WikiLeakonomics and the economics of ‘perfect’ information
“A perfect market requires perfect information,” was the assessment of WikiLeaks‘ founder Julian Assange in a remarkable interview with Forbes magazine.
Not content with causing turmoil in the normal functioning of global diplomacy, Mr Assange rather candidly pointed out that the next major target for a “megaleak” of tens of thousands of documents was a “major US bank”. So bad is the picture of the ethical standards at the bank painted by these leaked internal documents that “it could take down a bank or two”, he said.
If Eric Cantona’s attempts to suggest a mass withdrawal of bank deposits next week weren’t bad enough for the banks.
The utterly fascinating thing about the Forbes article, and I would recommend reading the transcript, is the economic philosophy behind Mr Assange. Half of the WikiLeaks material is corporate, despite the focus, to date on the US military and diplomacy.
He says that the existence of WikiLeaks is pro-free market. Freer information helps to make free markets work better. Otherwise you get the basic market distortions of informational asymmetries identified by Joe Stiglitz, Michael Spence and George Akerlof (and for which they shared the Economic Nobel).
In corporate terms, freer information should, says Assange, provide hitherto absent incentives for companies to treat their employees well and to avoid unethical behaviour. A good company that sees dodgy rivals cutting its milk powder with cheap impurities would have incentives to expose competitor misdeeds, not follow it down the path of lower standards.
One of the corporate WikiLeaks stories of which I have personal knowledge is the leak of the Icelandic bank Kaupthing’s pre-meltdown loanbook last year. It was a shocking indictment of that bank’s culture of lending freely, and often to its own owners. As the Telegraph reported at the time: “One of the most extraordinary documents ever to emerge from a bank”.
In 2008 I investigated the Icelandic banks, before they collapsed (a report for which Channel 4 News won four awards). The market was awash with suggestions of imprudent lending that was essentially being funded by ordinary British internet savers, tempted by newspaper and expert ‘Best Buy’ recommendations. In my report, I could only do half the story, but the rest was in this document. It has become a vital piece of evidence for those in Iceland that would like to reform the role of banking in that country.
As for the diplomatic cables, one might say that freer information of what the state really thinks about other states could help the diplomatic process. However, surely this would require the release of similar cables from Russia, China, Iran etc.
It has to be said that this Coalition Government has been far freer with data than the Labour government. The Budget process has been far more transparent, with the costings behind tax and benefit changes published. Various data dumps of public spending data are also a positive.
But the UK loanbook of various bailed out British banks would surely be helpful for our political process. In any case, it looks like WikiLeaks’ influence will be felt well beyond the diplomatic sphere.