Is the UK third sector ready for the new social contract between the Big Society and the Small(er) State?

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On 11th July 2011, the coalition government put forward the Open Public Services White Paper, setting out the principles for reforming public services by reducing the Big State and empowering the Big Society. The Paper sketches the new contours for public service modernisation along five defining principles: choice, decentralisation, diversity, fairness and accountability. In the PM’s own words, this is the much needed reform to an “old fashioned, top-down, take-what-you’re-given” approach to public service delivery that was adopted “with all the right intentions” but “is just not working for a lot of people” any longer.

And the Big Society was not short of a response. Leading figures from civil society put forward Civil Dialogue: Ideas for Better Working between Government and Civil Society, a collection of think pieces that go beyond praise of the ‘co-production model’ and identify some of the barriers to change in new public service delivery. For decades, government and voluntary organisations have operated largely dissimilar organisational and capitalisation models. Payment-by-outcome commissioning is having its fair share of critics, who point at overstretched third sector organisations struggling to access multiple sources of capital whilst keeping their commitment to high quality social services. Besides, the long-term nature of the third sector’s commitment to diverse yet increasingly interlinked social causes could run the risk of slowdown under frequent policy and regulatory changes. 

But, is this painting too gloomy a picture for the future success of the new social contract between the the Big Society and the Small(er) State? It probably does! The UK third sector has a long tradition of creating economic value for social causes by blending private enterprise with the public interest. And it has been able to do so by adapting to competitive market pressures from the private sector and managerial pressures from central government. 

Prior to the introduction of the centralised welfare system after the 1942 Beveridge Report, social services in the UK were provided locally, mostly by voluntary associations or mutually beneficial cooperatives and societies. With the gradual privatisation and liberalisation of large utilities (e.g. transport, energy, telecoms) in the 1980s and 1990s, the prospect of a more diversified supply market for public services began to emerge. And although the Blair government’s New Public Management introduced a heavily managerial system of performance measurements set by the central authority for procured public services, the third sector was able to diversify its organisational structure in order to create economic wealth for social purposes (largely under the 2004 Companies (Audit, Investigation and Community Enterprise) Act, in conjunction with the 2005 Community Interest Companies Regulations and the 2006 Charities Act). 

Under this regulatory regime – not without critics pointing at ex ante regulatory burdens – charities, social enterprises and voluntary associations in the UK have been able to adapt their organisational models to competitive pressures from the private and public sector, in order to reduce costs and create innovative social services. These emerging organisational models rely on five pillars, adopting the best of both worlds (commercial enterprise and standardised performance management in service delivery): 

1. Brand Legitimacy/Credibility: third sector organisations use their long tradition in social service delivery to consolidate a unique brand image, providing a credible platform for operating in clearly defined market segments (e.g. Cancer Research UK, Oxfam, BUPA, Nuffield Health, Places for People)
2. Service Diversification: third sector organisations show great ability to use multiple sources of knowledge and capital (voluntary labour, financial resources) in order to adapt traditional services to interrelated social needs and create new services to respond more efficiently to the root of social problems (e.g. The Social Investment Business identified the need to couple traditional funding services with commercially viable business support; The Big Issue designed a commercially attractive product to tackle the problem of homelessness).
3. Measuring Quality/Efficiency: most third sector organisations in the UK use or have developed internal standards for measuring efficiency of their services and ensuring a standardised high quality of delivery (e.g. Places for People uses the London Benchmarking Group Framework to assess the community impact of its business)
4. Working in Partnership: most third sector organisations in the UK have experienced growth by setting up partnerships for particular social causes to enhance the overall social benefit of their services (e.g. Divine Chocolate promotes fair trade and is owned by two networks of farmers’ cooperatives)
5. Dynamic (Corporate) Governance: most third sector organisations rely upon a dynamic governance structure, which allows them to grow sustainably by using multiple funding streams: public tenders, donations, operating activity, partnerships in key business segments (e.g. Comic Relief, the National Trust, Women Like Us). 

Overall, this model allows third sector organisations to fulfil their social mission and enhance their social impact whilst preserving commercially viable models to generate surpluses for service development and innovation. Instead of diluting their social mission, these organisations use their community interest or charitable status for competitive advantage in service development, drawing on wider social resources through diversification of their revenue streams and collaborations with private and public entities, as well as local communities in order to deliver higher quality services at lower costs. 

Moreover, the five pillars described above are not applicable solely to large-scale service deliverers in the third sector, who benefit from established revenue streams and strong brands. Rather, this organisational model originates from small-scale third sector service deliverers, whose strategy has been to provide innovative social services from multiple funding streams whilst developing new means to use knowledge and technology more efficiently in order to do more with a set level of resources.  

However, these new organisational models might be exposed to new types of risks, other than those associated with regulatory burdens or undercapitalisation. Most of these risks cannot be limited by ex ante or ex post regulatory measures, but by careful internal management that looks beyond traditional aspects of economic analysis such as capital investments, performance or market conditions. 

In order for the third sector to be ready for the new social contract between the Big Society and the Small(er) State, it needs to turn its attention to the microdynamics of sector specific services and the dispersed interactions of private and public agents tied in complex networks of partnerships, multiple revenue streams and contracted services. In order to succeed in the long term, the new organisational models put forward by the diverse members of the third sector need to be assessed as part of the complex system they operate in, rather than modelled on traditional economic forecasting that treat them in isolation. The UK third sector is capable to operate innovative business models because, not in spite of, the complex network of service providers. Understanding this complexity will unlock the unique position of third sector organisations in achieving the necessary balance between the Big Society and the Small(er) State.  

By Irina Iordachescu