Amongst the more surreal policy-related headlines of recent months was this from The Guardian: ‘It’s John Lewis’ vs ‘easyCouncil’ – battle for social policy starts here’.

OK, so it’s not quite as bonkers as this week’s ‘Economics briefings for Queen could head off financial crisis’. But one still has to ask – how did we reach a stage where the election was being framed in terms of a department store versus an airline?

The Government’s interest in ‘John Lewis public services’ has been growing rapidly over recent months. What does this expression mean, and how did the idea suddenly gain such currency?

John Lewis, as most people know, is owned by its employees, otherwise known as ‘partners’. Being mutually owned and controlled (as opposed to a more orthodox model, in which employees buy shares directly in their company) the company exists for a purpose beyond the extraction and distribution of profit, although this isn’t to say that it isn’t profitable. As with building societies, employee-owned mutuals are capable of taking decisions that are considered in the long term interests of their members, whether economic or otherwise. How this is stipulated depends on their constitution.

In Reinventing the Firm, published in September, I looked at how the economic crisis offered an opportunity to shift more of Britain’s wealth-production towards this model, as people grew sick of the short-termism and inequitable outcomes of the shareholder-oriented model of the PLC or private equity-controlled firm. There was – and still is – a real opportunity to champion this alternative model of capitalism, in which the interests of finance are balanced against those of employees and society. The report concludes with a number of concrete policy suggestions that could aid this development.

Mutualism is now flavour of the month with the government. The Cabinet Office commissioned a useful study from the Innovation Unit, entitled The Engagement Ethic. Tessa Jowell announced  the creation of an ‘Ownership Commission’, to investigate ways of harnessing mutualism further. And recent reports suggest that the next Labour manifesto will have ‘the co-operative ideal at its heart’. So far so good.

But there is one seemingly obvious question that has gone unasked: do they want more mutualism in the public sector or the private sector? The phrase ‘John Lewis public services’ performs a nifty sleight of hand, by taking lots of warm feelings about a cooperatively-owned and much loved department store, and bolting them on to the state. To date, Labour has made lots of noises about this being a ‘mutual moment’, about wanting a fairer model of capitalism and attacking greed in the financial sector… and then slipped seamlessly into a discussion of public service reform. The media has let them get away with it.

There are some decent arguments for greater use of mutual-type models in the public sector, and some impressive examples of this working well already. But this is an entirely different (and more humble) agenda from the one which many of us were hoping promote, namely of achieving a different way co-ordinating management, financial capital and employees in businesses. In case this isn’t glaringly obvious, think of three important distinctions.

Firstly, private sector organisations typically make a profit, while public sector organisations don’t. This doesn’t mean that businesses exist to make a profit, or that they should seek to maximise their profit, but simply that they usually make some surplus that requires distributing or retaining. In the private sector, employee-owners receive whatever dividend is distributed. This isn’t necessarily what they value most about being owners, but it necessarily affects their psychology one way or the other. And it isn’t a feature of public sector mutualism.

Secondly, public services exist for the public good, usually with some notion of their users as equal citizens of society. It is no criticism of John Lewis to say that they are more concerned with their ‘users’ as consumers. Mutualism may be an effective way of injecting the public, citizen interest into public services, and almost certainly a better alternative than privatisation. But there is still a risk that accountability and public interests could be weakened by what is, after all, a severing of public institutions from a democratically elected state that otherwise owned and governed them.

If mutuals exist in an appealing grey area between the public and the private sector, let’s not forget that this therefore has inverse implications for each. Mutualism makes private sector organisations more attuned to the common good, but equally makes public sector organisations more attuned to particular private interests. This needn’t be a bad thing, where the alternative is bureaucratic medalling. But the argument is entirely different from that which is made for mutualism in the world of business and finance.

And finally, unless one believes David Cameron’s peculiar 2009 conference speech, the crisis was more a consequence of capital behaving badly than of the state doing so. It seems perverse, therefore, that we should seize the subsequent opportunity to reinvent the state, as necessary as that may be, while leaving capitalism roughly as it was.

Will Walmsley

"The phrase ‘John Lewis public services’ performs a nifty sleight of hand, by taking lots of warm feelings about a cooperatively-owned and much loved department store, and bolting them on to the state."

