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

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

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

I. Lessons from Information and Economic Analysis (2/2) Focus on:  need for delegation  nature of agency relationships, i.e. the challenges of designing incentives and control systems, as well as screening  incentives for secrecy, disclosure  impact of information on economic relationships

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: incentives to limit contestability of ideas:  “Trust us,” we have information, we can’t reveal it  Moynihan — Secrecy shaped the Cold War  WMD

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

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 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  Clinton tightening, then loosening standards worst of both worlds: ex ante discouraging some to join, then ex post, giving them freedom Controversy over IMF revolving doors

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

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

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

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 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  Use of accounting frameworks to force privatizations, discourage land reform

Information and Policy (2/3) But fear of information provides impediment of 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

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

Concluding Remarks (1/3) Democracy goes beyond electoral democracy to deliberative and participatory democracy 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. Today: areas of intense concern as we enter into a momentous election years:  National interests require balancing concerns over secrecy/openness/privacy  Presumption should be citizens’ right to know, citizens’ right to privacy  Limited exceptions  It is in times of crisis that our values are most threatened, and most tested

Concluding Remarks (2/3) This Administration  has seemingly failed even to understand what is at issue  In doing so it has undermined our democracy  It has enshrouded itself in secrecy, as in energy policy, when there is no benefit except to the special interests whose interests it seeks to protect  It has violated principles of citizen privacy, to facilitate the intrusion of the state into the private affairs of individuals  It has condoned a concentration of media that would undermine the ability of citizens to obtain a diversity of views  It has used secrecy to abuse the fundamental civil rights of individuals

Concluding Remarks (3/3) We need to remember that when the rights of any person are abused, the rights of all of us are abused. It is only through social solidarity that we can maintain our basic civil and human rights.