One of the themes in the loosely constructed narrative the Liberal Democrats have deployed in recent months has been industrial democracy – in catchphrase terms the promotion of the John Lewis economy.
This presents a radical, if embryonic, approach to the private sphere and a unique contribution to the debate on how to rescue capitalism. Looking at how to adopt the themes of this approach to the public sector should be the next logical step. First, though, we have to resolve the question of where liberal reform of public services should go.
Governments always hold public service reform as a key objective but don’t usually engage the public with any more detail than that. In recent years the messy privatisations of the 80s and 90s have given way to outsourcing; a mixed economy approach that allows Ministers to deny they are resorting to privatisation, which has understandably become a pejorative concept.
Speak to anyone in the public sector who works anywhere near the frontline and they will tell you stories of having poorly thought-through edicts foisted upon them from somewhere far up the hierarchy and having no recourse to defend what they are doing against this bureaucracy. This inflexible management and the difficulty of driving innovation-only – in part the fault of trade unions – leads to poor morale and low productivity. We don’t have the private sector option of letting such services disappear, but should politicians, by default, reach for commissioning as the answer to this problem?
Full-blown commissioning and outsourcing will be coming to a health service near you in the next couple of years but it has already been extensively rolled out in many sectors, from local authorities to welfare provision, with questionable results. The potential for more responsive and flexible services which outsourcing brings has to be weighed again a number of risks. The involvement of commercial interest tends to reduce the scope for democratic scrutiny and accountability.
There is a very real risk that public services might be stuck with expensive long-term contracts that in hindsight were foolishly entered into. There is a greater risk that private providers will try to game the system. In outsourcing massaging the figures to overplay success not only keeps politicians happy, it is an incentive to get hold of some hard cash.
The recent revelations about A4e’s alleged systemic problems, in this regard, highlight this central problem. Not only does the public get a poor service but they are stuck with it for the foreseeable future. As Private Eye noted last week, persistent failings and damning inspection reports do not seem to deter commissioners from giving large contracts to the likes of A4e, proving that this sort of outsourcing has become the only game in town.
The danger is that this approach becomes ingrained in the minds of senior civil servants and by extension the Ministers they advise; indeed, much of the evidence suggests that this has already happened. Both Labour and the Conservatives appear fully at ease with this approach but the resurgence of the Beveridge Group in the Liberal Democrat Parliamentary Party shows that the argument is alive and well in the party.
Even if for pragmatic reasons – public services employ millions, and serve even more, voters – we need to have a rigorous debate over what shape future reforms should take and, most importantly, what safeguards should be put in place when contracting out to private companies. As we are, hopefully, pluralists, we should be presenting a range of options to be decided upon at the most appropriate local level. Making sure that a publicly owned and run John Lewis service is one of these options is crucial.
Business Minister Norman Lamb has said he does not believe the state is very good at providing services – it might turn out to be even worse at commissioning them.
* Tom Smith is Director of Liberal Insight, the new liberal think tank.
Follow @libdemvoice.org on Bluesky
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
We have no idea what history will say about Keir Starmer and it may not be right anyway
Is Kier Starmer the new John Major?
A bargain at 23 guineas?
20C night
Lessons from 1936 and 2026 for the Liberal Democrats (LDN#211)
David Raw
Jana
Peter Black
Nigel Quinton
Chris Cory
8 Comments
“This inflexible management and the difficulty of driving innovation-only – in part the fault of trade unions – leads to poor morale and low productivity”
Is there a word missing after innovation only, as I don’t understand this sentence as it stands
I really don’t understand the economic reasoning behind the outsourcing/commissioning out of services.
Competition works in a free market, where customers have choices and can respond rapidly to alternatives. In addition you need failure as being an option, so if Company A gets it wrong then Company B takes all the customers until New Company C challenges them.
But outsourcing doesn’t work anything like this. The “customer” in the form of the government makes a choice once, at the beginning but then cannot easily respond to the market. If Company A wins a 10 year bin collection contract and then, a year in, Company B invents a machine that can empty bins 10x faster and for 10x less cost then we can’t switch our business for another 10 inefficient and expensive years,
We have to accept that there are some things that are done better privately, and some areas where monopoly is the best practical approach. And if a monopoly exists it is far better to exist in the public sector.
Also not sure what John Lewis style public services means – do you mean a single supplier owned by their staff and paid for from the public purse? Other than the staff rather than the state owning it how is that any different? If they are the sole provider of public services is it not better that the customers (the state) owns it rather than the staff?
I’m all for JL style competitive private sector companies but I cannot see why that would work in service provision.
Hi Louise,
There shouldn’t be a dash between only and in part.
@Timak, the main innovation of the John Lewis model is that decisions about how the business is run are made with the involvement of all staff, not just those at the top. People have better morale and are more productive if they have a formal stake in what they are doing. We obviously can’t replicate entirely the financial model of John Lewis for public services, but it is the management structure that would be most helpful.
One thing the public sector urgently needs is for those at the top to listen to the constructive criticism of those on the front line. The NHS for example has a terrible record with treating whistleblowers and far too often it requires serious malpractice to get any institutional change-challenging this management ethos is something the Lib Dems should be doing.
