THE KNOWLEDGE QUESTION: A NEW ACCOUNTANCY

Nelci Barros, Dr. Eng.
Santa Catarina Federal University. Professor; Production Engineering Graduate Studies Program – Technology Center. Caixa Postal CX. 476 CEP. 88040900.Florianópolis.Santa Catarina. Brazil.


Neri dos Santos, Dr. Ing.
Santa Catarina Federal University. Professor; Production Engineering Graduate Studies Program – Technology Center. Caixa Postal CX. 476 CEP. 88040900.Florianópolis.Santa Catarina. Brazil.




“As the complexity of a system increases, our ability to do necessary statements that are significant concerning this system decreases until a threshold is reached beyond which precision and significance (or relevance) almost become
mutually exclusive characteristics”
Lofty Zadeh – California University


Abstract

This article emphasizes the knowledge question and its economical value. However, before introducing the knowledge matter, the article brings back the accountancy history and discusses the simplification of complex systems that are common to the present accountancy and economy by the use of metaphors based in false analogies. This paper also gives evidence on how the economy is more interested in amounts and proportions than in forms and structures. It is within this context that the expression "Intellectual capital" is discussed, as well as the value chain idea by the point of view of the value intervention, as a founder phenomenon of the economical movements for their variations in time and not for its absolute levels. Finally, there is a discussion about the relation between knowledge and value and its role in the value chain.

Key- words: Accountancy, Intellectual Capital, Knowledge.





1. Introduction

From a brief review of the accountancy history, the article shows up that the single values that appear at the present economical models are those which can be quantified by the attribution of money value. This emphasis given to the quantification lends to economy the appearance of an exact science. At the same time, though, it cramps severely the range of the economical theories in so far as it rules out qualitative distinctions that are essential to the ecological, social and psychological dimensions of the economic activity. On the other hand, the reductionism rationalism that helped the "Information Age" has incommensurable difficulties to survive at the "Knowledge Age". In this sense, Nonaka calls attention to the role of ambiguity and the importance of redundancy when he presents his critique to Simon:(...)"Simon argued that the efficient processing of the information was only possible when complex problems were simplified, in such a way that the units would not interact unnecessarily among themselves (Nonaka and Takeuchi,1992)”. Nonaka also remarks, (...)"This rationalist view, typically Cartesian, made him neglect the human potential of knowledge creation in the individual level as well as in the organizational one: he could not see the human beings as individuals that actively find out problems and create knowledge to solve them (Nonaka and takeuchi,1992)”.

The article discusses the simplification of complex systems by the use of metaphors based in false analogies, that ends up to compromise the reality cutting desired by the authors that often incur in this epistemological trap. However, facing the transformations that the capitalist system has been suffering, creating a new world in which it is not possible to solve problems with tools of the industrial age, it is necessary to search for new instruments to measure man’s work. In this meaning, it is evident how the economy is interested in quantities and proportions more than in shapes and structures. It puts in discussion the expression "Intellectual Capital" as an analogy that lacks logical fundament. According to it, it is elaborated the contents of the passage of Homo economicus to the Homo cognoscens, creator of the learning organization. It discusses the value chain, from the point of view of the value’s intervention, as a founder phenomenon of the economic movements for its time variation and not for its absolute levels. The article points out the question of a new invisible hand of the emergent system (1), where it is not the market anymore, but the network which puts man behaving economically as a beehive biologically behaves. In this new society, the richness concentrates at the ability and at the speed in which the information is changed into action. As it was shown, a new accountancy will appear. Not based in traditional algorithms, but with the support in subjects as fuzzy logic, which is able to offer the modeling of the system-company a contribution of pragmatic nature in the handling of imprecision, introducing, for example, the capability to consider qualitative variables and use them when making a decision, with suitable mathematical support. Theories such as the diffuse sets (base of fuzzy logic) offer potentially at the micro economy and in the knowledge management a privileged field of application.


