His new term is expected to last six years this time around, since the Russian constitution was amended to permit a longer presidency.  If he seeks and wins reelection in 2018, Putin could be president until 2024 and effectively rule Russia for over two decades.  He would have served longer than any Russian leader besides Stalin…

Much will be written about the reasons for the comfortable margin by which Putin is likely to win his 3^rd presidential term today, in spite of the ‘Putin-fatigue’ syndrome that has set in among the urban elite.  Articles will mention the craving for an image of a strongman and for stability among many Russians, while others may cry foul about fraud at the polls or related electoral corruption.  Yet this should not obscure three larger issues of significance for Russia and the world, transcending the current electoral event.

  First, Russia governance has been declining for about a decade already, and rather markedly.  This has been discussed in a recent entry and in a conference presentation.  Such decline is seen in figure 1 here.  As we can see, the decline is in virtually every one of the six dimensions of governance (as measured by the Worldwide Governance Indicators, or WGI), notably including a marked decline in Voice & democratic Accountability. 

The current presidential elections, held in a less-than-free environment for the media and for political participation, and where the emergence of viable alternatives to Putin has been stymied, ought to be viewed as a continuation of this trend of declining governance.

  In fact, Russia’s governance standards nowadays rate extremely poorly when compared with the rest of the world, as seen in Figure 2, which averages the six dimensions of governance in the WGI.  Such rough composite of governance indicates that Russia compares poorly with many countries.  Its cohorts in terms of poor governance, like Pakistan, are countries where transition has not been successful.

Second, for quite some time, Russia has already faced the huge challenge of endemic corruption, and if anything such corruption has worsened over the past decade, as also seen in figure 1 above.  There is high corruption in politics, in the executive, in the judiciary, and in the interactions between the private and public sectors.

    As seen in figure 3 here, for every type of bribery, a very high proportion of enterprise managers report that they do bribe often, comparable with countries like Nigeria and Libya, and sharply contrasting the much lower levels of bribery in many other countries. Cronyism plays an important role: those close to Putin in the Kremlin have benefitted handsomely.  And one source of high level bribery is public procurement: the lion share of firms in Russia have to pay bribes to obtain contracts. 

     Furthermore, various forms of bribery have gone up substantially. Figure 4 shows the increasing trend in procurement bribery, leading to the extremely high levels that currently prevail.

Third, the troubling evolution of governance in Russia over the past decade is a wake-up call to the world, which at times has been naïve about Russia’s transition, and about other transitions.  Over two decades ago the Soviet Union collapsed, and a democratic era dawned in Russia and many other formerly Soviet states. Yet since then the progress in democratic governance has been halting in many countries, or, even worse, there have been some reversals over the past decade, such as in Russia. 

These developments carry a warning to the Arab world.  Just because an old autocratic regime is discarded, the emergence of robust democratic institutions is by no means assured.  I have written about this subject in this brief article (here), presented and discussed in various countries, including in the Middle East.

Take the case of Egypt, for instance:  the demise of the Mubarak regime may indeed have been salutary, and can be viewed as a necessary precondition for a democratic transition.  Yet the events being played out also suggest that Mubarak gone, in itself, was insufficient. A broader perspective is useful:  of the scores of initial transitions to democracy over the past fifty years, many have not been fully successful, either having muddled through or even moving backwards, as in the case of Russia.

Democratic transitions are fragile and require constant vigilance, hard work and democratic institution-building for decades after the initial democratic episode.  Short-term setbacks or even marked reversals are not uncommon. The euphoria of the moment when an old autocratic regime is replaced, coupled with the political expediency of the international community, ought not blur the stark assessment of how each transition is actually progressing — or not.

In October 1998, Judge Garzón catapulted to prominence when he broke with traditional international law and tried to extradite the former Chilean ruler Augusto Pinochet from the United Kingdom, where he was receiving medical treatment, to Spain…

At the time Pinochet, like other former autocrats, was fully confident that as a former leader of a sovereign nation he was legally untouchable abroad, regardless of the crimes he had committed while in power. Through that legal challenge Garzón became a de facto architect of the principle of universal jurisdiction.  

Judge Garzón has no small ego.  He has taken activist stances on sensitive issues and sought publicity.  This has not endeared him to Spain’s arch-conservative Supreme Tribunal nor other jurists and politicians in Spain, where he touched powerful vested interests by unearthing high-level political corruption and state-sponsored death squads. Further, professional and political envy at his national and international prominence (he has been dubbed the ‘Superjudge’) cannot be disregarded as a factor in his current predicament.

Garzón may also have made some errors of judgment, such as ordering wiretaps in a political corruption and money laundering case when the law was unclear on the permissibility of such action.  According to Human Rights Watch he was not alone in approving these wiretaps, yet, he was singled out.  Worse, even though he may have made some missteps, being convicted on criminal charges,  and barring him from the legal profession for 11 years (effectively terminating his judiciary carreer) seems to be a wholly disproportionate sanction.

As reported by the New York Times, Reed Brody, counsel for Human Rights Watch, said the “accumulation of the cases against Judge Garzón” suggested “reprisal for his past actions against vested interests.” “Unfortunately,” he added, “it certainly looks like his enemies now got what they wanted.”

A travesty of justice appears to have been committed in Spain, with the fundamental principle of judicial independence becoming compromised. This may seem shocking and unlikely in a country like Spain, where impressive gains in governance and rule of law had been made in the post-Franco era.  In fact, over the past few decades many countries in Latin America have looked up to and learned from Spain’s rule of law and judicial institutions, benefitting from considerable technical collaboration with jurists and legal experts in this area.

                                                                                                               However, the evidence suggests that over the past decade something has changed in Spain’s governance, and not for the better.  Shortly after judge Garzon tried to have Pinochet extradited in 2000 – over a decade after the Chilean dictator left power with immunity – Spain rated higher than Chile on the quality of its rule of law institutions according to the Worldwide Governance Indicators (WGI). By 2010 the countries’ respective positions had reversed, resulting from a decline in the quality of rule of law in Spain and a slight improvement in Chile (Figure 1). 

                     Worse, by 2010 Spain’s performance on rule of law was mediocre by OECD standards. As we can see in Figure 2 Spain (ranked 29th) not only rated well below the Scandinavian countries, which rated among the best in the world, but it also rated below many of its peers, including New Zealand (5th), Canada (9th), Ireland (13th), Hong Kong (20th) and Malta (22nd), among others.  There was nothing inexorable about a deteriorating rule of law — each country featured in Figure 2, with the exception of Spain, exhibited some improvement in their rule of law over the past decade.

Homs had already suffered from recent violence, but had not previously experienced such a horrific assault on civilians. On the same day, the United Nations Security Council (UNSC) failed to adopt a resolution condemning the violence in Syria, even though 13 out of the UNSC’s 15 country members supported the resolution.

