INTRODUCTION

In just the past few years, “crowd sourcing” – highly decentralized monitoring and information processing – has emerged as an important technique. Private sector and civic entrepreneurs have developed numerous Internet-based platforms to elicit information and utilize those data to construct knowledge that would otherwise be more costly or less trustworthy. Wikipedia, “a free encyclopedia that anyone can edit,” is perhaps the most prominent of these efforts. Similar approaches are used to produce reviews and ratings of books, movies, hotels, disease, and many consumer products.

Crowd-sourcing approaches have also been applied to develop knowledge in the natural and medical sciences. In ornithology, for example, the 2009 State of the Birds reports the status of bird populations in the United States based on professional monitoring databases and tens of thousands of “citizen-scientists” who file their own observations. Google has developed an algorithm to track patterns of influenza infection all over the world based on analysis of Internet users' search behavior. For the United States, Google Flu Trends indicators track flu indicators produced by the Centers for Disease Control and Prevention (CDC) very closely. Google results have the advantage of being available two weeks before CDC data.

Though policy makers and social scientists have been slower to exploit the possibilities of crowd-sourced monitoring, several innovations have emerged. A nongovernmental organization called Ushahidi, for example, has developed a crowd-sourced crisis reporting system that has been used to track incidents of post-election violence in Kenya, violence in the Gaza Strip, and most recently highly localized needs in the 2010 Haiti earthquake.

We have seen this pattern repeatedly: Enron and WorldCom accounting scandals trigger Sarbanes-Oxley reporting reforms. The chemical catastrophe in Bhopal, India triggers toxic pollution reporting in the United States. A rash of deaths from microbes in drinking water triggers a national water safety disclosure. A wave of SUV-related deaths triggers a rollover rating system.

Transparency systems are often tacked together in times of crisis. They emerge out of high-stakes political debates driven by newly perceived needs for public action. As a result, they often begin as half-baked compromises, missing crucial elements and suffering from flawed design. After the crisis passes fromthe headlines, the transparency system is typically neglected and necessary improvements go unaddressed.

It is not particularly surprising that transparency systems fail, for two reasons. First, transparency typically imposes costs on a small group of information disclosers in the hope of generating benefits for a large and dispersed class of information users. Since the stakes are higher for the potential disclosers, they dominate the political processes that shape transparency systems over time. Second, transparency conflicts with other core values – the need to protect trade secrets and personal privacy, for example – that can tip the balance toward keeping information confidential. Under these circumstances, it is remarkable that some relatively robust targeted transparency systems actually emerge from legislative deliberations and survive.

In fact, many targeted transparency systems that are flawed in the beginning manage to improve over time and ultimately deliver the public benefits that policymakers hoped for. This chapter investigates why some transparency policies gain accuracy, scope, and use over time, becoming, in our terms, sustainable, while others degenerate into costly exercises in paper pushing or excuses for avoiding real action.

CRISIS DRIVES FINANCIAL DISCLOSURE IMPROVEMENTS

The accounting scandals at Enron, Tyco,WorldCom, and other large corporations that rocked capital markets in 2001–2002 demonstrate that the systemof corporate financial disclosure in theUnited States – the nation's most respected and most mature targeted transparency system – is far from perfect. Yet few would dispute that corporate financial disclosure has improved markedly in scope, accuracy, and usefulness during the seven decades since its adoption. Improvement has not followed a smooth and continuous path, however. Instead, it has advanced by fits and starts, driven by the push and pull of conflicting investor and corporate interests.

Transparency policies have the potential to reduce risks and improve public services in the United States, although they must overcome many obstacles to do so, as we have seen. But can targeted transparency reduce risks and improve services that cross national boundaries? That is a more difficult question.

Assessing three important cross-border transparency policies, we find preliminary evidence that such policies can help further nations’ shared agendas, even when no overarching treaty guides international action. At best, targeted transparency provides a form of governance without government.

In some ways, international transparency policies work like domestic policies. The analytical framework we have developed to assess the effectiveness of domestic policies can also assess the effectiveness of international policies. The effectiveness of international policies, like that of domestic policies, depends heavily on whether policies are user-centered and improve over time. But international policies also confront two unique challenges. First, they must earn legitimacy. Second, theymust become embedded not only in the decision routines of information users and disclosers but also in national laws, regulations, and enforcement practices of participating nations.