1.0 The appearance of the accountancy

The man was always interested in register his exchange transactions. The first signs of commercial activities date from 4.500aC. In this period, the Assyrians, Chaldeans and the Sumerians, people who used to live in the Mesopotamia, area between the Tiger and the Euphrates rivers, produced excellent harvest because of the rich soil. The richness of this area gave rise to cities where the first market centers appeared. In Egypt, the businesses carried out were registered using the Papyrus and the hieroglyphic system. The people responsible for the writing were the Scribes that nowadays are considered the forerunners of the accountant. In the Babylon Empire, the registers were carried out using clay plates of different shapes and sizes and the cuneiform system. The Phoenicians stood out in the Antiquity for having commerce as the main activity. They gave a big impulse to sea commerce and used their own alphabet to make their registers. In the Roman Republic, 200 BC, more elaborated governmental registers were created showing profits, expenses and property relations. In the Middle Age, in England, special books were used to the business and property registers. Leonardo of Pisa published a book with chapters about addition, subtraction, product prices, partnerships, and also introduces the ten Arabic numbers: 1,2,3,4,5,6,7,8,9, and 0, it is within this context that is elaborated the Method of Double-Entry Bookkeeping (MASI, 1955). The appearance of the accountancy as a method of control and business transaction register was only possible because of the simultaneous existence of some elements such as: (I) Writing; (II) Arithmetic; (III) Property; (IV) Commerce; (V) Capital.
It is attributed to Luca Pacioli, a Franciscan friar, born in Italy, the creation of accountancy, more specifically the Method of Double-Entry Bookkeeping. In 1494, Pacioli published a mathematics treaty named "Everything about Arithmetic, Geometry and Proportion", in which included 36 chapters about accountancy, named “Of Reckonings and Writings”. Pacioli did not claim the authorship of the Method of Double-Entry Bookkeeping for himself. According to documents of the time, the merchants of Venice already used this method for some years (MATTESSICH, 1960). His merit was that of organizing a complete accountancy system that is still used in the whole world. The Industrial revolution, the intensification of international trade, wars, brought a number of bankruptcies and the need of a survey of losses and profits. The growth of business in the XX century, were factors that concurred for the improvement of the accountancy (VLAEMMINCK, 1961).

The accountancy as we know today, settled to the Industrial Revolution giving support to the register of acts and facts necessary to the transactions created by commercial and industrial activities.
However, the transformations that the world economy has been suffering are creating a world where we cannot solve the things with instrumental of the industrial age. A new accountancy is going to appear to take care of other appropriation ways where the explicit consideration of the inherent imprecision to the information will dominate.
The current economy characterizes for the typical fragmentary and reductionism emphasis of the major social sciences. Usually, economists do not recognize that the economy is merely one of the aspects of an ecologic and social context: a "live" system composed by human beings in continuous interaction with its natural resources, the great majority of which is formed by living organisms. Therefore, Capra, says that "The basic mistake of social sciences consists in separate this texture in supposedly independent fragments, dedicating itself to its study in separated universal departments."(Capra, p:180,1982).

The economists, although knowing that the studied phenomena are not of linear occurrence, dedicate themselves even so to the elaboration of linear models to study the economical subjects from this reality cutting. The only values that figure in the present economic models are those that can be quantified through the attribution of money value. This emphasis on quantification gives to the economy the appearance of exact science. At the same time though, it restricts severely the range of the economic theories when it excludes qualitative distinctions that are fundamental to the understanding of the ecological, social and psychological dimensions of the economical activity.

Therefore, Capra believes that big distortions are created according to this appropriation methodology. (...)"For instance, the energy is measured just in kilowatts, independently of its origin: no distinction is done between renewable and non-renewable goods and the social production costs are added, incomprehensibly, as positive contributions to the Gross National Product (Capra,1983).

The traditional economical theory is linear and is not aware of the forms, as Schackle points out:(...)"The economy is interested in quantities and proportions, more than in forms, structures and complex combinations of components: of a rich variety (...). But this polarization on the calculated aspects of the businesses excludes from a very big part everything that touches the businessman and the common man more deeply, in the prime of his nature. We can say that: the economy adopted as a map the matter of "how much"? and conscious and deliberately discarded all "how"? (Shackle, 1972).
In this universe of absolute rationality, the imprecision (and, particularly, the uncertainty) attached to the future is ignored. If it is apparently taken into consideration in the probabilistic approaches, these are overlapping possibilities, quantifying, and restoring them to the present connected to a mathematical hope. The probabilistic march seeks, this way, to convert the uncertainties into certain statistics.