Two permanent members of the U.N. Security Council, Russia and China, sided with Syria’s Assad and exercised their veto power. Leaders in the west, as well as the head of the U.N., some Arab States and Syria’s own civilian groups have expressed outrage at the callousness of these vetoes.  Yet such veto should not surprise observers.

The governments of Russia, China and Syria have common interests and protecting the human rights of their own or each other citizens is not high on their agendas. Instead, they share common economic, security and geopolitical interests, including weapons trade. In Spanish there is a rather telling expression: “Dime con quien andas, y te dire quien eres,” whose literary translation is “Tell me with whom you walk and I will tell you who you are,” yet its spirit is best captured by an English idiom, “A man is known by the company he keeps.”

In terms of standards of political governance, with a few differences aside, the three governments make good companions. Their standards of governance are uniformly low and deteriorating. China, Russia and Syria’s common misgovernance is compared to the governance standards of other members of the UNSC below (Figure 1).

Take first Voice & Democratic Accountability (VA), one of the six dimensions we measure in the Worldwide Governance Indicators (WGI). This Voice & Accountability indicator from the WGI captures the extent to which political rights and civil liberties are provided, human rights are protected, and the extent to which there are freedoms of association, expression and press.

     This figure first shows how low, Syria, Russia and China rank globally in Voice & Accountability –towards the bottom of over 200 worldwide. And their governments’ performance on Control of Corruption (another component of the WGI) is similarly subpar.

By sharp contrast, other countries in the U.N. Security Council, which voted in favor of the resolution condemning the violence perpetuated by Syria’s government, perform distinctly better on both Voice & Accountability and Control of Corruption.   Worse – and another reason for why there should be no surprise at the stance taken by Russia and China – the countries’ performance on these important dimensions of governance is not only highly challenged but has deteriorated over the past decade.

At a recent conference on Russia, I presented empirical evidence on the deteriorating governance situation in the country (here). One chart depicted Russia’s trend in several governance dimensions over the past decade such as Voice & Democratic Accountability, Political Stability & No Violence, and Control of Corruption and is summarized in Figure 2 below.   The low and deteriorating level of governance by Russia’s government is not only evident from these indicators, but also from the actions of top political leaders, and in the reaction of its citizens in the form of mass demonstrations against Putin.

  Such sharply contrasting performance on national-level indicators of governance and the disparate priorities across powerful countries provides a sobering perspective on the constraints faced by global governance institutions nowadays, such as the U.N. and G-20.

The power of uncensored data and the voice of domestic and international non-governmental institutions should feature more prominently in an era where some powerful governments are not playing a constructive role in global governance. Nobody knows this better today, and feels the pain of such misgovernance more acutely, than the citizens of Homs.

It is however misleading to group Latin America as one.

The bottom line is that Iran’s Ahmadinejad is being welcomed in only four countries.  And the four welcoming countries exhibit very poor levels of governance, very much like Iran…

Take for instance one of the six dimensions we measure periodically in the Worldwide Governance Indicators (WGI), namely Voice & democratic Accountability (VA), which captures the extent to which political rights and civil liberties are provided, as well as freedom of association, of expression and of the press.

The above chart first shows how low Iran ranks worldwide in Voice & Accountability, with only about a dozen countries rating below Iran among over 200 around the world.  Furthermore, the chart also shows that governance in Iran has deteriorated markedly since 1998 (for each country, the left column depicts the country’s percentile in 1998,  while the right hand-side column depicts the percentile rank in the most recent period, 2010).

Then, following the low scores of Iran, the chart depicts the Voice & Accountability levels in 1998 and 2010 for the 4 Latin American countries that have welcomed Iran’s leader, namely Cuba, Ecuador, Nicaragua and Venezuela.   We see that the performance of these 4 countries tend to  mirror that of Iran in terms of democratic governance:  deteriorating over the past dozen years, and very low nowadays.  The WGI also shows that the performance of these 4 countries is also subpar on other dimensions of governance, such as Rule of Law (not shown in the chart, but data is here for over 200 countries for all 6 governance indicators).

As we keep moving towards the right in this chart, we traverse to a very different set of Latin American countries: those that are not welcoming Ahmadinejad.  Due to space limitations, we only show some prominent Latin American countries that are now welcoming Iran; in reality there are many more than those shown in the chart.

We clearly see that the many unwelcoming countries to Iran do exhibit much higher levels of democratic governance, and generally improving over the past dozen years (or at the very least not deteriorating).  A stark contrast between the welcoming and unwelcoming countries in Latin America is clear from the data.  There are a few bedfellows of Iran all governing similarly poorly (not surprisingly, since they are bankrolled by the leader of one country, Venezuela), on the one hand.  And then there are many prominent Latin American countries governing better, on the other.

Ahmadinejad was not warmly welcomed and embraced by Latin America, but by Venezuela’s Chavez and a few of his clients.  This, at least, is what emerges from the evidence-based perspective provided by the WGI.

Yet they have stirred up controversy. As is often the case with provisions that aim at changing the rules of the game, Sections 1502 and 1504 have pitted stakeholders that support their passage and full implementation against the interests of those that wish to water them down or greatly delay their implementation. Last Tuesday, Brookings and Global Witness hosted an event at the National Press Club to examine the debate surrounding these two provisions*…

Representative Jim McDermott kicked off the event by explaining that passing Sections 1502 and 1504 is only half the battle. The eventual effectiveness of these provisions largely depends on how the final rules are written and implemented. If well implemented, they could contribute to increased transparency, empower citizens to capture the gains from natural resource wealth and deny financing to dangerous armed groups in the Democratic Republic of Congo and the surrounding countries…

However, if opponents of these rules succeed in sufficiently watering them down, many of these gains will not be attained. With this in mind, panelists and participants from civil society, the private sector, financial sector and think tanks discussed the benefits, potential costs and implementation challenges of Sections 1502 and 1504.

The first part of the discussion, moderated by Simon Taylor from Global Witness, focused on the costs and benefits of Section 1504, which requires U.S. companies in extractive industries to report project-level payments made to foreign governments. Isabel Munilla from Publish What You Pay (PWYP) emphasized that with detailed information, citizens, civil society organizations and NGOs will be able to monitor corporate and government interactions, hold both groups accountable, and ensure that natural resource wealth contributes positively to local development and livelihoods. Daniel Kaufmann pointed out that data and research from around the world suggests that in the long run, with increased transparency and accountability, citizens could see up to a 300 percent development dividend from improved governance – i.e. their incomes per capita could triple.

Bennett Freeman from Calvert Investments suggested that transparent companies attract more investors because disclosure clarifies investment risks. And Laurel Green from Rio Tinto also supported implementation of these disclosure reforms, pointing out that such transparency can be a competitive advantage since firms can provide host governments with clear evidence of how they contribute to government revenues and communities. Yet not all companies may view such transparency reforms to their advantage. From an economic incentive standpoint, Kaufmann highlighted that, as with practically every rule, Section 1504 also means that there will be winners and losers. Companies that focus on efficiency and innovation stand to benefit, while those that derive gains from rent-seeking, monopolistic behavior or tax avoidance would have an interest in maintaining an opaque status quo.

