Cost - Accounting - Control - and - Capitalism. Trevor Hopper

Part III
Exploitation
Fleischman et al 1st pages.indd 127

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7 Cost Accounting,
Control and Capitalism
Trevor Hopper
MOTIVATION AND CONTEXT 1

2
This chapter relates the labour process theory history of management account- 3
ing articulated by Hopper and Armstrong (1991) and extends the analysis to 4
more recent times. Its antecedents lay in a reaction to the triumphalist history 5
of management accounting portrayed in Johnson and Kaplan’s 1987 book, 6
Relevance Lost. This castigated prevailing cost accounting practice and 7
paved the way for Kaplan and associated consultants to propagate allegedly 8
new cost accounting techniques such as activity-based costing (ABC). Cost 9
accounting and financial accountants were cast as the villains and cause of 10
U.S. manufacturing woes in the face of Asian, especially Japanese, competi- 11
tion. However, despite widespread practitioner interest, Relevance Lost was 12
essentially an historical account, based loosely on market and transaction 13
cost theorizations, of how cost accounting developed (and allegedly stag- 14
nated) during the previous hundred years. 15
Like others, Hopper and Armstrong (1991) were critical of Johnson and 16
Kaplan’s theoretical and empirical claims. A book review of Relevance 17
Lost intending, inter alia, to outline an alternative account of accounting 18
transformation based on labour history grew into a book chapter (Hopper 19
1990), which Peter Armstrong reworked and extended, culminating in the 20
Hopper and Armstrong (1991) article. From inception it was ‘political’— 21
being motivated by the authors’ concerns about accounting’s role within 22
the ideologies of Thatcherism and Reaganism. Its deliberately critical edge 23
was seen as unproblematic. All academic work is politically tinged—denials 24
to the contrary are humbug: to occlude politics merely masks ideological 25
reinforcement of the status quo. Nevertheless, political commitment does 26
not override scholarship and reflection. 27
28
29
30
This chapter is based on the paper “Cost Accounting, Controlling Labour, and the
31
Rise of Conglomerates”, by T. Hopper and P. Armstrong, which originally appeared
in Accounting, Organizations and Society 16, no. 5/6 (1991): 405–38. The author 32
would like to thank the publisher, Elsevier, for permission to use this material. 33
34

130 Trevor Hopper
1 The authors sought to encourage more accounting history research
2 from the perspective of labour within the spirit of the then so-called ‘New
3 Accounting History’ (Miller, Hopper and Laughlin 1991), which incorpo-
4 rated political economy and also Foucauldian approaches. The argument
5 was that Johnson and Kaplan’s theory was:
6
7 Flawed, their history partial and some of their prescriptions neglect-
8 ful of . . . socio-economic conditions . . . In contrast to the social
9 harmony and self-equilibrating framework employed by Johnson
10 and Kaplan, many of the historical events . . . are better understood
11 through a ‘labour process’ approach to economic and industrial his-
12 tory . . . Recognising the need for a more critical, institutional analy-
13 sis of capitalist development, the core presupposition . . . is that social
14 and economic confl icts arising from the modes of control which char-
15 acterise particular phases of capitalist development stimulate the cre-
16 ation of new forms of control intended to eliminate or accommodate
17 resistance and to solve the associated problems of profitability. These
18 new forms of control, in turn, decay, partly because their competitive
19 advantage disappears as a consequence of their generalisation and
20 partly because they give rise to new contradictions and forms of resis-
21 tance. Thus a labour process approach, in contrast . . . stresses crisis
22 rather than continuity; contradiction rather than internal consis-
23 tency; social and political confl ict rather than harmony; the monop-
24 oly power of corporations rather than self-equilibrating competitive
25 markets; patterns of class formation in specific economies rather than
26 an atomised view of the individual; and human agency in its cultural
27 and institutional setting rather than economistic reductionism. (Hop-
28 per and Armstrong 1991, 406)
29
30 The desire was to link accounting’s association with micro-processes
31 of control at the point of production to macro socio-economic changes in
32 capitalism, and to retheorize management accounting from a radical per-
33 spective. The authors endeavoured to be holistic and to establish historical
34 patterns without denying local contingencies and agency. Labour process
35 theory (then a major focal point for much European management research)
36 was influential, especially the work of Braverman (1974) and labour histo-
37 rians such as Clawson (1980); Gordon, Edwards and Reich (1982); Littler
38 (1982); Montgomery (1987); and Nelson (1959). The paper was rooted in
39 conflicts over material interests, control, and resistance to the manufacture
40 of consent. The empirical setting lay in the U.S.—the focus of Relevance
41 Lost. The fi ndings may be pertinent elsewhere but they would require
42 modification to accommodate local events and circumstances. The paper
43 identified three major epochs of cost accounting development: circa 1820
44 to 1870, 1870 to 1920 and 1920 to 1970. It closed by cogitating whether a
45 new epoch of controls was prescient.
46

