Discussion of ‘The political economy of regulation Does it have any lessons for accounting research’
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On: 03 Sept em ber 2013, At : 20: 11
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I nform a Lt d Regist ered in England and Wales Regist ered Num ber: 1072954 Regist ered office: Mort im er
House, 37- 41 Mort im er St reet , London W1T 3JH, UK
Accounting and Business Research
Publicat ion det ails, including inst ruct ions f or aut hors and subscript ion inf ormat ion:
ht t p: / / www. t andf online. com/ loi/ rabr20
Discussion of ‘ The political economy of regulation:
Does it have any lessons for accounting research?’
Sir Bryan Carsberg
a
a b
Former Direct or General of Telecommunicat ions (head of Of t el)
b
Direct or General of Fair Trading, and Secret ary General of t he Int ernat ional Account ing
St andards Commit t ee (predecessor of t he IASB), E-mail:
Published online: 04 Jan 2011.
To cite this article: Sir Bryan Carsberg (2010) Discussion of ‘ The polit ical economy of regulat ion: Does it have any lessons
f or account ing research?’ , Account ing and Business Research, 40: 3, 227-228, DOI: 10. 1080/ 00014788. 2010. 9663397
To link to this article: ht t p: / / dx. doi. org/ 10. 1080/ 00014788. 2010. 9663397
PLEASE SCROLL DOWN FOR ARTI CLE
Taylor & Francis m akes every effort t o ensure t he accuracy of all t he inform at ion ( t he “ Cont ent ” ) cont ained
in t he publicat ions on our plat form . However, Taylor & Francis, our agent s, and our licensors m ake no
represent at ions or warrant ies what soever as t o t he accuracy, com plet eness, or suit abilit y for any purpose of
t he Cont ent . Any opinions and views expressed in t his publicat ion are t he opinions and views of t he aut hors,
and are not t he views of or endorsed by Taylor & Francis. The accuracy of t he Cont ent should not be relied
upon and should be independent ly verified wit h prim ary sources of inform at ion. Taylor and Francis shall
not be liable for any losses, act ions, claim s, proceedings, dem ands, cost s, expenses, dam ages, and ot her
liabilit ies what soever or howsoever caused arising direct ly or indirect ly in connect ion wit h, in relat ion t o or
arising out of t he use of t he Cont ent .
This art icle m ay be used for research, t eaching, and privat e st udy purposes. Any subst ant ial or syst em at ic
reproduct ion, redist ribut ion, reselling, loan, sub- licensing, syst em at ic supply, or dist ribut ion in any
form t o anyone is expressly forbidden. Term s & Condit ions of access and use can be found at ht t p: / /
www.t andfonline.com / page/ t erm s- and- condit ions
Accounting and Business Research, Vol. 40. No. 3 2010 International Accounting Policy Forum, pp. 227–228
227
Downloaded by [Universitas Dian Nuswantoro], [Ririh Dian Pratiwi SE Msi] at 20:11 03 September 2013
Discussion of ‘The political economy of
regulation: does it have any lessons for
accounting research?’
Sir Bryan Carsberg*
It is a pleasure to be able to be the commentator on
Michael Moran’s interesting paper. He is a
Professor of Government in the University of
Manchester where I was once a Professor of
Accounting, so I feel a kind of institutional
allegiance, although I was rather shocked in thinking about it on the way here to realise that I left
Manchester no less than 30 years ago. It is also
interesting, I think, for an accountant to be
challenged by thinking from another discipline, of
which one perhaps has less knowledge immediately. I certainly have much less knowledge.
The interesting question arising from this paper is
to think what the lessons are for the design of the
institutions that we use and which are used to
regulate accounting, to set accounting standards.
Moran’s overall conclusion, that regulation is a
political affair, seems incontrovertible, and he
conjures to mind an interesting picture of a kind
of political market in which the currencies are partly
financial but also partly other things such as
political power. The players are the government,
media, business, the consumer, consumer bodies
and others, and one wonders whether any of the
participants can truly be said to be seeking the
public good as a direct objective.