Some large companies and industry associations that are opposed to the disclosure rule in Section 1504, such as Shell and the American Petroleum Institute, have suggested that project level disclosure will be very costly, position publicly traded firms at a competitive disadvantage, and possibly face in-country discrimination in places with lack of disclosure. There was discussion during the panel suggesting that these claims may be exaggerated.  The reality is that companies already have systems in place to track revenues and payments. In fact, even though Section 1504 is not under implementation yet, some large corporations— like Rio Tinto, Statoil and Newmont Mining, among others— already disclose payments in every country of operation. Further, as reported by some companies that are already disclosing, there does not appear to be compelling evidence that companies will face major penalties by non-transparent governments.

Some companies are also concerned that competitors could use disclosed information to their advantage. First, the information that should be disclosed does not appear to fall under the proprietary trade secrets category. Furthermore, since the rules cover all companies listed on the U.S. stock exchange, major companies like Shell, Exxon and BP are covered, as are some state-owned ones, like Petrobras and Petrochina. Last, and not least, disclosure requirements along the lines of Section 1504 are already being drafted in the European Union, and consideration of similar rules is also taking place in South Korea and Hong Kong, which would widen the network of companies covered and further level the playing field. If anything, firms listed in the U.S. can get a head start on those companies not yet covered by disclosure requirements.

Since it will be virtually impossible to roll back Section 1504 on transparency in natural resources as well as difficult for companies to oppose transparency from a public relations perspective, the strategy by companies opposed to disclosure has been to lobby for watering down the eventual rules issued by the Securities and Exchange Commission and to delay the effective implementation of the rules. The most important component in watering down such provisions would be to make disclosure a requirement merely at the aggregate country-level rather than at the project-level. This loss of this crucial detail would greatly reduce the impact of the measure. All the panelists during this session, including those from the private sector, argued in favor of detailed project-level disclosure.

In the second session, panelists and participants discussed Section 1502, which requires companies that source minerals from Congo-DRC and adjacent countries to disclose whether they use conflict minerals. The rule relies on the adverse reputational impact of such disclosure rather than mandating penalties for actually sourcing minerals from conflict-afflicted regions where militias may be benefitting from this trade. No reputable company wants their product associated with armed conflict, human rights violations, slavery and rape. Yet again there are some companies that support these reforms, while others oppose them.

Corinna Gilfillan from Global Witness, Delly Sesete from CREDDHO in the DRC, and several participants in the audience from the DRC region emphasized that although Section 1502 will not itself end conflict in Congo, it could hold companies accountable for sourcing from mines controlled by militias. The U.N. Group of Experts on Congo has already found that since the signing of the Dodd-Frank bill, there has been a reduction in the portion of mined minerals that is funding the conflict. By denying financing to the armed groups that perpetuate violence in the region, the provision can contribute to increased stability and improved human rights.

As with Section 1504, some companies are claiming that implementation costs associated with conflict minerals in Section 1502 will be very high. There are numerous estimates of these costs, ranging from the SEC’s estimate of $71.2 million to the National Association of Manufacturers’ (NAM) estimate of $9-$16 billion. Recent estimates produced independently by the Claigan Environmental consulting firm and presented by Bruce Calder during this panel suggest that costs to the industry are expected to be less than $815 million.

In fact, some proactive companies (both domestic and foreign) are already showing that tracking supply chains is both practically and financial feasible. Sandy Merber from General Electric and Tim Mohin from AMD discussed how pooling industry resources could help offset individual firm costs. The Electronics Industry Citizenship Coalition and the Global e-Sustainability Initiative have partnered with firms to develop the “Conflict Free Smelters Program“, which allows companies performing due diligence to trace their mineral supply chain down to the smelters who are certified as being either conflict free or not. Efforts are being made to now certify smelters in the DRC region under this program to help preserve access to the international markets for impoverished artisanal miners. Yet the companies that have already taken the lead in tracking the supply chain are a minority, and thus they are bearing a disproportionate share of the cost for so doing. Once the rules are issued and regulations implemented, this cost would be spread among a larger universe of firms.

There are concerns among some in the DRC that Section 1502 will have negative unintended consequences on citizens in the region. They suggest that the disclosure requirements are driving firms out of the DRC, citing falling mineral trade as evidence. Yet Section 1502, which has not yet even been implemented, cannot solely be blamed. Since April 2010, when the DRC-government-imposed six-month minerals embargo ended, trade in minerals has been on the rise. Sesete argued that much of the talk of unintended consequences was akin to fear mongering. He and others have pointed out that the mineral trade in that region is a relatively recent activity and citizens had (and continue to have) other sources to support their livelihoods. Further, he emphasized that the benefits of increased security and reduced violence and instability are too great to dismiss Section 1502 outright.

In the end, as pointed out by Mark Taylor from FAFO, the ability of Sections 1502 and 1504 to achieve their goals depends heavily on effective implementation. The final rules on these two provisions have yet to be released by the SEC. Therefore, the uncertainty surrounding the final rules has contributed to speculations on the cost (both to companies and countries) of implementation. The sooner these regulations come out and the clearer the standards they set are, the greater chance these provisions will have in maximizing the benefits to global transparency, accountability and governance.

As Senator Ben Cardin reminded the audience during his closing presentation, the importance of Sections 1502 and 1504 transcends U.S. companies and Central Africa. Indeed, while the SEC should carefully weigh potential benefits and costs in the implementation of Section 1502 and 1504, the balance should be in favor of transparency.

And the importance of leadership should not be ignored: these specific disclosures in Dodd-Frank will signal that the U.S. is taking the lead globally on these important aspects, potentially nudging other key financial centers to do likewise and thus benefiting governance, security and human rights in many corners of the world.

* On December 13, Brookings and Global Witness hosted The Transparency, Conflict Minerals and Natural Resources: What You Don’t Know About Dodd-Frank, an event examining Sections 1502 and 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The agenda and full transcript can be found here.  This article was co-authored with Veronika Penciakova and originally published in the Brookings website.

Yet, what is not so well known is how the Dodd-Frank Act extends beyond Wall Street and even the rest of the United States. There are two provisions in it that are intended to promote transparency and governance in natural resources in countries outside the United States…

Section 1504 is the more general provision on transparency. It mandates oil, gas and mining companies registered with the Securities and Exchange Commission (SEC) to publicly disclose the tax and revenue payments made to any government.

The more specific Section 1502 requires that companies that use minerals from the Democratic Republic of Congo (DRC) and adjoining countries disclose whether such minerals are sourced from areas in conflict within that region, so to provide information as to whether the payments made by such companies may be funding armed groups in those areas…

While few would publicly argue against promoting transparency generally, it is no secret that these provisions have generated much discussion and controversy. This matters for how the provisions will be implemented in practice. Thus, it is important to seriously debate all sides of the issues surrounding these two provisions, including the criticisms leveled against them.

