The Publish What You Pay (PWYP) campaign proposes that publicly listed natural resource and oil companies be required by market regulators, as a condition of public listing, to disclose aggregate information about tax payments, royalty fees, license fees, share purchases, revenue sharing payments, payments-in-kind, forward sales of future revenues, and commercial transactions with government and public sector entities.
Many of the poorest developing countries have significant natural resources, from which they derive income. That income can be used to support growth and development. But all too often it is misappropriated.
Lack of accountability facilitates misappropriation. Failure to publicly disclose payments to governments worsens the "accountability deficit" by making it difficult for citizens and NGOs to hold government accountable for good stewardship of resource income.
Mandating companies publicly disclose payments will provide double-entry information that can be used as a check and spotlight on governments.
At the broad macro economic level, by reducing corruption and increasing growth in developing economies, PWYP can enhance business prospects. At the individual company level, business will benefit by reduced corruption which makes for greater stability and security of legal rights.
PWYP can help free companies from the charge that they are "complicit" with corrupt governments.
And it can also promote political stability by guarding against formation of unrealistic local expectations. In Aceh, Indonesia, there is widespread belief that local control of oil deposits would raise individual incomes by thousands of dollars when at very most the per capita gain would be around one hundred dollars. The same mistaken expectations apply in war-torn southern Sudan.
The IMF now recognizes the need for "good" governance to promote development. This is enshrined in its concept of "second generation" reforms. The PWYP proposal will promote good governance and inhibit corruption by increasing "transparency".
Corporations have an important role to play in facilitating development and good governance. Transnational corporations should export the highest standards, thereby helping raise the floor on global economic governance. The PWYP proposal has them doing just this.
Policy makers have already initiated measures aimed at reducing corporate bribery. The PWYP proposal is consistent with these measures and aims to tackle government misappropriation.
The benefits of a system such as PWYP are illustrated by recent IMF experience in Angola. The government claimed to have only received $285 million in bonus payments, but oil company data showed it had received $400 billion (New York Times, November 30, 2002).
Research conducted by Paul Collier at the World Bank suggests that many civil wars are the fought over control of natural resource revenue streams rather than being ethnic conflicts. Spotlighting these revenue streams stands to reduce the opportunity for misappropriation, thereby reducing the incentives that drive civil wars. This stands to be particularly important in regions such as the Caspian basin and the Gulf of Guinea, where nations with relatively undeveloped governance capacities confront the prospect of large future oil revenue streams. Both of these regions are geo-politically important to the U.S., and putting in place measures that can reduce the likelihood of future civil conflicts therefore stands to be of significant benefit.
Investors will benefit by having greater information about companies' performance at the individual country level. More broadly, reduction of corruption is good for business, which is good for investors.
Counter. This would be true if an individual company did so alone. That is why the PWYP proposal requires that all companies be obliged to disclose payments.
Counter. This would be true if corporations acted unilaterally. However, contracts must conform with country law. By legally mandating disclosure the issue of contract confidentiality is vitiated.
Interestingly, confidentiality concerns bar a voluntary approach because corporations will not be able to say that domestic laws require them to publish.
Counter. Companies are being asked to publish "aggregate" payments to governments, not contract specific payments.
In some cases, where companies have a single contract, there could be some information disclosure. But this too is in the public interest. Economic theory clearly says that markets work best when prices are public, making disclosure good for economic efficiency. The bottom line is that it is unacceptable to gain commercial advantage through corruption. Such practice undermines both economic efficiency and the social legitimacy of markets.
Counter. Oil and mining companies are already required to report payments on a regional basis (by continent) so that the information already exists. It is just a matter of re-packaging it on a country basis, which will involve minimal cost.
Counter. While true that state-owned and non-listed companies might avoid PWYP requirements, these companies often do not have the capital or technological expertise to undertake increasingly expensive and difficult resource extraction projects. Moreover, many of these companies have long term aspirations to stock exchange listings in order to access foreign capital. These factors imply that many non-listed companies will have an incentive to comply with PWYP, and those that do not will constitute a small and inconsequential fringe.
Counter. PWYP represents a proposal that is good for business and good for developing economies. By spurring growth it will be good for shareholders of companies doing business in countries with corruption, and by helping eliminate corruption it will enhance the efficiency with which capital markets allocate capital. Viewed from this perspective, PWYP is a measure that improves the operating efficiency of capital markets and is not an exercise in politicization.