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Canadian Public Accounts Reform - a timely proposal

(one of several position papers listed for reference at list of position papers - this is a refer link as it refers to an offsite article without invoking it as authority - see public accounts reform for a broad overview of all such proposals)

Canadian Public Accounts Reform - a timely proposal by Craig Hubley visible here(external link) and quoted as follows (to allow comments to be embedded:)

"On June 3, 2003 the Canadian House of Commons voted 185 to 46 in favour of resolution M-385 which contains the key phrase from the Canada Well-Being Measurement Act. The motion read:

"... that in the opinion of this House, the government should develop and report annually on a set of social, environmental and economic indicators of the health and well-being of people, communities and ecosystems in Canada"

Yes they should. Despite decades of proposals, protests and outright anger, the Canadian Public Accounts system bears no resemblance to any reality a citizen can respect, nor use for him or her self or business: If we tried to keep accounts as government does, we would be arrested for fraud. In the words of James Leisenring of the International Accounting Standards Board?:

"We need a consistent and transparent method of accounting that does not provide incentives to shift losses where they might not be properly accounted for."*

Yes we do. But yet even the most basic category divisions any sane person would recognize have no status in public accounts: There is no division of capital asset and current accounts. There is no auditing process that would stand up to investor scrutiny, let alone citizen scrutiny. There are no agreed capital categories. There is, despite years of study, no formal role for natural capital or nature's services or *well-being. Equipment and buildings are over-valued, the renewing capacity of forests and rivers under-valued.

What's more, there are no rational rules for what are called "intangibles": "goodwill" or social capital, "innovation" which is only reliably reflected in instructional capital, and "human development" of children, creativity and talents - called individual capital. These are lumped together in macro-economics into one undifferentiated "human capital" whose value is measured only by wages it earns. This is obviously not an appropriate metric for public sectors.

Open, transparent objectives that people can believe in, or argue with, is essential to national unity. But yet other than vague platitudes, there is no stated goal of most public expenditure that an educated citizen can investigate and audit, no "citizen controllership", to ensure expenditures advance their values. What is needed is to agree on some rational terms, such as Amartya Sen?'s 1999 Swedish Bank Prize?**-winning model of "freed time" as the correct measure of human economic freedom...

...or at least, to examine deeply the measures used in managing currency, and reviewing performance of some intangible function (such as "renewing goodwill", "advancing education", or "training the next generation to deal with their own problems" which are those of an age of free communcation, expensive energy and raw materials). We need new measures reflecting the triple bottom line honest economists have long talked about: the ecological and social deficits that must be addressed and reflected in the inflation rate, making declines in ecological and social capital, "everyone's problem".

Without such measures, there is nothing a citizen can identify with, or respect, or analyze in public accounts. The system remains corrupt. It is a joke. The only numbers referred to generally are "housing starts?" or "GDP growth?" which do not reflect the public interest but rather those of the real estate and taxation business respectively. They may well be uneconomic growth! The criticisms of relying on these measures need not be recounted - these measures are not credible. Even employment numbers are questionable as they confuse production with dealing with consequences of pollution and ecological destruction:

In particular, there is no credible debate regarding "improving" Gross Domestic Product as a measure. Only replacing it. This proposal is not about why to replace such malaptive indicators, only how:

First, consider that paid transactions that show up as part of the GDP are exactly and only those transactions that did not occur on a high-trust basis between family members, business partners, church patrons, or anyone else who serves or helps each other on something other than a paid cash basis. By definition, monetary transactions are those that happen where there is at least a theoretical chance of violent dispute if some sum is not paid - and growth in the monetary economy may represent either "growth" in the overall economic activity, or a cancer-like incursion into the high-trust transaction base which applies within families, churches, or just between friends. It is theoretically possible to increase GDP simply by destroying everyone's trust in each other and formalizing transactions for such dealings as children living a parent's house, or wives serving husbands sexually. If this is not desirable, then, the existing system of public accounts and GDP measures of performance is likewise not desirable.

One of the worst abuses in public accounts is the failure to distinguish the capital and operating accounts. The trust issue above could be described as one of social capital - a pre-existing base of "found trust" that the monetary economy exploits or relies on, but does not create. And which it can debase. But even without that analogy, or dealing with intangibles at all, it's easy enough to see that those transactions that deliberately build up infrastructural capital cannot be treated the same as those that deplete and take advantage of them. But yet most public accounts systems do exactly this!

