hoowood, a- accounting calculation and the shifting sphere of the economic

8/2/2019 Hoowood, A- Accounting Calculation and the Shifting Sphere of the Economic

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Accounting calculation and the shiftingsphere of the economicAnthony G. HopwoodLondon School of Economics and Political Science

ABSTRACTThe paper examines some aspects of the interrelationship betweenaccounting and economics. Noting that much of the significance ofaccounting stems from the coupling of relatively routine procedureswith wider understandings of the functions which they can serve, thepaper examines how economic discourses have provided contexts foraccounting elaboration and change.Reference is made to two case examples. The mutual interrelationshipbetween accounting and economics is emphasized in the paper withparticular consideration being given to the ways in which accountingcalculations facilitate the construction of spheres of economic activity.

Accounting has come to be seen as a phenomenon of some economicsignificance. Although still implicated in the recording of transactions, thereconciliation of statements and the balancing of the books, a more perva-sive potential for organizational improvement is now quite readilyattributed to the accounting craft. Accounting is seen as giving rise toboth economic magnitudes and insights that have a significance in theeconomic governance of industrial, commercial, governmental and eveninternational institutions.Keeping the records , a stewardship of the technical practices of account-ing and the compilation of the accounts themselves are still very importantparts of accounting. Indeed, it could not function without them. But theyare now aspects of accounting that seemingly are less emphasized - atleast in certain national settings. In countries such as the United Kingdom,the technical practices of accounting increasingly have come to constitutethe taken-for-granted world of accounting, the accounting background. In


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126 The European Accounting Reviewthe foreground we now hear more of the accountant's roles in economicmonitoring and control, in providing relevant information for decisionmaking, in pursuing organizational efficiency and effectiveness, and infacilitating the management of the interdependencies that characterizemodem organizational and economic life.

In such settings the functions which are claimed on behalf of accountingare now seemingly of more significance than the calculative practices andprocedures which constitute accounting itself. It is as if accounting hasbeen caught up within a complex web of roles, potentials and significances.In the process, bookkeeping became accounting. But accounting thenbecame a source of management information. And management infor-mation is now in the process of becoming a strategic source of intelligence,a proactive means of both knowing and doing, something that is seenas enabling a wider control, governance and indeed adaptability of theorganization and the network of institutions with which it is involved.As the functions attributed to accounting have grown in number andimportance, so has the significance attached to the accountant. Indeed incountries such as the United Kingdom it is as if the accountant often hasmore significance than accounting itself. Although so many of the tech-niques remain simple and repetitive, readily incorporated into clericalroutines, computer programs andprocesses of mass education, the occupa-tional structures that have emerged around them are ones that are nolonger populated with clerks but rather with executives, managers andindeed professionals. Rather than reflecting the routine and predictablenature of many aspects of the accounting craft, the organizational andsocial positionings of its practitioners have been influenced by the widermeanings and significances which are attributed to it and the ways in whichthese enable and empower different forms of organizational and economicgovernance. Accountants in the United Kingdom now seemingly standabove the practices which they once merely performed.

As accounting has become imbued with an ever expanding set of pur-poses, its practice has become interdependent with a whole array of otherorganizational, economic, social and legal practices and bodies of knowl-edge which both sustain and shape, and, in tum, are shaped by theprocedures of the accounting calculus. Accounting thereby has come tobe much more than an isolated technical endeavour. Whilst having aprocedural specificity, accounting's current meanings and significanceshave emerged in the context of a complex nexus of practices, procedu res,institutional arrangements, and bodies of knowledge (see, for instance,Burchell et al.. 1985; Miller, 1991).


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Accounting calculation and the shifting sphere of the economic 127more radical discontinuities puncture the world of accounting, raisingquestions about the adequacy of prevailing conceptions of the craft.Changing organizational forms can disturb the nexus of other practices inwhich accounting is embedded, suggesting the need for new couplings andlinkages (Hopwood, 1987). New modes of financing and their accountingrepresentations have brought attention to accounting's dependency onlegal presumptions of the boundaries of the enterp rise. Even the consider-ation of the possible accounting implications of new manufacturing techno-logies is highlighting the complex network of organizational knowledgesand procedures within which the technical practice of accounting functions(Kaplan, 1983; Miller and O 'Leary , forthcoming).

