Time for the Big Society to get down to the nitty-gritty


A small fraction of the ingenuity devoted to the construction of complex financial instruments that no one should want could advantageously be applied to the construction of less complex instruments that meet the needs of the Big Society.

Last week, David Cameron reiterated his commitment to the Big Society. Like another UK prime minister, Tony Blair, who more than a decade ago talked of stakeholding, Mr Cameron is genuinely trying to articulate a big idea. Like Mr Blair, he runs the risk that his big idea becomes a platitude, dying amid deserved derision.

Both Mr Cameron and Mr Blair perceived that the major part of modern social political and economic life is conducted through intermediate institutions, groups with an identity stronger than mere gatherings of individuals but which are not institutions of the state. Such groups are many kinds: the most important are companies, but they include clubs and charities, pressure groups and partnerships, mums’ networks and mutuals. Through these agencies, we achieve the combination of plurality and cohesion that makes the complexities of modern society manageable.

If this seems obvious, it is an observation that contradicts the dominant political and economic models of our time. Such political models are commonly based on some sort of social contract of the kind described by John Rawls and similar philosophers, translated into structures that stress individual rights and give little role to feelings of group solidarity. The analogous economic models are those in which atomistic economic agents contract with each other to achieve harmonious equilibrium.

An emphasis on the role of intermediate institutions is directly counter to the distinct yet basically similar philosophies of both Margaret Thatcher and Gordon Brown, for whom society is polarised between individuals and the state. Both perceived a clear distinction between private and public spheres, even if they disagreed on where the line should be drawn; both believed that the relationships between private and public spheres could be defined by contracts, regulations and targets.

In a Big Society or along Mr Blair’s Third Way, these distinctions are blurred. The modern world is populated by hybrid institutions, and regulation, social and economic, is implemented more through shared values than formal rules.

The Big Society might in the end mean no more in practice than the encouragement of volunteers to supervise public libraries, just as stakeholding ended up only as the name for new tax breaks for private pensions. If an emphasis on hybrids is to make the transitions from sound bite to political philosophy to practical policy, the largest group of questions that need to be answered concerns the closely related issues of hybrid capital structure and governance. Faced with opportunities to review these issues in the establishment of new regimes for hospitals, schools or railways, the Treasury resisted giving answers, because to do so would make the transfer of autonomy to the newly established bodies real.

The public limited company is the dominant form of economic organisation because, imperfect though the resolution of these issues within that framework may be, they are nevertheless resolved. Most other organisational forms do not achieve scale or permanence because they lack capital and often have poor governance and less effective management. Mutuals, which may seem to offer the best solution to these questions, have frequently experienced difficulties from either overcapitalisation or under-capitalisation; and the mutual sector has shrunk because legislation made it too easy to give capital bases away. The John Lewis Partnership, the poster child of the sector today, survives because John Spedan Lewis, its founder, was shrewd enough to make this virtually impossible.

The critical governance requirement is to devise supervisory structures that include a sufficiently wide enough range of stakeholders to prevent capture by any particular interest. One common problem that hybrid organisations, including public companies, face is that they end up run mainly for the benefit of some particular group – employees, financiers, local politicians or incumbent management.

John Lewis shows how well-run activities can grow organically on the basis of debt and retained earnings. Ideas such as social impact bonds, in which public outcomes determine rewards for investors, can facilitate the provision of equity-like capital. A small fraction of the ingenuity devoted to the construction of complex financial instruments that no one should want could advantageously be applied to the construction of less complex instruments that meet the needs of the Big Society.

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