The Mutual State is a citizens-orientedapproach to public service reform. Bybringing users into the frame and creatinga framework for social entrepreneurship,the Mutual State fosters more responsivepublic services, and helps to reweavedemocratic relations between citizen andstate. This report draws together thefindings from a virtual think-tank onmutualisation, designed to test, challengeand improve the core approach, runningover six months up to May 2002.

Contributors:

Tom Bentley, Demos

Jonathan Bland, Social Enterprise London

David Boyle, New Economics Foundation

Ann Blackmore, NCVO

Geraint Day, Institute of Directors

Jack Dromey, TGWU

David Green, Civitas

Peter Hunt, Mutuo

David Leam, Social Market Foundation

Paul Maltby, IPPR

Ed Mayo, New Economics Foundation

Cliff Mills, Cobbetts Solicitors

Henrietta Moore, LSE

Angela Pulman, Community Enterprise Wales

Andy Roberts

Jane Steele, Public Management Foundation

Paloma Tarazona, Social Enterprise London

Perry Walker, New Economics Foundation

The sponsoring

organisations for this

virtual think-tank have

been:

Greenwich Leisure Ltd

Cobbetts Solicitors

Civitas

Community Enterprise in

Strathclyde

Community Enterprise Wales

Demos

Development Trusts

Association

Fabian Society

IPPR

Mutuo

New Economics Foundation

Public Management

Foundation

Social Market Foundation

Social Enterprise London

The Work Foundation

Bui lding the Mutual Statef indings f rom the v i r tual th inktank

www.themutualstate.org

edi ted by Ed Mayo and Henr iet ta Moore

New Economics Foundat ion and Mutuo

i

The New Economics Foundation (NEF) was founded in 1986 by the leaders of The Other EconomicSummit (TOES), which has forced issues such as international debt on to the agenda of the G7/G8summit meetings. It has taken a lead in helping establish new coalitions and organisations, such as theJubilee 2000 debt campaign, the Ethical Trading Initiative, backed by the Government and leading retailers, the UK Social Investment Forum and the Green Gauge "alternative" indicators of social andenvironmental progress.

NEF is a registered charity, funded by individual supporters, trusts, business, public finance andinternational donors, and acting through policy, research, training and practical initiatives to promote a"new” economy - one which is people-centred, delivers quality of life and respects environmental limits.Its strategic areas currently include the global economy, corporate accountability, community finance and participative democracy. It is now recognised as one of the UK's leading think-tanks.

To become a NEF supporter and receive its publications at a discount, contact us at the address below.

New Economics Foundation Tel: 020 7089 2800Cinnamon House Fax: 020 7407 64736-8 Cole Street London Email: info@neweconomics.orgSE1 4YH Web: www.neweconomics.org

Registered charity number 1055254

Mutuo is a not-for-profit think tank that brings together the different wings of the mutual sector topromote its common message of success. Working exclusively for the mutual sector, Mutuo has wellestablished links to mutual businesses, political agencies, think tanks and academics.

Mutuo is committed to:

• Conducting and publishing policy research on issues of importance to the mutual sector• Campaigning for a better understanding of the benefits of mutual businesses• Developing innovative new mutual businesses

Projects are managed by Mutuo’s experienced team of staff, who work with sector specialists, journalistsand like-minded organisations to convey the mutual message to opinion formers and decision makers.

Mutuo Tel: 020 7367 417777 Weston Street Fax: 020 7407 4476LondonSE1 3SD Web: www.mutuo.co.uk

ISBN no. 1899407499

Published May 2002, (The New Economics Foundation and Mutuo)

ii

”“The Mutual State is a stimulating

contribution to the debate concerning

the future of public services, and

illustrates how a new and imaginative

approach can refresh the old and

increasingly jaded arguments

concerning the public/private divide.

Professor Julian Le Grand, London School of Economics

iii

INTRODUCTIONEd Mayo and Henrietta Moore

PRINCIPLES FOR THE MUTUAL STATEA.1 Co-production

Perry WalkerA.2 Accountability

David LeamA.3 Citizenship

Cliff MillsA.4 Human-scale

David Boyle

MODELS FOR THE MUTUAL STATEB.1 Social Enterprises and Public Service Delivery

Jack DromeyB.2 Legal Models for Mutualisation

Cliff MillsB.3 The Voluntary Sector’s Role in Public Service Delivery

Ann BlackmoreB.4 Public Interest Companies

Jane SteeleB.5 Non-profit Public/Private Partnerships

Paul Maltby

OPPORTUNITIES FOR THE MUTUAL STATEC.1 Mutual Healthcare Purchasing

David GreenC.2 Mutual Healthcare Provision

Geraint DayC.3 Education and Care: Lessons from Southern Europe

Jonathan Bland and Paloma TarazonaC.4 Mutual Education

Tom BentleyC.5 Mutualisation in Wales

Angela PulmanC.6 Community Housing Mutual – A New Opportunity For Social Housing

Peter HuntC.7 Social Housing – A Resident View

Andy Roberts

CONCLUSIONEd Mayo and Henrietta Moore

iv

SPONSORING ORGANISATIONS

Greenwich Leisure Ltd

Cobbetts Solicitors

Civitas

Community Enterprise in Strathclyde

Community Enterprise Wales

Demos

Development Trusts Association

Fabian Society

IPPR

Mutuo

New Economics Foundation

Public Management Foundation

Social Market Foundation

Social Enterprise London

Work Foundation

EDITORS

Ed Mayo is Executive Director of the New Economics Foundation. He is on the Boards of the LocalInvestment Fund, AccountAbility, the Social Investment Forum and OneWorld and is Chair of the LondonRebuilding Society. He has advised the Treasury on enterprise.

Henrietta Moore is Professor of Social Anthropology at the London School of Economics. She is editorof Anthropological Theory Today (1999), The Health and Well-Being of Children and Young People in theUK (1997) and author of A Passion for Difference (1994).

1

BEYOND THE MARKETAND THE STATE

The early anthem of privatisationwas “rolling back the state”,and yet, the state has emergedfrom the era of privatisation in aposition of relative strength. Thisis both in terms of its tax take asa proportion of the nationaleconomy, after projected rises inhealth spending, and as thefavoured mode of public servicedelivery in the many cases, frompolicing to health, in which theprofit motive is not trusted bycitizens.

The idea of opening publicservices to competition in theopen market is of courseaccepted in many areas formerlyrun by the state, from water andtelecoms through to wastecollection. The market may bringcost advantages, which is whatdrove the early privatisations,but crucially is also seen to havethe capacity for responsivenessand innovation.

But as opportunities forprivatisation dried up, whatemerged was the “managerialstate” of the Conservativesunder John Major, and of Labourin the first term of Tony Blair.Out of a perception that publicservices remained inflexible,bureaucratic and often of poorquality, the aim was to drive upproductivity. In the developmentin the 1990s of “quasi-markets”in health, for example, withpurchaser / provider splits, andcompulsory competitivetendering, the state in effectbecame the sponsor andchampion of market activity inpublic services.

The managerial state is replete

with league tables, performanceindicators and public serviceagreements. But just as thelimits to privatisation set in, sohave the limits to central controland reform instituted fromabove.

After all, what the best ofprivate sector management hasalready shown is the need tolimit the costs and distortionsassociated with layers ofmanagement, reduce hierarchy,focus on core business and startto move dynamically at the paceof the market.

The first attempt at movingbeyond both privatisation andthe managerial state wastherefore the attempt to createmore autonomous business unitswithin government, operationallyindependent, but strategicallyaccountable. The model of“executive agencies” dates backto a report by Sir Robin Ibbs in1988. Government spawned awave of internal agencies, unitsand czars, designed to be morefocused and innovative thanmulti-purpose departments.

There are examples of excellencein this approach, sometimesdubbed “agencification”, but inmost cases the system simply bitback. Independence wasnotional rather than real,undermined in reality by systemsof appointment, reporting andaccountability.

Independent-minded czars andcommissioners, such as ElizabethFilkin overseeing MPs standards,were not reappointed. Unitssuch as the Small BusinessService never took on theintended life of their own,ending up as fiefdoms of thesame empire as before. Even

where agencies and non-departmental bodies (those thatin previous political times hadbeen damned as quangos) set upboards to oversee their work,this was in many cases a parodyof true governance, with limitedpowers and reappointment atthe whim of central government.

The search for more responsivemodels for managing publicservices, and the discovery ofthe limits to market and state,forms the background to thenew-found interest in “socialenterprise”. These are business-minded non-profits andvoluntary organisations, led bysocial entrepreneurs. Theyoperate with a public ethos, butthey are entrepreneurial, self-governing and have provedeffective at engaging theparticipation of users.

Self-governance is an essentialrecipe for what we havedescribed as the Mutual State.After all, if management is tohave significant freedom toinnovate and respond to need,then creating single-purposeself-governing organisations isthe way to do it.

But how do you promote self-governance without creatingincentives for free-riding, lack ofcoordination and poor quality?The answer is to look for modelsof organisation that internalisepublic service excellence and co-operation with other parts of thepublic service jigsaw, rather thanhave to have this imposedthrough costly regulation. This isthe “new mutuality”.

The New Economics Foundation(NEF) and Mutuo launchedwww.themutualstate.org inOctober 2001 as a time-limited

I N T R O D U C T I O N – E D M AYO A N D H E N R I E T TA M O O R E

2

“virtual think-tank” on userparticipation and the possiblemutualisation of public services.The rationale was that there is alot of practice already going on,but it is rarely brought togetheror properly understood. Itfollowed the publication of theNEF report we co-authored, TheMutual State.

The website was designed togalvanise wider debate in order to:

• learn and share what isalready happening acrossthe public sector in termsof user participation andsocial enterprise;

• explore how new mutualitycould work in publicservices, and where it willnot;

• refine and test the ideas formutualisation as a model forpublic service investmentand civic renewal.

The programme broughttogether a unique alliance ofpolicy think tanks andpractitioners concerned toexplore the role of socialownership in public services. Thesite averaged around 185participants and contributors inthe debate per month,contributing to onlinediscussion, review of regularthink pieces and voting. PatriciaHewitt MP, the Secretary of Statefor Trade and Industry, made theinitial contribution.

Over the period of theprogramme, participants alsocontributed to an open nationalcompetition based on thewebsite, to propose a new namefor the successor body toRailtrack. The winning name wasTrust Rail.

The results of the key DebatingPoints are set out in Table 1.

While weighted to contributors

that were clearly interested

enough in the ideas to

participate in the debate, the

results suggest that there are

significant untapped

opportunities for mutuality in

public services, but that these

lack the backing of an enabling

policy framework or even a

licence for experimentation.

The papers that are set out in

this report cover three main

areas.

• First, they outline the

underlying principles that

inform the new mutuality:

co-production,

accountability, citizenship

and scale.

• Second, they look at

models for mutualisation,

covering legal and other

aspects designed to create

replicable social enterprises

across public services.

• Third, they explore

opportunities for creative

mutualisation across a

range of public services.

The driver for the Mutual State,

as set out above, is the

promotion of management and

staff freedom, within a

framework of quality assurance.

However, the decentralisation of

power in this way also creates

firstly, the need for new forms

of accountability /governance

and secondly, the opportunity

for new forms of citizens’

involvement. The key principles

for building the Mutual State, as

discussed by the contributors in

section A below, are co-

production, accountability,

citizenship and scale.

TABLE 1

DEBATING POINTS – VOTING RESULTS ON THEMUTUAL STATE WEBSITE

There is no real political will for meaningful participation.

Yes 80% No 20%

Is user participation too time consuming to be practical?

Yes 11% No 89%

Will mutualisation threaten pay and conditions for staff?

Yes 15% No 85%

Would you give up ownership to your employees?

Yes 33% No 67%

The NHS should be broken up into self-governing mutuals.

Yes 75% No 25%

3

CO-PRODUCTION

Citizens’ involvement in publicservices is nothing new, but inthe story of the welfare state asthe narrative of “professional”public services, it has often beentaken for granted as discussedby Ann Blackmore in section Bbelow. Tony Crosland, decadesago, declared himself staggeredby the extent to which statutoryservices depended on thevolunteer. He was drawing onhis visits to public services. Infact, the numbers were onlycollated across public servicesfor the first time in 2000. Theresults are still staggering:

• 170,000 volunteers who work in the NHS, befriendingand counselling patients, driving people to hospital, fund raising, running shops and cafes and so on;

• 12 million meals a year that are prepared by volunteers topeople in care;

• 1.85 million people are regular blood donors, with 8.2 million signed up as potential organ donors;

• 750,000 people volunteer in schools.

The contemporary approach tocitizens’ involvement widens thefocus from volunteering as partof service delivery to the inputof users themselves. This ischaracterised by Edgar Cahn, theUS pioneer of time banking, as“co-production”. The idea of co-production reconceives publicservices. Instead of a traditionalmodel, in which disinterestedand expert professionals deliverservices on behalf of, or for theuse of, passive users, co-production is about finding ways

to unlock the knowledge andcontribution of service users,valuing them as partners.

In the field of health, forexample, the concept of the“expert patient” has highlightedopportunities for NHS staff todraw on the knowledge ofpatients with chronic illness, andindeed to use this to benefitother patients, offering them notjust dispassionate advice butfirst-hand experience of how itfeels.

The co-production approach alsoaddresses one of the majorparadoxes of the welfare state,which is that, in trying to targetassistance to people in need, itcan generate stigma and, infields such as welfare benefit,deny people’s dignity. And whereinflexible systems combine witha lack of human scale, as DavidBoyle argues in Section A, theresult is a public disservice.

