2
Transparency in Government
Joseph Stiglitz
Government is supposed to act in the interests of citizens. When alternative policies will affect different groups differently, it is supposed to identify the tradeoffs, that is, who benefits and who loses from these alternative programs. Government is not supposed to use its enormous powers to benefit its leaders or special interests at the expense of the general public.
Should voters know that the government had violated this trust, they would typi-cally vote them out of office, yet often governments clearly do not act in the general interest, no matter how loosely we define that. To be sure, often specious arguments are put forward for why what reflects special interests is really in the general inter-est, and frequently the public will accept those arguments. Economic issues, in par-ticular, are complex, and given the disagreements that exist among economists, no wonder that others may find that distinguishing among various arguments is diffi-cult. However, many government officials go even further and try to keep what they do secret, that is, away from the glare of public scrutiny.
There is a natural asymmetry of information between those who govern and those whom they are suppose to serve, much akin to the asymmetry of information that exists between company managers and shareholders. The 2001 Nobel Prize was awarded to George Akerlof, Michael Spence, and me for our work that explored the economic implications of asymmetries of information, but such asymmetries of in-formation also arise in connection with political processes and have important con-sequences in that realm. Just as such asymmetries give managers the discretion to
27
This paper draws on Stiglitz (1999). I am greatly indebted to David Ellerman for his in-sights, and especially his knowledge of the historical debates concerning secrecy, and to Roumeen Islam for suggestions concerning the links between the media and transparency. Financial sup-port from the Rockefeller Foundation, the Ford Foundation, the MacArthur Foundation, and the Swedish Agency for Development Cooperation are gratefully acknowledged.
pursue policies that are more in their own interests than in the interests of sharehold-ers, so they allow government officials the discretion to pursue policies that are more in their interests than in the interests of the citizenry. Improvements in information and the rules governing its dissemination can reduce the scope for these abuses in both markets and in political processes. In markets analysts and auditors play an important role in providing information. In the United States Securities and Exchange Commis-sion regulations require the disclosure of certain types of information.1 This chapter discusses information imperfections and asymmetries in political processes and the role of the media, especially in promoting transparency in the public sphere. It also argues that an appropriate legal framework should be in place that enables the media to obtain information and insulates it from undue harassment. To understand the role of the media, however, we must first understand public officials’ incentives for secrecy.
While one can view free speech and a free press as ends in themselves—an in-alienable right that governments cannot strip away from the citizenry—this chapter approaches these issues from an instrumentalist perspective, that is, as a means to achieving other equally fundamental goals. Free speech and a free press not only make abuses of governmental powers less likely, they also enhance the likelihood that people’s basic social needs will be met. Sen (1980), for instance, has argued that countries with a free press do not experience famines, because the free press draws attention to the problem, and people will view a government’s failure to act in such situations as intolerable. These examples highlight the role of information as part of governance processes. Similarly, work at the World Bank and elsewhere has shown, for instance, how pollution disclosure requirements can be an effective mechanism for curbing pollution levels (for an overview see World Bank 1998). Public opinion can force governments, especially democratically elected governments, to take some actions and circumscribe them from taking other actions.
An important insight of modern information theory is that in many respects in-formation is a public good. Whatever relevance the knowledge of, say, the balance of payments has for the actions of various participants in the economy, the use of that information has a zero marginal cost. As in the case of other public goods, govern-ment has an important role in the provision of information. In a modern, complex economy, contrary to the standard theories of conventional (pre-information theory) economics, prices do not convey all the relevant information. Firms and households may care a great deal about information on the growth of the economy, the unem-ployment rate, or the inflation rate. Each month they eagerly await the release of the new data, which governments typically collect.
1. That is, there is the belief, based both on historical experience and economic theory, that market participants may not willingly disclose all the relevant information. Edlin and Stiglitz (1995) showed that managers had an incentive—and the means by which—to increase the asym-metries of information that existed between themselves and outsiders.
Transparency in Government 29
This information not only affects the decisions of private agents, for instance, with respect to production or investment, but also affects people’s judgments about the government. If data suggest that unemployment is soaring, they will be con-cerned that the government is mismanaging macroeconomic policy. If data suggest that inequality is increasing, then their concerns about distribution policies and whether the government is doing enough to help the poor will be heightened. Thus the government sometimes has an incentive to distort or limit information. Some-times the beneficiaries of distorted information may not be the government directly, but particular groups in whose interest it works. For instance, if retirees’ social secu-rity benefits depend on measured increases in living costs or if wages increase with measured increases in living costs, measurements that exaggerate those increases in living costs benefit retirees or workers. In recognition of the incentives for providing distorted information, governments need to, and in some cases have already, set up institutional structures that limit the potential for abuse. Thus it may be important that statistical data be collected by independent statistical agencies rather than by agencies with close connections to particular interest groups.
An old expression maintains that what gets measured gets attention. A huge num-ber of variables exist that could be monitored in principle, but monitoring is costly and the scope for attention is limited. Thus government has an incentive to choose to monitor variables that reflect its agenda or the agenda of the special interests that it might be serving, and not to monitor variables that are adversely affected by that agenda. For example, in the United States the Reagan administration attempted to suppress the collection of statistics related to inequality and poverty, and currently some quarters are resisting the construction of a green gross domestic product ac-counting system, which would take into account the deterioration of the environ-ment and the depletion of natural resources.
While the analysis of information asymmetries has shed new light on the relation-ship between those governing and those governed, the basic insights have long been part of the thinking about democratic processes. In democratic societies citizens have a basic right to know, to speak out, and to be informed about what the government is doing and why and to debate it. Democratic societies have a strong presumption in favor of transparency and openness in government. But there has also long been recognition that on their own, governments and their leaders do not have the incen-tive to disclose, let alone to disseminate, information that is contrary to their inter-ests. More than 200 years ago Sweden enacted what was probably the first set of laws enhancing transparency in the public domain.