The Transparency Paradox

Transparency is good for a group - and why Actors fight against it -

The paradox of transparency is about the efficiency of actors within a group of people, working towards a common goal. And about how transparency is affecting the efficiency and ultimately the profit of the group, as well as of a single actor -

The outcome for the group all together is usually (all other factors constant):

With an increase of Transparency, the efficiency and hence the collective profit increases too.

However, transparency has a cost too - the 'optimal point' is somewhere in the middle-right of the below chart:

A verification can be done based on the above chart and using game theory:

1. Cost of Production: The cost of production decreases with the amount of knowledge each participant has. The cost has 3 basic parts:

a) The negotiation cost for the distribution of the work.

b) The sum of the actual cost of each actor doing his part of the task.

c) The negotiation of the distribution of the value created (pay-out of profits).

The distribution & coordination of the tasks is easiest, if everyone knows, what the different actors do best, and what their weaknesses are. And the pay-out of profits is easiest and best, if each it is known, what exactly each actor did.

2. Generated Value The more the Transparency, the more the Value created by the team. If the tasks are well coordinated, the quality of the work is best.

3. Cost of Transparency Transparency comes at a cost: The cost of providing (writing down oral communication, recording relevant discussions etc), as well as the cost of filtering (selection of the relevant information), acquiring (reading/viewing) and understanding (interpretation). To provide and acquire a basic transparency is not expensive and required for a successful job. But "full transparency" is very expensive, often more expensive than the overall profit of a project.

4. Overall Cost is the sum of the cost of production and the cost of transparency

5. Profit is the difference between the generated value and the overall cost.

The Paradox: Actors attempt to decrease their personal transparency.

For one single actor, the situation is very different: As the overall profit increases with increased transparency in the group, his personal profit increases too - however, his personal profit increases too with a DECREASE of his personal transparency - and the personal profit increase here is often much more substantial than the increase with an overall gain of transparency! - (negotiation power)

In short, the best strategy (maximizing profit) for one actor is, to get the transparency level in the group as high as possible, but to keep his own transparency as low as possible:

"Preach transparency, but live the opposite!"

In our chart, the group has a strong tendency to move to the left side into an area of less profit. Especially, if multiple actors are pursuing a strategy of minimizing personal transparency - The group may even end up in an area, where the group makes a loss - while single actors may still make profits, increasing other actors losses.

Why does the individual profit increase with a decrease of the personal transparency?

The efficiency of the negotiations about the distribution of tasks and profits (a. and c. in above cost comments) are determined by the amount of transparency (=information) the group has about each actor. The best overall outcome is, if everyone gets the tasks fitting best to his skills, and the profit is distributed according to the importance of the tasks provided by the different actors.

The situation for one single actor is however different - his profit-maximizing strategy is:

Minimize the cost of tasks assigned to me, while maximizing the perceived importance of my tasks

Ideally, an actor gets a task, which is little to no work for him, but the other actors don't see that: For example a role like "Steering" or "Quality control". The group should be under the impression, that this task is very important, and that it can not succeed without the task.

Politics, Obstruction Strategies & Corruption

This un-alignment of individual & collective goals is the reason for 'politics' - in a positive, as well as in a negative sense.

To avoid a 'lose-lose' situation for all actors, leaders are selected, power is given to them, and the task, to lead the group towards the common goal and a maximization of the overall profit. If a leader is acting in the overall interest, he will bring the group to more transparency, will enable a good distribution of tasks, and a fair distribution of profits.

"Politics" in a negative sense however is the art of spreading different information to different actors, maximizing the "importance" of an actor (hence maximizing his pay-out), while minimizing the cost of the tasks assigned to him. These "obstruction strategies" however work only, if the information doesn't flow well in a group and/or is not recorded.

There are various strategies to maximize individual profits - a few of them:

- Increase the importance of the own tasks: Show, how the group can not be successful without your tasks.

- Increase the perceived cost of your tasks: Talk about all details of what is required to fulfill your tasks. Create the impression of being very busy.

- Decrease the perceived importance and costs of other people's tasks: Show, how simple the task of other people are, and that everyone can be easily replaced (or you could do other people's tasks easily). Don't do that with the actor itself, as it may result in reactions. Rather do this with other 3rd actors in the group - they will probably support you, as they too have an interest of decreasing the perceived value & cost of other people's tasks.

- Build alliances & supporters. There are various strategies how to do that by showing support to actors for maximizing their own tasks, as well as minimizing other people's tasks (talk positively with the actors, but negatively about him with others)

The larger a group, the more difficult it gets for a single actor to influence perception in an efficient way - Also because in a larger group, different actors have different roles within the negotiations. The key there for a single actor is, to win the flavor of key actors. Corruption helps in this case - in a hard or soft form:

(1) Hard corruption: An actor pays-out part of the additional profits to another actor in the group for his support. As this is not in the interest of the full group, this is usually forbidden & sanctioned.

(2) Soft corruption: Works without money, only over mutual flavors: An actor gives a favor to a friend, but expects in return a favor from him (We call this "Filz" in German). As this is very difficult to prove, soft corruption is quite common in all groups, and sanctioning is very difficult. Tranparency however helps to limit this

Dead-Locks

Political processes have many ways to re-align all actors of a group towards the common goal and to limit obstruction & corruption. To name a few: sanctioning laws, the free press (transparency of corruption), re-elections (giving power to people, who act more in the interest of the group).

Some systems, however, end up in dead-locks: A situation, where a few people control the power, the information & perceptions within the group. If the group is not able to get out of this dead-lock by itself or through a 'democratic process', an organized solution to the dead-lock may be difficult to impossible, and a 'revolution' may be the only option in this case.

The age of Transparency

The (almost) Disappearance of the Transparency cost.

Responsible for this shift is mainly the massive decrease of the cost of transparency:

1. The Internet allows, that information is distributed from anywhere within seconds - making it impossible to 'control' the information.

2. Memory cost has dropped dramatically in the last years, so that potentially every piece of information can be kept potentially forever. The Internet doesn't forget anything.

3. A drone has today the size of a bird - soon, there will be drones of the size of a bug, a fly, or one day even the size of a mosquito. And the programming & steering of it will get very smart, so that potentially (technically) everyone can be observed anytime and anywhere.

It is up to us (and our politics), how we deal with that. Fact is, that soon, anyone, anywhere can be observed at almost no cost. Imagine what this means for board meetings, product development, secret service etc.

Many people fear the possibility of total control through the government - as the government may get the total information of everything.

A look into the past however shows a different picture: When cameras & broadcasting media was invented & became available, similar fear scenarios were there (in 1948: George Orwell 1984). But the contrary happened: Cameras and broadcasting, empowering the free press was one of the reason, why totalitarian system collapsed and why democratic system became more open.

If we get our political process right, the same will happen in future with the Internet.

The transparency paradox is not only true for small groups of people, but for states, governments, and even for markets - see for more details: Transparency (2002)