There was an interesting subtext also about the
business-friendliness of regulation. I shall comment
a little in a minute about the probability that
different kinds of institutions will be businessfriendly, but I think I should say right away that to
seek business-friendliness as an absolute goal for
regulatory activity seems to me to be mistaken, just
as one would not wish to see a total lack of
friendliness. I suppose what one would hope to see
as an outcome is some kind of arrangement that
maximises the value of benefits over costs from a
*The author is a former Director General of
Telecommunications (head of Oftel), Director General of Fair
Trading, and Secretary General of the International Accounting
Standards Committee (predecessor of the IASB).
E-mail: bcarsberg@rm.com
CCH - ABR
public point of view – not a very easy thing to
measure, but something that suggests that probably
some element of business-friendliness is desirable
but not total business-friendliness.
There are, pursuing that train, several ways in
which regulation can be organised. It can be carried
out directly by ministerial government departments;
it can be carried out by independent regulatory
bodies, public bodies established by Act of
Parliament with duties set by statute, and that was
the position in the two regulatory bodies with which
I was involved – Oftel, the first telecoms regulator,
and the Office of Fair Trading. It can be left to
private bodies including bodies administered by the
professions. It can be left to the market but, thinking
about what Michael has said and what one observes
and in spite of the fact that I know there is a strong
school of academic thought which believes it would
be best to leave these things to the market, it seems
impracticable that we should find it so. All the
evidence is that leaving it to the market is not a
sustainable solution because sooner or later the
forces that impel politicians to act will come into
play in the field of accounting, and so, whatever one
may think – I have never been attracted by the
argument that it should be left to the market – but
whatever one thinks, it is probably a futile quest
anyway.
I cannot of course avoid a little commentary on
my own experience with regulation, particularly at
Oftel, which, as Michael commented in his paper,
turned out to be less business-friendly than perhaps
people had been expecting. That was an interesting
experience. I can offer you two reminiscences about
that. I had responsibility at Oftel for setting British
Telecom’s price control. Government ministers had
no power in that. Nevertheless, when I set about
establishing the first price control, British
Telecom’s executives went to government ministers
after they had received an opening broadside from
me and said, ‘You must call this madman Carsberg
off otherwise it will be the end of Western
Data Standards Ltd, Frome, Somerset – 2/6/2010 07 ABR Carsberg Comment.3d Page 227 of 228
Downloaded by [Universitas Dian Nuswantoro], [Ririh Dian Pratiwi SE Msi] at 20:11 03 September 2013
228
civilisation as we know it’ – the speech to which
regulators become accustomed. Ministers did absolutely nothing. They said: ‘You must go and talk to
Carsberg yourself.’ They sent me no messages
about the meeting; in fact they did not even tell me it
had taken place. I found out it had taken place by
indirect means.
Then later on, when we had the benchmarking
duopoly review to decide whether or not to open the
basic telecoms market to wider competition than
hitherto, the position changed and I did find myself
under considerable government pressure. I
embarked on a line that was unwelcome to government ministers at the time and they tried to dissuade
me from it. I stood my ground and in the end it is fair
to say – in brief summary – government ministers
came around to at least accepting the track I was in.
Those experiences made me feel that there is a
good deal of chance about the way these things
actually turn out. I doubt very much whether one
can say with any confidence whether a particular
institutional arrangement is likely in general to lead
to a particular outcome in terms of businessfriendliness, political interference or whatever; it
all depends so much on the individuals involved.
One can say, I think, that a regulatory market place,
if I can use that term, in which different institutions
are involved at least creates a balance of forces,
which may be desirable in terms of the ultimate
outcome.
It is interesting to spend a minute or two on some
of the causes célèbres in our own field of accounting on this territory. I look particularly at experience
in the US where, as you all know, the law gives the
Securities and Exchange Commission (SEC) the
power to set accounting standards, but in practice
most of the time it is left to what is now the
Financial Accounting Standards Board (FASB),
with occasional elements of SEC interference.
There are four major cases that came to my mind
in which there was significant interference in that
process. The earliest was perhaps in the last in,
first out (LIFO) inventory flow assumption where
the government ensured that the private sector
standard-setters would not prohibit the use of LIFO.
There was the saga of oil and gas accounting
where the FASB was engaged in a debate between
the full cost or successful efforts accounting, and the
SEC intervened in the interests of what became
reserve recognition accounting, which surely provided some useful extra information.
