Snap!

by Chris Bertram on February 15, 2010

The policy rumblings before the British general election include an emphasis on the “mutualization” of public services.

James Macintyre in the New Statesman on Labour’s ideas for changing how public services get provided:

… strategists have settled on a big idea that might just help answer all three of those challenges – the idea of mutualism. Labour is focusing on the best-known modern example: the John Lewis model, in which every employee is a “partner” with a stake in the company. Applying this, Labour now believes public bodies can be part-owned by their staff and, where appropriate, their users.

Robert Peston, 15th of February on the BBC website under the headline The John Lewis State :

The Tory proposal for core public services to be owned and managed by “employee-owned” co-operatives contains a number of ideas rolled into one. The two most important are: 1) organisations perform better where staff have a direct financial stake in their success or failure; 2) the role of the state should be limited to providing funds and monitoring outcomes. This is not an example of Tory conversion to late 19th Century co-op socialism. Although the public-sector co-ops would be “not-for-profit” in the narrow sense of not being able to bring in outside capital that could receive dividends, staff would be able to get their mits on the “financial surplus” they generate. So the central idea is that primary schools or JobCentre Plus offices or community nursing teams would become much more productive if teachers, or job advisers or nurses knew that they would become richer from achieving more out of less.

Now I’m all in favour of mutuals, cooperatives, and so on (I wouldn’t have admired the late Colin Ward if I wasn’t), but this doesn’t sound like that. There seem to be two possibilities: either the mutuals have independent sources of funding or they don’t. If they don’t then the year that some happy band of teachers makes a profit by realizing “efficiency gains” is the year before the state cuts back its stipend, leaving them running around trying to repeat the trick with less the following year (and so on). If they do or can have independent sources of finance, then we also get progressive cutting back of state support whilst public sector employees run around chasing “opportunities”, devising ways of charging people for “premium” versions of the basic service, etc. And we can add into the mix the temptation that civil servants will have to write contracts for the mutuals that exercise massive control over the detail of what they do whilst leaving all the responsibility for failure with the co-op members. In fact, all of thus sound a lot less like a “John Lewis” state than a state modelled on the British university system. Good to know we’ll have a choice at the next election.

{ 45 comments }

1

alex 02.15.10 at 4:11 pm

Not so much cooperation as subcontracting blame for public-service shortcomings to those naive enough to form such partnerships. When we find both major parties advocating cooperative models for private enterprise, we might be getting somewhere.

2

Pete 02.15.10 at 4:55 pm

What about voucherisation for schools? More generally the funding problem is less acute if there are multiple organisations providing the same service which are paid on an equal basis, so an efficiency improvement can’t immediately be targeted for funding cuts.

Not that it will make a difference to the newspapers demanding that something be done by central government. Arguably you could call local councils “mutual”, and look what’s happened to them.

3

Maurice Meilleur 02.15.10 at 4:55 pm

The first option, under which finds for departments comes solely from government funding, would not be a problem if departments and institutions really do require cuts; it would offer the people working in them a one-time reward for deciding on their own terms what to keep and what not. But if their salaries will be tied to ‘surpluses’ on a recurring basis, then you’re basically tricking them into cannibalizing themselves, as Chris suggests. I don’t know about British universities, but the other option sounds like a formalized version of the informal ‘public servant as shameless rent-seeker’ that goes on in American state and federal governments. So, if you want to illustrate to someone how that would work out in practice, any good account of the revolving-door system and political corruption and cronyism in the US would work. Try Tom Frank’s The Wrecking Crew if you want to get angry really quickly. Or have them read Ken Silverstein’s blog, ‘Washington Babylon’, on the Harper’s website.

4

dsquared 02.15.10 at 4:57 pm

In fact, all of thus sound a lot less like a “John Lewis” state than a state modelled on the British university system

I think the idea is to combine the transparency and accountability of a PFI deal with the goal-orientation and commercial acumen of a university.

5

P O'Neill 02.15.10 at 5:02 pm

Another snag down the road would be the inevitable pressure to “de-mutualize” once some one finds a juicy bit of the public service that could be spun off.

6

Stuart White 02.15.10 at 5:21 pm

Chris – I agree the devil is very much in the detail and a lot of the talk about ‘mutualism’ at the moment doesn’t address the specifics of what is proposed.

So what would a ‘good’ model of mutuality look like? (I pose the question to the world in general, not necessarily just to Chris!)

7

Bunbury 02.15.10 at 5:45 pm

This sounds like the GP practice model but without a professional standards body.

