Prudent, verifiable, and timely corporate accounting is a bedrock of our
modern capitalist system. In recent years, however, the rules that
govern corporate accounting have been subtly changed in ways that
compromise these core principles, to the detriment of the economy at
large. These changes have been driven by the private agendas of certain
corporate special interests, aided selectively--and sometimes
unwittingly--by arguments from business academia
With Political Standards, Karthik Ramanna develops the notion of "thin
political markets" to describe a key problem facing technical
rule-making in corporate accounting and beyond. When standard-setting
boards attempt to regulate the accounting practices of corporations,
they must draw on a small pool of qualified experts--but those experts
almost always have strong commercial interests in the outcome.
Meanwhile, standard setting rarely enjoys much attention from the
general public. This absence of accountability, Ramanna argues, allows
corporate managers to game the system. In the profit-maximization
framework of modern capitalism, the only practicable solution is to
reframe managerial norms when participating in thin political markets.
Political Standards will be an essential resource for understanding
how the rules of the game are set, whom they inevitably favor, and how
the process can be changed for a better capitalism.