2.0 The knowledge management and the false “Intellectual Capital”

In spite of the expressions Knowledge Management and Intellectual Capital have been used indistinctly, it is convenient to notice that the former expresses the idea of a process, therefore dynamic and comprehensive, while the latter one refers to the stock notion.
People’s knowledge, in a knowledge intensive economy, acquires characteristics of a potentially valuable property, sometimes scarce but that ideally should be shared. It is important to point out that the expression Intellectual Capital is inadequate once that the knowledge analogy with the capital is not suitable for many reasons. The first one is about the systematic of considering the existence of Intellectual Capital. Capital is cumulative and its use offers a losing and accumulation variation while knowledge does not wear itself because of use and application. The opposite happens, it grows when used and disappears if it is not used. The second is about the simplification of complex systems using simplifying metaphors, in which the reality cutting is applied resulting in distortions.
In the present literature that discusses the knowledge management subject, there are a great number of examples about the value of a company or product's brand, associated to "how much" knowledge is enclosed in the considered product. Demonstrative graphs are elaborated, trying to show the fraction of knowledge put into these companies' stock next to its estate value.
It is the construction metaphor abuse. There is no way to do this quantification having as support our present accountancy paradigms. We cannot discuss the question about volatility and prices formation that give the stock value of the companies in the market. However, it is important to say that it is not measuring the knowledge contained in each product or protected by patent law that we will find the number we are looking for. It is necessary to have in mind that in this area, a lot is to be constructed, and that is why we can not use neither the present economy structure nor Frei Lucca`s Double-Entry Bookkeeping accountancy.





3.0 From the Homo economicus to the Homo cognoscens

The organizational innovation has today more potential progress than the technological innovation. This explains the central role of the organization at the present economic phenomena.
In the industrial society, richness was associated to a production model that privileged the standardization and the segmentation. In the knowledge society, the new production model presupposes the connectivity and integration with the processes been seen in its totality and the knowledge constituting itself in the most important source of value aggregation to the products. In this new society, the richness concentrates on the capacity and in the speed that the information is transformed into actions.

The creative know-how and knowledge are, by its application to the production of economic richness, the direct sources of value movements, therefore, of the economic phenomena. The technology appears as a historical accumulation of social know-how, in hardware, in equipments, crystallizing the technological acquisitions and also in the qualification, crystallizing group learning. The investment (material or non material) is a growth of this "know-how", it only performs on the economic development (global productivity) through its innovation content (direct or indirect).
Such approach lights up debates that are often endless and unsolvable, about value, for instance: the famous debate about the Marxist theory of changing value into production price.
The Homo economicus becomes Homo cognoscens, defined by the information he receives, that he creates and treats, usually in a group way. He builds himself in the knowledge, always changed and always enriched by the retroactive effect of experience. The real productivity is based on know-how (technical, social and organizational) and the qualities that are resultant of it: quality of the human work and quality of the equipments.

The performance is not individual but it is social. The creation of formal knowledge lives in the range of the social group, from the tacit knowledge to the explicit knowledge and its formalization (Nonaka and Takeuchi, 1996).
From the current accountancy point of view, this problem is usually approached in a static way. Most of the comments and discussions, that it inspired, are located, implicitly or not, in a non temporal space or false real time: equations of some people and critics of others are registered in a synchronous space.
In this synchronous "cut" of the reality, the problems stated are perfectly insoluble. Value and price, that move in a diachronic universe (through time) are not adjustable and do not have any reason of closing cycles, in a synchronous way.
The value comes as a founder phenomenon of the economic movements for its variations in time and not for its absolute levels. The knowledge appears as a component of the chain value. However, a static law of value cannot be seen as a base for the comprehension of an economic world structured by the (irreversible) movement and by imbalance.
The unique and really pertinent law of value should be a law of value’s change: The founder law of the economic theory should not be the value law, but a changing value law. Variations of value are founded on innovation that means, on the heuristic exploration of new technical - organizational know-how.
The value change, that "activates" the economic system, results of the innovation that is, the development and putting in practice of new knowledge. Such observation opens a way for a cognitive approach of value.
It is necessary to use in economy the conquests of the cognosis to understand the behaviors of learning, construction of knowledge and innovation. The Homo economicus becomes Homo cognoscens, defined for the information that he receives, that he creates and deals, usually in a collective way. He is built in knowledge, always modified and always enriched by the retroactive effect of the experience. The true productivity is founded on the knowledge (technical, social and organizational), the qualities that come from it: quality of the human work, quality of the equipments and its application in the production of goods and services.
No quantitative accumulation can explain the past growth: (…) "The entomologists", explains Simon, “can often distinguish different types of moths for the differences of the cocoons that they build. The cocoons are different because the moths are different. In the same way, the changes in the physical equipments intended for production are symptoms of changes corresponding to man. They are symptoms, particularly, of two kinds of internal changes in the talents: the changes in the talents to manufacture these equipments and the changes in the talents to use them" (SIMON, 1966).
The "invisible hand" of the emerging system is no longer the market, but the "network". And this behaves economically like a beehive behaves biologically. It has three characteristics that distinguish of the market: (I) it is global; (II.), it favors everything that is intangible (ideas, information, know-how and relations); (iii) it is intensively interlinked. These three new attributes created a new kind of market and society based on electronic networks.

