Has George Osborne discovered the Fourth Way?

This article was first published in the Public (Guardian) on 3 March 2010.

The public sector is too bureaucratic and inefficient. The private sector is profit-oriented and greedy.  Many centrist politicians, would consider that both these propositions are self-evident, and should provide the starting point for any reform of public services.  Hence the emphasis in recent years on the development of the "third sector" - the portmanteau term for charities and other not-for-profit organisations. 

Six or seven years ago the third sector was a fringe interest. Now it has its own sponsoring department within the Cabinet Office (the Office for the Third Sector) and there have been numerous initiatives designed to encourage third sector organisations to take over services traditionally delivered by the state.  Perhaps the best example is the launch by the NHS in 2008 of "The Right to Request" which gave NHS staff the ability to request the creation of a social enterprise business to deliver healthcare services to NHS patients.

So when David Cameron and George Osborne announced the new Conservative plans to transform the public sector by allowing public servants "to become their own boss" was this more of the same - or something radically different? 

Certainly the justifications seem remarkably similar.  The Conservatives want workers to "offer the public a better service the way you think it should be done, not the way some bureaucrat thinks it should be done" - not remarkably dissimilar to the stated aim of the NHS’s  Right to Request: to "give staff the opportunity to innovate and redesign services in flexible new ways". Both policies work from the assumption that smaller organisations run by the people working in them are more likely to be responsive and efficient. 

But there is a key difference: the Conservatives see the delivery vehicle being workers’ cooperatives - organisations run on mutual principles primarily for the benefit of workers - rather than social benefit organisations set up primarily to benefit the community. Of course a workers' co-operative can provide public benefits (as can a capitalist company) and social benefit organisations provide benefits for workers, but the purpose for which you are set up does matter and in practice may have many policy ramifications.

There are many policy issues to grapple with if the worker cooperative idea is to fly. For this to be attractive to the workers, they will need to feel that this does not prejudice job security, their terms and conditions or their pensions.  TUPE provides a theoretical protection for the job, but may be of limited help if the employing organisation fails. Assurances may be needed that if the venture fails the workers can return to the public sector (or at least to a subsequent service provider) but there is clear moral hazard in offering workers a heads-you-win-tails-you-don’t-lose kind of a bet. Also, ways will need to be found to allow these cooperatives to participate in state-backed pension schemes. Some public sector schemes, such as the NHS scheme, already allow this. Others will need to change.

For the authority contracting for the service all sorts of policy issues arise. What length of contract do you give the cooperative? Can you live with the loss of budgetary control? How do you specify service standards without creating the bureaucracy that this is designed to avoid? How far (and for how long) can you justify outsourcing a service without undertaking a tender competition in compliance with procurement law?

The interesting thing is that answers to many of these questions have already been worked out to allow outsourcing to social benefit organisations. The legal and practical solutions developed will provide a good starting point for developing the worker cooperative idea. But we should not gloss over the fact that solutions that are appropriate for an organisation set up for public benefit may need to change where the organisation is set up to benefit its workers. Grant funding, for example, seems rather more appropriate to the former than the latter.

Examples already exist of successful use of the third sector to deliver public services. The worker co-operative might be equally successful. But there are differences between the two types of organisation and these differences will need to be recognised. If George Osborne has not discovered a Fourth Way, he has at least found a detour in the Third Way, and the road map needs to be changed to accommodate this.

For further information, please contact Nicholas Thompsell.