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Old ideas for Public Service Innovation

Date: 18.06.19 |Categories: Featured, Uncategorised

Blog author, Julian Blake, Partner, Stone King

A. Where we are
Groupe SOS is celebrating 35 years since it commenced its mission of public service innovation being funded by the cost savings of success. Today it is a $900 million super-mature Social Enterprise group. Its virtuous circle of progressiveness began with the analytical insight that free flu treatment for the homeless reduced hospitalisations for pneumonia and through convincing French municipalities to make savings by meeting the costs.

The Mondragon Corporation founded its first worker co-operative over 30 years earlier, in the 1950s, seeking to address severe local deprivation by embracing the principles of economic organisation by social solidarity. Today it is a €12 billion democratic federation and the largest business group in the autonomous Basque Country in Northern Spain.
Eighty-years further into the past Birmingham, in Joseph Chamberlain, had a mayor famous for radical reform in education, housing, civic amenities and the municipal ownership of utilities.

One-hundred and fifteen years before that Adam Smith, author of “The Theory of Moral Sentiments”, as well as the proto-capitalist source-book, “The Wealth of Nations”, asserted “to feel for others…to restrain our selfishness…constitute the perfection of human nature”.

In the UK, nevertheless, we have lived through forty-years of political orthodoxy that denies the socio-economic efficacy of the methodologies of Groupe SOS, Mondragon, our Joe and our best instincts, or (using its broader sense) “charity”. The nadir of the denial (it is to be hoped) came, only five years ago, when the new, now deservedly forgotten, Minister for Civil Society told charities to “go back to your knitting” and there is a more understandable widespread complicity in a serious lack of ambition for the role of non-commercial activity.

Everyone will agree charities, community and voluntary organisations, co-operatives, social enterprises, social value and social impact are good things, but this does not consolidate into a similar consensus on progression within “the public benefit sector”, or the potential for that “third sector” to rank at least equally with the other two.

It is still disturbingly common to encounter incomprehension at the ideas that: i) a purpose/mission driven company can be at least as sustainable, secure and efficient at a profit driven company; ii) collaboration can be at least as effective as competition in achieving quality, improvement, innovation and cost-effectiveness; iii) social value may be embraced, as a powerful economic force, at least as generative as private shareholder value; iv) in the provision of public services and wider consumer services and goods, social outcomes and impact are derived from real needs and expectations and so must be potential determinants of good business and sound investment propositions; v) social, small and local businesses are more likely than commercial, large and non-regional companies to be sensitized and responsive to such needs and expectations.

A concept shift is required, from the charity sector as an adjunct to the capitalist world, providing a safety net for the excluded and disadvantaged, through which society’s winners “give back”, to the public interest, third sector, providing at least equal status socio-economic governing principles. By this means purpose, collaboration, social value, social impact, community, locality, sustainability, democracy, equality, decentralisation, transparency, accountability, integration and long-term improvement, development and problem resolution become primary considerations, not second-level correctives to commercialised risk and reward.

The third sector has continuously been lectured by the private and public sectors to professionalise, to become more commercial, to learn how business works. However, the message fails, because the need for the reverse education process is not recognised. The reverse message is that every economic issue is first an issue about people and places and the only way of properly reading the balance sheets is through the filter of an organisation’s purpose, meaning social purpose. Maximised profit is a loose proxy for purpose, while social impact is perceived only to have meaning as a proxy for profit. That is the wrong way round.

The financial crisis of 2008 was a profit over purpose event, as institutions with the responsibility of providing society’s base platform undermined it by accelerating into the distortions of financialised product trading. The NHS was said, by its own chief executive, in relation to the Mid-Staffordshire Hospital scandal of the mid-2000s to have “lost its purpose”. Private sector outsource companies delivering public services provide a catalogue of examples, including the (non) delivery by Serco of Cornwall’s out of hours GP services, damned as “disgraceful”, by the British Medical Association. Public benefit organisations needlessly experience public procurement as the epitome of process over purpose obstructiveness. At the political level, typically a challenge on sub-standard public services is met with a recitation of the level of funding provided (highlighting increases unadjusted to real terms), not the carefully designed strategy for addressing the issues. Too many lawyers will provide reams of technically correct analysis and over-written documentation, short on practical, problem solving advice and facilitation.

