New models needed

Phillip Blond is Director of think tank ResPublica

Mutualism represents perhaps the most flexible and beneficial way of transforming our public services. Happily, the government is committed to this model: Francis Maude, Minister for the Cabinet Office, has stated that he would like to see a million public sector workers employed in mutuals by 2015. In simple terms, mutualism is based on principles of reciprocity, equity and fairness. It is a system that allows for equity (what you put in and therefore can take out), be that in terms of finance or services, to be realised in any number of ways.

To achieve the positive transformation of our public services, we need to find new models of mutualism fit for the 21st century. This means creating innovative ways of bringing together public and private capital, enabling private companies to make a fair return from their capital investments, while at the same time giving all those involved a stake or return of some sort.

An example of how this can work comes from the energy sector. In Denmark, a community will often allow an incinerator to be built in their neighbourhood (in Britain the very idea would provoke mass protest) but they get cheaper electricity in return, often around 30%. The incinerators, designed by the very best architects, cut down radically on waste disposal and landfill. In addition, house price values increase for those on the local energy network because bills are cheaper, and the strategy is seen as ethical. To me, this type of reciprocal economy is a form of mutualism.

Mutualism is and should be a broad church – whether based on joint ventures, cooperatives or social enterprise – because what matters is not the form but the relational and reciprocal structure. If equity rather than equality is the aim for modern mutuals then one can construct any number of hybrid vehicles to deliver mutual outcomes. The aim is to create more through people working together than is possible when people operate separately.

What we need to do is include more people in markets and, crucially, include more of them as owners. You can’t have popular capitalism if the poor don’t have capital. The structure of economics we’ve followed for the last 40 years has stripped capital from people. If you chart the availability of liquid capital (cash shares and so on) that those at the bottom of society have, they have effectively been ‘decapitalised’. In 1976, they had 12% of the available liquid wealth; in 2003, that was down to 1%. If we don’t create mass ownership of capital, it means that one part of the population is in permanent serfdom to the other. What we have to do is ‘recapitalise’ people by giving them each a new stake or share. For public services, this means creating shared capital and equity through some sort of mutual model, which offers a sense of ownership. This ownership doesn’t have to be financial, although in most cases I think it should be, and will give workers an increased sense of control over their lives.

This creates genuine win-win situations. There are reasons why employee-owned companies like John Lewis have a return that is 10% higher than the average FTSE 100 company in terms of profitability. Or take the Sandwell Community Caring Trust, a charity created in 1997 from a local authority care home. According to the Social Enterprise Coalition, admin costs have fallen from 22% of turnover in 1997 to less than 6% today. Staff sickness has gone down from an average of 22 days a year in 1997 to 0.3 days in 2007, while turnover spent directly on frontline care has risen from 62% in 1997 to over 82% in 2006.

Staff have retained existing pay and other conditions but improved performance now also means being eligible for an equal bonus. In 2006, residential care for the elderly cost the local authority £657 per person per week, whereas the Trust has reduced this to £328 per person per week. The new model means a high degree of work satisfaction at a greatly reduced cost.

The question remains as to whether the government’s goal of seeing a million public sector workers in mutuals by 2015 is achievable. It is possible but the challenges are considerable. Many public sector workers are driven by vocation, and if they see that they can provide a better service within a mutual framework, then mutualism in the public sector can succeed. But employees can’t be offered risk for no return; you have to offer certain guarantees if you want them to move to a new platform. The offer to public sector workers has to be geniune. It has to be based on an equity stake, on the security of a viable business model (which means good contracts for the initial spin out companies) and on the genuine option of learning new skills, while also letting people share in the efficiencies that result.

It will be hard for a public sector used to permanent job security to make such a radical change, but it will ultimately give workers far more control over their working conditions and futures. Outside the public sector, we need to develop a way for our citizens to organise into groups, which enable all members of society to create new possibilities for themselves, which are simply not achievable for them as individuals.

The next great wave of western advance and productivity will, I suspect, be based on a 21st century variant of mutualism. No other form of management innovation can deliver the step change so badly needed. It will be difficult but the outcome could be something significantly more efficient, radical and transformative than any other option can realistically offer.