For instance, it is important to discuss whether Section 1504 — which mandates transparency requirements in oil, gas and mining-related payments to governments — does not impose new and enormous (multi-billion) costs of compliance, which may create a major competitive disadvantage on companies.

Further, do project payment disclosures really mean revealing trade secrets? If there are costs, how do they stack up against the benefits from transparency and disclosure in natural resources? And on the other hand, what are the benefits to transparency? How can greater transparency help improve the management of natural resources in a way that contributes to economic development and increase accountability?

As indicated, Section 1502 is aimed at cutting off financing to armed groups who have profited from trade in minerals and use this money to finance their operations. The issues of compliance costs and competitive disadvantage are also concerns for some parties with regard to this section on conflict minerals.

There are also additional questions that merit debate, such as assessing the potential benefits from denying armed groups from being financed by companies purchasing minerals and the reduction in violence and human rights abuses, versus the potential for disruption in trade on minerals from the DRC and adjoining countries. This may inflict undue “collateral damage” on some mineral-extracting areas that are not conflict-ridden.

On the other hand, these costs should be weighed against the costs of continued trade in conflict minerals. How high are these costs? And what are some benefits for companies and the DRC in developing a clean minerals trade?

These and many other relevant and related issues will be debated in a public event this coming Tuesday, December 13, at the National Press Club in Washington, D.C.   We at Brookings along with Global Witness will host a discussion to examine these two provisions in the Dodd-Frank Act.

Leading experts from civil society in the United States and Africa, the private sector, the financial sector and think tanks will participate in an interactive panel setting to review the priority issues surrounding each provision.

Representative Jim McDermott (D-Wash.), will provide the opening remarks while Senator Ben Cardin (D-Md.) will give the closing remarks. And Reverend Jim Wallis of Sojourners will also be speaking during the lunch break. The panels will provide ample room for debate among the panelists and between the panelists and the audience, aiming at bringing out the key issues from all sides.

Given the importance of these initiatives and the ongoing discussions on their implementation details, we expect a lively debate.

Analysts have focused on the immediate and narrow concern of how the SEC and Citigroup will respond to this challenge and on second-guessing what may satisfy Judge Rakoff. Three options exist: the agency could renegotiate a deal with the bank for a higher settlement and insert vague (and non-incriminating) language hinting at the bank’s culpability; it could allow the case to go to trial; or it could appeal the Judge’s decision. Some even suggest that the ruling may result in the SEC pursuing more cases administratively in the future…

Rather than adding to these ongoing media and expert analyses on the immediate response of the SEC and Citigroup to Judge Rakoff’s ruling, we* take a broader perspective. SEC v. Citigroup can be seen in the context of the intimate relationship between the agency and the powerful banks it regulates, one which has prevailed for years and weakened the regulatory power of the SEC.

The financial crisis and subsequent call for reform provided ample opportunity to tackle such undue influence and regulatory capture. Regulatory capture occurs when the regulatory evidence is unduly influenced by the interests of regulated entities. At the beginning of the new administration and during the early stages of the Dodd-Frank reform bill preparation, a rebalancing of power between the weakened regulator and powerful financial institutions was expected.

Yet, once the bill was adopted reality began to sink in. The reform bill failed to directly address the problem of banks that were too big to fail, and left crucial implementation matters to the discretion of weak regulatory agencies such as the SEC. It seemed that power shifted back from Washington to Wall Street again.

Rakoff’s challenge of the SEC exposes yet another example of how old power balances that favor financial institutions remain alive and well. The main question is not how the SEC can reword its settlement with Citigroup to satisfy judge Rakoff, but rather whether the judge’s ruling will serve as a wake-up call to the weak regulatory regime governing behavior of financial institutions and prompt concrete changes to the rules of the game.

The SEC has a history of regulatory capture

Whether covert or overt, elements of regulatory capture have been evident for some time. In the decade leading up to the financial crisis, deregulation in the U.S. financial sector weakened regulatory agencies. More generally, seven years ago I codified the extent of “state capture” and “legal corruption” through a survey of enterprises in over 100 countries. The extent of capture afflicting the U.S. was very high; it not only rated well below other industrialized countries, but found itself among the bottom half worldwide (figure 1). But at that peak time of financial exuberance and deregulation, there was little appetite to take such data seriously.

It got even worse. These data were collected months before an infamous meeting between bankers and the SEC that took place in April 2004 in New York City when the SEC readily agreed to significantly relax its regulatory stance vis a vis the largest investment banks, allowing them to amass massive amounts of debt. In return, once the agency would set up its supervisory program, the banks would submit to SEC reviews and restrictions on excessively risky activities. Yet the SEC’s supervisory hired only seven people to examine companies with combined assets of more than $4 trillion and completed no inspections after 2007.

Furthermore, preceding the financial crisis the SEC became aware that Bernard Madoff, who had served on the commission’s advisory committee and had been previously reported for securities violations, was mismanaging his customers’ funds in the tens of billions of dollars. Yet the agency failed to probe deeper and unmask his Ponzi scheme. The SEC also neglected to take action against financier R. Allen Stanford, who swindled investors out of $8 billion, although allegations of fraud and possible money laundering had been levied against him in the past.

Expectations of change were not realized

The onset of the financial crisis revealed the weakness of the financial sector and the extent to which regulators had been captured. It spurred public outrage and calls for change. When the new administration entered office it brought with it a clear appreciation for the problem of capture. As early as 2007, then Senator Obama during a major address on the ills of the financial sector at Nasdaq in New York recognized that “turning a blind eye to cronyism in our midst put us all in jeopardy” and that “we [were] going to have to adapt our institutions to a new world.”

Over three years later, regulatory reforms were adopted through the Dodd-Frank bill, which, at least on paper, signaled a move in the right direction toward stronger regulations and the potential for somewhat reduced capture. Yet, recent events are exposing weaknesses in the Dodd-Frank bill. The bill failed to address crucial implementation details and was vague in some regulatory matters, leaving discretion in the hands of weak regulators. Since the mid-term congressional elections last year, lobbyists for large financial institutions and their allies in Congress have been working hard to keep, as intact as possible, the deregulated status quo that prevailed prior to the financial crisis and the subsequent Dodd-Frank bill.

It is now evident that if not for the Federal Reserve Boards’ lack of transparency in supporting large banks during the crisis, the Dodd-Frank bill may have had a better chance at addressing the undue influence and systemic risk posed by these large financial institutions. The extent to which large banks teetered on the edge of collapse in 2008 and 2009 has only now come to light. This week, Bloomberg revealed that by March 2009 the Federal Reserve had secretly provided nearly $7.8 trillion in emergency funds to rescue the financial system, dwarfing the publicly known $700 billion Troubled Asset Relief Program (TARP). The trouble with this secret bailout is not the Fed’s emergency actions, but rather that the information remained so closely guarded for so long and that the Fed fought against its disclosure.

