UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 112-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Communities and Local Government Committee

THE CO-OPERATIVE COUNCIL

MONDAY 11 JUNE 2012

PHILLIP BLOND and LORD GLASMAN

Evidence heard in Public Questions 179 - 216

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Oral Evidence

Taken before the Communities and Local Government Committee

on Monday 11 June 2012

Members present:

Mr Clive Betts (Chair)

Heidi Alexander

Bob Blackman

Simon Danczuk

Bill Esterson

David Heyes

George Hollingbery

James Morris

Mark Pawsey

Heather Wheeler

________________

Examination of Witnesses

Witnesses: Phillip Blond, Director, ResPublica, and Lord Glasman, Academic, gave evidence.

Q179 Chair: Phillip and Maurice, welcome and thank you for coming this afternoon to the third evidence session in our inquiry into the Co-operative Council. I have been with both of you before at different events on different subjects, and we are looking forward to an interesting afternoon of evidence. For the sake of our records, however, could you say who you are and the organisation, if any, that you represent?

Phillip Blond: I am Phillip Blond, director of ResPublica.

Lord Glasman: I am Maurice Glasman, a Labour peer.

Q180 Chair: Thank you very much for coming. As a general opener, there is a lot of discussion about how public services should be delivered. Do both of you think that cooperative approaches, in the broadest sense, have a real role to play in changing the way services are going to be delivered in the future?

Phillip Blond: Definitely. The old model of the public sector is that we deliver the same thing in the same way to everybody and that is the only way that equality and equity can be assured, but we now know that, if you deliver the same thing to everybody, given that people’s needs vary across almost every vector you meet, you do not meet people’s needs. Oddly, we already have a postcode lottery, so delivering in the same old way without involving people creates the very things people wish to avoid.

The co-operative approach can be defined in a number of ways. There are one-way, two-way and multi-way coops, but there is a need to involve more people in a different way in delivering services in parity, regardless of one’s politics, because the old approach of just delivering the same standardised services has not addressed the problems it was meant to address. I think that the cooperative model, if it can go to scale, offers something that could really transform out of all recognition the way we deliver public services.

Lord Glasman: Thank you for the invitation. I apologise to the Committee for not yet having submitted my written account. I will do so. When I accepted this invitation, I did not know there was an England game on, so it is tempered. The rejection of a managerialist model, which was dominant, is extremely important. I have watched the Co-operative Council and what Steve Reed has done in Lambeth and generally with great interest.

I think we have reached a range of limits, and the idea that you just transfer power to workers and that will sort it out has the same flaws as any single dominant interest. In any institution there will always be three fundamental units: users, workers and funders. It is important that we work towards models where there can be a balance of interest in the governance of things as between users, workers and funders. It is very important that local authorities and the state do have interests and a participatory role. In technical language, which is very unfortunate, in the cooperative tradition it is called the multi-stakeholder model. I do not think there is very much political mileage in that, but is an idea pioneered in Germany whereby there should be a balance of power between users, funders and workers, and they should negotiate among themselves on the delivery of services. The cooperative tradition is very important but it should not be subsumed by mutualism.

Q181 Chair: When we launched the inquiry we had terms of reference. We were told afterwards that they were a bit restrictive because we were looking narrowly just at coops. We were told, probably by Steve Reed in Lambeth, that they were not looking narrowly at the delivery of an individual service but at a general way of working that involved users more. I think it was referred to elsewhere as "coproduction", but is this really just a fancy name for better engagement with the people for whom you are providing services and something that all councils ought to be doing?

Lord Glasman: I think the whole engagement with people who use services is vitally important. My experiences from community organising-London Citizens’ Living Wage, Community Land Trust, and these things-is that the initial problem is to engage interests-that it is in people’s interests to do so. It is a fallacy to say, "We’ll open up the space for users and they’ll step up." There has to be a very strong organising element around the interests of users and leadership development for local people to participate effectively in those things; otherwise, it will not happen. But it is to move away from a contractual service model built around choice and things like that and to organise the interests of users. There always has to be delivery, and that must engage workers and the people who deliver the services. The interests of local authority funders also have to be recognised in a broader range of issues. It is a truism that it should always be responsive to users, but it also involves them having responsibility and a leadership role in delivery. This is quite new territory.

Phillip Blond: I think it is worth asking, what was the problem co-ops were originally meant to address? That problem was an ownership crisis and essentially the creation of a waged class of human beings who never had an opportunity to be other than that. Oddly, that crisis of ownership we had in the 19th century is one we now face in the 21st century. The story of the last 30 years is the massive capture of assets, ownership and opportunity by those at the very top of society. What we have is a new form of ownership crisis. If you look at anything from SMEs, who holds shares to who holds the percentage of the wealth, what you see is that in our country we have been decapitalised. If you take liquid wealth, which is used to start a business and finance education, in 1974 the bottom 50% of our country had 12%; in 2007 it had 1%. What has happened to our country is that increasingly the bottom 60% and 70% have been decapitalised. Capital has been removed from them. They made up the difference in the past with debt, women working and a drop in the price of consumer durables. All of that has changed, but it has left us with a debt crisis. People are heavily indebted, and there is no way of getting out of it.

The rise of co-ops now is not just incidental, fluff or part of some kind of covert agenda, cover for cuts, or whatever is the polemic against it; it is one of the few ways to address the ownership crisis, if not the fundamentally decisive way. What is interesting, and where the Government should be praised, is the development of various forms of capital financing. Often, poor people have only public sector income; they do not have anything else. What is interesting about the new models that the 21st century co-operative agenda makes possible is the ways to capitalise people, even if they are only on public sector income streams, as a way of giving them an ownership stake, and then aggregating people so they are not just individuals and can reverse from being just passive public sector consumers to asset owners, agents and facilitators in redeeming their own communities.

The win for 21st century co-operatives is no longer just what it was for 19th century co-operatives. We know that ownership produces a huge level of other goods: a sense you can make a difference to your community and you can contribute. It is wonderful that the Committee is addressing this, and the question is, how can we use the public sector to achieve that ownership goal? That is common to both right and left. That is the real agenda. If we do not address it and realise in particular the poor’s over-reliance on the state and public sector, it is not clear to me there is any option for people other than permanent low wages.

