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.
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situation. By increasing the mean cost of transition and the subjective variance, se-crecy puts incumbents at a distinct advantage over entrants.5
By the same token secrecy undermines participation in democratic processes even by voters. Voters are more likely to exercise independent judgments—both to vote and to vote independently of a party—if they feel confident about their views, and this in turn requires that they be informed. Becoming informed implies a cost. Voters have a threshold, that is, a limit to the amount of time and energy they are willing to invest in pursuit of the public interest. Secrecy raises the price of information by inducing more voters who do not have special interests not to participate actively, leaving the field more open to those with special interests. Thus not only do special interests exercise their nefarious activities under the cloak of secrecy, but the secrecy itself discourages others from providing an effective check on the special interests through informed voting.
In addition, secrecy may discourage potential competitors, not only because it reduces their prospects of success in the voting process, but because it increases their own subjective uncertainty about whether they can improve matters. How often have officials been elected on a particular platform only to discover that the budgetary situation is far worse than they had envisioned, forcing them to abandon all their plans and engage in a budget balancing act for which they may have neither a com-parative advantage nor a passion?
The adverse effects are, however, even more pervasive. While maintaining se-crecy may be in the interests of the government as a whole, it may not be in the interests of particular individuals. Indeed, this is what gives rise to the problem of leaks. As in the case of other forms of collusive behavior, individuals have incentives to deviate. If a secret is shared among a number of individuals any of the individuals can reap the scarcity rents for themselves by disclosing the information to the press.
If the decisionmaking process is closed, and especially if it is driven by special inter-ests, those who genuinely disagree with the decision may feel that the only way that a “better” decision will be made is to open up the process. To maintain secrecy the circle of those involved in decisionmaking is often greatly circumscribed, and some of those who are able to provide valuable insights are cut out of the discussion. The quality of decision making is thereby weakened. Again, a vicious circle arises. With more mistakes, public officials become more defensive, and to protect themselves
5. In arguing against the Alien and Sedition Acts at the end of the 1700s, James Madison noted how the incumbents “will be covered by the ‘sedition-act’ from animadversions exposing them to disrepute among the people,” while the challengers would have no such protection. So he asked: “Will not those in power derive an undue advantage for continuing themselves in it;
which by impairing the right of election, endangers the blessings of the government founded on it?” (see Madison 1799, 1966, p. 225).
they seek even more secrecy, narrowing in the circle still more, and further eroding the quality of decisionmaking.
As the space of informed discourse about a host of important issues becomes circumscribed, attention focuses more and more on value issues. Making judgments about complex economic issues takes an enormous amount of information, while coming to a view on abortion or family values takes far less, or a far different kind of, information. Thus secrecy distorts the arena of politics. Thus the adverse effects of secrecy are multiple: not only are important areas of public policy not dealt with effectively, but also debate focuses disproportionately on issues that are often far more divisive.
Incentives for Secrecy
Secrecy was the hallmark of the totalitarian states that marred the 20th century, yet even though the public may have an interest in openness, public officials have incen-tives to pursue secrecy even in democratic societies. As noted, this secrecy is corro-sive: it is antithetical to democratic values and undermines democratic processes; it serves to entrench incumbents and discourage public participation in democratic processes; and it is based on mistrust between those governing and those governed, and at the same time it exacerbates that mistrust. Secrecy provides fertile ground for special interests and undermines the ability of the press to provide an effective check against the abuses of government. At the same time, by undermining confidence that supposedly democratic processes are working in the general interests, it feeds those who argue against democratic processes.6
Compelling as the public interest arguments for openness may be, they run up against powerful private incentives of government bureaucrats, elected officials, and the special interest groups that try to influence them. Public choice theory has em-phasized the importance of these incentives (Mueller 1997).
Some of the incentives for secrecy are easily understood: making decisions in secret, without the push and pull of the myriad of forces, is much easier than making them in full public view. Managing democratic processes is not easy, and secrecy provides at least temporary insulation.
Much of the incentive for secrecy is more invidious, however. Secrecy provides some insulation against being accused of making a mistake. If a policy fails to pro-duce the desired results, government officials can always claim that matters would
6. A large literature is available on the meaning of democracy that I do not wish to address in this chapter. Certainly, what is meant by democratic processes goes beyond electoral democ-racy. Electoral democracies in which special interests buy votes lack democratic legitimacy. For the issues at hand, any ambiguity that results from the lack of a precise definition should do little to undermine the analysis of this chapter.
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have been even worse but for the government policy. However, the public judges mistakes harshly. A vicious circle results: given the disclosure of too little informa-tion, the public must rely on government officials’ results in judging their perfor-mance. The officials receive credit for good results, whether they deserve the credit or not, and they are condemned for bad results, whether they are the result of gov-ernment action or inaction. With more information the public might be able to dis-cern the value added of public action more accurately.
Another incentive that public officials have for pursuing secrecy is that secrecy provides the opportunity for special interests to have greater sway. In some societies this takes the naked form of corruption and bribery, but even in societies that view bribery as unacceptable, politicians need campaign funds to get elected and re-elected.
The special interest groups that provide the funds do not do so for the greater public good, but because they believe that by doing so they can influence policy in ways that enhance their profits and profitability. If these actions in support of special inter-est groups are subject to public scrutiny, the scope for favoritism is greatly circum-scribed. Secrecy is the bedrock of persistent corruption, which undermines confidence in democratic governments in so much of the world. As the expression goes, sun-shine is the strongest antiseptic.
Finally, lack of information, like any form of artificially created scarcity, gives rise to rents. The adverse consequences of rent-seeking have long been of concern. An unhealthy dynamic is at work: public officials have an incentive to create secrets, which earn them rents. In some countries public officials reap these rents through outright bribes or by selling valuable information; in others the process is carried out only slightly more subtly through campaign contributions; and in still others it has a critical—and adverse—effect on the press.