North American Journal of

Economics and Finance 12 (2001) 105120

Hopes and delusions of transparency

George M. von Furstenberg*,1
Fordham University Graduate School of Business, New York, NY 10023-7484, USA

Abstract
Changing the transparency of principals, agents, or technologies affects their power relations with
the users of transparency. I explore the complexity of these changes, drawing for concreteness on
prescriptions of transparency ranging from the Age of Enlightenment to the 2000 Kyushu-Okinawa
and earlier G8 summits and the transparency codes promulgated by the International Monetary Fund
(IMF). The discussion ranges from gifts and exchanges of transparency to demands for international
transfers of transparency. The main message that emerges is that greater transparency, far from having
the characteristics of a simple public good which yield nonrival benefits to all consumers of this
quality, is bound to be a contentious issue between the parties jockeying for control. While greater
transparency of political agents can be helpful to principals even when not necessary or sufficient for
improved governance, greater transparency of the principals themselves often harms them. 2001
Elsevier Science Inc. All rights reserved.
JEL classification: F02; H4
Keywords: Transparency; New world economic order

More Light to Glasnost! We want more openness about public affairs in every sphere of
life. . . Truth is the main thing. Lenin said: More Light! Let the Party know everything! . . .
People are becoming increasingly convinced that glasnost is an effective form of public
control over the activities of all government bodies, without exception, and a powerful lever
in correcting shortcomings. (Gorbatchev, Perestroika, 1987, 7576).

* Corresponding author. Tel.: 1-212-636-7953; fax: 1-212-765-5573.

E-mail address: vonfurstenb@fordham.edu (G.M. von Furstenberg).
1
Presidential address delivered at the annual meeting of the North American Economics and Finance
Association in New Orleans, Louisiana, January 6, 2001.
1062-9408/01/$ see front matter 2001 Elsevier Science Inc. All rights reserved.
PII: S 1 0 6 2 - 9 4 0 8 ( 0 1 ) 0 0 0 4 0 - 7

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G.M. von Furstenberg / North American Journal of Economics and Finance 12 (2001) 105120

1. Introduction
Lately it has become almost impossible to read a serious newspaper without coming
across paeans to transparency. For instance, on October 28, 2000 the New York Times
quoted an exasperated fund manager as charging that Gazprom transparency is close to zero.
How long can this continue? The next day, President-elect Fox was quoted as telling the
press in Mexico to follow the rules of ethics and responsibility in an open and transparent
way (NYT, Oct. 29, 2000, p. 12). Then Kafka was quoted to the effect that a secretive
nobility or paternalistic system is no substitute for transparency, it being an extremely
painful thing to be ruled by laws that one does not know (NYT Mag., Dec. 3, 2000, p. 77).
Such invocations go on, day after day, with transparency featured in many contexts, all of
them placing it on the side of godliness.
At G7/G8 summits and on other solemn occasions, clarion calls have rung out for greater
transparency of the methods of operation of governments and their institutions. More
specifically, at least since the 1996 Lyon summit, transparency regularly has been prescribed
by the G7 as an antidote to mismanagement and corruption. The term has tended to be used
in summit-related documents, such as the Report of the G7 Finance Ministers to the Heads
of State and Government, and in the annual summit Communique itself in (i) discussing the
causes of international financial crises, (ii) recommending improvements in the global
financial architecture, and (iii) outlining conditions under which debt relief for the poorest
countries could be productive for social welfare and economic development. The most recent
G8 Communique (2000, p. 9) has followed this pattern by stating, for instance, in point 47,
We renew our commitment to combat corruption. We stress the need for transparency in this
regard, and call for the ratification and effective implementation of the OECD Anti-Bribery
Convention by all signatory parties. In the same vein, the Okinawa Charter on Global
Information Society (2000, p. 1), adopted at the summit, urges realization of information
technologys (ITs) potential to increase transparency and accountability in governance.
These representations and recommendations notwithstanding, transparency is not the
simple and seemingly costless public good that it appears to be when it is being prescribed
in ever higher doses against a broad spectrum of social ills. A fair sampling of the
prescriptions, usually issued without regard to possible side effects, is Larran and Tavares
(1999), IIF (1999), G24 (2000), and IMF (2000a; 2000b). In fact, transparencys trendy
indications have multiplied. They now include elitism everywhere, exclusivity and bureaucratic secrecy, for instance, in decision making by international organizations, and autocracy
in government and in other organizations except, of course, inside the saintly NGOs. The list
goes on with discrimination, corruption, injustice, and unpleasant surprises leading to
financial crises. Indeed the only metric for transparency used in empirical testing (see, for
instance, Goldsmith, 1999) is based on Transparency Internationals Corruption Perceptions
Index rating countries by degree of corruption on a 10 (highly clean) to 0 (highly corrupt)
scale. Intransparency is almost a euphemism for corruption also when the latter is described,
as in Kopits and Craig (1998, p. 15), as a situation in which the lines of demarcation between
public and private spheres are not transparent. Of course the author of the proud claim, letat
cest moi, would disagree.
The list of indications for transparency, like that for aspirin, keeps getting longer, making

