Where next for social enterprises `stepping out' from the public sector?

THIS PIECE WAS PUBLISHED IN THE GUARDIAN ON 14.7.10.

The coalition government has called for staff in the public sector to "step out" and move from public employment into John Lewis-style mutual bodies, social enterprises or charities. The vision is for vibrant new ventures, owned and led by former public sector professionals and service users.

For staff, this could offer refuge from a shrinking public sector that no longer offers security. For commissioners, social enterprises, it is claimed, look cheaper, are more community focused and more pliable than either in-house or large private sector providers, while the public get business like services, that run for people, not profit. What's not to like?

So is the social enterprise balloon about to take off? Despite the well-crafted words in the coalition agreement, which talk of "empowering" millions of public sector workers to become their own boss, this is not yet clear. Progress has been decidedly patchy. While council leisure services in many parts of the country have moved into social enterprise models, in the NHS only a handful of social enterprises have been set up.

And for many of those stepping out of the public sector, life has not always been easy. Several NHS and council spin-outs are still grappling with trade union opposition, the sheer complexity of extracting themselves from the public sector, and the need to learn new skills. One NHS leader described her experience as like learning a new language, as she grappled with the strategic and financial requirements of a new commercial entity after 25 years in the NHS.

Looking forward, there are two big questions. The first is whether there will be a supply line of entrepreneurial public managers. Many will prefer the devil they know to the unknown pleasures of a new mutual or social enterprise. How they are supported and incentivised will be critical.

The second question concerns whether these new ventures will cut it as serious businesses. While most will start out with a decent contract and a lot of goodwill, all will, very quickly, have to compete with the private and voluntary sectors. It is easy to envisage a flotilla of new social ventures freighted down with residual public sector culture being sunk by the cannon of less encumbered players. These ventures will need the freedom to restructure.

But the biggest question mark hangs over the role of the private sector. The massive global outsourcers have so far stuck mainly to the less visible side of the public sector: waste management, the back office and customer service centres. But in future, private sector firms may want to take over entire frontline services from councils, by promising cost savings of anything up to 25%. The biggest of such functions by far are adult and community services and children's services.

Contrast this with the potentially more complex and fragmentary task of floating new social ventures, and hoping for the best on cost savings and innovation. All too easy to envisage councils and primary care trusts (PCTs) going for the easier option and choosing private sector suppliers.

What is wrong with this? On one level, nothing. The big outsourcing firms have a track record in generating efficiency and improving services. But history suggests that they struggle to innovate and to engage the community in the delivery of services. Private sector services are not focused on less easily measured outputs, such as social capital. This is perhaps not a fatal flaw – but it is one that will be noticed by those councils placing the generation of social capital at the heart of their strategies.

So where next for social enterprise spin-outs? As councils and PCTs weigh up their options, the John Lewis model – as well as others such as community interest companies – will need to exhibit all the attributes of that iconic brand: reliability, trustworthiness and "never knowingly undersold". What they offer will have to be inviting, reassuring and well packaged. If not, we may be looking at the majority of public sector services by the end of this decade being run by global outsourcing businesses.

For supporters of social enterprise, the immediate task will be to ensure that buying from social enterprise is as appealing and straightforward as privatisation. No easy task but one from which the sector cannot shrink if it is to succeed.