The Prize of Greater Global Transparency

10 December 2012

Barbara J. Stephenson
Deputy Chief of Mission
Europe House

(As prepared for delivery)

DCM STEPHENSON: Good morning everyone.  Thank you so much for coming today.

We’re really very excited about this conference and I want to thank our partners – the European Parliament Office and UCL – for joining us to stage this important event.

This event provides a great opportunity for us--the United States, the European Union and the UK – to come together to consider how best to lead a global effort to promote transparency.  I see us as natural partners in creating a global level playing to drive up transparency and accountability.  If we do not lead this effort, who will?

Efforts to promote transparency have focused on many different areas.  Some of the work is in the domestic arena - making our governments and how they operate more transparent to our citizens. 

For instance, immediately after coming into office, President Obama issued a Memorandum on Transparency and Open Government that committed to making the federal government more efficient and effective. 

In 2011, he worked with global partners to launch the Open Government Partnership.  The OGP aims to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance.  The 58 countries who have signed up to be members of the Open Government Partnership have all produced work plans for increasing transparency, creating an opening for us to work together to help them achieve those work plans.      

The UK is currently co-chairing the OGP, and is working to further its vision of governments that are more accessible and accountable to their citizens.  The UK also holds the G8 Presidency this year, and Prime Minister Cameron has announced that transparency will be a focus, supporting his idea of a "golden thread" of conditions that enable open economies and open societies to drive prosperity and growth for all.  Those conditions include rule of law, the absence of conflict and corruption, strong property rights and institutions. 

What we want to focus on today is a specific slice of the transparency agenda:  how our companies both foster and benefit from transparency in third countries, particularly those that are still developing their own rules and systems of governance. 

Transparency is a challenging topic to address, in part because it cuts across many so many disciplines and work streams and equities.  It touches on anti-bribery rules, which the U.S., UK and EU have all established and enforce for our own companies.  It also touches on corporate social responsibility, but in a broader way than the traditional sense of doing a worthy project, such as building a school. 

What we hope to do today is encourage an ongoing a dialogue on how the U.S., EU and UK can work together to promote transparent business practices in countries that want to compete in the global marketplace, but are being held back because companies do not have a sense of legal certainty or confidence that contracts will be enforced fairly and impartially. 

This issue also has an impact on the assistance we provide developing countries.  The U.S. and EU members spend about $100 billion per year in international development assistance, which can have positive or negative impacts on corruption levels, depending on how it is spent.  We will hear more about this issue this morning from experts in development assistance.   

Why pursue a transparency agenda?  First, increased transparency helps emerging economies expand and entrench the kind of open, accountable governments that bring better living standards and more prosperous, empowered citizens.  For the purposes of sparking discussion, I would like to put forward my view that the impact for increased transparency is biggest in the area of bookkeeping.  When the books are crystal clear on where resources come from—be that from taxes or from, say the proceeds from oil or minerals—and how they are spent, the benefits are enormous.  A thousand problems are headed off at the pass.  This is my view is the big prize for transparency and where we should focus our efforts.

Every bribe that is paid, or government contract that is granted based on connections rather than open competition, is money and know-how lost to the economy.  Short-term profit wins out over  long-term well being.  Corruption and lack of transparency drive away companies that follow ethical business practices.  In my conversations with American companies whose business practices I most admire, I hear that they are simply writing off deeply corrupt countries, declining to do business there at all.  Thus, ethical companies whose presence contributes to an improving spiral are being replaced by less ethical actors.  The more space that is available for unethical companies to pay bribes, fix contracts, trample on both the environment and workers’ rights, the less effectively we achieve our broader development goals, making development progress enormously difficult no matter how much money our citizens devote to the problem.

Second, the economic future of American and European companies depends upon the ability of our companies to compete effectively in the global market place.  The larger the number of countries that promote a level playing field for contracting, and the greater the value they place on companies with a track record for ethical business practices, the more competitive our companies will be, the more places where they will be able to work.    

As a stark example, in 2009, it's estimated that U.S. companies passed up about $27 billion worth of business because they refused to pay bribes.

But as Secretary Clinton says: “This is not merely a matter of economics.  It goes to the central question of the values we will embrace and defend."

“Openness, freedom, transparency, and fairness have meaning far beyond the business realm.”

If you think back to the beginning of the Arab Spring almost two years ago, you will remember that it all started when a Tunisian street vendor lit himself on fire in protest at the corruption of local officials and his inability to find redress.  Frustration at being shaken down repeatedly by corrupt cops led him to end his life - and sparked a revolution in the Arab world. 

Corruption inevitably and understandably undermines people’s confidence in their government.

However, by promoting transparency – not only through traditional government-government diplomacy but also through commercial diplomacy - we can help shape the workforce and work processes in developing countries.

This then raises citizens’ expectations and aspirations, and ultimately the quality of governance itself.

As a European colleague noted to me recently, "efforts to get democratic, accountable governance to take root are helped immensely by workers who have the experience of being hired on merit and rewarded for good performance."

These efforts are helped by having honest, respected companies compete transparently to win contracts that they then deliver on.

Responsible companies ensure that natural resources are not wasted; and that the roads, schools, hospitals and communications networks actually get built – and to a high standard.