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transparency appear just as cheap and well tolerated by those to whom it is administered.
Because transparency has been sent on so many different world-improvement missions, the
term has been stretched to the point of making its unqualified use almost meaningless. Part
of the sprawling lack of precision stems from transparency, like credibility, reliability, and
accountability, being a relationship variable. Those with a reputation for credibility and
reliability, incidentally, often may be excused from the procedural rigors of transparency and
from having to account for everything they do and how they do it. Transparency thus may
facilitate monitoring where policing is needed while being of less interest otherwise.
Technically it is an interactive relation between a subject and an indirect object to whom
the subject is transparent. For when transparency is defined by its root meaning as showing
oneself through and through or appearing open to scrutiny, there must be another party that
is interested in perceiving that what is transparent and making some use of it. This
interaction, as between the Central Bank and the general public forming expectations about
monetary policy, does not need to involve transactions, contracts, or other forms of direct
dealings between the parties as long as they cannot afford to ignore each other.
Perhaps despairing of giving a distinct meaning to the term transparency, Stiglitz (2000,
p. 1466) recently dismissed it as another name for information. But what kind of operational information, and for whom? Clearly there is no obvious correspondence between
information and transparency values. For instance, secret information, privileged information, and insider information all may have high value but are not transparent to those who are
denied access to these forms of information. If the market value of information comes from
its not being broadly transparent, degree-of-transparency is a variable attribute of information, implying that transparency and information cannot simply be treated as one and the
same for most purposes.
So what is transparency and what makes it good, perhaps even a public good for the
benefit of all as commonly claimed? Social thinkers, at least since the Age of Enlightenment,
have pointed out the evil consequences of religious and political benightedness and held out
the bright promise of arrangements accessible to all. Common knowledge spread by transparency, and common structures perfected by transparent reflections on reform would ensure
progress, moral no less than material. The main point of this essay, elaborated in what
follows, is that maintaining such an unqualified embrace of greater transparency in designing
the New World Order ignores its far from universal philosophical origins and limited cultural
appeal. It also ignores the redistributional agenda that often travels under the guise of calls
for greater transparency ostensibly for the common good. For instance, in late 1999 when
many NGOs called for greater transparency of the World Trade Organization (WTO) in
Seattle, they did not seek to improve the work of that organization but to shut it down (see
Ullrich, 2001).

2. Transparency and the enlightenment of society and governance

Brautigam (1992) has provided a profound account that emphasizes historical emergence
and rationalist promise of the concept of transparency. In positivist philosophy and classical
liberalism, transparency is essential to the perfectability of a subdued government and of

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public institutions. It helps minimize the exercise of uncontrolled discretionary power

