Public Service Mutuals

Organizations outside government, controlled by members or employees, providing public services
Herbert de Graaf
December 10, 2016

The “public service mutual” (PSM) or mutual is shorthand for a variety of initiatives, based on mutual or cooperative governance that in whole or in part delivers public services and in which employee or member control plays a significant role in their operation. Well-designed mutualization can transform the delivery of public services and deliver substantial benefits to public service stakeholders. 

PSM initiatives are wide-ranging:

  • Existing public service mutuals: organizations having left the public sector (known as spinning out) that continued to be dedicated to the delivery of public services
  • Existing cooperatives and mutuals extending their activities to include public service provision and thus create shared value
  • Newly formed PSMs created by:
    • government outsourcing, privatization and spinning out public services and service teams
    • communities in response to specific community needs ('''spinning up''')
    • employees to meet individual and community needs ('''spinning up''')
    • existing non-government public service providers grouping together into an enterprise producer co-operative ('''spinning together''')
    • corporate and community organizations ('''spinning off teams to newly created PSMs''')
    • corporate and community organizations choosing to transform their business model to a co-operative or mutual structure ('''spinning in innovation into public service''')

Advantages

  • Mutuals share the inherent characteristics of significant member (service user or employee) ownership and control, cooperation and service innovation (including greater client focus and community involvement in service delivery) and the reinvestment of surpluses, combined with commercial and business acumen.
  • The research undertaken to date, and the experience in the UK and other jurisdictions, suggests that mutual delivery agents have a growing role to play in public services and are well placed to achieve public policy objectives. Mutual organizations have the potential to generate better social outcomes, greater value for money, higher returns on investments, greater economic and social resilience, and higher levels of consumer engagement and employee well-being.
  • As a result, mutuals may be able to address some limitations of public service delivery by government, business and non-profit service providers and offer a resilient alternative as well as better outcomes, in a context of budget constraints, new technology, changing client expectations, projected demographic shifts, and persistent socio-economic challenges.

Limitations

While the developments in the UK and elsewhere show that the PSM sector has been experiencing significant growth, some of the alleged benefits have been challenged. While some issues typically apply to government spin-outs, others may apply to mutuals (as they may to conventional non-profit or business sectors) more broadly.

  • Accountability: spinning out (i.e., the process of organizations having left the public sector that continue to be dedicated to the delivery of public services) involves greater responsibility and accountability than within the safety net offered by the public sector. Not unlike accountability issues with large private providers, concerns have been raised over the extent to which mutuals will be accountable beyond their immediate membership to wider audiences and elected members. Others maintain that spin-outs can offer more control over outcomes by making grants and contracts dependent on legally binding targets.
  • Spinning-out process: public service mutuals spinning out of government mostly benefit from being awarded public contracts from the organization they left. However, if there is ongoing reliance on public contracts, this can reduce the proclaimed economic and political autonomy of spin-outs.
  • PSM failure: organizational failure can occur for a number of reasons: the erosion of member engagement or control as a result of sudden growth in capital or membership; a weak financial incentive for governance; an inability to raise funds from members or slow decision-making. However, a public authority can ensure a failing mutual or cooperative could be brought back under its control.
  • Service fragmentation: there are opposing views on whether ongoing mutualization could affect the sustainability of service provision. Some stakeholders argue there could be fragmentation through divestment from the public sector which could pose challenges for users to navigate services, while others maintain that service diversity increases users’ choice while the commissioning process and government oversight of contracts should guard against fragmentation of service and ensure proper accountability and performance.

Policy Opportunity

Beyond the potential for government itself (spinning out public services and service teams), the PSM concept provides a valuable lens through which to look at the capacities and potential of Canada’s growing hybrid sector, which combines social and financial business objectives to deliver public services and create shared socio-economic value (e.g., cooperatives, mutuals, social enterprise and social business).

Several intersecting mandate letter commitments identify a range of public policy objectives relevant to the potential of PSMs and to growing PSMs, notably:
  • The Ministers of Families, Children and Social Development and Employment, Workforce Development and Labour were tasked to develop a Social Innovation and Social Finance Strategy.
  • The Minister of Finance and the Minister of National Revenue have been mandated to strengthen the charitable and non-profit sectors with the development of a new legislative framework, and to work with the Minister of Families, Children and Social Development, specifically on social finance and social enterprise.
  • The Minister of Innovation, Science and Economic Development was directed to develop an Innovation Agenda, including expanding effective support to incubators and accelerators and possible support for social enterprise.
  • The Minister of Public Services and Procurement was tasked with modernizing procurement practices, including developing social procurement strategies.
  • The President of the Treasury Board was tasked to work with other Ministers to develop new performance standards, improve the use of evidence and data in programming, and ensure other Ministers are devoting a fixed percentage of program funds to experimenting with new approaches to existing problems.

