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Human Capital -- an Asset, Not Just an Expense

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Three decades ago, I left my university campus with a degree in Business and a certainty the profession had a major flaw: The scorekeeping system does not work.

I had learned well the taskmasters of business, the balance sheets and profit and loss statements. Yet, astoundingly, there is no place on those documents to reward a company for doing "good," and no place to penalize it for doing "bad."

I don't mean how much money the enterprise rakes in; the system oversees that with zeal. But there is no accounting for how a company contributes to the overall health of the community in which it operates. There are no ledger credits for decisions that benefit the society, or debits for actions that harm the environment, for example; no way to record the jobs and stability a company provides to the community as an asset.

In the books, those things do not count.

This silence of accounting was a big reason I became a newspaperman, instead. I traveled the globe, and I think what I did was of value to society. Now I sit, well-salted with experience, but left without a job -- a casualty of the very flaws of the system I had seen as a college kid. I watch with chagrin as the economy collapses because the accounting system rewards individual profiteering and ignores a greater responsibility.

Of course Wall Street was consumed by greed; greed is the very basis of the system. And of course big corporations, including the newspapers in which I labored, are falling; they were hoisted atop an accounting pyramid scheme. And of course workers are being laid off in droves; they have no more weight on a financial sheet than widgets or ballbearings. Economists use the term "human capital," but nowhere in accounting principles are people counted as an asset -- only as an expense.

We berate our politicians for not preventing the catastrophe (for that is what it looks like from this side of the unemployment line) and demand fake contrition from a few big CEOs. But there is a strange absence of questions about the whether the basics of our system need to change.

Americans still seem to accept without question that workers should be booted out the door before profits are allowed to dip too low. I was posted in Japan for The Washington Post from 1999 to 2003, when that country still was dragging itself up from an economic slump. American businessmen would smugly lecture the Japanese for a failure to operate efficiently. They would say big Japanese corporations were unwilling to make the "tough" decisions to cut costs in order to boost lackluster profits. The Japanese executives would nod politely, and do nothing.

I admired their response. They were operating by an unwritten set of books, different than Western accounting principles. Their decisions put a value on keeping people employed. For the good of the society, they knew that keeping a company man in the company, letting him provide for his family and pay his rent, letting him maintain his pride, keeping the community structure intact, was worth a lot in the long run.

We demand of our government social accountability, but give a free pass to our businesses and institutions. What sense does it make that our federal government is desperately trying to put people to work, while institutions and corporations -- acting in loyalty to their ledgers -- are busy laying them off? Even local governments and educational institutions announce job cuts in the name of budget constraints with no sense of betrayal to the greater social goal.

We need an accounting system that puts a value on society's needs. We should value businesses in a different way, not just by the speculation of the stock market. There is puzzling little outrage at the chief instrument of our economic mugging: the takeover. Somehow, our nation's business has lost the goal of creating companies that simply make an honest profit, provide jobs and help create stable towns and cities.

Instead, companies are supposed to always and forever grow. They are supposed to gobble up other companies, or be gobbled themselves. In these takeovers, falsely advertised as creating more efficient economic entities, more employees are thrown out of work to try to offset the huge debts created by the purchases. Somehow this has become a glamorous term: leveraging. A more fitting term is immoral.

I am sure free marketers will cry that our system finds the most efficient use of capital, and to weigh it down with social considerations would foul up the works. I doubt many of those critics are unemployed. Others will say taxes paid by businesses reflect social goals. Yet that is just a tinkering of the system; CEOs are applauded for avoiding taxes, which on the whole, they have done very well.

We need a more thorough overhaul, with an accounting system that has a column for debits and credits for social responsibility, and which calculates a job at what it is really worth to us all.

Doug Struck worked for the Baltimore Sun and The Washington Post, both of which are shedding jobs. He has recently been laid off from Harvard University because of budget cuts.