They should drop the public sector talk and stick to the private sector arena. More needs to be done by private enterprise in order to prove that the model is a viable alternative. If the state takes up the model and applies it to public services I have no doubt that they'll screw it up and leave the model on the scrap heap, leaving its reputation damaged along the lines of worker co-operatives in the 1970s.

We need a revocation of the 2003 EBT ruling and introduce employee shareholding to ALL members of the firm so as to do away with the tax advantageous decision making that repealed the legislation. That would be a great start.

Will Davies

Will - agree with these recommendations.

I'm not sure they need to drop the public sector talk necessarily - and today's news suggests the Tories are trying to grab this agenda even more fervently. But, even in today's short-attention-span media climate, it does seem unnecessarily wishy-washy to allow mutualism to be championed, without specifying which sectors are to be mutualised. On the other hand, the mutuals movement could use this to apply pressure on the government. Start with schools, and move on to Northern Rock...

Joe FD

I'm glad someone's cottoned onto this Will D.

There is a parallel discussion to be had about employee engagement in public services. Some form of staff ownership may be one method of achieving the aim of an engaged (and responsive) workforce; it has risks of producer capture and to make it real might mean privatising state assets. One (non-Foundation) hospital is looking at this quite radically.

But it has little to do with new models of capitalism.

PS Should be some version of Godwin's Law where blog discussions are terminated when the Taxpayers Alliance says they agree?

Will Davies

Joe - no no no! It's not THAT taxpayers alliance. But that URL is somewhat misleading.

Duncan

Nice post Will. I have also been curious about this and think it comes down (1) to practicalities – it’s just easier to do in the public sector, and (2) more fundamentally there is still an argument to be won about whether this is ‘public’/political territory or ‘private’/market domain.

I think all sides feel confident that no-one will question their legitimacy to do this in the public sector. We own it. But there is the risk of being accused of tampering/special pleading/picking winners etc if they set out to try to restructure capitalism itself. (Even the focus on mutualism in the banking sector is, to a degree, an example of this given that we own large parts of some of banks).

The position on the Right is that there is already a market that creates competition between ownership structures (as well as between individual companies), so it’s not the job of government to get involved. See here, for example:
http://www.adamsmith.org/blog/tax-and-economy/those-john-lewis-bonuses/

Back to Bauman that politics needs to be able to ‘translate private worries into public issues and, conversely, to discern and pinpoint public issues in private troubles’.

Will Davies

I'm not sure I agree, Duncan, for three reasons:

1. The government is already heavily enmeshed in the private sector anyway right now, thanks to the largest market rescue effort in the history of capitalism. We are in one of those rare historical periods when the economic analysis of capitalism ceases to be sufficiently explanatory, and only a political analysis will do. If we can discuss remuneration in the private sector or the market power of financial institutions, we can discuss corporate governance - and part of this is just about publicising and advocating alternatives, not necessarily about legislating for them.

2. You don't need to tamper or pick winners. You just need to alter certain structural conditions. Governments create the law and tax incentives for companies to be governed in certain ways, and not others. This is horizontal industrial policy, not vertical.

3. What we're discovering is that bad practice in the private sector ends up as the responsibility of the public sector. Stress, poor health and loneliness place strains on public services (apart from generating unhappiness and being bad in and of themselves) and there are reasons to suspect that short-termist, profit-maximising business culture have these sorts of negative impacts on people.

Duncan

Hi Will, to be clear, I am with you that this needs to go much further than public service reform, for the reasons you outline. The point I was trying to make was the fact that one is called the ‘public sector’ and the other the ‘private sector’ provides a clue about the politics of this. It’s no coincidence that this agenda is being steered onto public sector territory because it avoids the tougher job of explaining why there is a public interest in how companies are owned in the private sector. The Right will argue these things are best left to the market and our task is to respond to that.
i.e. politically the job is to translate private worries like stress, poor health and quality of life into public issues about capitalism’s future.

Marketaggedon

Will, you should get brownie points for a swift response

simon green

There are some decent arguments for greater use of mutual-type models in the public sector, and some impressive examples of this working well already. But this is an entAbercrombie and fitch londonrely different (and more humble) agenda from the one which many of us were hoping promote, namely of achieving a different way co-ordinating management, financial capital and employees in businesses. In case this isn’t glaringly obvious, think of three important distinctions.

Kevin Rice

Ah well now that Northern Rock has gone for a song, what's next for the change in how companies and shareholders operate?

New Comment