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.
their power. It is thus not surprising that the issue of secrecy in matters of public affairs has long been a source of public concern (see Bok 1982 for a comprehensive overview). The arguments against secrecy cohabit with the arguments against cen-sorship and in favor of free speech (see Emerson 1967, 1970 for a survey). James Madison, the architect of the First Amendment of the U.S. Constitution guaranteeing the right of free speech, captured the crux of the argument: “A people who mean to be their own governors must arm themselves with the power that knowledge gives.
A popular government without popular information or the means of acquiring it is but a prologue to a farce or a tragedy or perhaps both” (letter from James Madison to W. T. Barry, August 4, 1822, cited in Padover 1953 and also quoted in Carpenter 1995).
Jeremy Bentham based his constitutional system on the motive of “personal inter-est corrected by the widinter-est publicity”(1838–43, vol. iv, p. 317) and took publicity as the principal check against misrule.2 In his famous essay, On Liberty, John Stuart Mill (1859) held that subjecting arguments to public scrutiny was unconditionally benefi-cial and provided the most assured way of sorting out good arguments from bad ones.3 In Considerations on Representative Government, Mill (1861) extended the argu-ment to emphasize the virtues of popular participation.4
Essentially, meaningful participation in democratic processes requires informed participants. Secrecy reduces the information available to the citizenry, hobbling people’s ability to participate meaningfully. Anyone who has sat on a board of direc-tors knows that its power to exercise direction and discipline is limited by the infor-mation at its disposal. Management knows this, and often attempts to control the
2. “Without publicity, all other checks are fruitless: in comparison of publicity, all other checks are of small account. It is to publicity, more than to everything else put together, that the English system of procedure owes its being the least bad system as yet extant, instead of being the worst”
(Bentham 1838-43, vol. iv, p. 317; also quoted in Halévy 1972).
3. Mill argues as follows: “The peculiar evil of silencing the expression of an opinion is, that it is robbing the human race; posterity as well as the existing generation; those who dissent from the opinion, still more than those who hold it. If the opinion is right, they are deprived of the opportunity of exchanging error for truth; if wrong, they lose, what is almost as great a benefit, the clearer perception and livelier impression of truth, produced by its collision with error” (see Mill 1859, p. 205, 1961).
4. “As between one form of popular government and another, the advantage in this respect lies with that which most widely diffuses the exercise of public functions; . . . by opening to all classes of private citizens, so far as is consistent with other equally important objects, the widest participation in the details of judicial and administrative business; as by jury trial, admission to municipal offices, and above all by the utmost possible publicity and liberty of discussion, whereby not merely a few individuals in succession, but the whole public, are made, to a certain extent, participants in the government, and sharers in the instruction and mental exercise deriv-able from it” (Mill 1861, 1972, p. 325).
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flow of information. We often speak of government being accountable to the people, but if effective democratic oversight is to be achieved, then the voters have to be informed: they have to know what alternative actions were available and what the results might have been. Those in government typically have far more information relevant to the decisions being made than those outside government do, just as the management of a firm typically has far more information about the firm’s markets, prospects, and technology than do shareholders, let alone other outsiders. Indeed, managers are paid to gather this information.
One might argue that in a society with a free press and free institutions, little is lost by having secrecy in government; after all, other sources of relevant information are available. Indeed, recognizing the importance of information for effective gover-nance, modern democratic societies try to protect the freedom and independence of the press and endeavor to promote independent think tanks and universities, all to provide an effective check on government. The problem is that government officials often represent the only or major source of relevant and timely information. If offi-cials are subjected to a gag order, then the public has no real effective substitute. This is true both with respect to discussions of policy and of data (information), because much of the information that is collected is itself a public good. If the government does not provide the data, no one will, or they will be supplied in insufficient quan-tity. Governments that are engaged in policies that have the effect of increasing in-equality will not want data that show the policies’ adverse effects on inin-equality to become known, at least until the policies are solidly into place. Similarly, policymakers often believe that if they can establish a consensus behind a particular policy in se-cret, then it will be better able to withstand opposition, but that public disclosure of the direction that the consensus is taking before the consensus has been formed will create sufficient public pressure to prevent that particular consensus, or possibly any consensus, from emerging.
To reiterate, openness is an essential part of public governance. Hirschman (1970) described exit and voice as instruments for discipline in organizations. For members of public organizations, that is, citizens, exit is typically not an option, and therefore greater reliance is placed on voice. In the private marketplace how a firm organizes itself—whether it keeps secrets or not—makes little difference. Customers care about its products and prices, and regardless of how the firm organizes production, if it produces good products at low prices it will succeed. Transparency issues arise of course. Firms often lack the incentive to disclose fully the attributes of their prod-ucts, and government, accordingly, enforces a variety of disclosure requirements, including truth in advertising, disclosure requirements for loans, disclosure require-ments for firms raising new capital publicly, and fraud laws (for a discussion of market incentives for disclosure and the need for government intervention see, for example, Grossman 1981; Stiglitz 1975a,b, 1998).
However, public organizations are not subjected to the same kind of discipline. It is only through voice—through informed discussion of the policies being pursued—
that effective governance can be exercised. Because public agencies have an effective monopoly in many of their operating areas, exit is not an option. Consider the differ-ence between doctors in a community that has many physicians and doctors who are the only source of medical care in the community, that is, they have a monopoly. The sole doctor might be tempted to blame the patient when a prescription fails to work by claiming that the patient did not follow the instructions exactly. By contrast, in a community where there is competition among doctors, those whose prescriptions fail to help their patients will eventually end up with a tarnished reputation and their patients will exercise “exit.” If there were a single doctor dispensing treatment the doctor might well try to control information. He or she might argue that doing so is necessary to maintain confidence in his or her cures (and because of the placebo effect there may even be a grain of truth in the argument). The doctor knows that competitive pressure will not force him or her to disclose information, because exit is not an effective option.
In all organizations, imperfections of information create agency problems. As a result important disparities may be apparent between, say, the actions of managers and the interests of shareholders. Similarly, in the public sector agency problems may give rise to a disparity between, say, the actions of those governing and those they are supposed to serve. The lack of an exit option may exacerbate the conse-quences of these agency problems. Obviously, improvements in information can re-duce the magnitude and consequences of these agency problems.