Are critics of multistakeholder governance committing a Nirvana Mistake?

Guest blog by Farzaneh Badii, University of Hamburg

In his article on Information and Efficiency, renowned economist Harold Demsetz pointed out that it makes no sense to compare the outcome of an ideal institution without transaction costs to the outcomes of a real world institution, and then conclude that the real institution is inefficient. This “Nirvana Mistake” overlooks the fact that the real world always falls short of perfection. Any institution we devise to fix the perceived shortcomings of a real world institution will have its own inefficiencies and shortcomings. Stephen Margolis argues that the Nirvana Mistake has “afflicted much of the economic analysis of public policy.” Is the debate about multistakeholder Internet governance suffering from the same mistake?

Multistakeholder governance has been widely accepted by the global Internet community as a guiding principle for governance. The process itself is not unique to the Internet and has been used in other domains such as environmental and food safety governance. ICANN uses a multistakeholder process to reach decisions on prominent issues and consequently its policies reflect a more global outlook. But in the recent discussions on the transition of the stewardship of the IANA functions to the global multistakeholder community, many commentators are questioning whether a multistakeholder process is up to the task.

Critics of the multistakeholder model say it is an inefficient process. It is expensive and slow, and it is often unclear who the stakeholder groups are and what are their roles and responsibilities. Sometimes they even call “multistakeholder” an ugly term. Doubting multistakeholder governance and calling it inefficient is not new. Calls for “greater formalization for Internet governance” have been around for over a decade.

A more serious critique sees MS governance as only applicable to developed democracies. It is true that in some parts of the world autonomous stakeholder groups do not exist or do not fall under the generic (and sometimes too specific) categories used by ICANN and IGF. This has made the allocation of rights difficult and affects the efficiency of the process. From the viewpoint of countries that do not have strong stakeholder groups other than the government, the term ‘multistakeholder’ is usually meaningless. These countries are usually newer, developing nations that have only just succeeded, after a long time, in establishing states with centralized governmental mechanisms. They are unfamiliar with multistakeholder processes, unlike the pioneers of multistakeholderism such as the US. The allocation of rights to stakeholder groups by newer governments is troublesome, as it can be very difficult to draw a clear line between stakeholder groups. For example, in some countries the private sector includes both civil society and business; moreover, one stakeholder group (mostly the government) might control almost everything.

Due to the difficulties that multistakeholder governance can face in assigning rights and responsibilities, critics doubt that the Internet community is capable of effectively administering the Internet.

Borrowing from Margolis, an efficient governance system can be defined as one in which rights are assigned and liability is formulated so that the value of the things present in society, as measured by willingness to pay, is maximized over all alternative governance systems, given the cost of transacting. Applying this definition to multistakeholder Internet governance, we can see how it does maximize the value more than other forms of governance. For example, multistakeholder governance has surely maximized the value of security and stability of the DNS over other governance systems, by tapping into the distributed expertise of information technology and operations professionals.MS governance also empowers people whose main concern is the Internet’s global interoperability rather than narrower national political agendas.

Moreover, those criticizing multistakeholder governance of the Internet do not consider how it can reduce the cost of shaping stakeholder groups, and facilitate assigning rights and responsibilities in countries with weak stakeholder groups and centralized systems. Even if multistakeholder governance does a less than optimal job of assigning rights and responsibilities to stakeholder groups in developing countries, it will probably do a better job than a centralized system, which hoards decision making power and restricts it to a few incumbent groups. Global multistakeholder governance might even reduce the transaction costs for developing countries to join the global governance initiatives and then shape the stakeholder groups inside the country.

In analyzing the efficiency of multistakeholder governance process we constantly make the Nirvana Mistake, i.e. we are comparing the outcome of an ideal system to a real system without considering the transaction costs. In order to correct the mistake shall we as some suggest just get rid of the roles of stakeholders and give everyone an equal opportunity to engage with Internet governance public policy processes? Or would it be necessary to correct the mistake by looking at other multistakeholder processes and their agenda such as the World Fair Trade Organisation (WFTO), International Union for the Conservation of Nature, Forestry Stewardship Council (FSC) and the International Organisation for Standardization (ISO)? Or we can simply suggest not to assume that a multistakeholder model should be used for every aspect of governance of the Internet.