The array of other practices, presumptions and knowledges which tethe raccounting to its organizational and economic context both shape andconstrain the form that accounting can take. They rarely determine it,however. Rather they facilitate some possibilities for change and restrainthe influence of others. Accounting change is therefore never an unprob-lematic endeavour but rather a process that occurs amidst a complex ofother influences that sometimes provide the possibility for such changeand sometimes constrain the possibility of it.In the United Kingdom in the 1970s, for instance, exogenous changes

in price levels were seen by some as pointing to the problematic natureof accounting valuation and measurement practices (Tweedie and Whit-tington, 1984). However, prevailing accounting and economic theoreticaldiscourses were also seen as being capable of providing a basis for identi-fying conceptually derived innovations in the technical practice of account-ing that could reflect changing prices and still be compatible with thedominant legal and social presumptions and discourses that play a role indefining the nature of the enterprise, those who have rights in it andthereby the possibilities for the accountings that are made of it. Both theold and the new accountings could operate within a similar context. Thereported surplus merely would have been a different one and differentmagnitudes would have been associated with the resources of the enter-prise.

A recognition of the importance of exogenous changes in technologiesand knowledges that undermine the skills of the work-force would havehad a very different set of accounting implications. The rights of the work-force in the enterprise are quite narrowly circumscribed by both lawand convention in most industrialized countries, something which thenconstrains a practical accounting response. Without the intervention ofthe State to create new organizational responsibilities and therefore, in


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128 The European Accounting Reviewfor the enhancement of human skills is still seen as something that has noclaim on the surplus account.Such a contrast suggests that even the possibilities for new accountings,let alone the practices of today, are shaped by socio-political values, legalpresumptions, m odes of bargaining, statutes and govem mental regulationsand a whole array of other institutional practices and bodies of know ledgethat tie accounting to the contexts in which it operates. Accounting is notan autonomous sphere of action and cannot be considered in such terms.However, rather than trying to focus on the wider constellation of forceswithin which accounting is embedded (Burchell et al.. 1985), the presentdiscussion considers only one aspect, namely the nature of some of therelationships between economic discourse and accounting. The aim in sodoing is to probe into both the ways in which the abstract generality ofeconomic discourse can provide a context for accounting elaboration andchange, and how, in turn, accounting can itself provide a specificity toconceptions of economics which enable it to infuse and change organiz-ational and social affairs. For, whilst the ways in which accounting mightstrive to provide an operationalization of more general economic cate-gories might be appreciated, the ways in which economics provides adirectionality and functionality to the accounting craft are not.ECONOMIC DISCOURSE AND ACCOUNTING CALCULATIONThe idea of a relationship between accounting, as a form of economiccalculation, and econom ics, a form of abstract knowledge about the na tureof the economic, is now a longstanding and increasingly accepted one.Conceptions of the economic nature of such accounting categories ascost and income pervade accounting treatises and even policy-orientateddiscussions of the craft. Economic ideas of their essential nature are usedto provide a basis for gauging the adequacy of accounting calculations andto suggest possibilities for their transformation and presumed improve-ment. Economics, so used, is seen as a means for helping accounting tobecome what it should be, but what currently it is not.Drawing on developments in economic thought, a more pervasive formof economic rationality started to enter into accounting discourse in thefirst half of the present century - the particular timing and form of thelinkage varying in different national settings. As this happened, the econ-omic categories of accounting came to be seen as part of a wider nexusof economic relationships and interdependences. More abstract economicfunctions could then come to be assigned to accounting practices. For


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Accounting calculation and the shifting sphere ofthe economic 129was placed on the conscious thoughts and calculations of economic agents.The language of decision making thereby started to become a more preva-lent one and in this context accounting practices were assigned a moregeneral relevance - an informational potential. Accounting was seen asbeing at least one of the ways in which relevant information was providedfor economic decision-making processes within and about the firm.

In such ways the enterprise and the market came to be seen as sites inwhich rational principles of decision making and organization wereapplied. Economics, as a body of knowledge concerned with the illumi-nation and study of such processes, could therefore come to be seen as abasis for evaluating accounting and steering the transformation of itspractices in the name of a wider functionality and rationality.Economic theorizing of the enterprise has continued to develop, placingmore emphasis on the n ature and form of the in temal relationships whichconstitute the enterprise as an economic form of organization (Perrow,1986). More explicit reference is now being given to potential conflictsof interests between organizational participants and to the roles whichorganizational practices, such as accounting, play in their resolution andin the orchestration of concerted economic action (Baiman, 1982). Witheconomic action so characterized, more consideration is being given tothe specification of organizational contexts for individual decision makingand to the monitoring and assessment of the results in the name of awider enterprise level objective. Concerns with organizational control havethereby come to be given as much, if not more, emphasis as decisionmaking per se and, as this has happened, economics has also come toprovide a basis for commenting on the control potential of accountingpractices.Although economic understandings of the enterprise are still emergent,the potential relevance of the insights which they provide for both under-standing and guiding the accounting craft has come to be an increasinglyaccepted o ne . But it is still far from being an unproblematic on e. A restlesstension still pervades so much of the dialogue concerning the applicationof economic ideas to accounting practices. On the one hand, economicsprovides a way of conveying a wider functionalism to accounting. Empha-sis can be placed on its wider contribution to processes of economicdecision making and control. On the o ther h and , however, economics alsoclaims to provide a way of gauging the adequacy of accounting for suchends. And almost invariably, accounting, as it is, is found to be inadequateto what it could and possibly should be. Its practices are not infrequentlyseen to result in information that does not meet the test of economic


