Mutualisation of public services needs to go up the agenda

One of the most interesting developments in domestic politics of recent years is the return of the debate over nationalisation in many public services: notably rail and utilities.

Labour’s 2017 manifesto put nationalisation firmly back on the agenda. Seeing as that is the case, I would argue that this offers the opportunity to make a strong case to the public for the largely ignored, but very credible model that mutualisation offers.

There is no disputing that there are many flaws with the privately-owned models that have been adopted for many public services, but equally it’s worth remembering that fully nationalised industries have had more than their fair share of problems.

In both cases, it stems from the innate conflict between the interests of shareholder interests and the interests of the workforce. In the privatised case, the interests of the workforce become a peripheral issue in favour of maximising returns, often leading to short termism, lack of public accountability, and a disenfranchised and disinterested workforce.

On the flip side, the weakness of nationalisation is that government control of the organisation means that management is heavily influenced by public opinion, which inevitably leads to a situation where unions can politicise the issues towards favouring the interests of the workforce over and above the interests of providing a good service to the public. Rewind 40 years and we can see these problems at their worst, with the nation pretty much crippled by the dominance of unions influencing public opinion and making sensible management in the public interest all but impossible.

Mutualisation resolves this conflict by enfranchising both staff and customers while also insulating it somewhat from outside political interference. It is time that this concept got to the top of the political agenda. In my view, every enterprise can benefit from the inherent removal of conflict that mutualisation delivers. Imagine a rail franchise where both customers and workforce alike have a vote relating to their local franchise and benefit from the efficient-running of the operation. The same could equally apply to other areas, including power generation and all of the other things that Jeremy Corbyn chose to put on the agenda for nationalisation.

Now is the time to start putting all the ducks in a row to make viable plans for transforming public services in this fashion that are convincing and viable. Credible models and viable financing strategies need to be in place to make the case to the public.

Services that work, where both users and the workers delivering that service are fully enfranchised in the profitability, good-running, and general sustainability of the organisation is not something that any level-headed person would fail to support. The Liberal Democrats need to be pushing this option in the absence of it from other parties. It’s good for the country and also good for the Liberal Democrats to be pushing something really transformative for the UK on the domestic scene.

* Adam Penny is a Lib Dem member living in France

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25 Comments

  • Adam, you introduce some interesting theory but I’m afraid you need to be more specific. “Mutualisation resolves this conflict by enfranchising both staff and customers while also insulating it somewhat from outside political interference”.

    HOW in practice , would you enfranchise both staff and customers ?

    “The same could equally apply to other areas”. Which ones ?

    ” the nation pretty much crippled by the dominance of unions “…….. I’m afraid Thatcherite echoes there. What about the nation being ripped off by multilateral faceless corporations including the use of zero hours contracts ?

  • This is the very kind of excellent bold thinking that should be nurtured and expanded into policy. Adams idea of mutualisation of the transport system is way ahead of anything Labour is considering. But why not be more radical still and kill several policy birds with one stone?
    Everyone agrees we need to get more people out of their polluting cars. Some radical liberals have also pondered the bold idea of a Citizens Income. But why does a citizen’s income have to be in £ cash, given it will probably go on the purchase of some Korean made Smart TV rather than serving British industry?
    So instead of cash, and as part of Adams transport mutualisation, why not give every citizen a travel pass with about 3.000 free annual miles worth of public transport travel. Google tells me that the average travel mileage for a British citizen is about 6,700 miles. So for a family unit of 4 people with a combined public transport allowance of 12.000 mutualised free miles annually. It might just be the deciding factor to take 1 or both family cars off the road?

  • David Evershed 2nd Jul '17 - 4:37pm

    The railway infrastructure, rail lines etc, are owned by Network Rail which is wholly owned by the Government and thus already nationalised.

    Building Societies are examples of mutual organisations that suffer from the inability to raise investment when needed.

