Co-ops and mutuals: what risk for the public sector?

The values of mutualism featured strongly in the Conservative and Liberal Democrat manifestos at the 2010 General Election and specific policy pledges have since been made by the Coalition government to help develop public sector staff to develop employee-owned mutuals and co-operatives to deliver public services. This interest in mutualism is driven by the Coalition Government’s flagship agenda of the ‘Big Society’. By giving public sector workers a right to form mutuals and co-operatives, the government can claim to be making headway with the key themes of the ‘Big Society’ such as devolution of power to communities and offering a greater role in public services for voluntary and community organisations and other civil society organisations. But what impact may this agenda have for the future of the public sector?

As part of the Comprehensive Spending Review in October 2010, George Osbourne gave direct reference to communities running services, owning assets and a new right for public sector workers to form employee-owned co-operatives and mutuals to take over the services they deliver. Following this announcement, in November, Minister for the Cabinet Office, Francis Maude, unveiled new support for public service ‘spin-outs’ in the form of a new information line and web service (Mutuals Information Service), a £10 million investment to help best fledgling mutual reach investment readiness and a ‘Challenge Group’ involving employee-ownership experts to investigate ways to improve regulation. Francis Maude suggested prisons, Sure Start children’s centres and hospitals as examples of services that could become mutuals under the scheme. He hoped that private investors would put money into mutuals and co-operatives and said they may be able to receive financial benefit from doing so.

Is the government actually talking about co-ops? How robust, stable and sustainable is the Government’s approach to co-operatives and mutuals?

As defined by the Mutuals Information Service, mutuals are businesses that are owned by their members; which can operate as employee-owned, co-operative or wider social enterprises. They can include or participate a variety of commercial arrangements, including joint ventures with government or other parties.  Co-operatives are businesses that are fully or majority owned by their members – who may be employees, consumers, others in the community or a mix of these. Co-operatives work on one member, one vote – rather than one share, one vote. Key stakeholders, for example those involved in the umbrella organisation Co-ops UK, have met the Coalition’s interest in mutualism with a wary welcome. Concerns have been voiced over whether examples of ‘co-operatives’ actually are co-operatives, as identified by the principles outlined by the International Co-operative Alliance, or whether they have been labelled as such because of the policy currency of the term. Indeed, the introduction of public sector mutuals comprises a political risk to the public sector services, in that support for mutuals and co-operatives may be highly contingent. The achievement of future policy changes and associated national/ local objectives may contribute to the diminishing of governmental support for mutuals and co-operatives at some point.


How can public sector services be mutualised without the fear of diminishing employee rights, pay and terms and conditions?

Concerns have also been voiced over the lack of evidence of success for mutuals and co-ops in the delivering public sector services and so this agenda potentially presents significant risks for the quality of public services delivered. Lack of evidence of success of mutuals leads to key questions on the ‘real’ advantages mutuals have for their employees/ members. The Coalition’s claims ‘ownership, community, freedom, and entrepreneurs’ sound highly appealing, but the lack of evidence detailing the real possibility of these, suggests they are currently unsubstantiated . In fact, evidence on existing mutuals has suggested poor terms and conditions for employees, alongside poor pensions and salaries. There has even been the suggestion of forced membership due to employees feeling threatened or lacking other options but to join in with the mutualisation.


How do we ensure accountability in the development of public sector mutualisation?

Research indicates that it seems the Government’s approach to co-ops and mutuals contrasts with the principles outlined by the International Co-operative Alliance. Michael Stephenson, the General Secretary of the Co-operative party, warned that the government’s plans for public service mutuals fails to ensure accountability, a key international principle of mutualism. He argues “local libraries and swimming pools should be controlled by local people, and run in their interest, not just by the service managers”. In addition, transforming public sector services into mutuals or co-operatives takes local authorities out of the loop and thus they already start from a weakened position in terms of formal accountability.


How far are mutuals and co-operatives compatible with the public sector?

The opportunity for innovation and entrepreneurialism in the public sector is welcomed by many; with the hope that public sector potential may be unleashed by the development of co-operatives and mutuals. But of course this is process and context dependent; some public sector services may be non-starters for co-operative activity due to lack of capital or the questionability of sustainability. Mutualism can certainly be seen as a bright shining tool in innovating public service delivery, but like any tool, mutuals and co-operatives are only fit for particular purposes.

It has also been stated that there is a commercial risk to setting up co-operative activity in the public sector. There is a fear that once public sector co-operatives have taken on the service delivery and demonstrated the market, at the end of the contract, a private sector tender may be preferred. Market based contracts do not offer favourable tendering conditions for co-operatives. The lack of longer term contracts poses a commercial risk to co-operatives, as does the danger of relying on a single customer.


Is mutualism the first stage to marketisation? How can we prevent the fragmentation and further marketisation of public services under these arrangements?

This is perhaps the biggest concern many have towards the mutualisation of public sector services.  Echoing APSE’s Mark Bramah’s previous blog post on mutualism, there was a surge in the late 1980’s and early 1990’s to encourage public sector managers to set up management buy outs, however very few of these survived the competitive market, and passing trends in public policy. What is different in contemporary society? Certainly there are no government strategies as yet which ensure developed mutuals and co-operatives are protected from further marketisation. There is a clear lack of strategy from the government concerning the development of public sector mutuals and co-operatives in the UK. One has to question whether this is deliberate.

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