Transparency and the right to know
WHAT DO THESE recent incidents have in common: home purchases based on misleading mortgage costs; deaths associated with widespread contamination of the blood thinner heparin; and huge financial losses suffered by even sophisticated investors on exotic debt instruments?
They all represent costly failures of government policies that are supposed to give the public crucial facts about hidden risks in everyday choices - in mortgage documents, medications, or investment opportunities.
President Obama, in his first full day in office, promised to make recommendations to improve transparency in 120 days. White House staff are tackling tough "right to know" issues - how to organize and tag government data to make it more easily searchable, how to encourage agencies to take an active approach to openness, what to do about Bush-era inventions like secret but unclassified information.
So far, however, they are not tackling the broken transparency policies that Congress designed to save lives, protect health, and reduce needless financial losses. The two assumptions behind such policies are right. First, Americans often make health care, investment, and other crucial decisions by themselves rather than handing them over to experts. Second, markets don't always provide the information that people need to make informed choices.
As a result, everyone needs more facts -- and those facts are supposed to be presented in standardized, timely, and understandable ways so people can compare mortgage lenders, credit card deals, surgery outcomes, and more.
But most transparency policies fail. They fail because they don't allow accurate comparisons. They fail because politics or conflicts of interest keep important risks hidden. Or they fail because disclosure doesn't keep pace with new risks created by fast-changing markets. Consider:
At least a third of home buyers can't tell from government-mandated disclosures when mortgages include large balloon payments, and half can't identify something as basic as the loan amount, according to the Federal Trade Commission.
Firms that rate complex debt instruments also have a stake in their sale, arguably distorting their ratings.
Government disclosures fail to provide easy comparisons of credit card penalty rates and other hidden fees.
Hospitals have successfully resisted performance measures directly related to health outcomes such as infections, re-hospitalizations, or mortality rates. Instead, government monitors such practices as hand-washing and appropriate medication.
Tracking systems designed to protect the nation from life-threatening food and drug contamination don't work in fast-changing international markets.
Product recalls leave unsafe medical devices in use because they are usually voluntary, do not transmit information well throughout the supply chain, and do not provide enforcement.
These are fixable problems. But the fixes require presidential leadership.
First, Obama should order his Cabinet to ensure that all transparency policies provide complete information that can be understood by ordinary citizens. There should be a premium on clarity and common sense.
Second, he should require officials responsible for designing these policies to talk to each other - whether they are working on disclosure requirements concerning financial risks, healthcare, airline safety, or energy conservation. There are common lessons in effective communication that can be learned through collaboration.
Finally, he could direct agencies to devise better ways of tracking unforeseen risks, whether they concern new financial instruments, drug side effects, or food contamination.
Why should a busy president take on another challenge? Because the challenge is unavoidable. Neither the economy nor healthcare can be fixed unless transparency policies are fixed. Markets and ordinary citizens can cope with risks as long as they can understand them. It's uncertainty that creates paralysis. Repairing transparency policies would give Obama a powerful new instrument for change.
Mary Graham is co-author of "Full Disclosure: the Perils and Promise of Transparency," and co-directs the Transparency Policy Project at the Harvard Kennedy School. 