Citizens’ involvement of thistype also offers the prospectthat public service reform canoperate as a strategicopportunity for democratic re-engagement. After all, peoplecare about public services. Theyare important spaces forcommunity gathering, in thesame way that Settlements,community buildings set up bythe churches and universities,were intended to be in the innercities of Victorian times. Co-production is an opportunity forpeople to act as citizens fromthe most effective of motives,which is the combination of self-interest and public concern.

In the framework of socialcapital, the real opportunities forrebuilding trust come not fromwhat the state does, but theway that it does it. As Perry

Walker argues, co-productionensures that citizens are involvedin public service design anddelivery, and the result is animprovement in the range andquality of services.

GOVERNANCE ANDACCOUNTABILITY

Co-production is clearly linked toissues of governance andaccountability. Decentralisationmoves decision-making closer tousers and improves the qualityof service, whilst participation ingovernance can clarify lines ofaccountability and responsibility.

A report, It Takes Two to Tangoby the Development TrustsAssociation, Local GovernmentAssociation and New EconomicsFoundation, offers a range ofexamples in which communityorganisations have taken onlocal services. Much is small-scale and has evolved accordingto accidents of need andcircumstance.

Social housing, in the form ofregistered social landlords, offersone of the clearest, larger-scalecase studies of social enterprise.

To meet the significant demandfor housing in society, socialhousing has received significantsubsidies from the public sector.This has included £25 billion ofconcessional finance, in additionto development support andhousing benefit for tenants thatunderpin a revenue stream. Thequid pro quo has been tight andrestrictive regulation on behalfof government by the HousingCorporation. On the back of thisfunding; the assurance ofregulatory scrutiny; theirsignificant asset base; andassured long-term income

4

streams, registered sociallandlords have raised around£20 billion in funding from themarkets in private finance - withnot a penny of default.

In addition, over 580,000 homeshave been transferred by localauthorities to registered sociallandlords since 1988. This nowrepresents 35% of their housingstock. In Glasgow, 80,000tenants voted in favour oftransfer of their homes from thecity authority to the GlasgowHousing Association, which inturn promised a rent freeze anda £1.9 billion investmentprogramme over ten years. InBirmingham, in contrast, tenantsopted to stay in municipalcontrol. The Welsh Assemblyvoted in May 2002 to nominate“community housing mutuals”,described by Peter Hunt inSection C, as the preferredfuture model for stock transfer.

While it is still too early to judgethe overall success of thisapproach, voluntary transferdoes appear to be accompaniedby evidence of improved tenantsatisfaction, as the NationalHousing Federation hasdocumented. Giving tenants thesay on transfer also seemsdemocratic and fair.

However, as Andy Robertsdiscusses in section C below,there are still real dilemmas interms of forms of accountabilityin non-state social housing and aneed to restore a genuine ethosof mutuality as a means toimproving internal accountabilityin many housing associations. AsDavid Leam points out in SectionA, not-for-profit entities are notnecessarily linked to communityownership and participation, anddo not inevitably lead toimproved accountability.

In section B below, severalcontributors discuss new modelsfor public service delivery withinthe Mutual State. A key concernhere is how to promoteinnovation and socialentrepreneurship allied todemocratically managed andaccessible services, improvedautonomy for workers, and morecontrol and choice for citizens asdiscussed by Jack Dromey.

One solution is the publicinterest company (PIC), discussedby Jane Steele that wouldprovide the UK with a legal formthat offers an alternative to thechoice between public andprivate. The PIC would be a formof organisation that would beboth not-for-profit andpermanently and securelycommitted to the public good.As the case of the buildingsocieties has shown, communitymembership is not enough on itsown to prevent demutualisation,with subsequent individual gainfrom mutual assets.

New mechanisms such as thisinevitably raise questions aboutwho makes decisions and howare they made. In the context ofthe development of a non-profitsuccessor to Railtrack, Cliff Millsoutlines the strengths and theweaknesses of companies limitedby guarantee, but shows howlegal form has a direct bearingboth on governance structuresand on the mechanisms forfunding the enterprise. All toooften debates about communityparticipation take place in avacuum and underplay the legaland financial issues involved indesigning mutual public services.

What all the contributors insection B show is that the newmodels underpinning the MutualState will work outside the old

division between private andpublic. Successful innovations insocial enterprise stitch togetheraspects of the public, privateand voluntary sectors. What is atissue here is capacity building:the development of skills andresources from across sectors todevelop future capacity withinsocial enterprises.

Paul Maltby discusses howCommunity Trusts - communitynot-for-profit public/privatepartnerships - could play a keyrole in regenerating deprivedareas. The view here is thatregeneration projects are morelikely to succeed if local peopleare involved, and if best use ismade of public, private andvoluntary sector expertise in thelocal area. Co-ordination ofeffort would lead to thebundling together of assets andservices on a neighbourhoodbasis. As communityorganisations with an asset base,community trusts would attractfinancial support and be anattractive new model forpublic/private partnerships.

ENTREPRENEURIALCITIZENSHIP

Involving citizens in the designand delivery of public services,and thus in the running of theMutual State, inevitably changesthe relationship between thecitizen and the state. In sum, itextends the notion of citizenshipfor the simple reason that, incontrast to the myth ofstandardised, universal services,the more you put in, the moreyou get out. As Cliff Mills pointsout in Section A below, thecurrent debate about the rightform of ownership for publicservices is not just about howthose services should be funded

5

and who should carry the risksof ownership, but about people’swillingness to engage as citizensin a new way.

The interrogation of what itmeans to be a citizen has beenthe hallmark of the UK state inthe last decades of the 20th

century. What lay behind thisdebate was the question of howto rework the relationshipbetween the economic and thesocial, between individualbenefit and the social good,between the market and theState. This reformist impulse hascontinued to be evident inrecent Government initiatives -the attempt to spell out specificrights and responsibilities as thebasis for new forms of socialcontract - and in contemporarypolicy language - the “NewDeal” and “working families”.

These changing ideas about therole of the State and theresponsibilities of the citizenhave taken place alongside othersocial changes, notably in amarked growth in civil societyand an expansion in the diversityof its forms, accompanied by acrisis in older forms ofcommunity and in the family.The new forms of civil societyhave fought to find expressionwithin political forms thatstruggle to accommodate them -neither eco-warriors norWomen’s Institute membersappear to find appeal to theirMPs to be of much value.

There is a sense in which thenew forms of civil society aredemanding the creation of newdemocratic and public spaceswithin social life. Such spacesare not necessarily antagonisticto, but certainly cannot besimply mapped onto, older formsof community and solidarity.

Government and civil societyinitiatives recognise thisemerging need, which hasrecently transmuted into ademand for a renewed form ofcitizenship and for greater civicparticipation in policy making.

This is the impetus behind theMutual State. But, how canchanging ideas aboutcitizenship, democraticparticipation, community andthe social good be linked to thechanging role of the State andto a new vision of therelationship between the socialand the economic?

The key issue here, as we havealready stressed, is thatcommunities and individualsneed to be involved, alongsidethe State and professionals, inthe design and delivery of publicservices. Adherence to thissimple principle has thepotential to bring about anenormous change in the way wethink that the relationship of thepublic and the private and therole of the citizen in maintainingand developing that relationship.

In the past, the management ofthe public/private relationshipswas largely seen as theresponsibility of the State. And,where the State could not or didnot wish to function, thencharity stepped in. Successivegovernments have wanted toshift some of that responsibilityon to individual citizens, hencethe calls for new forms of socialcontract that have characterisedboth past conservativegovernments and the currentgovernment. These new forms ofsocial contract are not easy toestablish and without a soundbasis in participation can appearpotentially coercive orneglectful, as Andy Roberts

warns in his discussion of hownew mutualism could be bestintroduced into social housing.

Social enterprises based on theprinciples of new mutualism donot just endeavour to step in tomake up the deficit in thepublic/private relationship, butrather seek to reform and freshit in an innovative way. Theystart from the principle thatentrepreneurial activity can andshould work for the public good.

The basis for large-scaleinvolvement of citizens in thedesign and delivery of publicservices would be a new notionof citizen linked to risk. One ofthe key factors in any enterpriseis how risk is managed. In aprivate company, shareholders asowners drive the success of thecompany, and the returns ontheir investment are, in principle,a reflection of the risks they takeas investors and owners.

The notions of risk andcitizenship seem almostantithetical, and this is becausehistorically the State has takenresponsibility for managing therelationship between theeconomy and the social good,between the private and thepublic. In its redistributivefunction, the welfare state hastraditionally operated as amechanism for pooling resourcesin order to manage risk andmeet needs. Throughredistribution, the State ensuresthat those who cannot managetheir own relation to the marketare not disadvantaged andexcluded. This is the theory. Inpractice, the reality hasfrequently been altogether morebrutal.

Under the Mutual State, newforms of entrepreneurial

6

citizenship would emerge thatinvolve the pooling of risk -through mutual socialenterprises - rather than simplythe pooling of resources. Thecreation of social enterprises forthe delivery of public servicesrun by citizens for the collectivesocial good, and thereby fortheir individual benefit, is a newway of managing a relationshipboth to the State and to themarket. In order to pool riskeffectively, such socialenterprises would need to takenew forms, both new forms ofmutuality and/or new forms ofsocial investment.

Why is social investmentimportant? Social investment islinked to forms of ownership andit is this form of ownership thatwould drive the success ofmutual social enterprises: thedrive for social returns ordividends. Entrepreneurialcitizens would take larger risks inorder to safeguard their futures,and those of their dependants(children, elderly etc) through themore active management of thequality and delivery ofoutresourced public services.

The notion of citizen woulddraw on a much widerunderstanding of civil societyand revised notions ofcommunity to include a broadernotion of social investor. Undertraditional co-operativestructures, those who benefitedfrom mutuality were the staff oremployees, and theirdependants. In the new form ofsocial enterprise, it is not onlythe staff and employees whoneed to be participants, but allthe relevant constituencies.

Tom Bentley in Section C arguesthat mutual engagement couldbecome an indispensable part of

the new educationinfrastructure. Imagine, forexample, a scenario where alocal social enterprise runs alocal primary school. In such acase, it is not only the staff oremployees of the enterprise whoneed to be participants, but theconsumers (parents) and thesupporters (grandparents,concerned individuals, localphilanthropists, employers, localauthorities). These individualsshould have a mechanismwhereby they can invest ineducation in their area and fortheir community. In other words,they should be social investorsand equity holders. Therelationship between equity andrisk is crucial here, not only inrelation to financial returns, butin relation to social ones as well.Accountability and transparencyis based on equity holding andsocial return rather than simplyon committee representation.

In Southern Europe, as JonathanBland discusses in section Cbelow, changes in legalframeworks have allowed newmodels for growth and access tofinance to emerge. Officialrecognition of the social aim ofsocial enterprises is linked totheir status, and restrictions arein place to prevent thedemutualisation of successfulentities. The result is that socialenterprises can raise equitythrough capital or throughfinancing members with limitedvoting rights. Investing memberscan be individuals, private sectorcompanies or local authorities.The key to success here is socialinvestment, where the return ordividend on that investment canbe ploughed back into orretained by the community.

However, the notion of socialinvestment underpinning the

Mutual State is not just a matterof finance, but of investment ofskills, time, and experience, asAngela Putman discusses insection C below. Stakeholdersinvest not just to return financialvalue to the community, but alsoto build capacity, employability,new skill sets and to reinvigoratethe community itself. This is thetrue dividend on whichentrepreneurial citizenship isbased.

MULTI-STAKEHOLDERGOVERNANCE

The mutualisationannouncement by Alan Milburn,the Secretary of State for Health,in January 2002, that non-profitswould be allowed a key role inthe management of the NationalHealth Service has broughthealth care mutuals to the fore.Alan Milburn said that new“Foundation Trusts” couldoperate as independent bodies,offering a much greater range offreedoms to manage localservices, and benefits such as:

• having a clear public service ethos and not-for-profit basis;

• giving greater control to patients and service users and opening up options for greater accountability to local communities;

• more active involvement and control for both staff and management;

• offering freedom from “top-down” management from Whitehall;

• immunity to takeover by organisations which will not provide such benefits.

7

Health mutuals exist in manyparts of the world and deliverprimary and hospital care, aswell as public health andancillary services. These mutualsare most usually owned either byusers (potential users), providersor non-co-operative enterprisesinterested in joint purchasing.Health maintenanceorganisations in the USA can beco-operatives and may organiseprimary and hospital care, carefor the elderly, public health andancillary services, and medicalhelp lines.

In Japan, health co-operativesown and operate medicalfacilities, including screeningand public health. Assetpurchases are funded bymember’s share capital,members’ loans and interest-bearing bonds, and the incomecomes from public provision forhealth care, including socialinsurance systems, employerschemes, local payments andother charges. Such not-for-profit providers are dependentfor the largest part of theirincome on the State. Butmembers play a key role inraising capital and in providingadditional revenues through co-payments and other charges.

The UK National Health Servicehas always been free at thepoint of delivery and thisprinciple has recently been re-iterated in the new proposals fordecentralisation. However, whatmakes potential health trustmutuals different is not just thatthey would offer greaterfreedom for managers but alsothat the members could begin tohave a major say in how theservice is designed and deliveredand it is they who would decidewhether co-payments or fixedcharges for non-core services areappropriate and whether new

income-generating opportunitiescould be developed or newfunds raised by issuing ethicalinvestment NHS Bonds.

What has still to be worked outis how the governance of such amutual would work. In user orprovider co-operatives of theusual sort members are able tovote, receive information andappoint board members. In thecase of Japan’s health mutuals,utilisation committees made upof people directly elected by themembership work alongside theboard of directors and themanagement. In the USA, specialinterest groups are set up fromthe membership to deal withspecial issues such as care forthe elderly and mental health.