    The Co-operative society is a mutual organisation but has been unable to raise sufficient investment to support the Co-op Bank in its time of need.

    The point about capitalism is that there are investors who are prepared to take risks and try out new ways of doing things in the expectation of long term rewards.

    Communism has shown that it works in theory but not in practice.

  • Laurence Cox 2nd Jul '17 - 5:08pm

    David Evershed makes the relevant point that mutualisation does not guarantee good performance. Mutuals, like the Co-operative Bank, can go down just as badly as a public company, like RBS, when you have the wrong person at the helm. Indeed, if anything, public companies have a slight advantage in that the shareholders can remove the directors more easily when the shares are mainly held by a few large shareholders than mutuals where each member has the same voting rights. Building societies in the days before demutualisation were often run like clubs for the directors with effectively no choice for the members to choose alternatives to the Board’s recommendations. The Building Societies Association used to ensure that any member society that got into financial trouble (and they did quite regularly) was taken over by one of the larger societies. Indeed it was the Co-operative Bank’s takeover of the Britannia Building Society that brought it down.

  • I believe John Lewis is a mutual David and Royal Bank of Scotland was a company, I didn’t see capitalism saving that one.

  • Or, you could go the ‘not-for-profit’ route, like Welsh Water:
    http://www.dwrcymru.com/en/Company-Information/Glas-Cymru.aspx

  • @ David Evershed “Building Societies are examples of mutual organisations that suffer from the inability to raise investment when needed.”

    Very few building societies are mutuals now…..

    and we all know what happened to Northern Rock etc., after they demutualised and went public just before the credit crisis was imported from America. Thousands of staff lost their share holdings and pension pots after reckless behaviour when Northern Rock couldn’t find “investors who are prepared to take risks and try out new ways of doing things in the expectation of long term rewards”.

  • Mick Taylor 2nd Jul '17 - 7:21pm

    As someone who entered political life in the ’60s, I simply don’t recognise the description of nationalised industries painted (largely) by younger people. These industries were charged with providing public services at reasonable prices, not with making big bucks for shareholders. By en large they succeeded.
    The reason they were privatised was to make money for the big business friends of the Tories.
    The problem was always lack of investment, by the government. More subsidy is paid to the the railways today than ever British Rail cost. Also BRs primary focus was on safety, not profit.
    It would help informed debate if people didn’t continue to trot out the Tory propaganda about nationalisation and looked at the facts. (The same applies in respect of alleged trades union power, which was largely curbed to help make working conditions and wages less secure

    mutualisation though better than private ownership, still lacks the customer service focus of nationalised industry and would still require intervention of the government to stop excess profits and enforce standards. Or to cite Adam Smith, ‘when 2 or more businessmen are gathered together, whether for business or diversion, the result is a conspiracy against the public’.

  • David I think Keynes pointed out the flaw in your love affair with unfettered capitalism

    Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone. John Maynard Keynes

    given Keynes was right, your calls for more unfettered capitalism remind me of the calls of the brave Brexiteers to travel to the sunlight uplands, both delusional and both extremely debilitating to the majority of us. Actually give a large number of Brexiteers actually worship at the shrine of Ayn Rand perhaps I should not be surprised.

  • Mick,
    As someone also around in the sixties I very much do recognise the depiction of nationalised industries. Hot beds of TU power and the public could get stuffed. Did you ever try and get a phone line ? Investment was wasted on gross overmanning.

  • Lorenzo Cherin 2nd Jul '17 - 11:23pm

    David Evershed in love with privatisation, Mick Taylor in love with nationalisation, what about genuine Liberalisation, never tried !

    Do what of itself is correct in the individual of circumstances , businesses are in at any given time .

    Both privatisation and nationalisation for ideological or dewy eyed reasons , is the antithesis of a Liberalisation that should be about freeing up , not a free for all.

    All too often both the market and the state are pitted against each other.

