How WikiLeaks matters

Harvard Business Review: Rather than seeing WikiLeaks through the lens of morality or national security, let’s look at it through an institutional lens. To those of you who’ve been reading this blog for a while, that may be second nature. But to the newcomers, let me explain what I mean.

Perhaps the most basic economic institution is GDP. And unfortunately, it’s also one of the most in need of radical institutional innovation. So at the Cancun climate talks, one country has already committed to updating it for the 21st century — by including the costs of environmental damage to make the numbers a little more meaningful. That country? Not America, the UK, or France — but India.

When GDP’s updated to reflect environmental costs, so must be corporate income statements — otherwise, the math simply won’t work. The informational basis of the economy will be altered. Customers, investors, and regulators will have more and better information.

In turn — and here’s the crucial part — India’s likely to be able to create the future: stuff that’s globally hypercompetitive, because it’s lean, clean, and green, igniting a new basis for export-led growth, and, more than likely, offering better sources of advantage.

Now let’s go back to the much-maligned WikiLeaks. From an economic perspective, its goal is much the same as India’s updated GDP 2.0: more, better information, faster.

Consider just how moribund yesterday’s institutions are when it comes to information collecting and sharing. Take transparency in corporations. It’s built on a set of institutions crafted in and for the industrial age — like annual and quarterly reports. Four times a year, boardrooms publish updates to their accounts, and once a year, a hefty report explaining and discussing them.

Now ask yourself: does that make even a tiny sliver of sense in a world where I can trade equities from nearly any beach in the world, hundreds of times a minute, using my iPhone? It’s an obsolete institution, where my demand for information — to analyse, synthesise, and integrate — has vastly outstripped the capacity to supply it. Hence, stocks froth up and down before and after earnings report releases.

When I can’t get new information from the horse’s mouth, I rely on your opinion, the latest rumour, or what talking heads are paid to say. Result: boom, crash, rinse, repeat. But the real question is one of institutional obsolescence. Why, for example, can’t we have continuously updated earnings releases — that let us see what companies are earning in real-time — for a continuously connected world?

Sure: there’s a balance to be struck between confidentiality and disclosure. But I’d argue that we’re not even close to discovering it. Right now, yesterday’s organisations — from corporations to Congress — have a gaping, yawning disclosure gap: the how, what, why, how and when of disclosure simply isn’t good enough for markets and communities to be able to allocate and utilise resources productively or efficiently. That’s why the traditional understanding of everything from GDP to “jobs” to “profit” to “IPO” is limited.

And the result of an undersupply of disclosure is toxic, perverse incentives. A CEO can make hundreds of millions for running a once-thriving company into the ground because he (or she) can earn his mega-bonus faster than you can stop him from earning it. And the systemic result of that is crisis, stagnation, and decline.

My guess is that, like updating GDP for the 21st century, real-time corporate reporting could create new markets, companies, and much-needed jobs. It might ignite novel sources of advantage — while of course creating disadvantage for companies who won’t or can’t play by its rules. But prosperity is always going to accrue to those who innovate yesterday’s rusting, creaking institutions.

To focus only on WikiLeaks is to miss the big picture of what’s happening with information — just like focusing only on Napster in 1999 would have led you to miss the bigger revolution in digital music. The original Napster was shut down in 2001, but its P2P heirs continue to share pirated files, and it paved the way for the rise of iTunes and Pandora — and the fall of Tower Records.

Similarly, you can jail Julian Assange, but you probably can’t jail every 17 year old hacker whose blood is boiling because you just jailed Julian Assange — nor can you get a restraining order on every fed-up associate, manager, or cashier who wants to blow the whistle on you.

The real scandal might just be this: There are few secrets bigger and more terrible than the ones that are hiding in plain sight. The ones we ignore, sweep under the rug, and won’t, don’t or can’t discuss. (And in fact, many of the “embarrassing” WikiLeaks cables only confirm — in sharper language — what informed readers already knew.)