This secrecy may have been initially warranted to prevent further panic and a run on the banks, but the lack of transparency in the medium-term had a significant impact on regulatory reform. Had the information been disclosed earlier, including to members of Congress and the public, the evidence of systemic risk posed by large banks may have persuaded some to adopt a tougher Dodd-Frank bill. A stronger bill may have more directly addressed the problem of large banks, and in this context, further empowered regulatory agencies such as the SEC. In fact, had the details of the Fed’s bailout been disclosed, there may have been more support in Congress to break up the biggest banks. Lobbyists for the largest recipients of Fed funds made a winning case that such a breakup would punish “successful” institutions.

Regulatory capture of the SEC today impacts enforcement

The close ties between banks and the SEC is symptomatic of the sector’s influence over the regulator. A study by the Project on Government Oversight found that in the past five years, 219 former SEC employees filed nearly 800 disclosure statements for representing their clients’ dealings with the agency, and of these, about half (403) were filed by people who worked for the SEC’s enforcement division. Because former employees are only required to file such disclosures for two years after leaving the SEC, these figures only capture the most recent instances. Even the regulator’s top enforcement official has moved back and forth between the Justice Department, Deutsche Bank and the SEC.

Such close ties may ultimately affect enforcement. An internal investigation found that a former SEC official blocked the agency’s investigation of R. Allen Stanford for nearly seven years, and then went on to work for him. More recently, the SEC’s head enforcement official was investigated (but cleared) after Citigroup hired his former boss to participate in its defense against charges unrelated to the case before Judge Rakoff. Negotiations between the parties resulted in the charges against two executives being reduced. In an open investigation, the SEC’s inspector general is looking into allegations that the frequent hiring of former SEC attorneys by a particular firm has contributed to the agency’s failure to take appropriate actions against it.

One impact of such capture has been weak enforcement. While the SEC can take companies to court, extract civil penalties and bring contempt charges for repeat violations, the agency has only given ‘slaps on the wrist’ to those firms involved in the financial crisis. Instead, it has preferred to settle out of court with big banks. These settlements allow banks to merely pledge to desist from breaching antifraud laws again and pay penalties, which are typically not very onerous, considering the bank’s breach and benefits they derived, without ever having to admit to any wrongdoing.

Following Judge Rakoff’s ruling, the SEC defended its practice of settling out of court by arguing that settlements deter future bad behavior because they make firms pledge to improve business practices and impose monetary penalties. The agency suggested that were it required to extract an admission of guilt, more institutions would take cases to court. This would tie up limited SEC resources and force the regulator to pursue fewer cases. This line of defense relies on two flawed assumptions – that current settlements deter future violations and that a lower caseload would weaken incentives to comply with regulations.

Firms will opt to fully abide by the law (or not) depending on economic incentives – i.e. whether the benefits of abiding by the law significantly outweigh the costs. Currently, the costs imposed by the SEC are low. Pledges are virtually costless, and the penalties imposed by the SEC are small relative to the profits of these large institutions and the benefits they derive from improper behavior. Furthermore, the SEC has shied away from closely monitoring the Banks’ compliance progress, and has done little to impose high penalties for failure to comply with pledges made by banks.

Citigroup is a prime example. It is accused of negligence in the loss of $700 million of investor money, and agreed to pay $285 million, which is less than 8 percent of the bank’s profits in just the third-quarter of 2011 alone. Moreover, because these settlements do not require companies to admit guilt, the bank is further shielded from investors taking them to civil court, and the Justice Department is in less of a position to press criminal charges against executives.

A New York Times analysis found that over the past 15 years, at least 51 cases have involved recidivism by 19 Wall Street firms. In many of these cases, the SEC could bring contempt of court charges, but it has not done so in at least 10 years. Most major banks are repeat violators. Bank of America, for instance, has four violations for purposeful or negligent fraud in interstate commerce, and four for purposeful fraud by securities firms since 1998. During the same period, Citigroup amassed five violations for purposeful or negligent fraud in interstate commerce, and three violations for purposeful fraud by securities firms. None of these past cases were even mentioned in the SEC’s charges against Citigroup in the case before Judge Rakoff, and no contempt of court charges have been made against the bank.

Finally, the SEC should be in a position to welcome a somewhat lower caseload if the cases it more forcefully pursues do substantially increase the cost of non-compliance. If any corporate firm has a somewhat lower probability of being investigated, but faces a substantially higher cost if probed, it will be far less likely to violate regulations because the expected costs associated with illicit behavior increases. Increased costs, in the form of higher penalties, investor lawsuits and possible jail time for executives, would serve as a strong deterrent. Currently, no executives have been successfully prosecuted for actions leading up to the financial crisis. This is in sharp contrast to the aftermath of the Savings and Loan (S&L) crisis of the 1990s when of more than 1,100 cases were sent to the Department of Justice for prosecution, resulting in 800 bank officials going to jail.

Taking on very large firms and raising the costs of violating the law are not impossible tasks. It can be done. In fact, in 2008 American and European authorities went after Siemens, a German multinational company, for making large amounts of dubious payments globally. By 2010 Siemens had paid out nearly US$3.4 billion in investigations, back taxes and fines to end the probe. Fines to authorities in the United States and Europe cost the firm US$1.6 billion. In addition, in German court one senior manager and two executives were found guilty of wrongdoing and were fined and sentenced to probation.

Conclusions and Implications

Focusing only on the minimum the SEC can do to settle with Citigroup and to satisfy the specific challenge presented by judge Rakoff misses the much larger picture. The judge’s ruling brings to light, once more, the extent to which a regulatory agency may have been subject to capture and undue influence by financial institutions and also raises the possibility of challenging the current status quo. Selectively, let us suggest five areas that warrant attention:

1.  The debate on how to stem the undue influence of big banks should be revisited, and a spectrum of more stringent measures, even including the breakup of the biggest banks, ought to be seriously considered. Revolving door policies ought to be revisited and cooling off periods should be extended, especially for persons occupying sensitive positions that are particularly vulnerable to capture.

2.  The public ought to take stock of and debate the implementation and application of regulations by the SEC under the Dodd-Frank, focusing on how the bill is faring and codifying the interests and arguments behind the efforts by financial institutions and lobbyists to delay or water down implementation of relevant aspects of the bill.

3.  The cost of violating securities laws ought to increase substantially. Simply raising the monetary out-of-court settlement with no admission of guilt will not alter the incentive structure. Rather, the SEC and others should not avoid contempt of court challenges for recidivist banks. More generally, banks should end up in civil court more frequently; settlements should include admissions of guilt and allow the market and private sector to challenge illicit behavior by banks; financial settlements with the SEC should be larger by a multiple factor; and the Department of Justice should work closely with the SEC to obtain the necessary information to pursue criminal cases. The Congress should also seriously consider the recent request by SEC Chairperson Mary Schapiro to allow the agency to levy larger fines against securities law violators.