Q182 James Morris: Is there not a bit of a contradiction in what you say? I am trying to get my head round it. On the one hand, you are arguing that it is something to do with spreading ownership; on the other, you are saying that it is to do with improving service delivery. Are the two synonymous in your mind?

Phillip Blond: Ownership is a diverse good, and all of the research shows that it is not necessarily capital assets held; it is also a sense that people can make a difference to their organisation. From the British Army to John Lewis, we know that, if people feel they can make a difference to their organisation, they have, broadly speaking, what one can call ownership.

Q183 James Morris: I am sorry to cut across, but is that not what motivates people to work in the public sector anyway?

Phillip Blond: What I am interested in is not just empowering people who work in the public sector, but the recipients of public sector funding. We have seen a huge rise in welfare, but the people who are the subject of that welfare do not seem to become more active; they do not have their levels of inequality addressed, and are losing even more. The 21st century model for co-operatives is not just member-only co-operatives; it is a shift-call them "community", "user" or "multi-stakeholder"-to empowering the whole environment in which people operate. You do not even have to begin with financial ownership; you can begin with people having the ability to direct an organisation. If you do that, it can lead to financial ownership, and vice versa; it cuts both ways.

Q184 James Morris: Do you have evidence that in this relationship service delivery will improve if we have this new ownership model?

Phillip Blond: Off the top of my head, I can quote Sandwell Community Caring Trust, which spun out from West Midlands.

Q185 James Morris: I know it well, coincidentally.

Phillip Blond: They did a survey, I think, in 2009. They are an adult and children social care home. From memory, the council’s in-house price per person per week was £658; for the spun-out service, it was £328. You immediately say, "I bet the staff have been treated terribly, their pensions slashed, and their wages have fallen." Not at all. The number of sick days per year fell from over 20 days-plus per employee to 0.3. The level of money spent on front-line services-so reduction in bureaucracy-went from 68% to the 80% decile.

Q186 James Morris: I happen to know that community care trust well. Does that not illustrate the lack of clarity of some of the definitions here? I am not sure that organisation is actually a co-operative in the sense you are describing it; it is really a social enterprise. Again, there is a bit of confusion about terms here.

Phillip Blond: You are quite right. Mutualism covers a range of operating models. Currently, there are about four legal models that fit essentially within the co-operative model. I suggest to the Committee that we need a new company model. We cannot go to scale unless we get a new legalised form of company model, precisely for the reason you raise. The point you raise is a good one, which is, if we remain bound by a 19th century definition of co-operatives, we remain trapped. Cooperatives have to move beyond a membership-only model to a much more diverse one that includes all the stakeholders and players, all of whom will have a different role. We probably all agree that we need to move away from centralised, standardised delivery, but we are not clear about what we are moving to and that is what you are speaking to.

What I suggest is that we need a broad definition and a company model that supports that broad definition. There are multiple ways to be mutual; there is not just one way to be mutual. We need to encourage all the different ways that we think are socially and economically productive, and then let people decide on the good that they realise.

Q187 George Hollingbery: I sit here as a former councillor and I think of three or four things-there were many-that went on in that council while I was there. I think about a coop village shop in which the local council put money and in which local residents owned shares or debentures. In some years they were paid; in some years they put money in. With personal budgets in social care you are shaping the budget for yourself; you are encouraging the marketplace, which means you might get provision for less, and in the future you will get more and new services in different ways. That is your asset in the community, and I think that is the asset you are talking about. With the village shop, obviously the asset is that you have a shop right there and you do not have to drive miles to shop. You create a local plan; you have neighbourhood planning, where local communities, within the rubric set by the local council, the lowest accountable democratic tier, set the framework that you decorate within it. Your asset there is a community that you recognise; it is one you like and shape round yourself. Even when we change the refuse service we recognise a need to recycle much more efficiently; people want to put their bottles in a certain way and so on and so forth, and so you design a service around those desires. Let’s get rid of the "mutual" or "co-operative" label. You are talking about input from the community and ownership of an asset that is created because it is of value to the service users and input from the experts, if you like-the employees and the council-and government directives being dealt with all at the same time. Is there a need for any more formal envelope around this, or will those do?

Phillip Blond: You have described that in a way in which all would see the benefit of it, but, unless you have a more vivid vision, if you forgive the phrase, you are often left with consultation. Co-operatives or mutualisation becomes just a form of de facto consultation. I think the aim is to be much more radical. For instance, if you take personalised budgets, the really radical aim is not just to have slightly better service for individuals, but whether there is a way in which individuals can aggregate together, use the resources of the council and flip from being just consumers to producers.

Take energy as an example. ResPublica has published a report on this. There are many examples. If you can get somebody to be a trusted platform that can aggregate and people individually can buy electricity or use the feed-in tariff and come together, they can flip into being producers and start to buy out the chain that feeds them. The benefit of this can be massive, particularly for poor communities and those that are often the subject of very high tariffs, because the risk of them not paying is priced into the price they pay for their energy.

This agenda will fail if it is just a form of consultation. If a more radical request is placed on it-to change the economic and capital outlooks of those who participate in it-it has a real chance of succeeding. You are going with the grain of human nature in the sense of, "What are the incentives for me?" but broadening it beyond just the incentives for the individual to the incentives for the community.

Q188 George Hollingbery: Let me just narrow it down. I have been involved at the practical end and what you say sounds enormously attractive. I can imagine a very different world if we manage to convert that, but an awful lot of people consume services. They want to see their bins emptied at the end of the day; they do not particularly want to be involved in that in any way, shape or form. How do we take the step from what I recognise as micro-models of what you are talking about in my community? It was not just consultation; these were users shaping end services. There is no question about it. How do we go from the lethargy of sitting on the sofa waiting for your bin to be taken away to this brave new world where suddenly you have a stake in the refuse service? Seriously, that is what we are talking about.

Phillip Blond: I completely agree.

Q189 Chair: Perhaps Maurice can come in as well.

