What is transparency all about?

Tags: Op-ed
What is transparency all about?
During the first half of this month, the two most powerful nations on earth will have determined their leadership successions. In the past 48 hours, Barack Obama was re-elected as president of the US. Next week, the Chinese communist party will announce the new leadership of the world’s second biggest economy. What is remarkable is how little these succession processes have revealed about the next generation of world leaders. How can this be?

Only a decade or so ago, it was a rage to argue that widely available information technology would transform the relationship between national leaders and the governed. An era of greater transparency was to be ushered in, not least because political actors were expected to use the internet, social media and the like to differentiate themselves from the pack. Technological developments were reinforced by legal reforms in many jurisdictions affording greater access to state information for citizens. No longer would rulers be able to hide their acts and intentions so easily, or so it was thought.

It can’t be that the current transitions were too short for the populace to react. After all, if the primary season is included, the US presidential election lasted essentially two years. Discussions on the Chinese transition have been going on for at least a year. So it’s hard to argue there hasn’t been enough time for the key players to be put under the spotlight.

Nor was it the case that aspiring leaders didn’t use communication tools. The US presidential candidates spent literally millions of dollars on electronic outreach strategies. Moreover, the now-deposed Chinese political leader Bo Xilai made a point of giving plenty of hard line speeches and interviews. If anything, it was the prominence that Mr Bo sought for his views that got him into hot water with the rest of the Chinese cadres. Since Chinese leaders want the acquiescence of their populace — not their votes — then the incentive to stifle dissent and not provoke the masses suits the purposes of those who do not want to widen the circle of influence. In short, a communications “arms race” can develop between those with access to internet and social media and those seeking to control the dissemination of information through those technologies. Innovation here is not only on the side of the angels.

It is not control of content, but the paucity of content that proved to be Achilles Heel for information technology during the recent US presidential election. The US faces pressing fiscal and economic problems the solutions to which are widely regarded as being politically unpopular. Neither presidential candidate, then, wanted to spell out in detail their real plans — assuming they had any — lest voters figure out that they might get hurt and vote accordingly. In a tight election neither candidate wanted to antagonise any section of the voting public that they stood the slightest chance of winning their support of.

Moreover, despite insightful pundits pointing out how little information there was on Mr Obama’s and Mr Romney’s future plans, these gentlemen and their campaigns were able to by and large resist pressure to make unpopular disclosures. Pressures for transparency, then, are not as acute as some previous hype suggests. When -- for their own reasons -- each leader does not want to reveal their true policy positions, then there is no guarantee that the competitive political process will induce transparency. This is probably the case irrespective of the state of communications technology. Does this lack of transparency matter? Absolutely. The price of financial assets today depends on what investors and the like think returns and prices will be tomorrow. Unanticipated shifts in policy can alter those future prices and returns. Uncertainty over future policy shifts, increases risk premia on financial assets, often depressing current prices. These considerations apply both in China and the US, but for different reasons. In China’s case, no one really knows whether the mid-year growth slowdown is over and what steps Beijing will take in the coming months to restore previously fast rate of growth. Nor does anyone know how seriously the new Chinese leadership takes the rebalancing of their economy away from export-driven growth towards greater personal consumption spending. This adjustment is important as it takes draws some of the sting out of Chinese commercial disputes with its trading partners.

What is more, the fog in Beijing has created a guessing-game in Washington DC, Brussels, and elsewhere where the China-bashers have exploited the attendant uncertainty to further undermine friendly relations. No one in Beijing should think that opaqueness does not have a price. As far as the Americans are concerned, financial markets fret that the tax and spending changes due to be implemented at the beginning of next year — which are said to reduce overall demand by up to four per cent of US national income — will knock the US economy back into recession, with adverse effects for firm sales, profits, dividends, and employment levels.

In addition to not knowing president Obama’s preferred approach for dealing with the so-called fiscal cliff, the recent election has not seen any changes in the control of the houses of Congress. In short, the factors that prevented movement on these matters before the election will remain in place for at least the next two years. That is not to say that some compromise is impossible, just that its provenance and basis remain unknown. Until this uncertainty is cleared up don’t be surprised if US firms continue to hoard cash, postpone investment outlays, and slash payrolls. In a globalised world, non-transparency may be smart politics for some but it is lousy economics for the rest of us.

(The writer is a professor of international trade and economic development at University of St Gallen, Switzerland)

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