The rise of the shadow state: What can we do about it?

If the money doesn't go to giants like Serco and G4S, where can it go? Alan White explores the ability of social enterprises to commission services instead.

Yesterday I catalogued the problems with the way Government outsourcing is conducted: the placing of profits before people, the siphoning away of money intended for communities that need it, the unaccountability; the rewards for failure.

Peter Holbrook, CEO of Social Enterprise UK says: “The Government has to act as more than a legislator. It can shape markets and it doesn’t do so. These markets have to be part of the solution. It’s not left wing to call for more transparency and accountability. There seems to be a contradiction - everyone knows localism makes sense, but as soon as various parts of local and national Government are given the chance to commission, they buy in bulk.”

The question is what we’re going to do about it. And the first question is obvious - if we don’t give the money to the giants like Serco and G4S, to whom can it go?

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The Paddington Development Trust (PDT) is what’s known as a social enterprise. What’s a social enterprise? There’s no legal basis for such a thing, so it can take many forms: it could be a charity, or a limited or commercial company, for example. This masks the fact the central idea is quite simple: the profits do not go to shareholders, instead being reinvested in the “social mission” the company is carrying out. A PLC is legally required to maximise shareholder value, while a social enterprise, of which there are 68,000, acts like a company but instead tries to maximise its social value. Well-known examples are things like the Big Issue and Jamie Oliver’s Fifteen.

The PDT was founded in 1997, one of the first community-owned social enterprises in the country. On paper, its goals perhaps sound wishy-washy and vague: to “increase social, cultural and economic opportunities by forming strong partnerships across the community and public sectors.” The projects it has delivered have been anything but.

The money the PDT receives is focussed on a specific local area: north Westminster - and is then broken down between even smaller areas. I first came across it in the process of researching a local housing estate. The community forum whose incredible actions ended up forming the core of the resulting long form piece I wrote is a PDT offshoot.

Its chief executive, the admirably straight-talking Neil Johnston, tells me more: “When the residents set up the PDT, the area of north Westminster was a colossal failure. You could see it through so many indices: housing, unemployment, mortality rates.” In 1998, the PDT won £13.5m of funding, through the government's Single Regeneration Budget programme, which ran from 1994 to 2001.

Johnston says: “The money went to other organisations in order to deliver services. We formed an interface between the public and the private sector – since then we’ve distributed £40m over fifteen years and have been influential in the spending of another £120m. The money’s come from various sources - the Great and Good, local government authorities, the Department for Work and Pensions (DWP), and others.”

The PDT now runs youth services, health centres, academies, has refurbished community centres, and has been involved in many more projects, most of which are designed to create employment and business opportunities for residents. One of the PDT’s most successful enterprises was Westbourne Studios, into which it invested £500,000 - it didn’t own the building, but paid a peppercorn rent to guarantee the assets were distributed through the local economy. Today it’s one of Britain's most imaginative office and studio complexes, home to over 100 small businesses. On top of that, the PDT even has a small grant through which it can fund start-ups.

 

One thing that struck me about the people I wrote about was how happy they were in their work. Despite the fact that pay for its staff has gone down in recent years, the PDT has a remarkably low rate of employee turnover, which in turn saves money and helps it pay acceptable wages.

Social enterprises are often limited in size, partly because their purpose is often built around the needs of a particular area, and partly because they don’t have the same will to grow as a purely profit-driven operation. It means they’re finding themselves squeezed in a market that increasingly favours the largest contract-size.

“Interestingly, we have been commissioned by the DWP for the Work Programme,” says Johnston. “We’re a small partner with Maximus, which is a huge company. Fortunately, Maximus are a commercial business, but they know what they’re doing - their vice president came over to visit, for a start. We actually lost money through doing it, but managed to supplement it through doing other projects.”

A belief has grown that commissioners can’t afford to outsource differently. In fact, the opposite might be true: they can’t afford not to. As Johnston says:  “The question for Government is - do you let the money out through companies, or inject it into local organisations? There seems to be a belief that you can economise through upscaling and contracting to the big organisations. But Maximus know what they’re doing on that side too - they won’t give away any more profit than they have to. The Government’s either aware of that, or it doesn’t understand profit in business.”

The way the Work Programme works is that once people have been unemployed for six months, their details are fed into a big databases. ”Prime” contractors then spit out names to the smaller charities. Johnston wasn’t surprised when the initial figures showed it to be a failure.

 

He says: “Prior to the Work Programme, we managed to get 500 people in work over the course of two years. But it was bloody hard work. We had to work in partnership with a lot of community enterprises. We had neighbourhood-based advisors, who were going around knocking on doors. With the Work Programme there’s a disconnect - I recently heard a story about one women being interviewed and asked why she hadn’t found a job sooner, even though she was blind.”