Lord Glasman: Obviously, you have to engage people’s interests. That is the key. That is an organising issue. I wish to share with the Committee that one of the great missed opportunities in the initial days of the big society was the Government’s failure to make more of organisers and organising of interests. That is very important. It is the recognition by the people you mentioned in connection with waste disposal that they have to do sorting of the initial distribution and there is no way of simply supplying services that does not involve responsibility and activity by the people who receive those services. That is a long-term story about education: agitation, organisation and education-those old things. That is the nature of the new settlement. Everybody would like to send their children to school and go home. There is not a possibility of just a straightforward contractual thing.

To go back to what Phillip was saying, a very major concern of mine is the lack of asset locks in any mutualisation so far. What that leads to quite quickly, whether it succeeds or fails, is the absorption of these things into the market. If it fails it gets bought at a low price; if it succeeds it gets bought at a higher price. It is very interesting to look at John Lewis. Remember that John Lewis was established as a private family company in 1865 and was not mutualised until the mid-1920s when it was already a successful shop on Oxford Street and Eaton Square in the form of Peter Jones. Then it was endowed in trust to its workers. The important thing is that it is impossible to sell and trade on the market, so when Phillip raises the whole question of ownership it causes me huge disquiet because it does not recognise the concentration of ownership to which this form of mutualisation leads.

The first thing is there have to be assets locks and the use of trust and endowment in transferring those assets so they cannot be market-traded; otherwise, they will be bought up. But the key thing is changing the culture of all these forms of delivery so they include participation by users, workers and funders. This is where it is very important to look at the German model. Through subsidiarity they have representation of the interests of funders. Often, it works through churches, local faith organisations and the work force, where delivery of the service and strategy of the institution are negotiated between them. I am sorry to go on a detour about asset locks, but it is vital that is there. Any meaningful form of mutualisation must involve trust and endowment, usually in the form of "endowed to the people of Lambeth in perpetuity for the nation". That was how it was done with John Lewis.

The parallel, which I think is very relevant, is Northern Rock. It used to be the Northern Counties Permanent Building Society, which was established in the same year as John Lewis. It worked as a very trusted local institution for 150 years, was demutualised in 1996, and then look what happened.

Q190 George Hollingbery: I have become slightly confused about asset development as a social and societal good, rather than actual hard assets such as buildings, cash or whatever it is. Perhaps we might develop that later. Just to finish off my section, surely one of the dangers of this is that, if you manage to engage, on the whole you tend to engage people who are more engaged anyway, but by no means exclusively. When we did a report on regeneration we saw that, if you made the right case, you could engage whole communities if you wanted to, but the sharp elbows are likely to become more engaged than others. How does democratic accountability fit with that? I refer to people who are not actually elected but who spend tax revenues and so on.

Lord Glasman: That is where the organising comes in. I can talk here from my experience of Living Wage, Community Land Trust, Safer Streets and that engagement. I feel there is great potential in the whole concept of organising that has not yet been realised. There has to be specific leadership development of working-class, ethnic minority, poor people. In the old days the Labour movement used to do it. I would like to see that happen again, but I also think it has to be tied to genuine interests. What I noticed initially in engaging people in any Living Wage campaign was that the first response was, "We won’t win it"; second, "I can’t do it." But you develop those leaders and then they go and negotiate, and then you see the transformation in the person. At some point you have to say goodbye to them because they join the management; that is the way it goes, but the development of leadership is an explicit aspect of the statecraft. This is what I want to introduce here. We have to move with clarity towards a new model of statecraft, and one of the aspects of that is the development of local institutions with local leadership. I noticed that once people got support and realised they can, and that their pay improves, their life improves and their power improves, and then their wages improve, that is where the interest lay. I would never condemn people for engaging; the sharp-elbowed people are to be emulated rather than despised. It is just that it should be distributed further down.

Phillip Blond: Let me use an example. You referred to waste collection. In Denmark what they did to create a more radical outcome, instead of very consultative waste collection services, was to create a local incinerator. If you want to generate local social capital, propose a local incinerator because you will have self-organised groups like you never dreamt of. What they did in Denmark was to make their local incinerator very beautiful and architecturally very interesting and important. They linked waste disposal with that local incinerator and created community ownership of it. The outcome is that bills are 30% lower and the homes linked to that incineration programme have a higher house price value.

That is what I mean by moving the agenda beyond the rhetoric of consultation. This is not meant to be pejorative. I agree with Maurice that leadership training is important, but you have to give very real incentives to people in terms of what they can expect from it. Since group activity creates greater economic reward, do not allow one state model to capture or ossify all that economic reward but distribute it. That is how you create interest. I profoundly disagree with Maurice about asset locks. I think the reason cooperatives have not gone to scale in this country is asset locks. That prevents the raising of proper capital finance and a hybrid return from non-profit and profit that we need if we are to grow the alternative.

If you consult people locally, everybody more or less has three things-they want their areas to be clean, safe and green. That is what most people want in almost every local authority survey of which I know. If you can give people the opportunity to create those outcomes, they will be interested at a street-by-street level. Once you group people together and they achieve one good thing, they become an agency for achieving lots of other good things, because success breeds success. What we have to do, if we want to go to scale, is to be very radical about what we want from mutualisation or coops. That is what coops have always wanted: ownership. Go that extra mile; do not let it get trapped in a miasmic middle where there is a lot of consultation and people asking what you think. Then I think you can go to scale and build social capital on that.

Q191 Chair: Maurice has one point, but then we have to move on. We could be here for the second half as well.

Lord Glasman: To clarify, the workers of John Lewis do not own those shares inasmuch as they cannot sell them. What they get is a dividend back but they are not ownership shares and they cannot be freely traded on the market. The big difference between us is the stress I would put on the idea of vocation. Whether or not you own, they should be incentives to virtue. Good work should be rewarded; the power at work should be recognised. That always has to be the case. There has to be a negotiation of strategy within those things. That is the space to keep open, and that can fit myriad forms of ownership.

Q192 Heather Wheeler: I am interested in where we are with most of our councils now. How do you think councils do engage with service users or front-line staff to empower them to make serious changes in how services are offered or provided to them? How do you think they do that now?