Cost Accounting, Control and Capitalism 131
INITIAL PROLETARIANIZATION OF LABOUR, 1820–1870 1

2
During early industrialization (pre-1820) owners were often relatively 3
ignorant of manufacture and operational controls, including costs (though 4
undoubtedly examples of experimentation and innovation occurred). This 5
and the shortage of honest and sober managers meant owners had difficul- 6
ties in directly controlling and expanding their fi rms. Consequently, much 7
production relied on putting out and subcontracting within single product 8
fi rms. However, circa post-1820 owners’ increasingly sought to redress their 9
difficulties in directly controlling labour and production and extracting a 10
surplus from it. An initial proletarianization of the labour force occurred, 11
formally subordinating labour to capital. Workers became employees reli- 12
ant on employers and subject to the discipline of factory time and space. 13
However, there was little real subordination whereby employers designed 14
and controlled production processes. 15
Much knowledge of production lay with craftsmen rather than factory 16
owners. Hence owners often relied on skilled artisans, who passed on their 17
knowledge through apprenticeships, and/or heads of households to deliver 18
production under various forms of internal subcontracting. This had the 19
advantage of transferring the need to extract the most out of labour to 20
others, and it mitigated problems arising from the owners’ lack of knowl- 21
edge of production, spread risk, tied costs to output and avoided large 22
overheads associated with complex management controls. In short, craft 23
knowledge acted “as a substitute for accounting” (Littler 1982). However, 24
given their lack of knowledge of production and detailed records of costs, 25
owners found it difficult to ascertain prices and to control craftsmen and/ 26
or subcontractors, especially in times of labour shortage. Owners believed 27
that undue profits were flowing to subcontractors (reinforced by the latter’s 28
ostentatious displays of wealth during periods of prosperity) and regretted 29
that subcontractors, who often instigated innovations, reaped their ben- 30
efits. Consequently fi rms increasingly turned to directly employing con- 31
tractors. This necessitated detailed records of wages, which provided vital 32
information for owners to renegotiate contracts, made subcontractors more 33
reluctant to bid and induced them, albeit reluctantly and spasmodically, to 34
enter direct employment. 35
Faced by increased competition, fi rms such as Lyman Mills, a textile fac- 36
tory in New England (a focal case in Johnson and Kaplan’s study), sought 37
to increase profitability by improving the efficiency of the conversion pro- 38
cess and improving labour productivity. New systems for ascertaining 39
prime cost enabled owners to monitor and compare the performance of 40
workers and supervisors and induce them to pursue ‘company goals’ of 41
reducing direct costs. Given single product factories, measures of return 42
on capital or efficiency measures were of less concern (this is contentious, 43
see Toms 2010a). However, this is not a story of socio-economic prog- 44
ress and enlightenment; owners colluded over wage rates and conditions 45
46

132 Trevor Hopper
1 of work, scrutinized costs to squeeze out efficiency gains and intensified
2 labour by increasing quotas and/or lengthening the working day and/or
3 cutting wages. Discipline was maintained by recruiting rural (often female)
4 and immigrant labour dependent on employers for sustenance. The factory
5 and associated institutions such as workers’ dormitories bore the hallmark
6 of ‘total institutions’.
7 Rather than attributing productivity gains to mechanization and inte-
8 gration, and the growth of accounting to a costless reduction of ‘slack’, as
9 in Relevance Lost, a labour process analysis draws attention to the need
10 to contextualize the intensification of labour and distribution of rewards
11 in terms of struggles to control labour. The suggestion is that the cre-
12 ation of internal cost records marks the beginning of a transfer of fi nan-
13 cial knowledge from the worker to the factory owner, which permitted
14 rewards from innovation to flow in the same direction and helped make
15 visible where returns might best be creamed off and labour be intensified
16 and disciplined.
17
18
19 SCIENTIFIC MANAGEMENT AND THE
20 HOMOGENIZATION OF LABOUR, 1870–1920
21
22 The period after 1870 was marked by heightened competition, geographi-
23 cal expansion of markets due partly to railway developments and economic
24 recessions. Firms responded in two ways: further assaults on internal sub-
25 contracting and craft labour controls and mergers to create more monopolis-
26 tic conglomerates and/or achieve vertical integration. Whether this increased
27 efficiency and drove accounting innovation is disputed. Historians such as
28 Wells (1978) argue that the increased size, concentration and complexity of
29 firms required more systematic means of labour control. This precipitated
30 complex managerial hierarchies to administer the resultant paper bureau-
31 cracy, which increasingly replicated and controlled productive processes.
32 The destruction of internal contracting left “the employer facing the
33 solidity of his own ignorance about shop-floor performance” (Littler 1982,
34 84). Initially employers sought to manage the labour process through
35 cheaper, more dependent, salaried foremen who had replaced subcontrac-
36 tors. This solved the problem of relying on subcontractors but precipitated
37 other problems, namely, how to control skilled craftsmen and their fore-
38 men. The latter’s arbitrary and widespread powers were either a source of
39 worker disputes or employers fretting that foremen’s allegiance remained
40 with the craftsmen under their jurisdiction. Whatever, their efforts at inten-
41 sification were relatively unsystematic. Consequently, many functions of
42 foremen were transferred to centralized staff departments. Rate-fi xers and
43 quality control inspectors appeared on the shop floor and personnel officers
44 took over wage payment systems and hiring and firing. Accounting became
45 integral to aligning foremen’s behaviour with the goals of employers: cost
46

