We
Are Global BY RONALD J.
BAKER, DANIEL D. MORRIS If
Columbus had an advisory committee Justice Arthur Goldberg, 19081990
Which one is the planning committee most likely to invest in? Any organization will naturally gravitate towards the status quo, as it is proven, safer and the least likely to disrupt current fortunes and positions of power. The existing structure doesnt have much incentive to invest in new ideas and radical concepts, and so it will cast aspersions on the first three people listed above. But who are those individuals? The failed haberdasher is Sam Walton, founder of Wal-Mart. The Harvard dropout is Bill Gates, founder of Microsoft. The junior college dropout is Rush Limbaugh, founder of the Excellence In Broadcasting (EIB) Network. All of these entrepreneurs were scoffed at by the existing establishment. This is the history of all revolutions, which are created not by prophets but by heretics. New ideas, inventions and experiments from the tinkerer in the garage change the world, while rendering obsolete the existing modes of production, infrastructure and status quo. The automobile was not invented by buggy whip manufacturers and the slide rule manufacturers never even fathomed a calculator. HOW A FREE MARKET CREATES WEALTH Social scientists, sociologists, political scientists, economists and others are obsessed with studying harms, poverty being amongst the popular area of research. Yet we learn very little from studying poverty, which has been the natural condition of man since weve roamed the earth, with still nearly four out of five people in the world living in abject want. What needs to be explained is not poverty , but wealth the best known antidote to poverty. Wealth is a relatively recent phenomenon, and by understanding how it is created, we may begin to ameliorate the suffering of billions. Wealth and profits come from risk. Free minds, operating in free markets, who give up the security and comfort of a paycheck, mortgage their homes and tap into the resources of friends, families and other believers in their vision. Bill Hewlett, David Packard, Steve Jobs and Steve Wozniak experiment in their garages and change the world, creating untold amounts of wealth as knowledge workers are empowered to find ever new ways of creating, disseminating and working with intellectual capital. Hewlett-Packard and Apple were not created by committees, or a majority vote of the population, but were introduced to the world by these entrepreneurs with no guarantee of success, putting their destinyand faithin the hands of total strangers, who were voluntarily persuaded to become customers because of the value added to their lives. Yet when Jobs and Wozniak approached Joe Keenan, president of Atari and part of the existing establishment, in 1976, they were told: Get your feet off my desk, get out of here, you stink and were not going to buy your product. Even a Hewlett-Packard executive told them: We dont need you. You havent got through college yet. Imagine the loss if Akio Morita, chairman of Sony, had listened to his market research and not created the portable tape recorder, ultimately leading to the Sony Walkman. New products and services introduced to the market are an experiment, some succeed, most fail. The free market offers a precise and flawless mechanism for weeding out the ones that dont add value to peoples lives, thus wasting a societys scarce resources. That mechanism is the loss of the two-sided free market coin, profit or loss. All profits come from risk. We write this sitting in the Walt Disney World Resort28,000 acres, two times the size of Manhattana legacy created by one mans vision and dream. Imagine the amount of wealth created by a cartoon character. Walt Disney defied every business axiom known and tossed around ceremoniously by consultants, bankers, venture capitalists and other self-proclaimed experts. As he said with respect to building his first dream in Anaheim, I could never convince the financiers that Disneyland was feasible, because dreams offer too little collateral. THE RULE OF EXPERTS For us, the most attractive feature of the new global credential is the fact that it isnt government regulated. Our profession is far too enamored with government regulation, and for too long this central planning mentality has inhibited us from responding to the needs and wants of our customers. Deregulation in every other marketfrom trucking to financial services, airlines to telecommunicationshas been an enormous success. It has allowed consumers to regain their indisputable title of sovereign ruler, and ultimate arbiter, of the value provided by the business community. The accounting profession is today facing a threat to the one franchise where it has been the undisputed ruler, the attest function. As so dramatically put forth in The Value Reporting Revolution, by Robert G. Eccles, Robert H. Herz, E. Mary Keegan and David M. H. Phillips, the accounting profession needs to start attesting to leading key performance indicators, rather than merely making financial reports. And if the profession doesnt take on this role, others will, making it even more irrelevant. RENT-SEEKING BEHAVIOR The idea that government licensure of professions is necessary to protect the public is just as specious. Milton Friedman wrote his PhD dissertation at Columbia University in the 1940s on this very