4.  Like Judge Rakoff’s decision, the extent to which all judges exercise their due responsibility by not merely rubber-stamping unfair out of court settlements that unduly benefit one party to the detriment of the social good and broader systemic risks, should be reviewed and publicized.

5.  In a transparent and evidence-based manner, an in-depth review should be undertaken to discern whether the Department of Justice has been overly weak in failing to pursue criminal cases against senior bank executives. More generally, there should be increased transparency and disclosure regarding information in the financial sector, including on the Fed’s actions, as well as increased public debate on how campaign finance and lobbying contributions affect voting records in Congress and on politicians’ undue influence in implementing the regulatory regime and their agencies.

These tougher transparency, regulatory and enforcement incentives would further raise the costs of violating securities laws because companies would face the added risk of investor lawsuits, and possible criminal prosecutions by the Justice Department against executives.

If Judge Rakoff’s ruling will set a precedent is unclear, and it depends greatly on the White House, Congress, the SEC, other judges, civil society and reformists in the private sector to seize this opportunity and to address the persistent and costly phenomena of capture.

*Article co-authored with Veronika Penciakova and originally posted by Brookings.

Earlier this summer, President Obama welcomed one day apart Gabonese President Ali Bongo and Nigerian President Goodluck Jonathan to the White House.  Both countries share in common significant oil wealth, weak public institutions, and a large proportion of the population living in poverty.

Nigeria is ahead of the laggard Gabon in terms of developing democratic institutions, and has made inroads compared with its misgoverned authoritarian regims in past decades, even though it still faces considerable governance challenges, such as corruption (including in some provinces) and violence…

Then, shortly after President Obama welcomed these two African leaders to to the White House, First Lady Michelle Obama embarked on her second official solo trip, this time to South Africa.

While oil geopolitics played a role in the U.S. president’s agenda, the heightened emphasis on sub-Saharan Africa, and especially on its economic progress, is in stark contrast to how the region was cast in the past. For decades Sub-Saharan Africa (SSA) was inappropriately cast by many in the West as a wholesale “basket case”; an abjectly poor, economically stagnant region.

We rejected such an “afro-pessimist” view in the past.  Yet over the past year or so the pendulum may have swung to the other extreme. The region’s overall performance in recent years – featuring economic growth and reductions in poverty and child mortality rates, among other achievements – had many heralding Africa’s “new dawn”. 

And now, in light of the ongoing famine in Somalia, a failed state, the conflict in Sudan and Chad, and the brazen act of terror that just took place against the UN headquarters in Abuja, the Nigerian capital, the holdover afro-pessimists may attempt a resurgence of their view of doom for the continent.

Now we take exception to both extremes.  Our analysis* suggests that progress in a number of African countries has been laudable, yet one should be wary of premature exuberance and shy away of overly rosy assessments and  declarations that some official aid organizations tend to disseminate nowadays, abstaining from touching on critical pending challenges in governance and corruption.

The high variance in governance and development performance across the SSA warrants focusing on country specifics, moving past regional averages and mere comparisons with a troubled  past.  Indeed, contrasting the performance of African countries with that of other emerging economies provides added insight into the challenges facing the continent.

Africa is a Diverse Continent

Too often sub-Saharan Africa has been viewed as a singular unit rather than a conglomeration of 48 individual countries. While income per capita in the region grew at an average rate of 2.1 percent annually over the last decade, per capita growth rates ranged from -6.0 percent in Zimbabwe and -4.1 percent in Eritrea to 15.3 percent in oil-rich Equatorial Guinea, 7.7 percent in oil-rich Angola and 6.2 percent in Sierra Leone. A high variation across countries in Africa is also evident on a variety of other economic and governance indicators.

Radelet (2010) explores cross-country differences by distinguishing between groups of countries based on economic performance, classifying SSA into four groups – emerging (17 countries, such as Ghana and Ethiopia), threshold (six countries, such as Liberia and Benin), oil exporting (nine countries, such as Angola and Congo) and other, which we re-label as fragile (16 countries, such as Somalia and Zimbabwe) [1].

According to Radelet, countries in the emerging category have experienced economic growth and poverty reduction since the mid-1990s, while threshold countries have seen similar, though less dramatic, economic changes. Oil exporters have experienced uneven and volatile progress, and fragile countries have seen few economic improvements.

On average, incomes per capita among Radelet’s group of 17 emerging SSA economies grew at 3.2 percent annually over the last decade. Growth in emerging economies outpaced threshold (1.7 percent growth) and fragile (-0.5 percent growth) countries, though not oil producing ones (4.5 percent). However, it is important to note that even among this elite group of emerging countries there is a high variance in both economic and governance performance [2].

Since research has shown that the quality of governance impacts long-term growth and development, it is particularly important to emphasize governance alongside short-term economic performance. We have reviewed the performance of SSA countries on a broad range of governance indicators, including voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption from the Worldwide Governance Indicators, and political rights, civil liberties and press freedom from Freedom House.

We find that the 17 emerging economies category can be split into at least two groups – those that we label as performing emergers, which have had adequate growth rates and relatively satisfactory levels of governance, and the quasi-performing emergers (Ethiopia, Rwanda, Uganda and Zambia), which have exhibited adequate per capita income growth in recent years but where governance performance remains subpar.

The quality of governance across countries in the region differs considerably, and even among the “emerging” group of countries in SSA we observe substantial variation in voice and democratic accountability (Figure 1 below). On average the group we label performing emergers rates in the top half of all developing countries; by contrast, the group of quasi-performing emergers rates in the bottom half of all developing countries on this important governance dimension.

To illustrate, among the 17 emerging SSA economies some stellar countries like Mauritius and South Africa (performing emergers) exhibit voice and democratic accountability on par with Slovakia and Brazil, while countries like Rwanda and Ethiopia (quasi-performing emergers) are on par with Afghanistan and Azerbaijan. Further, according to Freedom House, while the 13 performing countries among the emergers have either a free (39 percent) or at least a partly free press (61 percent), with the exception of Uganda (partly free), the press in “quasi-performing” countries is rated as un-free.

While it may be tempting to generalize and hail sub-Saharan Africa’s “new dawn” (or as “old doom revisited” by some naysayers), it may be more accurate to hail it as:  a dawn of a select few performing emergers with strong growth and good governance. This group represents only a quarter of the region’s countries and a fifth of its population.

Cross-Regional Benchmarking Provides Insights

We have noted that several SSA countries have seen improvements in social and economic indicators over the past decade. But benchmarking against other developing countries and regions provides additional perspective.