records revealed foremen’s ability to cut costs and bonuses. Competition to 1
minimize costs reinforced such behaviour. 2
The challenge of intensifying craft labour was of a different order. 3
Experiments with piece-rates and time allowances from the 1880s failed to 4
combat output restriction, partly through its association with rate cutting 5
but especially because rates and allowances relied on observation, judgment 6
or past experience and were prone to manipulation and conflict. Employ- 7
ers increasingly sought resolution by adopting ‘scientific management’ in 8
factories. This had profound effects on the control of labour processes 9
and beyond. Scientific management redesigned, fragmented and simplified 10
production jobs so that semi-skilled labour rather than craftsmen could 11
perform them in mass-production factories, often incorporating moving 12
assembly lines. Planning and execution were separated—“All possible brain 13
work [was] removed from the shop and centred in the planning or laying- 14
out department” (Taylor 1903). 15
Taylor maintained that business could be controlled according to objec- 16
tive, repeatable and formally expressed management principles, and that 17
people were self-interested rational economic agents motivated by individ- 18
ual fi nancial rewards but not oriented to expend effort at work. He claimed 19
that a clear, scientific and formal relation could be established between 20
units of effort and fi nancial rewards, reflected in bonuses and piece-rates. 21
Workers would see that working harder would increase the size of the avail- 22
able pie, and through his payment system their earnings would grow (even 23
if their proportion of the pie fell). Piece-rates based on allegedly scientific 24
time and motion studies claimed to remove rate fi xing from labour–capital 25
conflicts and arbitrary judgments. Furthermore, those few who did not 26
respond ‘rationally’ would be scientifically weeded out because their effort 27
levels would be made visible through the supervisory element of scientific 28
management. The result was a homogenized, deskilled and fragmented 29
labour force concentrated in large factories controlled by production and 30
planning control departments marking the growth of management in staff 31
departments. This real subordination of labour to capital is a defi ning fea- 32
ture of a fully developed capitalist mode of production. 33
Taylor, consistent with his views on specializing labour, advocated allo- 34
cating planning and control activities, including cost control, to various 35
‘functional foremen’. There is little evidence that this was adopted in prac- 36
tice. Rather the tasks became the province of specialist staff departments, 37
including cost offices, which monitored ‘line’ performance. This gave birth 38
to the occupation of cost accountant. Scientific management pioneers like 39
Emerson, Church and Harrison promulgated and helped develop standard 40
costing (though its scale, timing of adoption and direct link to controlling 41
labour remains disputed). Nevertheless, as Fleischman and Tyson (1998) 42
note, “at the start of the industrial revolution, standard costing, in the form 43
of past actual costs, aided managers in make-or-buy, pricing, outsourcing 44
and other routine and special decisions. In the late nineteenth century, as the 45
46

134 Trevor Hopper
1 mass production of homogeneous products became more common, prede-
2 termined, norm-based standard costs were promoted as the means to con-
3 trol operations and reduce waste”. However, their allegation that a labour
4 process analysis fails because standard costing was not transmitted directly
5 to operatives and foremen misses the point. The onus on cost control now
6 shifted to line managers aided by labour and materials usage variances pro-
7 vided by staff cost departments. At the point of production it was sufficient
8 to act on costs through physical rather than financial rates. Standard cost-
9 ing reflected Taylorism as it reinforced a separation of execution and con-
10 trol: standards derived from engineering redesign and analysis of the labour
11 process were immune to influence by the workforce, which rendered them
12 potent instruments of management control and work intensification.
13
14
15 FORDISM: COST ACCOUNTING WITHIN A
16 LABOUR–CAPITAL ACCORD, 1920–1970
17
18 The ‘drive’ system mechanized and deskilled production work, increased
19 the power of foremen, made work more impersonal and alienating and
20 created a mass labour market where individual workers became easily sub-
21 stitutable, especially by the ‘reserve army of labour’. Up to the mid-1920s
22 employers vigorously campaigned to “extirpate unionism root and branch
23 in the United States” (Gordon, Edwards and Reich 1982). Trade union
24 resistance reached a low ebb as trade union strength, indexed by mem-
25 bership and strikes, declined. There was widespread worker resentment of
26 budgeting in the 1920s and 1930s due to its association with casualization.
27 Labour bore the brunt of economic fluctuations through layoffs, shortened
28 working weeks and/or the speed up of production lines. Practitioner reports
29 of budgeting during this period reveal a preoccupation with smoothing pro-
30 duction to counter seasonal and other cyclical fluctuations. Early flexible
31 budgeting distinguished cost variations attributable to short-term output
32 fluctuations from ‘genuine’ operating causes. Only by neutralizing union
33 demands for employment security and their influence upon workloads
34 could senior management in companies like General Motors secure the
35 freedom to act on information from their accounting system.
36 Mergers that increased fi rm concentration and vertical integration helped
37 stabilize mass production and the exploitation of economies of scale. Para-
38 doxically, homogenization of labour in factories like Ford created common
39 conditions of work amongst massive workforces and sowed the seeds of
40 the 1930s upsurge of industrial unionism. More fundamentally, growing
41 disparity between wages and labour productivity resulted in depression
42 and mass unemployment, labour unrest and the questioning of capitalism.
43 Despite the opposition of many leading fi rms, several mutually reinforcing
44 developments laid the basis for ‘Fordism’ that changed the socio-political
45 environment of cost accounting until the early 1970s.
46

