Transparency and Progress – No Easy Way Out

Olivér Kovács, Research Fellow, ICEG European Center  |

In economics, and maybe in all aspects of life, longer term tendencies can offer much more realistic picture about how phenomena happen than any short term and fresh data. Another equally important thumb rule is that building on easily observable, measurable and interpretable phenomena during any kind of analysis can result much precise knowledge. This is because we simply cannot always understand the ‘big picture’ comprehensively and precisely due to its complexity. We tend therefore to understand reality by investigating the microsphere and then approaching the macrosphere upon our obtained knowledge. As in physics, investigating elementary particles then drawing conclusions to the macro, (e.g. to the universe) is treated as an instructive direction of understanding the laws of nature that are not displayed in any code books like the code of Hammurabi or the Civil Codes in modern democracies. This holds in case of economic and societal ‘laws’ as well.

Again, this is mainly because of our limited rationality to understand the whole in its entirety by overcoming the world’s complexity and its nuances, especially that of today when the highly globalised world created an intensively integrated world interspersed with interconnectedness and mutual interdependence by making the system ever more complex to be reckoned with. This is why we often put our focus on certain smaller scale dimensions that can be relatively better articulated, understood and controlled based upon our knowledge unravelled from the microsphere and thus we can set objectives upon them to be pursued. For instance, the issue of increasing transparency is more or less something like this.

When it comes to development economics, there is no gainsaying the fact that studies are likely to regard transparency as one of the conditioning factors of development and sustained growth. There is a predilection to view transparency and fiscal transparency in particular as crucial element in this regard (i.e. Fiscal transparency is often defined as the comprehensiveness, clarity, reliability, timeliness, and relevance of public reporting on the past, present, and future state of public finances – which is vital to effective fiscal policymaking, See: IMF 2013).

Let us add immediately that after a certain level of transparency in the developed world, its importance is likely to become not so obvious. A more intriguing question will be that which countries’ economic policy engineering can keep abreast with time and thus can be more conducive to sustainable growth and development via proper actions. As in sports, we cannot claim with reasonable certainty that a 165 cm tall guy will be a salient basketball player compared to a 185 cm guy; however, after a certain level, we can stress that there is no empirical backing in favouring the suggestion that a guy who is 205 cm tall would be by all means better than his 198 cm tall co-player, Michael Jordan who can be seen as a touche-à-tout, i.e. who has other outstanding skills as well. After a certain level, other aspects become crucial in determining the performance let it be real GDP growth, economic development or increasing well-being in a wider sense, or basketball scores etc.).

Similarly, behavioural and psychological tests convey us the message that a surpassing level of intelligence quotient (IQ) is not coupled with success in life in each cases. What is more, it seems that higher IQ does not guarantee success unless the given person has a good deal of creativity as well on which her/his performance is riding a lot (i.e. creativity is about imagination on what and how to do certain things in tackling challenges and achieving our goals).

Now, let us assume that fiscal policy has reached a good level of transparency in the developed world. We simply cannot ignore the fact that the achieved credibility relies heavily on whether the government can creatively carry out policies (i.e. to emit right signals in the right measures, in the right place and at the right time) that require fiscal backing geared towards sustainable growth and development in a more dedicated way. As a corollary, increasing transparency cannot be seen as a panacea; rather it can be viewed as a technique towards better opportunities to be utilised through policies that often require fiscal support. But it also requires some sort of professionalism, a holistic thinking over the spillover effects of any discretionary intervention which, in turn, cannot be accurately estimated ex ante because of the complexity of our system in which the nonlinearity of effects is the norm, rather than the exception.

After a certain level of transparency, economic development seems to become more dependent on other factors like good formal and informal institutions, the quality of governance in general, the pro-active and due participation of civic society, the ability and willingness of governmental fiscal policies to act adequately in time of shocks by governing the boat of the given economy towards much calmer waves. But, voters and policymakers should always remember that economic success and competitiveness cannot be handled in isolation any more, rather the success depends on the development and governmental activities of other countries being interconnected with the given one. It also requires the government to understand longer term trajectories and trends and to act accordingly which is extremely difficult in an era being pervaded by wicked problems (like climate change, air pollution, and sovereign debt crisis etc. that does not know national boundaries).

In sum, increasing transparency is a necessary, but not a sufficient ingredient of sustained economic and social development. We can claim that social-economic learning still remains one of the most pivotal driving forces of progress. As Leonardo Da Vinci once said, knowledge is not enough, we must apply. It therefore implies that there is no easy way out, we should pursue a public sector being able to learn and put the lessons learned into practice continuously.

This post features the author's personal view and does not represent the view of ICEG European Center.