Some sub-Saharan African countries exhibit strong economic performance relative to countries in other regions, though several do not. Over the last five years, average per capita incomes in SSA grew slower than in any other developing region (2.3 percent growth).

On the one hand, the growth performance of SSA’s performing emergers (3 percent growth) was on par with the regional average for all countries in Latin America (2.9 percent growth) and with the new European Union countries (3.2 percent growth). On the other hand, countries in SSA’s “threshold” (2.2 percent growth) and “fragile” (0.2 percent growth) groups performed well below these groups and on par with countries that were either generally misgoverned or harder hit by the recent global financial crisis.

A similar pattern emerges when comparing governance across world regions. As Figure 2 suggests, the extent of control of corruption among performing SSA economies is similar to that of countries in Latin America and the Caribbean (LAC), but below the levels of East Asian newly industrialized countries and newly acceded EU countries. Quasi-performing emerging economies of SSA display governance levels similar to those of developing East Asian countries, and threshold and fragile countries have governance levels on par with South Asia and Former Soviet Union economies. Notably, SSA oil producers have the weakest control of corruption among any of these groups (Figure 2).

Our assessment of economic and governance progress in SSA countries points to both encouraging and sobering news. About a quarter of the region’s economies are performing well relative to their neighbors as well as their competitors worldwide in areas such as growth and governance. Yet the majority of sub-Saharan African countries are still lagging behind, in growth, voice and democratic accountability, control of corruption and other important dimensions of governance (including political stability, rule of law and government effectiveness).

A key question is how to foster continued progress in performing countries and promote growth-and development-enhancing change in non-performing ones. Rather than providing a long list of recommendations—which would be futile given diversity of the countries— we put forth some principles to spur a discussion on priorities for reform.

Focus on Targeted Proposals

The challenges facing many African countries are complex, ranging from low productivity to high unemployment and from an underdeveloped middle class to poor health outcomes. It is often tempting to draw up a long list of reforms trying to tackle each one. But, not every sectoral constraint is best addressed through an isolated intervention, and resources, political capital, and institutional capacity are limited. Each country also has its own first-order priorities. Therefore, a country should focus on key reforms that are mostly likely to have the largest impact at every stage. While recognizing the importance of other areas, we focus on governance, which affects all economic sectors and is central to achieving sustainable development.

Fundamental and proximate causes of underdevelopment differ. The numerous causes of underdevelopment in SSA can be divided into two categories: proximate and fundamental. For instance, many countries in the region lack a strong middleclass, which may hinder domestic savings and investment. While it is impossible to “inject” a middle class into Africa, it is possible to foster its development by tackling the underlying constraints that hinder its growth.

A fundamental cause of underdevelopment is poor governance. Research shows that good governance fosters sustained growth in the longer term through domestic and foreign investment, private sector development, improved public sector management and sectoral development. Additionally, voice and accountability, political stability, corruption control and rule of law are crucial for equitable growth and middle class development. The latter are often identified as key constraints to progress in sub-Saharan Africa.  But in fact they represent proximate causes.

Governance has a large development dividend. Through various channels improvements in governance may spur progress in areas that are currently hindering development in sub-Saharan Africa and other regions.

•  Improved governance facilitates incomes growth.  Previous research suggests that there is a large development dividend to improved governance. In the long run, on average incomes could rise three-fold if the very weak control of corruption in Zimbabwe was improved to those of Senegal, or then from those of Senegal to the middling levels of countries like Botswana.

In this Motion Chart (Figure 3, linked here, and play button will activate motion over time) the positive relationship between control of corruption and income per capita over time can be seen. Improvements in other aspects of governance, including political stability and rule of law have similar effects on incomes, and causality has been found to run from improved governance to higher incomes (rather than the other way around).

• Voice and democratic accountability promote equitable and sustained growth. Recent events in and around the region have highlighted the importance of voice and accountability. Countries in North Africa that experienced high growth in recent years, such as Tunisia and Egypt, have recently experienced social unrest and undergone regime change.

Instability in the Arab region has stemmed from popular dissatisfaction with the governance deficit, highly inequitable growth, unproductive or non-existent job prospects and corrupt institutions. While the realities and challenges of SSA differ some from those of the Arab world (and North Africa), many countries in SSA still face a large democratic governance deficit and corrupt institutions, even within the emerging group (Figure 1 above). The risk of unrest is real in a number of SSA countries.

Such social unrest and prolonged civil wars also undermine economic and social development. Research has shown that conflicts reduce growth rates, even during post-war recovery, and have a severe negative impact on human health. In fact, nearly half of Radelet’s fragile economies can be considered conflict or post-conflict countries.

•  Good governance promotes competitiveness and investments. Numerous studies have found a positive relationship between private investment and high regulatory quality and control of corruption. Weak regulations and high corruption create uncertainties in the economy and may discourage investment and result in ineffective allocation of resources and a diversion of funds. Other components of good governance are also strongly connected to private sector growth. As Figure 4 indicates, countries with stronger rule of law are more competitive.

By July 2009, Congressional approval ratings declined to just 32 percent. Just prior to the debt-ceiling debate three weeks ago, they stood at 18 percent. These poll figures contradict Gallup’s expectation that there would be a surge in Congress’ popularity following the 2010 midterm elections. It had been suggested that Congress’ ratings may rise since that had been observed following some prior midterm elections.  But not quite…

It may come as no surprise if the next Gallup poll, expected to come out in mid-August, shows Congress’ approval ratings hitting an all time low. Another poll, conducted by Rasmussen more recently, reported a few days ago that only 6 percent of U.S. voters rated Congress’ performance as good or excellent, a new low in their poll. Their previous monthly low was last month— only 8 percent of U.S. voters rated Congress as good or excellent.

These polls speak to the dim view that voters have of how well Congress has been doing its job in general— not just related to the debt ceiling paralysis. Since this picture, based on the views of citizens and voters is not unknown to many in Washington, there is no need to belabor it further.

What is less recognized in the U.S. is the extent to which the private sector holds a dim view of Congress, and how this contrasts with how the private sector views the effectiveness of parliaments in other countries.

From our large worldwide governance databank that include dozens of sources, we can draw from one particular source first, namely a large survey of enterprises around the world. The World Economic Forum conducts annual surveys of over 10,000 private sector executives in over 130 countries. A simple analysis of the reports of those enterprises suggests how abysmally low the U.S. private sector their Congress (first column, Figure 1).

   If one compares the ratings for the U.S. Congress (lowest by far of any institution in the U.S.) with that of other institutions, we find that U.S. respondents do not have a dim view of the whole public sector or of simply any public institution. In Figure 1, we see the large gap in how the private sector views Congress as compared with either the police or the judiciary.

We also see in Figure 1 how differently the private sector in other countries views their own parliaments.  In 2010, executives in India, Germany, the UK, Canada and Sweden, among dozens of other countries, reported that their Parliaments function much more effectively than U.S. executives.  It is also noteworthy that these ratings do not differ substantially across OECD countries, including the U.S., for institutions other than their parliaments.  It is not a generalized dim view of the U.S. private sector regarding public sector performance.  It is about their Congress.