topic, and has refuted with economic evidence this constantly repeated mantra. His later works also provide empirical evidence that licensure is nothing more than a mechanism used by members of a profession to raise the entry costs and thus keep wages and profits artificially high. A majority of economists agree with Friedmans conclusions. In fact, they have coined a term to describe this exact behavior: rent-seeking. Rent-seeking means behavior which improves the welfare of someone at the expense of the welfare of someone else. In other words, its a zero-sum gameI cant win unless you lose. In any economy, there are only two ways of attaining wealth (other than coercion): 1) economic means, and 2) political means. Economic means is conducted in the marketplace, where businesses persuade customers to choose them over the competition, because of superior value, service, price, etc. Wealth attained through political means is conducted through the process of government and has little relationship to actually serving the consumer. For example, it is illegal for the state of Nevada to operate a state lottery. Any bets on who lobbied for that bill? Another rent-seeking restriction on competition is taxi cab medallions, which are required to operate a taxi in most major cities across the United States. These taxicab medallions are currently valued at $140,000 in New York City. Also, the United States Postal Service has the Private Express Statutes, which forbid competition in first-class and most third-class mail. In all of these cases, protecting the public is always the justification for this rent-seeking behavior. Economists know otherwise. Competition is the lifeblood of a market economy, forcing businesses to operate efficiently, deliver superior service and value, and cater to the preferences of customers. Governmental licensing of professions is merely a tactic used to limit competition and maintain high wages (and profits) for existing members. Over 1,000 licensing laws, covering one-third of the workforce, are now in effect across the United States. The goal is always the same: Protect the public. To the extent that licensing laws protect the public, it is by coincidence, rather than by design. Instead, they protect the profession from the public. OLD IDEAS IN NEW PLACES To know
nothing of what happened before you Cicero Every day, the new world recreates the old. When American universities introduced the masters of business administration degree in the early 20th Century, it wasnt done by committee. The universities around the country didnt take a collective vote. The early adapters saw a need in the market, and they responded to it. If it was not valued by the business community, it would have failed. Fifty years ago, no one asked for a graduate with an MBA. It took decades before it reached a critical mass to become a respected designation worldwide, with over 1,250 different MBAs being offered today. The major consulting firmsMcKinsey & Co., Bain & Co., Boston Consulting Group, Booz Allen & Hamilton, among otherswere established after World War I. No committee or institute took a vote for approval before they were launched. Entrepreneurial experiments all, they grew in response to a perceived market need. They didnt have licenses issued by the government, and they attracted talent from a wide range of industries and professions, as well as college graduates with degrees in studies other than business and finance. In fact, all of these firms were the first true global business advisers. Have they been successful in marketing and branding their expertise worldwide? Are they any less competent, professional or trustworthy than the Big 5s consulting divisions? In terms of the history of business, the global business credential is not a revolutionary idea. It is nothing more than responding to the marketplace. Most CPAs in practice today do not perform audits. They are engaged in a wide array of service offerings, and the historical franchise granted to them by the various state boards of accountancythat they may attest to financial statementsis no longer relevant to the world in which they work. Why shouldnt they demand a global designation, free of micro-management by government, and better equipped to attract the talent they need in the future to pursue the opportunities that exist in todays business environment? A PROPOSAL We have it in our power to begin the world over again Thomas Paine German philosopher Arthur Schopenhauer said all truth goes through three steps: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident. Todays cranks become tomorrows prophets. At VeraSage Institute, we speak, teach, educate, write, coach, study economics and human behavior, posit theories, persuade and battle in the arena of ideas. What are we? It seems far too restricting to call ourselves CPAs, when none of us does audits, yet that is the only thing the franchise confers upon us. We are global business advisers. We applaud the courage and
vision of the leaders of the AICPA for pushing ahead with
this initiative. However, should they ultimately not
persuade the required majority of members to go forward,
then we propose the following: Let those who did vote for it
do it ourselves. We will put our faith in the marketplace.
The global business adviser experiment should prevail
because we already are global business
advisers. |