I am gob smacked, absolutely gob smacked at the latest manifestation of just how much of our cultural inheritance we have trashed. They may sound innocuous or even boring but “Limited Liability Partnerships” are a newfangled creation that has taken the accounting world by storm. Talk about corrupting the basis from which so much of our wealth has been generated.
Personal liability is a strong incentive to ensure your company does the right thing. It will make you particularly careful about your choice of partner. It will also make you more likely to look beyond the dollars they bring the partnership and ensure they behave appropriately. It was the basis upon which accounting firms worked, until various jurisdictions created limited liability partnerships.
Limiting partners liability reduces their incentive to ensure decent behavior. It is no surprise that this bastardized form of partnership came to the fore at the turn of the last century. Just in time to limit the liability of all those auditors happily signing off on fraudulent accounts. Safe in the knowledge they would not be sued for every penny their partners are worth. And safe they are, if my reading of Wikipedia is correct then PwC and Ernst & Young are limited liability Partnerships. Deloitte is limited by guarantee, whatever that means. KPMG is also a limited liability partnership in the US – registered in Delaware, that paragon of corporate standards. It’s enough to make one think the big 4 should lose their lock on auditing multinationals accounts. Perhaps it’s time to end the requirement for all of a multinationals subsidiaries to be audited by the same firm. It would certainly lower audit costs.
Is it any wonder that things really started to go crazy after the integrity of the accounting profession was undermined? How can the stock market fulfill its function when public accounts are often fraudulent fabrications? What will that eventually do to our faith in capitalism? Actually stock markets are failing badly at the moment anyway. They are floating ever higher on low turnover high frequency trading, despite unprecedented levels of liquidity. They really do not have much to do with funding new productive ventures anymore.
One trusted institution and profession has been trashed after another as our societies become ever more compromised. Destroying the cultural intangibles that enabled us to become wealthy is not progress. But it is happening and manifesting itself in so many different areas. Once academics argued about weather there was such a thing as truth. Now Presidents and Prime Ministers tell bare faced lies. Honesty and integrity are so yesterday. Unfortunately they are requirements for a wealthy tomorrow.
Once upon a time politicians tried to improve your well-being. Now they seem intent on replacing you with someone more likely to vote their way. It is as if they do not care what they destroy as long as they win the next election. I guess if you kill the engine of growth you make it far more important to take as much of the existing wealth as possible. After all, there will not be a whole lot more of it down the line. It is such a shame. Historians may look upon this as a gilded age of unprecedented wealth and well-being. Much as our ancestors used to view ancient Rome and Greece.
We had a great deal of cultural capital at our disposal. Capitalism is such a powerful mechanism for driving productivity gains. Much of society can operate without capitalist incentives and we will still get wealthier. But at the moment we are sabotaging our future in so many ways. We are trashing the cultural intangibles we inherited from our forebears.
It is our cultural capital that enables us to live lives of relative ease and plenty. Our cultural capital forms the very foundation of our civilization. It is not just science that stands on the shoulders of giants, but all of us.