Governance as Conflict

* Article: Governance as Conflict: Constitution of Shared Values Defining Future Margins of Disagreement. by Eric Alston.

URL = https://law.mit.edu/pub/governanceasconflict/release/1

Often viewed as a way to reduce conflict within society, the traditional perception of governance is one that maintains stability with minimal disturbance. This article thoroughly examines new possibilities enabled by using conflict as a tool for institutional decision-making.

Abstract

"Sufficiently shared values lead to a common purpose that constitutes an organization, and this choice of constitutive purpose itself constrains constitutional choice. But collective action costs increase in an organization’s members’ heterogeneity of governance preferences, and are also partly determined by an organization’s constitutive purpose. Given that these costs of collective action are never zero, this makes mechanisms to accommodate conflict optimally present in impersonal governance contexts above a certain scale. Because of this ubiquitous institutional need, a variety of institutional mechanisms to accommodate heterogeneity of governance preferences have emerged in formal organizational governance. These mechanisms can be separated into ex-ante and ex-post solutions that respectively mitigate and resolve conflict among heterogeneous governance preferences. Mitigating and resolving future conflict are therefore both design priorities for collective action organizations, and the animating purposes of decentralized autonomous organizations (DAOs) present both conflict accommodation priorities with positive probability. Just as shared norms and accommodation of future conflict are interlinked and integral inputs to resilient organizational constitutional design in general, they are essential protocol design considerations for DAO designers as the complexity and magnitude of these organizations’ purposes increases alongside their user bases and assets managed."

Excerpt

Eric Alston:

From the introduction:

"Organizing collectively involves the constitution of the organization, although the complexity of this constitution varies considerably as a function of the organization in question, as well as its chosen purpose. Nonetheless, organizational constitution is predicated on a sufficiently shared set of values, or agreement as to the collective action’s underlying purpose. The constitution of decentralized autonomous organizations (DAOs), whether fully or partially governed by smart contracts delineated in comparatively rigid protocol, implicates a specific set of shared governance preferences. Yet for many organizational purposes, it is unclear whether this form of decentralized governance will dominate compared to traditional forms of private governance, especially in contexts where exit costs for users and consumers is low. Nonetheless, the constitutive potential of the values animating DAOs may be more than a narrow economic organizational analysis would suggest, because of the extent to which DAO members tend to intrinsically value a more decentralized form of governance, and the likelihood for institutional innovation in the organizational form.

Regardless of the set of shared values animating a constitution, though, such a characterization of organizational constitution derivative of shared community values is inexcusably rosy absent consideration of collective action’s inevitable structural costs. Collective action at scale poses mechanical representative losses to the individual preferences of organization members. The questions of central relevance to governance of impersonal organizations are those surrounding disagreement or dispute among members. This means the extent to which a given organization’s governance can accommodate heterogeneity in members’ governance preferences is also an integral input to that organization’s resilience. Despite sufficient agreement being a precondition to voluntary organizational constitution, that same organization’s survival will also depend on how well it mitigates and resolves disagreement.

Therefore, even if an organization assembles under the guise of well-understood and widely shared values, and continues to attract like-minded members, that organization cannot avoid the reality that its mechanisms for resolving disagreement as to how to proceed in the face of changed circumstances (or underlying membership demographics) are essential to resilient governance. Oddly, then, shared values and the inevitability of disagreement are the yin and yang of voluntarily constituting organizations. This makes a more rigorous understanding of these areas of constitutional and organizational theory (and their vexing underlying tradeoffs!) important for DAO designers. This analysis explores how shared norms and conflict remediation are interlinked and integral inputs to resilient protocol design for DAOs.

Section II examines in the context of DAOs how sufficiently shared values lead to a common purpose that constitutes an organization, and how this choice of constitutive purpose itself constrains constitutional choice. Section III proceeds by identifying the well-understood costs to collective action that increase in members’ heterogeneity of governance preferences, and are partly determined by an organization’s constitutive purpose. But given that these costs of collective action are never zero, this means that mechanisms to accommodate conflict are optimally present to some degree in impersonal governance contexts above a certain scale. Section IV therefore proceeds to describe a variety of institutional mechanisms that accommodate heterogeneity of governance preferences within a given organization. Because public governance entails the long-term rule-based ordering of heterogeneous groups with many competing demands over the many spheres of government authority, many of these institutional mechanisms are drawn from the study of public constitutional governance. Given the extent to which DAOs’ animating purpose can be likened to more democratic control of an organization in pursuit of a given purpose, it is likely that some of these emergent institutional remedies to the long-standing challenge of disagreement will appear in the context of DAO governance. This analytical narrative results in the conclusion that while the nature of ex-ante institutional solutions to conflict will be more tractable to protocol-based constitution, the need for ex-post institutional solutions is nonetheless non-zero in the case of DAOs with a sufficiently complex or large-scale constitutive purpose. Mitigating and resolving future conflict are therefore both design priorities for collective action organizations, and DAOs’ animating purposes present both priorities with positive probability."