There was the business of inflation accounting, in
which I played a hand personally: I was working for
FASB at the time. We were under a kind of diktat
ACCOUNTING AND BUSINESS RESEARCH
from the SEC to produce something on inflation
accounting, with a strong hint that they would
intervene and do something different if it was not a
current cost/replacement cost-based system.
More recently there was the share-based payments fiasco where the FASB was forced to back
down from what seemed a perfectly sensible and
indeed highly desirable proposed accounting standard.
Some of these examples, it seems to me, are
rather good, in the sense that government intervention produced an improvement. However good the
reserve recognition proposals were in oil and gas,
they perhaps provided some extra useful information to the market. I thought the same of inflation
accounting, although we did not have that in place
for long enough to find out how useful it was in
practice. I thought that government intervention on
LIFO and share-based payments was reprehensible
and regrettable in every way one can think of. There
are some good examples there and some bad
examples.
More recently we have had the experience in
Europe and the US of the saga of the use of fair
value for financial instruments, the early stages of
which again involved me when I was at IASC, as it
then was, and which has continued subsequently.
There again, I think one has seen perhaps rather
regrettable outcomes, and outcomes certainly
motivated by some European governments’ wish
to see a solution that was consistent with their
political goals rather than something which was
actually in the public interest.
Thinking about all those things it is particularly
interesting to see what role the conceptual framework in accounting has. I see there is a session on
that subject later in this conference. I suppose one
can see a conceptual framework among other things
as a device that can be used by standard-setters to
strengthen their hand in political negotiations,
although it is perhaps not wholly successful.
With that fairly brief canter through, I would say
again as my conclusion, first, I do not think there is
any set of institutional arrangements of which you
can say ‘This is sure to produce certain kinds of
result’ and therefore you cannot easily say what is
the most desirable set of institutions. There is a large
chance element about it. But given my scepticism
about governmental motivations, shall I say, and the
pleasure I get from seeing David Tweedie doing
battle on fair value questions in financial instruments, I think we are much better for having
independent bodies around to introduce a bit of a
battle and the tension of debate into these matters.
On: 03 Sept em ber 2013, At : 20: 11
Publisher: Rout ledge
I nform a Lt d Regist ered in England and Wales Regist ered Num ber: 1072954 Regist ered office: Mort im er
House, 37- 41 Mort im er St reet , London W1T 3JH, UK
Accounting and Business Research
Publicat ion det ails, including inst ruct ions f or aut hors and subscript ion inf ormat ion:
ht t p: / / www. t andf online. com/ loi/ rabr20
Discussion of ‘ The political economy of regulation:
Does it have any lessons for accounting research?’
Sir Bryan Carsberg
a
a b
Former Direct or General of Telecommunicat ions (head of Of t el)
b
Direct or General of Fair Trading, and Secret ary General of t he Int ernat ional Account ing
St andards Commit t ee (predecessor of t he IASB), E-mail:
Published online: 04 Jan 2011.
To cite this article: Sir Bryan Carsberg (2010) Discussion of ‘ The polit ical economy of regulat ion: Does it have any lessons
f or account ing research?’ , Account ing and Business Research, 40: 3, 227-228, DOI: 10. 1080/ 00014788. 2010. 9663397
To link to this article: ht t p: / / dx. doi. org/ 10. 1080/ 00014788. 2010. 9663397
PLEASE SCROLL DOWN FOR ARTI CLE
Taylor & Francis m akes every effort t o ensure t he accuracy of all t he inform at ion ( t he “ Cont ent ” ) cont ained
in t he publicat ions on our plat form . However, Taylor & Francis, our agent s, and our licensors m ake no
represent at ions or warrant ies what soever as t o t he accuracy, com plet eness, or suit abilit y for any purpose of
t he Cont ent . Any opinions and views expressed in t his publicat ion are t he opinions and views of t he aut hors,
and are not t he views of or endorsed by Taylor & Francis. The accuracy of t he Cont ent should not be relied
upon and should be independent ly verified wit h prim ary sources of inform at ion. Taylor and Francis shall
not be liable for any losses, act ions, claim s, proceedings, dem ands, cost s, expenses, dam ages, and ot her
liabilit ies what soever or howsoever caused arising direct ly or indirect ly in connect ion wit h, in relat ion t o or
arising out of t he use of t he Cont ent .
