Building the Mutual State

Beyond the market and the state
The early anthem of privatisation was “rolling back the state”, and yet, the state has emerged from the era of privatisation in a position of relative strength. This is both in terms of its tax take as a proportion of the national economy, after projected rises in health spending, and as the favoured mode of public service delivery in the many cases, from policing to health, in which the profit motive is not trusted by citizens.

The idea of opening public services to competition in the open market is of course accepted in many areas formerly run by the state, from water and telecoms through to waste collection. The market may bring cost advantages, which is what drove the early privatisations, but crucially is also seen to have the capacity for responsiveness and innovation.

But as opportunities for privatisation dried up, what emerged was the “managerial state” of the Conservatives under John Major, and of Labour in the first term of Tony Blair. Out of a perception that public services remained inflexible, bureaucratic and often of poor quality, the aim was to drive up productivity. In the development in the 1990s of “quasi-markets” in health, for example, with purchaser / provider splits, and compulsory competitive tendering, the state in effect became the sponsor and champion of market activity in public services.

The managerial state is replete with league tables, performance indicators and public service agreements. But just as the limits to privatisation set in, so have the limits to central control and reform instituted from above.

After all, what the best of private sector management has already shown is the need to limit the costs and distortions associated with layers of management, reduce hierarchy, focus on core business and start to move dynamically at the pace of the market.

The first attempt at moving beyond both privatisation and the managerial state was therefore the attempt to create more autonomous business units within government, operationally independent, but strategically accountable. The model of “executive agencies” dates back to a report by Sir Robin Ibbs in 1988. Government spawned a wave of internal agencies, units and czars, designed to be more focused and innovative than multi-purpose departments.

There are examples of excellence in this approach, sometimes dubbed “agencification”, but in most cases the system simply bit back. Independence was notional rather than real, undermined in reality by systems of appointment, reporting and accountability.

Independent-minded czars and commissioners, such as Elizabeth Filkin overseeing MPs standards, were not reappointed. Units such as the Small Business Service never took on the intended life of their own, ending up as fiefdoms of the same empire as before. Even where agencies and nondepartmental bodies (those that in previous political times had been damned as quangos) set up boards to oversee their work, this was in many cases a parody of true governance, with limited powers and reappointment at the whim of central government.

The search for more responsive models for managing public services, and the discovery of the limits to market and state, forms the background to the new-found interest in “social enterprise”. These are businessminded non-profits and voluntary organisations, led by social entrepreneurs. They operate with a public ethos, but they are entrepreneurial, selfgoverning and have proved effective at engaging the participation of users.

Self-governance is an essential recipe for what we have described as the Mutual State. After all, if management is to have significant freedom to innovate and respond to need, then creating single-purpose self-governing organisations is the way to do it. But how do you promote selfgovernance without creating incentives for free-riding, lack of coordination and poor quality? The answer is to look for models of organisation that internalise public service excellence and cooperation with other parts of the public service jigsaw, rather than have to have this imposed through costly regulation. This is the “new mutuality”.

The New Economics Foundation (NEF) and Mutuo launched www.themutualstate.org in October 2001 as a time-limited “virtual think-tank” on user participation and the possible mutualisation of public services. The rationale was that there is a lot of practice already going on, but it is rarely brought together or properly understood. It followed the publication of the NEF report we co-authored, The Mutual State.

The website was designed to galvanise wider debate in order to:

• learn and share what is already happening across the public sector in terms of user participation and social enterprise;
• explore how new mutuality could work in public services, and where it will not;
• refine and test the ideas for mutualisation as a model for public service investment and civic renewal. The programme brought together a unique alliance of policy think tanks and practitioners concerned to explore the role of social ownership in public services.

The site averaged around 185 participants and contributors in the debate per month, contributing to online discussion, review of regular think pieces and voting. Patricia Hewitt MP, the Secretary of State for Trade and Industry, made the initial contribution.

