Hamish McRae: We must nurture the not-for-profit sector

Economic Studies

How do we create more institutions that can occupy the space between the public and private sectors and soften the barriers between them? Two news stories this week, the plight of the care home group Southern Cross and the creation of a new private sector university for the humanities, should remind us how important that space is.

On the first the thing that stood out, aside from the sorry details of what was happening to Southern Cross itself, was the way the not-for-profit care homes scored best for the quality of their care, better in general than either state-owned or purely private-sector owned ones. Why should that be? Well, no one really seems to know. Maybe the fact that any profit is ploughed back into the business helps. Maybe the culture of not-for-profit attracts a different quality of management. But it does seem an observable fact and that should make us stop and think about how this form of ownership might be encouraged.

On the university story the headlines were taken by the elitist nature of the project, exemplified by the proposed fees of £18,000 a year, and the roster of up-market dons who have apparently signed up. But if you look behind that, it does not seem to be an overtly profit-making operation, unlike for example the training courses run by some established universities for executives and other students.

Indeed our great universities exemplify the success of the not-for-profit principle. There is a popular notion that universities are state-controlled – that the Government can therefore order them not to charge more than a certain amount and reach specific access targets – but actually they are independent enterprises. Some of them get most of their income directly or indirectly from the Government but some, particularly the best ones, get relatively little. For example the London School of Economics, founded by the Fabians in 1985 and funded by private donations, recruits 70 per cent of its students from outside the UK. Who knows? Maybe the New College of the Humanities will in another hundred years' time look a bit like the LSE today?

If not-for-profit organisations perform so well, why are there so few of them? Actually it is worse than that: the movement has been in decline. It used to be much more important in financial services, with building societies and life assurance companies seemingly particularly suited to this form of ownership.

The conversion of many of the building societies from mutual to shareholder ownership has been a catastrophe. Not one building society that converted remains an independent entity. They have either been taken over or gone bust. Those that remained mutual have continued more or less successful, with the weaker ones taken over successfully and the biggest, the Nationwide, coming through the downturn is good shape.

Many of the mutual life assurance groups have also converted or simply been taken over. Of course mutual ownership is no certain route to success or indeed survival: the Equitable Life was a mutual. Nevertheless it is hard not to regret the decline of a form of ownership that has lasted a couple of hundred years and more.

Sadly, there is not much sign of a turnaround. You might imagine that popular hostility to banks would have created some space for new financial institutions but it is not happening. There was some talk of Northern Rock being reconstituted as an old-style building society but that seems to have died. So while we still have some successful institutions that occupy that space between government and the market-owned sectors we are not creating new ones. John Lewis is universally admired. The Co-op does some things well. But there is nothing new, at least in finance or retailing.

There is, however, one beacon of hope. A whole new global movement has been created by the not-for-profit sector and it started in the UK: the hospices. There was a clear need that was not being provided for by either the public or the private sector. The genius and determination of one person, the late and great Dame Cicely Saunders, created the institutions to meet that need.

So what is to be done? There seem to me to be two broad lines of approach. The first is to nurture what we have. For example if the not-for-profit sector can help as a provider of services to the NHS it should be given a fair wind. The UK is unusual in having a particularly hard frontier between private and public health care, a curious ideological legacy of the NHS foundation. Anything that can soften that frontier must be welcome.

The other is to look in detail at the barriers to the founding of new not-for-profit enterprises and see what can be done to remove them. Lots more new care homes and lots more new universities, both founded to be independent from state funding? Why not?

Oil supplies are bigger than Greece

There are two economic policy issues coming to a head this week are what Europe will do about Greek debts and what Opec will do about oil quotas. Both, in the short-term at least look positive.

It looks increasingly as though there will be a roll-over of Greek debt, with another wodge of money being committed to the country. The two key players, Angela Merkel, the German Chancellor, and Jean-Claude Trichet, president of the European Central Bank, seem to be nudging towards extending credit, though quite what the terms will be is completely unclear. The longer-term outlook remains as difficult as ever but a problem postponed is, well, a problem postponed.

The Opec meeting today in Vienna is more important. If, as expected, quotas are increased in order to encourage other Opec members to offset the loss of production from Libya, that would confirm the general perception that the organisation would like to try and hold the oil price to below $100 a barrel. Actual production is running ahead of formal quotas so in a sense the meeting would simply be rubber-stamping what is already happening, and oil supplies do remain tight. But an assertion of intent is worth something and it looks as though we may get it.

h.mcrae@independent.co.uk