Animal farm, circa 1994

Reason, March, 1994 by Steven Hayward

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 industries.

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 former 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 healthcare 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.