National unionization of semi-skilled labour in large plants had impor- 1
tant consequences. In the 1930s aggressive anti-trade unionism declined 2
following fi rms and the state hammering out a labour–capital accord that 3
recognized trades unions, addressed their demands and provided a modi- 4
cum of secure employment. The government, believing that strong trade 5
unionism would help revive the economy, passed the 1933 National Recov- 6
ery Act with provisions for collective bargaining rights adjudicated by a 7
National Labor Board (which imposed seniority conditions in layoffs and 8
could hear claims of anti-unionism), and placed an upper limit on hours 9
of work. The 1935 Wagner Act granted employer recognition of trade 10
unions on a majority vote. Wage bargaining moved towards an industry 11
and national level, with wages protected against inflation and tied to pro- 12
ductivity gains. Complex seniority and local patronage based on internal 13
labour markets (a shift from scientific control) began to motivate workers 14
rather than the discipline of external labour markets. Rules for promotion, 15
payment of bonuses and overtime and establishing standard units of work 16
effort proliferated. In return for this labour–capital accord the new Ameri- 17
can Federation of Labor and Congress of Industrial Organizations (AFL- 18
CIO) left unchallenged “managerial prerogatives” to plan and control work 19
and introduce new machinery (Gordon, Edwards and Reich 1982). Apart 20
from periodic renegotiations of labour contracts, trade union militancy was 21
diverted from the fi rm to the state and social wages. This did not prevent 22
the occasional well-anticipated contract strike, but it effectively ended vio- 23
lent conflict with official trade unions. Control was achieved on a political, 24
rather than a scientific, basis. 25
However, these conditions only applied fully to oligopolistic sectors of 26
the economy. Some industries (such as construction and retail services) 27
remained highly competitive throughout the Fordist epoch. The rise in 28
major bargaining centres, coupled on occasion to minimum wage legisla- 29
tion, tended to ripple out to non-Fordist sectors, thereby maintaining rela- 30
tivities and overall demand. But industries with an oligopolistic core always 31
had a periphery of smaller-scale suppliers, distributors and niche market 32
competitors that faced unstable market conditions. Large fi rms often placed 33
the onus of adjustment to fluctuations upon subcontractors and small firms 34
unable to afford the security of employment and high wages in dominant 35
fi rms. Rather than merely representing impure variants of the dominant 36
Fordist reproduction process (that is, how activities within the production 37
process are regulated to cope with differing interests—such as those of cus- 38
tomers, suppliers, employees, trades unions and trade associations), this 39
served to discipline workers in Fordist fi rms. 40
Ideologically, the working class was incorporated into a state, advanc- 41
ing the interests of industrial capital through an offer of moderniza- 42
tion, social reform, equal opportunities and steady economic advance 43
through methods justified as applied science. The labour–capital accord 44
relied upon an interventionist, centralized, Keynesian, welfare-oriented 45
46