Whether targeted transparency can become a useful tool of international governance is a question with new urgency. Markets are integrating rapidly, while governance remains fragmented, defined by traditional national geographical boundaries. National governments have increasing difficulty framing rules for markets and for collective action unilaterally.

At the same time, the failure of national transparency systems can have dire international consequences, as two recent examples illustrate.

In 2001–2002, the sudden collapse of Enron, WorldCom, and other respected U.S. companies destroyed the savings of investors not only in the United States but around the world. The failure of U.S. financial accounting rules to keep up with market changes increased risks to investors – without regard to national boundaries. Reforms became an international effort.

In 2003, the outbreak of a virulent infectious disease known as Severe Acute Respiratory Syndrome (SARS) spread from a few villages in China to thirty countries in six months. National transparency failed as Chinese officials delayed reporting of provincial outbreaks. Late and incomplete information created international panic. In the end, SARS killed more than 700 people and caused an estimated $40 billion in economic losses.

Of course, the growing interdependence of nations has increased calls for strengthened international institutions.

Five years ago, we set out to explore a question of growing importance in public life: can government legislate transparency policies that reduce risks to health, safety, and financial stability, or improve the performance of major institutions such as schools, hospitals, and banks?

We were an unlikely trio – a political scientist, an economist, and a lawyer, each busy with our own research concerning new trends in participatory democracy, workplace practices, and regulatory policy. But all of us were based, serendipitously, at the Kennedy School's Taubman Center for State and Local Government at Harvard University. We began meeting every couple of weeks to talk about an intriguing development that each of us had noted separately in our work. Faced with challenges to reduce serious risks or improve public services, legislators were no longer simply setting standards or imposing taxes. They were also creating scores of public disclosure policies.

In effect, policymakers were honing transparency – a widely shared but amorphous value – into a refined instrument of governance. This trend raised a fundamental question that no one seemed to be asking: does transparency work? Can new information – placed in the public domain and structured by government mandate – improve consumers’, investors’, and voters’ choices and, in turn, create new incentives for manufacturers, hospitals, schools, and other organizations to bring their practices more in line with public priorities? We decided to examine that question together.

As we framed our research project, transparency policy failures with devastating consequences helped convince us that the inquiry was important. In 2001, Enron Inc., the world's largest energy trading firm, collapsed. To prosecutors, Enron's demise represented fraudulent efforts by executives to hide huge losses from investors. To many investors, it represented the loss of life savings. To us, however, the Enron debacle also signaled a failure of the nation's oldest and most trusted transparency system – the detailed federal requirements that publicly traded companies disclose their profits and losses. Enron's demise was followed quickly by the sudden collapse of other respected companies – WorldCom and Tyco, for example – incidents that underscored the flaws in financial reporting.

Over the next two years, the Bush administration's attempt to employ transparency to reduce risks of death and injury from terrorist attacks also failed. The tragedy of the terrorist attacks of September 11, 2001, was leavened by the grace and courage of citizen heroes.

IMPROVING ON-THE-JOB SAFETY: ONE GOAL, MANY METHODS

Federal and state governments in the United States have grappled with the problem of occupational safety and health in various ways for more than a century. As far back as 1916, John R. Commons, one of the first social scientists to study and help design workplace regulations, commented:

The range of government responses to the problem of safety in the newly industrialized workplace has made this area a kind of real-world laboratory in which differing policy approaches to the same broad objective may be observed and compared. These include, most recently, targeted transparency.

Early factory laws in the United States, beginning with one enacted by Massachusetts in 1886, created dedicated agencies to reduce the toll ofworkplace fatalities and serious injuries. These early regulatory systems relied on enforcement of specific safety standards (such as requirements for safety shields on machinery or limits on the amount of dust in the air). They also raised questions about regulatory design that have long since become familiar to policymakers and the general public – questions like these:

• • What safety standards should be adopted to improve workplace conditions?

• • How many inspectors should be hired, and what skills and training do they need?

• • To which industries and workplaces should inspectors be sent, and what should they do once there?

• • What penalties should be assessed when violations are detected?

• • How should repeat offenders be treated?

