In June 2000, French students of economics rose up in revolt against the economics that they were being taught, coming to world attention with a student petition against autisme-economie (autistic economics), declaring, as their second point:
The instrumental use of mathematics appears necessary. But resort to mathematical formalization when it is not an instrument but rather an end in itself, leads to a true schizophrenia in relation to the real world. Formalization makes it easy to construct exercises and to manipulate models whose significance is limited to finding "the good result" (that is, the logical result following from the initial hypotheses) in order to be able to write "a good paper." This custom, under the pretence of being scientific, facilitates assessment and selection, but never responds to the question that we are posing regarding contemporary economic debates. (Post-Autistic Economics Network 2000, paragraph 5) Of course, one of the most obvious culprits for autistic economic theory is neoclassical theory and approaches derived from it. The students recognized this in their first point, which declares in part:
Most of us have chosen to study economics so as to acquire a deep understanding of the economic phenomena with which the citizens of today are confronted. But the teaching that is offered, that is to say for the most part neoclassical theory or approaches derived from it, does not generally answer this expectation. Indeed, even when the theory legitimately detaches itself from contingencies in the first instance, it rarely carries out the necessary return to the facts. (Post-Autistic Economics Network 2000, paragraph 4) We focus on an approach to the question of the influence of culture on corporate reporting standards, drawn from the theory of accounting. We argue that the formalization chosen, together with the empirical techniques that are used, leads to an "autistic" theory. However, the theory in question is not based upon neoclassical economics, which implies that the problem of "autistic" theory identified above is not restricted to the neoclassical approach. When responding to the challenge laid down by the students in the post-autistic economics movement, it is important for us to be conscious that "autistic" theory is not restricted to any one theoretical approach. It is especially important to beware habitual choices of empirical technique that lead in the direction of an "autistic" theory. It is possible to feel that the problem has been resolved by adopting a more appropriate theory, only for the problem to reappear as the result of inappropriate choice of statistical technique.
There are several reasons to present this argument to an audience of institutional economists. One derives from the particular formalism being examined. This is the formalization of hypotheses in an effort to permit them to be tested by regression analysis. Given the heavy reliance on regression analysis in much of what passes for applied economic research, it is important to have a clear understanding of the situations where the preliminary formalization of hypotheses to prepare for regression analysis is enough in itself to lead toward "autistic" theory.
However, the primary reason is to begin reclaiming ground for institutional economics that has been lost by mainstream economic approaches. A consequence of autistic economics is that those who require an effective understanding of an aspect of the economy must frequently pursue this understanding outside of the mainstream economics literature. This is particularly for the theories of accounting, marketing, management, and the other "business disciplines." In accounting, corporate reporting standards play an important role in the corporate information that is made available to shareholders and other members of the public. Questions concerning what should be disclosed and how this disclosure should be policed are questions regarding the regulation of business activity by a variety of institutions, including governments, stock exchanges, and professional accounting bodies. They are, in short, economic questions. Further, they are economic questions that are too important to get "right," in some sense, to be entrusted to mainstream economists. Therefore they are taken on board by a discipline concerned with catering to the needs of practicing accountants.
We argue that an important benefit of non-autistic economic theory is the possibility for far more effective cooperation between economists and members of business disciplines such as accounting. Such a cooperative approach should include reciprocal positive contributions from each side, providing researchers in business disciplines with guided access to non-autistic conceptual toolkits for understanding the interaction of their area with the economy as a whole, and the economist with guided access to the actual nuts and bolts of the operation of an aspect of the economy. It should also include reciprocal critical contributions from each side, with each side pointing out ways in which the other may be going astray. The present argument focuses on the second type of interaction: not only how a line of research in accounting theory lays itself open to the charge of being an "autistic" theory but also how institutional economic theory offers the prospect of a more effective alternative. The line of research of interest is a specific question that arises in the accounting literature regarding the harmonization of accounting standards and practices.
Harmonization of Accounting Standards
Harmonization of accounting standards is a topic that may be of interest to institutional economists on several levels. The first level is the institutional economist as a consumer of observations regarding accounting institutions, since accounting institutions play a role in establishing rules of behavior in business organizations across the industrial world. The second level is the institutional economist as a critical observer of arguments in accounting theory, assessing these arguments that are most persuasive from a perspective of institutional theory. The third level is the institutional economist as a contributor to accounting theory, offering theories and perspectives that may lead to a deeper understanding of the role of accounting institutions in real world economies. We will consider harmonization of accounting standards in terms of these first two levels of involvement, respectively, and then consider the basis for entering the third level, which is the primary focus of this article.
Harmonization of accounting standards is an ongoing process involving professional accounting bodies and regulatory authorities in many countries. It is an important influence on changes in accounting systems for institutional economists to understand, since it is part of the process of increasing globalization of financial capital flows. One of the most important motivators for harmonizing the accounting standards is to reduce the compliance costs for companies listed on stock exchanges in different countries, and at the same time to encourage more cross listings on stock exchanges.
It is increasingly common for larger international and multinational firms to be listed in exchanges in different countries. This may happen because a firm headquartered in a relatively small economy, such as the Australian minerals firm BHP, wishes to gain access to more liquid capital markets of larger economies. It may happen in support of a change in headquarters, as when the South African minerals firm Billiton moved its headquarters to London. It may be essential to support the equity swap required for a merger, as when the minerals firm BHP Billiton was formed from the merger of these two firms. In any case, where accounting standards in different countries require different accounting practices, this imposes an extra burden on firms wishing to be listed as full-fledged members of exchanges in those countries.
The interest of institutional economists in harmonization of accounting standards might well be limited to the first level of participation if harmonization were nothing but a technical coordination exercise. However, as argued in the accounting research literature in the 1980s, differences in national corporate reporting systems are in part due to cultural differences between countries. As institutional theory would lead to a similar argument, this argument provides the common ground necessary for institutional economists to enter in as critical observers of accounting theory regarding this process.
The argument stems from a well-established postulate in the accounting research literature that there is an entailment between culture and accounting. In contrast to the culture free hypothesis (Aitken and Islam 1984), J. M. Samuels and J. C. Oliga (1982, 78) declared that accounting is not merely a technical discipline:
[B]ecause values and beliefs are entailed (involved) essentially in any attempt to define or conceive of accounting, accounting cannot be value free. That accounting, as a social science, cannot be value free is being increasingly recognized in the literature (Lowe et al. 1979). Accounting information or knowledge cannot but be value laden since by being humanly determined as an empirical belief, it presupposes and entails the inquirer's value systems. In a similar vein M. B. H. Perera (1989, 43) suggested that
culture is often considered to be one of the powerful environmental factors affecting the accounting system of a country. This consideration is based on the broad premise that accounting is a socio-technical activity involving both human and non-human resources or techniques as well as interaction between the two. G. Hofstede (1987, 8) also confirmed the view that accounting is a product of the social world, not the physical. For him,
accounting is a field in which the technical imperatives are weak...