The Growth of the Hybrid Economy

Experimentation with public service mutuals is in order and can deliver better human services, according to international expert Professor Sir Julian Le Grand who has been speaking in Australia about the growth of the hybrid economy.

Le Grand, who has been professor of social policy at the London School of Economics since 1993 and is currently based at the Marshall Institute for Philanthropy and Social Entrepreneurship, spoke at the Governance Institute of Australia national conference on Monday.

His talk centered on the growth of the hybrid economy, and the potential of organisations which have more than one goal, for succeeding where other types of organisation have failed.

He told Pro Bono News there were two main takeaways from his address.

“One is just for people to think about, are we actually seeing this, in a sense, new world developing, the hybrid economy developing, or is it just a fantasy dreamt up by a jumped academic from the UK,” Le Grand said.

“I hope to convince people that it is happening and it is not just a fashion and it has great potential.

“The second message is that within the public sector, and in particular this is to do with human services, that experimentation with public service mutuals is in order and may well deliver a better service both for the people who benefit from it and for the employees themselves.”

According to Le Grand, who from 2003 to 2005 was seconded to No 10 Downing St to serve as senior policy adviser to then prime minister Tony Blair, in recent decades both state and market are perceived to have failed.

He said while neither state nor market seemed to offer the elusive formula for successfully creating and promoting economic and social well-being and distributing it fairly, we are now seeing the growth of an alternative.

“I think it is a new development that is really quite exciting in terms of delivering basically a higher productivity in human services, but it may be much broader than that,” Le Grand said.

“The 1980s we can view as a period of state failure, there was a collapse of the soviet union, of course most spectacularly, and indeed the communist regimes throughout the eastern union but also there was widespread privatisations in the West, utilities, airlines and indeed in some human services, schools, hospitals being made independent.

“Then in the 1990s we had a kind of market ascendency, everyone believed the market was the answer in one form or another. And then of course in the 2000s we’ve seen something of a fall away from that, following obviously with the collapse in the 2008 financial crisis and so on.

“There is a general feeling that maybe there ought to be some form of alternative to either the state or the market, as a way forward. Hence the growth of the hybrid.”

So called hybrid organisations come in different guises –  social enterprises, co-operatives and mutuals, community interest companies, B-corps, impact investors, corporate social responsibility divisions –  but they are all simultaneously working towards profit and social purpose.

“Most organisations in our society so far usually just have one objective,” Le Grand said.

“If you’re talking about corporations it is maximising shareholder value, if you’re talking about a public sector body it is to service the public sector, or to service the public, what we’re increasingly seeing is a growth in organisations that try to do both.

“They try to survive financially, to make profit, to be efficient and productive financially, but also to have a social and environmental impact, and you’re seeing that right across the range with the development of organisations with corporate social responsible divisions and even affecting organisations like Google.

“Google has its ‘Don’t do evil’ slogan which has now changed to ‘Do the right thing’. And we’re seeing that right across the board from corporate social responsibility through to social enterprises and mutuals and particularly the public service mutuals. That is what I mean by the growth of the hybrid economy.”

He said he expected the hybrid economy to fare better as it resolved a number of the problems that the state and the market had failed to resolve.

“Let’s take a large public sector organisation, in that you have got people who are committed public servants who are keen to serve the public in a real sense but of course they also have their own self interest, they want to make a living, they want to look after their families and so on. When they work hard they are often afraid their efforts are being exploited by the people at the top whether is it politicians after votes, or whether it is civil servants out to maximise the size of their budget or whatever,” he said.

“In a public service mutual, they’re in control. If they do make their effort to try and serve the public, they know that they will benefit and that the people they are trying to benefit will themselves also benefit.

“If you compare it to a private sector organisation, the problem with a private sector organisation, particularly the large corporates, is that their aim is to maximise shareholder value, and that always tends to dominate, even in the cases of corporate social responsibility we’re talking about.

“I don’t think people do think Google really is out to do the right thing. They are out to make money for the owners of Google and understandably, that is their job, but it does mean the people who are committed to public service who work in those corporations, they have what they call in the jargon the ‘principal agent problem’, their aims are not the same necessarily as the aims of the people who run the organisation. And again you see the public service mutual has the edge on that because their aims are the aims of the organisations.”

But Le Grand, who was awarded a knighthood in 2015 for services to social sciences and public service, said there were a number of challenges to overcome to grow mutuals.

“Particularly in the public service area, I suppose the chief [problem] that we have found has been resistance on the part of politicians, top level civil servants and trade unions,” he said.

“It is slightly odd the trade unions objection because you think they would be keen to have greater employee control and greater employee ownership but I think they are suspicious that it is all a cover for privatisation. And I think you do have to put in some measures to try to reassure the trade unions in particular that this is not simply a device for allowing Google to take over everything.

“You can put in measures and you can put an asset lock which means you can’t sell the shares or the assets, they can be taken over by other organisations. So that is one of the problems that you encounter.”

He said another problem was “resistance from the top”.

“So particularly for a public service mutual, many of our employees they say ‘oh great idea, let’s form a mutual’ and they go and ask their bosses and their bosses say ‘no way’, and understandably, because their bosses in a sense lose their role, they stop being a manager, they become, if anything, a kind of contractor, a kind of commissioner,” Le Grand said.

“Many of them say ‘that’s not what we came into public service for’, so again you have to reassure them that they are going to have a different role yes, as a contractor of government services, rather than a provider of services, but again that is a very interesting, and in some ways, a more enjoyable role than having to manage a group of bolshy employees.”

According to the latest figures, in Australia co-operative and mutual enterprises (CMEs) have grown by 10.5 per cent over a five-year period, with turnover growing at 6.6 per cent.

The total value add of the CME sector stands at $140 billion, 8.3 per cent of GDP, with CMEs directly employing more than 146,000 people and 76 cents in every dollar spent with a CME staying in the local community.

Moreover, a total of 85 per cent of Australian adults are members of at least one CME, although the majority don’t know they are.

A recent poll by Business Council of Co-operatives and Mutuals (BCCM) found that only 12 per cent of Australians knew they were a member of a co-operative or mutual.

Melina Morrison, CEO of BCCM, which is hosting Le Grand during his stay in Australia, said it was time for policymakers to examine co-operative and mutual delivery models.

“The NDIS and a looming surge in demand on aged care services are just around the corner – as Australia re-examines how we organise and fund human services, there has never been a better time for policy makers to examine co-operative and mutual delivery models,” Morrison said.

“We are grateful Julian Le Grand is sharing his analysis of the introduction of mutual models to Britain’s human services, for a sustainable workforce and increased productivity.”

Le Grand, who has chaired several UK government commissions, most recently the Cabinet Office Mutuals TaskForce, said there were several lessons that could be learnt from the experience in Britain.

“Particularly in the human services areas, we’ve been experimenting with a range of different kinds of organisations to provide those human services, ranging from the one extreme, large private sector corporates to provide the service, to the other extreme of very small public service mutuals,” he said.

“I think there is a growing disillusion with the large corporates. I don’t think it is wholly fair but there have been a number of really dreadful stories where they have been exploiting their situation and the fact that they have got a monopoly contract to deliver a poor quality service and to exploit both the employees and the people they are providing.

“And there is indeed a continued interest in the public service mutual sector where you’ve got much more motivated employees for all the reason’s I’ve been giving. I think one of the chief lessons there is that we ought to try to grow that sector and probably ought to move away from employing large private sector organisations to deliver human services.”