Meanwhile, the public benefit sector itself is mired in the status quo and sectional interest within it. To an extent unhelpfully limiting the established greatness and greater potential of the third sector:

  • there is insecure and competitive dependency on unequal public sector funding relationships, in a severe cost-cutting environment;
  • foundations continue application processes without unifying strategies;
  • public policy is set and varies without due respect for, or meaningful consultation with providers, or, most importantly, service recipients;
  • social investment partnerships and systemised models remains elusive;
  • community and voluntary organisations equate larger public benefit organisations with commercialised operation and some act that way;
  • the participative nature of co-operatives and the purposive nature of charities and social enterprises are not seen as complementary;
  • there is mistrust between big and small and local and national;
  • different public benefit areas operate with little reference to common circumstances, so best practice is not shared and mistakes are repeated (for example in the management of pensions in structural transitions); and
  • commercial social and environmental corporate responsibility interests naturally appropriate, re-shape and retard progressive agendas, for example in, social enterprise, social finance, social value, impact investment and social impact measurement – the “green-washing” phenomenon.

B. Where we could be
Easy as it is to list frustrations, the way we are produces inspiring examples of what charitable purpose, commitment and dedication can achieve and admirable examples of striving at the frontiers. To take one example, a domestic abuse service is not a natural starting point for the idea of a social investment property portfolio providing asset-based, cross-subsidising, financial self-sufficiency, such as it does for the Purple House in Hull, supported by Social and Sustainable Capital.

More generally, as a public benefit lawyer for the past 30 years, I have steadily moved to a clear, ideological, position on Progressiveness in the public-benefit sector, from traditional charity, to social enterprise, to mature social enterprise, which may be summarised, manifesto like, as follows:

  1. Progressiveness requires every discussion to start with, constantly reference and end with Purpose, to counter the easy slippage into less focussed, less-prioritised institutional thinking.
  2. Purpose means paramount interrogation of the real needs, capabilities and potential of People through consultation with those people. Public-benefit work is working with not doing to and should be collaborative, not directive.
  3. People, whether recipients, or project workers, may most directly be engaged with through their Participation in the design, production and delivery of services and their governance and management, unifying the respective base principles of social enterprises and co-operatives and democratising the third sector.
  4. Participation needs to extend to the full range of stakeholders in any public-benefit service, based on collaborative, integrating Partnership. Every roundtable on public services affirms this proposition, but that is far from realising the fundamental changes that would normalise community partnership working. Our current system and mind-set is transactional, not relational; entrenches competitive process, as if public services are market commodities; and misunderstands and misapplies purposive, permissive and facilitative public procurement and state aid regulatory processes in relation to public sector contracts and grants. “The Art of the Possible in Public Procurement”, a publication I co-authored with Frank Villeneuve-Smith of HCT Group (see below), has been influential in demythologising perceived public law obstacles to partnership-based, creative and innovative commissioning (highlighting the Proportionality principle, the Light Touch Regime and the bespoke “Innovation Partnership” procedure). The main subject has, accordingly, moved on to how projects may best be arranged. That means reverting to the full range of commissioning powers, including: subsidy, investment, leveraging investment, community engagement and mobilisation, community asset application and transfer, as well as contract. It means engaging with purpose-aligned primary providers as partners, who may support and develop ecosystems of collaborative community and voluntary sector providers. It may extend to: social investors; local anchor institutions (for example, in education, health and culture); and local business partners. Such multi-stakeholder partnerships then provide the opportunity for maximising and concentrating available resources, from public, third, community and private sector sources.
  5. Partnerships of that nature centre on Place in a way that can restore community, local democracy and civic planning based on viable, visible, manageable socio-economic units.
  6. Integrating Progressiveness, Purpose, People, Participation, Partnership and Place, offers the best strategic means of organising public services on an optimum basis, providing requisite quality, coverage, sustainability, affordability, long-term development and improvement, issue-resolving and cost-saving Preventative outcomes and replicable models.