through a system of appropriate rules. Accountability follows, with any abuses of power
quickly exposed and corrected. Property rights become crisp, contracts enforceable, and
common standards are evolved and applied impartially. As a result of all the benefits derived
from greater transparency, predictability, calculability, and participation improve in economics and public life. Efficiency and development gain as implicit taxes and both transaction
and operation costs are brought down and the risk of arbitrary reversals and seizures is
eliminated. All this makes transparency in public dealings appear progressive and desirable,
perhaps even raising it to the level of a moral imperative that should be applied worldwide.
Transparency originally came with an agenda that sought to instill a legal and social order
providing each with the greatest freedom from subjugation to the arbitrary power of others.
Recently, however, it has been advocated less for inhibiting bad government than for
facilitating positive initiatives. Among the positive uses of transparency that are currently
promoted are its being instrumental to achieving popular ownership of initiatives, such as
poverty reduction programs (see World Bank, 2001, esp. chapter 6), which significantly
involve government authority and institutions. In addition, transparency in public affairs has
market value because credible local participation and monitoring in government programs
can help attract foreign aid by assuring potential donors of the proper use of their funds.
2.1. Transparency and the redistribution of power and risk exposure
There is no doubt that much good can come of greater transparency of what ought to be the
peoples agents and that economic development can benefit from the elimination of corruption
and other scourges thought to be encouraged by opacity. But the assumption that greater
transparency necessarily is used for the greater good of all is insufferably Pollyannish. I shall
argue that the current emphasis on transparency is not only culture-bound, being a lineal
descendant of the last three centuries of European, and then also American, social philosophy and
scientific management and administration. Rather it also needs to be stressed that calls for
greater transparency may both express and promote shifts in the balance of power, and not
necessarily from rulers to the people or to their representatives. Instead Big Brother may be
watching even if the brother is a fine fellow like Uncle Sam or the IMF telling client countries
to become more transparent so they can better access and monitor them for their (exactly whose?)
own good. In such situations transparency often appears as an imposition of one party on the other.
That imposition normally is not nearly as drastic as when Athens was forced to become
more transparent to Sparta by being required to raze its Long Walls in 404 B.C. But even
when we take the modest current example of banks, ostensibly in the fight against drug
money and money laundering, being exhorted to know your customer, the customer has
little control over the use of the additional information obtained by banks. (See Report from
G7 Finance Ministers to the Heads of State and Government, Actions against Abuse of the
Global Financial System, Okinawa, July 21, 2000.) Hence as bank customers are required to
become more transparent to banks, they are losing a measure of privacy and control over
their own affairs and strategies to those same banks. This loss may extend further to the
banks nonbank affiliates, and to any other interests, unknown to the bank customer and
potentially injurious, to whom the information may be sold (see Scheer, 2000).

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This goes to show that it is important to determine who gives transparency and who gets
the benefit and by what reckoning, and up to what point the benefits to one side exceed the
costs to the other. There may be an interior optimum to transparency so that there can be too
much of it and not just too little. In addition, there may be tradeoffs or even conflicts between
different dimensions of transparency. For instance, not so distant attempts to make central
banks responsible both for the visible outcomes that people care about low inflation and
to require strict adherence to preannounced and readily monitored and transparent means for
achieving that goal money supply targets imposed one transparency too many. In country
after country, the search for mechanisms that could be relied upon to convert preannounced
instrument use into preconceived ends soon proved futile (see von Furstenberg and Ulan,
1998, p. 11). Delegation of authority and discretion with regard to the choice of means
became essential to cope with the unexpected. Adhering to fixed bureaucratic procedures and
known routines or going by the book may promote operational transparency but not fidelity
to objectives or efficiency and stabilization in an uncertain world.
2.2. Transparency and the quality of markets, dealers, and order executions
Just because the benefits of greater transparency of systems, protocols, standards, and data
that are used for many purposes are indisputable does not mean that the most transparent
agents are necessarily best for their principals. Even auction markets which economists like
to credit with efficient and impersonal market-clearing price formation do not tell all. Big
players who want to acquire major works of art at auction take elaborate steps to hide their
interest from other bidders or bidders agents precisely because the results of the bidding
otherwise might be affected. For related reasons there is a real question, discussed by
Bloomfield and OHara (2000), whether transparent dealers can survive when faced with
direct competition from less transparent dealers. Simaan, Weaver and Whitcomb (2000) have
investigated the role of Electronic Communication Networks (ECNs) in which limit orders
are displayed anonymously, while there are Nasdaq market-maker quotes at the same time
that identify the dealer. They found that ECN quotes that have a lower level of pretrade
transparency than the market-maker quotes established the inside market, and hence reduced
trading costs, about 19% of the time.
Clearly transparency can modify behavior and the functioning of institutions, including
markets. But there is no warrant for blind faith that these modifications necessarily are good
and free of adverse side effects. For instance, greater transparency that is imposed on some
aspects of behavior or transactions in some jurisdictions may drive the affected activities
underground by going offshore, delisting or other stratagems. As the game theorist Gardner
(1995, p. 74), has written, Many times in a game with imperfect information a player has
information that might be valuable to an opponent and detrimental to the player if it were to
be revealed. In such cases that player has a strong incentive to keep that information secret.
2.3. Intransparency as private property
It is natural for principals who are subjected to demands of greater transparency to seek
to defend against such expropriations of their (intellectual) property and privacy. Intrans-

