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Beyond the public sector

Support for the 'third sector' of social enterprises, charities and the like has never been stronger. Martin McIvor considers how to prevent it turning into backdoor privatisation

November 1, 2006
6 min read

Opposition to New Labour’s programme of marketisation has provoked a noticeable shift in the debate on public service ‘reform’.

In place of a supposedly pragmatic instrumentalism – ‘What matters is what works’ – there is now increasing obeisance paid to the notion of the ‘public realm’, with the rider that this should not be equated with the ‘public sector’.

It has been widely argued (independently of, and long before, New Labour) that an expansive concept of the public realm should recognise the importance of a host of non-state bodies and initiatives, such as charities, voluntary organisations and mutual and social enterprises. Progressive governments, it is proposed, should support this social economy as an integrated extension of the welfare state. They should also consider whether existing services might be better run as ‘mutual’ or ‘social’ enterprises, freed from ‘Whitehall control’ and shaped by their own users and staff.

This agenda has been enthusiastically promoted by bodies such as the Association of Chief Executives of Voluntary Organisations, the Co-operative Party and think-tanks such as the New Economics Foundation. And shortly after the last election Tony Blair ordered ministers to inaugurate ‘a step change in the provision of public services by social enterprises, charities and other third sector organisations’.

Important areas of expansion include the NHS, where primary care services are to be relaunched as independent ‘social enterprises’ contracted to local NHS trusts; housing, with a major injection of investment in registered social landlords expected; and local government, with the Local Government Association now suggesting that half of all council services could be outsourced to not-for-profit providers by the end of the decade.

The effects on the quality of services are hard to predict. Some fear that competition for contracts and dependence on private finance can force non-profit bodies to behave in an increasingly commercial manner – cutting costs and maximising surpluses by exploiting users (increasing charges and ‘dumping’ difficult cases) and staff (pay and conditions in the non-profit sector do not always compare well).

Whatever their explicit mission or governance structures, third sector organisations may need to mimic the private sector if they are to survive in a market environment. Barry Knight of Centris, a think-tank that has conducted an ‘Audit of Civil Society’, describes ‘a huge growth in the professionalised voluntary sector, largely due to government contracts and the adoption of private sector techniques in marketing and public relations’. Figures from the National Council for Voluntary Organisations confirm that under Labour the ‘third sector’ has grown significantly, but become more dependent on state funding, which increasingly comes through contracts rather than grants.

Such worries are fuelling resistance to the policy of turning public services over to voluntary or mutual organisations. In June this year, 84 per cent of primary care staff in Surrey voted against transferring to a new firm set up to spearhead Patricia Hewitt’s ‘social enterprise’ policy, with the Unison and Amicus unions citing concerns over quality of care and employment conditions.The handover of council estates to housing associations and ‘arms length management organisations’ (ALMOs) has also run into trouble with tenants voting against stock transfers and increasing calls for a ‘fourth option’ of direct investment by local authorities.

A PCS union report on the outsourcing of employment services concludes that ‘there are serious questions about the capacity of the third sector to cope with a large scale increase in contracting out and questions of whether this would be appropriate even if the capacity exists’.

PCS leader Mark Serwotka argues that ‘this is “soft” privatisation, with the voluntary sector opening up services for contests which can subsequently be won by the private sector’.

Sarah Gorton of Unison has made a similar point in relation to local government waste and recycling: ‘At the start people were well motivated and knowledgeable and set up nice little social enterprises. But within five or six years, a lot of them had been bought out. Now the services are run by multinationals.’ These are important issues, which are in danger of polarising activists and thinkers between those defending the public sector from marketisation and those championing third sector models.We need to identify criteria for getting the relationship right and avoiding the third sector being a stalking horse for privatisation.

A good place to start would be a recognition that complex services, in which strategic planning, efficient integration and the maintenance of universal standards are at a premium, are likely to suffer when ownership is fragmented, resulting in increased transaction costs and risking the emergence of unaccountable local monopolies. Much of health care, for example, would arguably fall into this category (as would ‘network utilities’ currently in private hands, such as the railways). In these cases public ownership is the best option – which is not to say that we shouldn’t always be looking for ways of decentralising control and increasing staff and user involvement.

On the other hand, third sector organisations are clearly important in meeting needs where the public sector has not shown the requisite flexibility or responsiveness. Where this happens, we need sufficient space for experimentation – as well as a public sector that can learn from and take on these new functions itself when it can perform them more accountability or efficiently.

The functions that should remain in, or be transferred to, the third sector, would be those whose effectiveness and value could be enhanced by independence from the state – initiatives facilitating the selforganisation of particular communities or vulnerable groups might be a good example. The challenge is to support such activities without rendering them dependent on government grants, or pitching them into competition for service contracts. And we must be sure that they are not merely offering a ‘cheap option’ at the expense of disadvantaged staff or excluded users.

What all this means in practice remains a matter for serious inquiry and debate on the left. But unless some common cause can be made on the basis of shared principles and commitments, the only winners will be those private interests who have proved so adept at exploiting our confusions and divisions.

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