The Role of Transparency and How It Can Spur Global Prosperity and Sustainable Economic Opportunity at Home and Abroad
Under Secretary for Economic Growth, Energy, and the Environment
Good morning, it’s wonderful to be here. I’d like to thank the Atlantic Council and Thomson/Reuters for hosting us today, and for organizing this important series on the “Power of Transparency”.
I’m also pleased to be joining John Walcott, who is a terrific journalist with a well-earned reputation as one of the media’s most tireless government watchdogs.
Let me begin by saying that transparency is a vital part of nearly everything we do at the State Department. It is a cornerstone of our efforts to expand democratic freedoms and promote more inclusive societies around the world.
Transparency is also a critical part of our economic diplomacy efforts. One of the crucial elements of sustainable economic growth and job creation – and of a vibrant and entrepreneurial private sector – is transparent governance.
In its Doing Business Report, the World Bank has consistently found that the economies where it is easiest to do business all score well in terms of government accountability.
A big part of creating investor confidence isn’t the absence of regulations. It’s the presence of governments that make and enforce rules predictably and transparently.
II. Key Elements of Transparent Governance
I’d like to break down transparency into 3 categories: Fiscal, Bureaucratic and Stakeholder transparency.
Fiscal transparency is a key element. This includes providing reliable information on government revenues and spending to legislatures, markets, civil society, and citizens.
Governments that allow stakeholders to look at the books, so to speak, enjoy greater market credibility and can respond better to crises. This, in turn, helps support economic sustainability.
Another crucial element is “bureaucratic transparency”, or the extent to which government regulations are clear, accessible, and consistently applied. Examples include rules for setting up businesses, getting permits, and registering property. These are the sorts of regulations measured in the World Bank’s annual Doing Business Report. They are considered the building blocks of a good business environment.
This type of transparency and predictability enables domestic entrepreneurs to more easily set up businesses. It also creates greater incentives for foreign companies – including U.S. firms – to invest in overseas markets.
Bottom line: bureaucratic transparency is a boon to economic growth.
A third element is something we call “stakeholder transparency.” This refers to the process governments follow when writing regulations. It’s important for key stakeholders, and the public at large, to have an opportunity to help shape how rules are crafted. According to the World Bank, the quality of regulations improves when lawmakers are more inclusive and consultative during the rulemaking process. Public engagement and deliberation – through transparent and open processes – leads to better and more predictable outcomes.
Fiscal, bureaucratic, and stakeholder transparency are all hallmarks of an environment that promotes and supports sustainable economic growth.
And, all three also help fight corruption.
IMF research has found a correlation between elevated levels of corruption and lower levels of investment and economic growth. According to the World Bank, an estimated $1 trillion of annual worldwide transactions are tainted by corruption.
It’s much more difficult for governments to divert off-budget expenses when they adhere to standards of fiscal transparency. There is less of an opportunity for bureaucrats to shakedown companies when business regulations are clear and red tape is minimal. Stakeholder transparency also helps ensure that privileged groups don’t benefit from backroom deals at the public’s expense.
III. What Transparency Looks Like
Around the world, we see how transparent and efficient governance helps create business-friendly ecosystems.
According to the World Bank, New Zealand is the second easiest country in the world to do business and has a world-class business registry system. An entrepreneur in Wellington can spend part of an afternoon registering her businesses at a single web portal and still have time to make Happy Hour.
By contrast, in Haiti, it takes more than three months and 12 procedures to register a business. The process is so complicated that entrepreneurs need third-party attorneys and notaries to navigate it. Capital that could cover start-up costs gets diverted to pay attorneys’ fees.
There are 250-times more registered LLCs per 100,000 working-age people in New Zealand than there are in Haiti. While the difference in regulatory regimes isn’t the only reason for this discrepancy, it’s not an insignificant one, either.
Unsurprisingly, the World Bank rates Haiti as the 182nd out of 189 countries, in terms of ease of doing business.
The State Department wants to see more success stories like New Zealand. That is why we are helping governments set up one-stop shops, with online platforms, to make it easier for entrepreneurs to start businesses. In the developing world, women frequently run small businesses, and they will benefit from these efforts.
IV. Creating Greater Transparency
At the State Department, we’re continually urging countries to adopt more transparent governing polices. We will release our annual Fiscal Transparency Report at the end of this month. The report will show that some governments have made welcome progress in reaching minimum standards of fiscal transparency.
For example, in Nigeria, the government has taken positive steps on fiscal transparency by better reflecting actual spending on fuel subsidies in its budget. In the Central African Republic, the government has established a website that makes budget documents available and communicates information about the budget process. However, many governments are still failing to make progress, and some, unfortunately, are moving backwards.
The State Department uses the results of our fiscal transparency report to engage governments on the need for more open budgets.
Fiscal transparency also features prominently in our anti-corruption efforts. Through the Open Government Partnership, an initiative launched by President Obama and seven other world leaders in 2011, the United States and numerous countries around the world have integrated fiscal transparency commitments into their national action plans.
On the energy front, the State Department is actively promoting transparency and good governance across the extractive sector. Corruption and mismanagement of extractive resources impedes economic growth. It also reduces opportunities for U.S. trade and investment, diverts critically-needed funding from government services, and contributes to instability and conflict.
We are using the Extractive Industries Transparency Initiative – or EITI – to work with industry and civil society representatives to publish information on how the government manages the extractives sector. Today, 51 countries – including the United States – are implementing the EITI transparency standard.
V. Transparent Government Data Can Spur Sustainable Growth
Our efforts to promote government transparency go beyond simply urging countries to streamline regulations and keep better books.
A key part of our message – one that we take to heart – is how to make government data more transparent and available to the public.
Governments end up being repositories for a great deal of data. But that same data in the hands of an entrepreneur can be spun into gold … or at least into really useful apps.
One classic example is GPS data. Government satellites originally collected this data, at least in part, for military purposes. In the hands of Google and Garmin, that same data ensures that you’ll never get lost anywhere on earth, so long as you have a smartphone and Internet connection.
A 2011 study showed that GPS data added nearly $100 billion in direct economic benefits to the U.S. economy each year, and supported 3.3 million American jobs.
Other data can be equally valuable. Companies like Zillow and Redfin use publically available property and tax information to drive their real estate ventures.
Data can also help level the playing field for U.S. businesses. The State Department created the Business Information Database System – or BIDS – which is an online portal to help U.S. businesses learn about international contract or tender opportunities. Since BIDS is an open data platform, developers can use this information to support other applications including the development of websites and apps.
One of the main challenges is figuring out how to reap the benefits of big data while protecting the privacy of individual citizens. It’s vital that we find the proper balance.
In addition, this type of data can be extremely valuable as a public good. It makes possible apps that monitor pollution levels in China and people’s cholesterol levels in Chicago. It lets NGOs track fish patterns in Palau, and lets restaurants in Philadelphia promise to only serve sustainably sourced fish. Prosecutors in Peru can use satellite data to stop illegal logging in the Amazon. And the list goes on and on.
What’s clear is that transparency is not only vital to democracy; it’s a cornerstone of sustainable growth. It helps create the best possible conditions for businesses to thrive and for entrepreneurs to create new innovative industries.