Never knowingly undernudged

So-called ‘John Lewis-style mutuals’ are (depending on your point of view) the future of the public sector or a euphemism for privatisation. However, the expression may have some unexpected implications for the government.

Cabinet Office minister Francis Maude launched a competition today to find a commercial partner for the government’s Behavioural Insights Team – or Nudge Unit. He described the move as ‘employee-led’ as the 12 Nudge staff have led the process and will continue to run the organisation. Reports suggest that private companies will be invited to bid for a stake of up to 50 per cent in the new business in return for the government guaranteeing long-term contracts. The staff and the government would also own stakes.

The Nudge Unit is claimed to have already saved the government millions of pounds although it not quite clear how. It hit the headlines for different reasons today when it was revealed to be behind bogus psychometric tests for jobseekers. It is best known to me as the unit that the DCLG failed to consult when it introduced the New Homes Bonus in a bid to change the behaviour of local authorities and I wonder what, if anything, it had to say about the behavioural impacts of welfare reform that the DWP found impossible to quantity.

However, as The Independent reports, this is just the start of a process that could eventually see 75,000 civil service jobs spun off into independent companies. Areas under consideration include IT, personnel and legal functions leaving the core civil service to do policy advice and implementation.

Maude said that commercial partners would bring additional commercial capability and investment while the government, and ultimately the taxpayer, would benefit from growth in the business. The government would encourage ‘new commercial models’ across the public sector involving ‘a diverse range of models such as joint ventures and models’.

The first mutual to be spun out of central government was MyCSP Ltd, which has administered the pension scheme for the Civil Service and other government agencies since last year. Employees own a 25 per cent stake, the government retains 35 per cent and the Equinti Group’s Paymaster business owns 40 per cent. Other examples include a joint venture based on government intellectual property in which Capita will have a 51 per cent stake and the government retains 49 per cent.

Maude’s official explanation is that:

‘We are in a global race for the jobs and opportunities of the future. To get Britain back on the rise we must find innovative models like mutuals and joint ventures, which can deliver services better and more efficiently, while supporting growth in the economy.’

No ministerial statement is complete without that obligatory reference to ‘the global race’ but lurking in the background is the Open Public Services agenda of ending the ‘centralised approach to public service delivery’ and increasing ‘choice’. Maude explained the underlying thinking in a speech celebrating 10 years of the influential think-tank Policy Exchange in March:

‘The state is an inherently monopolistic entity and a state monopoly can be the enemy of enterprise. Within the public sector there is a legion of entrepreneurs, fired with the public service ethos but deeply frustrated with the constraints imposed by the monolith within which they are imprisoned. Liberating them as leaders of a new cohort of public service mutuals will create a whole new enterprise sector in our economy, a serious supply side reform whose economic benefits we are only just beginning to grasp.

The civil service union PCSU understandably sees the whole thing as backdoor privatisation. It points out that MyCSP was imposed on staff against their will and after industrial action. One of its first decisions was to strip them of their civil service status and therefore access to the very pensions that they administer. ‘There is nothing mutual, co-operative or employee-led about what Francis Maude is trying to do,’ says general secretary Mark Serwotka.

Apart from anything else, it’s hard to see the new mutuals as ‘John Lewis-style’ when, unlike the retail giant, they will not be wholly owned by their employees. Where the private sector ‘partner’ has a majority stake what is to stop it imposing changes over the heads of employee ‘partners’? Where the government retains a stake, how long will it be before it sells it off to turn the minority private sector partner into a majority?

However, the comparison made me ponder the real meaning of ‘John Lewis-style’ beyond the progressive-sounding slogan. That got me searching for more information about what it means to work at John Lewis and Waitrose. Unlike the building societies, most of which demutualised in the 1990s and were swallowed up by the banks in the 2000s, the John Lewis Partnership is a real success story. I knew the basics, that it’s owned by its employees and pays them an annual bonus based on the profitability of the firm, but not much more than that.

What I found were some ironic lessons for what is happening now starting with the revelation there were actually two men called John Lewis with very different visions of how the company should be run.

John Lewis Senior founded the company in a small shop in Oxford Street in the 1860s and built it into a highly successful business that took over the Sloane Square department store Peter Jones in 1906.

The man who gave us the idea of what we now think of as ‘John Lewis-style’ was his son, John Spedan Lewis. He explained his very different ideas in a BBC radio interview in 1957:

‘It was soon clear to me that my father’s success had been due to his trying constantly to give very good value to people who wished to exchange their money for his merchandise but it also became clear to me that the business would have grown further and that my father’s life would have been much happier if he had done the same for those who wished to exchange their work for his money.

‘The profit, even after ten thousand pounds had been set aside as interest at five per cent, upon the capital, was equal to the whole of the pay of the staff, of whom there were about three hundred. To his two children my father seemed to have all that anyone could want. Yet for years he had been spending no more than a small fraction of his income. On the other hand, for very nearly all of his staff any saving worth mentioning was impossible. They were getting hardly more than a bare living. The pay-sheet was small even for those days.’

Unsurprisingly he fell out with his father and they split the company between them. Spedan began to implement his own ideas at Peter Jones with improvements in pay and conditions and a staff council and by 1920 he was also giving them shares in the company and calling them partners.  In contrast, back at Oxford Street, John Lewis Senior was refusing to listen to his employees’ grievances. When they went on strike for five weeks in 1920, he refused to address their grievances and sacked them all.

The first John Lewis died in 1928, leaving the second to reunite the company and eventually create the John Lewis Partnership. The principles of the business today are  still the ones that he defined:

‘The Partnership’s ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business. Because the Partnership is owned in trust for its members, they share the responsibilities of ownership as well as its rewards profit, knowledge and power.’

The principles are not perfect (as I was reminded on twitter, the cleaners are not seen as members) but it all sounds rather like something that the Behavioural Insights Team might have come up with. Or at least it might have done before it apparently decided that its own motivations were less happiness and wellbeing than efficiency and profit.

John Spedan Lewis explained more of his thinking in that 1957 interview:

‘The present state of affairs is really a perversion of the proper working of capitalism. It is all wrong to have millionaires before you have ceased to have slums. Capitalism has done enormous good and suits human nature far too well to be given up as long as human nature remains the same. But the perversion has given us too unstable a society. Differences of reward must be large enough to induce people to do their best but the present differences are far too great.

‘If we do not find some way of correcting that perversion of capitalism, our society will break down. We shall find ourselves back in some form of government without the consent of the governed, some form of police state.’

Somehow I don’t think this is the John Lewis-style arrangement that Francis Maude has in mind at all.