Phillip Blond: I think there is a whole range, is there not? There are very good examples and ones where very little has happened. Let me give you a couple from when I visited Birmingham last year. Birmingham has broken down its service delivery into areas. I thought it particularly instructive that civil servants who had previously worked in service silos were essentially captured by those neighbourhood groups that ran those services. The civil servants became civil; they started working, in effect, for those neighbourhood groups, and those neighbourhood groups then had power and an access point to leverage everything else to try to change their outcomes.

What Lambeth is doing with its co-operative models is profoundly interesting, but I do not yet see the real potential of council mutualisation out there. What councils could and should do is use the rights in the Localism Bill-the right to challenge and the area-based budgeting pilots that are going through-to empower something other than itself and empower pathways, not necessarily through itself. The idea that everything has to pass through a council in order to be democratic or accountable is questionable. That does not necessarily correspond with where most people are.

What has gone wrong with our country is that representative democracy has in effect eroded participative democracy. Representation is something that turns off most people. Councils need to broker something other than themselves to be powerful in their neighbourhoods and create new systems. I would like to see councils becoming alternative financial platforms to enable cooperatives to go to scale, empower rights to challenge and use area-based budgeting so it could say to an estate, "Use your residents’ association, but use it to deliver all of your services. Capitalise all of your services. Cut out the bureaucracy, but use us as an enabling platform that, if things go wrong, you can come back to, but we can facilitate that." I do not think we have yet seen that. I hesitate to say it because as soon as I do so I know it will be out there, but I would be really interested in the evidence. To conclude, councils have to grow participative democracy, not just constantly seek to validate their own form of representative democracy.

Q193 Heather Wheeler: That is very interesting. Lord Glasman, how do you quantify the engagement as well?

Lord Glasman: There are a couple of ways you can do it. I always judge it by the extent to which there is leadership from the poorer parts of the community. That is decisive. I am not being Utopian in that way. If there is some engagement by up to 15% to 20% of the local community, you are doing fantastically well. Saul Alinsky, who founded community organising, broke the news that it never penetrated further than 10% to 12% of people but was transformative of those places for all that, because it led to a whole generation of new leaders connected to the different places in myriad ways.

To answer your question properly, we have to look to some extent at the realities of democratic disenchantment in local elections. That manifests itself in voter turnout. By the by, we have to think quite radically about how to do that. I have put forward some suggestions. Tony Travers has commented on breaking down the big boroughs to local levels following the Tottenham riots, for example. Nobody there could recognise anybody from Haringey Council as an entity. I would go further and reconstitute local areas but also city parliaments so they could have some real budgetary power and control over those places. That is just to put it out there. I am being Blue Labour in that sense. We have to work with the institutions that do exist, in whatever impoverished form, and make that the starting point. That is very challenging. First, there are the public sector unions. There has to be a very big conversation there about engagement with people. That is absolutely necessary because they are existing institutions. The move to vocation, partnership and serving people has to be there. In all urban areas the most trusted institutions are faith institutions. We have to look to the engagement of faith institutions in leadership development.

One of the things I am talking to Tottenham Hotspur Football Club about following the riots is a leadership academy in the club, which will work overwhelmingly with mosques and churches in the immigrant communities that are basically delivering no leadership in the councils. Then you look at particular neighbourhood groups and the things with which they are concerned. It is about developing leadership and partnership among groups. I agree with Phillip that they are in the consultation process but not negotiating governance. There is a very good role for the Labour Party in those local areas also to be much more committed to developing leaders from those places that may be outside the progressive mainstream, but none the less have real roots within the communities they serve, and bringing them in.

Phillip Blond: As an aside-this may help-what would a good cooperative council look like? I do not think it is the case that the only authority that delivers public services is a council that is very consultative and nice and has lots of mutuality and reciprocity. I think a radical co-operative council would, I repeat, empower things beside itself. In my work I have seen the role that housing associations or registered social landlords can do. Take Poplar HARCA, for instance, in Tower Hamlets. If one goes further back, one sees a shift in housing from the local state into an autonomous organisation. Bad housing associations essentially remain as top-down deliverers. Good housing associations turn themselves completely inside out and allow their residents to run their areas. Rochdale Housing has just become the largest partnership mutual in the public sector. What these do is let ordinary people control their own areas.

What I suggest to you is that at the moment most people feel they cannot control their areas and cannot make a difference to their locality through their council. I think a good council has to recognise that gap and try to empower intermediate groups that are truly independent of the council and can deliver it on a street-by-street or area-by-area basis. For me, a co-operative council would look like something that had created a completely different setting where it was not the sole author of the type of mutual models that were in play.

Q194 Bill Esterson: The question to emerge from the last exchange is, how do you engage with the hard-to-reach groups? It is not confined to this subject. The sharp elbows get in-the residents’ associations, parish councils and the existing institutions, which was the phrase you used, Maurice. How do you ensure that the wishes and needs of the people who are not involved are reflected as well?

Lord Glasman: Please cut me off if I become repetitive, but this is a personal thing and I could go on about it all day. The first thing is to have some incentives-that you become powerful and things change. I have seen that experience many times. As to incentives in terms of power, we have to change the parameters of public culture. There is a big thing about failure. We are very "failure" averse; we are very scared of failure, but if you engage people in trying to make new things happen, you learn so much more from failure than anything else. Leonard Cohen is a good guide on this: "There is a crack in everything; that’s how the light gets in," but we have great managerial resistance. It is a matter of giving people genuine power. There is a real disagreement going on here. I am for building up the local body politic of a relationship with councils that feeds in so you can move leadership in these institutions into political roles, but ultimately you have to make that power available to people and it works within their interests and experience. I am from Labour; this is quite a populist Labour thing. People are very dissatisfied with the present arrangements. You allow people to articulate that, work within that and challenge the prevailing distribution of power.