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parency can be a valuable asset and entitlement of those who own this characteristic, making
it one that can be taken from them only by force. Indeed, concealment and bluffing, even
intentionally sowing confusion, as in nature, can be an essential part of a successful survival
strategy. For this reason people camouflage when stalking an objective and protect their
privacy with a poker face. Learning to be unpredictable (Mukherji and Runkle, 2000) and
avoiding patterns that can be exploited (Dixit and Nalebuff, 1991, p. 185) is crucial to
developing a sustainable strategy against smart opponents in a number of areas. There are
protections against forced self-incrimination in civilized society, and, unlike show-trials,
trials are public to make the system of justice transparent, and not to strip the accused of all
defenses. The biochemical production of transparency, for instance by the forced administration of truth serum, is still considered an abomination though the results of lie detector
tests may be accepted in evidence in the United States.
There was a time when monetary authorities were portrayed as intentionally injecting
noise into the conduct of monetary policy so as to obscure the signals and to prevent timely
and definitive detection of what they were really up to in trying to fool the public. Any such,
probably imaginary (see von Furstenberg and Ulan, 1998, pp. xii-xiii), fooling behavior
roundly was condemned by economists. But no one would condemn the use of similar tactics
by agencies of government when preparing for D-Day, or by private parties trying to escape
the butchery of a political predator or warlord in Africa or any other part of the world.
Managing transparency relations is a form of social engineering even more difficult and
controversial than finding and jointly financing the optimal supply of public goods. Instead
of assuming uncritically that the more transparency there is in any one sector the better,
attention should focus on large imbalances of transparency and its new technological
foundations. I have made some attempts to do so elsewhere (von Furstenberg, 2000, 2001).
Maintaining privacy through privileged information is not just esthetically gratifying or
indulging a peculiar human taste but essential for our physical and spiritual survival. For
persons or organizations to be transparent means that they are conditionally predictable
faced with this, they will do that. Hence they are manipulable an easy mark as long as
they are not aware of their exploitability and react to this condition by ceasing to be quite so
transparent. Once aware of their transparency, principals rightly harbor manipulation
suspicion when confronted by intransparent parties or propositions (Andersson and Holm,
1998).
2.4. Transparency of agents versus principals
In an ideal democratic society based on civil liberties, by contrast, it is the political top,
the agents who should be transparent to their many individual principals; transparency would
not all flow in the opposite direction as under Orwellian control. The secret ballot, for
instance, is an institution under which election procedures and the determination of election
outcomes and their consequences (except in Florida) are perfectly transparent and binding on
politicians, while the ballot choices of individual voters are not transparent. Voters may have
identified themselves or registered as members of particular parties, interest groups, or
lobbies, but even then it is not possible for them to prove for whom they actually voted.
Secrecy of the ballot is mandatory and inalienable for their protection as a group. Conversely,

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when agents force principals to be more transparent and become like Gorbatchevs Party that
is supposed to know everything, the intention is nondemocratic control if not by means of
terror then by informational isolation of principals.

3. Gifts and exchanges of transparency and costly transparency regulations

Asymmetric transparency relations, and their defense, may be as central to transcendental
religions as they are to the institutional architecture and modus operandi of secular society.
In the latter, all parties generally know what the prevailing transparency relations are and
seek to change them to their own advantage.
Nevertheless, sometimes a group voluntarily allows itself to become more transparent in
its motives and operations in return for another group doing the same. A high level of
transparency of principals tends to be voluntary only in those limited areas of equality where
individuals are willing to trade greater mutual transparency with those who concern them by
making full and complete disclosures to each other, particularly in areas of perceived
strength. Building trust and thereby reducing information and transaction costs, and lowering
risk premiums may be the reward, not to mention any comfort in sharing, empathy, and
intimacy derived from the social part of our nature, which economic paradigms generally fail
to grasp.
Horizontal transparency pacts also may occur between organizations and governments, for
instance in the area of arms control verification or contract and treaty compliance. Even
unilateral disarmament may have its rewards in some areas. Thus agents may opt for
truthfully and completely revealing their goals, procedures, and track record to acquire a
good reputation and credibility with principals and other agents. However, the relation
between a subject and the different parties that benefit from its transparency remains
typically adversarial because their interests conflict. Accepted conventions or transparency
codes are designed to arbitrate and to dull the edge of conflicts about moving in on any of
the information asymmetries that are pervasive in markets and life, as Gardner (1995, p.
239) puts it.
3.1. The costs of transparency in reaching multilateral agreements
Like so often in economics where increasing opportunity costs and declining marginal
benefits assure interior solutions, the more the better does not hold for transparency.
Transparency should not be pushed to the limit but be supplied and consumed to the point
of balance between its marginal costs and benefits, and between risk and return, in its
different applications. Transparency may help build trust in some situations, while preventing trust and delegation in others.
For example, the current Director General (DG) of the World Trade Organization (WTO),
Moore (2000a, 2000b; see also Ullrich, 2001), like some other heads of international
organizations, makes speeches about increasing transparency as if doing so was overdue and
all to the good. He has promised to cut down on the use of the much-criticized Green Room
or to make the practice useless by lifting its exclusivity. With the Green Room widely used