What is clear is that if citizensare to actively and seriouslyparticipate in the design anddelivery of public services thenhealth mutuals would have tohave some form of multi-stakeholder governance. Thiswould mean local citizens, staffand other stakeholders on theBoard of Directors, but it mightalso entail multiple “Boards” -customer and user forums,employee councils and acommunity committee - whosemembers report to a stakeholdercouncil that provides feedbackto the main Board. The mainBoard of Directors would thenhave executive members, as wellas representatives of thestakeholder owners.

The key here is the relationshipbetween the stakeholder counciland the main Board. A Board ofDirectors cannot create strategy,manage finances and monitormanagement at the same timeas being representative of allinterests. It is the stakeholdercouncil that informs and isinformed by the Board, thus

bringing all stakeholders intoprocesses of decision-makingand ensuring full andappropriate information flow.Within the Mutual State, thismodel is not one that isnecessarily based on individualmembership as in the mostfamiliar form of co-operativesocieties, but is one that allowsboth individuals and collectivestakeholders - employers,unions, local authorities, highereducation institutions - to bemembers, and to serve at alllevels. Geraint Day and DavidGreen discuss health mutualsand mutual health carepurchasing in section C below,and they emphasise both theimportance of gettinggovernance structures right andthe necessity to share risksthrough mutuality.

What is crucial in such a modelis that multi-stakeholdergovernance allows not only forthe participation of stakeholders,especially citizens, in the designand delivery of local healthservices, but it also allows eachmutual social enterprise to formstrategic alliances andrelationships with other playersin the local health economy. Thisis the critical added value ofmutuality. The social dividend onsocial investment is a mutualweb of public service provision,with co-operation built in notjust to the culture of publicservices but into its institutionsas well.

The model of governancedeveloped for Foundation Trusts,alongside the pioneering workof Glas Cymru in the watersector, could provide the modelfor other public service sectorsand for local governance as awhole within the UK. An agendaof building the Mutual State isnow starting in earnest.

8

A.1 CO-PRODUCTIONPERRY WALKER

One reason for the poor qualityof some public services is thefailure to involve the public. Co-production refers to the jointproduction of services by theproducer/expert and theconsumer/user. “Co-” does notmean that each partycontributes the same, orcontributes equally. It does meanthat both parties are essential.

Here is an example that showshow radically it is possible torethink the current dividebetween producer andconsumer. In 1996 theWashington DC Superior Courtauthorised a Time Dollar YouthCourt, so that first offenderscome before a jury of theirpeers. Sentences can becommunity service, restitution,counselling or an apology. Inaddition, jury duty is now amandatory element of everysentence. Jurors earn TimeDollars that they can exchangefor a recycled computer. TheTime Dollar Youth Court is nowhandling over a third of first-time juvenile offenders in theDistrict.

This approach benefits both juryand offender. The jury feltaffirmed enough to say things tofriends like, “If you stand at thatcorner, sooner or later you’regoing to get busted andsomeone is bound to be carryingdrugs”. Normally, saying suchthings would be death to peeracceptance. The offender is triedby people who know what it islike to be a teenager, becausethat is what they are. One young man had slashed the

tyres on his teacher’s Lexus

because she kept him in after

school for failing to hand in his

homework. He explained that he

lost control because he had

promised his parents that he

would bring his younger brother

and sister safely home across

gang territory from a

neighbouring school and his

teacher wouldn’t allow him ten

minutes to do that.

The jury’s sentence was:

1. Write a letter of apology to

the teacher and make a good

faith payback of at least $30

that you personally earned.

2. Write a letter of apology to

your younger brother and sister,

explaining to them why, despite

the provocation, this was no way

to act. They look up to you; you

need to put them straight that

acting this way is not right.

3. Hang out a minimum of 20

hours at a boys club over the

next month. You need to be a

kid and spend some time just

being with your own age group.

To the Time Dollar staff they

said, “Get him another teacher.

A teacher who doesn’t

understand what this kid was

going through has no business

being his teacher.”

Time banks are now spreading

widely across the UK. They are

illustrations of a fundamental

shift in power, possible in public

services, to validate the voice,

choice and knowledge of users

and affirm their worth and

dignity through appropriate

forms of participation.

The benefits of co-productionare: the people who need to beinvolved are involved; peoplebecome more assertive; therange and quality of services isimproved; and a constituency ofsupport is created for thatservice.

Perry Walker is Director ofParticipative Democracy at theNew Economics Foundation.

A.2 ACCOUNTABILITYDAVID LEAM

For the past decade or so theprivate sector shareholder modelhas reigned supreme as theorganisational form of choice.The twin trends of privatisationand demutualisation seemed toforeshadow only defeat forthose advocating a Mutual State.

But 2001/2 has seen theshareholder model itself comeunder attack. In Wales privatelyowned Welsh Water has beentaken over by Glas Cymru, anewly established companylimited by guarantee. InHackney, the local council hasrejected the private sector pathtaken by, amongst others,Islington, in favour of anindependent not-for-profit trustto take on the management anddelivery of its education services.

Most sensational of all has beenthe demise of Railtrack, the runtof the privatised litter. Unwantedand unloved the company wasfinally left to starve by TransportSecretary Stephen Byers who,like many a grizzled commuter,despaired of waiting forRailtrack to deliver a service thatseemed indefinitely delayed.

A . P R I N C I P L E S F O R T H E M U T U A L S TAT E

Supporters of mutuality could beforgiven for cheering thesedevelopments, but an obviouspoint demands to be made.None of these models aremutuals - although befuddledcommentators may often refer tothem as such. In none of themdoes ownership transfer to thecommunity in question. And innone of them do enhancedaccountability, publicparticipation or communityinvolvement feature as anecessary consequence.

Just because these models arenot-for-profit, it does notnecessarily follow that they arefor the public - in the way thatmutuality’s proponents believe itis. After all a banker does notbecome a doctor merely bydonning a white coat andputting a stethoscope around hisneck. We must probe beneaththe not-for-profit garb and askourselves how this new breed oforganisation is likely to behaveand operate in practice.

For example, we might ask whatare the rights of bondholders inthese new not-for-profit models?Where will ownership rights infact reside? Who are themembers and how did they getthere? What are the corporategovernance arrangements? Howis management performancemeasured and, crucially,remunerated? And to whatextent will ordinary people havea voice?

Now it may be that the answersto these questions are still beingformulated by the organisationsconcerned. Where there areanswers, however, I suspect thatthey would be unpalatable tothose currently engaged inmutual service delivery.

Take the case of Glas Cymru, forexample. In as much as its thirtyor so members arerepresentative of Wales, they areso in the way that the House ofLords is representative of theUK. They are not bad people -on the contrary, many are veryimpressive - but they are notyour ordinary man or woman inthe street. Now it could beargued that this is no bad thing,but that is surely not a visionthat a new mutualism wouldwant to embrace.

Similarly, it appears a feature ofthis model that it is perfectlypossible for senior managementto be very highly remunerated.Again, if they deliver the servicethen perhaps that is fair enough.But a new mutualism wouldsurely part paths on this point(and I doubt that the people andpress of Wales will beparticularly forgiving if such aneventuality comes to pass).

The point is this. The phrase“not-for-profit” generally haspositive connotations in theminds of the public. Whilstpolicy wonks and the likeappreciate that the phrase couldbe used to describe a vast arrayof organisational forms, to mostpeople the spectrum will blurinto one - and mutuals willinevitably be caught within this.

So how then should proponentsof mutuality react towards thesenew kids on their block? Themost propitious approach couldbe to develop a critique of therecent wave of not-for-profitmodels, focusing on theaccountability gap that lies attheir heart. At the very least thiswould help to differentiate themutual model and help guardagainst potential“contamination” of the mutual

brand. More positively, theremay also be scope to helpdevelop mechanisms for bridgingthis accountability gap - whetherthrough the creation ofstakeholder boards or other suchmeans.

Time alone will tell whether thisnew breed of not-for-profitmodels helps to take us closer tothe mutual state. But given someof the dangers, advocates of anew mutualism should treatthem with caution.

David Leam is a senior researcherat the Social Market Foundation.

A.3 CITIZENSHIPCLIFF MILLS

Marking a cross on 15 ballotpapers (a few more if localelections are included) might be,and, for many people may wellbe, the sum total of theirparticipation as a UK citizen intheir country’s democratic andcivic process.

The experience of the last 25 orso years of privatisation hasmade matters worse. Whilst theremoval of services from local orcentral government control mayhave led to greater transparencyand openness, the process hasalso greatly increased thenumber of areas in which we areall now customers or consumers.Being treated as a customer orconsumer, we are likely to insiston our consumer rights,demanding performance of thecontract under which we arepaying for services, and seekingcompensation if we do not getit. We are consumers, notcitizens.

Our attitude may also beaffected by the fact that it is a

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company selling us theseservices, probably paying verysubstantial salaries to itsmanagement, and earningprofits for its shareholders. Sinceour only relationship with thecompany is as a customer orconsumer, and since we have noother means of participating inor influencing the company, farfrom having an interest in seeingit prosper, our only interest is ingetting what we can out of it.This is the antithesis ofcitizenship.

On the other hand, there aremany people who take part inpublic, voluntary or charitableorganisations, participating inand providing advice andsupport in their localcommunities. There may be avariety of reasons for suchactivities including an innatesense of public service or duty, adesire to support friends andfamily, or simply the desire toplay an active part in society.

The debate about the right formof ownership for our publicservices is not just a debateabout how those services shouldbe funded, and who should carrythe risks of ownership. Wherepeople are dependant on basicservices such as healthcare,water supply and transport, therole that those services play inpeople’s lives and theirwillingness to engage as citizens(for any of the reasons referredto above) in relation to thoseservices should also be takeninto account.

In their landmark booklet TheMutual State Ed Mayo andHenrietta Moore refer to thehistorical origins of mutuality inthe role of the guilds in medievalEngland. What we would nowcall citizenship (whether drivenby altruism or self-interest) was

just as strong a driver of publicservices then as it was duringthe nineteenth and first half ofthe twentieth centuries whenthe mutual movement was at itsmost active. The same is truetoday, when we are even moredependent on public servicesbecause of our higherexpectations and standards ofliving.

Mutual forms of ownership notonly provide opportunities forpeople to play a part in theprovision of the public serviceswhich they rely on, but theyactually use that participation todrive the success and efficiencyof the business. We can be morethan just customers orconsumers, having a greaterinterest and influence in thesuccess of the business providingthe service, for the benefit ofourselves and others.

Clearly not everyone would beinterested in this sort ofparticipation, though withmodern communicationssystems, many are interested inreceiving more information.Modern mutuals are aware ofthe need to nurture activemembership, and the variety ofmeans of communication andmethods of engaging people arebeing used to deliver this.Citizenship is the life-blood ofthe new mutuality.

Communities with an activeinterest in the services theyreceive and the assets involvedin delivering those services willnot only try to get the most outof those assets and services, butwill also strengthen the linksthat bind people together. Fewwould argue that a society inwhich such links are stronger,where people have respect forcommunity assets, and wherethey treat each other with

respect, is a desirable goal. Thebenefits in reducing crime,promoting employment, andimproving the quality of life donot need elaborating. Privatising public services so thatthey are run for the profit ofshareholders destroys citizenshipby turning the relationship withusers into a market contract. Itweakens the ties that bind us,and damages the basis neededto make sure that democracyflourishes.

Giving ownership to people inlocal communities is a means ofbuilding robust, successful andefficient services, re-invigoratingcitizenship, and producing morestable caring communities.

Cliff Mills is a partner withCobbetts Solicitors.

A.4 HUMAN-SCALEDAVID BOYLE

There is a problem aboutresources invested in publicservices. Services in the UK havesuffered from underfunding forgenerations compared withthose on the continent, but thedebate about resources obscuresthe real problem. It’s whateconomists call “externalities”.

We have created a generation ofmonstrous schools with over1,500 pupils, controlled fromWhitehall by the manipulation ofdubious exams and leaguetables, and then we wonder whysome pupils aren’t suited to thefactory method. We have createda parallel generation ofmonstrous hospitals, and thenwonder why they are beset withmedical mistakes and super-bugs.

Anyone who has recently putthemselves in the hands of thesewill know what this means.

Different doctors with everyvisit. Long waits while you areignored by indifferent andharassed staff. Impersonalservice, enlivened by theoccasional personality whomanages to break through theatmosphere of creakingmachinery.

According to narrow bottom linemeasures, factory schools andhospitals are supposed to bemore efficient. They are evensupposed to provide better andmore varied services. But thetruth is that these models leaveout what’s really important -local knowledge, personalcommitment, human-scalevalues.

On health outcomes, it is smalland medium sized hospitals, forexample, that dominate the listof top-performing “three star”NHS Trusts. In the field oftackling youth crime, some ofthe most promising innovations,such as Youth Offending Panels,appear to be those that offer areturn to the human scale in thejustice system.

The technocrats regard themistakes, the hospital bugs, thegeneral atmosphere of herdingcattle, simply as difficultpeculiarities that must be ironedout - and don’t seem to graspthat they are the direct result ofabandoning human-scaleinstitutions. And so it is thatpoliticians debate the size ofclassrooms, but never the size ofschools; they debate themeasurement of hospitals butnever their size.

That’s the key insight that theMutual State approach couldoffer - the concept of human-scale.

David Boyle is an associate atthe New Economics Foundationand author of The Tyranny ofNumbers.