To get to the hard-to-reach people there has to be systematic emphasis on leadership development; the genuine possibility of attaining powers and resources locally; much greater tolerance of experimentation and failure; and the democratic accountability that goes on within council structures. That is what I mean by a cultural change. I think this means redistributing power to local places so they have far greater status than local politicians and local government. We have to think about the ritual of that and city parliaments. I am very traditionalist in this way-that is, the revival of the old sheriffs and mayors and the things that were abolished in the 19th century. But the answer is a mixture of power, leadership and institutions.

Phillip Blond: The unfortunate thing about modern human life is that when we meet or gather together it is not for purposes of fun or enjoyment, which is why most people do not want to do it. What can we do? The thought of people going to a meeting at night will not engage 99% of the population, but if you look at forms of association that do well and prosper, they are about the wider human goods. You could use an economic incentive to gather people together, but the software that is difficult is making it fun and enjoyable. The more micro you can be about that the better. The idea that you can solve problems almost at a street-based level will make people give a damn. That is the crucial thing.

As to how we can engender that, and engender very localised rewards, like creating a genuinely safe street or dealing with a problem family, or planting trees, there is a lot of low-hanging fruit. If we can create it, that is where you can grow from. In very deprived communities a lot of evidence about micro-budgeting shows that is how you do it. If you can create a very small budget so people in an area can decide what to paint the stairwell, or what flowers to plant, that provides a platform for people who have never done it before to come together.

Bill Esterson: Is it not very time-consuming?

Chair: We need to move on.

Q195 Mark Pawsey: As I listen to more and more evidence I hear issues of scale come into it. You have just said, "The more micro the better." I almost thought I was listening to Professor Schumacher. Is this not about co-operative councils working when you bring things down to the lowest denominator? City parliaments have been referred to. Bigger decisions are made by smaller units and smaller groups of people, which is largely the Government’s localism agenda. What is the other side of that? Where do expertise, skill, efficiency and economies of scale come into this to enable a service to be delivered efficiently? We have to have regard to that. How do we reconcile those competing forces?

Phillip Blond: You pose the question extremely well. What I would argue in public service delivery is that there are diseconomies of scale, and you get a far greater return the more focused you are on localised demand. One of the things that has gone wrong with our dysfunctional state is that we standardise everything. Then we break it down and cannot put it back together again. If you are able to create a personalised and localised service, what happens is that you deal with the problems much more quickly. Take, for example, call centres. The reason they are being returned to Britain is that the amount of what is called failure demand generated by people not being able to answer problems makes out-sourcing far more expensive. We are now in a situation where small enterprises can be very efficient, but then you raise absolutely the right question: how do we ensure universality of standards? That is the role of the council. That is the type of platform to which people can come and say, "It’s not working out; it has been captured by the wrong sort of group." That is the type of outcome at which we should be looking.

Q196 Mark Pawsey: But is that not a case for lots of smaller councils?

Phillip Blond: There is a case for the large and small and trying to broker a new relationship between the two. I do not see any reason why you cannot do that in a networked world. If you create very small groups that somehow, via the new technology, can access all the wealth that previously could be generated only by large groups, you are more efficient, economic and effective.

Q197 Mark Pawsey: Lord Glasman, you have spoken a great deal about the tripartite model involving the work force, service users and the local authority. Those are competing interests, so is the thing not going to get bogged down in bureaucracy and meetings and meetings, and nothing effectively happens?

Lord Glasman: That is the paradox, if you like. That is the only time I will use a term of art. I hope it turns out that where there are tensions and competing interests you get a degree of commitment and energy around a settlement. Before I answer, what I found was that in engaging people’s interests there has to be tension and drama. In meetings you have to push for a reaction, so, as opposed to technical meetings, you work towards political meetings that come to an outcome. What it means is that people get involved in the drama of their own lives. There is tension; there is meeting; there are winners and losers. That goes on. It does not have to be interminable. It is best to keep it quick but to recognise that there are tensions and interests and there is a common good. That is why one goes on about the politics of the common good.

I give a private sector example. The argument in the 1980s about British and German industry is that we could make fast, decisive decisions, and German industry got bogged down in interminable details to do with the funders, workers and the locality. I remember both the Conservative and Labour sides saying that the argument about the German economy succeeding was laughable because it was too cumbersome. I think the evidence is in that you have a cultural framework where there is both tension and cooperation within it and the different interests negotiate an outcome. For example, in the early years of the last decade German workers took a pay cut in the boom to go through the corporate governance. What you find is that if people have a sense of a common good, as long as they are part of that negotiation and benefit from it in the long run, they will accommodate far better than if there is just a money interest. The answer is that there is no avoiding negotiating a common good between competing interests; that is life. The crucial thing is to structure it so there is an outcome.

Q198 Mark Pawsey: Going back to scale, that has to be done at a much lower level.

Lord Glasman: Not necessarily.

Q199 Mark Pawsey: We have heard from Phillip Blond that if you have a meeting 99% of people are completely disengaged.

Lord Glasman: I am very much in favour of representative democracy and people representing people in economic and political life. The way John Lewis works is probably the best here, but, if you look at Germany, very large institutions both in the public and private sectors are built upon this tripartite model. What you do is elect the people you trust to represent your interests at the highest level and stick to the agreement.

Phillip Blond: I think this is a recipe for staying as we are. The level of crisis and nonparticipation out there requires radically different structures that could reengage. What is interesting is that, if you look at hyper-local websites, quite often they can achieve 80% to 90% penetration in those areas. The hyper-local is the decisive way in which we have to go. It is not the only way and it does not exclude larger scale, but crucially that is part of the answer to the question you have been asking about how to incentivise people.

Q200 James Morris: I was interested in some of the barriers to the realisation of the vision or model that you are describing. If I was an entrepreneur-as I have been-I would not be working in local government. How do you inject this entrepreneurial spirit into local government? Achieving your model implies a tolerance of risk, living with ambiguity and creating new models, and that is not what I have experienced. Lots of good people work in local government, but that is not how I would describe them. There is a lot of bureaucratic inertia, which reasserts the status quo. How do we overcome that?

