Your Questions Answered: Can Social Enterprise Save Public Services? Part 1

Last Friday, NESEP, Sunderland City Council and Hempsons Solicitors co-ran a conference in Sunderland tackling the questions around spinning out public sector services into social enterprise.

As one of the main speakers of the day, Geof Cox both did some mythbusting and outlined a framework approach to the question. In this, the first of a series of blogs emerging from the conference, Geof responds to some of the questions and concerns raised by delegates and those following the conference proceedings on Twitter.

Alan Wylie (‏@wylie_alan) asked a number of questions around how the need for significant income generation and profit can be reconciled with a public service ethos, and whether it’s really about an ideological agenda to dismantle or commercialise the public sector.

It’s very important I think to avoid a ‘conspiracy theory’ kind of approach to government policies.  While there is ideology in the mix of motives, some of this is based on genuinely held beliefs in the dangers of public ownership (which go back via Thatcher and Joseph to Hayek, who, although he was wrong, did I think genuinely believe there was a link between an over-extended state and the totalitarianism of both fascism and communism in the 20^th century).  There is also, of course, a less honourable ‘we can make some money out of this’ thread in some politicians’ thinking.  But alongside such doubtful influences there are also accurate perceptions of inefficiency and, more especially, lack of dynamism in many public services.

The great insight of social enterprise – that has really driven its growth over the last 2 or 3 decades – is that you CAN use business models and methods to achieve social benefits, rather than for private profit.  There are thousands  and thousands of social entrepreneurs out there making this happen, proving it every day of their lives – and they are a much greater challenge to business models based on greed and exploitation than any number of ‘ideological’ agendas – wherever they sit in the political spectrum.

We need precisely to get away from such entrenched ideology – get into the detail of what public services can work better as social enterprises, and which can’t.  Entrepreneurialism works more naturally in some areas (eg. arts and culture) than in others (eg. building control).

Why must it be a social enterprise? What are the alternative options?

It is useful to start looking at appropriate organisational structures for improved service delivery in terms of whether they remain owned and controlled by the Council.  At the extremes of this spectrum of models are the most familiar:

• keeping the service within the Council, or
• contracting out the service to an external provider

The ‘social enterprise’ options generally come between these extremes:

• An Arms Length External Organisation (ALEO) is a separate organisation from the Council but usually remains owned and controlled by the Council, with all of the advantages and disadvantages that this control implies.
• A Mutual or Co-operative Organisation is not owned or controlled by the Council, but by it’s own membership, which is usually made up of its staff, its users, or some combination of both, Formally, the Council just contracts service delivery to such a body just as in any contracting-out process; however, because such a mutual organisation has been shaped and is run by the Council’s own former staff and/or service users, it is likely to be closer to the Council than an existing or entirely new external provider organisation would be.
• Between these options we can put together a custom-built social enterprise organisation, which for example can include the Council in ownership and/or governance, but which is still substantially independent, and which may also include elements of management, staff and user participation in ownership and control. Because of its flexibility, this middle option will also be used where some kind of partnership or joint venture is required – for example where joint working with another public sector body is needed, or an existing local voluntary sector body could not take over a service, but can contribute to improved delivery.

It is important not to take a ‘one size fits all’ approach to choosing between these options, because the nature of an individual service, or its likely future – especially if this might require new investment – will impact on the choice.  For example, a pure service-user mutual might not be appropriate in a learning disability service, but an element of user participation in governance might well be valuable.

David Marshall ‏(@spatialsyndave)  had a more specific question: What’s the scope for social enterprises to run bus services if franchising is brought in for buses?

There is enormous scope for social enterprise in the bus industry David – indeed there are already a lot of social enterprise bus operators, the best known of which is probably HCT in London (http://hctgroup.org/the_hct_group_story), which has outbid the biggest commercial operators like Stagecoach on some routes.

As always with public service procurement, a lot will depend on the way in which services are contracted, and especially ‘added social value’ requirements.

Funnily enough, a report by the think tank IPPR just last month recommended a key role for social enterprise in the future of transport – I found this comment on that report by the CEO of HCT particularly apposite:

“The UK government spends £1bn on home-to-school and special-educational-needs transport.  HCT provides travel training to children with special education needs, giving them the skills and confidence to travel independently on public transport.  We can do this for a fraction of the cost most local authorities spend on the alternatives.  Why not use these savings to fund routes which aren’t commercially viable?”

— Geof Cox | http://www.geofcox.info