B. 1 SOCIAL ENTERPRISESAND PUBLIC SERVICEDELIVERYJACK DROMEY

The Public Interest Company is anew model of social enterprisefor the delivery of public services

I argue that Councils and Unionsshould embrace the socialeconomy in the difficult debateon the future of public serviceprovision.

We have to find another way todeliver good quality services in away that puts the interests ofthe public first.

In areas, the social economy hasbeen able to achieve this.Organisational structures likeworker co-operatives, Industrialand Provident Societies andcommunity businesses arefinding new ways to serve theinterests of local communitiesand still make a profit and besuccessful as enterprises.

In Bristol, the social economynow accounts for 5% of thecity’s employment and PublicSector services like leisureservices have successfullytransferred from Local Authoritycontrol to community controlwithout making excessivedemands on the taxpayer,without exploiting the workforceand yet vastly improving thelocal service.

The money that local people payto swim or keep fit at any oneof Bristol Community Sports’ 13sites is retained locally to benefitthe service and the localcommunity. And it is this kind of

initiative which has inspired our

work to develop the concept of

a Public Interest Company.

We have seen how these types

of initiatives benefit our

members as citizens, as

consumers and as constituent

members of the community. It is

this type of innovation which

will, given enough support and

time, protect our infrastructure

from the excesses of

globalisation by developing new

tools in our armoury, which

protect us from the worst kind

of Private Sector provision, and

giving the best kind of Public

Sector Company a benchmark by

which to assess their success.

We should not let ourselves get

into a position where we have

no choice, other than to give

what are fundamental services

for the long-term success of our

country away to the Private

Sector.

That would be to leave ourselves

open and vulnerable to

exploitation as these companies

then compete on a global scale

with our assets and our futures

in their hands. If our only

defence is regulation, we rely

too heavily upon the effective

policing of the Private Sector

and the reliability of

independent verification. What

we need are alternatives, a

multi-provider economy which

makes appropriate use of

different business models. And

we need to do that, making a

case on behalf of our country, a

land where we need to

strengthen local communities at

a grassroots level, where we

need to bring together what’s

best for the people as

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B . M O D E L S F O R T H E M U T U A L S TAT E

12

consumers, as citizens and as

constituent members of a

community.

I think that this development

could be as significant as the

emergence of the Co-operative

Movement in response to

industrialisation. The Public

Interest Company can offer ten

benefits in the context of

globalisation:

• first, economic development and regeneration of local communities;

• second, business efficiency, innovation and competitiveness;

• third, sustainable economic development;

• fourth, democratically managed and accessible services;

• fifth, opportunities for workers to take on new roles;

• sixth, protection of the values of the public sector;

• seventh, more control and choice;

• eighth, better targeted service provision;

• ninth, ownership of wealth;

• tenth, involvement in the

management and forward

planning of community

services.

Jack Dromey is National

Organiser for the Transport and

General Workers Union, and is

writing in a personal capacity.

B. 2 LEGAL MODELS FORMUTUALISATIONCLIFF MILLS

A somewhat puzzling debate istaking place around theproposals to replace Railtrackwith a “not-for-profit” companylimited by guarantee.

There is explicitacknowledgement that theequity model has failed here; areasonable conclusion to drawwhen a company, which hasmade a loss, has neverthelesspaid a dividend to itsshareholders, and shortlyafterwards gone into insolvencyproceedings with (currently) noprospect of a distribution toshareholders.

The proposed solution of puttingthe business into a companylimited by guarantee (CLG)acknowledges that (i) thebusiness will not be funded byequity capital (a CLG does nothave any), and (ii) it willtherefore be controlled by aspecial group of people whohave the opportunity to becomemembers (a CLG has membersjust like a company with a sharecapital; the difference is thatmembers have to give aguarantee rather thansubscribing for shares).

Is this a good idea?

A CLG is a commonly usedvehicle in the charitable sector,where it is convenient for acharity to have a rather moresophisticated structure than asimple trust, perhaps because itneeds employees and otherofficers. The CLG is also used inother situations whereincorporation is required forsome reason, where generatingprofits for investors is not the

priority, and some kind ofalternative purpose underlies thebusiness.

There are some interesting one-off examples of this in somequite big businesses (Reuters)where some special purpose isbeing protected (in Reuters case,editorial integrity). Socialhousing is also an example ofthis, where local housingcompanies use the CLG structureto own housing stock. BUPA isanother example.

One of the advantages of a CLGis that the company can make itsown rules about who themembers are. Commonly theboard itself determines this, andit is also common for themembers of the company to bethe members of the board. Thisis obviously suitable in thecharitable context, where thosewho are effectively the trusteesappoint their successors, therebyensuring that appropriateindividuals continue to haveresponsibility for the charitableobjectives.

Big questions arise, however,when the CLG is owner of asubstantial business whereaccountability is important. Ifthere are no shareholdinginvestors with a right to removethe board if they are failing toperform, how will executives beheld to account? Who should beresponsible for choosing theirreplacements? What is themechanism for driving efficiencyand success in the organisation?

And what about the customers?

It is interesting that the CLG isstill used and promoted bylawyers in social housing, wheresuch organisations are runningvery substantial businesses.

Actually, between [1960 and themid 1990s], the majority ofhousing organisations set up toprovide housing used theindustrial and provident society(IPS) model, trading for thebenefit of the community. Intruth, the traditional IPS housingassociation model which hasbeen used is a CLG wearingdifferent clothes - it has noconstitutional democracy withinit, which is the historicalbackground and backbone of theindustrial and provident society(or mutual) sector. It is acompany limited by guaranteedressed up as an industrial andprovident society. The skin-deepattachment which housing reallyhad to the IPS form has beenamply illustrated by the trendfrom the mid 1990s to use aCLG when it was found to beeasier than having to deal withthe sometimes difficult questionsfrom the Registry of FriendlySocieties.

The problem that has beenidentified in housing is that thetraditional models - both CLGand IPS - leave a democraticdeficit, and this is now high onthe agenda for change in thehousing sector.

The housing sector has survivedusing a CLG or non-democraticIPS model, without anyaccountability or democraticcontrol, for two main reasons.First because the regulator (theHousing Corporation) plays avery active, some might sayunduly interventionist role,helping to keep managementunder control. Second becausewith a very high level if not100% debt finance provided bythe major lenders, the lendersthemselves have played a notinsignificant role in constrainingmanagement. Lenders have gone

along with this because fromtheir point of view, housing isrelatively low risk in the sensethat the income stream issubstantially guaranteed giventhe nature of the business.

You could make the samecomments about Glas Cymru,the parent company of WelshWater, another CLG running apublic utility: a low-riskbusiness, with a customer baseand basic service which isunlikely to change substantiallyover the foreseeable future. Heretoo, the democratic deficitfeatures strongly, withbondholders (the business isfunded entirely by debt) havingvery substantial rights andprotections.

So is the use of a CLG (or a CLGpretending to be an IPS) a goodidea, for housing, hospitals,reservoirs or any other publicassets? To answer that question,you need to start with somefundamental points about thebasic ingredients of a business,and how you drive a business’ssuccess. So with apologies tomanagement consultants, heregoes.

There are three essentialingredients to any business:customers, workers and money.If one of these is absent, thebusiness will collapse. If all threeare present, no particular legalstructure is needed for abusiness to exist, and indeed tosucceed, given the rightenvironment. However, for anynumber of reasons includingstability, continuity, succession,legal commercial and otherrequirements, the majority ofbusinesses are put into a legalstructure. The limited or joint-stock company is the mostcommon form used, with more

than two millions businessestrading in the UK through thecompany model.

There are two key points to noteabout choosing a company asthe legal framework for abusiness. The first is that thecompany is a vehicle for thegeneration of profits. Thestatutory framework and thelegal doctrines that have built upover the last two hundred yearssupport this.

The second point is that thecompany model elevates one ofthose three essential ingredients- customers, workers and money- and subordinates the others. Itelevates money - share capital,that is to say investors - to aplace of greater importance thancustomers and workers. It doesthis by giving to shareholdersownership. By giving themownership, this givesshareholders control, and theright to the profits. They canremove directors and appointnew ones, withdraw profitsearned or re-invest them toexpand the business, or they cansell their shares, or the entirebusiness if they wish.

The joint-stock company playeda very significant part in thedevelopment of the UK andother economies. From theindustrial revolution, it has beenthe means by which new ideas -railways, electricity, the internalcombustion engine - have beendeveloped and exploited. Byattracting investment, it hasprovided the mechanism,through the incentive of profit,for encouraging businesses, andcompetition between businesses.

By giving priority to the moneyingredient, and subordinatingcustomers and workers, the

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company model has also been amechanism for exploitation.Customers and workers do notenjoy any level of control, orright to profits, in a traditionalcompany structure. Those rightsbelong to the investors, and theargument goes that the controland the right to the profits arethe price or reward for the risktaken by investing in thebusiness (the price of equityfunding). Customers can ofcourse choose to buy what theyneed from elsewhere if theywish, and workers can withdrawtheir labour and work elsewhere.

Where in reality customerscannot buy elsewhere becausethere is a real or effectivemonopoly, and where economicconditions do not provide otheropportunities for workers, thesetwo groups have in the pastsuffered from exploitation.

This played an important part inthe birth of the mutualmovement. The early buildingsocieties, permanent societies,and co-operative societies allhad in common the idea thattheir customers were theowners, not a separate group ofinvestors. The three basicingredients are still needed, ofcourse, but the mutual modelsfound other ways of providing itwithout giving ownership tooutside investors. Instead,ownership was given to thoseparticipating in the business,and this evolved into theconsumer co-operativemovement and the worker co-operative movement.

There was another keydifference, which evolved as co-operative political theorydeveloped. This was the ideathat unlike a company, a co-operative was not trading with

the purpose of producing aprofit. Instead, its purpose wasto trade at a fair price, so thatnobody was exploited in theprocess. If at the end of thefinancial year it turned out thatthe pricing had been too high,any “surplus” left over aftermaking proper provision forfuture needs was returned tocustomers in the form of adividend. In other words, the co-operative dividend was an afterthe event means of adjustingprice, not a means ofdistributing profits.

Co-operatives like any otherbusiness required capital, but inthe co-operative context, capitalwas only entitled to a low rateof interest - sufficient only tosecure the necessary funding.There was no entitlement toprofit.

The legislation under whichmutual organisations wereincorporated was different andseparate from that applying tocompanies. The Industrial andProvident Societies Acts, FriendlySocieties Acts and BuildingSocieties Acts are a differentworld from the Companies Acts.They have different aims andobjectives.

Company law, on the one hand,has to provide a framework inwhich proper protection is givento those who entrust theirinvestments into the hands ofothers who are charged with theresponsibility of running thecompany (directors). The currentvolume of primary andsecondary legislation applying tocompanies bears testimony tothe extent to which suchprotection is needed.

Industrial and provident societylaw, by contrast, is a much

lighter and less prescriptivestatutory regime, simply aimedat providing a consistentframework within which suchorganisations can be registered.

Indeed because of this lighterand less prescriptive regime, itwas necessary to introduce newrestrictions on registration underthis legislation, as the growingonerous obligations undercompany law were, by the 1930smaking the company anunattractive model. Specifically,entrepreneurs did not like theprospectus requirements thathad been introduced forcompanies to protect investors,and sought to evade them byincorporating and sellingsecurities in industrial andprovident societies.

This led to the Protection ofFraud Investments Act 1939,which in essence introduced newrestrictions on what could beregistered under the Industrialand Provident Societies Act,specifically aimed at excludingbusinesses that should beregistered as companies. Untilthat date, it was the nature ofthe business that dictatedwhether or not registrationunder the IPS legislation waspossible. The 1939 Act changedthis, and made registrationdepend instead upon theunderlying purpose of thebusiness instead. It thereforepermitted bona fide co-operatives to be registered, andbusinesses that were being runfor the benefit of thecommunity.

With hindsight, this was adefining moment for the mutualmovement. Not only did it drawa line between the profit-driveninvestor-owned company sectorand the mutual, community

benefit sector, but it also madethe Registry of Friendly Societies(now Mutual SocietiesRegistration at the FSA) thegatekeeper of mutual status. Forthe Registrar not only had controlover entry to mutual status as aregistered IPS, but also hadcontinuing responsibility tomonitor such continuing statusincluding the approval of any rulechanges. What this means is thatcompliance with the basicregistration criteria is regulated,thereby ensuring that a registeredsociety remains true to itspurpose.

We therefore have available to ustoday a choice of legal structuresfor holding businesses. Thischoice is particularly underexamination at the moment in thecontext of the debate aboutpublic services, and public orcommunity assets. What is theright legal structure for holdingand operating these?

On the one hand there is thecompany vehicle, which has as itsunderlying purpose thegeneration of profits. As notedabove, the basic model is onewhere ownership is given to theproviders of the money, normallyexternal investors. The profit-seeking instincts of investors areused to drive efficiency andsuccess for the business(measured by the level of profits).

The other option is the IPS model,with an underlying purpose of theco-operative principles, or theclosely related purpose ofproviding a benefit to thecommunity. It is oftencharacterised as the “not-for-profit” sector, which whilst beinga technically accurate descriptionby comparison with the companysector, it conjures up unhelpfulimages of inefficiency andunprofessionalism.

The IPS model is not prescriptiveabout who ownership is given to.In the retail co-operativemovement, ownership is given(largely) to customers. In theworker co-operative sector it isgiven to workers. There areinteresting historical examples(not that common) of co-partnership societies where bothworkers and customers aremembers. The retail co-operativemovement is effectively goingthrough a re-examination of thatoption in re-appraising the role ofemployees within its democraticstructures.

