Contribution to GTI Roundtable "Full-World Economics"
This profound essay by Herman Daly, plus the illuminating and appropriately challenging response from Bill Rees, should be required reading in all business schools as well as economics and accounting curricula. A condensed “executive version” should also be published in all widely read leading business, accounting, economics, and public policy journals—not just in academia. Conversations and initiatives about sustainable capital markets and focusing capital on the long term, such as we are now seeing, can be enriched and encouraged by such thinking, which calls in effect for consideration of new paradigms about wealth and prosperity and whether the achievement of long-term societal well-being can be uncoupled from incessant growth measured solely in GDP terms.
As a professional accountant, I must confess it was not until rather late in my career that I realized that financial accounting as I had learned and practiced it evolved to what it is today (providing sadly incomplete information for twenty-first century decision-making) under the influence of and unthinkingly incorporating the flawed assumptions of the paradigm of mainstream economics.
Physics has moved on in the last hundred years or so, and, thanks to Einstein and others since, has evolved beyond the confines of Newton’s Laws (which long sufficed for understanding phenomena at a certain scale of known reality). Correspondingly, accounting that was devised for tracking the commercial transactions of Venetian merchants five centuries ago was useful in its day, and its double-entry model even sufficed into the Industrial Age. Now—and urgently—accounting needs to be reinvented and made fit-for-purpose in decision-making on the planet of the twenty-first century as we now understand it and use it, facing the enormous future pressures of foreseeable population growth, urbanization, and so on.
The accounting profession is now becoming engaged in innovative initiatives such as Natural Capital Accounting and Integrated Reporting, which aim for a more holistic and realistic way of portraying the true nature of the ecological resources and systems that organizations (business and other) depend on and impact in their activities to create value for society—in whatever ways we define that value. But just as the challenges facing the planet and its people cannot be left for action by future generations, accountants must act now if natural as well as financial capital-related resource allocation and management decisions are to be based on a more relevant, complete, and dependable information set than last year's financial statements.
It’s been said that “accountants would save the world,” but I would have to add that they won't be able to do it alone. I'm glad to report that an increasing number of accountants and accounting bodies now recognize this need for action and are committing themselves to work (with other stakeholders and disciplines as necessary) on transforming or reinventing accounting—maybe not saving the world with a screen of new charts and numbers or a novel sustainability app, but certainly essential for those whose decisions aim to save the world.