One could say that the very fact something like the PDT exists demonstrates the fact that it’s needed. Johnston says: “You have Whitehall, you have local authorities - and they’re always fighting a war over budgets and power - then you have nothing official, but there’s a whole plethora of stuff going on. If communities weren’t crying out for power, they wouldn’t set up things like the PDT. So the challenge for the Government - and it’s something all governments want to do, is how far they can drive down the democratisation of budgets.”

I point out to him that during the riots London called out for the return of Boris Johnson and David Cameron from their holidays. If that highlighted anything, it was a distinct lack of local leadership. He replies: “In New York you can see the leadership flowing down from the Mayor, the key officers - and that socioeconomic strategy makes the city sing. In our major cities the leadership appears to be less accountable than rhetorical.”
 

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Despite the gloomy history of commissioning described thus far, the future for social enterprises is looking up. In January 2013 the Public Services (Social Value) Act becomes law. It’ll require all public bodies in England and Wales to consider the wider social or economic benefit to an area of any contract they award, over the value of £113,000 for central government and £173,000 for other bodies. According to Social Enterprise UK’s report: “Commissioners have told us that the Act finally gives them the justification to commission in ways that they have previously wanted to, but could not.” The organisation has made a number of recommendations with regard to the law, including an independent body to scrutinise contracting, and previous performance being weighed up as part of the process.

There’s evidence of a growing appetite for more thoughtful commissioning. In October 2012 the Cabinet Office awarded contracts for the National Citizen Service. Management fees were capped at 5 per cent and payment was made in advance, so that smaller charities and community groups without large capital reserves could afford to bid. Ninety per cent of organisations involved were locally based.

There are small steps being made at a local level too: in Lambeth, the commissioning process is being stripped down to its first principles. This doesn’t necessarily mean that global companies are excluded, but the locally devised solutions are unlikely to include too many. Moreover, by the beginning of November 2012, 93 organisations, including nine local authorities, had become accredited Living Wage Employers.

Nick Hurd MP is quoted in Social Enterprise UK’s report: “You could do really smart stuff. In my area, Hillingdon Council, BlueSky do the landscaping. Their motto is, ‘we’re the only company in the country where you have to have a criminal record to work’. It’s the first chance to prove yourself, to prove that you can be trusted. From Hillingdon’s perspective, they get a good service at a good price. But they also reduce reoffending. For me, that’s smart commissioning.”

And as Neil Johnston tells me: “Part of the reason for the upscaling has been the assumption among commissioners that everyone will try to rip you off. But we’ve seen things like A4E recently - you will always get people who cheat, but is it the prevalent part of the community?”

Charities and social enterprises delivering public services was a much-repeated promise in the argument for the big society vision: the title may have fallen by the wayside, but is the idea dead?  As Social Enterprise UK’s report concludes: “Public debate in the wake of the financial crisis has centred on whether public spending cuts must be made or avoided. But who benefits and who loses because of the way that public spending is done, is a much bigger question.”

The huge Aylesbury council estate in Southwark, home to 7,500 people. Photograph: Getty Images

Alan White's work has appeared in the Observer, Times, Private Eye, The National and the TLS. As John Heale, he is the author of One Blood: Inside Britain's Gang Culture.

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Justin Trudeau points the way forward for European politics

Is the charismatic Canadian Prime Minister modelling the party of the future?

Six months after Canadian election day, Justin Trudeau’s Liberal party continues to bask in the glow of victory. With 44 per cent of support in the polls, the Liberals are the most popular party amongst every single demographic – men and women, young and old, and people of all educational backgrounds. 

While most European mainstream parties only dream of such approval, this is actually a small dip for the Liberals. They were enjoying almost 50 per cent support in the polls up until budget day on 21 March. Even after announcing $29.4 billion in deficit spending, Canadians overall viewed the budget favourably – only 34 per cent said they would vote to defeat it.

Progressives around the world are suddenly intrigued by Canadian politics. Why is Justin Trudeau so successful?

Of course it helps that the new Prime Minister is young, handsome and loves pandas (who doesn’t?) But it’s also true that he was leader of the Liberals for a year and half before the election. He brought with him an initial surge in support for the party. But he also oversaw its steady decline in the lead up to last year’s election – leadership is important, but clearly it isn’t the only factor behind the Liberals’ success today.