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130 The European Accounting Reviewboth to illuminate economic circumstances and to make people act in aneconomically rational manner. But there is also a case for seeing thecontrasts between accounting practices and economic conceptions of themas suggestive of the difficulties of economics. For economic thought is inmany senses a strange and restless phenomenon. Although claiming toprovide insight into the way the world is, economics is also characterizedby a profound dissatisfaction with the ways of the world. Even though itclaims to provide a positive rather than a normative knowledge of theworld, economics seemingly always wants to make the world more econ-omic than it is. Market forces are not merely present but need to beshown to be so, and their presence extended. Economic incentives arenot merely a feature of the world but need to be reinforced. In accountingterms, the rationality of costing needs to be enhanced in the name of aneconomic understanding of it. The world needs to be told what profitought to be even though it apparently is orchestrated in the name ofit. Seen in such terms, economic discourse is not merely a refiectivephenomenon, providing insight into the way in which the world is, but itcan also be a constitutive phenomenon, having the potential to play a rolein forging a reality that is more in line with our economic understandingsof it.

As we have already seen, such thinking has now permeated much ofaccounting thought, not least academic accounting thought. In providinga discourse that can be brought to bear on the functioning of accounting,economics has provided one way of representing and articulating the aims,roles and practice of accounting in a way that cannot be reduced totechnical practices that are independent of, and prior to, such a mode ofeconomic characterization. A quite specific set of functions and roles isnow attributed to accounting. A more pervasive logic and rationality areassociated with the practice of the craft. Accounting is seen as being tiedup with a consciously elaborated set of rules for the attainment of a setof economic objectives. A way of thinking about accounting in the contextof wider institutional processes and objectives is thereby created such thataccounting is seen as being much m ore than a mere collection of calculativepractices and procedures. And so perceived, accounting can start to beinterrogated in the name of its roles and functions rather than the internalconsistency of its technical procedures. A new basis for assessing theadequacy of accounting can be created. Accounting thereby can start tobe examined in terms of what it is not and often found wanting as a result.The relationship between accounting and economics is therefore a com-plex and uncertain one. One is not a simple reflection of the other. The


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Accounting calculation and the shifting sphere of the economic 131The relationship has been subject to relatively little examination, how-ever. In the main, a relevancy has been presumed rather than justified.Arguing that more is at stake than this, the subsequent discussion will

attempt to open up a few aspects of the interface between accounting andeconomics to further analysis. To facilitate the argument, considerationwill be given to two episodes, one historical where the relationships aremore apparent and one contemporary where they are still unfolding innot entirely predictable ways. However, both examples are illustrative ofthe early stages of the development of a relationship between economicdiscourse and accounting calculation. Although they differ in terms oftheir historical contexts and the institutional environments in which theforging of a relationship was attempted, together they can neverthelessserve to illuminate some of the processes at work when a relationshipbetween accounting and economics has to be positively constmcted ratherthan merely revealed. For it is at such early moments of change thataccounting can be seen as having a more complex relationship with therationales in the name of which it is introduced.PUTTING ACCOUNTING WHERE ACCOUNTING WAS NOT:PART 1'To Wedgwood, the eighteenth-century English potter, cost was initiallyan idea but not a fact. Faced with a severe business depression in 1772and wanting to maintain his sales so that he could retain his highly skilledlabour force, Wedgwood started to analyse his business in economic terms.A man of scientific and analytical temperament, as well as acute commer-cial acumen, he was in contact with many of the intellectual developm entsof the time, including that of political economy. From this Wedgwoodwas aware that if he could lower his prices in order to stimulate demand,he might better survive the recession and prevent his skilled and carefullytrained labour force from moving to his competitors. Moreover, Wedg-wood was also aware that such a view was conditioned by the need toensure that the price was still higher than the cost. And there the problemarose. For although a concept of cost entered into the discourse of com-merce and trade, and could therefore mobihze action, there was no well-established practice for operationalizing the discursive category.