Over the period of the programme, participants also contributed to an open national competition based on the website, to propose a new name for the successor body to Railtrack. The winning name was Trust Rail. The results of the key Debating Points are set out in Table 1.

TABLE 1 DEBATING POINTS – VOTING RESULTS ON THE MUTUAL STATE WEBSITE

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 coproduction, accountability, citizenship and scale.

Co-production
Citizens’ involvement in public services is nothing new, but in the story of the welfare state as the narrative of “professional” public services, it has often been taken for granted as discussed by Ann Blackmore in section B below. Tony Crosland, decades ago, declared himself staggered by the extent to which statutory services depended on the volunteer. He was drawing on his visits to public services. In fact, the numbers were only collated across public services for the first time in 2000. The results are still staggering:

• 170,000 volunteers who work in the NHS, befriending and 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 to people 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 to citizens’ involvement widens the focus from volunteering as part of service delivery to the input of users themselves. This is characterised by Edgar Cahn, the US pioneer of time banking, as “co-production”. The idea of coproduction reconceives public services. Instead of a traditional model, in which disinterested and expert professionals deliver services on behalf of, or for the use of, passive users, coproduction is about finding ways to unlock the knowledge and contribution of service users, valuing them as partners.

In the field of health, for example, the concept of the “expert patient” has highlighted opportunities for NHS staff to draw on the knowledge of patients with chronic illness, and indeed to use this to benefit other patients, offering them not just dispassionate advice but first-hand experience of how it feels.

The co-production approach also addresses one of the major paradoxes of the welfare state, which is that, in trying to target assistance to people in need, it can generate stigma and, in fields such as welfare benefit, deny people’s dignity. And where inflexible systems combine with a lack of human scale, as David Boyle argues in Section A, the result is a public disservice.

Citizens’ involvement of this type also offers the prospect that public service reform can operate as a strategic opportunity for democratic reengagement. After all, people care about public services. They are important spaces for community gathering, in the same way that Settlements, community buildings set up by the churches and universities, were intended to be in the inner cities of Victorian times. Coproduction is an opportunity for people to act as citizens from the most effective of motives, which is the combination of self-interest and public concern.

In the framework of social capital, the real opportunities for rebuilding trust come not from what the state does, but the way that it does it. As Perry Walker argues, co-production ensures that citizens are involved in public service design and delivery, and the result is an improvement in the range and quality of services.

Governance and Accountability
Co-production is clearly linked to issues of governance and accountability. Decentralisation moves decision-making closer to users and improves the quality of service, whilst participation in governance can clarify lines of accountability and responsibility.

A report, It Takes Two to Tango by the Development Trusts Association, Local Government Association and New Economics Foundation, offers a range of examples in which community organisations have taken on local services. Much is smallscale and has evolved according to accidents of need and circumstance.

Social housing, in the form of registered social landlords, offers one of the clearest, larger-scale case studies of social enterprise.

To meet the significant demand for housing in society, social housing has received significant subsidies from the public sector. This has included £25 billion of concessional finance, in addition to development support and housing benefit for tenants that underpin a revenue stream. The quid pro quo has been tight and restrictive regulation on behalf of government by the Housing Corporation. On the back of this funding; the assurance of regulatory scrutiny; their significant asset base; and assured long-term income streams, registered social landlords have raised around £20 billion in funding from the markets in private finance - with not a penny of default.

In addition, over 580,000 homes have been transferred by local authorities to registered social landlords since 1988. This now represents 35% of their housing stock. In Glasgow, 80,000 tenants voted in favour of transfer of their homes from the city authority to the Glasgow Housing Association, which in turn promised a rent freeze and a £1.9 billion investment programme over ten years. In Birmingham, in contrast, tenants opted to stay in municipal control. The Welsh Assembly voted in May 2002 to nominate “community housing mutuals”, described by Peter Hunt in Section C, as the preferred future model for stock transfer.

