Democracy by Disclosure: The Rise of Technopopulism
Democracy by Disclosure: The Rise of Technopopulism

Democracy by Disclosure: The Rise of Technopopulism

by Mary Graham

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Product Details

ISBN-13: 9780815732334
Publisher: Brookings Institution Press
Publication date: 08/26/2002
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 201
File size: 431 KB

About the Author

Mary Graham, a visiting fellow in Governance Studies at the Brookings Institution, is codirector of the Transparency Policy Project at Harvard's Kennedy School of Government and president of the Governance Institute in Washington, D.C. She is the author of The Morning After Earth Day (Brookings/Governance Institute, 1999).

Read an Excerpt

Democracy by Disclosure

The Rise of Technopopulism
By Mary Graham

Brookings Institution Press

Copyright © 2002 Brookings Institution Press
All right reserved.

ISBN: 0815732341


Chapter One

The Power of Publicity

Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman. -Louis D. Brandeis

In 1913 Louis D. Brandeis, known as the "people's attorney" for his fights against the predatory practices of big business, had a simple but revolutionary idea. In a series of articles in Harper's Weekly, he proposed that requiring businesses to reveal basic financial information could encourage them to reduce risks to the public. His immediate targets were the hidden fees and commissions exacted by J. P. Morgan and other investment bankers on purchases of publicly traded stocks. Brandeis was years ahead of his time, as it turned out. It was not until nearly two decades later, in the midst of a national crisis, that his idea became the cornerstone of a new president's initiative. The stock market crash of 1929 left millions of people holding worthless securities. Accepting the Democratic Party's nomination in 1932, Franklin D. Roosevelt, who had long admired Brandeis, called for the "letting in of the light of day on issues of securities, foreign and domestic, which areoffered for sale to the investing public." During the campaign he often repeated the theme: "Let in the light." In response, Congress passed the Securities Act of 1933 and the Securities and Exchange Act of 1934. They required companies that sold securities to the public to reveal detailed information about their officers, earnings, and liabilities. As this reporting system matured, it would form a foundation for investor confidence for the rest of the century. Disclosure had become a form of regulation.

There was a second half to Brandeis's agenda, however. He believed that requiring businesses to reveal information could help reduce social risks as well. The archaic doctrine of caveat emptor was vanishing, he argued. Government-mandated disclosure in ordinary commercial transactions could remedy "social diseases." In the Pure Food and Drug Act of 1906, Congress already had required processors to inform the public about ingredients in foods shipped in interstate commerce. This idea, however, proved to be much farther ahead of its time. Brandeis's social agenda lay dormant for many more decades. Federal and state governments gradually increased their efforts to protect health and safety, but they did so mainly by issuing rules and imposing penalties.

Now that is changing. In recent years the use of government authority to command the disclosure of information has taken a legitimate place beside the authority to set standards and redistribute resources as a means of reducing social as well as financial risks. Since the mid-1980s Congress and state legislatures have approved scores of laws that require systematic disclosure by corporations and other large organizations of risks they create to the public. They aim to prevent deaths and injuries from toxic chemicals, drinking water contaminants, over-consumption of fat, medical errors, and many other perils in everyday life simply by mandating that companies reveal detailed information about their contribution to those risks.

These measures employ publicity in the way that Brandeis envisioned: not as a one-time spur to action but as a means of creating continuing economic and political pressure for change. Brandeis noted that government rules and penalties inevitably were limited in effect, whereas the potent force of publicity could be used "as a continuous remedial measure." He argued that "[p]ublicity offers [a] more promising remedy ... which would apply automatically to railroad, public-service and industrial corporations alike." Like the established financial disclosure laws, new systems of social disclosure require organizations to produce standardized factual information at regular intervals, and they identify companies, facilities, or products that are sources of risk. Just as investors have long compared companies' earnings, travelers can compare airline safety records, shoppers can compare the healthfulness of cereals and canned soups, and community residents can compare toxic releases from nearby factories.

New disclosure systems follow another Brandeis precept. He emphasized that the way information was communicated was as important as its substance. It was crucial that disclosure be made directly to investors or purchasers in a format that they could understand. "It will not suffice to require merely the filing of a statement" of commissions and fees with the government, just as it would not suffice to file a statement of food ingredients with a government department. "To be effective, knowledge of the facts must be actually brought home ... and this can best be done by requiring the facts to be stated in good, large type in every notice, circular, letter and advertisement." Instead of collecting information for the government to use in making rules, these systems have followed populist and progressive tenets. They have placed in the hands of a public that is increasingly distrustful of giant corporations and their influence on the political process a means of directly applying political and economic pressure for change.