136 Trevor Hopper
1 nation-state, with a large bureaucracy to administer public provision of
2 standardized welfare benefits such as national insurance and state pen-
3 sions. Nuclear families living in conurbations, characterized by suburbs
4 of mass housing, and universal education provision and welfare schemes
5 experienced the growing private consumption of standardized mass-pro-
6 duced commodities. The state applied Keynesian demand management
7 through bank credit controlled by a central bank to mitigate trade cycles
8 that might threaten stabilized, high-capacity production runs and the
9 attendant labour-capital accord within large fi rms. Thus Fordism created
10 a virtuous circle of growth—mass production created mass consump-
11 tion, which fed rising productivity from economies of scale anticipated
12 in Fordist mass production. Rising incomes from these gains increased
13 demand, increased fi rms’ profitability and released funds to invest fur-
14 ther in mass production devoted primarily, but not exclusively, to domes-
15 tic markets.
16 The period 1900–1925 had been a ‘golden age’ of costing innovation.
17 Many of its ideas were associated with Taylorism and the efficiency move-
18 ments—but associated accounting innovations did not significantly ripple
19 out to large fi rms until the 1930s. These included: centralized long-run
20 strategy determined at headquarters; decentralized management based on
21 divisionalization, especially return on investment (ROI) performance mea-
22 sures and market-based transfer pricing; functional management structures
23 controlled through static negotiated budgets; operations controlled through
24 flexible budgets and standard costing; and target ROI pricing based on
25 standard volumes. These accounting innovations were crucial to the emer-
26 gence of giant and otherwise unwieldy conglomerates of monopoly capital-
27 ism (A. Chandler 1966, 1977).
28 Divisionalization monitored the performance of managers and invest-
29 ments through delegated budgets. ROI and stock turnover ratios aligned
30 managerial goals with capital accumulation. These and associated manage-
31 ment accounting techniques created a vast shadow paper organization of
32 periodic fi nancial reports that mirrored the productive process, made it vis-
33 ible to managers, helped senior managers assess and compare the produc-
34 tivity of capital invested and reduced their need to continuously survey and
35 intervene into operations, thereby leaving them free to concentrate on stra-
36 tegic issues. Separating planning from execution increased the number of
37 managers devoted to planning and control within the elaborate functional
38 bureaucracies that coordinated operations. As oligopolistic markets deep-
39 ened in the 1950s, Fordist reproduction was increasingly pushed downward,
40 into games and accommodations at lower levels. Paradoxically Tayloristic
41 work measurement, standard costs and flexible budgets were not applied
42 to specialist management functions like personnel, fi nance and marketing.
43 Instead they were controlled by negotiated budgets, not linked directly to
44 volumes. For such managers Fordist reproduction was based on profession-
45 alism and internal bureaucracy, legitimated by claims of expertise based
46

on managerial science credentialed by the proliferation of formal qualifica- 1
tions from universities, colleges and various professional bodies. 2
Given the inflexible technology, the grudging acceptance of a large man- 3
agerial bureaucracy for planning and control and the relatively fi xed costs 4
of supplies, fi nancial gains through capacity utilization became the major 5
variable affecting profits. Firms became preoccupied with sustaining a 6
growing but predictable mass demand and smoothing production to main- 7
tain capacity utilization and reap economies of scale. Forward planning 8
through flexible budgeting, coupled to advertising campaigns and special 9
credit arrangements to regulate demand and inventory buffers to smooth 10
production, helped counteract trade cycles. Given monopolistic markets, 11
large fi rms could control accumulation at all stages, control barriers to 12
entry and recover investments in products and processes free of fears of 13
price competition from new producers. Competition increasingly relied on 14
product differentiation and marketing—pricing was price-making rather 15
than price-taking. Full cost plus pricing based on direct labour hours may 16
have been adequate for this, especially if competitors set prices similarly. 17
Moreover, recovering fi xed costs through volume measures reinforced the 18
economic benefits of scale: adverse volume variances identified failures of 19
planned capacity utilization, material price variances encouraged bulk buy- 20
ing but de-emphasized inventory costs necessary for buffering and smooth- 21
ing production, homogenous mass production simplified product costing 22
by lessening problems of common costs and labour efficiency variances 23
translated performance against time and motion standards into fi nancial 24
terms. Such systems were relatively neglectful of overhead cost control, pos- 25
sibly because they were a small proportion of total costs. The keys to unit 26
cost reduction lay elsewhere in planning production and mass marketing to 27
secure volume. 28
29
30
AFTER FORDISM: COSTING IN DEREGULATED 31
GLOBAL CAPITALISM, POST-1970 32
33
Economic crises, peaking in the 1970s, heralded a new epoch marked by 34
the Reagan regime that restricted trade union powers and cut back social 35
programmes. Piore and Sabel (1984) attribute Fordisms decline to crises 36
in fi nal product markets. Mass markets became saturated and consumers 37
demanded specialized and differentiated goods which mass-production sys- 38
tems were too inflexible to supply. Rates of exploitation and productivity 39
growth declined and capital to output ratios increased due partly to Ford- 40
ist production incurring high downtime costs when programmes changed. 41
Neo-Schumpeterians like Freeman and Perez (1988) claimed that new 42
computer technologies encouraged shifts to information-intensive prod- 43
ucts and processes utilizing flexible production systems. Related industries 44
such as electronics, computers, telecommunications and the service sector 45
46