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by NGOs as an ugly symbol of opaqueness and privilege, he vows to increase openness and
equal access in an organization that has no secrets. Being asked to the Green Room used
to mean that selected powerful members, principally the United States and the European
Union, were invited to negotiate among themselves and to come to terms on particularly
sticky issues that could then be submitted to the rest of the membership. Presumably, the
DGs predecessors felt that granting a little privacy and exclusivity could be an efficient way
to overcome stalemate. A DG may surely choose to dispense with the practice but not
without some cost: Having more transparent stalemates, and more of them, perhaps is not
of any great net benefit.
3.2. Costs of transparency of policies and procedures subject to external monitoring
While calls for greater transparency are frequently echoed either in an uncritical or in
a cowardly and pandering way by international agencies, some qualifications have begun to
be asserted in the best of them. For instance, the Code of Good Practices on Transparency
in Monetary and Financial Policies, that was adopted almost two years ago by what is now
known as the International Monetary and Financial Committee (IMFC), provides a useful
definition of transparency. It also shows that giving away transparency can be problematic.
In the document, agency transparency is defined as an environment in which the objectives
of policy, its legal, institutional, and economic framework, policy decisions and their
rationale, data [related to the proper exercise of agencies functions], and the terms of
agencies accountability, are provided to the public on an understandable, accessible and
timely basis. While generally advocating such transparency, the Code, developed by the
IMF (1999, pp. 12), then proceeds to show awareness that there is a cost. For instance,
granting transparency can lower decision-making quality and create problems of its own, if
those to whom it is given choose to benefit improperly from this gift. They can do so by playing
upon exploitable aspects of agency behavior that has become conditionally predictable:
[T]he rationale for limiting some types of disclosure arises because it could adversely affect
the decision-making process and the effectiveness of policies. . . For example, extensive
disclosure requirements about internal policy discussion on money and exchange market
operations might disrupt markets, constrain the free flow of discussion by policymakers, or
prevent the adoption of contingency plans. . . Additional concerns could be posed by some
aspects of transparency: . . . Moral hazard, market discipline, and financial market stability
considerations may justify limiting both the content and the timing of the disclosure of some
corrective actions and emergency lending decisions, and information pertaining to market
and firm-specific conditions. In order to maintain access to sensitive information from market
participants, there is also a need to safeguard the confidentiality and privacy of information
on individual firms (commonly referred to as commercial confidentiality).

The same document notes that giving more transparency may require a quid quo pro of
some kind to limit the redistribution of the means of control. It does so by asserting, The
benefits of transparency may be fostered by appropriate policies to promote transparency of
markets in general, for institutions that are being supervised, and for self-regulatory organizations (p. 3). Similarly, the Report of the Working Group on Transparency in Emerging
Markets Finance (IIF, 1999) balances its support for the IMFs transparency code as applied

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to financial agencies by noting the importance of transparency of the private corporate

sector in emerging market economies, to permit proper risk assessment (p. 17). By trading
greater transparency in one direction for increased transparency in the reverse direction, a
compensating degree of reciprocity may be obtained. Put differently, the free provision of
transparency, in situations where transparency can technically be withheld, is easier if it is
reciprocated or shared in some way by those to whom it is provided. The IMF has
internalized this insight by applying to its own conduct some of the principles of transparency it has promulgated for government agencies and countries that may be parties to its
programs and consultations.
The Code thus shows sophisticated awareness of the asset characteristics of transparency
that make it a tradable private good or endowment in some respects and a public good,
possibly open to overexploitation, in other respects. It is less persuasive in crediting greater
unilateral transparency to all interested individuals and institutions (IMF, 1999, p. 3) with
greater efficiency of markets, more effective policies, greater policy consistency, and other
good things (pp. 13) because these claims are not substantively qualified or supported. Still
the Code provides a welcome contrast with recent, far less carefully hedged, G7/G8 calls for
greater transparency.
3.3. Hierarchies of transparency: where does it matter most?
Mishkin (1999), and Hughes Hallett and Viegi (2000) provide critical differentiation by
considering different realms of transparency, such as transparency of final targets or economic transparency, and procedural and political transparency, of central banks. They find
that central banks need not be rule-bound or conditionally predictable in every respect if they
are to remain credible and effective managers in a world full of surprises whose citizens care
about end results.
However, defining transparency by the property of conditional predictability implies that
transparency must exist ex ante. It must yield tolerably accurate forecasts and not just
explanations after the fact. This definition does not allow for a wide gap between ex-ante and
ex-post transparency. According to one interpretation (Enoch, Stella and Khamis, 1997),
ex-ante transparency of agents refers to clear rules whose application to individual cases
may nevertheless be so uncertain and ambiguous as to require public justification after the
fact. Arbitrary and surprising acts, whether by agents or principals, do not become part of a
transparent scheme of things just because they are explained or rationalized after the fact.
Transparency cannot make up ex post for a lack of it ex ante, although there may be easily
explained hierarchies of goals such that instrument-use transparency may have to yield to
final-target transparency and fidelity when a mismatch arises. Just as information and transparency are not simply synonymous, transparency and accountability are not synonyms either.