As Prime Minister Paul Martin Jr. has noted, often on his own initiative, there is no rational means of measuring well-being nor the depletion of natural capital in existing systems of public accounts. But the rot goes much deeper. It is not just a question of categories and methods but of the process itself: the Auditor-General? Sheila Fraser's report detailing the abuse of public funds, the Prime Minister's admission that as Finance Minister? (!) he had no capacity to investigate or oversee these expenditures...

Such an abuse would be annoying if it were in pursuit of some cause that all citizens supported heartily. But by abusing Quebec separatists' own federal tax dollars to buy votes against their cause threatens not just confidence in a regime, but in a nation. Political entities have a right to exist only to the degree they serve their natural and individual capital. And this means respecting land and citizen choices. The opacity itself proves that the system is, at present, a strict authority hierachy with no controls on it. And this is of course exactly what an "audit regime" is supposed to check:

There can be no more serious problems than this lack of any opacity for central banking and auditing regime. It has implications ultimately for the currency, which already trades in global markets at far less than its purchasing power. (Why?)

The existing three-tier balance of powers is one of the most serious problems: Canada's provinces have no rational audit regime whatsoever. The expenditures for all purposes are mixed up into one meaningless "budget" which the public not only cannot easily understand, it often cannot even examine. Only in BC, very recently, has the government bothered to adopt Generally Accepted Accounting Principles, under the extreme pressure of scandal. Toronto is undertaking similar initiatives.

Where such moves have not been taken, the opacity/transparency problems are also similar, almost identical: When Dalton McGuinty? took office in 2003, his first move was to declare that the books were in such poor shape, that all of his campaign promises had to be cancelled. Why did he not know the shape of the books beforehand, being Leader of the Opposition? This would seem to be his most important responsibility. One that he clearly did not undertake. However, the cities, led by Toronto Mayor David Miller, have made strong commitments to reform both the categories and auditing process, to restore integrity to the City's own models of its assets:

A 2003 analysis of the City of Toronto's actual capital assets ... helped advance the cause of citizen control and review of public assets. (Comments on this should go directly to David Miller's office.)

See this analysis of Canada's policies for encouraging entrepreneurship for an example of the degree to which public accounts issues already affect investment and industrial strategy. A rational model of economic intangibles and management of same would seem to be required to make "investments" in "innovation" and actually comprehend whether they've "paid off" for the taxpayer or citizen.

Without it, a brave new age of scams beckons...

A Royal Commission on the role of Treasury Board would not be out of line. Canada was built at a time of expensive communication, cheap energy and materials. In the age of free communication, expensive energy and materials, all our institutions are built wrong. We will be the poorest country in the world, if we do not literally overthrow ALL of these institutions, NOW. The simplest route to this (as opposed to the best) is a break up of Canada, as the separatists well know. The only alternative? Serious PUBLIC ACCOUNTS REFORM that goes ALL THE WAY DOWN INTO MONETARY POLICY. And which the Auditor-General can enforce in concert with the Opposition.

Without that, there is no transparency that a modern citizen can respect. Without that, Canada is history.

FOLLOWUP

If you wish to research this issue, start with the well-defined ways to assess natural capital and its value relations to other styles of capital: nature's services, ecological yield. These analyses support ecosystem valuation? and numbers for the value of Earth and value of life itself: much too important to be left to insurance companies, absolutely a matter of vital public concern, to Canadians and all humans.

...we can... avoid money supply issues by dealing only with value of life as a ratio. From this necessary grounding, it becomes possible to develop industry-specific full cost accounting and total cost of ownership models, e.g. for the telecom industry, and related transaction and activity cost models which fit into a single regret model? useful for investor analysis.

Some economists believe that well-being measures to extend it to the consumer sector, as has already been proposed as the less rigorous Genuine Progress Indicator already calculated for many regions of Canada, and proposed for the country as a whole. Making such Indicators operational would include modelling various consumer consortia or factions whose inflation rates might vary drastically based on lifestyle - and their locality. community currency may be useful to manage this, but in any case there's an implied need for monetary reform. Given the implications of that, diligences is required: It requires a much deeper analysis that begins with the ratio of values put on life itself.

"Accountants need to modernize, develop new data standards to make their software work together, and to work towards continuous auditing and continuous financial reporting" - Dwight Wainman?

  • published in a letter to The Economist, September 6, 2003, dealing with the issue of "fudged or hidden" losses, and failure to account for credit losses among large European banks.

    • often called, in propaganda, the "Nobel Prize in Economics", despite the objections of Nobel's family.


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