rise and metamorphosis of double-entry bookkeeping is one of history's best-kept secrets and most important untold tales. Why? First, because it arguably made possible the wealth and cultural efflorescence that was the Renaissance. Second, because it enabled capitalism to flourish, so changing the economies of the world forever. Third, because over several centuries it grew into a sophisticated system of numbers which in the 21st century governs the global economy. This medieval artefact is still in daily use around the world.
Finally, and most significantly, bookkeeping now has the potential to make or break the planet. Because accounting reduces everything to its monetary value, it has allowed us to value least that apparently free source of life itself: the planet. Through its logic we have let the planet go to ruin – and through its logic we now have a chance to avert that ruin. As Guardian journalist Jonathan Watts wrote in October 2010:
So it has come to this. The global biodiversity crisis is so severe that brilliant scientists, political leaders, ecowarriors, and religious gurus can no longer save us from ourselves. The military are powerless. But there may be one last hope for life on earth: accountants.
Dodgy GDP
Economic weight
CHAPTER 2Love for sale
Gideon Haigh
Love, sex and the office seem strange ... well, bedfellows. Professional ties are traditionally regarded as formal, orderly, superficial and contingent; the home is meant to be our chief source of emotional succour. In the office, our physical expressiveness is inhibited by shared understandings of appropriate conduct.
In the office, nonetheless, we are forced to share space, and encouraged to share interests. Demands require collaboration, longueurs permit social interaction, boredom seeks distraction. As work has loomed ever larger in the average life, moreover, and our office circle has increasingly become our social circle too, coupling within occupations has seemed to make more and more sense. A couple working together, or at least with a notion of what one another's work entails, shares a useful understanding.
For the stewards of offices, seeking straightforward inputs and reliable outputs, this has posed problems; people in love, or even simply in lust, act according to their own lights.
* * *
Masters and mistresses
Up betimes, and to my office, where I found Griffen's girl making it clean, but, God forgive me! what a mind I had to her, but did not meddle with her.
Samuel Pepys, Diary, 30 June 1662
The bracing candour of the diary of the Clerk of the Actes at the Navy Office is where we first encounter the office as a place of carnal opportunity. Pepys was a compulsive pursuer of 'kisses', 'caresses' and more; he was also wont to bury himself in work during uneasy phases of his marriage; from time to time, in his diary, the activities overlapped. One night in November 1663, for example, he was alone in the office when the 'pretty maid' of a colleague's wife stopped by the Navy Office for a sheet of paper: he gave her the paper and an unsolicited kiss, only to suffer spasms of immediate regret at the thought that she 'should tell this and whether I had spoke or done anything that might be unfit for her to tell'. His prolonged affair with the wife of the Deptford ship's carpenter William Bagwell was regularly consummated at the office as well – the cuckolded husband, hungry for promotion, was apparently in on the whole thing.
But the office really did not come into its own as a place of romance until women joined it in the second half of the 19th century – justifying, in the process, some of the reservations men expressed about female clerical labour. For the 'type-writer girl', emancipation entailed a degree of peril. A corrupting boss intimidates a callow naïf in Clara Del Rio's Confessions of a Type-Writer (1893): 'He almost made me understand that we poor girls who by necessity work for a living have to submit to our employers if we desire to keep our positions.' Yet like the forthright heroine of Grant Allen's The Type-Writer Girl (1894), they remained incurably game: 'Ten thousand type-writer girls crowd into London to-day, and 'tis precisely in this that their life is deficient – love interest.'
That prophet of sexual revolution, H.G. Wells, thought that sexual attraction could cross these boundaries of class and power. In Tono-Bungay (1909) he placed liberated typist Effie Rink in the path of his unhappily married hero, George Ponderovo. The pair sense a mutual enticement from 'the flash of a second in the eyes', and act on it the moment they find themselves alone in the office:
'Is that one of the new typewriters?' I asked at last for the sake of speaking.
She looked up at me without a word, with her face flushed and her eyes alight, and I bent down and kissed her lips. She leant back to put an arm about me, drew my face to her and kissed me again and again. I lifted her and held her in my arms. She gave a little smothered cry to feel herself so held. Never before had I known the quality of passionate kisses.
Somebody became audible in the shop outside. We started back from one another with flushed faces and bright and burning eyes ... The door from the shop opened, and she sat down very quickly.
'I'm glad,' I said in a commonplace voice, 'that these new typewriters are all right.'
Effie proves the perfect mistress, providing relief from Ponderovo's 'stupid and tearful and infinitely distressful' wife, but professing no desire for marriage: 'She had a sudden, fierce, hot-blooded passion for me and I for her, but I was not her first lover nor her last.'
Perhaps the era's most remarkable tale of upward mobility was a mutual connivance. In July 1911, 48-year-old chancellor of the exchequer David Lloyd George hired 22-year-old Frances Stevenson as a tutor for his daughter. When after a year they acknowledged their mutual attraction, the politician did not hesitate, offering Stevenson the dual role of his secretary and his mistress, and presenting it to his wife as a fait accompli. For Stevenson, it was not an easy decision. She had to deflect a suitor and surrender truly respectable life: she accepted the role on the proviso that they sign an unofficial marriage certificate binding them to 'give our love to each other, wholly and entirely, whatever happens'. In fact, making her office next to the Cabinet Room at 10 Downing Street for the duration of Lloyd George's premiership, Stevenson became arguably Britain's most influential woman.
(Continues...)
Excerpted from The Best Australian Business Writing 2012 by Andrew Cornell. Copyright © 2012 University of New South Wales Press Ltd. Excerpted by permission of University of New South Wales Press Ltd.
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Table of Contents
Contents
Advisory panel,Contributors,
Foreword: Business is written into our lives John Edwards,
Introduction: Humanity in a balance sheet and P & L Andrew Cornell,
Bobby Kennedy and the wealth of nations and corporations Jane Gleeson-White,
Love for sale Gideon Haigh,
From the tyranny of distance to the power of proximity Tim Harcourt,
Occupy's big no was a big yes to something else Guy Rundle,
Gravity's revenge Mark Thirlwell,
Time for radical bank reform Alan Kohler,
The real cost of 'security' Saul Eslake,
Port's pain isn't limited to the field Trevor Sykes (Pierpont),
Women should act more like men (and they are their own worst enemies) Catherine Fox,
Hold your fire! John Durie,
The great convergence Michael Wesley,
Is this the man for the future? Pamela Williams,
Who knew what when? Nick McKenzie and Richard Baker,
Middle Kingdom just wants to be middle class Rowan Callick,
Making sense of productivity Ross Gittins,
Biz-bashing rewards Abbott Peter Hartcher,
The millionaire's malaise Christopher Joye,
Turning dirt into soil: Killing two birds with one carbon stone Andrea Koch,
Curator superstar Ben Eltham,
Clubs already have their own licence Gareth Hutchens,
The dispossessed: The decline of a coastal Koori community Bronwyn Adcock,
Big bash theory John Stensholt,
The Sun King Eric Knight,
Why GDP doesn't count John Quiggin,
Fair Share: Country and city in Australia Judith Brett,
Google world Tony Wright,
World Series Cricket: Set up Christopher Lee,
Eye on the money Alex Millmow,
Back to work, baby boomers George Megalogenis,
In search of a better death Mathew Dunckley,
Tower of babble Don Watson,
Acknowledgments,