Can social enterprise save public services?

The forthcoming conference on this theme led me to post the question 'Can social enterprise save public services?' on social media, which elicited one immediate response of 'NO!'NESEP Brochure

This reminded me of a public service transformation I worked on exactly 20 years ago this summer.

In January 1995, Newcastle Council made a £240,000 cut (84%) in its instrumental music teaching service.  The Musician's Union sent me in to help the teachers facing redundancy to save the service.  We quite explicitly wanted to blend a public service ethos with the dynamism and flexibility of a business.  Together, we set up the North East Music Co-op (NEMCO) - which in its first year grew from the initial 18 teachers to 33, and approximately doubled the number of pupils taught.

How on earth did they do this with just 16% of the former budget?

The answer to this question holds many of the answers to the bigger question of whether social enterprise can save public services.

On one level – predictably – we 'saved' the service by charging for it.  But it was not as simple as that.  Previously, the Council had indeed provided a number of free hours to each school, but then charged for any additional hours.  Schools, in turn, were free to charge parents for all hours, or to meet any additional costs themselves through school funds, or indeed to pass on the free hours and charge for additional hours.  The 100 or so schools in Newcastle each did things differently.  NEMCO introduced a simple hourly rate – for every school, for every hour – but, crucially, below the rate the Council had been charging for additional hours.  The Council's system had produced some bizarre distortions – for example, the more pupils classroom music teachers encouraged to learn an instrument, the more their school paid out, while schools less committed to music got everything free.  With NEMCO, while some complications remained - some schools still chose to meet some of the costs out of school funds, while others passed on all the costs to parents - classroom music teachers generally liked the simplicity and uncomplicated incentive effects of the new arrangements.  Some schools and parents – those that put most emphasis on music – actually saved money.

The specialist instrumental teachers were also happy - because they were now in charge.  Within the Council, teaching was almost entirely limited to orchestral instruments.  Now the teachers were free to introduce entirely new options – electric guitar, steel drums, music technology – things that inner city kids actually wanted to learn.  That's the main reason why the number of hours taught DOUBLED in the first year.  And this, of course, started to make the whole service much more cost effective – and further hold down prices.  It was in fact an object lesson in what is often wrong with public provision, and what the creativity and flexibility of social enterprise can put right.

Did anybody lose out? Sure, we could see that some kids who had some free hours before now had to pay from the start – but we tried to mitigate this by setting up a fund for bursaries for hard-pressed parents.  Nobody believed this was the prefect solution – it introduced, in effect, an element of means-testing – but overall my judgement was, and remains, that we not only 'saved' the service, but greatly improved it.  I don't believe you can really argue with the fact that far more children have learnt to play musical instruments, and far more musicians have been employed as teachers, because of what we did those 20 years ago.

There are some post-scripts to the story too...

  • 20 years on NEMCO is still going strong - so much so, in fact, that at one stage, when times had changed, the Council tried to take it back in-house!
  • The Musician's Union asked me to write a guide to the development process, which they called Are You Ready For A Brand New Beat?
  • This was followed by a number of other music teaching services across the country.  One of these, the Swindon Music Co-operative, was led by David Barnard, who has recently rewritten my old guide for today's music teachers.

So what does this mean for the big question of whether social enterprise can save public services?

As with many big questions, it depends on what you mean by each of the terms. One crucial perspective is to see 'social enterprise' not as a noun (a kind of organisation), but as a verb – something that can be done by any kind of organisation, or within part of a larger organisation.  This is crucial, because it helps us start NOT from the question 'how do we spin this service out?' (as I'm afraid some advisers do), but with the more important question 'how do we improve this service?'

Sometimes – often, I would argue - when people seriously follow through this question they will conclude that 'spinning-out' will indeed enable some of the solutions.  With NDTi I'm currently working with a number of social work departments trying to embed their work in local communities.  For most, moving out into a separate community-led organisation is a crucial step along this path – but not for all.  At least one service, for legal reasons, must remain within the Council.  Can they become 'social intra-preneurs' – bringing key aspects of social enterprise within the Council itself?  I'm not sure – but I know it's important to try.

The question 'can social enterprise save public services?' is of course a deliberately provocative formulation, even perhaps implying that social enterprise might replace the public sector.  Well it can't do that - nor would anybody actually want it.  There are many things that the public sector should do directly, or can do better than any independent organisation.  But if we mean 'are there some public services that can be sustained, and improved, by making them more social-entrepeneurial?' then I'm sure the answer is a very clear 'YES!'

Find more details on the Can social enterprise save public services? conference on my News page

See also...

Social enterprise thwarted by statism and corporatism alike

I come to this meeting with an open mind Geof. My experience over the last 20 years of running a small business and then a small secondary coop based upon the NEMCO model is that social enterprise can be thwarted by statism and corporatism alike. Over the years I have seen the NHS pendulum swing from left to right and it goes fastest past the middle where social enterprise should be strongest. I offer an example

There was a tender for ultrasound equipment service. We offered a service based upon a contingency service model and threw in a emergency ultrasound scanner to meet service uptime guarantees. The question came back, why would be use a external bunch of physicists when we have a perfectly good set of our own?