In truth, in an IPS or mutualmodel you can choose eithercustomers, or workers, or acombination of both as owners,and therefore the ones who drivethe success and efficiency of thebusiness.

The choice of who should haveownership will depend upon thenature of the business. Forexample, a residential care homefor the elderly is a type ofbusiness whose success is entirelydependent on the commitmentand performance of its workers.The workers have a very closerelationship with those for whomthey are caring, and without theircommitment and support, thecare home is unlikely to flourish.It is a worker intensive business.

A water company by comparisonis a capital-intensive business. Thephysical assets it needs, and thestate those assets are in, are akey part of the success of thatbusiness. Workers are important,but in practice you can get bywith a small work force becauseyou can subcontract a great dealfrom invoicing to engineering. Inthat case, customers are the moreappropriate owners.

But it is more than just who theowners are that matters. It is theunderlying purpose of theorganisation which is inextricablylinked to that ownership issue.The difference with a co-operativeor community benefitorganisation is that their reasonfor being is based upon thefulfilment of a need, and thosewho own and control suchorganisations have it within theirpower to ensure that the need ismet. The organisation is thereforerun according to guidingprinciples, and the owners are thecustodians of those principles,whether they be co-operative orcommunity-based ones.

So how do you choose the rightstructure? How should publicassets be held?

There are two key issues, the firstof which is the funding question.Funding or money is the oxygenwithout which no business canoperate. If funding can only beobtained from investors willing totake a risk, there is no realalternative to a joint stockcompany. It is expensive becauseinvestors require a high level ofreturn to reward them for therisks they take.

If funding can be obtained fromother sources, other options maybe available. A low risk business,or one that can be reduced to alow risk business with a captivemarket and long-term demandsuch as housing, and utilitybusinesses illustrate the point.

Other options also exist where,for example, a local authorityneeds to do something with oneof its services under a best valuereview, and might be prepared tosupport what would be a start upof a new self-standing business,either with an endowment, orfavourable terms for use of landor other assets.

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If there are alternative ways offunding which do not involveequity, the second question canbe posed - ownership. Who is tobe given the ownership, andhow will ownership drive thesuccess of the business orservice?

Shareholders drive the success ofcompanies and it may still beappropriate to use a companyeven though alternative forms offinance are available, ifshareholder control is desirablefor some reason. By contrast,customers or workers drive thesuccess of mutuals. This workswhere there is some otherpurpose to the business thanearning a reward for investors.If, for example, the real purposeof a service is not to generate areturn, but to provide a serviceto a community, the communitythrough the customers and/orworkers may well be theappropriate people to drivesuccess, and therefore to begiven ownership.

Customers, for example, coulddrive the success of a watercompany. A combination ofworkers, residents and theirfamilies and friends could drivethe success of a residential carehome.

Where a community basedservice is benefiting from somelevel of central or localgovernment financial support, anIPS model which forbidsdistribution, but uses ownershipby customers to drive efficiencyand success may well be anattractive model.

A co-operative or mutualstructure which puts theinterests of the community atthe top of the agenda has clearadvantages. A society wheresuch organisations played abigger part, with greater

opportunities for citizenship andthe engagement of people intheir local communities, wouldbe a more healthy society.

Cliff Mills is a partner withCobbetts Solicitors.

B. 3 THE VOLUNTARYSECTOR’S ROLE INPUBLIC SERVICEDELIVERY ANN BLACKMORE

A debate is going on in thiscountry, which has, untilrecently, ignored a significantgroup of organisations whoemploy one in 50 of theworkforce, contribute nearly 2%of GDP and provide support andadvice to nearly every memberof the population from cradle tograve.

That debate is about the futureof public services. And it is thevoluntary sector that is beinglargely ignored. But why is thevoluntary sector being ignoredwhen an ICM poll carried out forNCVO in October 2001 showsthat 6 out of 10 people agreethat specialist not-for profitorganisations are better placedto deliver many of our publicservices than profit makingbusinesses? We are ignoredbecause those responsible forproviding public services arerarely aware of what thevoluntary sector can bring to thedelivery of public services

If the Prime Minister is seriousabout making public servicesuser-led - putting the consumerfirst - then he should turn firstto the voluntary sector whichhas led the way in developinguser-led services. And the sameapplies to his other principles ofpublic service reform:

There are many examples wherethe sector has led the way insetting standards. For example,the Autism ServicesAccreditation Scheme, run bythe National Autistic Society, hasbeen a pioneer in benchmarkingbased on quality standards andhas opened its membership toprivate and public providers ofautism services. Indeed somelocal authorities have joined thescheme specifically to ensurethat they are not providing a“cheap option” service.

Voluntary organisations arealready accountable to theirfunders but have also beenaccountable to their donors,supporters and beneficiaries.Quality management in thevoluntary sector is in fact beingdriven more by an internal desirefor greater accountability andcontinuous improvement than itis by external pressures fromfunders and standardsauthorities.

Our services have always beendevolved to the front line -indeed most evolved from thefront line in the first place,growing out of the localcreativity of many who we nowrefer to as social entrepreneurs.As a direct result the voluntarysector is now one of the mostdiverse sectors and continues toevolve and retain its diversitybased on the right of freeassociation.

So first of all we need to stepback and look at the biggerpicture. We need to ask whatrole voluntary organisations playin society, what theirrelationship with governmentshould be and also ask wherethey fit in a mature democracy.There are three possiblescenarios for how this

relationship will develop. In the first scenario, all contactwith the state is considered tobe corrosive to the sector. Thisscenario can be quicklydismissed. Since 1979 thepolitical landscape has radicallyaltered. The barriers betweenthe public, private and voluntarysectors have been socomprehensively broken downthat they have gone forever. Infact the delivery of publicservices by voluntaryorganisations is not a newphenomenon. The earliest recordwe can find is of the ThomasCoram Foundation being paid bythe Treasury to provide childcareservices to the poor of Londonin the 1760s (an early form ofSurestart perhaps).

Ultimately this relationship brokedown for very modern reasons -unrealistic performancemeasurements and lack ofproper funding fromgovernment. But that didn’tmake the service bad. Nor did itmean that it was fundamentallydamaging to the Thomas Coramfoundation that exists to thisday, providing high qualityservices to the children andfamilies of London.

The second scenario paints apicture of a purely residual state,which manages all of its policiesthrough a range of agencies andwhich has a direct delivery role.Realistically this is not going tohappen in the current climate ofpartnership, joint working andcollaboration. Added to this thelong-term public support forinstitutions such as the NHSwould make it politicallyimpossible to reach this form ofdelivery.

The third scenario is the onemost likely to produce the most

benefit to the most people. Thisscenario involves a state thatretains responsibility for corefunctions but in which thevoluntary sector delivers a rangeof public services, along sideboth the public and the privatesector, on the basis of who doeswhat best. The voluntary sectordelivers public services only inareas where it adds value and isin their beneficiaries’ interest.

This is the scenario I believe weare now entering. It is a newengagement between the stateand a range of alternativeproviders. It is an era wherepublic services are delivered bythose best placed and mostsuited to do so - in terms ofeconomics, efficiency andeffectiveness, but also in termsof the public will.

The voluntary sector is already akey delivery agent for manypublicly funded services. NCVO’sAlmanac research shows that in1999 over 15% of income tocharities was in the form ofgovernment contracts. If we addgrants to the equationgovernment contributes almost30% of income - or £4 billion -to general charities. And since1999 income from governmentgrants and contracts hasincreased by 3.2% or £136million.

Most of this income is derivedfrom the provision of services,and especially personal socialservices, on behalf of localauthorities and healthauthorities. But the sector alsodelivers a wide variety ofregeneration, housing andeducation services. Examplesinclude:

• Hospices are flexible to local needs and able to provide

extra services which add considerably to the quality ofthe service for the beneficiary, but which the state would find hard to fund. So while hospices are small in relation to the total NHS budget they provide themajority of the total specialist palliative care services.

• The charity NCH has taken on the delivery of children’s services in the London Borough of Westminster. Leonard Cheshire delivers disability services in Hackney (and Wakefield, amongst other places). Both of these are clear examples of where generalist state providers are recognising that specialist or niche providers from the voluntary sector are better able to provide a more beneficiary focused service tousers.

• In addition a new breed of energetic, innovative social enterprises are emerging, employing the techniques of social ownership, non-profit co-operation and the voluntary sector to develop experimental services for the community by the community.

• Ealing Community Transport, originally set up by social services and now serving eight local councils and 425,000 households with recycling and community transport services.

From these and other examples,two key issues emerge. The firstis consideration of the costs andbenefits. Voluntary organisationsare not agents of the state.While we welcome the supportof government for our work, it is

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not for them to determine whatwe should be doing. The historyof the voluntary sector is one ofmeeting unmet needs -identifying the gaps in provisionand filling them. Indeed this isone of the many valuesvoluntary organisations add tothe mix of service provision inthis country, and in many waysthe sector’s raison d’etre.

Many voluntary organisationssee positive benefits indelivering public services wherethey accord with their primaryobjectives. Doing so can helpsecure a better deal for theirbeneficiaries, not least becausethe sector has a unique role ininvolving users and communities.Indeed if we can use ourknowledge and influence toshape policy, to influence theway service needs aredetermined and services areprovided, we can exert greatercontrol over the style andcontent of our services.

The second issue is the addedvalue voluntary organisationsbring. This includes:

• the provision of specialist niche services;

• services to a particular locality or community of interest;

• our ability to secure assets for the public benefit;

• our unique ability to engage with the hard to reach and those excluded ;

• our credibility with and knowledge of the client group;

• our ability to highlight and articulate issues which other agencies may be unable (or unwilling) to deal with.

The Prime Minister has said, “Indeveloping greater choice ofprovider, the private andvoluntary sectors can play a role.Contrary to myth no-one hasever suggested they are theanswer. Or that they shouldreplace public services. Butwhere they can improve publicservices, nothing should stand intheir way.”

We have identified severalbarriers which could stand in theway of voluntary sectororganisations being able to takeon a greater role in the deliveryof public services.

These barriers include:

• capacity;

• skills-related issues;

• risk and accountability;

• fear of loss of independence;

• a number of legal and regulatory barriers;

• some tax and fiscal issues.

Capacity building is crucial tothe success of any partnership.We return to this issue time andagain - not least because theGovernment continues to drawthe sector in as a partner in thedelivery of a range ofgovernment programmes. But itwill not go away until theGovernment recognises the needto adequately resource capacitybuilding. And this includesresources to properly developthe sector’s infrastructure, tobuild sub-sectoral capacity andlocal and regional infrastructurecapacity. It also includes buildingprogramme capacity by allowingsufficient time and resources forpartnerships to develop andwork effectively.

If the voluntary sector is to helpdeliver sustained successfulpublic services it needs aconsistent and widespread levelof advice and support. The wayto do this is to introduce thesmall business service model forthe voluntary sector. Withcentral support and funding wecan create a high qualitynetwork of advice centres forvoluntary organisations, whichcan offer a consistent and highquality level of advice in keyareas and create learningnetworks to translate morewidely the experience ofvoluntary organisations and theirusers.

Supporting capacity also meanssupporting the development ofskills. There is a need in allsectors to build the skillsrequired to work effectively inpartnerships. For example, thevoluntary sector will need toconcentrate on building theskills of leadership andnegotiation as well as itsfinancial management skills. TheGovernment must make it apriority to introduce a fullysupported and funded voluntarysector skills council.

But there are other issues crucialto building capacity within thesector. Core costs is, of course, ahardy perennial here, butgovernment still needs to fullyoperationalise the CompactFunding Code and pay for allreasonable associated costs ofdelivering services as part of thefunding package. This includesmanagement costs, the costs ofsupport services like training, ITand premises and R&D costs.

Let us be clear - we are notasking for any more thanalternative providers in theprivate sector, or even public

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sector, would ask for. In the longterm it is the only sensible wayto secure sustainable reform ofour public services. If voluntaryorganisations delivering qualitypublic services are notthemselves sustainable at thecore then the reform agenda islikely to be undermined from theoutset.

Risk and accountability presentboth dangers to be avoided andbarriers to engagement. Forexample, while it is right andproper for voluntaryorganisations delivering publiclyfunded services to have to beaccountable for the money theyreceive, it is madness for themto be faced by a dozen or moreseparate reporting requirementsfor each different source offunding. The dangers of suchover regulation and multipleregulation is that organisationscan find themselves spendingtoo much time reporting and notenough time doing real work,crushing their energy andinnovation at the same time.

Performance indicators shouldbalance the requirements ofcentral government with thoseof local partners. Performanceindicators should, above all, beproportionate to the scale of theactivity and should take accountof local circumstances. Andthere is much more scope forperformance measures to bejointly agreed in the spirit ofpartnership.

The risk involved in taking ongovernment contracts alsoappears to present a majorbarrier to many voluntaryorganisations. So we are lookingfor a shared approach to risk -rather than the currentwholesale shift from governmentto the provider. Indeed

concentrating responsibility inone organisation can prevent therisk taking necessary forsuccessful innovation. And theability of the voluntary sector toinnovate should be preserved asfar as possible.

One of the dangers we face -and which therefore acts as abarrier - is the loss ofindependence, whetherperceived or real. There are anumber of possible implicationsfor voluntary organisationsengaging more with governmentand delivering public services onbehalf of government.

It can blur the boundariesbetween the sectors - thevoluntary sector may beperceived as little more than anagent of the state.

• It can make it harder for an organisation to criticize government and work on behalf of the community (although some organisationstell us that as the relationship matures they aremore confident about criticizing government).