    Moreover, in countries like Germany, Canada and Sweden, there has been a positive trend in private sector confidence in their legislative body, which contrasts with the U.S.’s downward trend (Figure 2). If we only look at the U.S., we see that today’s dismal ratings of Congress’ performance need not be the case given data from previous years. In fact, the private sector’s assessment of Congress’s effectiveness was much higher in 2002, but has steadily declined. By the time the 2011 data is available, it is highly likely that the downward trend regarding the views on the U.S. Congress will continue.

In fact, more broadly, our Worldwide Governance Indicators (WGI) point to the fact that for some time the U.S. has been far from a model country in governance. At the start of the past decade, there were 15 countries around the world with better governance on average than the U.S. By the end of the decade, there were over 25 countries with better governance than the U.S. Such subpar performance in general on governance performance can be attributed in part to the performance of Congress.

A dysfunctional U.S. Congress may be the talk of the town and the world today. But empirical evidence suggests that it need not be the case. Other U.S. public institutions are performing much better in the eyes of the public and the private sector. Parliaments in other countries are doing well and improving over time, which shows that legislatures can be effective. The U.S. Congress itself has seen much better days. The American people and the world are hoping that Congress can rise to the task at hand given the urgent need to raise the debt ceiling in order to avoid the threat of another global economic and financial crisis.

And the forum’s co-chair, Brazilian Minister of Foreign Affairs Antonio Patriota, also stressed that through such multilateral cooperation the OGP could play a role in stimulating innovation, improving the quality of public services and contributing to national efforts in governmental transparency.  Throughout the forum, governmental and non-governmental representatives from around the world emphasized the important role that civil society organizations can play in encouraging openness, empowering citizens and promoting change through their own transparency initiatives.

The OGP Forum was an auspicious start to an ambitious project. However, achieving global transparency remains long and challenging, and only over time will the concrete contribution of this initiative be seen.   Yet, this inaugural forum showcased exciting initiatives and raised important questions, such as how to effectively build networks of governments, foster cooperation with civil society organizations, identify targeted reforms and use technology to foster a transparent environment.

Many governments have already made great strides in promoting transparency: For example, Brazil is now disseminating information on government spending and fund transfers data through their Transparency Portal;  the U.S. has embarked on efforts to publicly account for Recovery Act spending; and Kenya has published its national census, government expenditure and parliamentary proceedings data through its new Open Data Portal.

Civil society actors around the world are working to further the transparency agenda in diverse ways.  India’s NGO MKSS combats graft stemming from the implementation of the National Rural Employment Guarantee Act by painting employment and building material costs on walls outside of construction projects in rural areas.  Ushaidi Kenya maps citizen reports of acts of violence, while Chile’s innovative Ciudadano Inteligente promotes transparency and active citizen participation through new web technologies.

The OGP offers an opportunity for governments from around the world to share best practices in transparency reforms and the inclusion of both governmental and non-governmental participants facilitates collaboration between key stakeholders. Civil society organizations could continue to nudge governments toward increased transparency, as well as complement and reinforce ongoing reforms by disseminating information to the public and monitoring implementation. For instance, in Slovakia, the Fair-Play Alliance’s Z Nasich Dani (From Our Taxes) new online tool, which discloses the names the individuals behind companies who do business with the government, is complementary to the Slovak government’s online publication of public service contracts by allowing citizens to dig deeper into the relationship between companies and the state.

The OGP is also working to identify the transparency reforms to promote. The OGP used four criteria (fiscal transparency, access to information, senior official disclosure and citizen engagement) to identify around 80 eligible countries, but it is no secret that each country finds itself at a different level of openness.  Although it is noteworthy that the criteria extended beyond the existence of e-government to encompass deeper forms of transparency, the OGP will still need to strike a balance between emphasizing country-led solutions while encouraging deeper reforms and discouraging “open government” rhetorical window-dressing.

It is reasonable to expect very different paths; some countries may initially focus reforms in “high-risk” sectors, such as in the extractive sector in resource-rich countries, while others may focus first on engaging the citizenry in the policymaking process.  Either way, it is important to attain broad consensus regarding what constitutes concrete progress, versus mere pronouncements or decrees on paper only.

The important role of transparency reforms in combating corruption was the subject of a specialized panel at the OGP forum. For transparency to have more substantial impact on anti-corruption and development, deeper reforms may be needed. For instance, publishing official statistics and general budget data online can be a first step, but one ought not declare “premature victory” after tackling such generic “low hanging fruits.”

Indeed, well implemented freedom of information laws or well disseminated budgetary and procurement details at the project and municipal level can be expected to have larger effects.  Furthermore, there can be large payoffs to tackling the more politically difficult reforms, such as transparency in the drafting of laws and in policymaking, campaign finance, lobbying, the disclosure of officials’ assets, and fully disclosing which powerful private sector and media executives the leaders of government meet regularly with.

New technologies are only part of the answer. Twenty-first century technology has simplified and accelerated information dissemination and has lead to a new set of cost-effective and interactive tools that make it easier for the public to engage with the data. Many existing open data platforms can easily be adapted to visualize different datasets at a relatively low cost. For instance, the United States and Kenya now use the same platform to publish their government data. However, as the open government agenda evolves, there is the risk of becoming hypnotized by technological wizardry at the expense of the availability, timeliness and accuracy of the most relevant types of information.

In this context, civil society groups, think tanks and researchers may play a role in reviewing the quality of information and data being disclosed (or withheld), in monitoring and analyzing information citizens deem the most relevant, and in constructing and disseminating user-friendly worldwide transparency and governance databases.   Yet we also need to be mindful that country context matters. Online tools may be helpful in many situations, but in others putting information on a wall or disseminating it through community radio or a mobile text message may be a more effective in reaching people.

   Research and experience suggest that there are links between transparency, combating corruption and more robust democratic institutions. The OGP represents an opportunity to further the openness agenda by bringing governmental and non-governmental partners together to share experiences that could inform and complement the implementation of transparency reforms at home.  Last week’s OGP kick-off forum was a positive step toward global transparency.

But it was a first step.  Significant work lies ahead in the months to come.  The first order of business is to get the OGP formally and concretely off the ground.  Led by their founding country members (Brazil, Indonesia, Mexico, Norway, Philippines, South Africa, the United Kingdom and the United States – and hopefully India decides to rejoin), the OGP is expected to be formally launched by country leaders during the upcoming United Nations meetings in late September in New York.  In parallel, the critical role of civil society needs to be concretely detailed, and governments from eligible countries have to formally join the OGP and be prepared to make transparency reform commitments that can be mutually reinforced and monitored.

[This post was jointly authored with Veronika Penciakova and originally published as a Brookings Commentary]