Phillip Blond: The fundamental point I raise-Chairman, tell me if this is not one I should raise at this point-is that if we are to make a difference we need a new company model. The trouble at the moment is that the company models-CICs, community benefits societies and industrial providence societies-are not ones that can go to scale in this country to create a cooperative vision, quite simply because they do not offer enough incentive in terms of risk and reward. They allow free riding, which is a fundamental problem, and they are not able to access the type of capital businesses need to go to scale. I work very closely with the People’s Supermarket in Lamb’s Conduit Street. The thing they need is a new market model that will enable them not to have an asset lock, which would be a disaster, but to access mainstream wholesale capital.

What I suggest we need is a hybrid model that allows the interests between stakeholders, recipients of public services and ordinary private sector capital to be varied to blend profit and non-profit, or mutual and non-mutual return. If we can create that new company model-there is consultation, though not public consultation, on what type of company models we need-that will enable us to go to scale, because that will answer the question you are asking about risk and reward.

Q201 James Morris: I hear what you say about the model, but in all this is there not a question about the way people behave in public service and the choices they make to go into public service that militates against thinking about and implementing new models?

Phillip Blond: The evidence suggests that people who take the mutualisation route are thrilled about it. There are lots of concerns about pensions, security and who will govern, but once they do it they feel their vocation doubly and trebly enhanced. It is not that their vocation is taken away. The reason people get upset in public service and become perhaps not as productive as they might be is that it is thwarted by standardisation and by people not letting their ideas run free. Creating a cooperative model builds on the very vocation that people went into it for in the first place. If we create two-way mutuals, or multi-mutuals, so you can reward the people you help with equity and economic stakes, you can assist them in a holistic way, not just on the basis of, "We’re dealing just with your family problem," or, "We’re dealing just with your drug habit."

Q202 James Morris: Lord Glasman, you were talking about the tolerance of risk and failure. That comes up a lot in discussions about innovation in public service, so how should we deal with failure? If we create a new model that gets broken in a particular area and does not deliver the service it is meant to and lets down lots of people-the local press is crawling all over it; the unions are calling it a conspiracy against the workers, or whatever they might be doing-how do we create a culture where risk is more possible, or where we have a greater tolerance of failure?

Lord Glasman: I think this is central. To give a brief anecdote, when Blue Labour started I wanted its tag line to be "Blue Labour: celebrating failure", but wiser heads prevailed in that particular. But the point of that was to engender within public institutions a culture of innovation and learning from mistakes. It is essential that we have forms of democratic accountability-to go back to Heather Wheeler’s point-and engage with leadership that shares the experience with their families and friends. What you have at the moment is a very stuck bureaucratic model, and then external rage and disaffection. It is essential to have a culture of learning. What we have got to accept is that, if we go towards trust of local democratic leadership, there is negotiation of strategy. What I have not mentioned is a culture of evaluation. You evaluate the model, and there has to be democratic accountability so that, if people do not like it, they can break it off. It has to be competitive.

Another vital thing is that, if you instil status and real glory in forms of political leadership, there will be competition, but those things will be there only if you have the power to do things. You have to evoke a new civic agenda where there can be that form of experimentation and you can learn from that and there is democratic competition. I am completely with you that there has to be a cultural change. I am not with you in thinking that the private sector is very different. Certainly, in the corporate culture there is a massive amount of failure avoidance. That certainly came out in the banking sector in 2008. What we have here is a very similar problem in the public and private sectors. There is lack of leadership, acceptance of the necessity to learn from failure and genuine leadership development within those institutions. Those are the things we have to address full on.

Q203 Heidi Alexander: We both know that at the moment local authorities and councils have to make huge savings. I would be grateful for your thoughts on whether in the use by local authorities of co-operatives, mutuals and social enterprises there is a tension in delivering services in that way with making savings from economies of scale.

Lord Glasman: I think this is a moment of great opportunity, because whereas you cannot redistribute money you can redistribute power. There has to be a reckoning and education going on: "The schools and hospitals are yours, and it is in your interests to be engaged with them, and you can affect them and run them." For example, with schools I think the best Labour alternative would be a third for parents, a third for teachers and a third for funders; they negotiate that. If this agenda is just seen as worse or poorer services delivered by a different company structure, that would be wrong, but there is a direct interest in those services by people, so my hope is that opening up different forms of power structure and running them could be quite transformative of the situation.

Q204 Heidi Alexander: But do you think that in the shorter term it could cost more money to provide services in this way?

Lord Glasman: Yes, given the way it is going at the moment. I agree it is not a transformative model; it has not engaged people’s imagination. I think the coop uptake is a trickle. As always, if there is systemic failure it costs more.

Q205 Heidi Alexander: Do you agree?

Phillip Blond: I think we already have systemic failure in so many of our outcomes. I think the potential for mutualisation is massive gain that can help mitigate the cuts. We know that, just on profitability, employee-owned companies have out-competed the FTSE 100 over the last 19 years by 11.5%. We know that creating more horizontal and cooperative structures is the most effective way to strip out bureaucracy. There is a medium-term outcome, which is that you can deliver genuinely-I am not saying this for ideological reasons-more for less. But I tend to think you are right, and that creating it and setting it up will cost time and money. The trouble is that we are not in a situation where we can leverage the savings from the medium term or long term to fund that shift. The great shame-I have written about it in public-is that all of the powers under the Localism Bill were enacted after local budgets were slashed. A time of crisis is a time to innovate, and we denied the local state the time and space to innovate in delivering those outcomes. I think that is a disaster for the Conservatives as well as anybody else.

There is no other route to the future we want than some form of involvement of users or recipients. Being more radical and visionary about the gains that could accrue to those users and recipients is how we might still gain from this crisis. If it is just a wider, weaker form of consultation where the council retains ultimate power, that would be very sad, but if it allows people to recover agency, use area-based budgeting and those sorts of thing to start genuinely to transform their areas in a holistic fashion, great good can come from it.

Q206 Heidi Alexander: Perhaps I may ask both of you about the downsides of this way of delivering public services. Is it better suited to some areas of service than others? Are there downsides in respect of staff terms and conditions? Should trade union members be worried about this? Should trade unions be worried? What are the negatives associated with this way of working?