Considerations

  • The existing level of outsourcing and structuring of services across the federal-provincial/territorial matrix may limit the potential appetite for UK-style (central) government spin-outs. But federal, provincial and territorial governments may be interested in exploring PSM options, including local service delivery partnerships, as an alternative to conventional outsourcing and privatization.
  • The federal government has significant legislative, policy and program levers to promote the role and growth of the PSM sector, such as tax rules for business activities by registered charities and non-profits, social infrastructure spending, corporate governance laws including the Canada Business Corporations Act, the Canada Cooperatives Act and the Canada Not-for-Profit Corporations Act, business start-up capital and support programs, government procurement, and a large portfolio of grants and contributions program funding. Other orders of government also hold important levers that could advance the role of the PSM, such as not-for-profit corporate models, trust legislation and government procurement.
  • Canada has a dynamic PSM sector by definition with important segments of the cooperative, mutual and social enterprise sectors representing a long history of public service provision. Several reports over the past decade bear witness to the role of cooperatives in local public service provision, e.g., in Ontario and British Columbia in child care, health care and social services and highlight the difference which cooperatives can make in public service provision and innovation and in helping to build stronger communities. The role of cooperatives is pronounced in Québec where government has facilitated their active involvement in public service areas such as child care, health care and social services, social housing and proximity services (essential services provided locally which contribute to the vitality and development of smaller, mostly rural or remote communities) over the last two decades.
  • There may therefore be significant stakeholder support to explore strategies targeting the expansion of existing cooperatives, mutuals and social enterprises providing public services, as well as fostering new cooperatives and mutuals spinning out of non-profit organizations and social business.

Best in Class

  • The UK Government has been a forerunner in the development of a strategy to grow PSMs focusing on enabling employee-led initiatives to set up a “mutual” type organization outside mostly local government - known as spinning out - that continues to provide public services. As part of its Mutuals Support Programme, the UK government has provided case studies on successful mutualization efforts in areas such as health, social services, and education.
  • Inspired by the UK experience, the PSM concept has been widened by Australia, where the PSM comprises a range of initiatives to provide public services including existing cooperatives and mutuals and a variety of new public service mutual models. Some successful initiatives are reflected in the report Public Service Mutuals Delivering Social Services: Australian Case Studies.

Sources

United Kingdom:

  • Our Mutual Friends – Making the Case for Public Service Mutuals. Mutuals Taskforce Briefing Paper (2012)
  • Mutual and cooperative approaches to deliver local services, Report by Communities and Local Government Committee, House of Commons (2012)
  • A practitioners’ guide to spinning out from public ownership, Public Service Mutuals: Spinning out or Standing Still? ; Barriers and solutions to Public Sector Spin-outs. RSA 2020 Public Services and Transition Institute (May 2013)
  • Time to get serious – International lessons for developing public service mutuals, Jonathan Bland (2011)
  • One year on: five lessons for public sector mutuals. Duncan Farrow Smith, The Guardian (2013)

Australia:

  • The Roles for co-operatives and mutuals in delivering Australian public services. Tomorrow’s Agenda Research Institute, Business Council of Cooperatives and Mutuals and bankmecu (November 2013)
  • Public Service Mutuals Delivering Social Services – Australian Case Studies. Netbalance and Business Council of Cooperatives and Mutuals (April 2014)
  • Public Service Mutuals: a Third Way for Delivering Public Services in Australia. White Paper by Business Council of Cooperatives and Mutuals (August 2014)
  • A New System for Better Employment and Social Outcomes - Report of the Reference Group on Welfare Reform to the Minister for Social Services. McClure (2014). See: Pillar Four: Building Community Capacity
  • Submission to the Senate Economics Reference Committee into Co-operative, Mutual and Member-owned Firms, Business Council of Cooperatives and Mutuals (BCCM), Public Service Mutuals Taskforce (June 2015)

Canada:

  • Status of Cooperatives in Canada, Report of the Special Committee on Co-operatives (September 2012)
  • The Co-op alternative, Civil Society and the Future of Public Services, John Restakis and Evert Lindquist (IPAC, 2001)
  • At the Vanguard of Canadian Innovation – A Compilation of Co-operative Case Studies (Canada’s Public Policy Forum, October 2014)
  • Unlocking the public service economy in Ontario: A new approach to public-private partnership in services. Ontario Chamber of Commerce (2014)
  • http://www.cooperativedifference.coop/ Co-operatives for Sustainable Communities. Measuring the Co-operative Difference Research Network (Community-University Research Alliance).
  • Plowing the Fields: Provincial surveys of social enterprises in Canada. Elson and Hall. 4th EMES International Research conference on Social Enterprise, Liege 2013 
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