"Transparency in our time" will never deliver the same assurance, however fleeting, as Neville Chamberlain's stirring declaration "peace for our time." Nor will proclaiming "it's still an opaque world" ever provoke anxiety like the assertion "it's still a dangerous world." Nor does an Endowment for Transparency have the same idealistic ring as, say, the Carnegie Endowment for Peace. But for investors, transparency and its opposite, opacity, are major concerns, especially in investing in other countries.
"Economists already understand that poor transparency in a number of key areas imposes a hidden drag on economic development," remarked James J. Schiro, chief executive officer, PricewaterhouseCoopers, New York, in a statement upon unveiling a new tool to assist global investors.
A group of economists and researchers brought together by PwC's Endowment for the Study of Transparency and Sustainability has created an analytical model correlating what it calls five key opacity factors with the cost of capital and obstacles to foreign investment in 35 countries.
With this tool, called the Opacity Index, investors can identify the specific incremental borrowing costs imposed by opacity - or lack of transparency - in the areas of legal protection for business, macroeconomic policies, corporate reporting, corruption and government regulations. The index is a composite measure of these five factors.
The index, he noted, "will help investors make more informed decisions about where they commit their resources and the return they can expect on their investments."
Among the countries in the index, Singapore has the lowest opacity factor, 29. The United States and Chile follow, each at 36. The countries in the index with the highest opacity are China at 87 and Russia, 84.
PwC plans to update the index every six months and over the next 18 months add at least 35 more countries. Details on the index are at www.opacityindex.com.
Of the individual factors, the United States ranks fifth lowest in corruption with a corruption factor of 25, tied with Hong Kong. Singapore ranks the lowest with a corruption factor of 13, followed by the United Kingdom at 15. Japan has a corruption factor of 22.
Although most major fund sponsors invest internationally, a few major investors won't assume the risk. Berkshire Hathaway Inc. has almost no foreign investments. Charles T. Munger, its vice chairman, remarked in Pensions & Investments last year, "I agree with Peter Drucker that the culture and legal systems of the United States are especially favorable to shareholder interests, compared with other interests and compared with most other countries. This factor is underweighted at many investment institutions, probably because it does not easily lead to quantitative thinking using modern financial techniques."
The Opacity Index is an attempt to quantify some international risk. But it has no factor for shareholder opacity, the primary one PwC should add as it refines the index.
The index's advisory board includes Jimmy Carter. Its key designers are associated with the Milken Institute, Santa Monica, Calif., founded by Michael R. Milken.
Investors should take care not to become complaisant because of the index. Countries can change suddenly.
Mr. Chamberlain, after delivering his famous declaration, then told the assemblage in front of 10 Downing St., "Go home and get a nice quiet sleep." Yes, and while England slept the Nazis and Soviets marched into Poland.