1. Information and Political Processes Joseph E. Stiglitz September 3, 2004 American Political Science Association Chicago, 2004

2. Overview – Information and Political Processes Lessons from Information and Economic Analysis The Uses of Secrecy The Uses of Privacy The Citizen’s Right to Know Information and Policy Concluding Remarks

3. I. Lessons from Information and Economic Analysis (1/2) Models with perfect information provided poor guidance for economies with imperfect information Every one of central theorems of economics was overturned Brought new understanding to economic phenomena that were hard to understand otherwise

4. I. Lessons from Information and Economic Analysis (2/2) Focus on:  need for delegation; delegation gives rise to agency  nature of agency relationships, i.e. the challenges of designing incentives and control systems, as well as screening  impact of information on economic relationships  Can increase or decrease extent of information asymmetries  Can affect extent, consequences of conflicts of interest  Can affect nature of competition, rents  incentives for secrecy, disclosure

5. The Uses of Secrecy (1/4) Economics: incentives not only to discover and reveal information, but also to hide information  To hide failures, incompetence: limiting ability to screen Economics: incentives to limit competition, e.g. in market for take-overs (Edlin and Stiglitz) Politics: parallel incentives, to hide failures and to limit contestability of ideas:  “Trust us,” we have information, we can’t reveal it  Moynihan — Secrecy shaped the Cold War  WMD

6. The Uses of Secrecy (2/4) Agency problems: Principle controls agent not only through incentive structures on output, but also through inputs, and through constraints on processes, on activities of the agent, etc:  disclosure can limit extent of conflict of interests (ensuring compatible incentives, heightened safeguards) Politics: disclosure of membership in Task Forces Controversy over Health Care Task Force, Cheney Energy Task Force  Processes as control devices Open proceedings ensure that they are complied with Secrecy gives opportunity to hide failure, to increase asymmetries of information

7. The Uses of Secrecy (3/4) Agency problems (ctd.):  Need to go beyond disclosure: to restrict potential and actual conflicts of interest Accounting Politics: revolving doors Controversy over IMF revolving doors Not without cost:  Some may not take up a job because it raises costs of government service  Some may not take up a job because it reduces benefits of government service  Tightening, then loosening standards worst of both worlds: ex ante discouraging some to join, then ex post, giving them freedom

8. The Uses of Secrecy (4/4) Rent-seeking: artificially created secrecy, like any other artificially created scarcity, gives rise to rents  Information has value  In some societies, information is directly sold  In America, it is “exchanged”  In media: “leak” in exchange for “good coverage” Consequence may even be worse  Distorted information  Cover-up  Distorted policy decisions Nash equilibrium — hard for media to resist

9. The Citizen’s Right to Know Follows from view of government as working for individuals Like employer’s right to know what employee is doing, at least on company time Long history — 200 years in Sweden in U.S.: Freedom of Information Act Not without cost: shapes record-keeping, even discussion Limited exceptions: But even in national security, cost was high: Moynihan claims increased length and cost of Cold War

10. The Uses of Privacy Lack of information restricts government’s ability to do certain things Effective instrument for enforcing constraints on government, given limitations on other constraints  Cannot impose progressive taxation if the government does not know total income Right to privacy sometimes thought of as a right in its own, but is also important instrument in restricting government’s intrusion

11. Information and Policy (1/3) Policy shaped around beliefs, beliefs are affected by information  Keeping statistics on inequality, poverty  Reclassifying McDonald’s as a manufacturing job  Consequences of going to chain-weighted GDP, new unemployment measures  Political processes/dynamics also shaped by information  Information affects not only beliefs but actions  Affects coalition formation (transactions costs)

12. Beyond question of freedom of information act presenting information in way that it can be understood Participatory budgeting Gender budgeting Green GDP GDP vs. GNP Measuring liabilities, not assets Information can and has been used to drive political agenda Use of accounting frameworks to force privatizations, discourage land reform

13. Information and Policy (2/3) But fear of consequences of information is an impediment to change  Making size of subsidies more apparent (e.g. in electricity) may make them untenable—partial explanation of persistence of seemingly Pareto inefficient policy And fear of information that might force change provides drive for secrecy  IMF response to open discussion of consequences of its policy in East Asia crisis  Belief on other side that “if only there were an open discussion, policy would have to change” provides impetus for demand for discussion

14. Information and Policy (3/3) Lobbying is often viewed as the provision of information about consequences of policy, often more accurately provision of arguments to be used in deliberative process and information about who feels strongly about issue and how much they will pay Disclosure of information about lobbying and campaign contributions is an example of disclosure of information of information about potential conflicts of interest, does have some effect Dangers of media concentration — restricts flow of information and therefore shapes political processes  Russia, Italy, … Power of independent press can be important — Sen and impact on famines

15. Concluding Remarks (1/3) The issues I have talked about are of intensive academic importance, in thinking about how we shape our democratic institutions and processes to ensure that they reflect better the broader will of the citizens. National interests require balancing concerns over secrecy/openness/privacy Must recognize consequences of ‘rules’ and ‘processes’, including that affecting secrecy and privacy  Presumption should be citizens’ right to know, citizens’ right to privacy  Limited exceptions  Constraints are imposed not for ‘normal’ times but to restrain behavior, abuses in times of crisis  It is in times of crisis that our values are most threatened, and most tested

16. Concluding Remarks (2/3)  Key questions: INCREASED SECRECY  Secrecy in energy task force—were there significant benefits, except to the special interests whose interests it seeks to protect? In the treatment of prisoners: Do the social benefits of secrecy and the erosion of principles of protections of due process, if there are any, justify the abuse the fundamental civil rights of individuals, including those that have been facilitated by that secrecy—almost predictable consequences

17. KEY QUESTIONS: PRIVACY Did the ‘social’ benefits of recent violations principles of citizen privacy, facilitate the intrusion of the state into the private affairs of individuals, exceed the costs, including potential abuses of the power of the state

18. KEY QUESTIONS: MEDIA CONCENTRATION Do the economic benefits, if any, from allowing increased concentration of media, as has recently been advocated by some, exceed the economic and social costs, including the potential undermining of the ability of citizens to obtain a diversity of views

19. Concluding Remarks (3/3) THERE HAS BEEN AN ATTEMPT AT A MARKED CHANGE IN THE RULES AND PROCESSES THAT RELATE TO INFORMATION AND POLITICAL PROCESSES THESE CHANGES WILL INEVITABLY AFFECT THE NATURE OF POLITICAL PROCESSES THEMSELVES WE NEED TO THINK CAREFULLY ABOUT THE CONSEQUENCES