AAAJ
10,3
382
The power of accounting:
reflecting on water
privatization?
Jean Shaoul
Manchester University, Manchester, UK
Introduction
The British Government’s privatization programme, introduced with much
fanfare in the 1980s in the face of enormous public opposition, has been
emulated throughout the world in the 1990s. It was justified on the basis of the
greater efficiency and benefits to all that would follow from private ownership
(Moore, 1985). But the outcomes can be likened to those of a children’s game of
Monopoly which, as every parent knows, starts with a few welcome minutes of
peace and quiet on a cold wet Sunday afternoon, and, after some initial squeals
of delight, ends in fights and tears – a heavy price for parental passivity. The
privatization of the utilities has resulted in generous dividends to the
shareholders and remuneration to top management, an unsuccessful spending
spree in search of future earnings growth and a 25 per cent fall in employment
for the workforce (Froud, Haslam, Johal, Shaoul and Williams, 1996).
Yet if such outcomes are predictable enough, at least with the benefit of
hindsight given the rules of the game, that suggests that an accounting model
combined with ex post facto financial information can describe and explain how
and why those outcomes occurred and their likely implications. After all,
accounting provides the framework for the profit and loss game and accounting
techniques were employed for the crucial task of restructuring the nationalized
industries as commercially viable enterprises in the private sector (NAO, 1992).
This study uses the case of the privatized water industry for two purposes:
first, to examine the extent to which an accounting model and the financial
numbers in the annual reports and accounts can indeed describe and explain
such outcomes; and, second, to assess whether accounting can assume a
constructive and emancipatory role, by challenging the existing problem
definition, for example, of public sector inefficiency, and posing alternative
questions and solutions.
The work contrasts sharply with much of accounting research in the 1980s.
Accounting scholarship contributed surprisingly little to the initial debate on
the relative merits of private v. public sector provision of services. Some
accounting academics did point out that there had been little careful study of
the issues (Heald and Steel, 1986). Indeed the debate was dominated by
economists who espoused the public choice or property model associated with
Alchian, Demsetz and Hayek. Nor have accounting scholars contributed to an
ex post facto assessment. Their contribution has been concerned largely with
Accounting, Auditing &
Accountability Journal,
Vol. 10 No. 3, 1997, pp. 382-405.
© MCB University Press,
0951-3574
Submitted August 1996
Revised January 1997,
February 1997
Accepted March 1997