Context matters

As disappointing as it is for Europeans seeking to unpack Canadian secrets, the truth is that a large part of the Liberals’ success was also down to the former Prime Minister Stephen Harper’s extreme unpopularity by election time.

Throughout almost ten years in power, Harper shifted Canada markedly to the right. His Conservative government did not just alter policies; it started changing the rules of the democratic game. While centre-right governments in Europe may be implementing policies that progressives dislike, they are nonetheless operating within the constraints of democratic systems (for the most part; Hungary and Poland are exceptions).

Which is why the first weeks of the election campaign were dominated by an ‘Anybody But Harper’ sentiment, benefitting both the Liberals and the left-wing New Democratic Party (NDP). The NDP was even leading the polls for a while, inviting pundits to consider the possibility of a hung parliament.

But eight days before election day, the Liberals began to pull ahead.

The most important reason – and why they continue to be so popular today – is that they were able to own the mantle of ‘change’. They were the only party to promise running a (small) deficit and invest heavily in infrastructure. Notably absent was abstract discourse about tackling inequality. Trudeau’s plan was about fairness for the middle class, promoting social justice and economic growth.

Democratic reform was also a core feature of the Liberal campaign, which the party has maintained in government – Trudeau appointed a new Minister of Democratic Institutions and promised a change in the voting system before the next election.

The change has also been in style, however. Justin Trudeau is rebranding Canada as an open, progressive, plural society. Even though this was Canada’s reputation pre-Harper, it is not as simple as turning back the clock.

In a world increasingly taken by populist rhetoric on immigration – not just by politicians like Donald Trump, Nigel Farage, Marine Le Pen and other right-wingers, but also increasingly by mainstream politicians of right and left – Justin Trudeau has been unashamedly proclaiming the benefits of living in a diverse, plural society. He repeatedly calls himself a feminist, in the hope that one day “it is met with a shrug” rather than a social media explosion. Live-streamed Global Town Halls are one part of a renewed openness with the media. Progressive politicians in Europe would do well to take note.

Questioning the role of political parties today

Another interesting development is that the Liberal party is implicitly questioning the point of parties today. It recently abolished fee-paying, card-carrying party members. While this has been met with some criticism regarding the party’s structure and integrity, with commentators worried that “it’s the equivalent of turning your party into one giant Facebook page: Click ‘Like’ and you’re in the club,” it seems this is the point.

Colin Horgan, one of Trudeau’s former speechwriters, explains that Facebook is “literally a treasure trove for political parties”. All kinds of information becomes available – for free; supporters become easier to contact.

It was something the Liberals were already hinting at two years ago when they introduced a ‘supporters’ category to make the party appear more open. Liberal president Anna Gainey also used the word “movement” to describe what the Liberals hope to be.

And yes, they are trying to win over millennials. Which proved to be a good strategy, as a new study shows that Canadians aged 18-25 were a key reason why the Liberals won a majority. Young voter turnout was up by 12 per cent from the last election in 2011; among this age group, 45 per cent voted for the Liberals.

Some interesting questions for European progressives to consider. Of course, some of the newer political parties in Europe have already been experimenting with looser membership structures and less hierarchical ways of engaging, like Podemos’ ‘circles’ in Spain and the Five Star Movement’s ‘liquid democracy’ in Italy.

The British centre-left may be hesitant after its recent fiasco. Labour opened up its leadership primary to ‘supporters’ and ended up with a polarising leader who is extremely popular amongst members, but unpopular amongst the British public. But it would be wrong to assume that the process was to blame.

The better comparison is perhaps to Emmanuel Macron, France’s young economy minister who recently launched his own movement ‘En Marche !’ Moving beyond the traditional party structure, he is attempting to unite ‘right’ and ‘left’ by inspiring French people with an optimistic vision of the future. Time will tell whether this works to engage people in the longer term, or at least until next year’s presidential election.

In any case, European parties could start by asking themselves: What kind of political parties are they? What is the point of them?

Most importantly: What do they want people to think is the point of them?

Ultimately, the Canadian Liberals’ model of success rests on three main pillars:

  1. They unambiguously promote and defend a progressive, open, plural vision of society.
  2. They have a coherent economic plan focused on social justice and economic growth which, most importantly, they are trusted to deliver.
  3. They understand that society has changed – people are more interconnected than ever, relationships are less hierarchical and networks exist online – and they are adapting a once rigid party structure into a looser, open movement to reflect that.

*And as a bonus, a young, charismatic leader doesn’t hurt either.

Claudia Chwalisz is a Senior Policy Researcher at Policy Network, a Crook Public Service Fellow at the University of Sheffield and author of The Populist Signal: Why Politics and Democracy Need to Change