• It can lead to mission drift, with organisations focusing on government priorities rather then their own core objectives.

• And in certain circumstances it can create financial dependence, where an organisation ceases to be viable if it loses government funding.

The Compact offers a frameworkwe can build on and strengthenin order to better preserve thesector’s independence. TheCompact clearly states thatgovernment will recognise and

support the independence of thesector, including its right withinthe law to comment onGovernment policy, and tochallenge that policy, irrespectiveof any funding relationship thatexists. But this must become areality - not just within centralgovernment but also crucially atlocal government level.

Other barriers exist. VAT forexample, remains a thorn in thesector’s side. We have the mostcomplex VAT system of anysector. Public sector partnersoperate in-house services VATfree.

Finally, and possibly mostdifficult, there must be anattitudinal change. For too longcentral and local governmenthave treated the voluntary sectoras a servant to their master. Fortoo long the voluntary sector hasbeen seen as a sector ofvolunteers who were a good,cheap alternative provider,available to pick up services inthe areas nobody else wanted.This must change. Indeed somewould argue that theGovernment needs the sectormore than the sector needsgovernment.

Ann Blackmore is Head of Policyat NCVO.

B. 4 PUBLIC INTERESTCOMPANIESJANE STEELE

The idea of a “not-for-profit”

company is being discussed as a

suitable vehicle for running a

whole range of public services,

with Railtrack as the most

prominent candidate for this

new status. And it is a new

status that is needed. Much of

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the commentary in the media

fails to make it clear that such

an organisational form, although

it would have great potential for

public services, does not exist in

the UK at present.

‘Not for profit’ is a misleading

label. It is generally meant as

shorthand for “not for private

profit”. A not for profit company

would not distribute profit to

investors. Instead it would re-

invest profit in the organisation’s

services and purposes. This

country does not currently have

a form of organisation that is

both “not for profit” and is

securely and permanently

committed to public (rather than

private) benefit.

A public interest company would

be a new organisational form,

an addition to the range of

forms already available. For

public services it could be an

important alternative to the

stark choice between the public

and private sectors, a choice

that often seems to limit visions

of the future for public services.

A distinguishing feature of the

public interest company is that it

must aim for the public good,

not for shareholder benefit.

Further, that commitment to the

public good would be

permanent and unalterable -

there would be a lock on the

public interest company to

proscribe any future privatisation

or alteration of purpose away

from the public benefit.

None of the current forms of

company can guarantee that

they will remain as non-profit

distribution companies. Any

company can decide to change

its purpose and activities, and

choose to sell the assets and

take the proceeds for private

benefit. Mutuals are not safe

from privatisation either. Even

those industrial and provident

societies that are registered as

for “the benefit of the

community” have no absolute

guarantee against conversion

from their mutual status, as their

members can vote to covert the

organisation into something

else.

Charitable status does provide a

guarantee that the organisation’s

purposes are exclusively and

permanently for the public good,

but they have to fall within the

definitions applied by the

regulator, the Charity

Commission. And charitable

status does not encompass many

of the public purposes that can

be envisaged for public interest

companies. There are also

restrictions on charities’ ability

to trade and to pay their

trustees and directors.

The public interest company

would therefore be a new

organisational form. It would

also be a new brand, one that is

associated with: public, rather

than private, benefit;

accountability to the public; and

with entrepreneurial approaches

to public service delivery.

Jane Steele is Head of Research

at the Public Management

Foundation.

B. 5 NON-PROFIT PUBLIC/ PRIVATE PARTNERSHIPSPAUL MALTBY

Community based not-for-profit

public/private partnerships could

play a crucial role in

regenerating deprived areas

The Government is becoming

increasingly aware that local

regeneration projects need to be

targeted at the neighbourhood

level if they are to have a lasting

impact. The New Deal for

Communities and the National

Strategy for Neighbourhood

Renewal are both designed to

achieve results at this sub-local

authority level. However, if we

are serious about neighbourhood

regeneration, we need to

facilitate mechanisms that allow

greater control to be exercised

by local communities.

Effective public services and

attractive community spaces are

vital to help regenerate deprived

areas. But all too often services

are fragmented at a local level,

even though local people would

benefit from co-ordinated local

services such as one-stop-shops.

Meanwhile, assets that could

provide a focus and support for

the community are either

neglected or regenerated in an

ad-hoc fashion. If regeneration

projects are to succeed we need

to ensure that local people are

actively involved in the

regeneration schemes operating

in their area, and that we need

to make best use of local private

and voluntary sector expertise.

There is a role for Community

Trusts to help resolve these

issues. These new bodies would

have assets transferred to their

control to help join-up service

delivery. They would be similar

to existing Development Trusts,

but differ by having control of a

broader range of assets, and the

ability to procure new PPPs.

Incorporated as not-for-profit

companies limited by guarantee,

Community Trusts would be

controlled by local stakeholders,

such as members of the council,

residents and local businesses.

They have already been

proposed in a few areas, such as

the Woodberry Down estate in

Hackney.

Because Community Trusts

would involve bundling together

assets and services on a

neighbourhood basis, they could

help co-ordinate different

services according to local

priorities. For example, they

could examine whether a

primary school site was the best

location for a new health clinic.

They would also help ensure that

mainstream services join up with

any wider regeneration

strategies. As a recognisable

organisation with an asset base,

they could help attract financial

support and could be seen as an

attractive partner for smaller

scale PPPs. They could also

provide local people with more

direct control over local services

than they would have through

sole local authority control.

However, there are impediments

to the wider use of Community

Trusts. Not least, local

authorities and other public

bodies may be reluctant to

transfer assets out of their

control. There is also the

recurrent problem of ensuring

that local stakeholders are seen

as representative and

accountable to the communities

they are drawn from, although

involving local people from the

newly formed Local Strategic

Partnerships could offer a way

forward on this issue.

By bundling services at a

neighbourhood level,

Community Trusts could be seen

as running counter to the recent

trend of bundling PPP projects

on a sectoral basis, such as

recent schemes that bundle

contracts for all schools within a

local authority area. Whilst

sectoral bundling can help

achieve economies of scale, it

also means decisions relating to

key local assets are transferred

out of the reach of local

communities.

As with all not-for-profit PPPs,

Community Trusts could sell

their assets to a for-profit

company at any point. If

Community Trusts are to retain

the trust of local people we

need to examine how their not-

for-profit status could be

protected in law.

On balance, Community Trusts

look like a promising way to

deliver community services. We

would be interested in seeing a

small number of pilot projects

undertaken, perhaps through the

Neighbourhood Renewal Fund

and with the help of

Partnerships UK, to see if the

potential problems could be

overcome.

Not-for-profit models are being

increasingly seen as the

fashionable future for PPPs. They

will not always be more

appropriate than traditional

forms of PPP, but we believe that

it offers a sensible way forward

in the case of Community Trusts.

We also believe that Community

Trusts do not have to be

restricted to a means of

regenerating deprived

communities. If they were shown

to facilitate active community

involvement, joined-up service

provision, and a beneficial use of

key local private and voluntary

sector skills, Community Trusts

could become a basic model for

the effective delivery of local

services in all our communities.

Paul Maltby is a Research Fellow

at the Institute of Public Policy

Research

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C. 1 MUTUAL HEALTHCARE PURCHASING – ABETTER WAY TO FUNDTHE NHSDAVID GREEN

A growing body of opinion seesa role for mutual ownership ofhospitals to ensure that medicalproviders serve the interests ofpatients. But there is an evenmore powerful case formutualism in the financing ofhealth care.

Health care expenditure ispotentially unpredictable andcan be very costly. Consequentlyit makes sense to share the risksthrough insurance. But once athird party has the money, howcan it be encouraged to act inthe best interests of the peoplewhose money it holds?

In Britain the Government hasassumed the role of third party,partly to spread the insurancerisk and partly to ensurecoverage for the poorestmembers of society. Howeffectively does it serve theinterests of consumers?

In France the third party for thevast majority of French people isCNAMTS which is governed by aboard representing employersand trade unions. Representationof consumers at board levelhelps to encourage service ofthe consumer, although it is animperfect mechanism.

In Germany, the third parties arecompeting sickness funds. Theytoo are typically run by boardsrepresenting employers andunions, but people have theadditional weapon of being ableto switch insurer if they are

dissatisfied.Partly because their third partypayers are strongly influenced byconsumers, French and Germanhealth care is of a very highstandard. Could we do betterstill by creating mutual healthinsurance purchasing co-operatives?

The idea of purchasing co-opsemerged in America under theinfluence of Professor AlainEnthoven and for the most partit was expected that employerswould act on behalf of theiremployees. Could the idea bewidened so that any group ofindividuals could purchase healthinsurance together?

The basic idea is not that weshould establish mutualinsurance companies to providehealth cover. In any event,mutual insurance has had atarnished record in recent times.It is rather that it would beuseful to form groups topurchase insurance fromcompeting companies, aftershopping around. It is mutualpurchasing not mutualinsurance.

The Federal Employees HealthBenefits Program is the modelon which purchasing co-ops arebased. The US federalgovernment offers its employeesa choice of insurer and agrees topay 75% of the cost. Thescheme does not offer everyinsurance plan available inAmerica but filters out the onesit regards as unsuitable.Moreover, purchasing insuranceas a group member overcomesone of the weaknesses ofinsurance markets where somepeople buy as individuals and

others buy as group members. Insuch cases, there is a tendencyfor groups to be offereddiscounts at the expense ofindividual purchasers. Under asystem of purchasing co-opseveryone would make anindividual choice but as a groupmember.

Imagine a cost of £1,500 forindividuals and £3,000 forfamilies. An individual opting topurchase insurance through theco-op would receive let’s say50% of the cost fromgovernment and pay thedifference out of pocket. As acondition of receiving the 50%tax credit individuals would haveto agree to take full personalresponsibility for their healthcosts, thus relieving pressure onthe NHS.

People with no earnings couldnot be expected to pay 50% ofthe cost and would receive thewhole cost of an approved planfrom the government. Thisarrangement would allow publicopinion to determine thestandard of care to beguaranteed by the governmentfor the poorest members ofsociety. This standard wouldeffectively be based on whatpeople on middle incomes chosefor themselves.

There are several complicationsnot touched upon here, but theend result of co-operative healthcare purchasing would be to putrich and poor alike in a positionto choose their own insurer asgroup members with all thebargaining power that entails.

David G. Green is Director ofCivitas.

C . O P P O R T U N I T I E S F O R T H E M U T U A L S TAT E

C. 2 MUTUAL HEALTHCARE PROVISION – ABETTER WAY TOMANAGE THE NHSGERAINT DAY

“The NHS cannot be run fromWhitehall.” This statement bythe Government was in accordwith one of the starting pointsfor some work by the Instituteof Directors (IoD). This seemsvery topical in the light of recentremarks from Government.

As an organisation with a UnitedKingdom individual membershipof 55 thousand leaders ofbusiness and other importantorganisations - including thepublic and mutual sectors - theIoD takes an interest in issues ofnational importance. Healthservices are important to thecountry as well as to employingorganisations, which need toknow that employees who needhealth interventions will getthem promptly, effectively andefficiently. As the leadingprofessional body for directors,the IoD also takes great interestin governance.

In terms of corporategovernance and management -let alone delivery of healthcare -the NHS has serious problems.Despite the best statedintentions of governments, whathappens in practice is highlyinefficient. Some people refer toit as attemptedmicromanagement. On the onehand there is still a stream ofcirculars and guidelines from theDepartment of Health thatattempt to prescribe a wholehost of activities - culminating inmanagement by targets (429performance indicators issuedrecently, for example). On theother hand, the NHS Plan hasled to the creation of quite a

few new quangos (including thebizarrely named ModernisationAgency), which do not havedirect managerial control overthe hundreds of NHS bodiessuch as trusts and authorities,but nevertheless add to thecomplexity of having moreentities to report to. They alsoconsume valuable resources witha plethora of meetings,including talking to each other.

At least two things are achieved.One is a stifling of localinitiative. The other is thecontinued removal of realaccountability and engagementwith the users of health services- the patients and localcommunities. For example, onesurvey of public attitudes to theNHS found that 57% of therespondents felt that the publichad little or no influence overthe way the NHS is run and howit sets its priorities.

Ruth Lea (Head of Policy at theIoD) proposed that free at thepoint of use largely publiclyfunded healthcare be deliveredby locally self-governingmutuals. It could also lead toboards of directors being farmore accountable than underthe present top-down andunwieldy system. It could alsohelp reconnect the NHS withlocal people and organisations.It would be a way of puttinginto practice the Government’sidea of “earned autonomy” forNHS trusts that perform well.

The IoD produced a documentbased in part on a UnitedNations survey of healthcaremutuals worldwide. They doexist. Questions are already quiterightly being asked about howthis would actually work in theUK. A key question is whowould be the owners? In the

context of the Mutual State thisis tantamount to asking, “whatsort of mutual?”.

One idea, proposed by Gareth R.Thomas MP, is the “communitymutual”. Each adult member ofan area might be offered (onecan’t impose membership of amutual!) a nominal share in anNHS trust and a vote in electingthe non-executive directors. Byanalogy with some of the morevibrant consumer retail co-operatives there could bemembers’ meetings, events andliterature circulation, includingreports. There is a lot ofgoodwill towards health and theNHS; witness the vast number offriends of hospitals and health-related voluntary groups. Thisenergy could be harnessed.Primary Care Trusts (PCTs), beingat least nominally rooted inlocalities, might be appropriatevehicles to pilot such a model.Ian Hargreaves has alsosuggested PCTs as one startingpoint. PCTs might better lendthemselves than would hospital-based trusts, which may have anivory tower image and certainlytend to draw patients from lesswell-defined geographic areas.

