Public mutuals ‘best solution’

(CNS): A local business owner is suggesting that government re-think its strategy to sell off government assets and look at mutualization as an alternative – a solution that he said is “taking off like wildfire in the UK”. Steve McIntosh, owner of local recruiting agency CMLOR, explained that the initiative, also known as public mutuals, involves setting up a government entity or department as a private company, where the existing staff become shareholders, and to contract that company to deliver its service. McIntosh is suggesting that in Cayman, 40% of the government entity would be owned by the staff and the other 60% would be auctioned off in 10% blocks to individuals, maintaining that there are many local investors who are willing to help the country but would apply real market forces and expect accountability.

Under the mutualization scheme, if a government department is currently costing $1 million to run, as a company it would be paid roughly the same amount as part of its contract but it would be up to the staff, as shareholders, and the investors to make the department run more efficiently, effectively privatizing government without laying anyone off.

The company would be regulated by its contract with government and equity would be distributed so that 20%, at no cost, was given to the management team, according to seniority and length of service; 20%, at no cost, to the remaining staff; 60% to private investors, who would be invited to bid for tranches of up to 10%.

McIntosh suggests that the initial contract would be for a period of five years (non-performance notwithstanding) after which the contract would be renegotiated. The fee paid to the company would be 95% of the prior year budget and would reduce by 5% each subsequent year of the contract till renewal at year five. The new company would be required to rehire all of the existing staff and retain them for at least five years (dismissal for cause notwithstanding) on no less than 95% of their current salary.

He said that some departments and entities with distinct roles, such as DER, DCI, Radio Cayman, the Cayman Turtle Farm, Computer Services, Hazard Management and Lands & Survey, could be turned into public mutuals very easily, while other services, functions and teams within larger government ministries, such as the Education Ministry's scholarship secretariat, could potentially be gradually spun off in a similar way.

McIntosh said there are a couple of departments that he would invest in as a philanthropist, such as the National Workforce Development Agency (NWDA) because he believes, as a professional recruiter, that he can usefully contribute to the running of the department. His investment would get him a seat on the board, and while he would not have control of the company, he would have a say in the way it was run. “In this way, you would harness a great deal of management capability and innovation for free.

“Right now, if a government department is totally dysfunctional, basically the recourse is for the ministry to come in and to micromanage the hell out of it,” he said and pointed out that the failing department would have compounding problems, such staff issues, infrastructure problems, budget problems, and micromanaging rarely improves things.

“Government generally tries to solve problems by taking more control and what’s needed is for it to have less control,” he explained. Some services, such as education, cannot be just about profit, but, McIntosh said, “I also believe that with a total absence of market forces you’re going to have sub-optimal outcomes. Most governments are trying to bring in the effects of market forces without the downside, like monopolies.”

One of the hardest things to do when it comes to management is to fire people who are not performing, McIntosh said, acknowledging that if it wasn’t his own money he was dealing with, he would be tempted to find excuses not to do it. This is one area where market forces needs to be implemented in government services. Each public mutual company would have independent boards with the power to hire and fire, he explained, which would be one of the main areas that distinguished them from the concept of statutory authorities and government companies, where government retains control through the appointment of the boards.

The key to the scheme is the contract and government would have to get good at writing them, he said. If a company that is a former government department failed to deliver, it is far easier to cancel the contract, he noted, and it could also be written in the contract that government retained the ability to de-mutualize the department and take it back into core government if the public mutual is not working. “At the very least they would get a year of people clearing it up,” he said.

“Everyone agrees that government is somewhat inefficient in what it does but the solution to that is not to make arbitrary cuts,” McIntosh told CNS Business. “People like idea of smaller government in the abstract but when it impacts services, they’re likely to feel differently about it. It’s the paradox of government. The solution is to find a more effective ways to deliver services and I think the leaders of the civil service understand that.”

McIntosh said that he came up with this idea a few years ago as a solution for the Cayman Islands, calling it ‘management buyout’, and put it to government officials at the time, but they wanted to know if it had worked anywhere else. “At the time it was just a hair brained idea that some recruiter had come up with. But as I was following the SAGE Commission in Bermuda, they referred to ‘public service mutuals’ and I realised that it was exactly what I had proposed two or three years ago. And when I researched it, I found out that there is a department within the UK government that is set up to create these companies.”

McIntosh said there is a “tonne of willingness to tap into” within the private sector. Many within the business community are ready to assist in sorting out problems within government, he said, and the reason that no one has yet stepped up to help in the rationalization process is that they have not yet been asked. “There’s nothing to step up to yet,” he pointed out.

If the rationisation process goes ahead and civil servants are laid offt, he said there are jobs in the private sector to absorb them. “The employment market is not as difficult to understand as a lot of people think it is,” McIntosh said. “In a country where there are twice as many jobs as members of the workforce, which as far as I know is a unique situation, the one and only reason anyone is out of work is that of salary expectation.” Stressing that this expectation is not always unreasonable, he said that if civil servants were made redundant and the salary expectation is in line with the market, there is no reason why they will not get hired.

However, he does not think the government’s plans to sell off various public entities is going to result in a loss of many jobs because it’s just not going to work, being, for one thing, politically very difficult.

“Mutualization is by far the best solution – it's a no brainer. It doesn’t involve a single layoff and converts departments from public to private entities and the employees of the department become owners in their own department,” McIntosh added, noting that the system would fit well with the existing Public Service Management Law and budget documents, which set out the deliverables. “We’re already halfway there,” he said.