While it is still too early to judge the overall success of this approach, voluntary transfer does appear to be accompanied by evidence of improved tenant satisfaction, as the National Housing Federation has documented. Giving tenants the say on transfer also seems democratic and fair. However, as Andy Roberts discusses in section C below, there are still real dilemmas in terms of forms of accountability in non-state social housing and a need to restore a genuine ethos of mutuality as a means to improving internal accountability in many housing associations. As David Leam points out in Section A, not-for-profit entities are not necessarily linked to community ownership and participation, and do not inevitably lead to improved accountability.

In section B below, several contributors discuss new models for public service delivery within the Mutual State. A key concern here is how to promote innovation and social entrepreneurship allied to democratically managed and accessible services, improved autonomy for workers, and more control and choice for citizens as discussed by Jack Dromey. One solution is the public interest company (PIC), discussed by Jane Steele that would provide the UK with a legal form that offers an alternative to the choice between public and private. The PIC would be a form of organisation that would be both not-for-profit and permanently and securely committed to the public good. As the case of the building societies has shown, community membership is not enough on its own to prevent demutualisation, with subsequent individual gain from mutual assets.

New mechanisms such as this inevitably raise questions about who makes decisions and how are they made. In the context of the development of a non-profit successor to Railtrack, Cliff Mills outlines the strengths and the weaknesses of companies limited by guarantee, but shows how legal form has a direct bearing both on governance structures and on the mechanisms for funding the enterprise. All too often debates about community participation take place in a vacuum and underplay the legal and financial issues involved in designing mutual public services.

What all the contributors in section B show is that the new models underpinning the Mutual State will work outside the old division between private and public. Successful innovations in social enterprise stitch together aspects of the public, private and voluntary sectors. What is at issue here is capacity building: the development of skills and resources from across sectors to develop future capacity within social enterprises.

Paul Maltby discusses how Community Trusts - community not-for-profit public/private partnerships - could play a key role in regenerating deprived areas. The view here is that regeneration projects are more likely to succeed if local people are involved, and if best use is made of public, private and voluntary sector expertise in the local area. Co-ordination of effort would lead to the bundling together of assets and services on a neighbourhood basis. As community organisations with an asset base, community trusts would attract financial support and be an attractive new model for public/private partnerships.

Entrepreneurial citizenship
Involving citizens in the design and delivery of public services, and thus in the running of the Mutual State, inevitably changes the relationship between the citizen and the state. In sum, it extends the notion of citizenship for the simple reason that, in contrast to the myth of standardised, universal services, the more you put in, the more you get out. As Cliff Mills points out in Section A below, the current debate about the right form of ownership for public services is not just about how those services should be funded and who should carry the risks of ownership, but about people’s willingness to engage as citizens in a new way.

The interrogation of what it means to be a citizen has been the hallmark of the UK state in the last decades of the 20th century. What lay behind this debate was the question of how to rework the relationship between the economic and the social, between individual benefit and the social good, between the market and the State. This reformist impulse has continued to be evident in recent Government initiatives - the attempt to spell out specific rights and responsibilities as the basis for new forms of social contract - and in contemporary policy language - the “New Deal” and “working families”.

These changing ideas about the role of the State and the responsibilities of the citizen have taken place alongside other social changes, notably in a marked growth in civil society and an expansion in the diversity of its forms, accompanied by a crisis in older forms of community and in the family. The new forms of civil society have fought to find expression within political forms that struggle to accommodate them - neither eco-warriors nor Women’s Institute members appear to find appeal to their MPs to be of much value.

There is a sense in which the new forms of civil society are demanding the creation of new democratic and public spaces within social life. Such spaces are not necessarily antagonistic to, but certainly cannot be simply mapped onto, older forms of community and solidarity.

Government and civil society initiatives recognise this emerging need, which has recently transmuted into a demand for a renewed form of citizenship and for greater civic participation in policy making. This is the impetus behind the Mutual State. But, how can changing ideas about citizenship, democratic participation, community and the social good be linked to the changing role of the State and to a new vision of the relationship between the social and the economic?