Just as it is right that there bediversity of healthcare provider,as the Government plans forhospital-based care from April2002, it is right that no one“right” way to proceed beplucked out of the air. Thehistory of the NHS contains toomany examples of the impositionof one-size fits all unevaluatedtop-down changes.

In fact, a variety of organisationsare bringing energy and seriousdeliberation to bear. Theseinclude (apart from the NewEconomics Foundation andMutuo):

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• the Public Management Foundation, which has been pursuing the decentralisationconcept, including legal issues around, a “public interest company” that mightbe applied in all various circumstances to oversee andrun public services;

• the Association of Friendly Societies which has recently published a major report on mutuality and the welfare state;

• the Adam Smith Institute, which has proposed mutual applications in education andhealth;

• the Independent Healthcare Association, which has published and advocated on healthcare mutuals;

• Professor Chris Ham (University of Birmingham) who wrote a Demos booklet in which it was suggested that there be experiments onmoving from state to community ownership of healthcare providers;

• the London School of Economics and Political Science (LSE), where Professor Stephen Yeo (who also chairs the Co-operative College board) has catalysed a series of seminars on mutuality;

• Loughborough University Centre for Research in Social Policy, which published a report in 1996 on communityenterprise working in health;

• Dr David Green, the Director of Civitas, has written widelyon the subject of healthcare funding via mutuals.

In the longer term, an intriguingconcept could be to put the ideaof self-governing autonomousNHS healthcare provisionmutuals together with this kindof collective social insurancemodel. It could be a form ofconsumer co-operative, possiblyhaving a board drawn from theemployed professionalsalongside non-executiveDirectors elected from thecommunity, possibly with othergroups being represented. Usersmight also be invited to join andcontribute share capital as isdone in other consumer mutuals.The financial experience of themutual sector, includingconsumer co-operatives andfriendly societies could also bedrawn on in developing suchentities.

Mutuality may well be a viablealternative to managing themonolith that was the NHS of2002.

Geraint Day is Business ResearchExecutive at the Institute ofDirectors

C. 3 LESSONS FROMSOUTHERN EUROPEJONATHAN BLAND ANDPALOMA TARAZONA

Specific cultural, political andeconomic factors have played animportant role in shaping theway that mutual organisationsdeliver public services in bothItaly and Spain. Nevertheless webelieve that there are someinteresting issues which apply tothe current debate about newmutualism in the UK. Below welook at some examples of socialenterprises delivering publicservices in southern Europe andidentify three areas which wethink are important to consider

in the context over here: thelegal framework, models ofgrowth and access to finance.

1. Spain: the rise of co-operativeschools

Co-operative schools in Spaincurrently represent 15% of allprivately managed (but mainlypublicly funded) education. Theyemerged mainly as a response tothe need for plural and diverseeducation. The first ones wereset up in Catalonia in the late’60s and early ’70s mainly byparents dissatisfied with theeducation available at that time.They experienced considerablegrowth in the ’80s as a result ofthe combined impact of risingunemployment among teachersand social and political changesin Spain. There was a switchfrom parents’ to teachers’leadership. This in turn lead to anew wave of co-operativeschools, set up mainly as workerco-operatives rather than asparent or consumer co-ops,which were the most popularmodel among the pioneers ofthe ’60s and ’70s. At presentthere are over 750 co-operativeschools in Spain. Most of themoperate as worker co-operatives(80%). The rest are either parentowned or mixed (involvingparents, teacher and sometimesadditional stakeholders asmembers).

2. Italy: The provision of careservices by social co-ops

There are over 4,400 social co-operatives in Italy. Around 2/3 ofthem (known as type A) deliversocial, health and educationalservices on behalf of theregional and local authoritiesThe rest are (type B) social co-operatives using tradingactivities to create jobs for the

disadvantaged. Social co-operatives emerged in Italy inthe 1970s, grew rapidly inresponse to the crisis in theItalian Welfare state during the1980s, becoming a key player inthe supply of social, educationaland health services in Italy andthe creation of jobs for thedisadvantaged. In 1991 theItalian Government approved aspecific Law intended topromote the development ofsocial co-operatives. Since thenthe number of social co-operatives has increaseddramatically.

3. Key Issues

A number of issues emerge thatrelate to growth of these mutualsolutions in both countries.

3.1 The Legal framework

Comprehensive legal frameworksexist which set out exactly whatis considered to be a socialenterprise. Official recognition isgiven to social enterprises asbusinesses with an added value(their social impact/aim). Thisclear legal status enables suchbusiness to have “brandvisibility” and allows the state toeffectively target supportmeasures such as tax breaks orstart-up grants.

On the negative side, in bothcountries, it leads to inflexibilityand the quasi monopoly of oneor two forms of socialenterprise. There is also acomplex bureaucraticframework, which in the case ofSpain is even worse due to acombination of statecentralisation of some thingssuch as taxation, anddecentralisation of others likeco-operative law, education, etc.

3.2 Models of growth -“Small isbeautiful, but in a big way”

The Italian social co-operativeshave developed a consortiabased model of growth. OftenType B co-ops result from spinoff processes originated in typeA “mother co-ops”. They tendto be small and dynamic,averaging 10 workers. Consortiagather together groups ofbetween 10 to 30 social co-operatives. They provide a rangeof common services such as:payroll, accountancy services,training services, preparing jointtenders, fundraising for biggerprojects, etc. This allowseconomies of scale whilemaintaining a human scale. Thisis in strong contrast to some ofthe worker co-operativesdelivering social services in Spainwhich can have around 30worker members and over 700contracted employees.

The growth of the Italian socialco-operatives has been closelylinked to a proactive role playedby local and regional authoritiesin the way they tender for thedelivery of services.

3.3 Access to Finance

Both countries recognise theadded value of social enterprisesand grant them specific taxbreaks. These include lowercompany tax rates as well as theexemption of certain local taxesand taxes levied on acquisitions,mergers, and purchase of fixedassets.

Both countries have awidespread system of specificgrants for social enterprises. Inboth cases these grants arerelated to job creation amongpeople who have specificdifficulties in accessing to the

labour market and long-terminvestment (mainly in fixedassets).

In both countries, socialenterprises have developed theirown “mutual” self-financingmechanisms. In Italy, co-opshave to dedicate 3% of theirannual income to set up a fundwhose aim is to finance new co-op initiatives. In Spain, co-opshave to dedicate 20% of theirannual income to indivisiblereserves and reinvest it in theco-op. If the co-op goes intoliquidation or turns into a capitalbased business, loosing its socialaim, the indivisible reserves haveto be paid back to the regionalgovernment or to the regionalco-op federation and be investedin the promotion of other co-ops. This operates practically asa limit to demutualisation.

In both countries the legislationfor social enterprises allow theraising of equity through“capital” or “financing”members with limited votingrights. In Spain this has oftenbeen used in the co-op schoolsto raise additional finance fromthe private sector. In Italiansocial co-ops the investingmembers have tended to belocal authorities.

4. Key Questions for debate

How can the UK legislativeframework be improved to givethe advantages of brandvisibility, effective targeting ofsupport measures and protectionof social interest (e.g. indivisiblereserves) without creating amonolithic straight jacket?

How can social enterprisesolutions provide the scale ofdelivery needed for effectivepublic service delivery and

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maintain their human, localfocus?

Should the state encouragesocial enterprise with taxbreaks?

Can grants be effectively used tokick start new social enterprisesor do they create a dependencymentality?

What new mechanisms can bedeveloped to get sufficientaccess to capital on termsappropriate for social enterprise?

Can public authorities at localand regional level play a greaterenabling role through changesto contracting processes?

Work is currently going to lookat some of these issues. TheCabinet Office will soon reporton proposals relating toreforming legal structures forsocial enterprise, the Treasurycross cutting review of thevoluntary sector and publicservice delivery has beenexpanded to include socialenterprise, the DTLR is about topublish a new white paper onthe role of Local Governmentand the DTI Social EnterpriseUnit is looking at a broad rangeof issues, including businesssupport. Those with knowledgeof and an interest in this sectorshould be active in the currentdebate.

Jonathan Bland is Director ofSocial Enterprise London.Previously he worked for 5 yearsin Spain for FVECTA, theValencian Federation of WorkerCo-operatives.

Paloma Tarazona is a projectmanager at Social EnterpriseLondon and also worked forFVECTA before moving to the UK.

C. 4 MUTUAL EDUCATIONTOM BENTLEY

The place of mutual forms ineducation is complex butpotentially compelling. Nationaleducation policy over the lastfive years has revolved partlyaround the enduring tensionbetween central control andlocal autonomy. Labour’swinning formula on schools pre-1997 was “standards notstructures” - the contention wasthat the old “ideological”disputes about system structurewere obsolete, and only apragmatic, insistent, parent andmedia-friendly focus on pushingup formal standards ofattainment mattered. This wassuccessful in short term,producing momentum andconsensus around schooling. Butthe further reform efforts havegone, the more difficult it hasbecome to avoid complexstructural issues.

This is because the nature oforganisation - its underlyingprinciples and design, as well asits ethos, scale and guidingpurpose - has a formativeinfluence on what services arecapable of providing. And whilethe standards agenda haspromoted the message that it isfocused solely on providing moreof a good thing – improvementin outcomes, but nothingfundamentally different – in fact,the pressures on schooling andlearning services are to providedifferent experiences andoutcomes, and a wider range ofthem, alongside the traditionalnorms.

These pressures include:communities and user groupsbecoming more diverse anddemanding; individualisation andspecialisation of provision, made

possible by both expectationsand new communicationstechnologies; the need to createself-sustaining high performanceorganisations in education,capable of continuousredefinition and improvementbut not dependent on ademoralising stream ofcentralised instructions; thegrowing tension betweenschools, colleges and universitieswhose organisational structuresfollow industrial lines of masshierarchy, and a surroundingenvironment which is organisedmore and more aroundnetworks.

There is also an interestingcontrast between the attempt toreinvent schools, the mostresilient and inflexibleinstitutions around, and theisolation of many individuallifelong learners, who arefinding that the ability just tolog on to a virtual world of “e-learning”, without being rootedto any firmer social ororganisational identity, is notenough to sustain theirparticipation. What both need,for different reasons, is anecology of organisations thatcan provide belonging, purpose,focus and human scale to groupsof learners, but fit far moreflexibly into a system ofplanning, provision andassessment on a mass scale: cuemutuals.

This means that a series ofpolicy, and practicalopportunities will presentthemselves in the next 2-3 yearsin which refined andstrengthened forms of mutualengagement could become anindispensable part of the neweducation infrastructure. Thespecific opportunities include:

• New intermediary structures linking separate providers and offering specialist guidance and support to 14-19 year olds, helping to coordinate more diverse services under the proposals outlined in the current GreenPaper;

• Mutualisation of some LEA functions and of the partnership boards created todeliver management of education services;

• Expansion of community-based learning intermediary groups dedicated to providing opportunities in non-traditional settings and liaison/partnership with bigger education institutions;

• Mutualisation of parents andother learning interest groups, to help provide localised service and coordination solutions (such as out-of-school hours learning and care services), and to provide political profile and influence to morelearning groups than just university students);

• Providing the right for parents to establish their own schools, under not-for-profit status, with some statefunding, as in Denmark and the Netherlands;

• Allowing more schools to develop their own communitystatus, while using mutualisationto define more clearly than currently the roles and responsibilities that successfulschools will take on in relationto the communities surroundinghem, an issue of contention with the current crop of specialist schools.

All of these specific couldrealistically be imaginedemerging from the current policymix. One intriguing issue is thatwhich will be successful is likelyto depend as much on thequality of local innovation,learning and networking as it ison thinking at the level of publicpolicy.

Tom Bentley is Director ofDemos, the independent thinktank.

C. 5 MUTUALISATION INWALESANGELA PULMAN

Wales has a healthy andexpanding social enterprise /community business sector. Thisapproximates to upwards of over500 initiatives with a turnoverwell in excess of £100 million.This includes several instances ofthese initiatives taking on publicservices. In care, Swansea CityCouncil is looking at turningtheir day care provision trainingto a Community/ MutualBusiness. With leisure, Tonmawrhave their own communityowned and run sports andleisure centre; Neath and PortTalbot County Borough Councilare looking to turn theircommunity centres in tocommunity/mutual businessesand Rhondda Cynon Taff haveseveral sports clubs owned andrun by the community assustainable businesses.

Youth provision, in the form ofmusic-based social enterprise, isto be found in most parts ofWales both in the Rock and PopField and more Traditional Musicand Arts Fields. We are seeingmore young people looking totake on providing their owntraining and job creation

through initiatives like “WWW”,which is specifically for youngsingle parents. Several Councils,such as Penrhys in the Rhondda,are investigating handing overthe running of council estates totenants.

Wales is moving mutuality intothe private sector as well as thepublic arena. One of Wales’sleading companies Welsh Wateris now a Company Limited byGuarantee with members ratherthan shareholders. It is there forthe mutual benefit of itscustomers, the water consumersof Wales. Its progress is beingwatched very carefully, but todate it is ahead of expectationon all fronts. It is openingmutualisation in a different way.

Those of us who have beenactively participating in Socialand Community Enterprise forthe past decade can see theadvantages. Our main task ispersuading the civil servants,rather than the politicians of thevalidity of our argument. Here inWales all four main parties aresupportive of social enterprises.We have lobbied long and hardto get that support.

At Local Authority level, supportfor mutualisation is patchier butgetting less so as many LocalAuthorities seek to keep servicesat an acceptable level withdiminishing budgets. The mainproblem they encounter isnarrow-thinking oldercouncillors. However all LocalAuthorities support, and have,initiatives and funds forcommunity business and thesocial economy.

