What is transparency and AIG?

In the aftermath of Watergate in the 1970s, a number of laws were enacted giving the public greater access to governmental information, increasing the accountability of businesses, civil servants and politicians for their actions, and making decisions more open. These included the Freedom of Information Act (FOIA), the Sunshine in Government Act (1976), and the Presidential Records Act (1978) giving the press and the public access to many government documents on request, to most meetings, and to many presidential materials.

Today these pieces of legislation might be described as creating transparency. The President, state’s attorneys general (Connecticut/New York), the appointee to oversee the bank bailout (Neil M. Barofsky), Republicans and Democrats, and journalists call for greater transparency, particularly when it comes to banks and AIG. But what do they mean?

Transparency is a relatively common word in the parlance of nongovernmental organizations and supranational organizations (e.g., European Union, Organization for Economic and Co-operative Development, and the International Monetary Fund). It is a word used to convey an open process, a way of conducting business that is subject to public scrutiny to reduce the possibility of corruption.

Its institutionalization may have caught on by an accident of translation assuming that the German, French, and English meaning of Transparenz, transparence, and transparency are similar. But it also became prominent when during the early 1990s, Peter Eigen, a manager at the World Bank, became increasingly distressed by the Bank’s failure to address corruption in its loan-giving to nations. Mr. Eigen with a small group of individuals created Transparency International. The organization would examine the effects and consequences of corruption for citizens, report on it across nations, and advocate policy changes in global institutions to address corrupt practices. Today, the organization has affiliates throughout the world, publishes a Corruption Index, and has developed a National Integrity System promoting open structures in the media, business, government, and throughout all of society.

Transparency International’s mission may not mean much to the average American. Corruption is an issue, but not one at the top of the agenda. Instead transparency may mean a piece of film that you write on to project on a screen. Or it could mean accountability. Often politicians use accountability and transparency in the same sentence, not really distinguishing between the two. Legislation such as the Federal Funding Accountability and Transparency Act of 2006 and the Legislative Transparency and Accountability section of the Honest Leadership and Open Government Act of 2007 use the word transparency side by side with accountability. The Internal Revenue Service (IRS) enacted a new reporting form for nonprofits to increase accountability and transparency.

But more and more it is coming to mean ready public access to government, nonprofit, and business information. With the newness of the idea of transparency, the confusion over its many meanings, and the tug for privacy and secrecy, politicians, banks, and AIG ignored creating transparency. Congress, the Treasury Secretary, and bank officials and most recently AIG learned the lesson of transparency when Congress failed to put in legal requirements, the Treasury Secretary failed to provide oversight for reporting the use of bailout funds and employee bonuses, and bank and AIG officials were not forthcoming with that information. A chance to increase the trust of the public was lost. Transparency is different from simple accountability because it creates trust directly. AIG’s web site has its executive compensation committee, its annual report, but it fails in describing its most important relationship, its relationship to the public.

Maybe AIG is too big to fail as the press is stating, but certainly not invincible from shaming. But perhaps there is another problem that needs to be addressed. If AIG and some of the banks are too big to fail, when is the Federal Trade Commission or the United States Attorney General going to investigate these businesses in terms of anti-trust laws?