Why the UK's public service mutuals must be viewed with caution

By Stephen Easton

September 23, 2015

This time last year, former federal front bencher Kevin Andrews was quite taken with the idea of public service mutuals and, as Minister for Social Services, enthusiastically helped the sector’s newish peak body launch a white paper on the topic.

“Indeed, I am extremely pleased to be here this morning, because the Business Council for Co-operatives and Mutuals exemplifies the philosophical world view that governs the Liberal approach to public policy,” Andrews told the BCCM’s guests in a committee room at Parliament House last September. Individuals working together to “achieve good things through self initiated co-operation rather than through state-imposed sanction” went hand in hand with small government, he contended.

“It absolutely must be driven by the staff. They have to want it, and not only want it but it has to be at their initiative.”

Encouraging public service business units to morph into genuine workers’ co-operatives could deliver a range of benefits including improved service quality and productivity, advocates like the BCCM argue, as well as better outcomes for employees than either privatisation or continued public ownership can deliver.

The United Kingdom’s current public service mutual program, begun by the coalition government in 2010, promised an improbably large and rapid expansion of PSMs and all the attendant benefits. Five years later, neither has materialised at anything like the scale that was originally talked about. The government continues to celebrate the project as though it were a runaway success, but its achievements are mediocre.

Closer to home, a Senate inquiry is looking broadly at the role member-owned organisations can play in the economy, and has received an interesting array of submissions. The Community and Public Sector Union is not alone in its concern:

” … that the current debate around public service mutuals is part of a privatisation agenda which will result in reduced services to the Australian community.”

The CPSU correctly points out that a lot of newer PSMs created in the UK are not actually mutuals, but in fact “mutual joint ventures” without majority employee ownership. And it argues persuasively that a lot of the apparent evidence of their supposed success does not stand up to scrutiny, adding:

“The Association for Public Service Excellence (APSE) has noted that the policy debate about co-ops and mutuals in public services has been dominated by and is reliant upon a small number of ‘exemplar’ case studies. It also noted that much of the available evidence is written by organisations seeking to advocate for a greater role for co-ops and mutuals in the delivery of public services. Where information is available from independent sources, it suggests in many instances that the quality of the service has actually declined.”

The union then demolishes one extremely dubious case study, cited last September by the BCCM in the green paper that preceded its white paper, which made it into the news at the time. Put simply, we were told the Cleveland Fire Brigade in northern England had become a PSM and this led to a large reduction in property fires. This was not true; any reduction must have been due to other causes. As the CPSU wrote in its submission this July, the UK Fire Brigades Union confirmed:

“Cleveland Fire Brigade has not been converted into a mutual as the requisite changes to legislation have not been passed. Furthermore, fire fighters continue to oppose the proposal with a YouGov poll of members showing that 97% of FBU members oppose mutualisation.”

Empowering employees

The BCCM actually shares the union’s worries about the UK government’s model for “public service mutuals” that aren’t really mutuals, according to chief executive Melina Morrison.

Melina Morrison
Melina Morrison

“We would agree with a lot of what the CPSU is saying,” Morrison told The Mandarin. “There can be ideological capture, where what is actually occurring is not a mutualisation, it’s a privatisation. And that causes a lot of brand damage for the co-operatives and mutuals sector, as it has in the UK.

“There should always be majority ownership by the employees for it to be called a mutual. They have to have meaningful ownership and control, and it has to be majority ownership.”

She also says a push towards public service mutualisation must not be allowed to become “a gravy train for consultants” or something which is forced on existing public servants.

“It absolutely must be driven by the staff,” said Morrison. “They have to want it, and not only want it but it has to be at their initiative.” She says the purported benefits to clients, staff and the taxpayer over other business structures can only be achieved via “meaningful engagement of the employees in the businesses”.

Alan Greig sits on the board of one of the BCCM’s member organisations, Employee Ownership Australia. The former New South Wales public servant has a long background in social enterprise and various forms of collective ownership and governance.

“The well known impact of employee ownership is productivity improves, [and] organisational changes are made so that you do get a better result for your business,” Greig told The Mandarin. “People not only work harder for it, but they’re more interested, more informed and they do their jobs better.”

The idea of public servants choosing to take possession of the service delivery units they work for and running them under contract can work, he contends, pointing to earlier examples of staff-led PSMs in the UK established under Gordon Brown’s Labour government before it was voted out in 2010.

“Some of the best ones started [under Brown] and they started through the employees themselves putting their hands up and saying: ‘We want to do this,'” he explained. “The laws were put in — ‘right to request’ and ‘right to provide’ laws — which empowered them to be able to do that and made sure that centralised management could not stop it.”

Greig says the first 50 or so that emerged back then were generally very successful, giving Central Surrey Health as one example. After that, things started to change. The government was using the term to describe what were really privatisations.

“Public service mutuals was used incorrectly as a term for them,” said Greig.

“Like Circle Health. It was regarded as a public service mutual but it was in fact a management buy-out. The 30 most senior staff bought it out with a hedge fund owning the [majority] and it’s had all the problems of the management buy-out. They’ve tried to strip assets, cut corners and they’ve been pinged for the poor quality of the services they’ve been providing in the health area. It’s not a public service mutual.”

Have the Liberals lost interest?