Social enterprises are more likelyto be innovative. They attractand retain highly motivatedstaff, free of the bureaucracy of

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large organisations, who have ahigh degree of commitment.Social enterprises offer ways ofinvolving excluded groups,providing services that areabsent from disadvantagedneighbourhoods, enablingcommunities to develop skills,self-confidence, businessexperience and employability.

Provision of public services willbe a challenge and anopportunity for the WelshAssembly as much as it is for theWestminster government

Angela Pulman, CommunityEnterprise Wales

C. 6 COMMUNITYHOUSING MUTUAL – ANEW OPPORTUNITY FORSOCIAL HOUSINGPETER HUNT

Traditional housing associationsand local housing companies failto deliver real tenant andcommunity ownership andcontrol. They either do notattempt to do so (having notenant members) or they only gopart of the way by enablingtenants to comprise a small partof the membership. Thisapproach does not deal with the“us and them” attitude, whichleaves tenants feeling thatsomebody else owns andcontrols their home.

If tenants are to have a realsense of ownership of theirhomes, it is necessary that theyshould be members of theorganisation that holds the legalownership of the properties.Whilst the landlord and tenantrelationship will continue toapply, the tenants’ role asmembers creates a newenvironment in which theirparticipation can be enabled.

A Community Housing Mutual istherefore based upon offeringmembership to all tenants. Inthis sense, ownership of thehousing rests with the peoplewho use it.

But simply giving each tenant ashare in ownership is unlikely tobring about the necessaryimprovements in quality. Toachieve the desired results,engaging and empoweringtenants must be at the centre ofthe activities of the managingorganisation. The CommunityHousing Mutual achieves this bycreating fundamentalconstitutional commitmentsdesigned to promote andencourage membership andparticipation in decision-making.

The board comprises threestakeholder groups. First, thetenant members of theCommunity Housing Mutualelect, on the basis of onemember one vote,representatives from amongstthemselves.

Secondly, the local authoritynominates candidates torepresent itself on the board,and here again the option existsfor such board members to beelected by the members from alist of candidates.

Finally, a board policy documentwill set out the necessary skillsrequired to discharge theresponsibilities of the board, andcandidates from the communitywill be sought in consultationwith respected localorganisations to ensure that abalanced board is formed tomeet these requirements. Thetenants then confirm byresolution the appointment ofCommunity Board Members.

In this way, tenants have a keyinfluence upon the choice of theindividuals who are responsiblefor the direction of theorganisation of which they arethe members.

Executives (who are not boardmembers) are appointed by theboard, and are responsible forrunning the day-to-day businessof the Community HousingMutual.

Is this just another legal model?

A legal model is of itselfinsufficient to bring aboutchange. Without thecommitment of individuals, it islikely to be ignored.

A legal model can, however,create an environment in whichthose with a vision for changeand progress can achievesignificant things. Tens ofthousands of homes were builtusing the mutual supportprovided by the buildingsocieties in the nineteenthcentury. The Community HousingMutual is based on the sameconcept of mutuality.

As the state continues inexorablyto divest itself of directresponsibility for public services,the mutual sector movement canagain provide a framework andan opportunity for individuals toplay a larger part in controllingtheir own lives.

The Community Housing Mutualis designed as a vehicle toreceive housing stock transferredby a local authority. It has beendeveloped in consultation withrepresentatives of tenants,funders, local authorities as wellas the National Assembly forWales. It has been registered asa model constitution with the

Financial Services Authority andis therefore available now fornew organisations to use.

Peter Hunt is Director of Mutuo.

C. 7 SOCIAL HOUSINGWITH A DIFFERENCEANDY ROBERTS

Social housing should beprotected and expanded, notcurtailed. The last thing we needright now is the furtherinvolvement of the private sectorin the provision of non-profitsocial housing. But, we alsoneed pluralism, and indeed evencompetition, between differentforms of non-profit socialhousing, state and non-state.And we certainly do need to gobeyond the old-fashioned statev. non-state polarisation.

This stand-off is between, incontemporary terms, “TheCouncil” and “Registered SocialLandlords” (RSLs) - the NewLabour neologism for non-stateforms of social housing. If somecontinue much longer trying todefend uncritically old-fashionedstate housing provision - andmunicipal housing has anappalling record ofmismanagement, as vastnumbers of council tenants willwillingly testify - as the least badoption, without offeringalternatives, then in the endnon-profit social housing willjust wither away.

The “right to buy” has, and stillhas, such a strong and electionwinning resonance. It struck areal chord. Its popularity was notjust due to narrowly economicreasons - the arguments of theleft focus all too often on themonetary side of things -

basically rent levels - which notto say that this is not important.But it is also, critically, about thelack of control, autonomy, andflexibility available to people incouncil housing. In view of thislack of control in most councilhousing, it is not surprising thatthose who can have often optedout.

Also, some housing associationsoffer much better levels ofservice regarding repairs than“the Council” - and somepeople are willing to pay a littlemore rent to benefit from this.Therefore more money is not thesolution, although it is of courseabsolutely necessary. Thereneeds to be qualitative as wellas quantitative change.

On the other hand, the newLabour argument thatimprovements can be achievedon the cheap, by injectingprivate finance, is equally bogus- and very shortsighted.

In relation to non-state socialhousing there are real dilemmas- given the current state of thelaw and policy concerningsecurity of tenure, forms ofaccountability, methods offunding. One fear is transferringcontrol of financing from localgovernment bodies to centralgovernment quangos, i.e. in thecase of housing, mainly theHousing Corporation. At leastwith council housing you have alocal councillor to lobby, ratherthan some remote non-electedofficial. I certainly wouldn’t wantto hand over my council flat tomost of the “RSLs” currently onoffer.

Firstly, above all, we need toimprove the internalaccountability of many housingassociations to their tenants,

and restore a genuine ethos ofmutuality. Secondly we need toupgrade the rights o tenure ofhousing associations tenants tomeet those of council tenants.

Thirdly, we need to reform theregulatory framework. There arequestions about who controlsthe Housing Corporation, andother central state bodies thatprovide housing finance. Maybe,for instance, we need to havegenuinely independent localnon-profit housing fundingbodies, which are democraticallyaccountable to local people.Housing benefit funds could bere-directed in ways thatempower tenants to findmutualist solutions, rather thansubsidising landlords.

We also need to consider moreactive encouragement of tenantmanagement in council housingitself, and the promotion ofhousing co-operatives. At thesame time, this cannot be force-fed, it needs and enablingframework and then has to growout of real demands by tenants.

Andy Roberts is a tenant in theEast Dulwich Estate, Southwark,London.

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THE MUTUAL STATETOOLKIT

The aim of mutualisation is to

blend the entrepreneurialism and

responsiveness of the private

sector with the social purpose

and professionalism of the public

sector. However, there is no one

way to mutualise public services

and there are likely to beconsiderable issues of designand preparation in getting itright.

Elements of the Mutual StateToolkit (Table 2) could be appliedand adapted as appropriateacross a range of public services,helping to learn what works andrefine the new mutuality.

The development of self-governing units of public servicedelivery – the social enterpriseoption – is for example only onemodel for evolving moreparticipative and responsivepublic services. It would clearlyalso be possible to build adegree of co-production as partof services that remain in publicownership.

C O N C L U S I O N – E D M AYO A N D H E N R I E T TA M O O R E

Tool Description Illustration

Social enterprise

Co-production

New models of finance

Multi-stakeholdergovernance

Horizontal accountability

Market testing

A self-governing model, constituted asan independent non-profit, legal body

Models of user participation acrosspublic services

The use of new powers to raise financeby social enterprise

A two-tier governance structure, withwider strategic stakeholders and anexecutive board.

Accountability to direct stakeholders ofpublic services, rather than (vertical)accountability, upwards to government.Strong accountability plays the roleenvisaged for competition in fullprivatisation in terms of feedback andensuring effective performance

Competition and privatisation retain arole in services that can be markettested and may be provided by privatecompanies, as well as any socialenterprises

Industrial and ProvidentSociety for the benefit ofthe community Companylimited by guarantee Newpublic interest company

Citizens scorecardsTimebanksVolunteering

LoansBond issuesSocial investment

Similar to local authority“cabinets”

Social audits

Local authorityprocurement

TA B L E 2 THE MUTUAL STATE TOOLKIT

31

WHAT IS IT APPROPRIATETO MUTUALISE?

However is it also possible to

start to draw up a schema for

matching levels of participation

and elements of the Mutual

State toolkit to different parts of

the public sector. To do this, we

have drawn on the contributions

set out above, coupled with

research posted to the website

library such as surveys

completed by the Institute of

Development Studies, with input

from the New Economics

Foundation, on client focus and

user involvement in public

services internationally. The

result is a Mutuality Test, a

checklist of six key

characteristics (Table 3) that

define the opportunity and

appropriate nature of

stakeholder participation in

public services.

One of the key recommendations

of the initial pocketbook The

Mutual State was the completion

of a “participation audit” of

public services, to identify

existing good practice. This

remains a key requirement.

However the Home Office has

completed some very useful

statistics on the role of the

voluntary sector and social

enterprises in public services,

which demonstrate the extent to

which non-profit organisations

are already involved in public

services. We expect more details

to be published with the 2002

Treasury cross-cutting review on

the role of the voluntary sector

in public services.

The extent to which public

funding, raised in taxation, is

passed through to voluntary

organisations and social

enterprise helps to demonstrate

that the distinction between

“governmental” and “non-

governmental” organisation is

no more helpful the stand-off

between “public” and “private”

in public service reform. If

funding comes from

government, operates for a

social purpose and demonstrates

clear accountability (in particular

the “voice or choice” of users),

then the service might be better

thought of as a “public interest

service”, whatever the particular

structure of delivery.

In this way, the concept of the

Mutual State represents not a

step away from the collective

interest but rather a new form

of democratic governance. As

Manuel Castells argues, NGOs

“are to my taste the most

innovative, dynamic and

representative forms of

aggregation of social interests.

But I have a tendency to

consider them ‘neo-

governmental organisations’

rather than non-governmental

organisations, because in many

instances they are directly or

indirectly subsidised by

governments, and ultimately

represent a form of political

decentralisation rather than an

alternative form of democracy.

They are part of the emerging

network state, with its variable

geometry of institutional levels

and political constituencies.”

The conclusions from applying

this are that there are in

principle, widespread

opportunities to test:

• user participation in existingpublic services;

• social enterprises to operate

public services, while the

involvement of different

stakeholders will vary

according to the nature of

the service;

citizens auditing of public

services;

• Multi-stakeholder models of

governance for public

services.

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✗ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

RECOMMENDATIONS

What is needed to make theMutual State a reality is a cross-sector pilot programme wheremany of the ideas discussed inthis report can be tried andtested.

Crucial to any change in publicservice delivery will be the staffemployed in public services,many of whom have alreadydemonstrated their commitmentto change and to greaterparticipation of users. At thepresent time, there is a tendencyto see public sector staff asreluctant to change and moreforward. This view requiresrevision and what is needed inpolicy terms is an opportunityfor staff to demonstrate howtheir experience and skills cancontribute directly to publicservice reform and to thedevelopment of new mutuality.

The essence of the Mutual Stateis local public services designedand delivered by localstakeholders. The consequenceof this is that local authoritieswill have a major role to play inmaking the Mutual State areality. Their skills, assets andexperience will be in the frontline. These are the people whohave been delivering socialservices to our citizens and theircommitment will be essential inthe next stage oftransformation.

The four recommendations setout below would help to driveforward the next steps in publicservice reform:

“Charter Services” Programme

The Cabinet Office shouldlaunch a “Charter Services” pilotprogramme to test the rollout of

frontline public servicesselectively freed up to operate asindependent social enterprisesrather than arms of government.This programme would operateacross Government, withdepartments and localgovernment submittingcandidates for inclusion in a firstround. Monitoring would be bythe Cabinet Office.

Evaluation would includeperformance, innovation inservice delivery and value addedfrom users or other stakeholdersand investors.

New Professionalism Award

The Active Community Unit inthe Home Office should establisha new Award Scheme for publicsector entrepreneurialism anduser involvement.

Social Innovation Framework

A wide range of approachesexists in the private sector forthe development and promotionof entrepreneurs. These includecorporate venturing, schemes for“intrapreneuring” and businessinnovation incubators. Theseaddress the constraint thatentrepreneurs face, when theirconcept for innovation runs upagainst the constraints of theirexisting institutional framework.The Cabinet Office Delivery Unitshould consider the developmentand testing of prototypes tooperate in a similar way as partof a wider framework forsupporting social entrepreneursoperating in the public sector.

Mutualisation AdvisoryService

The Department for Transport,Local Government and theRegions should test the

feasibility and demand for a“Mutualisation” or “SocialEnterprise Advice Service” forlocal authorities. This would be atime-limited programme,possibly commissioned to be runby existing agencies such as IdEAor the Local GovernmentAssociation, operating with theaim of ensuring good practiceand shared learning at a time ofexperimentation and learning.

CONCLUSION

One motto for public servicereform in the 21st century isgoing to be not “rolling backthe state”, but “rolling forwardthe community”.

If this vision is to become areality then ordinary people, aswell as policy makers, politiciansand public service staff, willhave to champion it and tomake it part of theirunderstanding of what theyexpect from a modern state.What this report bothdemonstrates and argues is thatthere is a compelling case forallowing them the opportunityto do so. In an era ofglobalisation, we can advance anew, forward-looking model ofdemocratic, networkgovernance.

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