Price of government dishonesty, spin is steep

CALGARY -- On Friday, March 11, 2011, a magnitude 9.0 earthquake off the coast of Japan wreaked havoc, damaging structures and generating a tsunami greatly amplifying the destruction and loss of life. It also triggered a meltdown at the Fukushima nuclear power station. Ongoing monitoring of cesium levels in fish indicate radiation continues to leak from the station.

A committee of the U.S. National Academy of Sciences (NAS) and the National Research Council is now touring Japan to determine what American nuclear power plant operators can learn from the disaster. What they're learning from their Japanese hosts should interest all of us.

Forget the earthquake and tsunami. Japanese officials have told the American visitors the causes of the Fukushima nuclear disaster were entirely man-made. It resulted from one, a lack of humility and two, a reluctance to share information about nuclear power risks with regulators and the public.

In other words, the root cause was a paternalistic arrogance of believing to know what information is good for the public and what isn't. Company officials said they feared openness would "make people worry about the safety" of nuclear power. Public confidence trumping truth.

This should interest all of us, because the trade-off between telling the truth and building confidence isn't reserved for the world of nuclear power regulation. What we are told about access to health care, the reliability of food inspection, the speed of the justice system, emergency response capability, pipeline safety, pollution from industrial facilities, quality of municipal services, security at the airport and voting irregularities in the political system all contain conflicting obligations.

What happens when the truth conflicts with the need to sell confidence? Fukushima happens.

System failure is the inevitable consequence of these competing priorities. The American physicist Richard Feynman sums it up nicely: "Reality must take precedence over public relations, for nature cannot be fooled."

But why, when faced with these competing priorities, does industry and government not simply tell the truth, the whole truth and nothing but the truth? Why is the spinning, repackaging and cherry-picking to sell or build public confidence, inevitable? The answer lies in a short, 12-page paper called The Market for Lemons that earned its author, George Akerlof the Nobel Prize.

Think of buying a used car. The owner knows more about the car than you do, so it's worth your while to discount what you are being told and the price. In other words, you should assume the car isn't as good as you're being told.

This discounting behaviour is reflected back to sellers, so they increasingly bring lemons to the marketplace while exaggerating the quality to consumers.

This causes buyers to further discount what they are being sold. This cycle repeats until the market becomes dominated by lemons, dishonest sellers, and ripped-off consumers.

Akerlof demonstrated that in any market where one side has more information than the other (called asymmetries of information), the quality of goods sold will decrease, sellers become increasingly dishonest, and buyers are increasingly taken advantage of. This explains why American banks bought mortgage-backed securities leading to the crash of 2008, why competitive bidding ensures too much is paid for too little and why projects tend to go over budget.

It also explains why government and industry spend so much effort at spinning and repackaging information before releasing it to the public. Audits, satisfaction surveys, performance targets and reporting, impact studies, "public education" campaigns, and positive press releases populated with too-good-to-be-true information are used more to build confidence and sell positions than report the facts. What the Japanese have learned from Fukushima, and what we need to learn as well, is these actions inevitably produce declining performance and failure.

A new form of regulatory body is being proposed in Japan with the aim of removing asymmetries of information among companies, government, regulators and the public. If this sounds like transparency, you're right. But, ironically, transparency has become a sound bite used to sell the concept rather than live it.

Making transparency real requires rules and guidelines concerning how information is reported and presented. The only thing standing in the way are those believing they know what's best for you.

Robert Gerst is a partner in charge of operational excellence and research and statistical methods at Converge Consulting Group Inc. He is author of numerous peer reviewed articles and of The Performance Improvement Toolkit: The Guide to Knowledge-Based Improvement.

--Troy Media

Republished from the Winnipeg Free Press print edition December 10, 2012 A11