138 Trevor Hopper
1 experienced productivity growth, but elsewhere productivity gains slowed.
2 Regulation theorists claim that Fordism hit technical and social limits as
3 workers struggled to cope with the growing pace of semiautomatic equip-
4 ment (Aglietta 1979).
5 Global demand and competition, accelerated by free trade agreements
6 such as the North American Free Trade Agreement, increased, and a more
7 consumerist society emerged. This derived its identity from products asso-
8 ciated with a particular image or lifestyle, often espoused through the pop-
9 ular media. It meant that producers had to further differentiate products to
10 meet more diverse and changing customer requirements—particularly non-
11 material factors like quality, brand, service, design and fashion. Product life
12 cycles shortened, and manufacturing became more segmented nationally
13 and internationally. Some fast-growing flexible production districts, such
14 as North Carolina, grew whereas Fordist manufacturing areas like Detroit
15 declined. Similarly, some increasingly demanded ‘high-tech’ services such
16 as fi nance, design and consulting, often but not invariably supplied by small
17 fi rms, developed as new growth areas. Some fi rms, however, maintained
18 and extended Fordist production and marketing, often by subcontracting
19 low-value-added activities (such as call centres) to poor countries (such as
20 Mexico), where tax breaks, lower wages and lighter regulation prevailed,
21 or to peripheral small fi rms unable to afford labour benefits offered by core
22 fi rms. This deleteriously impacted upon the full employment policies cen-
23 tral to Fordist regulation.
24 A more pronounced structure of ‘core’ and ‘periphery’ fi rms emerged.
25 Some smaller fi rms survived by exploiting transnational market niches and
26 joining networks around core firms, whereas others and certain industries
27 (e.g., much of the retail and construction sectors) formed a growing periph-
28 ery. Large core fi rms became increasingly ‘hollowed out’—they developed
29 reduced, less bureaucratic, flatter and less functional management hierar-
30 chies which concentrated on high-value-added activities such as design,
31 network coordination and fi nance. Access and relationships to networks
32 often rely on core fi rms’ policies for grading suppliers and distributors.
33 Favoured suppliers have long-term contracts and collaborate over matters
34 like design and specifications, whereas those outside networks, unless they
35 hold a scarce market niche, increasingly compete over low-value-added
36 activities, which further polarized workers in core fi rms from the growing
37 numbers employed in subcontracting and other peripheral activities.
38 Automation changed production, its planning and control, and reduced
39 the numbers of production workers. Robotics (computer-controlled
40 machines) has replaced direct production workers. Now ‘factories of the
41 future’ working in the dark are envisaged; computer-aided design dras-
42 tically reduces the need for draughting labour, shortens design periods
43 and facilitates standardized parts; computer-aided manufacturing facili-
44 tates rapid machine changeovers for small batches and automatic con-
45 trol of machines and material flows; numerically controlled machines use
46

computers to execute various metal-cutting jobs; computer-integrated 1
manufacturing and flexible manufacturing systems link such machines and 2
control movement of parts; material requirement planning systems ensure 3
materials and products are available for production and customers by due 4
dates, minimize inventory levels and determine manufacturing, purchasing 5
and delivery schedules. Later versions linked to enterprise resource plan- 6
ning systems integrate and automate the provision of internal and external 7
management information, including fi nance/accounting, manufacturing, 8
sales and service dates, across the organization. In essence these changes 9
extended Fordist principles of central planning and technological design to 10
enhance control, not least of labour. 11
In contrast, just-in-time (JIT) systems were a major disjuncture to Ford- 12
ism. JIT accommodates small batch sizes, short lead times and flexibility to 13
quickly meet customer requirements. This has increased inter- and intra-or- 14
ganizational dependencies. For example, purchasing must not merely shop 15
for better prices, but should also monitor delivery times and the quality of 16
goods from suppliers. JIT is preoccupied with eliminating waste through 17
continuous improvement and product simplification; eliminating material 18
handling costs by redesigning shop-floor layouts and standardizing contain- 19
ers; eliminating scrap and rework by emphasizing zero defects in design, 20
operations and materials; and seeking near zero inventories of work-in- 21
progress (by reduced batch sizes, short set-up times, greater flexibility and 22
improved workflows), raw materials (by suppliers delivering directly to the 23
shop floor immediately to use) and finished goods (by producing to order). 24
In contrast to Fordist assembly lines manned by specialized semi-skilled 25
workers, JIT lines are U-shaped or parallel; have balanced capacity; have 26
stable rates; and employ more flexible and multiskilled workers respon- 27
sible for aspects of maintenance, short-run planning, quality, continuous 28
improvement and costs. 29
The effects of all this on labour have been marked. Trade union mem- 30
bership, militancy and concentration, especially in mass industrial unions, 31
have declined as corporations shifted to plant-based bargaining and more 32
individualized rewards. Trade unions, under the threat of globalization and 33
fears of impending employee bankruptcy or relocation of jobs to low-cost 34
regions, often abroad, have increasingly become ‘partners’ of employers. 35
The ‘foot-loose’ location of activities, employer anti-union campaigns and 36
legislation unfavourable to trade unions reflecting ideologies of individual- 37
ism, free markets and deregulation, such as right to work statutes, have 38
mitigated worker resistance to management changes. Indeed, as unemploy- 39
ment and welfare expenditure increased, the state has cut the social wage. 40
Manufacturing jobs have declined and service jobs have grown, not least 41
in fi nancial services, which developed increasingly esoteric and ultimately 42
toxic fi nancial products. The rise of skilled ‘knowledge’ workers has been 43
accompanied by an increase in low-wage workers—often employed part- 44
time and reflecting gender and racial divides. The intensity and insecurity 45
46