8

Robin Green 02.15.10 at 6:26 pm

Not sure the university comparison is completely accurate. I work for a university which was founded in 1920 and has, according to my union branch, never made any compulsory redundancies, ever, and currently has a sizeable surplus. But perhaps it’s just an exceptionally well-run university…

9

Stuart White 02.15.10 at 6:27 pm

I thought I’d add that one example that gets frequently cited in the policy wonk literature on this topic is that of Greenwich Leisure Limited (www.gll.org). According to their self-description:

‘GLL is guided by a board of trustees, which is appointed on an annual basis at the general meeting. The board has representation from a number of stakeholders including customers, council, and the workforce. This stakeholder mix has helped create empowerment, enthusiasm and ownership at all levels of the organisation. In turn this has led to improved commitment and motivation of staff, resulting in an improved quality of service for customers.’

I think the GLL model is what contemporary Labour advocates of ‘mutualism’ have in mind.

10

Stuart White 02.15.10 at 6:28 pm

Ooops…the address in the above post should be:

http://gll.org

11

Chris Bertram 02.15.10 at 7:03 pm

_I agree the devil is very much in the detail and a lot of the talk about ‘mutualism’ at the moment doesn’t address the specifics of what is proposed._

I think the devil is as much in the environment as in the details. The danger for academics here is that, excited and flattered at having their ideas taken seriously by those in power, they end up providing ideological cover for a managerialist cost-cutting exercise. Actually, if anything that’s a somewhat benign version of academic psychology, since there’s also a material interest in getting involved: it ticks the box marked “impact”.

12

chris y 02.15.10 at 7:20 pm

I think the idea is to combine the transparency and accountability of a PFI deal with the goal-orientation and commercial acumen of a university.

I doubt if it’s the aim, but it’s likely to be the outcome. However, if they’re planning to pilot this nonsense in primary schools, ain’t gonna happen.

13

Bob B 02.15.10 at 8:02 pm

The John Lewis Partnership is a stellar example of a commercially successful workers’ or producers’ co-operative.

The challenging issue is why there are so few similar examples of successful producers’ co-operatives if this form of commercial organisation has so many advantages going for it.

14

christian h. 02.15.10 at 8:48 pm

Oh come on, no devil is in any detail. This is clearly just another third way waffle designed to hide the true intentions, namely cuts in services and wages.

15

chris y 02.15.10 at 9:01 pm

Charlie Mayfield (John Lewis CEO) has been well in with NuLab for ever, in various paid capacities which might not continue under a different government. I’m guessing that he has a lot of input into this, and that it’s his bid to worship the rising sun, rather than the setting. We’ll see, won’t we.

16

tomslee 02.16.10 at 12:19 am

Now I’m all in favour of mutuals, cooperatives, and so on…

Is there anyone who isn’t?

Tories, Labourites, anarchists, fabians, small-l liberals, socialists, free-market libertarians – everybody luvs co-ps and mutuality, but very few people actually work in one or buy from one, and many of those who do are lawyers. This must tell us something, but I’m damned if I know what.

17

tomslee 02.16.10 at 12:19 am

Now I’m all in favour of mutuals, cooperatives, and so on…

Is there anyone who isn’t?

Tories, Labourites, anarchists, fabians, small-l liberals, soc1al1sts, free-market libertarians – everybody luvs co-ps and mutuality, but very few people actually work in one or buy from one, and many of those who do are lawyers. This must tell us something, but I’m damned if I know what.

18

guthrie 02.16.10 at 12:37 am

Wait a second – how great is John Lewis’ anyway? A friend of mine works for them and he had to have his 2010 holidays, all of them, in before the end of 2009.

So on paper, the employees own part of the business, which means the profits get shared out. But who makes the decisions about what gets done, from hiring and firing to store expansion/ contraction?

As for the rest of the idea, surely this is just another political idea whereby they maintain control of the money whilst foisting the responsibility onto someone else, and also letting the others take the blame when it doesn’t work.

19

Joshua Holmes 02.16.10 at 2:40 am

Having had fake capitalism, Britain might as well have a go at fake mutualism.

20

dsquared 02.16.10 at 7:06 am

#15, #16 – quite – I have a friend who works for an employee-owned partnership called Clifford Chance and they’re not all that great on work/life balance either.

21

Chris Bertram 02.16.10 at 7:31 am

#16 Well it is a successful business, and I think conditions for “partners” are better than at its main competitors. Both of my children has spells in menial positions working at John Lewis or Waitrose, and they generally got a better deal than their friends at Tesco. As for decisions: yes, quite right, it is centralized and hierarchical.

On the other hand, the point you make in your final para is basically what I was saying in the post.

