Tuesday, August 21, 2012

Reflections on Colossus, Part 3

I finished this book a long while ago, but not until I saw a certain news story today did it remind me of something that I had been meaning to write about: the importance of good accounting practices.

One of the theses of Colussus is that the difference between successful and unsuccessful former colonies is about the institutions and practices that the colonizer left behind. In many cases of the later part of the colonization period, the conqueror came in order to secure money that was not paid back through the use of military force. The belief was that the debtor country had chosen not to pay back the debts it owed, mainly out of greed and/or self-interest. By imposing military force on the country, it would serve as an example for other countries to pay back their debts.

After the gunships had arrived and made quick work of their opponents, they came to realize that the reality did not match their theory. The country literally did not have the money to pay back their creditor. So, what happened to all of those funds that were disbursed? They were not stolen out of greed, but squandered out of incompetence  They did not know where the money was because they had such shoddy bookkeeping practices. It's not really their fault either, no one taught them how to keep their books.

That was one of the first things that needed to be fixed! Send in the accountants!

The British stock market exchange was not the first stock market project, but it was the first successful one. Just like Jamestown was not the first American colony, but only the first successful one. History is written by the winners. The reason for the stock market's success was consistent, sound accounting practices so that investors could compare and contrast possible investments. The reason for the latter example was tobacco, which was then sold on the British exchanges.

If the British and other colonizers spent the time and money to educate their soon-to-be former colonies how to run themselves, then they were successful after they had left. If they had departed without doing such a task, then the colony would find itself in despair. Take the island of Hispaniola as an example. Haiti on one side. The Dominican Republic on the other. Haiti threw off its French oppressor in a revolution and then has been a case study in mismanagement every since. The US left the Dominican Republic after training civil service replacements (and installing a dictator). Though they have had their fair share of problems, no one would dispute that they are much, much better off than their counterparts on the other half of the island.

So what reminded me of this? The accounting practices of the Catholic Church are in the news. It's bad. Real bad. Trying to track money is nearly impossible - and it does not appear to be out of a desire for secrecy - but rather out of an inability for the church to manage its own finances. If that's the case, accountability is impossible. Where there is no accountability, there is going to be corruption. Not because they are bad people, but just because there is ample opportunity. That in itself is enough for a few souls to embezzle some funds.

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