4. International transfers of political transparency

Lack of transparency persists in some governments and in many structures and institutions
because those in charge like it that way and benefit personally. The Miyazaki initiative

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released about a week before the July 2123, 2000, Okinawa summit had the G8 Foreign
Ministers stooped to request that countries that receive economic and development assistance ensure transparency in government outlays, including military budgets and in how
financial aid provided by donor countries for development purposes will be used. The
problems with countries run by autocrats, warmongers, pillagers, and/or mass murderers will
not be solved by begging their rulers to become more transparent and to abdicate. As
described in IMF (2000c, pp. 128 136), these countries tend to suffer from a variety of ills:
Y Low levels of physical and human capital and infrastructure formation,
Y Macroeconomic instability such as high inflation, volatile and overvalued exchange
rates, excessive fiscal deficits, and excessive foreign borrowing,
Y Inward-oriented, interventionist policies, and disorderly extension of government into
all areas of economic life.
Only the first of these three factors is to a large extent both cause and consequence of
poverty; the other factors are not primarily due to the poverty which they help to cause. Why
then do these known poverty-causing policy conditions go on and on? The partial answer
given here is that these conditions recur or persist because powerful actors in the Heavily
Indebted Poor Countries (HIPC) so desire, and not because these countries are incurably
ignorant or unlucky, being surprised by endless successions of adverse external shocks. The
hope underlying the Miyazaki plea and so many other calls for greater transparency in
someone elses government is that these actors would cease and desist if their deeds were
exposed. They would either step up and hang themselves by the noose of transparency or
miraculously reform so as to become fit for public scrutiny.
4.1. Transparency strictures for subversion of bad governance?
This belief, either based on navete or cynical pretense, in the revolutionary power of
transparency is entirely misplaced in countries with corrupt, dictatorial, or simply vicious
rulers whose subjects cannot act on information about their oppressors no matter how clear
and transparent their crimes. Calling for greater transparency of a government sufficiently
tyrannical to prevent the people from using information about it would not change anything;
it could not empower an effective opposition. Greater transparency thus may or may not be
necessary, but it certainly is not sufficient for reform. Some tyrants will fear greater
transparency and will not have it. Many others, however, like to advertise their cruelty and
malicious intent transparently to intimidate. Although greater transparency may play a
constructive role in the orientation and quality of service provided by governments, there is
no cause-and-effect relation that can easily be negotiated from greater transparency to
accountability and on to the elimination of wasteful expenditure and good governance, as
often intimated. (See, for instance, point 4 in the Report from G7 Ministers to the Heads of
State and Government, Poverty Reduction and Economic Development, Okinawa, July 21,
2000.)
Because even the cliques that rule in HIPC by now often pay lip service to the legal
separation between state and ruler, they may well be willing to stipulate that, in theory, the
proper uses of government funds, assets, and persons must be determined by law and be

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subject to accounting controls. It then becomes politically costly, domestically as well as

