Politics: Animal Farm, Circa 1994

Stakeholder representation means some interests are more special than others.


Considering the flap last spring over Lani Guinier's views on voting rights and balloting outcomes, you might not expect many new challenges to traditional methods of electoral representation. But a stealthy new form of special-interest politics is flying beneath the radar screen of hot-button issues such as affirmative-action quotas and "diversity." While "stakeholder representation" has avoided notice so far, it's likely to be a high-profile characteristic of the Clinton health plan.

Stakeholder representation refers to the growing practice of explicitly allocating positions on government boards, commissions, and advisory bodies to special-interest groups. A hybrid of quotas, Scandinavian-style corporatism, and old-fashioned interest-group liberalism, stakeholder representation holds that interests with a "stake" in a government policy or regulatory activity should be officially represented on the government agency that oversees that area of policy. While the theory posits a cut-and-dried reality, the practice is a sloppy, highly politicized affair. Self-appointed pressure groups such as environmentalists, consumer advocates, and civil-rights organizations share equal standing with parties who have traditionally represented constituent interests, such as business, organized labor, or property owners, while other interests are excluded altogether.

So far, stakeholding has been used mostly in an advisory capacity. In California, two recent high-profile stakeholder consensus groups dealt with growth and land-use issues, while another group, dubbed the "Sierra Summit," dealt with the environmentalist agenda for the Sierra Nevada mountain range. Both efforts were convened at the behest of political leaders who like the "stakeholder consensus" idea because they think it can break "gridlock" and reduce the pressures brought to bear on them in the course of passing legislation.

While the California groups played only advisory roles, the idea of explicit stakeholder representation is slowly creeping into proposals for state and local government agencies and commissions. One recent unsuccessful bill in California would have required the governor to make appointments to a state growth-control agency exclusively from a list of names submitted by environmental, labor, and civil-rights groups. Another proposal for local growth-management councils in the state of Washington would have allocated memberships to government planners and environmentalists, while simultaneously prohibiting representation for the real-estate or development industry.

Stakeholder representation is also quickly gaining momentum at the national level. The Clinton administration loves the idea and has already established stakeholder-based selection criteria for its new Competitiveness Policy Council (not to be confused with Vice President Quayle's Competitiveness Council, the Clinton council is an advisory body concerned about "long-term investment" in the economy). The 12 members of the council were selected equally from business, labor, government, and "public interest" groups.

The administration plans to deploy stakeholder representation on a variety of fronts, including the National Skills Standards Board in the pending education reform bill and the Regional Health Alliances proposed in the president's health-care package. Look for some kind of stakeholder scheme to be employed in the bodies that emerge from the NAFTA side agreements as well.

At first glance, the idea of stakeholder representation might seem like a simple extension of the idea of having expert qualifications for single-purpose government agencies—for instance, having economists and bankers work at the Federal Reserve—or like a variant of the idea of proportional representation. And the idea of balancing competing interests through "stakeholder inclusiveness" might seem to solve the old problem of government agencies being commandeered by self-dealing interests.

But, in practice, stakeholder representation entails favoring certain special interests over other interests, therefore biasing the outcome of any "consensus." As with the menagerie in George Orwell's Animal Farm, some stakeholders are more equal than others. Not just anyone can be a board member of a Regional Health Alliance. The Clinton health-care plan favors certain kinds of people—employers and "consumer representatives"—while banning others: health-care providers, lawyers and other professionals working for health-care providers, and anyone connected with the pharmaceutical industry.

To anyone familiar with the workings of local, state, or national government, it is not really surprising that the balance of power among stakeholders is usually tilted decisively against business stakeholders (who are not, in many cases, noble representatives for free and open markets). But not only are business stakeholders outnumbered, the other supposedly disparate stakeholders—environmentalists, minority and civil-rights groups, organized labor, and local government—are usually united by a common interest in a bigger, more activist government. The dynamic implicit in "stakeholder consensus" steamrollers business interests into acquiesing to an expansion of government. This especially happens with stakeholder groups convened to advise government about such knotty issues as land use, growth, or the environment.

I had the opportunity to observe this process firsthand for six months in 1991, when I served as an alternate stakeholder in California's growth and land-use advisory group. The entire process resembled a labor negotiation rather than a deliberation about the merits of various policy alternatives. Ideas and principles were decidedly unwelcome, and the rest of the group regarded any mention of property rights as the equivalent of belching at the dining room table.

This perception might be discounted as the lament of a frustrated policy wonk. But in contrast to legislative deliberations conducted in full public view, where facts and principles still count for something and are occasionally still decisive, stakeholder meetings are usually conducted behind closed doors without any public attention. As a result, they sink, by their group dynamic, to the lowest common denominator, which always means more government. A San Francisco Examiner headline about the findings of the growth and land-use group illustrates the results: "Study urges larger government role in managing growth."

Anti-business bias and hush-hush proceedings aren't the only drawbacks to stakeholder groups. Notably missing from the Noah's Ark "two of everything" approach to composing commissions and boards are grassroots taxpayers' organizations. Because such organizations will tend to object to the increased taxes needed to pay for bureaucratic expansion, they are routinely left off the list of potential stakeholders. "The last thing these so-called stakeholders want is to see the tax producer projected into these things," says Lew Uhler of the National Tax Limitation Committee.

While the taxpayer may not get a place at the stakeholder table, the tax collector usually is a guest of honor. Recent proposals for growth-control agencies in California and Washington state reserved stakeholder slots for local and state government agency representatives. The inclusion of government as a stakeholder confirms what has long been obvious to libertarians: Government has become an interest group unto itself, with ambitions just as self-seeking as any private interest group's.

The increasing use of stakeholder groups raises troubling questions about the changing nature of democratic representation. Obviously, self-appointed stakeholders such as environmentalists and consumer advocates bear no accountability to voters or even to the political executives who appoint them. This is the main reason why the process encourages stakeholders from the outset to engage in horse-trading based on their narrow self-interest rather than deliberation based on their opinions or principles. On a deeper level, though, the stakeholder notion makes a hash of the idea of majority rule and government by consent.

To say that certain groups have a special "stake" in a particular area of policy is to imply that ordinary citizens have no "stake," or an inferior "stake," in the actions of government. Under the traditional understanding of representative government, special-interest groups who dissent from government policy are invited to lobby and persuade and have the same right as every other citizen to vote their interest in elections. It is precisely because all special interests share the equal rights of every citizen that they should not be given a privileged position at any official councils of government. Government shares the same accountability with special interests as with general interests, because all are equal in the voting booth. In the end, the stakeholder scheme benefits those special-interest groups who cannot get what they want through the ordinary legislative or administrative process, or who cannot demonstrate decisive force in elections.

While stakeholding based on economic and social interests is questionable enough, it seems likely that the process will also become a back-door means of advancing explicit racial, ethnic, and gender-based quotas in government. Already in California, state Sen. Diane Watson (D-Los Angeles) has proposed a bill requiring that state boards and commissions be appointed in exact proportion to the gender and ethnic makeup of the general population. While the Lani Guinier episode shows that mainstream Americans still rankle at the idea of defining individuals solely in terms of their race and sex, the practice of "stakeholder representation" does not differ much in principle. It is only a short step from stakeholder inclusion based on interest to stakeholder inclusion based on ethnic group or gender.

Contributing Editor Steven Hayward is research and editorial director for the Pacific Research Institute.