Disclosure is not the cure-all liberals want it to be

Anthony Kammer 

Disclosure rules have become a kind of last resort for policy makers looking to reduce institutional corruption. There have been proposed disclosure rules for economists, particularly those who had strong ties to the financial sector. Others have called for general transparency for any academics who receive private funding for their research or who testify before Congress. The Affordable Healthcare Act imposed new disclosure requirements for physicians, and Dodd-Frank requires increased transparency into executive compensation. And until recently, disclosure had reasonably broad bipartisan support as a partial fix to the torrent of campaign spending that was opened up by the now infamous Citizens United decision.

The motivating idea behind all these proposals is that by revealing funding sources and other conflicts of interest, corruption will become apparent and the most egregious activities will be driven from the marketplace. Politically, these regulations probably owe much of their support to the fact that they’re generally viewed as consistent with free market principles. Recently, even that has come into question. Conservatives and industry insiders have expressed worries that disclosure rules add costs and stymie speech. There’s plenty to read about that debate, but it basically boils down to the fact that Republicans benefit more by keeping disclosure rules lax.

Before Democrats go on championing disclosure laws as the solution to all forms of institutional corruption, however, they should recognize its limits. While transparency is a crucial element of anti-corruption regulations and is necessary to police many of our public and private institutions, it would be a terrible mistake to stop pursuing substantive conflict of interest regulations and accept disclosure as the solution to all forms of corruption.

As Cain, Moore, and Loewenstein phrased it, that there are times “when sunlight fails to disinfect.” Treating disclosure as an end-in-itself requires a misplaced faith in the ability of markets to answer all of society’s problems. And there is emerging empirical support that disclosure rules often fail to accomplish their purported goals. I’ve tried to separate out at least two reasons to be skeptical about disclosure’s ability to eliminate conflicts of interest:

1) Because disclosure often comes into play when there are significant information asymmetries, more information does not enable policymakers, voters, or consumers to make better decisions. If a patient goes to a doctor who says he met with a drug rep before prescribing a certain medicine, the patient is not able evaluate whether or not to take the medication. He’s not going to ask another doctor or know how to assess the risks involved. Similarly, when an economist is testifying during a financial crisis before the Senate, how is a Senator to properly discount testimony that has industry support? The element of duress makes the ineffectiveness of disclosure rules even more pronounced.

2) Disclosure in many ways legitimates conflicts of interest by telling politicians and professionals, in effect, ‘so long as you told everyone what you’ve done, whatever questionable activity you engaged in was presumably acceptable.’ It might even be making behavior worse. As research by Cain, Moore, and Loewenstein revealed, disclosure seems to give experts the impression that they have dealt with the ethical problems posed by their conflict of interests and can sometimes exacerbate the extent to which expert statements become self-serving. As Courtney Humphries at the Boston Globe noted, policymakers may be treating disclosure as a panacea and refusing to address the conflicts of interest that are the real source of corruption.

Beyond this, disclosure reinforces the patently false norm that markets self-regulate. And naively supporting disclosure legislation risks lending weight to the deregulatory ideology that has already produced so many harmful conflicts of interest at the core of our political and financial systems. There are certain arrangements, that no matter how transparent, are simply incompatible with good government or a stable financial system.


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