Lord Glasman: The negatives would be that it would exclusively benefit middle-class people who are more motivated, and it would lead to the privatisation of services and a huge transfer of assets out of the public realm into the private realm, which will not come back. These have to be addressed full on. I have mentioned the way of dealing with the difference we have on the asset lock. I think the use of endowments and trusts is absolutely vital.

In relation to what Mr Morris said earlier, there is another aspect. I have been arguing for the endowment of regional banks so you cannot lend outside the county or city. Effectively, there are nine lending banks. In Germany I stopped counting at 3,000. We have to be thinking about whether we should use 5% of the bail-out to endow local banks so there could be access to capital. We have to think quite institutionally and strategically about what are the necessary conditions of success for people having more power over their lives, and the necessity of political leadership in that. There is a choice before you. You can watch the telly or you can get stuck in, and there are real advantages in getting stuck into it. Unless that argument can be made, whatever the model is we will go back to some form of technocratic elite running it.

Phillip Blond: The danger is that, unless we generate new ways to make sure recipients of services are capital owners in the model, essentially you will get employee or producer capture, and spin-out companies essentially will serve their own ends. I enjoyed UNISON’s brief. There is a strong argument for doing nothing, but there are legitimate fears about the fragmentation of public services. Fragmentation is a genuine fear. If this is done badly, you could lose what is right about local authorities as centralising, localising points of accountability-that is what I like about local authorities-and it will fall in the middle. It will not deliver a new form of local accountability that will be vivid and shared in; it will just be like another form of privatisation. The greatest risk is that mutualisation, because it has not done well, radically falls into a form of subcontracting out. The trouble with subcontracting out is that it produces the very thing you are talking about, which is people saying, "I just want my bins emptied, and I can measure it like that." The trouble is that particularly for the most disadvantaged areas that is another nail in their coffin. It is fine if you are middle class and live in the Cotswolds because you are all right in other areas, but in the most disadvantaged areas that is another rung of the ladder that is kicked away that can get them out of where they are.

Q207 David Heyes: I have got a council by-election going on in my constituency. Because of that I spent most of the last two weeks of the parliamentary recess out on the streets in the evenings and during the day with lots of other community people, not just from my party but the other main parties as well. I was out with entrepreneurs, leaders of community organisations, business leaders and trade union activists-in summary, community leaders. These people want to get that little bit of local power that the democratic process allows to make things happen in the local communities to begin to be able to address the concerns and aspirations of local people, but they are not a separate group from the people who would lead the mutuals and co-operatives. I just wonder whether this move towards greater use of co-operatives and mutuals serves to undermine the basis of local democracy.

Phillip Blond: Modern democracy is already failing and is in crisis. If you look at the proportion of people who vote in certain council wards in Liverpool, it even drops below 10%. This is not a healthy model. You may think everything is okay, that the levels of local participation are fine and that the council is great, if only the Government would get off its back. By the way, I wrote a piece with Graham Allen on creating a new constitutional settlement for local government. I fully support that move, because I think local government has to have as complete autonomy as it can have in tax-raising powers. I am not opposed to it; I do not want a neutered council. But this is a broken model and pathway. The arteries of local democracy are blocked, and simply arguing for it fails to see the problem. The problem is that representational democracy-I apologise for repetition-has helped remove participative democracy, and the two are not in conflict. Until you can create a representative model that supports a participative model, local accountability will continue to be dictated by about 10% or 20% of the electorate.

Lord Glasman: I am much closer than you can imagine to those concerns. In reply, I would say two things. There is leadership development within unions, and the development of local leaders in the management of the institutions they work in has to be a vital part of this. My answer to you is that I work with those people in lots of different areas; that is what I love about Labour politics. It is to get more of those people engaged in leadership and powerful roles. To do that there has to be genuine power, but there has to be engagement with what people want and the changes necessary. There has to be a negotiation between the work force, users and the funders to make the world a better place. I think this is absolutely traditional Labour politics.

Q208 Simon Danczuk: The Government have introduced a community right to challenge in their Localism Bill. How do you think that will impact on the delivery of local services?

Phillip Blond: Community right to challenge is one of the things ResPublica and I argued for. I think the rationale for it, which remains, is that we have got to move from an income supplementation stage-just giving small amounts of money to poor people-to one that generates a capital effect. The gain from a right to challenge is massive. The Government have also just awarded contracts. I think the contract to facilitate the right to challenge has gone to Locality, so at least they have learned that they need to provide a platform for this to work. The real advantage of the right to challenge will not come from just picking up one service and saying, "The bins are awful." It will come from a neighbourhood or area-based approach, particularly in disadvantaged areas, where the Government’s area-based commissioning, neighbourhood budgets, the pilots that are now running along those lines, come together and you get a whole neighbourhood saying, "We’re going to take over all of the budget spent in our area." Then I think you have the opportunity for multiplier impact that genuinely transforms the social and economic outcomes in an area. If it is not like that and is where we are now, what I think we will see happening is community groups challenging for specific services. Community groups are already empowered and together. They are perhaps already using the community right to buy. What will then happen is the rise of what Maurice often talks about: effective leadership and community organisations in a community. That is good. Those are the two outcomes, but the really radical outcome that can transform things for those at the very bottom will be the area-based capture of all of the services in that area.

In order for that to work-colleagues have already flagged this-we need some form of capacity generator where people in those areas can try to manage and create their services. That is another role that local authorities can help perform. That is the hope.

Q209 Simon Danczuk: Lord Glasman, what do you think of Locality delivering these contracts?

Lord Glasman: I have said things about Locality. I do not think they were the best people to get the bid because they come from the settlement. They are not organised. Their origins lie much more in providing education and help to poor people than developing poor people as leaders. I regret the polemical terms I used in the initial response, namely that they were do-gooders allowed out.

Q210 Simon Danczuk: Feel free to repeat your previous remarks.

Lord Glasman: I am sorry I ever said that. I would go as far as to say that I respect what they do, but I am not quite there. It is a question of organising. This is where I am from. Developing local leaders is a bloody and brutal process that involves very specific skills, agitation, scratching at things, moving people along and dropping people in it and seeing how they do. Therefore, I am sceptical about this because it is still not political.