Until then Wedgwood had made little use of accounting (McKendrick,1973), particularly for what would now be seen as management purposes.Accounting information did not inform his product and pricing decisionsor the selection of his methods of work, not least because his prices were


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132 The European Accounting ReviewThat situation was to change when the depression of 1772 brought theexpansion of his business to an abrupt end. Faced with a crisis and beingable to conceive of a discursive m ode of analysis based on cost, Wedgwood

set out to discover the facts of costing. As he noted to Ben tley, his businesspartner in London:It will deserve serious discussion whether we should not lower the pricesof Pebble and Gilt Vases very considerably, for this purpose I amforming a price book of Workmanship etc. which is to include everyexpence of Vase making as near as possible from the Crude materials,to your Counter in London, upon each sort of Vases, of this we willsend you a specimen & you will then be able to judge better what wecan do in this respect, what will be most prudent is the next questionfor our Consideration. (McK endrick, 1973: 49)

The task was not an easy one. No established procedures were availablefor observing the inner workings of the organization through the account-ing eye. The organization could not be readily penetrated. The facts ofcosting had to be laboriously created rather than merely revealed.I have been puzzling my brains all the last week (Wedgwood wrote toBentley on 23 August 1772) to find out proper data, and methods ofcalculating the expence of manufacturing. Sale, loss &c to be laid uponeach article of our Manufacture & a very tedious business it has been,but what is worse I find what I have done is wrong - somewhere, veryessentially so, but do not know where or how to amend it though I shallnot give up being sensible of the importance of the enquiry, and whatI now send you is only to shew you what steps I have taken & thegrounds I have gone upon, & to desire you will sit down some morning& consider the subject and try to put me in a better way, for it will beof the greatest use for us to establish some such scale as I have nowbeen attempting to examine all our new articles by, that we may notfix the prices so high as to prevent sale, nor so low as to leave no profitupon them.

(McK endrick, 1973: 49)Such endeavours resulted in the construction of an increasingly detailedaccount. Still, however, Wedgwood was not satisfied with his efforts.

Some of my difficulties I have laid before you, but what perplexeth memost is, that although I am very positive what I have allowed for theexpences of making & selling our goods is quite enough yet it appears


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Accounting calculation and the shifting sphere of the economic 133Shortly thereafter, however, he was to obtain some itisight itito some ofthe reasons for his uneasiness. Comparing his financial accounts with hisemergent costings, he found that the two did not agree.

This Ace is very exact as to the whole but we cannot make it agree withits parts viz the separate pieces - It agrees with the small Vases verywell but those we sell at 2 or 3 Gs do not appear to cost us 1/10 of thatmoney. We are now taking a stock & shall then try another method.^ (McK endrick, 1973: 61)Being of a curious disposition, Wedgwood soon discovered why the vari-ous parts of his accounting experiments did not mesh together. His inquir-ies revealed 'a history of embezzlement, blackmail, chicanery, and whatWedgwood called "extravagance and dissipation" ' (McKendrick, 1973:61). His head clerk, Ben, about whom he had 'long been uneasy on thisaccount being fully perswaded [sic] that matters were not right with. . . .His Cash accts being always several months behind, & yet to jump exactlyright when he did Ballance them' (McKendrick, 1973: 61), had had hishand in the till. On further investigation, Wedgwood found that 'theplan of our House in Newport St.', where the clerks resided, 'is ratherunfavourable to Virtue & good order in young m en ', 'that the housekeeperwas frohcking with the cashier', 'that the head clerk was ill with "the foulDisease" and had "long been in a course of extravagance and dissipationfar beyond anything he has from us (in a lawfuU way) wd. be able tosupport" ' (McKendrick, 1973: 61).

Only after such revelations as to the sources of accounting inconsistencydid Wedgwood feel confident in his newly fledged facts. As he went onto report:Our House may be looked upon as unfixed, & afioat, the first Clerkand Cashier being remov'd, it seems that properest time to introduceany new regulations we may think proper, or to change the whole planif we can adopt a bette r . . . now we know tha t all goods sold for money& not brought to account must appear as increase of stock in stateingthe accts & we have such strong reasons for suspecting our Head Clerksfidelity such an amazing increase of stock is an alarming circumstance& I shall not be easy 'till the stock is taken to clear my doubts in thisrespect. (McK endrick, 1973: 61)

Immediate steps were taken to correct the matter. A new clerk wasinstalled and, in order 'to put the necessary business of collecting into a


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134 The European Accounting Reviewspecific programme of intervention in the organization conducted in thename of that idea. One was not a mere reflection of the other. Costs hadhad to be constructed rather than merely revealed. An organizationaleconomy grounded in a domain of accounting facts had to be forgedpainstakingly rather than merely exposed.