internationally, to be seen openly to divert publicly-obtained funds to private ends. Hence
corruption has to be camouflaged by attaching itself to legitimate functions, depending on
their suitability for discrete corruption overheads or surcharges.
From this perspective it is not difficult to see why the HIPC have chronic problems of their
rulers making, problems which calls for transparency will not overcome unless these rulers
and all they signify are eliminated from power. To assume that IMF or G8 calls for greater
transparency of governments and their budgets will achieve such a bloodless, indeed,
glorious, revolution would be wishful thinking. Instead these rulers will direct the composition of activities away from those which would meaningfully be exposed when acceding to
formal demands for transparency towards those which escape public notice because they are
inherently difficult to monitor or to figure out. Without a change in power and political will,
externally imposed transparency codes and standards will forever be chasing an elusive
target. Here are some of the dodges that help explain the persistence of the economic ills in
both the macroeconomic environment and in the government of many of the HIPC and quite
a few other low-income developing countries:
Y Exchange controls coupled with overvaluation of a currency provides a macroframe for
discrete corruption. The partial enforcement of the requirement to sell foreign exchange to the central bank at the low official rate coupled with the selective sale of
foreign exchange at that below-market rate provides numerous opportunities for corruption and self-enrichment behind the closed doors of the Treasury or Central Bank.
Government compulsory marketing boards and export monopolies provide similar
opportunities for corrupt leakage. This incomplete arbitrage takes advantage of persistent price differentials which are maintained administratively for that very purpose.
Y Powerful elites with access to real property and foreign exchange may benefit themselves by substituting inflation taxes for fiscal levies that cost them more.
Y Regulatory complicity with practices that risk undermining the banking and financial
system through the toleration of connected lending, insider lending, lending to
prospectively bankrupt entities, and nonenforcement of debt claims provides another
avenue for discrete corruption. While the budgetary costs of bailing out failing financial
institutions eventually become quite public, there is usually sufficient time for those who
looted them to cover their tracks and launder ill-gotten gains and to sow confusion.
Y Maximizing government-guaranteed borrowing from abroad is an elixir of corruption
particularly if the proceeds can be used for government projects that are heavily
surcharged with corruption or to cover losses due to corrupt practices in government
enterprises.
Y In the area of procurement, projects that are vast and complex and correspondingly
negotiation- and contract-intensive and difficult to monitor and to evaluate best lend
themselves to discrete corruption between consenting parties who have an interest in
maintaining confidentiality. The time delay between the disbursement of funds and the
declaration of default is sufficiently long and extendible through successive rescheduling that tracing the root of the difficulties to corruption will be difficult. If necessary,
a previous regime usually can be blamed, as in Russia.

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Y Subsidies to government enterprises that cover the costs of corrupt practices tolerated
or instigated by management and of unqualified appointments and excessive remuneration scales are not easily traced to corruption because such subsidies may have other
causes and rationales as well. Money-losing government enterprises may be bled
continuously and discretely for corrupt purposes particularly if a popular rationale for
government subsidies can be provided.
Y Corruption is more discrete when it involves a limited number of parties engaged in
continuing relationships so that maintaining confidentiality is valued by both sides.
Pay-offs or kickbacks in government procurement are an obvious example. By raising
the cost of infrastructure capital and its maintenance far above competitive market
value, the HIPC tend to have poor infrastructure even though the diversion of funds to
corruption-intensive uses is encouraged.
Y Deroutinizing and personalizing decision-making by favoring administrative discretion
in regulatory evaluations, tax administration, and license approvals again provides a
discrete backroom setting for corruption to flourish and socially productive forms of
private entrepreneurship to be squelched. Multiple layers and tiers of bureaucracy may
contribute to a system of corruption that is seemingly ubiquitous but hard to figure out.
Y Expanding the activities of government agencies that are traditionally accorded exceptional degrees of secrecy like the military, special police, presidential guards, or
intelligence services provides rich opportunities for discrete corruption in and of the
services for themselves and for others who use them for improper ends. Declarations
of martial law and states of emergency provide further opportunities and cover for
corruption by suspending normal operating procedures.
4.2. Power over transparency
Prescribing greater transparency against all these dodges will not make them go away as
long as the existing distribution of power that produced them remains substantially intact. At
most such prescriptions will succeed in driving corruption a little further underground and make
it less blatant. Calls for greater transparency will be respected only to the extent they do not
become seriously inconvenient by threatening to undermine the existing distribution of power.
Given that distribution, the ills that plague the HIPC and other retrogressing countries in which
corruption is a major issue are not occurring in isolation nor are they treatable independently or
one by one. Rather they are intentional evils springing from a common power source. Unless that
root is pulled, adjustment and poverty reduction programs will deal with symptoms and have no
lasting success as these evils are bound to reassert themselves.

5. Statistical transparency: not as helpful as advertised

Claims that assured benefits will flow from some particular increments of transparency
create other dubious associations and overblown, if not false, promises. Thus the insistence
in a recent IMF (2000b, p. 4) study that greater transparency of economic and financial
developments, through the publication of economic statistics . . . , is essential to help

