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.