The key issue here, as we have already stressed, is that communities and individuals need to be involved, alongside the State and professionals, in the design and delivery of public services. Adherence to this simple principle has the potential to bring about an enormous change in the way we think that the relationship of the public and the private and the role of the citizen in maintaining and developing that relationship.

In the past, the management of the public/private relationships was largely seen as the responsibility of the State. And, where the State could not or did not wish to function, then charity stepped in. Successive governments have wanted to shift some of that responsibility on to individual citizens, hence the calls for new forms of social contract that have characterised both past conservative governments and the current government. These new forms of social contract are not easy to establish and without a sound basis in participation can appear potentially coercive or neglectful, as Andy Roberts warns in his discussion of how new mutualism could be best introduced into social housing.

Social enterprises based on the principles of new mutualism do not just endeavour to step in to make up the deficit in the public/private relationship, but rather seek to reform and fresh it in an innovative way. They start from the principle that entrepreneurial activity can and should work for the public good. The basis for large-scale involvement of citizens in the design and delivery of public services would be a new notion of citizen linked to risk. One of the key factors in any enterprise is how risk is managed. In a private company, shareholders as owners drive the success of the company, and the returns on their investment are, in principle, a reflection of the risks they take as investors and owners.

The notions of risk and citizenship seem almost antithetical, and this is because historically the State has taken responsibility for managing the relationship between the economy and the social good, between the private and the public. In its redistributive function, the welfare state has traditionally operated as a mechanism for pooling resources in order to manage risk and meet needs. Through redistribution, the State ensures that those who cannot manage their own relation to the market are not disadvantaged and excluded. This is the theory. In practice, the reality has frequently been altogether more brutal.

Under the Mutual State, new forms of entrepreneurial citizenship would emerge that involve the pooling of risk - through mutual social enterprises - rather than simply the pooling of resources. The creation of social enterprises for the delivery of public services run by citizens for the collective social good, and thereby for their individual benefit, is a new way of managing a relationship both to the State and to the market. In order to pool risk effectively, such social enterprises would need to take new forms, both new forms of mutuality and/or new forms of social investment.

Why is social investment important? Social investment is linked to forms of ownership and it is this form of ownership that would drive the success of mutual social enterprises: the drive for social returns or dividends. Entrepreneurial citizens would take larger risks in order to safeguard their futures, and those of their dependants (children, elderly etc) through the more active management of the quality and delivery of outresourced public services.

The notion of citizen would draw on a much wider understanding of civil society and revised notions of community to include a broader notion of social investor. Under traditional co-operative structures, those who benefited from mutuality were the staff or employees, and their dependants. In the new form of social enterprise, it is not only the staff and employees who need to be participants, but all the relevant constituencies.

Tom Bentley in Section C argues that mutual engagement could become an indispensable part of the new education infrastructure. Imagine, for example, a scenario where a local social enterprise runs a local primary school. In such a case, it is not only the staff or employees of the enterprise who need to be participants, but the consumers (parents) and the supporters (grandparents, concerned individuals, local philanthropists, employers, local authorities). These individuals should have a mechanism whereby they can invest in education in their area and for their community. In other words, they should be social investors and equity holders. The relationship between equity and risk is crucial here, not only in relation to financial returns, but in relation to social ones as well. Accountability and transparency is based on equity holding and social return rather than simply on committee representation.

In Southern Europe, as Jonathan Bland discusses in section C below, changes in legal frameworks have allowed new models for growth and access to finance to emerge. Official recognition of the social aim of social enterprises is linked to their status, and restrictions are in place to prevent the demutualisation of successful entities. The result is that social enterprises can raise equity through capital or through financing members with limited voting rights. Investing members can be individuals, private sector companies or local authorities. The key to success here is social investment, where the return or dividend on that investment can be ploughed back into or retained by the community.