As workplace health and safety problems persisted, legislators devised additional regulatory approaches to augment standards-based systems. The most striking example was workers compensation insurance, adopted first by Maryland in 1902 in the form of a cooperative insurance law covering a narrow set of industries.Workers compensation systems provide benefits to injured workers by requiring companies in specified industries to pay into a common insurance fund. Premiums paid into the system by firms varied both by industry and by the employer's prior injury performance. This system of “experience rating” was intended to create financial incentives for employers to improve safety practices.

The brief but serious SARS pandemic of 2003 showed how crisis can revive a moribund international transparency policy. The response to this new and sometimes fatal disease also provided an intriguing glimpse into the future by suggesting how communication technologies can transform the way transparency systems work.

As noted earlier, emails, cell phone calls, and Internet chatroom messages from health-care workers and villagers in China's Guangdong Province in late 2002 and early 2003 first spread theword that peoplewere falling ill from a mysterious respiratory illness. As the Chinese government continued to deny the existence of such an illness, private electronic trackers of infectious diseases, such as ProMED-mail, picked up the electronic traffic and warned that the outbreak might be caused by a previously unknown virus that attacked the respiratory system.

Officially, the United Nations’WorldHealth Organization (WHO) could not act on this information. Under its rules, which could only be changed by a vote of its 192 member nations, the WHO was supposed to respond only to government alerts. However, spurred by messages from ordinary citizens and private aggregators of data, the WHO continued to press the Chinese government for information. Confronted with de facto public knowledge, the government finally acknowledged the outbreak. In response, the WHO issued a global alert onMarch 12, 2003, and a travel advisory onMarch 15.

But by then it was already too late. SARS had infected travelers. It would spread to thirty countries in six months, killing 774 people and causing an estimated $40 billion in economic losses. After the epidemic was over, the WHO's member nations changed its rules to allow the organization to respond to citizen messages as well as government alerts.

It is not too far-fetched to contend that the SARS public health crisis resulted mainly froma failure of transparency.Heeding those early messages from villagers and local authorities in Guangdong Province might have averted a worldwide pandemic.

This glimpse of a technology-enabled future revealed that the ordinary citizens who have traditionally been the users of information could become also its sources. Villagers shared fragments of experience. Collectively, those fragments formed a compelling mosaic of a rapidly spreading infectious disease and ultimately spurred international action. In effect, geographically dispersed individuals collectively created their own transparency system using new communication technology. That system in turn changed the character of international infectious disease reporting.

The emergence of targeted transparency as mainstream policy represents an unlikely political innovation. In recent years, national, state, local, and international policymakers have overcomepolitical obstacles to require both private-sector organizations and public agencies to collect and share new facts about the risks they create and the quality of their performance. Legislators have mandated new transparency despite enduring values and political interests that usually favor secrecy. They have also overcome the resistance to innovation that generally characterizes democratic systems of government. Their actions are all the more surprising because they have invented new transparency systems without any central direction and usually without knowledge that their actions are contributing to a broader policy change.

In this chapter we explore why such an unexpected development in governance has occurred at this moment in history by examining the growth of targeted transparency policies in the United States in recent decades.We begin by documenting the frequency with which targeted transparency has been legislated in recent years across many major policy areas.

We then review the development of government-mandated transparency in theUnited States. We find that three factors have helped to propel this new generation of transparency into mainstream policy. First, the maturing of an early generation of right-to-know transparency measures helped to prepare the way for targeted transparency policies. Second, crises that called for urgent responses to suddenly revealed risks or performance problems helped to overcomepolitical forces that favored secrecy and that limited innovation. Finally, a generation of research by economists and cognitive psychologists concerning information failures and communication complexities helped to provide a rationale for government action. This chapter's study of the roots of targeted transparency provides a backdrop for our detailed evaluation of effectiveness in subsequent chapters.

AN UNPLANNED INVENTION

In the last twenty years, targeted transparency policies have played a prominent role as a chosen policy response to a surprising number of national crises. In fact, ten of the fifteen U.S. targeted transparency policies analyzed in this book were created since 1986 (see Table 1.1), with a range of goals including improving the nutritional content of foods, reducing discrimination against minority groups in bank lending, minimizing sudden disruptions for workers and communities from plant closures, furthering patient safety, improving restaurant hygiene to reduce food poisoning, and cutting toxic pollution.