I have written before that co-ops and similar ventures are part of the rich tapestry of a market economy. After all, before the days of statutory regulation, the Stock Exchange was a mutual – you can’t get closer to the market economy than that. Co-ops and mutuals certainly have their limitations – access to capital and corporate governance being the two main ones. People complain about profit-making banks being owned by shareholders but mutuals can be captured by management and pay poor interest rates to savers and co-ops can be captured by a senior management clique without any possibility of facilitating change. There is a big literature on all this and I hope that Osborne’s team has read it. Neverthelessm, mutuals and co-ops definitely have their place. Three cheers for George Osborne’s attempts to create co-ops in the public sector then? Not yet.
As ever with Conservative proposals the small print is not easy to understand. What is proposed seems to be worker-managed institutions which have to accept public sector wages, conditions and pensions. Furthermore, though they can keep some of “surplus” the organisation makes (for some reason it cannot be called profit) they have to provide the type and quality of service that the state would like them to provide. Who actually owns the capital of the hospitals and schools that are “co-operatised” is unclear. This model seems to be much closer to the collectivised farms and so-called co-operatives in some communist countries than something to which free-market liberals should aspire. A union leader suggested that David Cameron was using the language of socialism. That would seem to be true – for good reason as the proposals seem to be socialist. But a few tweaks could set that right.
What would free-market policy in this area look like?
1. Co-operatives would be free to determine their own terms and conditions of employment.
2. Co-operatives would own the capital of the institution that was co-operatised.
3. Co-operatives would exist in an environment of competition for health and education in which the user of the services and not the state decided what was provided and how and the user of the services was the only arbiter of standards.
4. Other organisations must be allowed to compete (including profit-making schools) – yes let school and hospital co-ops have some first-mover advantage if that helps sell proposals politically but, unless there is competition, then co-operatives will be simply a different way of managing the provision of state-controlled services. If competition is not the arbiter of quality, the state will always step in.
In some situations (village schools, for example) co-operatives may get a substantial foothold in the provision of services, in others profit-making corporations may do better. It should be the user of the service that decides upon the nature of the provider, not the government.