The risks and benefits of employee ownership

February 15, 2010
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The news that the Conservative Party intend to facilitate greater employee ownership in public services is one of the boldest policy announcements of David Cameron’s leadership. Labour has already thrown scorn on what appears to be political cross-dressing, and the left-leaning twitterati have pored over the proposal for inconsistency and policy naivete. But what evidence is there out there on the viability of such schemes, and how likely is it that the Tories could deliver this successfully?

I authored a Demos pamphlet on alternative ownership models last year, and while I'm more concerned with ownership pathologies in the private sector, the report looks at the potential and precedents for employee ownership in the public sector too. Here are three sets of questions thrown up by this morning's announcement:

Growth areas. The first question must be which areas of public services might such a model be appropriate for. The main precedents are in health and care, with Central Surrey Health and Sunderland Home Care the best known examples. Foundation trust hospitals are themselves mutuals, though (like building societies) technically owned by their "users", which means their local communities. This report makes useful reading on the growth potential in the health sector.

The implication here is that mutualism and/or employee ownership (not all mutuals are employee owned; not all employee ownership is a form of mutualism) work where efficiency and effectiveness depend heavily on "front-line" staff, whose vocation to their work is critical. Care work and professional services are therefore immediate areas to consider, as Charles Leadbeater's report on this argued. The entire "well-being" agenda is one where an engaged public sector workforce is a precondition.

We've already heard pledges for many more co-operative schools, and of course public service broadcasters are already tacitly organised as mutuals. What is less clear, from precedents, is whether the model has much to offer an organisation as vast as the Post Office.

Benefits. George Osborne has been smart by framing this within the Conservative tradition of giving away state assets to working people, council houses being his case in point. This is a better Conservative tradition, certainly, than the one in which state assets are sold to unaccountable private sector monopolists, before being switched into a public-private hybrid. There is some decent economic evidence that employee-owned organisations in the private sector out-perform their rivals: see the brand new EOA report for example.

There is less research on the public sector potential, and word has it that the Treasury is currently sceptical about the productivity gains, though public service productivity is an inherently slippery concept. What the Tories must be hoping for is greater employee commitment, lower absenteeism, lower staff turnover, a more co-operative model of industrial relations and that tacit feeling that Waitrose fans experience that "the staff just seem to care more".

Can this be squared with the "age of austerity"? The Tories might argue that throwing endless cash at the public sector meant also draping endless audits over it. Now may be the time to see how public services can manage with neither. In any case, the idea is that employee-owners could increase their own pay, once they have earned the right to autonomy from Whitehall.

Risks. Devolution is always risky. The Tories would need to think very hard about how autonomy is earned, and how it is sacrificed. Would they be prepared to watch an employee mutual make serious errors? How serious? What if it was simply performing badly? What if it was racking up large amounts of debt, or failing to access credit that it needed? Then there is the perennial and most painful headache of how to transfer public sector pensions out of the public sector. With the waning of local media, and the professional scrutiny that it can bring, there are questions about how a local, autonomous organisation will be properly held to account. It will always be easier to blame any serious errors on central government. Finally, the Tories must, must get the asset lock properly worked out. As George Osborne forgot to point out, they've got form in that area too.

But the Conservatives deserve credit for their boldness. If the example of New Labour's constitutional devolution is anything to go by, they will need to enact this move immediately, should they win power. Scottish, Welsh and mayoral devolution were all legislated for in the early months of office. Wait any longer, and the appeal of giving away power can mysteriously fade.