    Sorry, I was a small boy when the trade unions were becoming a menace, and a young centre left member of the Labour party who was against rampant privatisation too, and yet as hard as I tried, could not get into a trade union or a profession, the theatrical one because of the closed shop dominated Equity, wrongly named then British Actors Equity rather than , unBritish trade unionists closed shop !

    The swing the other way , no better , now gone much too far, should not blind us to the reality of a more Liberal and Democratic , society and economy, but I only got into that union because the law changed, and correctly. That it should go backwards helps nobody.

    We need forward thinking, new , radical, and moderate policies , for various situations.

    Nothing against gradually nationalising the railways.

    But why not think of buying into them fully, like with some of the banks, but keeping a significant share , and return.

    And workers shares, profit sharing, co-ops, part mutualisation , or shares owned by us all.

    Muill, aided by all that folowed, shows us a social Liberalism that can be very definitely centre left economic Liberalism, without the traditional, dated, top down nationalisation of yesteryear, or the big corporate takeover everything of modern decades.

  • Lorenzo Cherin 2nd Jul '17 - 11:25pm

    Should say, JS MILL !!!

  • Lorenzo Cherin – I don’t know but full nationalized utilities work fine in Europe. And as they are well-funded and they are customer service oriented, they provide better services than UK privatized system.

    But your idea of part-nationalized, part-worker ownership sounds interesting. I believe that the nationalized part is still required for utilities that need huge investments, like railway and electricity. Meanwhile, worker co-ownership/ the stake would bound the unions to the best interest of the utilities as a whole.

    Royal Mail would be a different issue, because for now we need to just focus on strategically important utilities.

  • Adam,

    I think one of the problems with how you have made the case is you appear to be using a general term of “mutualisation” when there are a number of structures which people could lumps under that banner and different ones are more appropriate in different circumstances (e.g. different industries have different cultures).

    Personally I think that a workers co-op model for the rail franchises could be the appropriate one (including the continued network rail model of gov ownership of the track). But each case will be different and some will be suitable for a different model or perhaps better in private hands/gov control.

  • David Raw

    “Very few building societies are mutuals now…..”

    All building societies are mutual still, that is what being a building society means. A lot fewer building society survive now, some converted to banks, some were absorbed in to other building societies, some have to be bought by banks.

    The Banking market has a lot fewer (and larger) private players now than the past. This sector change in one sector says nothing about the relevant benefits or other wise of the mutual model.

  • Mick Taylor 3rd Jul '17 - 4:32pm

    I’m not in love with nationalisation, but I am very much against the privatisation carried out by the Tories, because with the exception of Telecom, the resulting companies are monopolies, which very much benefit their owners but not the consumers. Don’t please come back and say there is competition just because there are differently named rail companies or because just about anyone can sell you services. The reality is utilities are provided by monopoly suppliers and there is fake competition.
    The major political parties in our country used to be against monopoly, but sadly this isn’t the case now. The competition authority is a joke and hasn’t even suggested stopping an uncompetitive merger for years and certainly has not in recent years tried to break up a monopoly.
    So if I have a choice between monopolies run for the private gain of owners and shareholders and ones run by the state – or state agencies – then I choose public over private.
    I live in the North of England. When BR ran the trains, they ran on time and right through the winter. In fact trains were often the only form of transport that kept on running when heavy snow fell and the motorways were closed and buses confined to garages. Now we get ‘wrong kind of snow’, ‘trees on line due to snow’ and getting a train on time is a lottery
    I have been a Trades Union member most of my working life. I only wish we had had the power that is suggested by Tory propaganda. We might have stopped the Thatcher government from doing all sorts of things if we had.
    Just one more thing. Nationalised industries were often accused of overmanning. In fact they staffed to safety levels, unlike many of our privatised utilities today. The result was people had jobs and the country had full employment. When privatisation came many people lost their jobs and ended up being paid by the state to do nothing, because no new jobs came forward to replace those lost. I would rather subsidise a modest amount of overmanning than pay people to be idle. It’s cheaper too, because employed people pay income tax and those on the dole do not.

