Social enterprises – what could possibly go wrong?

Not that I’m averse to social enterprises, in fact let me state up front that I think it’s a large part of the solution to the current public service funding crisis (yes, crisis).  But I saw this article (via @SpencerLWilson*) and it’s fair to say it raises a few concerns about the idea of public services being spun-off into social enterprises.

The idea that turning a public service into a social enterprise is ‘effectively privatisation’ is something that hadn’t really occurred to me before, but I suppose it is in the sense that it’s opening public services up to market forces.  Then again there are no shareholders to skew the interests of the enterprise so it’s not what I would consider to be privatisation in its fullest sense (economists please correct me if you’re so inclined).

In my Happy Place I like to think of public service social enterprises as small entities owned and run by former local authority staff in blissful partnership with service users, commissioned by a local authority but also at liberty to generate income from other sources and provide services in a more efficient and innovative way. Aaaah, that sounds nice, right?

I think I’ve been forgetting a few things:

  • A lot of local authority staff don’t like change
  • There are a lot of control freak managers in the public sector
  • Many of the good managers lack the essential skills of running a business
  • Not all service users have wildly imaginative ways of redesigning services up their collective sleeve
  • Managers and service users aren’t used to working in partnership
  • Some social enterprises require an initial cash injection to establish themselves, particularly if they are providing a service that needs infrastructure
  • People are relying on those services and if the social enterprise has teething problems or ultimately fails then those people don’t get the care they need
  • Trade unions don’t understand the agenda enough to support it

That’s a whole bunch of risk and mitigating each risk will take time and consideration, something lacking in the public sector at the moment due to the impending doom of the spending review and the likely need to make massive cuts on the shortest of timescales.

A proliferation of social enterprises can definitely save money in the long term (this is not based on anything other than a hunch, by the way) and will surely lead to more innovation and the freedom to think creatively but I’m worried it’s being seen as a quick fix.  Instead I’d like to see councils incubating social enterprises, bringing in mentors and people who know business to help managers adapt, bringing in service users to run the show, developing them and council staff over a couple of years, nurturing the enterprise and then setting it free into the market with a solid foundation and some great people.  Uh oh, I’ve drifted back to my Happy Place.

Based on the article it seems like there’s a chasm between the public’s understanding of the benefits of spinning off their services into social enterprises (enterprae?) and the thinking being done by chief execs and local strategic partnership boards.  How to bridge this chasm is something I’m still working on…

*In the interests of full disclosure I’m doing some FutureGov work with Kirklees and let me just say if anyone can make this work it’s probably them.  And I’m not just saying that🙂

10 Responses to “Social enterprises – what could possibly go wrong?”

  1. Jackie Rafferty Says:

    Thanks for these thoughts Carrie, they mirror mine. I have a real problem still with statutory services being provided without statutory money attached though a big fan of community up initiatives. Though with the deregulation going on I assume that won’t be a problem as there is likely to be little statutory entitlement to care in the future – farewell welfare. The biggest cry is always about the need for better joined up working and it will be quite a feat to achieve with a multitude of struggling new social enterprises relying on a competitive contract culture yet needing to collaborate and work together. Many challenges ahead or should I revert to old speak and say many problems ahead? Feel like we are being made to jump off a cliff with no idea if there are mattresses or rocks below. See for recent research at Southampton about numbers of volunteers to pick up the Big Society

  2. Nick T Says:

    Interesting column Carrie. I’ll leave the economic detail, Big Society bashing and #socent minutiae to others, but did want to pick up on a couple of things you say which are particularly important:

    – trade unions don’t understand the agenda…etc; this happened with HCT as well in London; the movement has a job to do with the trade unions to better explain and increase knowledge and understanding of social enterprise

    – incubation, mentoring, leadership support over time; nurturing etc. Absolutely right. The big deficit at the moment is that most are focusing on technical skills for spin-outs (pensions, legalities, financing, structures) and much less on the difficulties of leading a team / department into a completely different environment / way of working / culture etc An are we are looking at closely.


  3. David Floyd Says:

    Generally agree with most of your post in terms of these being some of the burning questions re: social enterprise spin-outs.

    Some minutiae for Nick:
    In terms of privatisation, any situation where the people delivering the service are no longer employed by a bit of the state and elected politicians stop being directly responsible for service delivery is privatisation.

    The shareholder profit thing isn’t really relevant in itself. BUPA doesn’t distribute profits to shareholders. Neither does Eton College.

    The other point, though, is that (certainly in the case of healthcare) new social enterprises will have a three-year contract to deliver the services they were delivering before they left the NHS. After that they’ll be bidding to deliver services in a competitive tendering situation with any provider – from other spun-out social enterprises to charities to multi-national conglomerates – who puts in a bid.

