Monday, December 13, 2004

Reprise Entry: Why Contemporary Accounting
Practices = the Steroid Fuss  

While no serious baseball fans I know personally are very excited about the steroids in baseball fuss (winter meetings are on), my mail is significantly juiced with people mainlining the news drip, so I thought I'd feed the interested with another entry, one I wrote during spring training. It relates some baseball lessons people outside baseball can get some value out of.

Asterisks Next To Marvin Benard's
Stat Line - When Juice is Addictive  

"Generally accepted accounting practices", the life's blood of business organizations, are exactly like legal nutritional supplements; they can be really effective for early adopters, and if competitors don't jump on the bandwagon to juice their books, they are at a competitive disadvantage, but the long-term effect is to degrade everyone that uses them. Finance dudes who create their own, or deploy them before the Financial Standards Accounting Board has designated them generally accepted are the exact equivalent of athletes using steroids or other illegal substances to try to enhance their numbers..

Finance types at most publically-held firms are always pushing the envelope in creative accounting because the need to perform at a high level (see Enron, Global Crossing, Syntex, Microsoft) to please institutional investors is overwhelming, and the pressure is constant. One a competitor has jumped into the application of a way to improve their apparent results (this is different from baseball, of course, because in baseball, the results are real, not imaginary), it behooves every other accountant in every other competitor to do the same. Offshore tax shelters, accelerated depreciation, lease buyback, LLCs, the renting of prison labor in Communist China while labeling the products Made In U.S.A., all these things are performance enhancers that degrade whole systems around them. The Major Barbara argument: If I don't do it, someone else will. And if others do it and you don't, you're at a competitive disadvantage.

Assuming these supplements improve actual performance (either because of the placebo effect or because of some actual improved physical skill), this is a classic Tragedy of the Commons problem. What benefits any individual may be bad for the system as a whole, which means, in the long run, it's bad for the individual who is part of that system. (If you don't know this concept, I strongly urge you to read the linked article; this, more than any other single article you'll ever read explains why most organizations are dysfunctional -- where it talks about farmers and cattle, insert managers and initiatives).

I'm, personally, not concerned about the use of supplements in baseball from a statistical point of view. I don't think it tainted any of Marvin Benard's or Barry Bonds' stat lines. You still have to hit the ball, make contact of quality x with the proper form and follow through. You can't inject or swallow or rub into your scalp or snort coordination or instincts.

Marvin Benard on steroids, legal or otherwise, is still a marginal 5th outfielder.

Records are records. Rules change, practices change. As my buddy John Pastier has said, any batting record posted after the last legal spitballer retired was earned with an advantage predecessors didn't have. Strike-free foul balls, racial segregation (Ty Cobb and Christy Mathewson don't have in their stat lines data accumulated against any African-American, German, Dutch or Aussie ballplayers), systems change.

The truly sad thing is it appears that players who prefer not to use supplements feel the need to use them to stay competitive, the way every finance functionary who wants her publically-held company to succeed has to use these bookkeeping tricks and other Commons-ist practices. And just as it appears there are quite extreme mid-term and long-term health affects for ballplayers who use (some data indicates it can cut life expectancy 15 years), we know the finance& management tricks are destructive of the economy as a whole, whether it's exporting jobs to Communist prison camps where people work without pay, or being able to deduct a charitable donation of software that lists for $1,000 and wholesales for $500 and costs $75 per marginal unit for $500 on your corporate taxes, or setting up subsidiaries in the Grand Caymans and shuffling money around to avoid paying their fair share.

There's only one solution in a Commons.

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