(https://law.mit.edu/pub/governanceasconflict/release/1)

Conclusion

Eric Alston:

"Sufficient agreement as to the purpose of collective action is precedent to effective organizational constitution. Groups at war with one another tautologically cannot come to agreement to cease violent conflict; the opposition of these groups’ interests makes constitution impossible. This trivial example displays how sufficiently shared values, or agreement as to the animating purpose of an organization being constituted, are a precondition to successful organizational constitution. These shared values (or norms) by definition result from forces external to the organization at the time of its constitution, but are also shaped in an ongoing sense by the organization’s constitutive choices itself, as well as those of competing organizations pursuing similar purposes. The choice to constitute an organization as a DAO, with assets and (a subset of) organizational processes encoded into smart contracts on a blockchain network, itself displays a shared set of constitutive values surrounding the relatively decentralized, transparent, and automated nature of DAO governance (Alston et al 2022 Working Paper). Nonetheless, the specific purpose to which a DAO is dedicated will constrain governance choices on observable margins, as the example of DAI’s reference assets in Section 2 emphasizes. Despite the challenges in DAOs achieving more complex organizational objectives through the choice of constitutive values that the organizational form entails, these organization’s potential is higher than a strict organizational economic assessment of the form would suggest. This is because many members of DAOs intrinsically value the organizational form, and innovation is likely to continue in terms of protocol design as facilitating a greater and more complex number of interactions subsidiary to any given network.

Yet however well-designed a DAO may be upon its launch, these organizations’ constitutional nature means this form of collective action poses discrete losses likely to result to organization members from future collective action decisions. All collective action poses representative losses compared to the ideal of unanimity and creates a likelihood for future disagreement as to how to proceed; these are each non-zero costs for all members of collective action organizations. As structurally, due to the heterogeneity of individuals and their purposes for associating with a given collective action organization, future collective action decisions implicate different members’ interests differently. Given the unavoidability of costs to collective action and their heterogeneous effect on organization members, this mechanically creates heterogeneous governance preferences within a given organization. Furthermore, the polycentric nature of governance suggests that heterogeneity of governance preferences also result from forces external to an organization itself. Many of the heterogeneous interests contained within a given organization derive from the organization’s choice of purpose, both initially and in an ongoing sense. An organization’s purpose greatly defines an internal political economy, competing organizations, and the specific incidence of future shocks (even if these shocks cannot be predicted by any organization’s institutional designers). The costs of collective action, as increasing in the heterogeneity of governance preferences contained within a given organization, constrain the constitutive choices available to an organization, as well as create the need for institutional mechanisms to mitigate and resolve future disagreement.

Given that an organization’s choice of purpose varies in terms of the heterogeneity of governance preferences likely to be subsumed within, this means that public and private organizations vary in terms of the extent of governance preference heterogeneity they must accommodate in pursuit of their purpose. Put differently, the balance of competing governance demands within an organization determine the set of conflict-accommodating institutions necessary to reduce the specific costs of collective action these conflicting demands create. These institutions either mitigate or resolve conflict, and as such can be understood as ex-ante and ex-post institutional solutions, respectively. Ex-ante solutions include minimally constituting only the shared values necessary for successful achievement of the organization’s purpose, and circumscribing the governance authority’s ability to implicate individual members’ interests in certain spheres of autonomy. Other ex-ante remedies to sufficient diversity of governance preferences within a larger constituency involve discrete subsidiary and vertical governance subunits that apply to distinct subgroups of organization members with heterogeneous governance preferences. Despite the relative tractability of ex-ante institutional solutions to mechanism design, and therefore definition in smart contract protocol, these ex-ante institutional solutions become increasingly incomplete as an organization pursues a larger or more complex set of objectives through collective action. This creates the need for ex-post institutional mechanisms to resolve conflicts, such as judicial review of rights violations and due process, and specialized review mechanisms to ensure the rights of minority interests. As DAOs’ purposes come to grow in scope or magnitude, the benefits of ex-post conflict resolution mechanisms will also grow in value in terms of their ability to reduce the costs of collective action through addressing conflicts institutional foresight can never completely address.

More generally, the centuries of governance of constitutional systems around the world display the necessarily intertwined nature of these institutional solutions that I have distinguished by temporal application for the purposes of analytical simplicity. A Bill of Rights is only effective when subject to credible enforcement, and credible enforcement reduces the number of rights violations likely to even require ex-post resolution in future periods. Ex-ante constitution of shared values, rights protections, and subsidiary units tailored to distinct interest groups’ governance preferences are an essential component of organizational governance, but without ex-post measures to adjust the rigid fit of ex-ante institutional requirements, the extent to which an organization can achieve a more complex purpose requiring the coordination of greater numbers of specialized and diverse members will necessarily be constrained to some upper limit. I have therefore argued herein that shared norms and accommodation of future conflict are interlinked and integral inputs to resilient constitutional design in general, and as such, are essential protocol design considerations for DAOs. More specifically, I identify institutional mechanisms that deal directly with these unavoidable structural tradeoffs surrounding voluntary impersonal organization at scale, and how these mechanisms can be separated into ex-ante and ex-post solutions that respectively mitigate and resolve conflict among heterogeneous governance preferences."