President Trump’s February 14 approval of the Joint Resolution repealing the rule that American companies disclose publicly all payments to governments for extracting oil and gas from their lands has provoked much lamenting. The lamenters see it as a major setback to the fight against corruption, taking it as a given that greater transparency in the oil and gas industry leads to less corruption.
Rather than assuming that this is true, I decided to look at the evidence. The best place I could find to look was the Extractive Industries Transparency Initiative. The 49 governments who along with their civil society groups and private sectors have committed to EITI regularly publish two things: 1) all significant (“material”) oil, gas, and mining payments made by companies, whether state-owned or privately-held, to the government and 2) all material revenues the government receives from these companies. EITI requires that this information be widely distributed in an accessible, comprehensive and understandable manner, and indeed EITI requires more than simple transparency. The total amount companies report paying and the total government says it receives must be reconciled annually by an independent administrator which must then report any discrepancies. No better a formula for ensuring that transparency leads to less corruption would seem on offer.
So what effect has EITI had in the decade plus it has been in operation? Does the transparency engendered by the EITI actually result in better governance and development outcomes in EITI compliant countries? How well do EITI countries perform, or improve over time, compared to other countries on selected political and economic indicators?
As luck would have it, these are precisely the questions Professors Benjamin Sovacool, Götz Walter, Thijs Van De Graaf, and Nathan Andrews address in a 2016 article in World Development. Their answers should bring cheer to those lamenting repeal of the U.S. rule.
To assay the impact of EITI, the professors examined how well the first 16 countries to join EITI performed on a series of governance and economic indicators, both compared to their performance pre-EITI membership and compared to other countries. Their finding: “There was not a single governance and economic development metric in which EITI counties performed better during EITI candidacy or EITI compliance than pre-EITI as well as better than other country classes” (p. 185). Does this mean Trump’s nixing of the disclosure rule is not a setback after all?
Like any first-class scholar, the authors caution that their findings may not be the last word on EITI’s impact. The nature of the data did not permit a randomized control-trial, the most rigorous method for testing causal hypotheses such as “more transparency causes less corruption.” Furthermore, EITI is still relatively new; none of the countries analyzed had been participating for longer than a decade. So it may be too soon to reach a definitive judgement. Moreover, the authors might have added that the indicators they use to measure changes in governance are notoriously “soft.” “Regulatory quality,” for example, the one governance indicator where EITI countries seem to do well is a complex notion not easily captured by a simple numeric scale, and the World Governance Indicators, their measure of governance, have been the subject of substantial scholarly criticism (here, here, and here for examples).
Again as top-flight researchers, the authors offer various explanations for their findings. As with other recent analyses of the impact of greater transparency on corruption, they argue that transparency alone is not enough to curb corruption and improve governance. Conditions and context matter — a lot. Of the various factors they suggest that may explain why EITI has had no measurable effect to date, the one that struck me as the most likely reason was the level of democracy in the 16 countries. Of the 16, only Norway has a long-history of vibrant, democratic rule, and several – Azerbaijan, the Kyrgyz Republic, Liberia, Mauritania, and Mozambique – are far from it. Still others – Ghana, Iraq, Mongolia, Nigeria, Peru, Tanzania, and Zambia – are struggling to consolidate their democracies. Is it any mystery that where voters have little or no power and legislators, courts, the press and the other accoutrements of democracy are weak transparency would have little effect?
This is not to say that advocates should eschew the promotion of transparency in the oil and gas industry and other extractive industries, and in next week’s post I promise to discuss why, in some countries at some points in time, they should continue to push for more information on what companies pay and what governments receive for exploiting the nation’s oil, gas, and minerals (and timber and other renewable resources too!). So those lamenting the Trump veto should not, to quote a favorite phrase of the new American president, “Shut Up.”