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FOI AND THE MYSTERY OF
CAPITAL
By
Pat Utomi
Dr. Shamshudeen Usman, Deputy Governor of the Central Bank
of Nigeria is a man I have heard saying many sensible things during the
last 15 years. Few of the very valuable opinions compare more favourably
with the profundity of an opinion he offered during the course of his lead
presentation at the stakeholder summit of the Federal Ministry of Commerce
in Abuja. Were there a freedom of information law and consequent
transparency in the operations of many of our badly managed parastatals,
the Nigerian economy would probably not be as prostrate as it is, the
former President of the Nigerian Economic Society had asserted.
In these last twenty years in which the central issue of my
experience has been a quest to understand poverty and why some nations are
poor, the evidence leads to strong affirmation of Usman’s view on this
matter. If the evidence is so strong, why then has the Freedom of
Information Bull been perpetual work-in-progress? Why have certain power
points in both the executive and legislative arms of the federal
government been so determined to water down the bill or frustrate its
passage into law?
I suspect that the answer may lie in a limited
understanding of both those the bill will empower and in the long term
benefits to all of society from such a law. In fairness, there may also be
healthy skepticism on the part of those involved who have seen access
abused. This is more so the case when it is seen as a media access Act by
people who have unwittingly been victims of some imperfections in the way
the media report some events. Attitudes could thaw when some key actors
realize that it is beyond making the work of journalist easy.
More important for me is the relationship between such a
law and the evolution of financial markets, efficient Public
Administration, effective government and corporate governance. The much
acclaimed Peruvian Economist Hernando de Soto of the very influential
Institute for Liberty and Democracy challenged us all to rethinking the
wealth of nations and development economics in his year 2000 book; The
mystery of Capital: Why Capitalism Triumphs in the West and Fails
Everywhere Else. The mystery of Capital lies in the forms of
representation, in record, of the right to an asset to the owner, in an
easy, inviolable and assured state. That record of mortgage, or share
certificate, transforms what would ordinarily be dead capital into assets
that can be energized to give value beyond its ordinary or nominal energy
level.
Hernando de Soto makes these points to illustrate that the
poor have lots of assets that have failed to migrate to the form we call
capital because of the weakness of representation processes. Even as I am
much educated by his logic I am convinced that part of the reason nations
are poor or why these representational modes have been slow to emerge in
some countries is the absence of openness both in the affairs of
government and of private enterprises. These issues are even more
convincingly canvassed by Rajan and Zingales in another influential book,
Saving Capitalism from the Capitalists, which was published in 2003. Much
illuminating for me was the comment they cited of US Supreme Court Justice
Brandeis that discouraged legislation as the path to resolving financial
sector improprieties that triggered the great depression. The greater
antidote, the revered judge pronounced, was sunlight, what we now call
transparency.
This would have the effect, he argued of providing barriers
to conduct inimical to the interests of stakeholders. The two University
of Chicago Professors locate the judicial activism of Brandies on this
matter at the heart of how the US financial markets evolved to a greater
level of sophistication; sustaining a much more entrepreneurial and growth
oriented economy than those of Europe who legislated more government
intervention in the financial sector to protect the citizen.
There can be arguments, from recent failings of some
sunlight agencies in the US, like the accounting firms, that show that
Brandies was not All-wise, but the elegance of the Rajan and Zingales
logic is alluring.
If such advances came from ideas of access to information
for all, why then is our FOI bill in no-man’s land. It seems to me that
the first problem comes from seeing it as a journalist right of access
rather than citizens right. Those who may have had encounters with
unsavoury rough edges of journalism, who are in positions of authority
thus fear the bill. They may be justified in their trepidation but they
sacrifice so much good in trying to throw out the baby with bathwater. The
real litmus test of leadership is whether all who can affect the passing
of such a bill into law are limited by such short term understanding of
the issues or whether they can see the long term value of sunshine in
understanding the mystery of capital and breaking the poverty trap from
the sprouting of entrepreneurship.
To provide full scope for those charged with making this
law happen it is important to showcase how sunshine is of value, not only
in relation to the public sector but also for our private sector where
governance is equally challenging. I find much in my own experience that
has educated me on the benefit of sunshine even for those who think the
opaque world gives them advantage. Being much engaged as mentor
participant in more than a dozen start ups I have seen entrepreneurs who
are apparently well intentioned but desire the “flexibility” that dusk
provides cover for. In the end, habits that amount to a pattern of
indiscipline emerge, and they turn out big losers.
One particular example is most revealing as to how long
term self interest of much higher value can be lost to lack of
transparency. In a cutting edge technology venture initiated nearly ten
years ago with me playing a catalytic role the very gift entrepreneur was
repeatedly accused of lack of transparent conduct. As leading cofounder I
tried repeatedly to protect him so that board wrangling would not take
life off the centre. I often appealed that some latitude was necessary to
accommodate whims of the creative mind. Years later and a full reshuffle
that got rid of the apparently troublesome directors, the bad habits had
degenerated into disregard for the property rights of all stakeholders but
that of this fellow. The manipulation of all by that entrepreneur would
bring things to the level of poor corporate performance from winning ways
of first mover advantage of yesterday to total distrust of him by most
stakeholders.
My sense of personal failing here is that if I had been
more insistent on sunlight from the very beginning I might have saved the
fellow from himself. Instead of heading what was easily on the part to
multibillion Naira value with sustained market leadership, that firm has
lost market share significantly and may not exist even in the near term.
Worse still the person may have lost all credibility in the market and,
more importantly, perhaps affected access to finance for many young up
coming entrepreneurs who may have stronger values of trustworthiness,
fairness and commitment to the other parties due in an agency situation.
Adverse selection seems clearly to short change the potential of equity
investment in entrepreneurs just as moral hazards make access to bank
finance problematic for our start ups.
What is clear from the foregoing is that whether it be
public or private sector, a natural inclination is to fear sunshine, but a
reflective and wise person finds that even this own best selfish interest
in advanced, in the long term, by a flood of light. This is why a freedom
of information law with teeth will advance both the Common Good and the
self interest.
Prof. Utomi is the Director of the Centre for Applied
Economics at Pan-African University.
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