Once constructed, however, Wedgwood had a powerful instrument forobserving the organization in economic terms. His strategic conception ofthe role which records could play in the managem ent of crisis had resultedin a means by which he could penetrate the inner workings of the organiz-ation. A new visibility had been created. The organization had beencolonized by economic facts (Patton, 1979). A calculative means had beenfound for conceiving the functioning of the organization in different terms.An accounting eye had provided Wedgwood with a new means for interv-ening in the organization.

And intervene he did. As we have seen, the administration and controlof the financial records was reformed. More substantially, during thedepression, prices were actively changed in the name of the new knowl-edge of costs and profits (McKendrick, 1964, 1973). A basis for a moresystematic consideration of marketing policies was created (McKendrick,1960, 1961, 1973). The newly emergent facts of the economic provided abasis for reappraising the organization of the manufacturing processes,the advantages of large-volume production, and the calculation of piecerates, wages and bonuses (McKendrick, 1960, 1961, 1973). The innerworkings of the organization had been made amenable to a new form ofeconomic analysis.Wedgwood's discovery of the advantages of large-scale production illus-trates this well. Faced with his newly emergent costing facts, Wedgwoodnoted that:If you tum to the columns of calculation & see how large a share.Modeling and Moulds, & the three next columns bear in the expenceof Manufacturing our goods, & consider that these expences move likeclockwork, & are much the same whether the quantity of goods belarge or small, you will see the vast consequence in most manufacturersof making the greatest quantity possible at a given time (Wedgwood'sitalics). Rent goes on whether we do much or little in the time. Wagesto the Boys and Odd Men, Warehouse Men & Book-keeper who are akind of Satalites to the Makers (Throwers, Turners &c.) is nearly thesame whether we make 20 doz of Vases or 10 doz per week & willtherefore be a double expence upon the later number. The same maybe said in regard to most of the incidental expences . . .


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Accounting calculation and the shifting sphere of the economic 135don e, provided I durst set the M en to m ake about 6 to 13 doz of a sort;perhaps (as the first expence of all these apparatus's is over, & our Menin full practice, and many have some fears of losing a good branch ofbusiness) at much less than half.The first expence will be all sunk if we do not p roceed in the businessthis apparatus is adapted for.The Great People have had these Vases in their Palaces long enoughfor them to be seen & admired by the Middling Classes of People,which Class we know are vastly, I had almost said, infinitely superiorin number to the Great, & though a great price was, I believe, at firstnecessary to make the Vases esteemed Ornament for Palaces, thatreason no longer exists. Their character is established, & the MiddlingPeople wd. probably by [sic] quantitys of them at a reduced price.(McK endrick, 1973: 55)

As McKendrick (1973: 54) notes, Wedgwood's costing 'had other morepermanent repercussions on his business management'. In often unantici-pated ways, the organization was changed in the name of the knowledgeof it. For 'by his own persistence, by an unfailing attention to detail, byfounding, if not creating, the traditions of a foreman class and equippingit with rules and regulations, he transformed a collection of what in 1765he called "dilatory, drunken, idle, worthless workmen" into what tenyears later he allowed to be "a very good sett of hands" ' (McKendrick,1961: 43-4). Such personal observation and supervision could start to becomplemented by the exercising of control at a distance, both in time andspace. Wedgwood now had available to him the basis of a more anony-mous and continuous means of surveillance.Although born amidst crisis and doubt, the consequences of Wedg-wood's accounting system started to be quite profound. Initiated to revealwhat had been presumed to be there already, once established, it provideda basis for significantly changing, if not eventually transforming, the func-tioning of the enterprise. The newly established accounting system enableda different set of dynamics to be set into motion. The fine details of theproduction process could now be related to the aims and performance ofthe organization as a whole. Policies created at the top of the organizationcould be related to specific aspects of organizational functioning. Theorganization could be observed and managed in terms different from thosein which it functioned. Attempts could be made to coordinate and plandivergent parts of the organization in the name of the economic. A quitespecific organizational economy could start to be emergent.


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136 The European A ccounting ReviewECONOMIC AMBIGUITY AND ACCOUNTING SPECIFICITYAccounting provides a way of giving an apparent precision to at leastsome of the general categories of economic discourse. It is a precision,however, that does more than merely reveal what is already there. Thespecificity introduced into the organization by accounting can create a basisfor more fundamental changes. The organization can start, for instance, tobe m anaged in the nam e of highly specific notions of cost and profit. Whatpreviously might have been presumed to be there but poorly revealed,once operationalized, can start to provide a way in which the organizationcan be changed. Indeed, the organization can start to become a verydifferent one. A new world can emerge out of a particular knowledge ofthe old world.

