Charities must practice ‘governance for growth’ and not be afraid of being more commercial, says Stephen Lloyd.
Karl Marx was right. That might seem an odd conclusion to draw from reading the recent National Audit Office report on how government outsourcing contracts, from the work programme to tagging and GP services, have invariably gone to the usual suspects of four big providers. But if you read beyond the guff about socialist revolution, many of Marx’s forecasts have proved chillingly accurate – most notably his prediction that capitalism would eventually result in oligopoly and monopoly. In public services, that’s precisely the situation we are faced with - of a few big organisations getting richer and richer, destroying competition and the chances of smaller competitors, while in society at large the gap between rich and poor grows ever wider. We need genuine competition and obligations on suppliers which offer a fair crack of the whip to social enterprises. But they are being shut out by the oligarchy of the big four.
The government is pro-big business, not pro-market. It says it’s pro-market but it’s not. If the government was genuinely pro-market it would not want to see a few big players dominate because, as the NAO report makes clear, that’s hugely risky, as well as killing competition. The government has put all its eggs in one huge basket. It is awarding massive contracts that only massive companies with massive balance sheets are able to bid for.
We need a government that is smarter about commissioning and prepared to make the leap of breaking contracts up into smaller lots and imposing obligations on contractors which make it more likely social enterprises will win. And there is nothing to stop them doing that. Liverpool City Council, for example, requires that all contractors have to certify that the gap between their highest and lowest paid employees is no greater than 20. Since the average pay ratio in a FTSE 100 company is 435 that single requirement, if adopted by central government and other local authorities, would exclude, at one stroke, the oligarchy of big suppliers currently hoovering up most contracts.
But in order for social enterprise to present a real alternative to state and private sector service provision, there needs to be change on the other side as well. Charities have got to alter the way they view social enterprise and to become aware of the potential it holds. The transformation of Turning Point over the last 20 years, under Victor Adebowale’s leadership, shows what can be done, but Turning Point is the exception rather than the rule.
The truth is many charity trustees are intimidated by the idea of social enterprise activity. They are fundamentally risk-averse and have a completely different mindset from that of directors of commercial companies, who seek their role as taking risk, albeit managed risk. The average charity trustee regards their principal duty as that of a custodian, making sure they hand the charity over to the next batch of trustees in a reasonably safe state. This is, fundamentally, a conservative, holding role and a far cry from the adventurous, risk-taking and adaptive one that is needed. If charities are going to seriously engage with the potential that social enterprise offers, what is needed is governance for growth – trustees who are willing to put in the time and commitment but also willing to embrace an essentially different attitude and approach. Not all charities, clearly, can morph into social enterprises, nor should they try. But there are some that could.
The state we should be aiming for is a diverse of ecology of public service provision where the state, the private sector and social enterprise and mutuals all have a roughly equal role. In Germany, the most successful European economy, each of these sectors is responsible for a third of provision in health and banking. We should aim for that kind of settlement in both health and education in Britain. That would mean a genuinely competitive market. If one sector is not performing, another can take up the slack and show you can do things in a new and improved way. It keeps everybody on their toes. I’m not in favour of state monopolies in the same way that I’m not in favour of private sector oligopolies. I believe in markets but in controlled markets and markets that are made to work. At present, in public services, they aren’t.
If charities became more open to social enterprise activity and, at the same time, the government adopted a ‘social first’ approach to procurement, then we could change the nature of public service delivery in Britain.