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117

strengthen/establish market discipline, and assure that asset prices and financial flows adjust
less rapidly to adverse information is based on faith, not evidence. The G24s (2000, p. 3)
assertion that transparency is crucial as a demonstration of ownership and for promotion of
accountability and good governance, for attracting private capital flows to developing countries,
and for crisis prevention also promises far more than greater transparency can deliver.
5.1. Dynamics that are irreducibly uncertain or intransparent
Greater transparency, for instance, need not help prevent crises if it adds to the illusion of
having gained relevant protective knowledge and if it fosters a false sense of security through
a belief in greater predictability: Indeed, risk taking and risk exposure could rise. There are
bubbles, sunspots, and sunspot switching models, and models involving lightly-triggered
jumps between multiple equilibria. Growing empirical support has come from the finance
literature for attributing importance to extrinsic changes in beliefs (e.g., Salyer and Sheffrin,
1998). Willett (2000, pp. 12, 15) has added the valuable qualification that sharp swings in
behavior are motivated not only by mood swings from excessive optimism to extreme
pessimism, but also by shifts from excessive confidence in a particular model to extreme
uncertainty when that model has been discredited. . . In effect, [in the Asian crisis, calculable] risk became uncertainty, which prompted investors to pull back on their investments
until they could better understand the new situation.
Sunspot disturbances represent shocks which influence equilibrium outcomes, but which
do not affect fundamentals. Hence even stable fundamentals may not be sufficient for stability.
Models that accord an important role to such nonfundamental disturbances do not provide much
room for a smoothing effect from the unrestricted flow of statistical and other information. A
recent analysis of the stock market valuation of Japanese corporations has concluded, for
instance, the Japanese stock market does not benefit from such information [about the future
profitability of firms investment] (Ogawa and Kitasaka, 1998, pp. 206 207). Paraphrasing
Georgantzas (2001), it is probably true of financial valuations, as in deterministic chaos, that
minute changes can lead to large deviations in behavior, but the dynamics of when and how they
do so are, for practical purposes, unpredictable ex ante and poorly explained even after the fact.
The latter shows that statistical transparency, though an intermediate good of some value, cannot
yield the final transparency product we most care about in this area. Perhaps egged on by
international and national financial institutions and public agencies that are in the business of
gathering and releasing economic statistics in part to serve their own monitoring needs, G7/G8
summits have tended to promise too much by playing up statistical transparency as the key to
reform and to the avoidance of crises in international capital markets.

6. Concluding observations and qualifications

Transparency, like power, is distributive; like positions of power, it does not readily yield
to pleas of equality for all. While a public good in some respects, in many other respects
transparency, like power and monitoring, is divisive: The more transparency the powerful are
able to compel from others, the less they need to provide themselves. For instance, while the

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political preferences and party affiliation of individuals now can readily be compiled and
packaged online for politicians by the managers of political web sites and data bases, the lack
of campaign finance reform limits voter knowledge of the trades which their elected
representatives or candidates for office are prepared to make. Hence transparency needs to
be frequently rebalanced to keep up with technological developments. Having one party
become more transparent but not the other on the same level does not necessarily serve the
public good, nor should transparency simply be maximized wherever possible at any level.
Any change in the balance, whether driven by new technology, political restructuring, or
cultural change, has pervasive consequences for freedom from intimidation and for personal
and national security. Abrupt changes in political or technical operating regimes and in their
transparency requirements create exposure to unaccustomed risks and social stress.
Since the Age of Enlightment it has been regarded as accepted truth that evil consequences
result from intransparency in government and a societys benightedness, as it was then
called. Lack of transparency has been considered part and parcel of underdevelopment,
corruption and chronic instability ever since. Yet not all resistance to foreign dictates of
transparency is evil or criminally self-serving. When the current push by interested international agents for ever more transparency of foreign countries, particularly in the developing
world, is denounced as the camels nose of American capitalism and hegemony and as an
insult to religion-based, feudal, and autocratic, but not inevitably lawless, governments,
something more than unreasoning hostility and backwardness may be involved. Since
transparency is to be delivered on foreign terms and to foreign specifications, with international financial and other organizations obligingly providing the etiquette and accepted
standards, such countries undoubtedly think of their resistance to the imposition of transparency from abroad as a form of self-preservation in economic, social, cultural, and political
spheres. If the outside judgment is that many of these countries need to be made over,
reformed, and revolutionized to foreign specifications nonetheless, perhaps transparency for
export should be added to the cargo of presumptions not all groundless or unjustified
though generally fruitless once known as a certain mans burden.
Acknowledgments
G. M. von Furstenberg is the Robert Bendheim Chair in Economic and Financial Policy,
Fordham University at Lincoln Center. Presidential address for the North American Economics and Finance Association New Orleans, January 6, 2001. The author thanks participants in the July 17, 2000 Tokyo United Nations University Conference on The KyushuOkinawa Summit: The Challenges and Opportunities for the Developing World in the 21st
Century and the editor of this journal, Sven W. Arndt, for helpful comments and suggestions on successive drafts.
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