  • I agree with Mick.

  • David Evans 3rd Jul '17 - 7:55pm

    David Evershed – you said “Building Societies are examples of mutual organisations that suffer from the inability to raise investment when needed.” Actually a lot of Banks suffered from their inability to raise investment when they needed it as well. I think you may be trying to make a point that isn’t strictly true – e.g. “The wholesale funding ratio has increased to 23.3% (2014:22.7%). Off-balance sheet Funding for Lending Scheme (FLS) drawings totalling £8.5 billion are unchanged from the 2014 year end and are excluded from the calculation of the wholesale funding ratio.” and “Debt securities in issue of £28.1 billion (2014: £28.6 billion) are used to raise funding in wholesale markets to finance core activities.” Nationwide B.S. 2015 Annual Report.

    Mutuals suffer from other problems including an unwillingness for members to deal with failing performance, but failure to raise finance is by no means a problem applicable only to them.

  • Mick Taylor 4th Jul '17 - 10:50pm

    Arthur Bailey, huw of you think Abellio are doing this investment? Why because you and all other taxpayers are subsidising them to do so! If BR had had the money that is being pumped into privatised railways instead of being systematically starved of funds it would have achieved a great deal more than these modern day robber barons.
    Just remember BRs safety culture, which trained drivers for 2 years to the 6 week training given to the driver who killed him self and many others in the Paddington disaster.

  • Peter Watson 4th Jul '17 - 11:16pm

    @Arthur Bailey “I most certainly would never support the return to any porm of nationalisation … I wonder, could a renationalised, or even worse, a “Mutually run railway” be able to replace every single carraige and locomotive on the whole franchise as GreaterAnglia Abbellio are doing?”
    I guess the answer might be yes, since Abbellio is a state-owned company.

  • Lorenzo Cherin 5th Jul '17 - 1:28am

    I accept the positive view on the nationalisation of the railways and water but little else.

    Actually it is only the railways that should in my view be nationalised , as a matter of concern for the general public who mostly cannot afford them. Only subsidy that makes sense , which it does in a nationalised sector, can solve this expensive form of transport being so out of the reach of so many.

    The ownership of our services by other state owned companies, is a daft and faintly laughable practice. Our country is not for sale , there is, on rail travel, used by tourists, something that almost implies it in this absurd scenario.

    I would be content with the populace having a large share , but ongoing money as subsidy, and too many variables is getting us nowhere . Unless by car or coach.

  • Hi David,

    I pondered whether to go into models when writing it, but in the end I plumped for simply trying to raise the profile of the concept.

    Actually, the general gist of a model I had in mind was a employee/customer stakeholder model. Employees would automatically have a vote towards the board of the operation, but also customers would as well. The customer stake could be given to season ticket holders and those that choose to subscribe to an annual membership that offers discounts on ad hoc ticket purchases.

    Boards are then accountable to staff and customers alike, which promotes a culture of balancing all elements fairly. The principle would deliver a form of direct democracy to the running of the operation, which in my opinion is superior both to the highly unsatisfactory privatised model now (which ironically is now mostly owned by state operators in foreign countries, meaning UK passengers are pretty much paying to subside travellers overseas) and the fully nationalised model which has a history of being both inefficient, bureaucratic and a long way from customer-focussed.

    Someone else made the point that the mutualised model is an anathema to private finance and that is true. Set up costs would inevitably have to come from government, but given the way the model inherently promotes sustainability and efficiency through direct accountability to the workforce and customers alike, I don’t see an issue with that, since any government borrowing for set up costs should reasonably be expected to be recouped.

    Ideally, if a model like this was to be pursued, I think it would be perfectly reasonable to pilot it on one or two franchises and see how it performs.

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