140 Trevor Hopper
1 of work has risen, especially amongst workers in the growing periphery.
2 The decline of mass labour unions in urban areas and a rise in individu-
3 alism, consumerism and self-identity, often stemming from popular cul-
4 ture propagated or reinforced by the media and cultural industries, have
5 brought a declining identification with class, especially the working class.
6 Consequently, politics have de-emphasized class issues despite declining
7 social mobility, more pronounced wealth differentials and the few produc-
8 tivity gains which fi lter down to the lower and middle classes.
9 If there was a crisis in Fordism then one would expect a similar crisis and
10 experimentation in cost accounting. Since the 1980s there has been a pleth-
11 ora of accounting innovations, including strategic management accounting,
12 quality costing, balanced scorecards, target costing, throughput accounting
13 and economic value added (see Bromwich and Bhimani 1989, 1994). Their
14 uptake, persistence, practice and effectiveness are contentious, but, prima
15 facie, they represent attempts to create forms of costing and cost manage-
16 ment apposite to the epoch. This is apparent in accounting innovations
17 relating to demand. These include costing product characteristics perceived
18 by customers; customer-based performance measures covering quality,
19 delivery and a product’s lifetime costs to consumers (product life cycle cost-
20 ing); competitive position, cumulative production and learning; competitor
21 and customer cost analysis; accounting control policies related to generic
22 strategies; and value-added accounting and benchmarking against competi-
23 tors’ costs. These resonate with product market changes within post-Ford-
24 ist accumulation regimes such as greater awareness of shorter product life
25 cycles; the importance of innovation for increasing high-value-added activi-
26 ties; increased international competition and market volatility; and rising
27 consumerism and more differentiated and changing patterns of demand
28 bringing non-price issues like services, quality and design to the fore.
29 Automation has provoked increased concerns with conventional cost
30 accounting. For example, investment evaluation procedures, especially dis-
31 counted cash flow, may neglect less tangible benefits such as quality and
32 improved customer satisfaction. Given the increased scale of capital invest-
33 ment and the importance of pre-production activities like product design
34 upon operational costs, automation has become a strategic issue. Similar
35 problems occur with short-run cost controls. Overhead recovery rates
36 based on direct labour hours can produce arbitrary, distorted and volatile
37 product costs in automated settings incurring large depreciation charges,
38 especially if direct labour forms a small proportion of manufacturing cost.
39 Automation of information processing has also had consequences. Reduced
40 inventories render departments more interdependent and supplier relations
41 more important, thus variance reports premised on independent depart-
42 ments responsible for local cost control can give misleading signals on the
43 causes of failure and priorities such as due dates over budgets. Considerably
44 more physical data associated with production such as waste, flexibility,
45 inventory, maintenance, machine utilization, delivery/throughput times,
46

quality and human resources can now be generated, leading to some non- 1
fi nancial statistics becoming more important for operational control than 2
fi nancial ones. Like production automation, automation of planning and 3
control, alongside communication innovations like video-conferencing and 4
email, represent neo-Fordism extending centralized staff planning and con- 5
trol, reshaping technology to control, intensify and reduce labour. 6
On the other hand, traditional production cost controls have diminished 7
in significance. Now controlling the costs of indirect labour and activities 8
and product and service attributes are the main concerns. The nomencla- 9
ture of managerial overheads as ‘burden’ succinctly expresses their posi- 10
tion in Fordist fi rms—costly, relatively immune from cost-benefit analysis 11
but seemingly unavoidable and thus to be grudgingly shouldered. Given 12
overheads were a growing proportion of costs, and the difficulty of asso- 13
ciating them with small batch flexible manufacturing, ABC appeared to 14
offer a superior solution to Fordist cost recovery methods. Its claim that 15
all overhead costs are potentially variable but not necessarily with produc- 16
tion volume resonated with the problems of bloated managerial bureau- 17
cracies in fi rms during Fordism—a major concern of chief executives in 18
the U.S. in the early 1980s. Viewed in this context, and despite evidence 19
that it could give misleading information, ABC’s cult status amongst cost 20
accountants facing a diminished role with declining influence following the 21
introduction of automated and integrated information processing systems 22
is understandable. It offered a neo-Fordist cost accounting solution to neo- 23
Fordist problems, by making visible the drivers and value of many service 24
activities, and thence rendering them amenable to elimination or intensifi- 25
cation by activity-based management or subcontracting to peripheral sec- 26
tors domestically or abroad (Armstrong 2002). In brief, ABC appeared to 27
render overhead activities visible and construct them as economic entities 28
susceptible to new forms of market discipline. 29
In contrast, JIT espouses a different management philosophy. Fordist 30
costing directed at short-run cost savings may frustrate aims of reduced 31
lead-times and wastage and increased flexibility. Increased throughput 32
speeds and small batch sizes have heightened interdependencies between 33
departments, and increased labour flexibility has rendered formal detailed 34
monitoring of production costs difficult and possibly redundant. Hence 35
the switch to real-time physical controls based on kanbans, traffic lights 36
and line stops for quality defects and production bottlenecks. Minimal 37
inventories and regular small batch deliveries from subcontractors and 38
zero defects render cost pools such as quality and goods inwards unneces- 39
sary and precipitate moves towards process and/or backflush costing and 40
factory-wide overhead pools. This compounds problems of tracing costs to 41
products. Standard cost variance reporting may no longer be apposite as it 42
de-emphasizes quality concerns. For example, low labour usage variances 43
might disguise a neglect of maintenance; material price variances might 44
encourage bulk buying and inventory building; utilization and efficiency 45
46