On the other hand, the Financial Revolution that draws near at the beginning of the new century, is much more important than the e-commerce. And it has been pointed out even less than an absolutely revolutionary thing in terms of market - the concept of auctions developed by "eBay.com" (2). This concept indicates that "eBay.com" established a new tendency. The concept of auctions will be extended to the whole retail trade. It will create an auction economy, a market in which the price starts to be negotiable. It will be another new law.
When, in this context, the domain of uncertainty and learning are approached, the subjectivity dominates the subject: the company or the manager feel an aversion for the risk that belongs to them, a faith in the future that affects his conception of the world and intimate philosophy, a learning capacity linked to his motivation and project.
This subjectivity implies in partial short-sightedness and autonomy: the judgments and the external expectations related to the human behavior will be expressed more in qualitative and approximate statements of the natural language, for instance the expressions: "He works well", “the solution is good", than in contour statements full of mathematical language; "he works 90% of the established patterns", " the solution accomplishes the best under such restrictions" and so on.

In fact the system-company answers to an imprecise nature (more specifically fuzzy, in the sense of the theory of fuzzy sets [3]), in which microeconomics and management offer potentially a privileged application field.
The theory of fuzzy sets [3] answers an observation made by L. Zadeh in 1978: “As the complexity of a system increases, our aptitude to formulate precise statements that are more significant to its behavior decreases until a threshold is reached in which precision and meaning become naturally exclusive”. We enter then in the domain of the "approximate" statements: the elements x of a U set can not, relative to a subset A, be distributed in a binary way between "elements that belong to "A" and elements that do not belong to "A". The x elements will show a certain degree of compatibility with A, supplied by an r function of pertinence F(x). If x has a compatibility degree with A of 0 or 1, the "classic" cases of pertinence and no-pertinence are met again. But all the intermediate values describe the "fuzzy zone" of partial compatibility with A.

The degree of pertinence can be expressed: by numbers between 0 and 1, by non-calculated values (for instance, borrowed of the common sense language: "a little", "average", "a lot"), totally ordered and allowing to establish comparisons and preferences in an exhaustive way (about all pairs of elements), or partially ordered (not allowing to establish comparisons other than between certain pairs of elements).

Thus, the pertinence degree expresses a classification more or less precise and complete, regarding the criterion that formalizes the fuzzy set. It can be, for example, a judgment value about a decision: the degree of compatibility of the decision considered with the satisfactory decisions set. It reflects a judgment that corresponds to a certain state of information, approximate and by all means temporary, and also that experience will enable to improve.

This theory offers a susceptible instrument of describing the limited rationality. It postulates a judgment (in the form of a complete or partial order relation among the decisions) that tries to improve by experience (for example, through the method of trial and error). There is continuous effort to make precise the outlines of the "satisfactory" subset of these decisions, while the transformations tend, in a permanent way, to make difficult its best definition. There, where a perfect rationale seeks to limit the acceptability space in a univocal manner, limited rational expresses itself by a "fuzzy satisfaction zone" (non-localized by the optimum).