Well we offer to take monies out of the hospitals and draw down from the pot for equipment failure. We carry over the monies into the folowing year so in effect the money is spent and does not have to be returned to the Dept of Health....Ho! they said...not thought of that. But your in house team have been supplying this service without competition for many years, Why have they not been innovative?

I asked, do your in house team offer an emergency scanner Why Not? Because they are risk adverse and would not dream of putting up their house as a risk to improve the service uptime.

Meanwhile the corporations backed by pension funds and safe bank lending sit back and charge the NHS including a healthy profit for their services. Why do you think they go to such lengths to protect their interest?

Was a John Lewis model ever considered by left or right of politics for rail, housing, postal services or So again I come ith an open mind but I suspect what will be offered for social enterprise will be the most undersireable pieces of any cake. You just cannot take power from greedy self interested hands of any persuation, common good does not come into it. There is the further question of IR35 and the secondary coop model of self employed under a PCS would have to consider costs of T&L which earlier secondary coops where not subject to.

One recent issue we have been struggling with is "ownership", which I am hoping we now have a solution for, which offer to contribute to this blog. Occastionally members have played "pass the monkey" which has resulted in customer concerns and potential tender losses. We are now considering tighter director rules which ask for commitment from each director before any tender work is considered. This way, if work is lost by inaction as defined in our ISO 9001 procedures following a non conformance, that director is open to litigation to the extent of the lost contract. This makes the 'Operational Unit" in Stafford Beer terminology, as close to a self employed person as we can effectively make it, driving ownership into each task we carry out. It would be interesting to compare how statism can compete in promoting such ownership in heirachial business models based upon coercion and manipulation. Give me a chaordic enterprise any day.

You raise some good points

You raise some good points Phil, such as the bizarre - often wasteful - incentive effects of that practice of returning unspent budgets to the centre.

You're right that there are hardly any examples of public bodies actually empowering staff, or anybody else.  A pretty constant feature of bureaucracy is just the opposite - the loss of any individual initiative or responsibility, even among 'managers'.  To quote my friend Doug Cresswell on the effects of the Pure Innovations service transformation:

“The freedom to take decisions based wholly on customer need and mission, rather than a wider political or council agenda.  Freedom from endless meetings, and time to work on things that really make a difference...  The culture has changed.  People know what they are paid to work on.  People step forward with ideas more willingly and there is real scope to implement them...  There is a greater understanding and focus on mission and outcomes.”

I don't think IR35 should arise with a bona fide co-op by the way.

Public Services and Social Enterprise

Geoff thanks for your pragmatic and very relevant cautioning on this theme. I agree with virtually all that you write. It is IMO little less than either naive or fool-hardy to believe that social enterprise can generically replace the public sector and yet somehow remain independent, or even autonomous, from State Government. If public services do need to be 'saved', that is one core outcome of the deliberate policy agenda of the UK Government. If social enterprises participate on the basis of outsourcing, race to the bottom etc. they become promotional agents of that agenda.

Anyone doubting that might ponder the crisis that the 'affordable housing' sector is now in across the UK, but especially in England. That crisis can be argued to be the outcome of what is *still* being promoted currently in some quarters in that sector as the need to 'respond in a positive manner to short term political expediencies'.
Another aspect to consider is what is happening to the charity sector in England where the 'political' critiquing is getting close to adversarial. It would appear that some UK Government members and  supporters feel that charities are getting a bit too uppity despite significant grants and work being afforded to them by the Government. Seems especially unfortunate that the Charity Commission in England has just produced evidence on the doubling of Serious Incident Reports on charities in England since 2013/14. Some might wonder how much of the charities subject to such reports are participating in the delivery of public services through some sort of 'social enterprise' apparatus.

I do have some big concerns...

Many thanks for your comment and useful link Edward.  I do agree with you.

As a social enterprise adviser active in public service transformations I feel I have to always keep 2 big ideas balanced:

  • on the one hand, the circumstances of service transformations are often created in part by government policy, which is usually nowadays wrong-headed, ideologically driven and badly formulated;
  • on the other hand, in many public services, bureaucracy, risk-aversion, and - precisely - political interference have led over many years to poor efficiency and effectiveness - and it is here that an injection of social entrepreneurialism can lead to substantial improvements.

I do have some big concerns - for example for local authority service transformations the 'local authority trading company' route is superficially attractive, because in the short term it can simplify technical issues around contracting, pensions, etc - but my fear is that it does not facilitate the necessary organisational culture change, so that such vehicles will never develop the social-entrepreneurialism to diversify or even really competitively bid when it comes to it, and that they will therefore be swallowed by bigger private sector fish in due course - as indeed the municipal bus companies privatised by the Thatcher government were.  For some. of course, that's precisely the aim...