Every positive example bolsters the idea that embracing transparency brings meaningful results, that there are rules and that they will be followed; that it's safe to put capital at risk.

That in turn opens up more space for those who operate ethically, while closing the space available for unethical actors.

I saw an excellent example of the power of transparency for myself while I was U.S. Consul General in Northern Ireland in the early 2000s.

  The local construction industry faced steady threats from paramilitary gangs - "pay protection money or we'll vandalize your building site." 

Most construction companies just paid the protection money, entrenching the practice and strengthening the paramilitary gangs with each payment. The solution:  a new reporting requirement - construction companies were required to list each protection payment.  This transparency measure sharply curtailed the protection racket, as the local foreman explained there was no way to hide the payment, that reporting it was mandatory and would cost him his job.  The thugs backed off.

Every country has its own unique situation.  But if we - governments and companies - work together to promote and spread our own high standards of domestic business practices around the world, we can create a virtuous circle:

  the more we encourage emerging nations to embrace transparency, the more we all - citizens of that country, honest businesses - benefit.

At the same time, transparency and compliance become marks of quality that deliver financial gain.

Quality should demand a premium in the marketplace and transparent business practices set a standard that distinguishes our companies as having a superior product and governments as having a superior market.

Not only that – good business practices also have a great affect on the way our own nations are seen throughout the world.

When our companies flourish abroad – by doing business the right way - the American or European brand flourishes.

In fact, as Secretary Clinton says: “For many people around the world, the most direct contact they will ever have with the United States is through American businesses.  Through brand names and companies of every size that do business abroad."

“That’s how they learn what we stand for and who we are and what aspirations we share.”

So this is important, not just to the bottom line but to our common interests and our shared values - and to the future of our global leadership.  We, the U.S. and Europe, want to set the rules, with the help of like-minded partners.   

And this a particularly opportune moment for us to show genuine leadership on transparency.

For the first time since perhaps the fall of the Berlin Wall, a huge swathe of countries all over the world - Burma, Libya, Tunisia, Egypt and elsewhere – are undergoing profound  transformations.

In many cases, they are transitioning to market economies and democratic political systems.  In some cases, they are rebuilding governments from scratch.

Although our companies are often in competition in the global marketplace, we are no longer the only options available to emerging and transitional economies.  But I believe that on a level playing field, we are still the best options for delivering well-managed, high quality and efficient delivery of goods and services while fostering development and growth.  We need to work together to ensure that our companies are able to compete based on their merits.     

The question is: How?

By sharing our experiences of what has worked.  Let me start with my experience as U.S. Ambassador to Panama, a country with enormous promise that struggles with corruption.  During my tenure, the World Bank reduced the space for corruption by helping the government set up an on-line government procurement process, Panama Compra.  I understand this is easily replicable in other countries striving to increase the transparency of their government procurement.  When bribes cannot be paid for major government contracts, ethical companies get the level playing field we are seeking, and citizens get the benefit of having all the allocated funds actually go to building the school or road or hospital. 

In addition to transparent government procurement processes, ethical companies appreciate knowing the commercial laws they will be operating under, having a clear, effective commercial code.  My colleague, John Breidenstine from the U.S. Department of Commerce, will describe the Commercial Law Development Program that helps countries make needed commercial legal reforms.  Commerce has already partnered with DFID, and I suspect there is still more scope to expand this program.

Those reformed legal codes then need to be enforced, and that is, of course a major challenge.  I recently heard about a mentoring program whereby senior British judges serves as mentors for judges in Commonwealth countries seeking to uphold the law but facing pressure from powerful domestic interests.  Being able to call on the senior British judge to discuss the matter has more than once tipped the balance in the interests of justice.  I suspect this kind of legal exchange could be expanded.  

We will be hearing today about the Extractive Industry Transparency Initiative.  This is an exceptionally important and promising area in which industry and governments have agreed to adhere to more transparent business practices to the benefit of all parties involved. 

The European Union is doing crucially important work in this area as they consider a strong new law on transparency and disclosure in accounting for the extractive industries.  I look forward to hearing more about that this morning from European Parliamentarian Arlene McCarthy.  Friends who work in development tell me that this European Parliament draft law, which matches and in some ways goes beyond the provisions in America’s Cardin-Lugar Amendment of the Dodd-Frank Act, would require companies listed on the SEC to Publish What They Pay to foreign governments.  This would help to increase transparency of vast sums of financial resources transferred to developing countries and decrease the likelihood of money being siphoned off from the sale of natural resources.  Citizens of those countries would be able to easily spot a diversion of funds and instead push for that money to be spent on vital services like schools, roads and hospitals. 

Our goal today is for the U.S. and Europe to work more closely to share ideas and coordinate efforts to achieve what we all agree are noble outcomes:

enriching lives by empowering citizens and improving living standards, promoting democracy, improving business environments, leading to real and sustainable economic development. 

Our countries must lead the way – by working together and by agreeing to follow the same rule book.

And the responsibility to advance our vision for greater transparency lies with all of us represented here today – governments, businesses, academia and aid agencies alike.

The challenge is sizeable but the reward of a more open, more transparent global marketplace is equally substantial.

I wish you every success for a series of productive discussions.

Thank you.