142 Trevor Hopper
1 variances are irrelevant to balanced workflows and inventory reduction;
2 constant standards run counter to learning and continuous improvement;
3 and zero defects eliminates tolerance of planned defect rates. In short, stan-
4 dard costing derived from Taylorism fails to meet the needs of flexible pro-
5 duction. Like automation, it calls for more cost control within engineering
6 and design, procurement and scheduling.
7 Accounting changes associated with flexible manufacture have often
8 been justified within a rhetoric of new forms of governance that empowers
9 workers through devolved and broader responsibilities. The most intensive
10 U.S.-centred research on this is the Foucauldian study of Caterpillar by
11 Miller and O’Leary (1994). They claim the shift to flexible manufacture
12 involving, inter alia, team-working, benchmarking and cellular manufac-
13 turing, constitutes workers as docile ‘economic citizens’. Potentially this
14 could contribute to understanding how accounting reproduces manage-
15 rial ideologies and manufactures consent in new times, and how and why
16 collective identities and action have declined. However, their explanation
17 is non-teleological and concentrates on management rhetoric rather than
18 empirical observation of behaviour. This has raised a barrage of criticism,
19 including their neglect of worker resistance, material issues, trade union
20 militancy, workers’ construction of meaning, the impact of national poli-
21 cies and contextualizing events within changes in capitalism (see McKinlay
22 and Pezet 2010). The result is an ahistorical study.
23
24
25 CONCLUSIONS
26
27 The central argument presented in this chapter is that management account-
28 ing is shaped by and shapes various epochs of capitalism. Transitions are
29 rooted, at least partly, by political struggles, manifest in corporations by
30 attempts to control labour processes. Problems of converting labour power
31 into effort and confl icts over any ensuing surplus are seen as inevitable.
32 Material issues and consideration of economic exploitation have become
33 unfashionable in accounting history circles. Yet economic approaches, often
34 incorporating transaction cost theory and interpretations of Chandler’s
35 work (which fail to recognize his acknowledgement that his work neglects
36 labour history), such as in Johnson and Kaplan (1987), and agency theory
37 explicitly recognize control problems deriving from confl icting interests of
38 agents and principals. However, they depict problems that arise as essen-
39 tially local and portray drives for efficiency as self-equilibrating and in the
40 public interest. In contrast, labour process theory relates such struggles to
41 class formation; the subjugation of labour; and political, ideological and
42 economic arrangements that extend to the state and forms of regulation.
43 The denial of Foucauldians of labour process issues is equally odd, for
44 Foucault often refers to these or notes that they are beyond his purview in
45 specific texts. A common criticism of labour process approaches is their
46

neglect of subjectivity, as Braverman (1974) acknowledges. However, this 1
has been debated substantially since Burawoy’s (1979) study of why workers 2
consent. Foucauldian studies of how accounting knowledge constitutes and 3
disciplines subjects can significantly help understand the ideological role 4
of accounting, but their neglect of industrial relations, material interest, 5
and worker resistance remains puzzling, especially as they are significant 6
factors in sites they study (Armstrong 1994, 2006; Arnold 1998). More- 7
over, it risks ignoring how management accounting practices have involved 8
struggles and choices, and that more humane and egalitarian alternatives 9
have and can exist. 10
Undoubtedly, subjective class allegiances have changed and possibly dimin- 11
ished since the Fordist epoch. However, this does not warrant writing class 12
issues from the script, especially as material inequality, insecurity of employ- 13
ment and work intensification has grown for many U.S. subjects according 14
to economic dimensions of class. Management accounting has played a part 15
in this. But whilst labour has been weakened, its institutions remain intact 16
and resistance remains. To ignore material factors and how management 17
accounting seeks to control labour risks missing important motors for con- 18
temporary changes in capitalism and thence accounting, and in so doing it 19
risks propounding relativism and an acceptance of the status quo. 20
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Part III

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MOTIVATION AND CONTEXT 1

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INITIAL PROLETARIANIZATION OF LABOUR, 1820–1870 1

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