Such dynamics of change illustrate the tensions implicit in the relation-ship between economics and accounting. Being stated at a high level ofgenerality and abstraction, economic categories are subject to a highdegree of ambiguity. But to be infiuential in the management of organiz-ational affairs, that ambiguity needs to be resolved so that a more specificcalculus can infuse the intemal processes of the organization. There is,however, no one-to-one relationship between economics and accounting.Operationalizing economic concepts therefore becomes a process of con-struction rather than mere revelation, where the traditions, conventionsand practices of accounting will play a positive role in shaping the formof the economic calculus. But, once so operationalized, the organizationcan start to be seen through economic eyes and economic notions ofrationality can perm eate the organization in very precise ways. So althoughaccounting is not a mere revelation of economics, by giving a specificityto the previously general and ambiguous, it provides one way of enablingeconomic understandings and modes of thought to diffuse through theorganization. In the process, accounting is quite capable of making theorganization more economically orientated than it otherwise might havebeen.

Of course the ambiguity of economics does not in and of itself constrainthe practical use of economic concepts. The world can be changed in thename of profit without a precise operational understanding of the concept.Indeed the public sector in many countries is being changed in the nameof efficiency and value-for-money without there being any precise andgenerally agreed definitions of those concepts (Hopwood, 1984). It mighteven be that the very ambiguity of the concepts provides one basis fortheir appe al, particularly in political circles. If we knew precisely what theconcepts meant, they most likely would be far less capable of mobilizing


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Accounting calculation and the shifting sphere of the economic 137and value-for-money, the speciflcs of operationalization do tend to beaddressed, often by accountants. As calls are made for organizations tobe changed in the name of the vocabulary of economic efficiency andrationality, demands will also emerge for the extension of modes of econ-omic calculation to objectify and operationalize the abstract concepts inthe name of which change is occurring. The ambiguity, generality andabstractness of economics must then be addressed and resolved. A pre-cision must be given to the economic domain even though that precisioncan never have an unprob lematic relationship to the concepts in the nameof which it is introduced.To the extent that such forces are at work, it is always legitimate to askquestions about the precise effects of change, rather than presuming amere realization of a prior intent. Discretion and choice pervade theaccounting repertoire. With the lack of any direct and obvious relationshipbetween economics and its operationalization in accounting, we mustalways look at exactly what happens in the name of particular economiccategories, not least when the ideas are appealed to in political discourse.We must consider the effects that change induces rather than merelyfocusing on the seeming desirability of the intent that lies behind thembecause one is not necessarily a mere realization of the other. Equally,we must also be prepared to recognize how a realm of the economic canbe positively created rather than merely revealed and the role whichaccounting and other sources of economic and financial information canplay in that process.

Just such processes of change can be seen at work in health care organiz-ations in many countries of the world. To take our thinking a little further,we will therefore consider some of the ways in which accounting is beingincreasingly implicated in the British National Health Service and someof the possible consequences of this.PUTTING ACCOUNTING WHERE ACCOUNTING WAS NOT:PART IIUntil recently the National Health Service had not made a major invest-men t in accounting. Of co urse, it prepared financial accounts and had thenecessary systems on which to base these. There were related systems forthe payment of invoices, for wages and for the management of majorconstruction schemes. And over the years attempts had been made tointroduce methods of budgeting. But the commitment to accounting hadnevertheless remained a somewhat marginal one. The language and prac-


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138 The European A ccounting Reviewexpenditures on health care in the industrialized world. Whilst there aresome areas of provision where the low level of resourcing makes anunfavourable impact, generally the health care outcomes of the Servicehave been perceived to be good ones gained at a relatively low cost. Inthe language of today, a measure of efficiency had apparently beenachieved but without an investment in the practices of micro-financialcontrol. There were few detailed economic and financial calculations andthe administrative structure was very lean. The low costs had beenachieved by a variety of more centralized macro-controls. Wages andsalaries had been m oderated by national agreemen ts. Centralized purchas-ing had held down expenditures on drugs. Constraints had been imposedon major building programmes and a conservative approach to new tech-nological developments had helped to hold back costs in an area whichhad the potential for major economic consequences.