Yet the sudden prominence of the second half of Brandeis's agenda is also puzzling for several reasons. First, disclosure programs have become mainstream policy in the United States without the guidance of any central plan. Separate initiatives have percolated up through the legislative process as pragmatic approaches to diverse problems during a time characterized by regulatory retrenchment and frequent policy stalemate. Second, it is hard to imagine what forces would cause large and powerful corporations to willingly give up substantial amounts of proprietary information or empower opponents to overcome their resistance. Revealing risks affects one of the most valuable assets of any organization: its reputation. Finally, it is odd that these policy initiatives have attracted so little attention. Commercial appropriation of information about individuals has become an increasingly contentious privacy issue, as retailers, banks, and health care providers strive to learn more about their customers. The reverse phenomenon-public appropriation of unprecedented amounts of commercial information-has barely been noticed.

Surprisingly, giving ordinary citizens systematic factual information about health and safety risks in their everyday lives has never before been a dominant theme of U.S. policy. Government rules and economic incentives have been framed mainly through debates among experts. In principle, the public has a right to much of the information that has been collected from factories, neighborhood businesses, and other community institutions to inform these mandates. But in practice, most of it has made a one-way trip to Washington or state capitals, where it has remained scattered in government files.

Many deaths and injuries have occurred in situations where facts known by company executives and small groups of experts were not communicated to individuals at risk. Experts know that people who live in some neighborhoods are more vulnerable than others to risks associated with exposure to toxic pollution. Yet, until recently, no public source of information gave residents the facts to compare those health hazards. Experts know that some workplaces have much higher rates of accident or chemical contamination than others. Yet no public source of information warns prospective employees about the character and seriousness of those risks. And experts know that some hospitals are many times safer than others. Yet no public source of information tells prospective patients which nearby facility is more likely to perform surgery or administer chemotherapy without serious errors.

In the last decade, government by disclosure has emerged as a third wave of modern risk regulation. Health and safety regulation in the 1960s and 1970s, a time of optimism about the capacity of government, emphasized rules and penalties, creating pressures for improvement through collective action. Regulation in the 1980s, a time of unusual optimism about market mechanisms, embraced taxes, subsidies, and trading systems (government-created markets) to further national priorities. It is not surprising, then, that regulation in the late 1980s and 1990s, a time of optimism about enormous advances in communication and information technology, produced an unprecedented array of disclosure systems.

Now, advances in computer power and the growth of the Internet are transforming disclosure into a new kind of technopopulism. Acceptable levels of societal risk are established by the actions of millions of ordinary citizens, armed with factual information made accessible by the World Wide Web, instead of by legislative deliberations. The Internet has enhanced the power of disclosure by shattering a seemingly immutable law of communication: in-depth information about risks could be shared among experts; only superficial information could be shared with broad audiences. Trade-offs were inevitable between the richness of information and its reach. The Internet has provided easy and fast access to layers of information that might influence economic choices or spur collective action. It has fostered integration of data from many sources to produce a more comprehensive picture of relative risks. It has created the potential for diverse users to customize information to serve their particular needs. Five years after the American public began seeking information on the web, users could quickly survey environmental problems in their neighborhoods, violations of labor laws by specific companies, or safety records of specific airlines in as little or as much detail as they chose.

However, the sudden multitude of efforts to employ transparency as an agent of social change has also shed light on the formidable challenges involved in constructing systems that work. Disclosure is inevitably a product of political compromise. Public access to information often conflicts with protection of trade secrets, personal privacy, national security, or powerful political interests. As a result, some systems define risks too narrowly, apply inappropriate metrics, or require disclosure from only a limited number of sources. Others fail to communicate effectively or lack mechanisms that encourage adaptation to market changes.

