Brandeis coined his famous phrase in 1914, in a book called Other People’s Money, an extraordinary progressive screed directed against that generation’s bankers. (He wrote the book when he was still practicing law. It is the sort of book that no Supreme Court nominee today could survive having written.) In the context of the then-frenzied demand for financial reform, Brandeis called for "publicity"--the idea that "bankers when issuing securities … make public the commissions or profits they are receiving."
This publicity was designed to serve two very different purposes. First, Brandeis thought that the numbers would shame bankers into offering terms that were more reasonable--a strategy that has been tried with executive compensation by the SEC, with the result not of shame, but jealousy, leading to even higher pay. Second, and more significantly, Brandeis believed that publicity would make the market function more efficiently. The "law," Brandeis counseled, "should not undertake … to fix bankers’ profits. And it should not seek to prevent investors from making bad bargains." But the law should require, he emphatically declared, "full disclosure," to help the buyer judge quality, and thus better judge the "real value of a security." Transparency could thus make a market work better, and should be encouraged as a more efficient way to regulate this potentially dangerous market.
In this simple insight, Brandeis described what has become a school of regulatory theory--what Archon Fung, Mary Graham, and David Weil describe in Full Disclosure: The Perils and Promise of Transparency as "targeted transparency." As they define it, targeted transparency "represents a distinctive category of public policies that, at their most basic level, mandate disclosure ... of standardized, comparable, and disaggregated information regarding specific products or practices to a broad audience in order to achieve a public policy purpose."
Its "ingeniousness," as Brandeis had promised, "lies in its mobilization of individual choice, market forces and participatory democracy through relatively light-handed government action." Moreover, this "ingeniousness" has now been copied, and ever more frequently. Fung and his colleagues have catalogued fifteen targeted transparency programs in their study, ten of them created since 1986, all with substantial bipartisan support, and all with a common mechanism: give the consumer data he or she can use, and he or she will use it to "regulate" the market better.
This mobilization works when the system gives consumers information that they can use, and in a way that they can use it. Think about the requirement that car manufacturers publish average mile-per-gallon statistics for all new cars. We all can compare 36 mpg to 21 mpg. We all understand what that comparison means. That "targeted transparency" rule simplifies the data and presents it in a way that conveys meaningful information. Once simplified and standardized, it makes it possible for consumers to change the way the market works.
The problem, however, is that not all data satisfies the simple requirement that they be information that consumers can use, presented in a way they can use it. "More information," as Fung and his colleagues put it, "does not always produce markets that are more efficient." Instead, "responses to information are inseparable from their interests, desires, resources, cognitive capacities, and social contexts. Owing to these and other factors, people may ignore information, or misunderstand it, or misuse it. Whether and how new information is used to further public objectives depends upon its incorporation into complex chains of comprehension, action, and response."
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COMMENTS (1)
Regarding a general lack of transparency in government:
Until we are fully briefed on all that is not transparent in our government how can we possibly suggest what should be?
What do we really know about all these secrets? What do we know about how they become secrets....about who decides this...about what criteria they are based on?
From Watergate on we have learned that governnent officials lie to us. Over and over and over and over and over again. And these lies are facilitated by an immense wall of secrecy that pervades so many important policy decisions. Matters that can literally revolve around life and death for example. Matters of war.
Besides, transparency that involves the relationshi ... view full comment
Regarding a general lack of transparency in government:
Until we are fully briefed on all that is not transparent in our government how can we possibly suggest what should be?
What do we really know about all these secrets? What do we know about how they become secrets....about who decides this...about what criteria they are based on?
From Watergate on we have learned that governnent officials lie to us. Over and over and over and over and over again. And these lies are facilitated by an immense wall of secrecy that pervades so many important policy decisions. Matters that can literally revolve around life and death for example. Matters of war.
Besides, transparency that involves the relationship between doctors and drug companies or Congress and Wall Street is virtually meaningless unless local and national news orgnizations make a concerted effort to get this information out to the public. Do any of us honestly imagine most voters will go online to ferret out the informtion themselves?
So, why doesn't the mainstream media pursue this? I read article after article on the healthcare debate here at TNR for example and hardly ever run across the sort of information readily available to The Editors at sites like OpenSecrets.org. Why is that?
But of much greater importance: Until we have an electorate far more politically sophisticated than the millions upon millions of dittoheads we must endure election cycle after election cycle even the stuff that is not secret is minimally effective in changing the way money is for all practical purposes the "legislative process" in Washington.
LL
...there is also little doubt that it is impossible to know whether any particular contribution or contributions brought about a particular vote, or was inspired by a particular vote. Put differently, if there are benign as well as malign contributions, it is impossible to know for any particular contribution which of the two it is.
gw:
Yes, candidate X can receive $200,000 from industry Y; and candidate X can then vote [by and large] for the interests of industry Y; but there is no way to crawl inside the candidate's head and prove that the latter is consciously connected to the former.
Plausable deniability is built right into these transactions. In fact it is built into virtually every human transaction in which one cannot determine or disclose beyond a shadow of a doubt what another's INTENTION was. It depends on how one wants to define what is or is not "plausable". After all, can anyone demonstrate definitively that Scalia, Thomas, Rehnquist etc. voted for Bush in 2000 because, like them, he was a conservative. Oh no, they'll insist, it was simply what an impartial reading of Constitution called for!!
But passing laws to obviate this through "public financing" isn't the way to go here. Instead, progressives should be out in the communities; they must become activists organizing a political movement that will elect Congresswomen and Congressmen who refuse to be bought and paid for in the first place. You don't need transparency in campaign financing if the candidates refuse to play the game, do you?
But again what is the role of the mainstream media in all this? Do not these news organs receive enormous sums of money through advertising FROM THE VERY SAME PEOPLE who buy legislation in Congress? What about the lack of transparency here?
LL:
In the context of public health, where doctors are forced to reveal any connection with industry, I cannot begin to imagine what that solution would look like. The citizenry is not remotely willing to fund publicly the research necessary to support drug development today.
george:
If laws prohibit doctors from accepting gratuities from those who would profit by drugs or sevices the doctors pushed on patients what would be the need for transparency? Instead, we would need an efficient and effective regulatory agency to make certain this sort of thing did not happen at all. To link a patient's health to a profitable transaction for Drug Company Z, is simply outrageous. Why would we need to focus on full disclosure when there should be nothiong to disclose in the first place if these exchanges were prohibited and the laws were vigorously enforced?
george walton
j