We should be a ltlle wary of being co-opted into the assualt on public services from the Tories whose intersest in workers’ ownership does not appear to be so strong when reform of PLC’s is concerned. We should show far more conviction in tackling ownership in the ‘private’ sector. Robert Oakeshott-the for CEO of The employee Ownership Assoc and Liberal Parliamentary candidate explained:
“Democratic employee ownership and control also has many advantages as a way of creating a more egalitarian society. It puts earning differentials under democratic control, redistributes wealth quite substantially, prevents external shareholders taking unearned income, improves productivity, develops a sense of community and begins to free people from the divisions wrought by hierarchy and status competition. Furthermore, because employee ownership can and does exist side-by-side with conventional business, it makes successful transformation achievable, with the new society developing within the old. “
” If Company A wins a 10 year bin collection contract and then, a year in, Company B invents a machine that can empty bins 10x faster and for 10x less cost then we can’t switch our business for another 10 inefficient and expensive years, ”
Whereas if the bin collection function was kept in-house by the council (or whatever public body) then it can switch to a more efficient collection method as required. It seems to me that the contractual arrangements vis-a-vis PFI and other big ticket outsourcings are designed not to provide services acceptable to the public but to lock government funding into providing a revenue stream, regardless of changing circumstances.
Also, is it not true that outsourcing public services to private sector entities results in the closing-off of pertinent performance data under the excuse of commercial confidentiality? No freedom of information for you.
I don’t want to moan but I’m with Timark; where’s the argument/explanation for John Lewis style companies in the public sector? I have a good idea what they may entail as I know of a plan (which alas didn’t come to pass) to create a “Social Enterprise” formed by the existing council staff.
Perhaps we need a part two to this article, exploring the concept and how it would fit in the public sector?
Having worked for the last ten years for a county council I certainly recognise the picture painted of the public sector. It’s full of capable people who care about the job they do, joined because they believed in the public sector ethos and the idea of working for the common good or the good of people who needed help, and are repeatedly frustrated by inflexible top-down management. Some of this is down to Westminster and more particularly Whitehall’s distrust for local government and indeed any local public bodies. Labour have been the worst offenders here, except for the Thatcher period. However, much of it is down to the bad choices of senior managers following a top-down, risk-averse organisational culture. I found over and over again that the default reaction of the council to a problem was to introduce inflexible rules from the top. One example: we need to cut mileage claims further, so make all mileage claims require the approval of the Director, a very senior officer heading a large organisation. Result – delays, people on six figure salaries looking through forms claiming for 20 mile car trips and after a few months, a lurch to the opposite extreme. An effective alternative would have been to have given each unit a budget including mileage (taking into account needs, that for example Partnerships and Youth Services would need to travel more than Finance) and then leave it to the manager of that unit to manage the budget in consultation with his/her staff – and a less radical alternative, to devolve approval of claims to a low level but have more senior managers monitoring the LEVEL of expenditure. Our bunch repeatedly said we didn’t really want the divisive and illogical individual performance-related pay perks that were introduced, but would have loved good achievement as a team to have been recognised by giving us a small amount to spend on the needs we perceived. Management talked a lot about listening to us, but then twisted what we said to support their preconceived agenda. It wasn’t always that bad – just usually!
However, there are important limits to “John Lewis” public services. Ultimately John Lewis, like other private enterprises, exists to make money. Public services, though some may helpfully bring in income, exist to meet public needs as defined and prioritised by the public through elected members and other means. The traditional mantra is that elected members set policy and priorities (and can be voted out if the voters disagree) and officers find ways of implementing. There are grey areas, but it still makes sense. There are plenty of ways of making public authorities less top-down and more participative without undermining the power of elected members.
To my mind one of the key things about how well any business (private or public sector) operates is how effectively its ‘shareholders’ run it. The culture and ethos set at the top then filter down through the organisation.
In most large private sector firms the shareholders delegate power to managers who, once in post, are under remarkably little control. Such oversight as does exist is in the form of stock market listing requirements and the City’s demand for such as quarterly reports, ever increasing earnings etc. The only way these can be achieved is by fiddling the books and avoiding risks which is a major reason large UK plcs do so badly when in internationally competitive markets. John Lewis works largely because it has through employee ownership escaped the City’s failure mode of shareholder managment.
In the public sector the ‘shareholder’ role is taken by government and is amplified by the fact that in most cases they pay the bills. So the case for outsourcing depends on an analysis that says that any managment failings are WITHIN the organisation concerned (which might be a local government unit or a Whitehall ministry etc.). While there are certainly weaknesses I contend that this analysis is wrong and that the primary failing is EXTERNAL to the organisation – it’s in the shareholder’ arena. If an organisation is required to do contradictory things it will fail on at least some of them.
For instance, since Thatcher govt has been in love with the idea of centrally set targets; Ministers can go on the evening news and make positive statements about reducing waiting times or whatever so no wonder they love it. But filtered down through the organisation this turns into a dead-brain prescription that MUST be obeyed come what may and however inappropriate to the circumstances on the ground. It’s a primary driver of the nonsence Simon Banks describes and, needless to say, the antitheseis of localism.
So when the state gets involved in commissioning while also trying to micromanage it is bound to go badly wrong – as it already has for lots of PFI hospitals that are having to be bailed out, the likes of A4e (where there is a strong incentive to fiddle the books) and many others. To the ‘normal’ difficulties of managing any organisation are now added the ‘agency’ problem – the provider has its own agenda to add to the mix and the relationship between govt ond provider starts being conducted via lawyers who add nothing but wasteful friction. Even if the supplier is a charity that doesn’t necessarily change things; if the cause of problems is dead-brain rules and those still exist then why would anything material change?
The trouble is that most ministers are up to their necks in fiddling the books (what else is PFI?) so they think it’s all perfectly normal. As the Chinese say, ‘a fish rots from the head’. What is needed is a new culture in central government – one that doesn’t endlessly micromanage.