BTW, if anyone caught Philip Blond on Newsnight last night, he avoided all questions about cost-cutting by declaring that this proposal is “innovation” and saying that this was the first time ever that there had been a departure from the “monolithic” delivery of public services. Quite why the Tories let a failed theologian from an ex-poly front for them on this rather than someone who knows something about the welfare state and its history, I don’t know.

22

Ciarán 02.16.10 at 9:27 am

saying that this was the first time ever that there had been a departure from the “monolithic” delivery of public services.

I’m sympathetic to Philip Blond. Writing and impact and shit is hard enough without having to go and read all those damn books.

On the substantial point of the post, this looks like a weird new step in the UK’s bureaucrats are bad; teachers and nurses are good…so let’s liberate the bureaucrats we hired to monitor our targets for teachers and nurses so that…er…um….let a thousand flowers bloom, on target and on budget!

23

Zamfir 02.16.10 at 11:10 am

The challenging issue is why there are so few similar examples of successful producers’ co-operatives if this form of commercial organisation has so many advantages going for it.
I think the economists, god bless them already have a mathematical model for this question. It’s actually a fun analysis, don’t know how true it is.

The basic idea is that for a well-run, profitable firm, a new employee is likely to be less productive than the current firm average. Basically, it has some form of hidden capital in the form of particularly good working relations or a good location or a good idea, and this hidden capital will not scale perfectly when hiring more people.

So in general, the better run and more profitable an employee-owned firm is, the less willing its employees are to expand and share that profitability with new people.

Note that most employee-owned firms, like architects, lawyer’s partnerships or dentists, are hardly more than a shared (rented) building, name and staff. Partners bring their own business to the partnership and are paid from their own clearly separable part of the business. In a sense, taking on a new partner is more like extending an alliance than hiring a new employee.

24

Paul M. Cray 02.16.10 at 11:38 am

>>> a failed theologian from an ex-poly

Blond was until recently a lecturer in theology at St (or just S. for some reason when I was there in the early 1990s) Martin’s College, originally an Anglican teacher training college, now part of the University of Cumbria. It was certainly never an polytechnic, although some of the other bits of the U of C had, it seems, some kind of association with the former poly, the University of Central Lancashire, although probably not in its actual Preston/Lancashire Polytechnic days.

25

shwe 02.16.10 at 11:54 am

How is the idea of the mutual going to be any different from the current set-up for GPs? Where it is not at all clear that we get value for money nor heightened levels of performance in terms of patient care.

26

shwe 02.16.10 at 11:56 am

and as a user I have not been massively impressed by GLL.

27

Chris Bertram 02.16.10 at 12:08 pm

_I think the economists, god bless them already have a mathematical model for this question. It’s actually a fun analysis, don’t know how true it is._

That’s right, though whether the reasoning corresponds to the way the world actually works is up for discussion I suppose. I remember an economist explaining to me once that bodies like the Automobile Association couldn’t possibly exist, on a priori grounds. He wasn’t at all abashed when I pointed out that they do.

28

cerebus 02.16.10 at 12:44 pm

The right and left are interested in mutuals for different reasons. The right sees it as a way to reduce the size and scope of the state. The left sees it as a stepping stone to abolishing a market based capitalist order.

Syncretist efforts notwithstanding.

29

alex 02.16.10 at 12:51 pm

@27 – so who was taking the piss out of whom there?

30

ajay 02.16.10 at 1:01 pm

everybody luvs co-ps and mutuality, but very few people actually work in one or buy from one

John Lewis and Waitrose, as already cited, not to mention that lots of people will use lawyers, doctors etc who are often part of a mutual.

The basic idea is that for a well-run, profitable firm, a new employee is likely to be less productive than the current firm average. Basically, it has some form of hidden capital in the form of particularly good working relations or a good location or a good idea, and this hidden capital will not scale perfectly when hiring more people.

So in general, the better run and more profitable an employee-owned firm is, the less willing its employees are to expand and share that profitability with new people

This seems like a rather dodgy analysis. It might just about work for, say, dentists, but for more complex structures – not really. What about the economies of scale and network effects of expanding? What about the return down the line on investing in new staff now? Why shouldn’t that hidden capital scale perfectly, anyway?

31

Richard J 02.16.10 at 1:04 pm

Zamfir> That may have been the case 20-odd years back (and still is so in some places, particularly the Continent), but these days, in my experience, most big law firms are slowly moving towards a more-conventional business structure, in which the partnership legacy is essentially becoming more and more just a very large profit share, a funny tax treatment and a fancy title.

32

Zamfir 02.16.10 at 2:32 pm

Richard, I am actually from the Continent, and when it’s stormy in the Channel I feel quite isolated.