I give you one example of something on which I am working and you can look at it. It has to be political. Take the privatisation of Dover port. The Government are the freeholder but it is leased to the Dover Harbour Board. The idea is that this will be sold, as part of the deficit reduction, and the bidder at the moment is a French company. For me, the idea that the French buy Dover is a real organising event. I do not think that will be covered by a right to object. You actively organise, you raise the resentments of local people, you get stuck in, and this is where you have the model. You say, "A third of the governance of Dover port is for the funders; a third is for the workers; and a third is for the people of Dover, because Dover port is for ever England and you cannot sell that off to the French-are you crazy?" It is a matter of getting this stuff into the political realm and starting to organise politically. It is not just about a right to challenge; it is about actively developing leaders who will take on the action and restore power to local places.

Q211 Simon Danczuk: I get that completely. Very briefly, do you not think that this right to challenge is a stepping stone to privatisation of services?

Phillip Blond: I have already said I think that it is a disaster if the co-operative movement slides into just out-sourcing and privatisation. There is a third way, which is a dubious thing to say in politics. Between nationalisation and privatisation there is mutualisation. If you are interested in making a difference to those who most need it, that is the path we have to take. I do not like Saul Alinsky’s work; I do not think it is the only way to go, but I appreciate a black box approach. Let’s have multiple, different approaches and see what works. Alinsky is not the only way to be political; it is a very poor way to be political, but let’s have different varieties. To be fair, that is the option the Government have now created. We should embrace that and wait and see what happens. The most important thing is to create a vision of what we want. It would be useful if this Committee had a very broad vision. What would you like to see? Then we can try to use all of these powers and activities to try to realise that.

Lord Glasman: I reiterate the fundamental point that there has to be a balance of interest always in the governance of these things that includes workers, users and funders and work it out from there, whatever the scale, to go back to the earlier point. There has to be the use of trusts and endowment in that. That is the only way it does not just spin off into privatisation, so, as opposed to any form of unilateral sovereignty of a single-interest money stake, there has to be a balance of power in governance.

Q212 Bob Blackman: To put a point of clarification, I have listened to your evidence with quite a lot of interest. There seems to be a misnomer here. As I understand it, Lord Glasman, you are talking about taking people from the community and developing them potentially into leaders. To me, that would mean they are coming on as councillors to act as representatives, but here we are talking about running services for the benefit of the whole local community. That seems to be a bit of a difference in the approach. Can you help me with that particular issue?

Lord Glasman: The way I view it is that there used to be two fundamental schools. I apologise to non-Labour Members. There used to be the union and the council. You developed through that, but the third part of that was to do with leadership roles in the cooperative movement. That was to do with the burial societies and the shops. The idea that you have a leadership role that does not involve running things is part of the disempowerment; you are accountable and you do not do that. This relates back to failure and the necessity of learning. There has to be a pathway for local leaders whereby they have some power. That is the key, whether they are councillors or whether they are negotiating the strategy for the delivery of services.

Q213 Bob Blackman: Forgive me. That is clearly a representative role with service users saying, "We want a service to be delivered in this particular way for this particular benefit," but that is not running and delivering it, which is what we are looking at here in terms of mutuals or co-operative councils.

Lord Glasman: What I am arguing is that the actual leadership role always involves a negotiation of the complexity of that delivery. That delivery is absolutely fundamental to it. That delivery always involves an engagement with users and what people want; it involves negotiation with workers-how it is going to be delivered.

Q214 Bob Blackman: I agree with all of that. The issue is, are those people coming from the community, or is it a council or local authority or public sector body being mutualised?

Lord Glasman: The final thing is that in the development of the strategy you employ people to implement it, but in terms of the corporate governance board there has to be that balance and understanding of the details of those things.

Q215 Bob Blackman: Mr Blond, I want to ask you a separate question. In my experience, one of the problems with local authorities and the reason people are not interested in the way they work is that they consult people on delivering a service or doing something. People say, "We don’t want that. We don’t like it." The council says, "We’re still going to do it." Is that not the big barrier to people participating and taking a local authority seriously?

Phillip Blond: The great barrier is that even when people want to make a difference and express it they cannot do so. Where I disagree with Maurice is that for me mutualisation skills up everybody, not just leaders. The trouble is that, if you have just leaders, the existing power structure tends to remain, but you are just new entrants within it. What I am interested in is changing the whole dispensation. The whole dispensation needs systemic change; it needs a new account of how all actors act. Small groups now have the capacity to deliver what previously only very large organisations and groups could deliver. New technology and the type of resources now at play enable us to do that. If you look at successful small and medium-sized enterprises, they utilise that, but we have not done that in politics. It seems to me that is the step we need to take to become a 21st century country. We need to allow people to make a difference in areas very close to their hearts, and we can do that. For instance, everywhere you go-I am sure you have experienced this-everyone talks about the bus services being at the wrong time. It is a very easy and simple thing to create ways in which users can change their bus services. We know, for instance, that we have an ongoing pensions crisis. We know that if people were able to self-advise and cut out those who managed their pensions, the value of those pensions would be roughly a third greater. These are all benefits from association that we know in many other areas, but we have yet to utilise all of these teachings to change the way we associate at the most local level. People want to make a difference. All I suggest to you is that mutualisation is one of the ways in which that can be delivered.

Q216 Chair: Phillip, you said that the Government were basically on the right track with some of these issues; Maurice had some reservations. Could you give some very succinct, brief advice to Government about two things they could be doing but are not doing now to improve this? Each of you has 30 seconds.

Phillip Blond: Realise that the state is not all bad, and the failure to think of a state in a new productive model is one of the reasons big society fell through the cracks. If we can think of a state under a new and radicalised model, we can deliver the settlement that the Localism Bill and all that is right in the Government’s big society and social enterprise agenda want.

Lord Glasman: England one, France nil. I have been rapidly scribbling. I would say to them: do not be afraid of tension and failure, and pursue a common good.

Chair: Therefore, do not be afraid of the Daily Mail either when it picks this up. It has been a really interesting session. Thank you for giving us advice on those points.

Prepared 15th June 2012