Academic journal article
By Sacco, John F.; Stalebrink, Odd J.
Journal of Public Budgeting, Accounting & Financial Management , Vol. 22, No. 1
ABSTRACT. This paper examines the interaction between changes in governmental accounting, ideology and global capital markets. Based on a historical analysis from the late 1800s to the turn of the 21st century it provides support for the general hypothesis that the strength and support of global capital markets and pro-market ideologies is positively related to the likelihood of the adoption by governments of accounting methods geared toward exposing full costs and total debt. The analysis also illustrates that governments are more likely to use accounting methods that allow for greater flexibility for spending, borrowing and off balance sheet financing during times when global capital markets and pro-market ideologies are in decline.
To date, changes in government accounting have often been attributed to increments - and sometimes - to quantum leaps (Coombs & Edwards, 2004) caused by advances in technology. This paper explores the role of two alternative explanatory factors - the role of political ideology and global capital markets as causes of changes in governmental accounting. Specifically, based on an historical analysis of changes in governmental accounting practices from the late 1800s to the turn of the 21st century, the research provides support for the general hypothesis that the strength and support of global capital markets and pro-market ideologies are positively related to the likelihood of governments adopting accounting methods that are geared toward exposing full costs and total debt. The analysis also illustrates that governments are more likely to use accounting methods that allow for greater flexibility for spending, borrowing and off balance sheet financing during times when global capital markets and pro-market ideologies are in decline.
The paper is limited to the exploration of the role of two ideologies as they relate to changes in state and local governmental accounting practices in the United States. One of the ideologies is in support of markets and one in support of the administrative state. For markets, neo-liberalism is the ideology. Neo-liberalism is an extension of classical liberalism. It is an ideology that views private property as an essential component of civil society. Government is viewed as an infringement on liberty. Underlying neo-liberalism is the assumption that individuals have a much better idea of what is good for them than the government has.
For the administrative state, progressivism is the ideology. Progressivism places substantial faith in governments' ability to make sound economic and social decisions (in the sense of improving economic progress and protecting people from evils such as poverty). It views public decisions as guided by professionalism and science. Socialism was never a serious path in the U.S. and is therefore deemphasized in this study.
Notwithstanding periodic battles over the methods of public sector accounting and financial reporting, research on these upheavals has received limited attention. Christensen (2002, p. 95), in reference to the period 1980 to 2000, writes: "The dramatic emergence of public sector accounting from a prolonged period of ossification represents a juncture in accounting history that demands some analysis."
Other such junctions exist, and, in a fashion, relate to the agenda of this paper. For example, Edwards, Coombs and Greener (2002) make reference to public sector accounting as part of an investigation of governmental accounting controversies that arose in 1828 in Great Britain. According to the authors, "[T]he initiative [accrual and double entry accounting] was resisted [by the government] and we draw on the concepts of ideological conflicts...to help comprehend the reasons...." (p. 637). As for the role of capital markets, Edwards Coombs and Greener (2002) looked to the industrial revolution as a force that set up this ideological battle.
A rather comprehensive historical study resides with Goddard (2002) who covers Great Britain for three periods, including (1) 1830- 1880, which is a period of laissez faire (capital markets emerged earlier in GB); (2) 1880-1970, the period of corporatist hegemony (the state, or as termed in this paper, the administrative state, as the dominant mediator) and; (3) post 1970 as the neo-liberal period (the return of capital markets and neo-liberalism in this project). …