This art icle m ay be used for research, t eaching, and privat e st udy purposes. Any subst ant ial or syst em at ic
reproduct ion, redist ribut ion, reselling, loan, sub- licensing, syst em at ic supply, or dist ribut ion in any
form t o anyone is expressly forbidden. Term s & Condit ions of access and use can be found at ht t p: / /
www.t andfonline.com / page/ t erm s- and- condit ions
Accounting and Business Research, Vol. 40. No. 3 2010 International Accounting Policy Forum, pp. 227–228
227
Downloaded by [Universitas Dian Nuswantoro], [Ririh Dian Pratiwi SE Msi] at 20:11 03 September 2013
Discussion of ‘The political economy of
regulation: does it have any lessons for
accounting research?’
Sir Bryan Carsberg*
It is a pleasure to be able to be the commentator on
Michael Moran’s interesting paper. He is a
Professor of Government in the University of
Manchester where I was once a Professor of
Accounting, so I feel a kind of institutional
allegiance, although I was rather shocked in thinking about it on the way here to realise that I left
Manchester no less than 30 years ago. It is also
interesting, I think, for an accountant to be
challenged by thinking from another discipline, of
which one perhaps has less knowledge immediately. I certainly have much less knowledge.
The interesting question arising from this paper is
to think what the lessons are for the design of the
institutions that we use and which are used to
regulate accounting, to set accounting standards.
Moran’s overall conclusion, that regulation is a
political affair, seems incontrovertible, and he
conjures to mind an interesting picture of a kind
of political market in which the currencies are partly
financial but also partly other things such as
political power. The players are the government,
media, business, the consumer, consumer bodies
and others, and one wonders whether any of the
participants can truly be said to be seeking the
public good as a direct objective.
There was an interesting subtext also about the
business-friendliness of regulation. I shall comment
a little in a minute about the probability that
different kinds of institutions will be businessfriendly, but I think I should say right away that to
seek business-friendliness as an absolute goal for
regulatory activity seems to me to be mistaken, just
as one would not wish to see a total lack of
friendliness. I suppose what one would hope to see
as an outcome is some kind of arrangement that
maximises the value of benefits over costs from a
*The author is a former Director General of
Telecommunications (head of Oftel), Director General of Fair
Trading, and Secretary General of the International Accounting
Standards Committee (predecessor of the IASB).
E-mail: bcarsberg@rm.com
CCH - ABR
public point of view – not a very easy thing to
measure, but something that suggests that probably
some element of business-friendliness is desirable
but not total business-friendliness.
There are, pursuing that train, several ways in
which regulation can be organised. It can be carried
out directly by ministerial government departments;
it can be carried out by independent regulatory
bodies, public bodies established by Act of
Parliament with duties set by statute, and that was
the position in the two regulatory bodies with which
I was involved – Oftel, the first telecoms regulator,
and the Office of Fair Trading. It can be left to
private bodies including bodies administered by the
professions. It can be left to the market but, thinking
about what Michael has said and what one observes
and in spite of the fact that I know there is a strong
school of academic thought which believes it would
be best to leave these things to the market, it seems
impracticable that we should find it so. All the
evidence is that leaving it to the market is not a
sustainable solution because sooner or later the
forces that impel politicians to act will come into
play in the field of accounting, and so, whatever one
may think – I have never been attracted by the
argument that it should be left to the market – but
whatever one thinks, it is probably a futile quest
anyway.
I cannot of course avoid a little commentary on
my own experience with regulation, particularly at
Oftel, which, as Michael commented in his paper,
turned out to be less business-friendly than perhaps
people had been expecting. That was an interesting
experience. I can offer you two reminiscences about
that. I had responsibility at Oftel for setting British
Telecom’s price control. Government ministers had
no power in that. Nevertheless, when I set about
establishing the first price control, British
Telecom’s executives went to government ministers
after they had received an opening broadside from
me and said, ‘You must call this madman Carsberg
off otherwise it will be the end of Western
Data Standards Ltd, Frome, Somerset – 2/6/2010 07 ABR Carsberg Comment.3d Page 227 of 228
Downloaded by [Universitas Dian Nuswantoro], [Ririh Dian Pratiwi SE Msi] at 20:11 03 September 2013
228
civilisation as we know it’ – the speech to which
regulators become accustomed. Ministers did absolutely nothing. They said: ‘You must go and talk to
Carsberg yourself.’ They sent me no messages
about the meeting; in fact they did not even tell me it
had taken place. I found out it had taken place by
indirect means.