Scott Morrison took over the social services portfolio from Andrews after the 2014 Christmas break, and PSMs seemed to go on the backburner, along with the planned abolition of the Australian Charities and Not-for-profits Commission.

However, early exploratory plans put in place by Andrews did continue. The Civil Society National Centre of Excellence was established under Morrison, and a misguided early attempt to portray it as a replacement for the ACNC sensibly abandoned. Also, four “pathfinder case studies” of exemplar public service mutuals in health, housing, disability services and aged care, funded by the Department of Social Services, have been completed and will soon be made public. The BCCM will host them on a new website branded “Get Mutual” which it hopes to launch very soon.

Melina Morrison says the discussions did continue behind the scenes when the other Morrison was minister; he was “very interested in learning about the potential role of co-operatives and mutuals in public service delivery” and saw value in funding the case studies.

“We see lots of opportunity to open up the discussion around staff-led mutuals, but there needs to be a dialogue with the people who deliver these services, and their unions.”

The emergent peak body is also buoyed by the appointment of Tony Stewart, the group CEO of NRMA, one of Australia’s biggest mutuals and an influential member of the BCCM, to the Prime Minister’s Community Business Partnerships Committee. “So there’s now a mutual leader been appointed specifically because government recognises that mutuals are really important to community investment and partnering with government,” its CEO said.

Nonetheless, there are doubts among some of her constituency that the role of co-ops is a priority for the Coalition, and it remains to be seen what impact the Senate inquiry has. It’s also too early to tell if the new Social Services Minister Christian Porter will put PSMs on the agenda, but he is part of a small group of government MPs who are positive about the potential benefits of employee ownership, in the more general sense. Of course, the idea of PSMs need not be confined to his portfolio, but it is a unit within DSS with responsibility for the policy area.

Greig says Malcolm Turnbull is also “one of the better informed Parliamentarians” on the general topic of employee ownership, which is mainly found in the private sector in various forms of profit-sharing bonuses and share schemes.

“Hopefully, [Turnbull becoming Prime Minister] will change the landscape for the progress of employee ownership in Australia,” said Greig, who also works for The Mercury Centre and is a director of Social Business Australia.

“We have a lot of catching up to do to meet the same levels of employee owners amongst the workforce as exists in other developed economies.”

How could it work?

Greig sees decentralisation as a way to “solve problems at the local level rather than waiting for command-and-control management”.

“And that’s where I think public service mutuals do have a role to play,” he told The Mandarin. “There are many services within government I think you can decentralise.”

Alan Greig
Alan Greig

Australian Hearing is one example. The government-owned service provider is being considered for privatisation, which could result in it being bought by one of the massive global hearing aid suppliers that dominate audiology services in Australia, such as its main supplier, Siemens.

If it came to pass, Greig suspects the outcomes for clients would be worse. “But they could decentralise their outlets around the Australia into a small number of employee-owned services that could provide a wider range of services than just hearing services, to the same group of customers,” he suggested.

“Certainly the employees or some of the employees were interested in doing that, but the government has not pursued that further and I think it’s continuing with privatising it. Whereas if you sold it to employee owned public service mutuals that operated at the local level, developing relationships with consumers and doing a better job for them, then you would improve the service.”

Co-ops and mutuals have existed for well over a century, many of them very successful, socially responsible organisations with highly engaged, happy staff. Some of the famous Rochdale Principles of co-operative ownership written in 1844, like anti-discrimination and concern for community, demonstrate the venerable movement’s traditional ideals mesh well with an idealised public service ethos.

“We see lots of opportunity to open up the discussion around staff-led mutuals, but there needs to be a dialogue with the people who deliver these services, and their unions,” Melina Morrison said.

“This is really important. Apart from the consumers, they are the other stakeholder which is absolutely critical to the success of businesses in terms of cost savings and efficiencies.

“We believe that no-one knows better how you can save money and improve service delivery than the people who actually deliver the service. And in fact, if anything, we probably have a management-driven culture, where employees, both remunerated and [volunteers], are not really seen for their true value.

“So, unlocking their entrepreneurialism and unlocking their capacity to design efficient, effective and sensitive businesses is a great opportunity.”

The BCCM’s main recommendation to the Senate committee around PSMs is simply that when governments start thinking about privatising a particular entity, they should always consider selling it to a member-owned outfit as an alternative. The NSW government recently did this, and ended up choosing to sell its home care service to Australian Unity, although from an employee’s point of view, the deal itself is much more like a typical acquisition by any large non-profit.

The Mandarin asked Morrison to sketch out what it would look like if a genuine employee-owned public service mutual did successfully ‘spin out’ of government, as the process is known in the UK. As well as majority member ownership, she said it would need “innovative and effective governance structures” to succeed, which would give stakeholders such as government and consumer representatives a seat on the board.

She says that while the UK has played host to a few recent disasters, there are also lessons to be learned from these. She reiterates Greig’s point that there are good examples to follow there as well.

“We’re looking to the sustainable staff-led mutuals we see in the UK that have shown success over time in areas like the management of leisure services at the local government level, where the inclusion of staff has led to, over time, the improvement of these assets,” Morrison said. “So, more community service provision, high staff engagement and productivity, better enterprises and better outcomes for the different stakeholders.”

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