Flaws matter because disclosure can increase as well as decrease risks. If revelations are distorted, incomplete, or misunderstood, they can misinform, mislead, or cause unwarranted panic. If most facts are already known or reliable data are unobtainable, disclosure can waste public and private resources. If health risks are minor, it can draw undue attention to problems that do not warrant such scrutiny. If risks are immediate and serious, banning products or outlawing practices may be more appropriate. To be effective as an instrument of public policy, transparency requires careful design and continuing oversight. Flaws are also important because the United States promotes transparency as a core value. Maintaining its credibility means not only patrolling the boundaries of official secrecy but also assuring that claims of transparency are legitimate. In the Oxford Amnesty lecture in 1999, Joseph Stiglitz, then chief economist of the World Bank, underscored the importance of such legitimacy: "[I]f we are truly to set an example for the rest of the world, we must confront our own issues of transparency and openness head on." Disclosure systems that miss the mark create perverse results and reduce trust in government not only at home but also abroad. The sudden collapse of Enron, the nation's largest energy trader, provided a case in point. The crisis it sparked in December 2001 may ultimately be remembered as a constructive midcourse correction in the financial disclosure system. But its immediate impact was to shake the public's trust in the legitimacy of government-mandated transparency. It not only led federal regulators, members of Congress, and institutional purchasers to demand more accurate disclosure but also undermined foreign confidence in U.S. securities.

Some of the conflicts inherent in using public disclosure to reduce risks were placed in bold relief by responses to the terrorist attacks of September 11, 2001. Officials quickly dismantled user-friendly disclosure systems on government websites. They censored information designed to tell community residents about risks from nearby chemical factories; maps that identified the location of pipelines carrying oil, gas and hazardous substances; and reports about risks associated with nuclear power plants. The importance of providing public access to information about everyday risks clashed with the importance of keeping that information away from terrorists. Whether temporary measures would grow into a longer-term shift in the balance between openness and national security remained uncertain.

Emerging systems of social disclosure provide laboratories for understanding and improving the role of transparency in public policy. Each has been designed as a pragmatic response to a pressing problem. All remain works in progress. Together, they offer an opportunity to understand the scope, unique characteristics, origins, and problems associated with this promising policy tool.

Reducing Social Risks

The scope of government-mandated disclosure systems has proven remarkably broad. They have addressed risks from products or manmade structures; manufacturing or other processes; and errors, accidents, crimes and other unanticipated events. While the list that follows is not meant to be exhaustive, the point should be clear: once viewed as an underpinning for government rules or as a public right, information is now employed by public authorities in a wide variety of situations as an instrument of social change.

Reducing Risks from Products

New laws require companies to disclose risks associated with consumer products and residential structures. In the summer of 2000 mounting evidence indicated that more than 100 people had died in automobile accidents in the 1990s, due to a combination of sudden tread separation on specific models of Firestone tires and an apparent tendency of Ford Explorers and other sport utility vehicles to roll over. In response, federal regulators proposed new tire labeling to improve safety and a warning system for tire underinflation on new models. They also expedited a rating system of one to five stars that measured the likelihood of rollovers when drivers lost control. Models with one star had a risk of rollover greater than 40 percent, while those awarded five stars had a risk of less than 10 percent. Safety implications were significant, since rollovers accounted for more than 10,000 fatalities in 1999, more than side and rear collisions combined.

The same year, the Federal Communications Commission responded to the growing fears of cell phone users that radio waves emitted by the phones might be associated with brain cancer. Under pressure from members of Congress and the General Accounting Office, regulators posted on the agency's website amounts of radiation absorbed from each phone model.

After reports indicated that lead poisoning had harmed the health of as many as 3 million children, Congress searched for ways to create incentives for minimizing risks. A new law approved in 1992 required that sellers, landlords, and realtors disclose known lead-based paint hazards when housing was sold or leased.

New laws also established disclosure systems to reduce risks from food and drinking water. In addition to requiring nutritional labeling to reduce risks of chronic disease in 1990, Congress responded to persistent fears about the health effects of pesticide residues in foods. New regulations finalized in 2000 standardized labeling of organic fruits and vegetables so shoppers could make their own judgments about their relative safety. In 1996 Congress required that the nation's 55,000 public water systems send their customers annual "consumer confidence reports" that listed all detectable amounts of contaminants. Three years earlier, cryptosporidium, a microbe from animal waste, invaded the water supply of Milwaukee, Wisconsin. More than 400,000 people got sick, 4,400 went to the hospital, and more than 50 died. Scores of less serious incidents in the 1990s shook the public's confidence in their water supply. The new reports disclosed contaminants even in small amounts that did not violate any state or federal law. The first reports were sent to customers in October 1999.

(Continues...)



Excerpted from Democracy by Disclosure by Mary Graham Copyright © 2002 by Brookings Institution Press
Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.

Table of Contents

1The Power of Publicity1
2Accounting for Toxic Pollution21
3Food Labeling to Reduce Disease62
4An Epidemic of Medical Errors104
5Disclosure as Social Policy137
AppendixThe Architecture of Disclosure Systems158
Notes161
Index193

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