Ambitious target

Jane Dudman is Editor of the Guardian’s Public Leaders Network

Will a small army of nurses, community workers, firefighters and pensions staff running their own businesses transform the way public services are delivered? Or will this prove simply the latest fad and sink beneath the practical difficulties involved? Those are the questions being posed by many public managers as they contemplate the possibilities – and the challenges – of taking over their existing services and becoming their own bosses.

The idea of spinning out public services from the public sector into smaller mutuals, cooperatives, or employee-owned organisations, has spurred a huge amount of debate over the past year. It’s not a new idea – under the previous Labour government, some NHS staff had already begun to do just this – but the pace has certainly quickened since the present government came to power in May 2010.

So why do it at all? Central Surrey Health, which emerged from the NHS in 2006 as a social enterprise, says its aim “is to combine the values and principles of the NHS with the ‘can do’ culture of a successfully run business”. Many managers would agree that this is laudable. There is an increasing recognition by those who deliver public services, whether they are directly employed within the public sector or not, that services do need to be more responsive to users’ needs and that staff engagement and involvement is an important aspect of that goal.

The question is whether this goal can be reached. As Phillip Blond asserts, Francis Maude has stated that he wants one million public sector workers – up to one in six of the existing public sector workforce – to be operating within mutuals by 2015. That’s a hugely ambitious target and although Maude is a hugely ambitious man, it may be beyond even him, given some of the practical challenges facing the fledgling movement. It’s not yet clear how many public managers will want to take on the level of risk involved in running a new business.

The government is offering support; this includes a £10 million investment programme; an information service run by Local Partnerships, Co-operatives UK and the Employee Ownership Association; and a mentoring service. But risks remain, including whether financial capital will be available. There is also a big question about whether these new entities will be able to compete with much larger, well-established rivals to deliver services, and whether public bodies will be able to award contracts to spin-outs in the face of that competition.

Pensions loom large here. Despite the government’s support for mutuals, outlined in July’s Open Public Services white paper, many managers are concerned about the potential cost of public sector pension liabilities when staff transfer. At a practical level, managers wanting to spin out their services also have to decide which business model to use. It is interesting that the first mutual enterprise to come out of a central government service, MyCSP, which runs civil service pension schemes, is offering its 475 staff co-ownership of their organisation but is also looking for a private sector partner to provide equity and business expertise.

A paper published by think tank the Institute for Government and the Public Chairs’ Forum, said that mutuals will work best where the basic business model remains the same – “which implies that it wasn’t broken in the first place” – while setting up totally new services would be more difficult. While many supporters of the mutuals movement acknowledge the benefits, no-one is saying the process of setting up is easy. A recent report by Co-operatives UK highlighted a lack of effective start-up funding, business support and appropriate procurement regimes.

Powerful galvanising effect

Craig Dearden-Phillips, founder and CEO of Stepping Out, a business helping parts of the public sector become social enterprises,says that moving out of a large public body can have “a powerful galvanising effect” for staff and managers. However, his experience of talking to former public sector leaders who have set up new enterprises to run their own services, has led him to conclude that managers need further assurances about how pensions will work, how to avoid potential legal challenges, and how the new bodies can be financed. Dearden-Phillips also highlights another barrier: opposition, both overt and covert, from trade unions and, on occasion, from senior managers inside the public sector. This often takes a personal toll on would-be public service entrepreneurs, he says.

Patrick Lewis, partners’ counsellor at the John Lewis Partnership, is someone who knows all about running the acme of employee-owned organisations. The great-nephew of the chain’s founder, while enthusiastic about the concept, is cautious about the government programme. “The big thing we have learned is that this type of organisation requires time and care,” he told the Guardian’s Public Leaders Network: “This requires very long-term commitment to setting an organisation up in the right way and then to support it, support it, support it.”

Mutuals have their attractions, but they also have their challenges. It remains to be seen whether they can become a mass movement, leading workers out of direct employment by the public sector, or whether they will prove another well-intentioned government policy that fails to scale up from a few examples.