Even so, there had been a long history of growing concern with thefinancial consequences of national health care provision (Klein, 1983). Itquite quickly became apparent that the dreams of at least some of thefounders of the Service - that it would solve at least some of the problemsof the national medical condition and thereby contribute to a reductionin longer-term expenditure on health care - were not to be realized. Publicexpectations were rising. Medicine was becoming a more comprehensivediscipline and also a more costly one. People were living longer and thediseases of age were being found to be very costly. And in more recenttimes, demographic changes started to exaggerate such tendencies, result-ing in an expectation of higher total expenditures on health care. In suchways, the economic, financial and management aspects of health startedto be put on the agenda (Klein, 1983). Committees were established.Reports and analyses were commissioned. The language of managementand efficiency started to be brought to bear on the National HealthService.One of the factors imphcated in such a transformation arose from amutation in economic thought. In the post-war period increasing attentionhad been given to applying the modes of analysis of the economics of themarket to non-market endeavours. Not emphasizing the difference ininstitutional context, intellectual ingenuity had created a conceptualvocabulary in terms of which areas such as education, defence, the lawand, not least, health could be interrogated and examined in economicterms. Whilst not wanting to over-exaggerate the importance of just one

such intellectual innovation, health economics nevertheless did provide ameans for articulating more analytically the concerns which others felt


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Accounting calculation and the shifting sphere of the economic 139But such an economic vocabulary found it difficult to grapple with thespecifics of health care. For, as costly as the National Health Servicemight be perceived to be becoming, the particulars of health care almost

invariably had no cost assigned to them. Accounting had not embracedthe objects of either medical or economic concem. Whilst the use of drugsand the employment of nurses and doctors resulted in expenditures andthereby entered into the accounting records, these were not reclassifiedaround medical or economic concems. The functions of accounting hadbeen m ore narrowly concem ed, being mainly administrative and fiduciaryin nature. No wider vision had served to provide a basis for the orches-tration of the records along more strategic lines. No mechanisms had beenprovided for thinking of the realm of medicine in terms of economicreasoning. Concems with costliness, efficiency and economy had not lefttheir imprint on the accounting archive and, in the absence of this, arecord of costs had not arisen. The costs of patients, diagnostic treatmentsand disease categories remained the vaguest of conceptual possibilities.They certainly were not facts.

The growing significance of economic modes of analysis and the chang-ing nature of political interests in health care provided a context in whichpressures arose for this to be changed (Klein, 1983). For, without suchan operational calculus, it was difficult for economics to infuse and shapethe organization in its name. Economy and efficiency could not becomebases for concerted organizational action.Change was not to be easy, however. The National Health Service hadnot invested in repertoires of uniform administrative statistics that couldserve as building blocks for such an accounting reform. There also werequite basic doubts about the objects to which costs were to be attached.Was it to be patients, wards, individual clinicians, diagnostic categoriesor medical specialities? Each presented its own difficulties and each mightenable different possibilities for economic control. It thereby started tobe recognized that accounting could not be reformed in isolation. Anyaccounting solution required a quite specific interface with differentadministrative and managerial bodies of knowledge. And all such attemptsto change accounting also had to face the questionings and challenges ofthe medical community. Initiated in the name of the social rather thanthe economic, the National Health Service had resulted in a delegation ofimmense powers to the medical profession, most of whose membersclaimed the right to make decisions on the basis of their own professionaltraining and codes of conduct rather than in terms of any administrativeplan or econom ic logic. Moreover they claimed the right to do this withoutacknowledging any administrative, economic or even medical account-


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140 The European Accounting Reviewfactual basis for connecting econom ic reasoning with the prac tice of healthcare. E xperiments were initiated but often their outcomes appear to haveserved more as symbols of economic concem than as bases for constructingthe reality of it (Meyer, 1983). When more careful attention was given towhat had been done in the nam e of financial reform, not only did expec-tations for the time scale of change become modified but also it came tobe realized that much more consideration had to be given to the sheerpractical difficulties facing the task. Expanding accounting in the name ofan expanded conception of its functions was not an easy endeavour.Professional politics and accounting shortcomings seemingly placed abarrier between economic conceptions of health care and their realization.Economic reasoning could not readily enter the organization and changethe nature of its practices. Such barriers are not immutable or inevitable,however. Faced by the difficulties of inducing reform from within, theGovernment increasingly resorted to action from without. Although claim-ing to increase real expenditures on health care, the actual allocation ofresources increasingly failed to take account of the higher levels of infiationin the medical area, the changing nature of medical practice and thechanging demographic structure of the population. Increases in resourcesalso began to incorporate the very efficiency gains whose realization wasso difficult! The National Health Service therefore increasingly had toprovide more with less real resources. Cuts had to be imposed. Serviceshad to decline. A culture of financial scarcity had to be introduced intothe organization. Faced with a reality of econom ic and financial difficulty,adaptive actions had to be initiated. Many were blunt and crude. Attentionalso now started to be given to the partial instruments of financial controlalready operating within the organization. Although the pace and natureof change varied a lot across sites and administrative units, the imperfectsymbols of administrative efficiency slowly started to be used for thinkingand doing medicine in managerial terms.