For instance: if the zone of satisfaction is defined in the following way: cost C understood between X and X + X; tax of refuse inferior to 2%, with an objective of 1% "reasonable" and at a reasonable cost; The choice among three decisions A, B and C, respectively with best performance regarding to cost, quality and time, can only be done based on a judgment of value (relationship of implicit order among parameter triplets) susceptible of evolving in the light of experience.
There is no magic system of weighting coefficients that allows reducing a reality that has important quantitative and qualitative intrinsic characteristics to a unique numerical scale without losing an essential part of information. Thus, the great potential of using the fuzzy sets theory to serve as a support for the development of new ways of "accounting" registration for the nuances of the knowledge in the organizations.


Final remarks

The economic progress function is insured by the elaboration of knowledge that modifies value. The learning of this new knowledge goes through improving representations and their organizing power on account of efficiency. As we previously discussed, the best representation does not follow algorithmic procedures but heuristic ones. The current accountancy should evolve gradually to a fluid dynamics, non algorithmic, supported by heuristic techniques of appropriation.
The company-system must be submitted to a measurement and conduction tool, but this must be measured and conducted itself. The measure of the measure, the recreation of rules, the engineering of change are essential functions in the modern company, whose organization is many times structured by temporary projects, that makes it more mobile.

The individual creator of the economical activity, therefore, necessarily has a critical dimension: he cannot possess the dynamism of the innovation unless he has the power to criticize and modify the rules that govern the activity (decision rules, technical process rules, product definition rules).
To create a new tool and parameter for measuring the Age of Knowledge can be a present challenge. The law of changing value demands, from this Homo economicus, an anticipation of the future creativity.
The appreciation of knowledge and the registration of its value with the aid of a new accountancy that properly considers the inherent imprecision to the new economic order, are challenges that are to be included in the researches for the new bases of the knowledge economy.



References

CAPRA, Fritjof - The Turning Point : Science, Society, and the Rising Culture. Bantam Book,New York 1981.
MASI, Vincenzo – Lineamenti di Storia della Ragioneria, edição C. Zuffi, Bolonha, 1955.
MATTESSICH, Richard – Academic Research in Accounting – The Last 50 years, in Asia Pacific Journal of Accounting, número 1, volume 3, Hong Kong.
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NONAKA Ikujiro and TAKEUCHI, Hirotaka. Knowledge-Creating Company: How Japanese Companies Create the Dynamics of Innovation Oxford Univ. Press 1995.
PARKER, R. H. – Research needs in Accounting History, em The Accounting Historians Journal, edição da The Academy of Accounting Historians, Birminghan, 1977
PIAGET, Jean - L’Epistémologie génetique. Paris, Éditions Eyrolles, 1970.
SCHACKLE, G.L.S. Epistemics and economics. A critique of economic doctrines. Cambridge University Press, 1972.
SIMON, Herbert. - Models of bounded rationality. Cambridge (Massachusetts) e Londres, MIT Press, 1982.
SMITH, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations, 2 volume (London, W. Strahan & T. Cadell, fifth edition, 1789, Philadelphia, Thomas Dobson, 1789.
VLAEMMINCK, Joseph H. – Historia y Doctrinas de la Contabilidad, versão espanhola de José Maria Gonzalez Ferrando, edição EJES, Madrid, 1961.
ZADEH, Lotfi - Fuzzy sets Revista Information and Control, nº 8, 1965.


NOTES

1 Reference the Reference to Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 2 volume (London, W. Strahan & T. Cadell, 1776) second
edition, revised, 1778, third edition with "Additions and Corrections, 3 volumes (London, A. Strahan & T. Cadell, 1784), fourth addition (London, A. Strahan & T. Cadell, 1786), fifth edition, 1789 (Philadelphia, Thomas Dobson, 1789).

2 the eBay virtual community is composed of individual shoppers and salespeople that can compare prices, get to know from each other, topics of mutual interest, or request some information of each other. The eBay turns a part of the users' lifestyles. Many users created second businesses, or started to sell goods for many other eBay users. (http://www.ebay.com /)

3 the term "Fuzzy Logic" was created by the professor Lofty Zadeh of the University of California. Professor Zadeh introduced this theory in the sixties. It is a super set of the conventional Boolean Logic that was expanded to include the concept of partial truth, values between totally truth and totally false.