Ali Parsa on the big society

I guess the answer to that question depends on whether you believe our economic malaise represents a cause or an effect. And if our economic conundrum is the effect of a more systemic challenge, does the Big Society, as the coalition calls it, or a “fairer society” as Labour labels it, have any role to play in providing a solution?

This much we know: the current financial problem is the result of a historic oversupply of credit in almost every aspect of economic life: our households borrowed to buy a lifestyle they did not earn but more importantly, our financial institutions over-traded credits they did not have and the state overspent a budget it could not afford. The central question is, therefore, whether these actions of big finance and big state were incidentally careless or structurally inevitable?

‘A single square mile in Whitehall controls 50 per cent of GDP, and another square mile in the City controls a further 40 per cent’

We have created a curious state of affairs in our economy, where the people who work in our public and private enterprises, and generate economic value, now cumulatively hand most of that value to the state in the form of taxes and to financial institutions in pensions, savings, interest payments and insurance. 

These remote institutions - intermediaries, economically speaking - have over time used the finances channelled through them by civic society to take ownership of over 90 per cent of society’s productive assets. In Britain today a single square mile in Whitehall controls some 50 per cent of GDP, and another single square mile in the City controls a further 40 per cent. Yet, uniquely in the developed world, those who work in our enterprises and whose interest is intimately integrated with them now have little ownership, and therefore control, of their work’s destiny. 

While this model may function adequately day-to-day, problems arise when the short term interests of intermediary institutions diverge from long term sustainability in the enterprises they control. 

To see the pernicious effects of this remote ownership model, look at the Cadbury saga. The financial institutions who owned this iconic enterprise did nothing more than act in accordance with their interest. In fact, it is even enshrined in law as a board’s fiduciary duty to generate the best outcome for shareholders - in Cadbury’s case by selling the institution to the highest bidder. Yet in so doing destroyed the long term interests of the enterprise, its other stakeholders and the people who worked there.

While this act provided short term relief for the remote owners, ultimately it left society poorer. State ownership can have similarly devastating consequences.

The Francis report into the deaths at Mid Staffordshire Foundation Trust is due shortly, and I believe it will show that patients suffered because the interests of the remote institution of state, with its targets and top-down mode of control, took priority over a bottom-up engagement of the healthcare professionals and the day-to-day interests of patients they should serve. 

Neither Mid Staffs or Cadbury would have happened if those who worked in these enterprises, and had an interest in their long term sustainability, shared responsibility and accountability in the success of their enterprises and were not disenfranchised from the decision making.

The UK is almost unique in concentrating so much power in the hands of the Big State and Big Finance. In Germany, the Mittelstand, small and medium size enterprises that are family or locally owned, make up around 35 per cent of the economy. The Mittelstand has been remarkably resilient even during the recession, and has grown almost as fast as the Chinese economy.

In France, most eateries are family owned and serve the community they live in and know well. In the US, the entrepreneurial sector controls a fair proportion of the economy and is the country’s biggest driver of growth.

There are serious social consequences of this uniquely British concentration of ownership. In Germany the richest regions have two times the wealth of the poorest. The disparity in France is fourfold, in the US is fivefold, and even in China is eightfold. In Britain, our poorest regions are 10 times poorer than our richest.  

The state and financial institutions have essential roles to play in our society and our economic affairs. But so does our civic society and the people who work in our enterprises. The route to long term sustainability lies in a more balanced approach where control is shared in fair measures between the managers and workers of our enterprises, the state and financial institutions. To this end, Phillip Blond’s thoughts make a valuable contribution to a debate that touches all aspects of our society, including the model of delivery of our healthcare system.

Ali Parsa is chief executive of Circle.