Legal Theory Lexicon 015: Transparency

Introduction Sooner or later, most law students encounter the idea that "transparency" (as opposed to "opaqueness") is a desirable characteristic in markets, procedures, and governance institutions (both private and public). But what is "transparency" and why is it a good thing? This entry in the Legal Theory Lexicon provides a very brief introduction to the concept of transparency for law students (especially first-year law students) with an interest in legal theory. The basic idea of transparency is simple: things go better when processes are open. Markets function best when transactions are public. Judicial processes work best when they are visible to the participants and the public. Governments work best when both inputs to decisions and the meetings in which decisions are made are public. This post provides a brief introduction to the idea of transparency in a few important contexts.
Transparency and Democratic Process Why should the processes of democratic decisionmaking be transparent? There are so many different answers to this question that one hardly knows where to begin, but we might start by distinguishing between answers that rely on consequentialist reasoning and those that appeal to ideas about rights, fairness, or legitimacy. The consequentialist case for transparency in government usually rests on the idea that opaque processes are likely to facilitate corruption or capture. Corruption is more likely because secret decisionmaking facilitates rent-seeking (soliciting bribes) by public officials; transparency processes make bribery more difficult and increase the likelihood that it will be exposed. "Capture" is the term used to describe domination of a regulatory process by the interests who are supposed to be regulated. When lawmaking (or administrative rulemaking) is done in secret, there is a greater likelihood that the information flow will be one sided.
The Bush Administration's energy policy provides a good example of debates over the pros and cons of transparency in government. The administration developed its energy policy through non-transparent procedures. Vice-President Cheney met in private with a variety of interest groups, and the records of the meetings were not made available to the public. Critics charged that this secrecy allowed oil and coal interests to dominate the decision-making process to the detriment of the public interest. The administration defended the process, arguing that public processes would have inhibited free and frank discussion of the issues by the various interest groups. Whether or not this argument was correct in this particular context, it illustrates an important point. Transparency in government comes at a price. Transparent processes may be inefficient--what can be done in private in minutes may take hours in public. Transparent processes may also distort decision-making, forcing political actors to pander to public opinion at the expense of good policy.
The case for transparency in government need not rest on consequences. It might also be argued that transparent government is required by the rights of citizens to meaningfully participate in democratic self-government. If public officials conduct business in private, then it becomes more difficult for citizens to make meaningful decisions at the ballot box.
Transparency in the Market and the Boardroom The case for transparent markets is simple. Efficiency requires information. Efficient pricing, for example, requires that buyers know what they are buyng and sellers know what they are selling. "Buying a pig in a poke" is simply a colorful way of expressing the idea that a nontransparent transaction has occurred. Transparency is especially important in capital markets Securities regulation in the United States rests on the assumption that mandatory disclosure of accurate financial information will lead to investor confidence and facilitate efficient financial markets. Without transparency each investor would face either uncertainty or enormous information acquisition costs. Efficient capital markets produce enormous benefits, because they enable resources to be allocated to their highest and best use. Finally, transparency in corporate governance aims to prevent management from appropriating wealth owned by stockholders.
There are, however, situations in which transparency is inconsistent with efficient markets. Trade secret law, for example, aims at the opposite of transparency. The theory is that the ability to keep secrets creates an incentive to develop new ideas, inventions, and processes; disclosure would allow competitors to appropriate the new idea without compensation, and hence would reduce the incentives for the creation of new knowledge. Similarly, corporations are not required to disclose business strategies and tactics.
Transparent Judicial Procedures Civil litigation and criminal trials provide a final context in which transparency is an important value. When we think about the transparency of judicial procedures, there are two different groups for whom the process may be transparent or opaque. The first group is comprised of litigants (plaintiffs/defendants in civil litigation and defendants in criminal litigation). The second group consists of the public at large. Most legal systems place a higher value on transparency to participants than on transparency to the public. While it is not unusual for a hearing to be closed to the public, it is very unusual for a judicial proceeding to exclude the parties themselves. But there are important exceptions to this rule. Deliberations by both judges and juries are usually opaque. Thus, even the defendant in a criminal case is not allowed to observe the deliberations of the jury. A similar rule applies to judicial deliberations. For example, the conferences of an appellate court (e.g. the United States Supreme Court) are conducted in the strictest secrecy, as are the communications between among judges and between judges and their clerks. In these contexts, the thought is that open deliberations would actually distort the decision making process, leading to worse rather than better decisions.
Conclusion Concern with process is ubiquitous in legal theory, and processes can be transparent or opaque. As a law student, you might begin to ask yourself about the effect of legal rules on transparency. Does this rule make the process more transparent or more opaque. When you encounter rules that render processes opaque, always ask why? There may be an answer to the question, but then again, there may not.
Reference Mark Fenster, The Opacity of Transparency (March 15, 2005). http://ssrn.com/abstract=686998.