A different instrumentality started to be attributed to budgets, albeitone induced byfinancialnecessity rather than economic conversion. Facedwith the need to re-allocate and to restrain, at least some members of themedical community started to acknowledge the wider roles which suchinstruments of financial administration could serve. They started to applythemselves, what previously they had resisted. A basis for a new com mon-ality of dialogue between the administrative and the medical communitiescould thereby sometimes start to emerge.Although the pace of change should not be exaggerated, the financialcrisis had provided a basis on which connections between economic


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Accounting calculation and the shifting sphere of the economic 141change have also re-evaluated their strategies. Increasingly recognizingthe vital role which economic calculation plays in the reality of inducingeconomic change, emphasis is now being placed on obtaining the adminis-trative and accounting infrastructure which will enable economic reformsto penetrate more readily into the organization. Careful attention is beinggiven to detail. Information system capabilities are being recognized asessential prerequisites for economic change. The enabling role of account-ing is now being quite explicitly acknowledged by those who aspire toshift the boundaries of economically orientated action.CONCLUSIONAccounting is not imbued with purpose but it can be made to be purpose-ful. Many of the wider roles and functions of the craft are not thereforeinherently associated with its practice but rather emerge from the inter-mingling of accounting with other discourses, practices and institutionalforms. In such ways a range of quite specific significances and meaningscan come to be attributed to accounting. Not an autonomous technicalpractice, accounting can be appealed to in the name of wider aims. Thecraft can be given an instrumentality and often a strategic direction. Abasis for accounting mobilization can be provided.Economic d iscourses can provide one influential basis for such a mobiliz-ation of accounting change. By immersing accounting practices within awider set of rationales and objectives, accounting can be acted upon inthe name of organizational aims that have no prior and essential relation-ship to the craft. In this sense economics does not reveal what already isthere. Rather it provides a basis for the attribution of new meanings androles to accounting, albeit including some that have now come to be takenfor granted.

The relationship between accounting and economics is not a unidirec-tional one, however, as the cases of Wedgwood and the National HealthService have illustrated. Just as economic discourses can provide a basisfor empowering and changing accounting so accounting, in turn, can beimplicated in the very construction of a sphere of economic endeavour.On its own, economics operates in a conceptual domain. Many of itsconcepts are articulated in non-operational forms. Indeed the field ofeconomic praxis is one that has been subject to relatively little exami-nation. That does not prevent appeals being made to the practical andpolicy relevance of economic discourses. Very often, however, suchappeals do little to specify the set of empirical processes and practices


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142 The European Accounting Reviewneeds to invest in modes of observing and recording, a quite specificvisibility and an array of calculative practices. A practical economy needsto be positively forged rather than merely revealed.Not being mere revelations of an underlying economic potential,accounting practices can possess an autonomy and power of their own.They can thereby often enable more substantive transformations of organ-izational affairs than sometimes is envisaged, even by their designers. Justas Wedgwood's discovery of a pragmatics of costing enabled a widerdiffusion of economic rationality and logic through his en terprise, so inthe National Health Service, an investment in accounting has at least thepotential to result in a significant shift in organizational visibilities andconcerns, and managerial orientations.Seen in such terms, the economy that an investment in economic calcu-lation can enable is one that is not merely complementary to a set ofsocial, technical or medical concerns but rather one that has the potentialto compete with them. For the bounds of the economic are not fixed.With prior investments in theoretical and conceptual elaboration, therealms of what can be regarded as economic can shift. And with a priorinvestment in calculative practices and modes of economic and financialvisibility, the operational sphere of economic practice can also be subjectto moderation.Accounting thereby has the potential to be quite an infiuential practice,with a significance that depends on the wider network of practices anddiscourses in which it is set. It is not merely a revelation of a prior truth.Accounting can be implicated in the active construction and transform-ation of both organizational and social institutions, and the economictruths that are associated with them.If the economic is as likely to result from accounting as it is to induceit, then there are limits to the extent to which it is meaningful to explorethe underlying and enduring economic truths of accounting. That, how-ever, is an implication of our analysis that requires a more extendedexamination.NOTESI wish to acknowledge the many helpful comments and suggestions made by EdArrington, Peter Miller, Brendan McSweeney, Michael Mumford, Michael Power,Alistair Preston and Stephen Wood. The paper has also benefited from commentsmade at seminar presentations at the Universities of Edinburgh and Warwick, andat a public lecture in the Department of Sociology and Anthropology, Universityof Keele.


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hoowood, a- accounting calculation and the shifting sphere of the economic

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