    On trade unions, I’m not sure the only problem is that they don’t understand the agenda. There’s has been a lack of understanding between HCT and Unite but in terms of Unison’s recent opposition to NHS reform it’s less a principled objection to social enterprise and more an objection to some of the specific problems you mention – such as, a social enterprise can go bust and then users lose their service and workers (Unison members) lose their jobs, probably with a far worse pay off than if they were made redundant directly from the public sector.

    It’s the job of trade unions to represent workers not to deliver either social entrepreneurs’ or the government’s notion of the overall social good. So while Nick’s right about the movement needing to work with trade unions to explain social enterprise better, that explanation needs to be about how social enterprise works for workers not how it’s a good thing in a broader sense.

  4. Sion Says:

    Food for thought. Thanks.

  5. Janet E Davis Says:

    I agree with you about Kirklees – at least, from the people I’ve met so far.

    There are some people in local authorities who have a genuine desire, commitment, and the energy to try to improve things. Whether they can stay long enough to achieve change might be another matter.

    I think that there is often a lack of understanding within local authorities, below the top 2 or 3 tiers, of how they function – and maybe they begin to understand better by privatising and having to make the relationships more explicit?
    I do count making people redundant and providing services by social enterprises as privatisation, but possibly a better kind because the principal aim of social enterprises is to focus on the work rather than making a fortune for shareholders.
    I’ll refrain from writing more now – do raise the issue for a lively debate when you next see me!

  6. Jeff Mowatt Says:

    I can illustrate what could go wrong with an example from the Pathfinder SET where I live in the Forest of Dean. A case now being investigated by auditors.

    After an initial grant of £120k had been spent on consultancy, the board “borrowed” another £30k of taxpayers money from the local council by engaging the services of a consultant who had formerly been director of a private healthcare business. Tasked with setting up a CIC. Due to the tenacity of a council watchdog we were to discover, according to our local newspaper, that:

    “£8,645 was spent on registering the company, £6,491 preparing a business plan and £11,287 on support for setting up the project board.”

    The social enterprise that I run acts as a supplier to several NHS trusts, to provide a service which would otherwise be provided by conventional business. I see no social value of SE in primary care, where even the dividend distribution constraints of a CIC would detract from a purpose which is already 100% social.

  7. Patrick Andrews Says:

    Nice thoughtful post. I wanted to respond to David’s comment that “The shareholder profit thing isn’t really relevant.” I find this is a surprisingly common attitude – that we can ignore the role of shareholders in corporate behaviour. Big mistake in my experience. In shareholder-owned businesses, the primary duty is to deliver “shareholder value”. This means that human values such as honesty, fairness, compassion all have to take second place to making money for shareholders. You can hardly call this irrelevant.

  8. Jeff Mowatt Says:

    Oh Yes Patrick, I couldn’t agree more. Now if you click on my name above you’ll be able to read a synopsis of a white paper which reasons the case for a social purpose model by consent of shareholders.

    This leads to the statement that “Profit is redefined in human terms rather than pure quantitative analyses that remove human and social concerns in the name of profit ”

    And that:

    “Economics, and indeed human civilization, can only be measured and calibrated in terms of human beings. Everything in economics has to be adjusted for people, first, and abandoning the illusory numerical analyses that inevitably put numbers ahead of people, capitalism ahead of democracy, and degradation ahead of compassion.”

    Idealistic as that may sound, it was put into practical application in 1999 to source an international development initiative that returned all $6m invested in a microfinance bank. I don’t have a hunch about this working, because there’s proof.

  9. beanbagsandbullsh1t Says:

    @Patrick It’s not my position that we can ignore the role of shareholders in corporate behaviour.

    My point was that shareholder profit is not relevant to the specific question of whether or not a service has been privatised – private sector organisations may or may not distribute profits to shareholders, (some of) the key points in terms of privatisation is that they’re not democratically accountable public agencies and they can go bust.

    In terms of wider questions of how the world economy works, the role of shareholders in corporate behaviour is extremely important.

    I don’t share your view that maximising shareholder value necessarily means that honesty, fairness and compassion have to take second place – in depends on the interpretation of particular shareholders and managers – but it would be positive to have legal requirements for consideration of the wider social impacts of what businesses do.

  10. So annoying I had to blog about it « News from a Nerd Says:

    […] about how councils can start to section off services into social enterprises.  I think I’ve posted about this before but suffice to say I’m broadly in favour of This Sort of Thing, just with a few […]

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