However, the notion of social investment underpinning the Mutual State is not just a matter of finance, but of investment of skills, time, and experience, as Angela Putman discusses in section C below. Stakeholders invest not just to return financial value to the community, but also to build capacity, employability, new skill sets and to reinvigorate the community itself. This is the true dividend on which entrepreneurial citizenship is based.

Multi-stakeholder governance
The mutualisation announcement by Alan Milburn, the Secretary of State for Health, in January 2002, that non-profits would be allowed a key role in the management of the National Health Service has brought health care mutuals to the fore. Alan Milburn said that new “Foundation Trusts” could operate as independent bodies, offering a much greater range of freedoms to manage local services, 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 “topdown” management from Whitehall;
• immunity to takeover by organisations which will not provide such benefits.

Health mutuals exist in many parts of the world and deliver primary and hospital care, as well as public health and ancillary services. These mutuals are most usually owned either by users (potential users), providers or non-co-operative enterprises interested in joint purchasing. Health maintenance organisations in the USA can be co-operatives and may organise primary and hospital care, care for the elderly, public health and ancillary services, and medical help lines.

In Japan, health co-operatives own and operate medical facilities, including screening and public health. Asset purchases are funded by member’s share capital, members’ loans and interestbearing bonds, and the income comes from public provision for health care, including social insurance systems, employer schemes, local payments and other charges. Such not-forprofit providers are dependent for the largest part of their income on the State. But members play a key role in raising capital and in providing additional revenues through copayments and other charges.

The UK National Health Service has always been free at the point of delivery and this principle has recently been reiterated in the new proposals for decentralisation. However, what makes potential health trust mutuals different is not just that they would offer greater freedom for managers but also that the members could begin to have a major say in how the service is designed and delivered and it is they who would decide whether co-payments or fixed charges for non-core services are appropriate and whether new income-generating opportunities could be developed or new funds raised by issuing ethical investment NHS Bonds.

What has still to be worked out is how the governance of such a mutual would work. In user or provider co-operatives of the usual sort members are able to vote, receive information and appoint board members. In the case of Japan’s health mutuals, utilisation committees made up of people directly elected by the membership work alongside the board of directors and the management. In the USA, special interest groups are set up from the membership to deal with special issues such as care for the elderly and mental health.

What is clear is that if citizens are to actively and seriously participate in the design and delivery of public services then health mutuals would have to have some form of multistakeholder governance. This would mean local citizens, staff and other stakeholders on the Board of Directors, but it might also entail multiple “Boards” - customer and user forums, employee councils and a community committee - whose members report to a stakeholder council that provides feedback to the main Board. The main Board of Directors would then have executive members, as well as representatives of the stakeholder owners.

The key here is the relationship between the stakeholder council and the main Board. A Board of Directors cannot create strategy, manage finances and monitor management at the same time as being representative of all interests. It is the stakeholder council that informs and is informed by the Board, thus bringing all stakeholders into processes of decision-making and ensuring full and appropriate information flow. Within the Mutual State, this model is not one that is necessarily based on individual membership as in the most familiar form of co-operative societies, but is one that allows both individuals and collective stakeholders - employers, unions, local authorities, higher education institutions - to be members, and to serve at all levels. Geraint Day and David Green discuss health mutuals and mutual health care purchasing in section C below, and they emphasise both the importance of getting governance structures right and the necessity to share risks through mutuality.

What is crucial in such a model is that multi-stakeholder governance allows not only for the participation of stakeholders, especially citizens, in the design and delivery of local health services, but it also allows each mutual social enterprise to form strategic alliances and relationships with other players in the local health economy. This is the critical added value of mutuality. The social dividend on social investment is a mutual web of public service provision, with co-operation built in not just to the culture of public services but into its institutions as well.

The model of governance developed for Foundation Trusts, alongside the pioneering work of Glas Cymru in the water sector, could provide the model for other public service sectors and for local governance as a whole within the UK. An agenda of building the Mutual State is now starting in earnest.