Then later on, when we had the benchmarking
duopoly review to decide whether or not to open the
basic telecoms market to wider competition than
hitherto, the position changed and I did find myself
under considerable government pressure. I
embarked on a line that was unwelcome to government ministers at the time and they tried to dissuade
me from it. I stood my ground and in the end it is fair
to say – in brief summary – government ministers
came around to at least accepting the track I was in.
Those experiences made me feel that there is a
good deal of chance about the way these things
actually turn out. I doubt very much whether one
can say with any confidence whether a particular
institutional arrangement is likely in general to lead
to a particular outcome in terms of businessfriendliness, political interference or whatever; it
all depends so much on the individuals involved.
One can say, I think, that a regulatory market place,
if I can use that term, in which different institutions
are involved at least creates a balance of forces,
which may be desirable in terms of the ultimate
outcome.
It is interesting to spend a minute or two on some
of the causes célèbres in our own field of accounting on this territory. I look particularly at experience
in the US where, as you all know, the law gives the
Securities and Exchange Commission (SEC) the
power to set accounting standards, but in practice
most of the time it is left to what is now the
Financial Accounting Standards Board (FASB),
with occasional elements of SEC interference.
There are four major cases that came to my mind
in which there was significant interference in that
process. The earliest was perhaps in the last in,
first out (LIFO) inventory flow assumption where
the government ensured that the private sector
standard-setters would not prohibit the use of LIFO.
There was the saga of oil and gas accounting
where the FASB was engaged in a debate between
the full cost or successful efforts accounting, and the
SEC intervened in the interests of what became
reserve recognition accounting, which surely provided some useful extra information.
There was the business of inflation accounting, in
which I played a hand personally: I was working for
FASB at the time. We were under a kind of diktat
ACCOUNTING AND BUSINESS RESEARCH
from the SEC to produce something on inflation
accounting, with a strong hint that they would
intervene and do something different if it was not a
current cost/replacement cost-based system.
More recently there was the share-based payments fiasco where the FASB was forced to back
down from what seemed a perfectly sensible and
indeed highly desirable proposed accounting standard.
Some of these examples, it seems to me, are
rather good, in the sense that government intervention produced an improvement. However good the
reserve recognition proposals were in oil and gas,
they perhaps provided some extra useful information to the market. I thought the same of inflation
accounting, although we did not have that in place
for long enough to find out how useful it was in
practice. I thought that government intervention on
LIFO and share-based payments was reprehensible
and regrettable in every way one can think of. There
are some good examples there and some bad
examples.
More recently we have had the experience in
Europe and the US of the saga of the use of fair
value for financial instruments, the early stages of
which again involved me when I was at IASC, as it
then was, and which has continued subsequently.
There again, I think one has seen perhaps rather
regrettable outcomes, and outcomes certainly
motivated by some European governments’ wish
to see a solution that was consistent with their
political goals rather than something which was
actually in the public interest.
Thinking about all those things it is particularly
interesting to see what role the conceptual framework in accounting has. I see there is a session on
that subject later in this conference. I suppose one
can see a conceptual framework among other things
as a device that can be used by standard-setters to
strengthen their hand in political negotiations,
although it is perhaps not wholly successful.
With that fairly brief canter through, I would say
again as my conclusion, first, I do not think there is
any set of institutional arrangements of which you
can say ‘This is sure to produce certain kinds of
result’ and therefore you cannot easily say what is
the most desirable set of institutions. There is a large
chance element about it. But given my scepticism
about governmental motivations, shall I say, and the
pleasure I get from seeing David Tweedie doing
battle on fair value questions in financial instruments, I think we are much better for having
independent bodies around to introduce a bit of a
battle and the tension of debate into these matters.