The schematic 7 Ps lead, for me, to mature Social Enterprise as the core concept of public benefit service provision. It provides the essential middle-ground for the polarised debate between right-wing market outsourcing and left-wing statist direct delivery: purpose-alignment with the public sector, combined with business capability and agility. Purpose makes it the ally and supporter of the community and voluntary sector and defines the standard any private sector public-service provider must match. Some Government voices have recently wrongly suggested Social Enterprise is a past idea, which says more about detachment in government than the reality of contemporary social dynamics.

Rationalising, necessarily managed, quasi-markets in public services in this way creates investable opportunity for Social Finance which is concerned to support purpose and impact, while securing reasonable, sustainable (perhaps outcome based) returns. Social Finance has developed into a distinctive sector serving Social Enterprise over the past two decades, in part from charitable finance moving towards sustainability and in part from corporate finance moving towards purpose and there are now indications of a blending consolidation into a bespoke community serving offer, particularly as the first generation of mature Social Enterprises is currently experiencing growth requiring a new phase of capital investment.

This gives true meaning to Social Value. It is often discussed from a commercial perspective, as “Added Value” in an orthodox transactional contract – a number of apprentices required in a public works project, for example. That is the third most potent of three social value elements. The second most potent is overdue recognition being given to the “Purpose Value”, that is delivered inherently by efficient, dedicated, caring and robust public benefit organisations, because that is their very essence, not something merely additional. The most potent pre-dates the UK Social Value Act, as every publically procured contract should be awarded on the basis that it represents the optimal balance of quality, price and social value, as the “Most Economically Advantageous Tender”. This imports the potential wider “Impact Value” of service being delivered with social policy integration and leading to preventative outcomes and reduced longer-term need and cost.

Thus Social Impact comes to mean the realisation of purpose-driven outcomes delivering substantive Social Value, as distinct from the same term being used as an advancement of ethical, impactful, but otherwise mainstream investment. Both versions of Social Impact are highly progressive, but the first conceptually represents an economic system shift away from profit-driven enterprise as the only serious type of enterprise. By extension Social Impact Measurement then opens to the developing disciplines of serious valuation in dimensions other than the financial, or the translation into the financial.

None of this is new, but much of it is conceptually better organised and more advanced in bottom-up responses to social issues than in top-down public policy and the traditional charity and responsible business reform agendas. Unitary boards with paid trustees, revised regulatory guidance and enhanced corporate social responsibility, for example, are tweaks to a socio-economic system actually requiring an era-defining conceptual shift and genuine innovatory reform.

Furthermore, such social enterprise responses are well-attuned to the realities of austerity policy and the strong Brexit demand for a public policy driven by local and regional needs rather than the emanations of over-centralised, power-driven politics.

And none of this is unrealistic. My observations are based on working with pioneering mature Social Enterprises, “bold” commissioners and innovative social investors, in particular through the E3M network, founded by Social Business International, with its focus on the European Commission’s Social Business Initiative, which, between 2013 and 2016, underpinned reforms to procurement and state aid (though that was hardly mentioned in the UK) and on sharing best practice and its continuing development by practical innovation.

As well as the super-mature examples of Groupe SOS and Mondragon and the heritage of Joseph Chamberlain, we have, among a range of other pioneering, mature social enterprises: HCT Group, operating commercial public transport as a means of delivering community social benefit; Catch22 leading a holistic family-based prevention in Cheshire and investing in CapacityLab, a sector business consultancy in Liverpool; Dimensions UK delivering a learning disability partnership service in Somerset; Energy4All pioneering community renewable co-operatives; Good Things Foundation delivering digital inclusion as an employee-governed charity; and London South East Colleges establishing a regional education group integrating schools, colleges and independent training.

They all show necessary innovation in public services is achievable by dedicated application to and integration of our best “moral sentiments” – an idea dating back, at least, to the prime theorist of our current economic model, writing in 1759.

This blog was first published as an article for Charity Finance Magazine.