This seems like a rather dodgy analysis. It might just about work for, say, dentists, but for more complex structures – not really. What about the economies of scale and network effects of expanding? What about the return down the line on investing in new staff now? Why shouldn’t that hidden capital scale perfectly, anyway?
Hoho, we’re doing economics here, so it’s diminishing returns until you made it to the advanced class.
But even with economies of scale, it would still be better for the original employee-owners to hire a new non-owner employee and keep all the economies of scale to themselves.

I’d say the model does give some limitations on an employee-owned firm that fit well with reality. John Lewis breaks them all, but then John Lewis is pretty unique and I can’t really judge how it works out in practice.

Most firms do have diminishing returns on more labour. If you have a popular shop, you can’t just take on more employees and expect business to grow at the same rate.
Of course opening new shops in different locations can be pretty much linearly increasing in business, and you’ll find that shopchains mutually owned by their franchises are a lot more common then chains owned by their employees.

Of course, capital of the not-so hidden kind is another problem. If you’re a factory and each new assembly-line worker has to buy a share in the factory, it will be much harder to get steady supply of workers (not to mention that workers should be very worried about getting shafted by overpaying for their share).

I understand that a partnership in John Lewis is technically worth tens of thousands in owning the book value value of the company. Imagine that every cashier there had to buy himself in at the start and got the money back when he left.

33

Richard J 02.16.10 at 3:45 pm

Zamfir> True, but US and City law firms are, generally, the dominant players in the global legal market these days (albeit having grown in an interestingly different way to the global accounting networks).

I understand that a partnership in John Lewis is technically worth tens of thousands in owning the book value value of the company

Most professional partnerships require several hundred thousand (EUR,GBP,USD) of partnership capital to be contributed, which is almost invariably sourced by a bank loan, so its not an insurmountable difficulty.

34

chrismealy 02.16.10 at 6:00 pm

Paul Samuelson had a great line: “Remember that in a perfectly competitive market it really doesn’t matter who hires whom; so have labor hire capital.”

Bowles and Gintis spent the 1990s promoting worker-owned cooperatives (they use the term democratic firm) on efficiency grounds — lower effort monitoring costs and higher effort — but they seemed to have given it up. I think they decided that workers generally don’t want to keep all their eggs in one basket. People don’t want their life savings and their job all tied up in the same firm.

I’m not sure what difference in work effort you could expect from a rational worker owning 1% (or less) of a firm versus 0%, but I’d still rather work for a coop or a customer-owned coop (like Vanguard or REI) than a conventional firm. If that’s irrational then score another point for behavioral economics.

35

chris y 02.16.10 at 7:08 pm

John Lewis breaks them all, but then John Lewis is pretty unique and I can’t really judge how it works out in practice.

Nearly as well as this.

36

leederick 02.16.10 at 8:07 pm

I think it’s a bit of a mistake to equate partnerships with co-operatives and mutuals.

37

Richard J 02.16.10 at 11:18 pm

I think it’s a bit of a mistake to equate partnerships with co-operatives and mutuals.

God no; knowing how a professional partnership works in practice is useful only for getting a handle on medieval politics.

38

chrismealy 02.17.10 at 5:14 am

Hmm … my comment’s in moderation. I didn’t refer to the dreaded ism that is social. Could it have been “Samuelson”? “capital”? “Labor”? “REI”? “eggs”?

39

chrismealy 02.17.10 at 5:15 am

“Samuelson”? “capital”? “Labor”? “eggs”?

40

chrismealy 02.17.10 at 5:16 am

Eggs?

41

Chris Bertram 02.17.10 at 8:53 am

Sorry chrismealy – I’ve no idea either!

42

Anarcho 02.17.10 at 8:56 am

Talking of mutualism, there will be a new Proudhon anthology out later this year by AK Press. Some of the contents are on-line:

http://www.property-is-theft.org

Proudhon did suggest turning state functions over to workers associations (co-operatives) as part of a transition to libertarian socialism, but he did not stop there — he wanted all workplaces to become co-operatives. This was part of ending wage-labour. For more discussion, the introduction to the anthology is also on-line:

General Idea of the Revolution in the 21st Century

Iain

43

Zamfir 02.17.10 at 9:03 am

eggs. Sorry, I had to try this.

44

Chris Williams 02.17.10 at 11:48 am

Has anyone mentioned the Aberdeen Shore Porters yet? Usually they get a mention around comment number 40 in any thread involving co-ops and mutuals. Oh, wait, I just did.

45

Mark @ Israel 02.22.10 at 8:04 am

In my own opinion, I think this “mutualization” can have a positive effect. It might result to employees being motivated to work and take part in the operations of the company because they can benefit out of it.

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